2021 was a big year for ESG. Extreme weather, pandemic ripple effects across healthcare, education, and the economy, the COP26 climate summit (and protests), and new sustainability legislation prompted calls for corporate action on a range of social and environmental topics. Long-time sustainability practitioners finally saw their field get more executive-level attention.
Last year was also marked by growing recognition of the materiality of ESG risks, the interconnectedness of environmental and societal challenges, and the need for urgent collective action. Nothing indicates this will abate. In fact, global mining executives have ranked ESG as the top industry risk for 2022.
While climate action has taken centre stage, awareness of social sustainability issues has magnified too. Schroders’ 2021 Global Investor Study found that social issues have risen in importance for over half of investors globally. As ESG integration becomes more sophisticated, performance standards raise the bar, and ever more disclosure expectations emerge, many companies want guidance on where to focus.
So what are the “S” trends that mining companies should take note of and take action on in 2022? Here are our top ten:
#1 Scrutiny of mining’s role in the net-zero transition
It’s undeniable: Mining is crucial in the transition to a net-zero future and many ESG-savvy companies boast their role in supporting a low-carbon economy. However, companies should expect increasing scrutiny of their impact as recognition grows that more mining will place additional burdens on local ecosystems and communities, including risk for human and Indigenous rights violations. The net-zero transition also raises concerns of socio-economic impacts for workers and communities through loss of jobs and other economic opportunities, for example, in coal mining. Mining companies will be expected not only to enable the net-zero transition, but to actively contribute to a “just” transition.
#2 Rejection of ‘greenwashing’
Mining’s role in our net-zero future does not make individual companies inherently sustainable. Business-as-usual miners riding on the coattails of critical minerals’ sustainability credentials do so at their own peril. Lofty net-zero or community development goals and hollow sustainability claims will not hold up against probing. And greenwashing is more easily identified, as a common ESG vocabulary emerges, standards evolve, and the practice of impact quantification grows. Instead, companies that set thoughtful goals, create well-resourced plans to achieve them, and demonstrate commitment through action, not just words, will be rewarded. And substantiating sustainability claims will become critical as growing ESG obligations and legislation the world over lead to a rise in ESG litigation. Emerging requirements include the European Union’s Directive on Mandatory Human Rights, Environmental and Good Governance Due Diligence, and the U.S. SEC mandatory ESG disclosure framework for public companies.
#3 Drive for social data and disclosures
To counter dubious claims, assess company risk, and support ESG accounting, the appetite for social data will grow further in 2022. Robust social data have lagged behind environmental disclosures, but maturing of ESG investment, social risk minimization efforts, and legislated accounting of the social impact of investment portfolios are driving this trend. Beyond substantiating sustainability claims, these annual disclosures also enable companies to build their “S” credibility by demonstrating continuous improvement and progress towards their goals.
#4 Focus on value chains
For many companies, key ESG risk exposure resides in their value chains, where oversight and influence are often limited. Obligations stemming from regulatory development such as the above EU Directive, will continue to raise the bar globally. It is no longer enough for companies to focus on their own operations: they are expected to manage ESG risk and performance throughout their value chain. This not only means that procurement and product stewardship due diligence expectations are growing, but also that downstream customers will seek confirmation of mining companies’ own practices. Key “S” due diligence topics such as modern slavery and Free Prior and Informed Consent (FPIC) principles are being legislated in more and more jurisdictions. The treatment of workers, diversity and inclusion, community impacts, and environmental impacts with social repercussions are all growing in importance also.
#5 Social risk integration in Enterprise Risk
As scrutiny of mining’s social impact and the risk of negative repercussions for companies grow in tandem, so does the pressure for mining companies to effectively weave social risk into enterprise risk management systems. Though ESG is frequently recognized as a top industry risk, a recent Responsible Mining Foundation report indicated that this is still a significant area of weakness for most companies. Nonetheless there is growing recognition of social performance as a technical discipline with specific skill sets; overnight ESG experts, public relations/communications practitioners, or co-workers with ‘great people skills’ are no longer a good stand-in for trained and experienced social management practitioners.
