The next generation of mining leaders will arrive with a "tsunami" of environmental, social and governance (ESG) concerns, says Claudia Mueller, associate director of the Global Mining Management program at the Schulich School of Business.
Mueller joined a panel of experts in October to discuss ESG issues at The Northern Miner's third annual Progressive Mine Forum in Toronto. In recent years, she has seen a "tremendous increase" in questions about ESG from the youth who will run tomorrow's mining companies.
ESG criteria is a set of operating standards used by socially conscious investors to screen potential investments concerning stewardship of the natural environment, stakeholder management (including local communities, employees and suppliers) and corporate governance (compensation, internal controls, shareholder rights, etc.).
"We have seen a paradigm shift in ESG interest over the last two or three years," says Sam Pazuki, OceanaGold's (TSX: OGC) vice-president of investor relations. "Based on our estimates there are about $25 trillion of investments under management, globally, with investors who consider themselves to be socially responsible investors."
Pazuki says the trend will only intensify in a hyper-connected world, with growing concern about climate change and sustainable development. Large investors will increasingly set minimum ESG thresholds for investment.
Kulvir Singh Gill, associate director of DPI Mining, criticized some in the mineral-development industry for engaging in a superficial "check-the-box exercise" when it comes to ESG performance.
"Are we doing this to comply with the letter of the law, or are we doing this because we believe in the spirit of the law, and the principles behind what we're doing?"
Gill highlights the discrepancy between financial reporting, which relies on established, stringent standards such as the Generally Accepted Accounting Principles, and the "alphabet soup" of ESG standards, from which "people are starting to cherry-pick."
Raziel Zisman, cofounder and partner at Whittle Consulting, says the mining industry needs to move away from piecemeal corporate social responsibility (CSR) initiatives and involve all stakeholders, including government and regulators, to achieve a more holistic development.
"I don't like the term CSR," he says. "CSR is a way of sprinkling solutions, like ant repellent ... this is the wrong way of looking at things."
Zisman says trust is key, echoing a word repeated throughout the daylong event at the MaRS Discovery District. "The public at large does not trust us to deliver information. They just don't."
Miranda Werstiuk, vice-president of corporate advisory services at Optimize Group, shared a story about a cash-strapped junior now producing gold in Colombia that spent time before exploration and development to engage stakeholders. "They built those relationships and they built trust out of the gate."
Too often mining CEOs think they just need to tell their story better, without taking an honest look at their impacts and operations, Gill says.
"We have great disclosure, great ad campaigns, everybody has a great corporate video," he says. "But where are our friends? Why aren't our friends speaking out? And if our closest friends, the folks who are supposed to be getting all the benefits of mining, are not willing to stand up for us, then are we really delivering the benefits to them?"
Mueller says that corporate boards must push to integrate ESG with a strategy, and get active outside the boardroom. "Who do we talk to when we go to site? We talk to operations people, technical people. We don't go and spend time talking to other stakeholders."
Mining companies also need to spend more time considering their corporate values and missions instead of relying on consultants to cook up boilerplate statements. "We present ourselves as being all the same," which leads to professed values that are "not being lived," she says.
During the audience question-and-answer portion of the event Baljir Baatartogtokh, equity research associate at Haywood Securities, took the opportunity to ask the panel some tough questions.
"What do you tell people in the communities when you're going to be digging up a huge hole in the ground ... to get a gram per tonne?" she says. "Maybe we need base metals to have a civilized life, but what do we tell people when you're a gold company ... do we really need gold companies? Is ESG in the mining industry an oxymoron?"
"As a rule of thumb, tell them the truth. Be frank. Be blunt," Zisman responds. "If they have a point that is valid, address it seriously with respect."
Whether it's gold or base metals, Zisman says, "mining converts natural capital into human capital. Your legacy in that region is a generation of kids that grow up [with more opportunities]."