Environmental, Social and Governance: Mining Sector Faces the Show Me Test

And I thought Arsenal fans were having a rough week. Spare a thought for the mining sector which has recently witnessed the fastest ever collapse in iron ore prices – just the 40% fall in the past month alone. Then the world's largest mining group, BHP Billiton, shipped heavy criticism for ditching its FTSE 100 listing on the London Stock Exchange amid further investor pressure to detail an exit strategy on its fossil fuel assets. A summer of fires and floods has ensured the chorus of environmental, social and governance (ESG), and sustainability demands grows louder and louder. What can the mining sector do rather than say?

BHP management were keen to stress the group's pivot to "future-facing" commodities but the stark reality is that the mining sector must face a future dominated by a climate and environmental emergency. Time is running out and investor communications are being received in much the same way as Taliban press conferences were this week.  Corporate sustainability mission statements may promise reformed behaviour but it's all about the doing now. The financial and legal consequences are becoming ever clearer when one considers the following:

• Bloomberg now estimates that $53 trillion of investment funds claim to be steering capital based on sustainability/ESG principles. A funding boycott of that size should focus the minds of any offending sector leaders.
  
• The UN Intergovernmental Panel on Climate Change (IPCC) in its "Code Red" warning has removed any debate or litigation wiggle room. Climate change is now considered by 234 scientists and 195 signatory sovereign states as "clearly human-caused" and "an established fact" given that the "evidence is irrefutable". Good luck to any corporate general counsel trying to advocate a climate change denial defence from now on. 
  

The rehabilitation options available to the mining sector are likely to focus on two types of action. One will be easier to demonstrate than the other. Let's begin with the easy one. An exit from mined fossil fuels like coal is a corporate action which can be easily recognised in company accounts and regulatory filings. However, the simple transfer of polluting assets from seller to buyer does not produce a net positive environmental impact if the assets continue to operate. The planet needs better solutions; that is the second option. 

Proactive projects to deliver net climate and environmental positive results require more thought, finance and monitoring. We note in Australia, Genex Power converted an abandoned gold mine into a pumped hydro project. Even bolder, Germany is mothballing the entire coal industry by 2038 which will involve compensation for regional employment and economic losses. The interesting economic offset is a huge investment programme in renewable energy, worker retraining and biodiversity projects. The biodiversity initiative should be a focus for a mining sector and the estimated 238 publicly listed companies (per Sustainalytics research) involved in thermal coal extraction. Divesting assets alone really won't move the dial in this climate emergency. One suspects further "doing" for the planet will be required and that raises a further challenge. How do we track these actions and their net impact on the climate and environment? We see two critical players in this monitoring function:

1. Research/Intelligence: Cutting edge analytics and machine learning approaches using multi-spectral, hyperspectral and radar imagery, of varied spatial, spectral and temporal resolutions plus ground sensor technologies (IoT).
   
2. Trusted ESG and sustainability data platforms providing benchmarks and targets for specific industry sub-sectors. 
   

These will be the "show me" essential tools for the mining sector in dealing with investors, communities, government, bankers and insurance. The mining sector must act and demonstrate its actions urgently. The planet catastrophe threat is real. The corporate threat is equally so; litigation and financial capital will exert massive pressure on companies and their management boards. Sustainability policy documents, mission statements and outdated risk registers just won’t cut it any more.