#6 Diversity, Equity & Inclusion (DEI) Expands
Mining DEI has grown through 2021, from site to the board room and across supply chains. Headlines about Western Australia’s parliamentary inquiry into sexual harassment in fly-in-fly-out mining reverberated globally, as did McKinsey’s article on why women are leaving the mining industry. Meanwhile, from California to Germany, controversial board gender parity legislation has been cropping up. And DEI requirements are moving beyond gender. The U.S. Securities and Exchange Commission (SEC) approved NASDAQ’s proposal requiring the majority of listed companies to have on their board at least one woman and at least one person identifying as an underrepresented minority or LGBTQ. Asset managers are increasingly seeking disclosures on racial and ethnic diversity and inclusion, and Institutional Shareholder Services (ISS) and Glass Lewis both issued related updates to their respective proxy voting policies. Companies are taking note — a recent World Business Research study found that 79% of organisations across a variety of industries are planning to increase DEI budgets and resources this year, compared to last. Is yours?
#7 Recalibration of the employer-employee relationship
In the context of mining’s talent crisis, the industry needs to confront the changing employer-employee dynamic and how mining is perceived by prospective talent pools, local and global. Maintaining a positive workplace culture and paying well no longer cut it. Prospective employees expect companies to address a range of social concerns, take action on inclusion and equity, provide for work-life balance, and navigate the changing relationship with work. This includes preparing for Gen Z and responding to the issues driving the “Great Resignation.” This also means meeting expectations to take a position on divisive social and political issues that (re-)surface in the future. Done well, public statements help to position companies as authentic ESG leaders. But without meaningful commitments and action, corporate social activism risks being heavily scrutinized, poorly received, and reputationally risky.
#8 Rise of mental health in OHS
Although psychological ill-health is the costliest area of occupational health and safety (OH&S), few companies have any in-house expertise in this area. The HR Research Institute found that 64% of human resources (HR) professionals agree that mental health is a top five human resources priority. It also found that the most likely cause of employee stress are problems related to work/life balance and heavy workloads, a common issue in many industries over the past year. Growing awareness of mental health during the Covid-19 pandemic coincided with the June 2021 release of ISO 45003, which provides guidance on how to manage psychosocial risks in the workplace, a key human resources topic on which accelerated progress is likely in 2022.
#9 Standardization of ESG
Although MSCI noted that 34 regulatory bodies and standard setters were undertaking official consultations on ESG in 2021 alone, there is a clear trend of convergence in many core areas. Standardized reporting is imminent. Companies that have struggled to navigate the lack of consistent measures to report on in recent years can look forward to the International Sustainability Standards Board (ISSB) by June 2022, combining the IFRS Foundation with the Climate Disclosure Standards Board (CDSB, a Carbon Disclosure Project initiative) and the Value Reporting Foundation (created after the merger of SASB and the Integrated Reporting Framework). It will remain crucial to keep an eye out for regionally specific differences however, where there are signs of further fragmentation.
#10 Social sustainability-linked financing
Growing awareness of the interconnections between environmental and social factors is likely to prompt more sustainability linked financing with both social and environmental goals. Headline announcements such as Newmont’s $1 billion sustainability linked bond and Teck Resources’ C$4 billion sustainability linked revolving credit facility are likely to become more common. As sustainable finance taxonomies become ever better defined, it will become clearer how companies are expected to contribute to and disclose on social objectives, as this becomes law in areas such as labour rights, human rights, and diversity. Efforts are underway to add a social framework to the new EU Sustainable Finance Taxonomy, which will guide private sector contributions to social outcomes and support more corporate bonds with social targets.
Future-ready executives realize that people, risk, and access to capital are intrinsically connected. There is little doubt that mining social performance expectations will continue to grow rapidly in 2022. Most mining social risk comes down to the increasing awareness of potential adverse impacts on human and Indigenous rights, as well as companies’ ability and commitment to establish systems that ensure strong social performance. To thrive, miners should level up their risk management with quantitative and qualitative social data, and integrate robust social considerations in acquisitions, expansions, and other business development. Adequate action will require time and money, likely upskilling your (leadership) teams: the industry-wide skills gap in this area is real.
No matter your position on ESG, the trend is clear: ESG action is now considered critical to both business and social resilience and is increasingly integrated into board oversight responsibilities and executive compensation. Even if a company’s regulatory context or biggest investors don’t require action, a watchful global ESG community and a broad range of stakeholders and rights holders increasingly expect it. That makes inaction the greatest risk of all.
Elizabeth Freele and Rachel Dekker are the co-founders and managing partners of industry-focused sustainability think tank and ESG consultancy Sympact. They work with companies to help them ensure their social performance meets growing expectations.
(This article first appeared in The Northern Miner)