The mining industry is at the forefront of the sustainability debate, having been a major contributor to climate change, biodiversity loss, depletion of freshwater resources and environmental degradation. With mounting pressure on the industry to produce products more sustainably, mining companies are feeling the push to prioritise environmental, social and corporate governance (ESG) initiatives. But can they do so and remain profitable?

Not only is the pressure to conduct sustainable business practices mounting, but the demand for critical transition minerals is skyrocketing – something from which countries across Africa could benefit. Yet, if a mining company hopes to take advantage of the increased demand for the minerals of the future, it will need to ramp up its production and do so while causing less adverse environmental and social impact.

This imperative coupled with the need for increased social responsibility can undoubtedly be costly to achieve. Yet, the upshot is that frontrunner adopters of ESG–based initiatives will benefit from increased demand from customers, lower operational costs, and fewer regulatory constraints.

Are those in the mining industry ready to achieve the seemingly impossible, while continuing to keep their businesses afloat? 

Greener future, economic growth?

The growing demand for the transition minerals required to move toward a greener future signals huge growth for the mining industry. Not only is oil in decline, but the mining industry is also facing global pressure to shift to a completely renewable, non-fossil fuel-based energy system. According to Finland-based geometallurgy analyst and academic Simon Michaux, such minerals are the new oil, which in future will be required at an unprecedented volume especially should there be a complete end to the use of fossil fuels. In such a scenario, we only have a small fraction of the required global reserves. (Note: This is Simon Michaux’s model – models are subjective and may be inaccurate for a whole range of reasons – the reality may very well look otherwise, although it’s a great indicator.)

In line with this, Michaux anticipates a renaissance of mineral exploitation and exploration with minerals and metals like copper, zinc, manganese, nickel, lithium, cobalt, graphite and silicon becoming incredibly valuable.

The minerals available on the African continent will be in high demand, necessitating much exploration. This will require a willingness from investors to put money into such countries. Their key considerations include infrastructure, the cost of doing business in the country, the risk, the regulatory climate, the social climate and the markets.

How African countries set themselves up for this next stage will be vital. They need to guard against any potential negative repercussions of mineral exploitation and ensure benefit is derived for all and is used to create sustainable development in their countries. 

The evolution of social responsibility

Mining companies must consider how they navigate their social responsibility obligations to maintain their social licence to operate. In today’s times of increased access to information, more stakeholder pressure and activism and increased coverage of different mining operations in a growing number of countries, there is less proverbial carpet under which to sweep.

With increased visibility and accountability, we have, for example, seen the transition of safety in mines becoming an integral part of operations. Where in the past, an excessive number of casualties and injuries have occurred, safety is now a critical production metric. Despite recent environmental travesties and transgressions, environmental stewardship is also becoming an increasing focus. We believe that social aspects are going to become just as integral to mining operations.

Being socially and environmentally responsible has undeniably positive business benefits. This includes more customer demand, lower operational costs and risks, fewer regulatory constraints and better access to cheaper debt. Coupled with increased pressure from investors, regulatory bodies and public and civil societies, these benefits will ideally create conditions for mining companies to take a more nuanced and holistic approach to social responsibility in the context in which they operate. Rather than funding increasing economic activity themselves, big mines, in particular, should position themselves to be the facilitators of such activity for the benefit of all, especially in light of South Africa’s economic inequality.

External pressures to promote more impactful practices

Starting with their customers, mining companies are also under pressure from various sources to create more impactful practices to create a better and cleaner world. Even the likes of electric vehicle manufacturers and renewable energy companies will only be able to take the opportunity the transition presents if they prove their ESG scores are appropriate.

Sourcing minerals from a company that has great ESG scores only helps the customer in today’s market, ultimately driving mining companies to improve their environmental and societal impact. Funders and insurance companies also examine ESG activity. If you don’t have, for example, a climate change or climate resilient strategy in place, any funder will look at you carefully because you haven’t considered the ESG risks that you face, which may ultimately affect your sustainability. Such considerations filter down to all stakeholders including investors and shareholders.

Therefore, if mining companies want to take advantage of this new age of demand for transition minerals, they need to truly prioritise ESG. Much of this is also driven by voluntary reporting and disclosure standards, which are increasingly being formalised. Regulatory pressures are coming down, primarily from the European Union and also from economically powerful states in America, like California. For example, the EU’s Corporate Sustainability Reporting Directive has supply chain due diligence as a hardwired law. These laws are already coming into force this year in a phased approach.

To truly take advantage of the new world, the mining industry therefore needs to do things cleverly and appropriately, with the least amount of impact possible, or they risk being left in the wings.

Streamlining costs

Managing costs in this context is currently a huge issue for mining companies, which therefore need a smarter approach to how they operate. In, South Africa, for example, mines are being obliged to step into the shoes of the local government, absorbing much of that social spend, for example for the delivery of basic goods and services.

Concurrently, they’re facing international pressure to deliver green products, and are navigating softer commodity prices. South African mining companies are consequently spending a lot more on ESG issues to resolve the social and community issues in surrounding areas. They’re also faced with a regulatory system that does not encourage investment in the country’s economy.

Instead of incurring the costs of dealing with social or environmental issues themselves, mining companies therefore must become facilitators of such investments. Instead of running an agricultural project or putting in renewable energy or roads, they need to look at ways of becoming a facilitator of such projects through the way they design and run their mines – encouraging others to co-invest with them.

Likewise, when looking at mine closures, mining companies must look at how their land and infrastructure can be repurposed to encourage investment/co-investment rather than themselves being the sole source of funding to rehabilitate and repurpose land and infrastructure post-mine closure.

Given the financial constraints and demands mining companies face today, a change in mindset is vital.

David Viljoen, Chief Sustainability Engineer at Carbon Neutral Energy Systems

Garyn Rapson, Partner

Bruce Dickinson, Partner

Webber Wentzel

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