What does it mean to be a responsible mining & metals player in 2024?

The mining & metals industry stands at a critical juncture, facing unprecedented societal, regulatory and risk management pressures. As global attention on environmental sustainability and social responsibility intensifies, mining companies must navigate an evolving landscape that demands an ever-more holistic and proactive approach to responsible business practices.

The mining sector needs to rise to the challenge (and opportunity) of meeting the world's insatiable appetite for metals and minerals, and the substantial increase in demand for future-facing critical minerals required to support the energy transition to a net-zero future. To reach global net-zero emissions by 2050, the International Energy Agency estimates that the world will need six times more mineral inputs than it uses today. Mining companies must manage the twin aims of producing more minerals and metals while also addressing their own responsible business targets, including their net-zero targets.

Recognizing that sustainability has long been core to the mining & metals industry, management teams must continue to adapt to increasing expectations to reflect this shift toward sustainable and responsible business practice. These adaptations will include tackling greenhouse gas emissions with widespread corporate commitments to achieve net-zero targets across the mineral supply chain in the coming decades.

An evolving ESG agenda

Delivering on these ambitious targets in corporate governance and operational excellence will be challenging. Some argue that mining companies, and potentially even investors, are de-prioritizing the ESG agenda. Boards may come under increasing pressure to focus on cash returns over ESG priorities to meet shareholder demands.

However, rather than becoming less important, we believe the ESG agenda is evolving and has become a core aspect of successfully doing business in the mining & metals sector—our Mining & Metals Survey published in January 2024 noted that ESG is now business as usual. Further, according to a KPMG report published in March 2024, 80 percent of surveyed executives were confident that there is no trade-off between growth and decarbonization. Companies will continue to focus on ESG, but this focus will align around broader sustainable development goals, including ensuring longer-term viability on a secure financial basis. The long-term direction for sustainable and responsible business is clear, particularly where achieving net-zero greenhouse gas emissions is deemed critical.

Toward holistic responsible business in the sector

The evolution from a focus on ESG—the way in which companies evaluate and report on environmental and social risks as part of aiding investor decisions—toward sustainable and responsible business—the way in which companies conduct business in a manner that is ethical, socially responsible and environmentally sustainable—is a significant and positive shift for the mining sector. This transition is driven by the recognition that sustainability must be embedded in every aspect of operations. A key focus area is decarbonization and the energy transition, where mining companies are striving to reduce carbon footprints and shift toward renewable energy sources.

This shift is not merely about compliance; it is about redefining business models to ensure long-term viability and resilience. Companies are investing in green technologies, rethinking supply chains and innovating processes that align with sustainability goals. For example, Rio Tinto recently announced a pilot program to develop Pongamia seed farms in Australia, to explore Pongamia seed oil's potential as a feedstock for renewable diesel, a cleaner alternative to traditional fossil fuels. This holistic approach ensures that mining operations are not just minimizing harm but are actively contributing to environmental and social well-being. They do this against a backdrop of ever-increasing—and conflicting—reporting and compliance obligations. New regulations, in the US, EU and elsewhere, plus NGO and industry body initiatives, are forcing mining companies to consider their broader footprint. However, these same regulations and initiatives create opportunities for first-movers who can help shape how the industry delivers against such requirements.

A holistic transition to sustainable and responsible business requires mining companies to engage with a broader range of stakeholders, ensuring that their voices are heard and their needs are addressed. This involves fair labor practices, community development initiatives (for example, Sibanye Stillwater's Marikana Renewal Programme), and ensuring that the transition to a low-carbon economy does not disproportionately impact vulnerable populations.

Societal expectations: The call for transparency

Modern consumers, employees, and investors are more informed and discerning than ever. They also expect transparent corporate behavior and for companies to serve a purpose beyond maximizing shareholder profits. The proliferation of social media and the 24-hour news cycle means that any misstep can quickly become public knowledge, leading to reputational damage and liabilities that can have far-reaching consequences. These risks can extend beyond the actions of specific corporate entities and affect shareholders too, whether impacting company valuations or in certain situations by creating a joint liability for the damage.

