By Peter Kennedy
As the mining industry navigates its way through the COVID-19 pandemic, investors are increasingly focused on environmental, social and governance factors (ESG) as a sign of how companies are managing risk.
It is one of the key conclusions of this year’s PwC Canada’s British Columbia mine report.
In years gone by, mining companies were judged by metrics such a production and profitability. But now the spotlight has shifted to so-called ESG factors, which cover the way that companies deal with the environment, social relationships and corporate governance.
“A poor ESG record can expose a company to higher costs and possible reputational damage,” said Robert (RJ) Johnston, Managing Director, Energy, Climate and Resources at the Eurasia Group, a Washington-based consultancy. “On the flip side, a strong improving ESG performance, through measures such as reducing emissions and engaging the community more meaningfully, can make a company more attractive to investors,” he said.
BlackRock Inc., the world’s largest asset manager, has underscored that view by stating that sustainability would become central to its investment approach.
A new study from RBC Capital Markets also showed that since mid-2017, S&P 500 companies with strong ESG profiles performed better than those that are weaker in that area.
Before ESG became a buzzword, miners in B.C. had been working to build a social license with stakeholders by focusing on improving their environmental, social and governance performance.
But PWC said its annual survey of CEOs offers clear evidence of the extent to which CEOs are prioritizing ESG factors. Of the global mining and metals executives surveyed, 57% are concerned about climate change and environmental damage.
Based on its B.C. mining survey, which includes 30 participants, representing 18 operating mines and 12 projects in the exploration and development stage, PWC said it can confirm that many companies are delivering on their ESG commitments.
Centerra Gold Inc. [CG-TSX, CAGDF-OTC], which operates the Mount Milligan mine northwest of Prince George, is currently working on a study to review climate risks across all its sites.
“It has also formed a company-wide tailings storage facility steering committee to ensure these sites are aligned to best practises from an environmental perspective.
In the executive suite, the focus on ESG is also being reflected in hiring and downsizing decisions.
Mark Patterson, BC Mining Leader with PWC, said he recently talked to a mining company that was contemplating a round of layoffs that would have included the company’s environmental manager. But Patterson said that after further consideration, the company decided that this was not a position that it could afford to eliminate.
“In the past, an environmental manager was seen as discretionary. Now he or she is seen as a core member of staff,” Patterson said.
Having these commitments in place is expected to be critical in 2020 and beyond as the industry works through the challenges brought on by COVID-19. When the pandemic began to take hold, companies in B.C. initially dialled back their head counts in a bid to reduce the numbers on site. This gave them time to decide how to deal with social distancing and other health and safety measures
Over the last few months, companies have brought more people back on site as they determine how to manage the need for social distancing and normalize their production levels.
In B.C., where mining is considered an essential service, there were no outright shutdowns as a result of the pandemic.
Still, in spite of all that good work, PWC’s 2020 global mining report found only 11 of the top 40 companies (28%) are setting public ESG commitments and targets, reporting consistently against them and linking executive and management performance to achieving them.
Patterson said it’s an indication that it is challenging for some companies to make the kind of commitments that investors are increasingly looking for.
However, the industry can ill afford to ignore the fact that investors are increasingly paying attention to ESG aspects such as the diversity of boardrooms from a gender perspective, the way in which executive compensation is determined, as well as the company’s view on corruption and bribery.
Investors are also looking at how companies are positioning themselves for emerging trends such as the desire for responsible sourcing of commodities.
“You are starting to see car manufacturers and electronics manufacturers making claims for their products,” said Daniel O’Brien, Western Canada Leader for Sustainable Business Solutions at PWC Canada. He said manufacturers want to show that materials are not be sourced from controversial sources. And as demand for this type of information increases, companies that can capture the information and report it in a credible way will be better positioned with those that purchase their products, he said.
Meanwhile, ESG is expected to help build resilience in an industry that will continue to be challenged as the COVID-19 pandemic dampens the outlook for the prices of many of the key metals and minerals produced in the province.
While many of the key numbers were down in 2019 versus 2018, they reflected a solid performance overall for the province’s mining industry, Patterson said.
Gross mining revenue from surveyed participants totalled $11.4 billion, compared to $12.4 billion in 2018 and $11.7 billion in 2017. The decrease reflects lower prices for key metals and minerals produced in British Columbia, primarily metallurgical coal and to a lesser extent copper.
Teck Resources Ltd. [TECK.B-TSX; TECK.A-TSX; TECK-NYSE] saw a 12% decline in realized metallurgical coal prices, along with a decrease in coal sales of 1 million tonnes.
Total payments to governments increased to $1.1 billion in 2019 from $953 million in 2018.
There were a handful of positive developments in the B.C. industry in 2019, such as the closing of Newcrest Mining Ltd.’s [NCM-ASX] deal to acquire 70% of Imperial Metals Corp.’s [III-TSX] Red Chris copper and gold mine. New Gold Inc. [NGD-TSX, NYSE American] also received an environmental assessment certificate for its Blackwater gold mine.
Also in 2019, the BC government made permanent the mining flow-through share tax credit and the BC mining exploration tax credit – changes the industry had been requesting for several years. The BC government also increased investments in the Ministry of Energy, Mines and Petroleum Resources, as well as the Regional Mining Alliance, to help promote mining in the province.