Report reveals poor ESG risk management

30th April 2021 By: Donna Slater - Features Deputy Editor and Chief Photographer

The results of a March study into environment, social and governance (ESG) due diligence and transparency in the extractive commodity trading sector reveals that, while corporate commitments on ESG issues are relatively widespread, these commitments are rarely shown to be translated into systematic measures.

Compiled by the Responsible Mining Foundation (RMF), the study assessed the ESG due diligence and public disclosure of 25 geographically dispersed companies trading metals, minerals, oil and gas.

Jennifer Rietbergen-McCracken from the RMF says the rationale for the study is based on the included companies being significant role-players in maintaining global flows of metals, minerals, oil and gas, and that their ESG due diligence is, therefore, “critically important, not only for sustainable development in the countries of origin but also for the integrity of the international finance system”.

The report finds that due diligence systems, where they exist, tend to focus more on the identification of ESG risks than on the assessment and management of these risks; and that evidence is weakest on companies measuring how effectively they are avoiding ESG risks such as human rights abuses, bribery and corruption and illicit financial flows.

Further, the RMF also highlights that the levels of public disclosure vary widely depending on the type of data involved and, therefore, the vast majority of companies choose not to disclose information on the payments they have made to governments and State-owned entities for the purchase of the State’s share of production. This information, says the RMF, is of strong public interest.

The overall results on ESG due diligence are weak, the report finds. As such, companies scored an average 23% on ESG due diligence systems and 28% on public disclosure of public interest information.

However, the report also shows that there are signs that a few companies are starting to take leading positions on issues such as human rights due diligence and public disclosure of their payments to governments. And, as a whole, the RMF points out that this cohort of companies demonstrates that improvements are within reach of many, if the better practices seen are adopted more widely.

“If one company were to achieve all the best scores seen on public disclosure, it would reach a score of 76%,” states the RMF. Likewise, all the best scores seen on ESG due diligence together amount to an overall score of 88%, the organisation reports.

Rietbergen-McCracken says the report is the first independent assessment of what companies are doing in terms of ESG and, as such, the report should be used to provide learning tools to support and improve practices and encourage stronger implementation of existing guidance.

The RMF also points out that the report is a pilot study that primarily measures the existence of due diligence systems and does not attempt to assess how effectively they are being implemented.

The 25 companies studied scored an average of only 10% on tracking, reporting and reviewing their performance on managing human rights issues in their supply chains.

The RMF states that it is important for companies to be able to demonstrate not only that they have robust ESG due diligence measures in place, but also that any significant ESG risks identified are taken seriously in subsequent decision-making.

The organisation also hopes that the detailed results and analyses presented in the report will encourage companies to redouble their continuous improvement efforts to take stronger action on these critical issues.