By embracing sustainable practices and transparently communicating their ESG performance, mining companies can build trust, attract investment and contribute to a more sustainable world. Investors are increasingly scrutinizing how management teams are adapting operations to meet these challenges. ESG performance is now a critical factor in many investment decisions, with financiers (of both debt and equity) seeking companies that demonstrate strong sustainability credentials (to assist with the finance provider's own ESG targets) and responsible business practices. For example, in May 2024, Lundin Mining amended the terms of two credit facilities—a US$1.75 billion revolving credit facility and a US$800 million term loan—to implement a sustainability-linked loan structure, with the interest rate margin adjusting based on performance against agreed sustainability performance targets.

Management teams must therefore communicate their ESG strategies effectively, highlighting how they are addressing environmental and social risks, seizing opportunities in the green economy, and ensuring long-term value creation. Transparent reporting, stakeholder engagement, and continuous improvement in ESG performance are essential to building investor confidence and attracting sustainable capital.

It's not just regulators, investors and financiers who are demanding a greater focus on sustainability. Customers of consumer products and end-users of extracted products and raw materials are now seeking to understand the ESG profile of a product's supply chain, and especially the amount of greenhouse gas emissions associated with the supply chain value chain of a product. Producers are reacting to this, with efforts that include the battery passport initiative, a flagship project of the Global Battery Alliance. The battery passport initiative aims to create a digital tool that provides comprehensive and standardized information about the life cycle, sustainability and ethical aspects of batteries.

Implementing change: Reporting requirements and supply chain management

Two key items for mining companies to tackle as part of the move toward sustainable and responsible business, underpinned by the need for transparency, are: meeting (ever-expanding) reporting requirements; and managing supply chains.

Regulatory bodies worldwide are responding to societal demands with stricter regulations and heightened enforcement. From the European Union's Green Deal to the US Securities and Exchange Commission's proposed enhanced focus on ESG disclosures, the regulatory landscape is becoming more onerous and complex.

Further, additional regulations—and disclosure requirements—are forcing mining companies to confront increased transparency and supply chain obligations. Laws such as the EU's Corporate Sustainability Reporting Directive and the German Supply Chain Due Diligence Act, together with the US Uyghur Forced Labor Protection Act, mandate comprehensive reporting on environmental and social impacts, as well as stringent due diligence across supply chains. Non-compliance can result in severe penalties, making it imperative for organizations to implement robust compliance frameworks and ethical supply chain management practices.

Alongside this regulatory push, industry bodies and NGOs continue to develop a broad range of reporting obligations, targeting enhanced disclosure across multiple factors that can impact the environmental and social footprint of a mining company. The recent attempts to consolidate such reporting frameworks—such as the ISSB's inaugural sustainability disclosure standards and the Consolidated Mining Standard Initiative—will be a welcome development for the sector.

Organizations must stay abreast of these changes to ensure compliance and avoid penalties. This requires a proactive approach, including regular audits, robust compliance programs, and ongoing training for employees and management.

We shall consider each of these themes in more detail in the next two articles in this series.

A value-creation opportunity

The shift by management teams—from specific ESG initiatives toward holistic sustainable and responsible business—presents a unique opportunity for those teams to create value for a broad range of stakeholders, not just shareholders.

Management can leverage this shift by:

• Innovating sustainable extraction methods, such as by developing and implementing technologies that reduce environmental impact, to open new markets and drive growth
• Enhancing employee engagement and retention, adopting fair labor practices and fostering an inclusive workplace to attract and retain top talent
• Building stronger community relationships, engaging with local communities and investing in social initiatives to enhance the company's reputation and social license to operate
• Improving supply chain resilience, using data more effectively, and implementing ethical sourcing and robust due diligence to reduce risks and ensure supply chain continuity

In this way, mining companies can look to drive long-term financial performance and stability, through cost savings and improved efficiency, while enhancing the company's reputation among investors and stakeholders.

Leading the way

The step change for mining & metals companies toward sustainable and responsible business is not just a regulatory or risk management challenge; it is an opportunity for them to lead and differentiate themselves in a competitive marketplace. By meeting—or even exceeding—increased societal, regulatory and risk management expectations, businesses can build trust with stakeholders, enhance their reputation and drive long-term success.

By taking steps now to address these challenges and seize the opportunities they present, management teams can create value for all stakeholders, ensuring a viable future for their organizations and the communities in which they operate.

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