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Social elements of ESG in mining more complex, but an established part of mining's legacy

24th May 2024

By: Schalk Burger

Creamer Media Senior Deputy Editor

     

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While there are increasingly complex regulatory requirements governing the social obligations of mines, regulations are only catching up to what some mining companies are doing to benefit mine communities and stakeholders.

Mining companies understand the need to obtain a so-called 'social licence to operate' from communities in an area, and many of them also conform to international regulations, such as stock exchanges' environmental, social and governance (ESG) reporting rules, as well as international norms and expectations in terms of their social obligations.

These factors prompt mining operations to undertake meaningful and sustainable projects to provide relevant and needed benefits for the host communities and stakeholders.

Similarly, local regulations in African countries have also evolved to place more emphasis on social elements of mining operations' obligations, albeit with different emphases in different jurisdictions, law firm ENS partners and associates explained during the 'Navigating the social aspect of ESG for African mining corporates' webinar on May 23.

"It is important for mining operations to connect and work with communities that call those areas home. However, a social licence is also about the perception of the project and wanting the buy-in for the operations in that area," said ENS Namibia senior associate Stefanie Busch.

Mining operations could have negative impacts on communities, such as through displacement, resettlement and loss of physical and nonphysical assets and social structures. These negative impacts must be mitigated and have historically been the focus areas for mines, said ENS South Africa senior associate Zinzi Lawrence.

The positive benefits for communities from mining operations include employment opportunities, skills development and career opportunities, among others.

"The social component of ESG is important for a social licence, and a social licence can be said to exist when mining projects see ongoing approval for operations from key stakeholders and host communities," she said.

Specifically in the South African context, communities have a heightened awareness of the obligations of mining operations in terms of social aspects, she noted.

While increasing and dynamic changes in expectations were a big challenge, many miners highlighted that they had always been conducting operations in such a way as to obtain a social licence, highlighted ENS Ghana partner Rachel Dagadu.

In the past, mining operations often focused on reducing negative impacts and on corporate social responsibility investments, typically handled by the mining companies themselves.

However, mining companies are now expected to create social value and manage operations in such a way that they contribute to vital net-positive societal benefits, including employment for local people and being a place where young professionals want to work, she said.

"All stakeholders, including investors, financiers, employees, governments, regulators, local communities and society in general, expect mining companies to create a certain social value from operations.

"These are subjective and difficult to quantify and measure, and expectations are also increasingly adaptive and dynamic. This makes them difficult to achieve or even to create targets," she highlighted.

Expectations may change midstream. For example, a community could agree on having all roads tarred, but, once construction was underway, they could ask for high-quality roads that are lit, even if these changes might simply not be feasible, she illustrated.

"Unless there is alignment of expectations and strategy with buy-in from the community, the social value of the project will not be realised, regardless of the percentage of revenue dedicated to social objectives," noted Dagadu.

Another issue is the increased costs to meet requirements and expectations.

"The nature of the social element of ESG necessitates significant investment by mining companies in communities and not just over the medium term. Mining companies even conduct studies on what initiatives they can undertake to meet social value expectations and be a socially high performing mining company.

"In Ghana, draft community benefit regulations stipulate that 1% of gross revenue be contributed to local projects and this has to be done by means of a development agreement with the community.

"When we spoke to miners, we realised that most are doing in excess of 1% of gross revenue and have had to do this to get a social licence to operate," she highlighted.

The world was a global village and there was much greater transparency and awareness of mining operations across the world. There was simultaneously increasing pressure on investors, on companies' customers and regulators to ensure that mining operations were transparent, noted ENS Uganda partner Donald Nyakairu.

"Social elements additionally include stakeholders outside the communities, including mine employees and government officials, among others. Social elements can also involve cross-border matters, with some operations needing to operate in neighbouring countries, or bring in employees to work in its operations, for example.

"Social elements of ESG are a big challenge and the risks are very high," he said.

Therefore, it was important for mining operations to monitor these matters, but it was also clear that social matters had been taken into account in companies' strategies, he added.

Further, the challenges were greater in very remote areas. Companies would need to decide whether to bus people to the site or establish a mining town. Usually, the latter option was chosen, said Busch.

"This does mean significant responsibilities, as the mining operator is essentially taking over the role of governing a town of people. It may initially only be workers, but it could also include family members. Such a town must have established accessories to work, such as electricity, water and sanitation, which could be considered service delivery.

"Mines then have to consider the role of these assets at the end of the mine's life. Would these become stranded assets once mining is done, and would everyone move, or could there be a way to reinvent the town, and maybe have someone else take over the responsibility and ownership of the services?" she posited.

"The social aspects of mining mean that the strategy must envision what will happen after mining is done."

Meanwhile, what people are grappling with in terms of ESG is that there are insufficient regulations to govern ESG. Laws have not caught up and, in Kenya, mining companies must interrogate different pieces of legislation to develop a framework for their ESG obligations, said ENS Kenya partner Anthony Gakuru.

Stock exchange the Nairobi Securities Exchange (NSE) has issued guidelines for how companies must report their compliance on ESG matters.

"The law has to catch up in terms of documenting the requirements, and ESG requirements are more driven by investors into the country who want to see proper ESG compliance from companies they are investing in," he said.

Further, different countries emphasised different aspects of social benefits from mining operations, such as Ghana emphasising job creation, albeit across all sectors including mining, and Namibia requiring mining licence holders to prefer employees from Namibia that have the required expertise and to help with the skills development of its citizens.

However, many mining companies were international companies that came with their own standards, and had to adhere to international standards locally. This was providing a type of benchmark for social benefits standards of mining operations, and was enlightening government regulators as to what the standards were globally and how they were being implemented, said Nyakairu.

"Benchmarks [for social benefits] are also set by investors and financiers. They do not want companies they invest in to be the subject of litigation locally or internationally, or sanctions owing to operations taking place in Uganda," he illustrated.

"Mining companies should work to understand the communities they are dealing with, what their needs are and how what they do can plug into what the community needs and how the role it plays in the community supports the long-term longevity of the business and the community.

"Companies should negotiate proper community development agreements, so that the community understands what you are doing and are able to move along with you," he advised.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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