By: Dan Sonnenberg and Elliot Frankal
The business case for sustainable mining is growing ever more compelling. Examples of poor environmental management or fraught labour relations negatively affecting business performance seem to crop up with increasing regularity. For example, a recent report by South Africa’s National Treasury found that more than $1.5-billion in mining production was lost in 2012 owing to labour strikes and stoppages.
Investors are increasingly aware of the material importance of sustainability issues and these factors have started to influence their investment decisions. Bloomberg began to add environmental, social and governance (ESG) data to its terminals in 2009 and since then its use by investors has increased steadily. A 2011 study by Harvard Business School showed that Bloomberg ESG data points were accessed almost 44-million times over a six-month period.
Given this increased investor interest, it is remarkable that the corporate responsibility reports (or sustainability reports) of many mining companies are not up to scratch. This report is the main source for ESG information for investment research, yet it is rarely written in a way that gives investors the information they need to manage their own risks.
Information on areas such as environmental impact and use of human capital are not being described in the type of clear, comparable ways that investors need to really use this information and, therefore, to accurately value and understand the sustainability of a company.
Initiatives such as the drive towards ‘integrated reporting’ and the G4 GRI guidelines may help companies to do better in this regard but these are relatively long-term solutions, whose efficacy will depend on companies’ ability to apply the essence of the guidance rather than pursue compliance zealously, as is the case currently.
What Needs to Change?
In the short term, companies and investors need to help each other out.
Companies must look at what and how they are reporting. It is not just about inte- grated reporting – it is also integrated thinking. Mining companies need to make the linkages between ESG factors and their financial performance more explicit and they need to better explain their risk management practices.
Sustainability reports should be con- cerned only with covering the material issues that really matter to the business and exclude information that is extraneous. They also should not duck bad news. To be credible, a miner’s corporate responsibility report must cover the challenges faced as well as the successes. If there are controversies, such as negative press reports or community disputes, then these need to be addressed head-on and explained in the context of how future performance will be affected.
Companies also need to ‘work the data’. ESG information should be presented both as absolute data (such as total greenhouse-gas (GHG) emissions) and also as data by measure of business activity (such as GHG emissions for each ton of mineral extracted). It helps investors to both compare performance with peers and take a view on the effectiveness of management and operational efficiency.
Investors need to change too. Many are stuck in a groove that puts ESG factors down as an ‘externality’ which will not unduly bother the company in question. This is an old-fashioned view and, as society and regulators get to grips with a changing climate and changing global demographics, the financial impact of ESG factors is becoming ever more pronounced.
Investors also need to standardise. There are now more than 100 rating organisations that benchmark corporate sustainability performance for investors and each uses a host of criteria, yielding differing results. This could change if initiatives such as the Global Initiative for Sustainability Ratings (GISR) can help to create a more unified corporate-sustainability ratings standard.
Evolution for CSR Reporting
Better reporting will help turn a vicious circle into a virtuous circle.
In the past, investors were typically inter- ested in financial performance only, and not in how a mine managed environmental, labour and community issues. This, in turn, disincentivised companies from improving these areas. Now, however, investors, ratings agencies and developments like the GISR are ensuring capital markets reward strong corporate sustainability performance with the capital and credit it deserves. To ensure they benefit, responsible miners need to ensure not only that ESG factors are managed, but that this management is effectively communicated.
Improved sustainability reporting that clearly communicates how mining companies are managing the ESG issues material to them is an important evolutionary step that companies cannot afford not to take.
- Frankal and Sonnenberg are, respectively, director and associate of ESG Communications, a London-based public relations company specialising in responsible investment and corporate responsibility.