Unlocking ESG Success: A Golden Opportunity for Junior Mining Companies

May 28, 2023

In recent years, the business landscape has witnessed a remarkable transformation driven by the urgent need to address climate change. The rise of Environmental, Social, and Governance (ESG) as a measure for evaluating company performance has revolutionized the way businesses operate. However, many mining companies, especially juniors, still find themselves grappling with the concept of ESG and its implications. 

A Sustainable Journey

Let’s take a trip down memory lane to the early 2000s, a pivotal time for the mining industry. Back then, as the Mining, Minerals and Sustainable Development initiative took shape, the mining industry rallied to overturn its previously tarnished environmental and social reputation. Companies began to realize that there were benefits to sustainability, such as reduced operating costs and decreased risk of production disruptions. Thus, they initiated sustainability programs encompassing various areas like community well-being, education and employment plans, biodiversity conservation, and water improvement projects, among many others.

Given this substantial history of sustainability efforts and disclosures, one might assume that mining companies would be well-versed in the world of ESG, swiftly identifying risks and seizing opportunities. However, reality paints a different picture.

Mining’s ESG Standing

Mining companies do not dominate the top ESG ranking lists. In fact, according to MSCI’s 2023 report, out of the 974 top ESG-rated companies, a mere 20 belong to the mining sector. Sustainalytics, another renowned evaluator, includes only 12 mining companies with low or negligible ESG risks out of the vast pool of over 13,000 entities they assess.

Sustainability ≠ ESG Disclosures and Scoring

It appears that sustainability programs, which have been instrumental in managing environmental and social risks and opportunities, do not seamlessly translate into impressive ESG scores. When confronted with this observation, ESG advocates often respond, “Yes, because sustainability is different from ESG.” Sustainability focuses on the external impact of a company’s activities on the environment and society, while ESG looks inward, examining how the environment and society influence a company’s financial performance.

Sustainability programs = ESG programs

From a practical perspective, the programs designed to address sustainability (outward) and ESG (inward) are the same. Any material impact a mining operation has on the environment or society will be almost immediately reflected back onto the company, potentially leading to temporary or even permanent shutdown, creating a significant financial impact. Not to mention potential fines and reputational damage etc.

So if mining has been managing these issues for many decades, as well as reporting publically in sustainability reports, why is this not reflected by the ESG scoring or ranking industry? Could it be that the data provided in sustainability reporting fails to “translate” effectively into ESG? Or is it the wrong data being sought? Or is it collected in an unsuitable format? Or could it be related to the tendency of Sustainability and ESG Reports to focus on aggregated data rather than site-level specifics?

These are all questions that need to be answered if mining companies want to maximise their ESG scores. Noting that there is not a 100% correlation between ESG scores and “good” practice (ESG scoring has become an industry unto itself – perhaps the topic of another post some other time).

Navigating the ESG Landscape

Now, let’s focus on the bright side for small to mid-sized mineral exploration and development companies. These companies actually have a unique advantage: they can get it right from the very beginning by addressing the issues that are important to all stakeholders. Implementing and embedding a tailored strategy that aligns with their vision for growth and gradually scaling it is within their reach. While its true that major mining companies have greater resources, they also face the monumental challenge of having to drive change across their whole organization, which as everyone knows, is time consuming, costly and not always successful.

Moreover, the additional benefits of integrating an ESG strategy during exploration extend even further. Consider the following advantages:

  • Risk reduction: By comprehending and mitigating risks early on, junior miners can avoid potential issues before they materialize.
  • Identifying opportunities: Early identification of opportunities saves valuable time and resources.
  • Increasing investor interest: Embracing an ESG strategy makes junior mining companies more attractive to a broader pool of investors.
  • Attractiveness for acquisition: As junior mining companies progress and seek partnerships or acquisitions with major mining players, having a well-established ESG strategy can be a significant advantage.
  • Smoother transition to feasibility studies: By proactively building strong relationships with local communities and implementing effective data management systems early, companies have less of a hurdle when transitioning to feasibility studies and engineering design stages.