ESG risk management can be a differentiator for mining companies
ESG (environmental, social and governance) is a concept that has gained in popularity over the last decade in virtually every industry. In the mining sector, ESG has built upon the previous work in the sector to “go-green” by encapsulating these three issues of interest into a framework that is designed to allow the firm, its investors, its insurers, and others to ascertain the impacts its activity is having on the planet, people, and profit.
Traditionally, risk has been categorized into a few buckets: operational, financial, and a rather nebulous bucket called non-technical risk, wherein environmental and social risk was placed. Over time, this third bucket, which has had a cloak over it for decades has started to be referred to, still vaguely, as “sustainability performance.” Now, ESG is the nomenclature used to describe risks deemed less material. Much of the early work on this new framework has focused on: setting benchmarks, identifying areas of ESG non-compliance, and providing reports back to shareholders on performance.
Currently, ESG risk management is largely like getting last year’s weather report and saying, “trust us; we know when it will snow next.” Through new approaches in real-time data collection and analysis, ESG risk management can be transformed from an after-action report into a transparent up-to-the-minute pulse checks on critical controls performance.
A recent conversation with Michael Hartley, InterKnowlogy’s managing director of mining and energy, helped shed light on how companies that choose to manage ESG risk in an open and transparent way stand to gain competitive advantage over those that do not. InterKnowlogy is a California-based tech firm that focuses on data visualization solutions to enable better decision making. For Hartley, context is everything.
Context helps frame managing ESG risks as part of a system of interconnected components that impact each other rather than as disparate parts working independently from one another. Systems and organizations that are context-rich are typically complex and require a “systems thinking” approach rather than a “component thinking” approach to effectively manage risks.
Hartley has crystalized the difference between firms that adopt effective ESG risk management and those that do not in an apt metaphor. We need to look at the way we curate ESG risk data the same way we look at produce. Produce is made up of perishable items, they are only good for so long. “If you come to my banana shop and you say you want these six bananas and I say, come back in two months and those same six bananas will still be waiting for you,” Hartley said. “Would you still want them then?” he added.
This is how we are treating decision makers now as we tend to not give them data on what is happening, but rather data that was collected two months to two years ago and expect them to make decisions that are operationally responsible. To be an early adopter of comprehensive ESG risk management can differentiate companies in the eyes of investors, insurers, and even host governments in which mining companies operate. Companies that do not implement transparent platforms to manage ESG risk will fall behind others that do in a climate where ESG performance can mean the difference between gaining a supply contract and not.
For the generational opportunity that stands before us in critical minerals and battery metals, reframing mining companies not as customers as they are traditionally thought of, but as an integral part of the supply chain is a helpful notion to understand how ESG should be considered by these firms. Mines are used to being the end customer. They are used to looking at firms that make up their supply chain and querying them for a variety of performance metrics that include ESG performance. This is how mining companies should now look at themselves: as vendors that supply a commodity to a specific end-user/group of consumers.
The same scrutiny they apply to their supply chain is now, more than ever, going to be expected of them. More specifically, Hartley suggested looking at the auto parts manufacturing sector for cues on how mining companies should be thinking of transparently offering up to date risk performance metrics to their end-users. Tier-one suppliers undergo rigorous vetting and performance tracking to become and remain part of automotive manufacturers supply chains. The new reality is that the materials being extracted by mining companies are closer than ever in proximity to the consumer. As such, more light is being shined on the supply chain, and companies that demonstrate ESG performance will have an advantage.
In the end, having policies and procedures and a well written sustainability report is like having a shelf with two bookends, but the middle of the shelf is empty. The approach InterKnowlogy employs is to pull relevant data sources internally and externally to measure and communicate risk exposure and control performance for issues such as extreme weather events and contractor management and knit it all together for real-time enterprise ESG risk management. There is no other way to come to terms with types of data that operational decision makers, investors, shareholders, and insurers are going to require going forward. Utilizing the latest data analytics and visualization technologies can empower operational decision makers and external stakeholders by making ESG risk information up to date, accessible, and useful.
Steve Gravel is the manager of the Centre for Smart Mining at Cambrian College.