ESG is Reshaping Investor Decision-Making Processes

While mining has been key to Mexico’s growth, it has also been linked to irresponsible practices and negative impacts on the environment and communities. Thus, it is crucial for these companies to commit to society beyond profitability, and ESG reporting can make a significant difference in achieving this goal. Mining companies are seizing this opportunity to access financing while aligning their practices with environmental, social and governance standards.

“The ESG approach provides a global framework that gives us a baseline of where we currently stand and helps us envision where we want to go,” says Mariona Oliva, Vice President Earth and Environment, WSP. 

The mining sector is often considered to be a conflict-ridden industry in Latin America. There are over 300 social conflicts related to mining, with Mexico being host to many of them, explains Alexandra Almenara, Vice President Sustainability Latam and US, Ausenco. This problem can hurt a company’s image and limit their access to financing. “There is an important pending task for mining companies to become more attractive in accessing capital,” says Almenara.

In Mexico, ESG practices have sparked significant interest due to growing government concern and stricter regulations established for the industry. These regulations aim to promote greater responsibility and sustainability in business operations. Additionally, there has been a significant increase in the participation and consultation of local communities.

Mining has been fundamental for the country’s sustainable development. The sector is present in more than 690 communities of 24 states in Mexico and contributes 4.3% of industrial GDP and 2.5% of the national GDP, making it a key industry in terms of employment generation and social development.

By actively engaging in ESG reporting, mining companies can demonstrate their dedication to sustainable development and responsible business practices. These reports showcase the company's efforts in environmental conservation, social welfare and ethical governance, highlighting their commitment to the well-being of both stakeholders and the broader community.

“ESG is a matter of balancing the economic, social and environmental aspects. These elements must go hand in hand and be aligned,” says Alexander Braune, Partner, ERM. 

Furthermore, ESG reporting enables mining companies to access financing options that prioritize sustainable and socially responsible investments. Investors and financial institutions increasingly consider ESG goals when making investment decisions. By disclosing their ESG performance, mining companies can attract capital from those seeking to support environmentally and socially responsible initiatives.

Through ESG reporting, mining companies can also enhance their reputation and credibility. By transparently communicating their sustainability efforts, they can build trust with stakeholders, including investors, customers, employees and local communities. This trust not only strengthens relationships but also fosters a positive perception of companies’ commitments to environmental stewardship and social responsibility. “Transparency is not just about showcasing what has gone well but also addressing areas where performance has not been optimal and how issues have been resolved,” says Bernarda Elizalde-Andrews, Co-Founder, Centre for Responsible Mineral Development.

Moreover, ESG reporting helps mining companies identify areas for improvement and develop strategies to address environmental and social challenges. By monitoring and measuring key performance indicators related to ESG factors, companies can set targets, track progress and continuously enhance their sustainability practices. This proactive approach allows them to stay ahead of evolving regulations, predict stakeholder expectations and mitigate potential risks effectively.

ESG reporting now places significant emphasis on key themes such as the socio-political context, social issues, human rights and climate change, topics that require thorough attention from companies. Moreover, responsible supply chain management is gaining importance, requiring companies to assess and address environmental and social impacts throughout their value chain. By addressing these themes in a comprehensive and meaningful way, companies can demonstrate their commitment to sustainable and responsible business practices.

One of the significant challenges in the realm of ESG reporting is the lack of standardization across various frameworks and initiatives. The abundance of standards creates confusion for companies, as they struggle to determine which standards to adhere to and which initiatives to prioritize. Moreover, the lack of comparability between different standards further complicates the problem. While efforts are being made to harmonize these standards, each initiative operates with its own business model, focuses on different business aspects and caters to diverse stakeholder groups. 

Opinions vary regarding the most relevant metrics that participating companies should address. This lack of harmonization adds complexity to the ESG landscape, making it challenging for companies to navigate and align their reporting practices effectively. “What truly matters is going beyond what regulations dictate and the one who manages to exceed the standards set by the country will become the leader in this field,” says Oliva.

Nevertheless, it is crucial to continue advancing and improving ESG practices regardless of the lack of harmonization. Despite the challenges posed by varying standards, companies should remain committed to their sustainability goals and focus on implementing meaningful initiatives. While harmonization efforts are essential, the pursuit of continuous improvement should not be hindered by the existing discrepancies. Ultimately, the overarching objective should be to foster sustainable development, regardless of the specific frameworks or standards in place.