Social: The ‘S’ in ESG

Whether CSR or ESG, “social” has been a vexing obligation for the mining industry for decades. As expectations – from communities near mines, from nonprofits, from government and from investors – have increased, so too have demands that mining companies do more for people.

When markets are strong and prices are high, most companies have supported a variety of locally-based projects to benefit communities near mine sites. Often working cooperatively with NGOs, companies have constructed hospitals, floating clinics, schools, markets, roads and provided potable water and sanitation and sometimes electricity to small communities. Over time, these sorts of projects have made real differences in people’s lives, providing well-paid jobs, better living conditions and access to education, which in turn has opened broader doors for children around the world. Some companies, like Freeport McMoRan, have gone a step further with programs such as Dream Builder, an online education platform designed to help women establish and grow small businesses completely independent of mining. In partnership with the US Department of State, this program has been made available to women’s cooperatives in countries around the world, changing women’s lives, and that of their families, for the better. However, when markets are weak and prices fall, ESG programs often are the first things cut because such activities are still regarded as peripheral to mining operations, rather than essential.

Particularly in light of changing expectations, the mining industry should take a more strategic approach to ESG, and particularly the thorniest element: social. The consequences of failing to do so range from companies sustaining significant losses because product cannot be exported due to highways being blocked by unhappy indigenous peoples to new laws being proposed (and, in at least one case, enacted), essentially to nationalize foreign companies. Doing business reliably and sustainably, even in formerly “mining friendly” nations and jurisdictions is becoming increasingly costly and difficult. While in some countries it can be argued that the mining companies are being used by corrupt politicians to take the blame for their failings, it is nonetheless true that if the companies had deeper bases of support, it would be harder for them to be scapegoated by elected officials.

Behaving more strategically doesn’t necessarily demand entirely new ways of doing things but, rather, doing similar things on a bigger scale. For instance, instead of building schools only in neighboring communities, refurbishing a national university in the capital city would potentially expand support while also ensuring a flow of well-educated employees for the company. Mining companies already often consult with local politicians to better understand community needs. Why not do the same at a national level? Of course, for American companies, any social programming involving politicians must be carefully scrutinized to ensure that the proposed project would not violate the Foreign Corrupt Practices Act. European companies face similar legislative restrictions. But it could be done. Expanding projects selectively at a national level obviously implies greater costs as well but I would argue those costs pale in comparison to the amounts lost when exports are blocked or when “punitive” taxes (legal or otherwise) are levied.

Importantly, regarding ESG more strategically also implies internal restructuring, which some companies such as Newmont already are undertaking. ESG principles and practices should be embedded in operations from exploration to mine closure; should be budgeted consistently as any other operational (not support) cost and should be systematized through all operations. A C-suite executive is needed (some companies are calling this position the Chief Sustainability Officer) to ensure development and funding of projects, and their successful implementation across company operations and specialties. This senior executive also should be responsible for providing briefings to investors and shareholders on a regular basis, as well as overseeing preparation of annual reports focused on factual and specific achievements, not fluffy statements of intent (so-called greenwashing).

Taking a more strategic approach to developing social programs also could offer the industry the chance to cooperate with standard-making bodies, whether the ISO, UN or market regulators. As was shown by the work done by the ICMM in the wake of the tailings collapse disasters in Brazil, working together with nontraditional allies (which in that example included the Catholic Church and the UN) yielded a new industry standard that met public concerns while remaining realistic from an industry perspective. Something similar could be done for social projects, keeping in mind particularly that mining companies neither wish to, nor should, replace governments and that governments should be more closely scrutinized to ensure that tax revenues are being used to build essential infrastructure and social programs that projects supported by mining companies would supplement. 

The mining industry has demonstrated adaptability and resilience in many regards, and this is another area demanding change. Those companies willing to acknowledge the power of new expectations and, within reason, embrace changes, are the most likely to obtain sustainable social support for their operations.