Despite over 80 financial institutions worldwide adopting the Equator Principles in an effort to minimise borrowers’ governance risks, many mines still seem to regard their environmental and social (E&S) impacts as marginal to their core business
This attitude is reflected in the underfunding and understaffing of this aspect at many mining companies, exposing them to considerable risk in terms of their social licence to operate.
“Sustainability risks are increasing as legislation becomes more stringent and socio-political environments become more complex, and where stakeholders are more vocal about their human rights not being upheld,” says Kilian. “There is now also greater media attention on mining operations, with shareholders being eager to avoid reputational damage and liabilities,” says SRK Consulting Partner and Principal Environmental Consultant, Darryll Kilian.
Legislation and standards
Environmental impact assessments (EIAs) in South Africa date back to the 1970s, with the first legal requirement for an EIA coming in with the Environment Conservation Act in 1989. Today, a range of laws, from the National Environmental Management Act to the Mineral and Petroleum Resources Development Act—with a respective focus on biophysical and social issues—now weigh on mining decisions. Indeed, a strong environmental focus extends through the countries of the Southern African Development Community.
Internationally, benchmarks and compacts have guided thinking since at least 1991, when the Rio Declaration firmly established environmental and social impact assessments (ESIAs) as a global priority—although still with a strong biophysical focus. This developed further between 2000 and 2005 with the Global Compact, the Millennium Development Goals and the United National Declaration on Indigenous Rights placing greater emphasis on socio-economic issues.
In 2006, the International Finance Corporation’s (IFC’s) Performance Standards on Environmental and Social Sustainability became the benchmark for good practice in the global mining sector, bolstered by the closely aligned Equator Principles. A key focus of the Equator Principles is to ensure that E&S management is addressed by borrowers through their integration into business decision-making and management systems.
After 2012, the bar was raised further when the International Council on Mining and Metals’ sustainable development framework and the third version of the Equator Principles—which align with the UN Sustainable Development Goals—firmly embedded E&S issues in the business relationships and management systems of mining companies.
Sustainability journey
“Despite these imperatives and incentives, there still appears to be less progress than one would expect. Companies still have much to accomplish in terms of integrating E&S management into their core management systems,” says Kilian.
There remains a widespread tendency to focus purely on meeting in-country environmental legislative requirements, rather than a risk management approach to E&S issues over the life-of-mine, he explains.
“This generally results in a compliance-focused mentality, with the sole objective of being awarded a positive record of decision and other environmental licences,” he says. “This makes legislative compliance just a means to an end—to retain the legal right to operate—but does not address the underlying risk posed by weak stakeholder relationships and the uncertainty this carries.”
He said emerging and junior miners—as well as many mid-tier companies—tended to be more reactive, perhaps due to their limited management systems, human capacity and financial resources.
The major mining companies were usually more proactive, given their experience, their organisational maturity and the gravity of these issues at a corporate level. However, despite increased awareness of international standards, most companies were still stuck within the ‘compliance stage’.
Ad hoc, not strategic
“Many mines are consistently defensive about stakeholder relationships, insisting that relationships are good because there are no formal complaints lodged with the company.
In this mind-set, stakeholder engagement is frequently treated in an ad hoc manner rather than as a strategic function—leaving the business without sufficient line-of-sight to potential high-level risks,” Kilian explains.
Among the outcomes of this was that environmental management responsibilities were often implemented in silos by health, safety and environment (HSE) staff, and it took mining clients longer to achieve compliance with the IFC Performance standards. Another challenge was that commitments made by management were often not communicated effectively through the organisation.
“Notwithstanding this, many organisations have very passionate individuals working within their E&S teams, often resulting in efficient implementation in spite of the lack of integrated management systems,” says Killian.
Beyond compliance to integration
At the same time, Kilian highlights instances where companies had adopted international standards, showing a growing commitment to making the transition from compliance-only to integrated practice.
“These companies are generally motivated by building their brand and carefully managing their reputation,” he says. “They have a desire to lead by example and set themselves apart from competitors, while maintaining their social licence and pursuing increased efficiency and profitability.”
A good example that showcased the benefits of this approach in recent years was a project in which SRK was involved in West Africa; whereas labour unrest that had disrupted other mining operations throughout the country, the mine in question was spared this upheaval.
“This was attributed to the company’s good relations with government stakeholders and host communities,” says Kilian. “Even now, the company is in the process of strengthening its E&S management and integrating these aspects into overall management systems.”
Creating shared value
He also emphasises that some of the mining majors were showing evidence of integrative decision-making by addressing E&S risks and issues early in the project process and developing integrated and well-communicated strategies.
“If companies are to move their operations along the sustainability continuum—from reactive to proactive towards creating shared value—they need to implement a comprehensive stakeholder engagement plan for all stages of the life of mine.
“This means recognising that E&S issues are not limited to one business unit but are a business imperative for the entire organisation, as they can damage its reputation; greater alignment between corporate and operational levels is therefore vital,” Kilian explains.
For a mining company to understand and manage its risks, it needs to truly understand the context in which it operates so it can actively engage stakeholders, identify its impacts through ongoing monitoring and proactively manage its E&S issues. As mines are squeezed by pressure from the government, communities and shareholders, it will be increasingly difficult for them to pursue ‘business as usual’ by simply complying with legal requirements, he says.
“The growing risk of losing their social licence to operate—which the consultancy EY has identified as a top ten business risk for mining—will push mining companies not only to comply legally, but to fully integrate environmental and social management into their core business practice.
“This change needs to be supported by stronger alignment between corporate purpose and mission on the one hand, and operational structures on the other,” Kilian concludes.
