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ESG reporting in mining industry the 'Wild West'

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ESG reporting in mining industry the 'Wild West'

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The Thyssenkrupp Steel Europe steelworks on Nov. 9, 2021, in Duisburg, Germany. Thyssenkrupp has pledged to make its steel production carbon-neutral by 2050.
Source: Sean Gallup/Staff/Getty Images News via Getty News

Mining lags other sectors in reporting on its environmental, social and governance goals as companies struggle with the lack of a single industry reporting standard.

Half of the mining companies assessed by Transition Pathway Initiative have set emission reduction targets, compared to about 75.7% of companies in other sectors. Approximately 80.4% of the assessed coal and diversified mining companies disclosed Scope 1 and Scope 2 greenhouse gas emissions, compared to 85.6% of non-mining companies analyzed by the initiative, which tracks the carbon performance of nearly 500 companies.

Mining companies are under pressure to prove to investors and clients that they are following through on their commitments. Companies have an array of options for their ESG reporting, but the lack of a single format to follow often makes these reports difficult to compare company-to-company, and the reports have significant inconsistencies across collecting and reporting data. The high costs of reporting along with the lack of regulatory and industry guidance is slowing the sector's progress.

"As a CEO, I want the industry to help me out and tell me what the metric is," said Trent Mell, president, CEO and director of Electra Battery Materials, a Canadian company building facilities to produce cobalt, nickel and recycled battery materials. "There are all kinds of standards out there. I know we've got a good story, but it's a little frustrating because I do believe it's the Wild West."

Easier said than done

Miners hope to reap both financial and social windfalls by making themselves over as part of the green movement, especially since the transition to low carbon energy is expected to drive massive demand for copper, nickel and lithium, among others. But to fully participate in the low carbon economy, they must themselves become low emitters of greenhouse gases. Mining heavyweights such as Anglo American PLC, BHP Group, Fortescue Metals Group Ltd., Glencore PLC, Newmont Corp., Rio Tinto Group, Teck Resources Ltd., Vale SA and Vedanta Ltd., along with steelmaker Thyssenkrupp AG, have all issued carbon-reduction plans in an effort to join the momentum. For their promises to be credible, they have to report their progress in a systematic way.

"At a macro level, the main challenge companies are facing is that of competing demands from different stakeholders — investors, customers, rating agencies — all requiring ESG information to be parceled up in subtly different ways," Aidan Davy, COO of the International Council on Mining and Metals, a trade association focused on mining companies' environmental performance, told S&P Global Market Intelligence. "We haven't yet landed on a universal reporting standard to satisfy all stakeholder needs, but this is increasingly something that is being called — for not just our own industry but other sectors too."

The reporting practices that do exist are complex and require expertise in the arcane world of carbon dioxide equivalents, climate modeling and measuring downstream emissions.

"There just really isn't much information about how you form an ESG report," said Charlotte Selvey Miller, head of ESG at Benchmark Mineral Intelligence.

For junior mining companies, the learning curve is steep, and many have yet to set ESG-related goals. In the lithium industry, just 22% of junior converting companies and 8% of junior mining companies report on ESG, according to an ESG report presented by Benchmark Mineral Intelligence on Oct. 14.

"Only large corporates may be able to absorb additional reporting and disclosure costs, the costs to participate in various initiatives and, in some cases, the fees for verification and green audits," ING senior credit analyst Egor Fedorov said in an Oct. 13 report on ESG disclosures in the mining industry.

Third-party verification needed

Even the existence of a reporting standard would not alleviate concerns of investors and activists who believe miners may be concealing some of their more problematic data. Many companies disclose only what they want to, and details can be scarce, a November report by the Responsible Mining Foundation revealed.

"Mining companies tend to report very selectively on ESG issues, focusing on the management systems they have put in place and the positive contributions they have made," the report said. "Company reporting generally excludes mention of any negative impacts beyond providing data on fatalities and in a few cases listing major environmental incidents and the fines incurred."

Third-party auditing would help ensure consistency and honesty across miners' ESG reporting.

"ESG shouldn't just be statements that are made that might not ever be reached," Benchmark Mineral Intelligence's Selvey Miller said. "They should be disclosures in the same way. If they are incorrect or they are found to be false, then they can get fined for it. At the moment, no one is checking them."

A way forward

The industry has begun making moves to establish the kind of reporting standards it needs. ICMM requires its 28 mining and metals company members to submit annual ESG reports that are independently assured. The Initiative for Responsible Mining Assurance has introduced a set of industrywide mining standards formed over the course of a decade by a consortium of nongovernmental organizations, labor unions and communities alongside private sector leaders. The group offers an independent audit for companies to have operations certified for responsible mining practices.

"The 'E,' or the environmental part of ESG, is a challenge for many in the mining space, both because it's where a lot of the impact is, and it's expensive," IRMA Executive Director Aimee Boulanger said. "It's water and its waste, and then it's a whole bunch of social issues that go around the impact on water and the risk of waste."

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