ESG is more than just a buzzword, mining companies can do well by doing good

Incorporating Environmental, Social, and Governance (ESG) criteria into investment decision making was one of the most talked about investment strategies of 2020 and one that continues to be amplified as the markets - and society at large - grapple with a global pandemic.

Companies are under increased scrutiny for their environmental impact and their actions as corporate citizens across all industries. In no industry is this more accurate than in mining.

Jonathan Goodman, president and CEO of Dundee Corporation. Credit: Matthew Plexman of Plexman Photography.

This scrutiny is not without merit. Mining has a tainted history of community exploitation and environmental damage, and these narratives have shaped public opinion. At the same time, mining has become somewhat abstract to a society dependent on mining output. Mining has faded from the general public's conscience. Consumers have become disconnected from the supply chain that comprises the technology that surrounds modern life. Society, as a whole, is unfamiliar with modern mining practices.

To counter this narrative, mining companies must go above and beyond what is required to operate. Mining companies must partner with local communities, treat the environment and the local population with dignity and respect and recognize the multitude of stakeholders in any project. Mining companies need to treat the costs of upholding their social licence and maintaining sustainable practices as core business costs. Ultimately, mining companies must be a "force for good" - not because it is the right thing, but instead because it is the key to creating and managing a successful business. Having strong ESG practices indicates sound operating practices and attention to detail that delivers value to all stakeholders.

For the reasons above, Dundee Corporation only invests in companies and assets with the best available practices in place, focusing on mitigating their environmental impact and building lasting and mutually beneficial community relationships. We insist on our investee companies having the best governance practices, processes, and people to ensure that every aspect of the business is executed with consideration of all stakeholders throughout the project's lifecycle; from the first turn of the drills, through development, construction, operation, closure, and aftercare.

An interesting example of one of our investee companies' commitment to strong ESG practices is Big River Gold (ASX: BRV). Big River Gold's Borborema project is located in a semi-arid region of Brazil. Big River, recognizing that water is a scarce resource, noticed that a small coastal city 30-40 km away had a potential environmental and public health challenge with the treatment and discharge of grey water. The company negotiated a contract with the community and the national agency responsible for water supply and waste disposal to pipe the grey water to the Borborema site where it would undergo further treatment prior to being stored in a reservoir and repurposed in its processing circuit. By working with a nearby community to form an innovative, mutually beneficial partnership, Big River - and the city - avoided the potential for conflict over water supply, resolved an environmental issue, and secured a water supply for the project.

An aerial view of Big River Gold's Borborema project in Brazil. Source: Big River Gold corporate presentation Jan. 2021.

We are also directly investing in supporting ESG education and adoption for the industry as a whole. We own a 5% stake in Digbee, which is a soon-to-be launched data, research and ESG platform for the mining industry. Digbee's innovative solution addresses two key challenges for mining companies: namely, the confusion and fragmentation around ESG standards and the fact that the existing frameworks are not applicable to non-producers. Digbee's framework aligns to core global standards and allows companies at any stage in the project lifecycle to get a clear assessment of their ESG risks and performance to identify where they can improve, and lay the groundwork for constructive conversation and action on ESG. We believe education, commitment, and collaboration are vital to demystifying ESG for emerging mining companies and will be instrumental in strengthening practices across the industry, and we are proud to be investing in it.

We view ESG as fundamentally important to our investment process, not simply a box-ticking exercise. While many of the companies we evaluate are at different stages in the project lifecycle, and there is no one-size-fits-all ESG criteria, our detailed due diligence process also focuses on the culture of an organization. If a company has an embedded culture of commitment to strong operating practices - including a commitment to upholding strong ESG standards, we are willing to work with them. If they do not, we will walk away.

The mining industry cannot change how the world sees it unless we continue to show them otherwise

Preventing mining disasters and mitigating risk is good business, but it is also instrumental to reversing the negative (and incorrect) stigma that mining is primitive, dangerous, dirty, and exploitative.

Mining is one of the most highly monitored and regulated industries today. Projects go through an extensive permitting process that evaluates their social, environmental, and economic impact. This process draws on the expertise of geologists, engineers, metallurgists, and environmental and social scientists. These experts come together to discover innovative solutions to mitigate the industry's impacts.

Mining companies have a tremendous opportunity to show that they play a vital role in building a greener future. Many of the solutions to decarbonization and combatting global warming rely on mined materials. The best baseload low-carbon energy source is nuclear, often built as a large-scale power plant, which uses uranium as its fuel source. Wind and solar power require numerous elements derived from mining. Electric vehicles rely on batteries comprised of nickel, lithium, copper, and cobalt, to name a few, and electric motors require copper.

It makes you wonder - if every single one of these technologies involves mined materials, why is mining an afterthought when people talk about the green or clean energy future?

The only way mining can change how it is perceived is through innovation, building and operating its projects to exceed expectations - not just doing what is required.

If you do not do ESG well, you will not have a business

Mining is an infrastructure project whereby production is anchored to the deposit. This means the geographical characteristics are fixed. This should put into perspective the importance of the relationship between a company and the local community. In our view, working with the local community as a partner and considering the entire life of a project is vital.

A stable and mutually beneficial relationship with the community is of the highest importance. Planning and budgeting for the entire lifecycle of the project are critical to maintaining the social license to develop and operate. Planning with the community and providing the necessary infrastructure ensures that the environment and society can thrive for generations to come. Our investee companies must emphasize their community relationships and thoroughly plan a project's remediation.

Mining is generally a rural endeavour that brings employment to communities that are often deprived of jobs. Many rural communities are shrinking as the world population balloons. Community leaders often discuss their concerns about the lack of job prospects leading to their town or village's population declining and the subsequent cycle of towns having fewer resources to deliver services to maintain a population. The simple truth is that people and the communities they inhabit need jobs to survive. Mining is a solution to rural unemployment because it employs thousands of individuals in rural areas and pays in the top quartile of occupations. Mining has a history of becoming a spark of increased economic activity within otherwise economically declining towns. We believe that only through industry-wide consistent socially responsible behaviour that treats local communities as real and vital stakeholders and thoughtfully manages their environmental impact, can mining foster a sustainable legacy. Emphasizing consistent socially responsible choices will allow miners to articulate their value to communities.

There will always be people in a community who oppose building a mine. But what we have seen time and again with mining communities is once they have a mine operating responsibly, the people want to do whatever they can to keep it running.

Investors' capital is put at risk when ESG is poorly executed, and these projects do not meet our investment criteria. The investment community has the power to support positive change through improved ESG outcomes, ultimately for the benefit of all stakeholders. Although active investors only have an indirect role in driving sustainable environmental and social behaviours, we must ensure the right governance is in place for each investee company. At Dundee Corporation, this is what we are doing.

-Jonathan Goodman is the president and CEO of Toronto-headquartered Dundee Corporation, which is an active investor in the mining sector. The company has over $160 million invested in mining companies, another $60 million invested on behalf of clients, and is actively looking for new projects. This article was written with input from Adrian Goldstone, a managing director at Dundee Goodman Merchant Partners and Matthew Goodman, vice president and portfolio manager at Dundee Goodman Merchant Partners. Dundee Goodman Merchant Partners is a wholly-owned subsidiary of Dundee Corporation.