In the recent past, environmental, social and governance (ESG) criteria were predominantly focused on environmental impact and related governance issues, such as climate change.
However, since the Covid-19 pandemic has affected the everyday lives of people across the world, more companies are realising the importance of the social and governance aspects of ESG, says diversified miner Exxaro Resources CEO Mxolisi Mgojo, who is also president of the Minerals Council South Africa.
In an opinion piece about reigniting mining capital through ESG investment, Mgojo says stakeholder accountable businesses consider community help, particularly through difficult times, as critical to business success such as reducing greenhouse-gas emissions.
“If host communities do not recover, neither will business, with a knock-on effect on national economic performance. This is the reason companies should prioritise all aspects of the ESG mix to enable a post-pandemic recovery.
“Exxaro’s approach to ESG is holistic and aims to achieve ‘value beyond compliance’ and sustainability in all of our operations. This has been our approach before the pandemic and prevailed with strength during 2020 and will continue to drive our operations long after the pandemic is over,” Mgojo states.
Exxaro believes this rings true for all businesses: a holistic ESG strategy is the only way to achieve true business sustainability and stimulate economic recovery.
Sustainable development has become more important for organisational success and the success of the country as a whole, it notes.
Investors have also given more impetus to the importance of sustainability, with increased attention on issues like employee health and safety, business resilience, diversity and inclusion, as well as biodiversity.
The World Economic Forum’s Global Risk Report has identified the two greatest risks to the global economy in 2021 as water scarcity and a failure to adapt to climate change.
Rising global temperatures undeniably lead to severe weather events such as droughts, floods, hurricanes and other natural disasters that will have a severe impact on the health, safety, wellbeing and economic prospects of communities and businesses.
Investors know that damage to key infrastructure and natural resources will cripple economic growth and remove any opportunity for investment and wealth creation, hence the focus on the most sustainable businesses as the best investment opportunities.
In the past, many companies failed to address sustainability because there was a lack of support from shareholders and investors who saw this as an expense that would not generate financial returns or merely the responsibility of government.
This perception has shifted significantly in recent years, and after Covid-19 especially, more shareholders are becoming insistent that mining operations demonstrate social and environmental responsibility, Mgojo notes.
He adds that there is increasing evidence that companies that are ranked highly on ESG aspects not only contribute towards measurable societal and environmental goals, but also produce higher returns for investors.
This explains why more investors are looking for strong ESG organisations to invest in; they want to see that sustainability is integral in the construction of their investment portfolios.
This is particularly true in the mining and fossil fuel industry, with this sector subject to great scrutiny and pressure to make a just transition to cleaner energy and contribute to a lower carbon world.
It is interesting to see how companies are responding to this increased demand for responsible investments, states Exxaro.
For example, during the Covid-19 pandemic, many businesses and individuals donated more than R3-billion to the Solidarity Fund and other initiatives; as well as took real steps towards keeping their staff, stakeholders and communities safe.
In the mining and energy sector, companies are conscious of the need to diversify into clean energy and socially responsible mining to ensure future success.
“At Exxaro, we know that renewable energy is a critical part of our future, which is why we have invested in 239 MW of Cennergi wind farms. The investment has had the dual impact of a positive contribution to the national transition to renewable energy and Exxaro’s financial performance.
“Our coal operations have also focused on reducing energy consumption, primarily through developing self-generated electricity from renewables, further reducing carbon emissions.
"We are planning a low-carbon growth for our minerals business, in other words decarbonised mining operations, that will enable a low carbon economy,” Mgojo explains, adding that the company has a water management policy that focuses on the efficient use of water.
In the year ended December 31, 2020, Exxaro achieved a record safety performance for the organisation with more than 45 months without a fatality and a record lost-time-injury frequency rate of 0.05.
“As a largely mechanised mining business, this performance is attributable to investment in proximity detection devices to prevent personnel injury from mining equipment,” Mgojo points out.
There was also significant investment in safety training, communication and awareness initiatives. These and other ESG performance attributes are enabling us to build a firm foundation for future sustainability and commitment to achieving a carbon neutral footprint by 2050.
Regarding the material social indicators of Exxaro’s ESG performance, strengthening its social capital through improved stakeholder relationships remains a critical priority.
Mgojo says it is a base upon which the company collaborates for impact and has been instrumental in its ability to respond to community needs related to the pandemic.
“We engaged with ease and responded with urgency throughout our operations to needs for medical facilities such as testing laboratories and accessories for health workers, food parcels for community members and continued with infrastructure projects related to water for future hygiene needs.”
Further, Exxaro aims to transfer 90% of its post-mining land to emerging farmers in local communities and create partnerships to support their commercial agriculture activities.
Creating alternative and entrepreneurial opportunities that are independent from mining provides a just transition path for local communities as mines reach inevitable closure.
Exxaro’s socioeconomic development strategy is aligned with its strategic objective to impact positively on society through education, healthcare, infrastructure and economic wellbeing.
Mgojo says companies that have a strategic perspective on ESG see these commitments not as compliance, but as a matter of integrity. “Maintaining social responsibility requires strong, ethical leadership and a real belief in the difference it will make.
“The challenges presented by the pandemic presented a unique opportunity for mining companies to significantly shift their perception of ESG. As it becomes clearer that responsible, sustainable companies provide good returns for investors, there will be even more incentives for companies to prioritise ESG.
“The sooner companies realise this, the sooner they will be able to build resilience and agility against future challenges through sustainability.”