Although mining companies are currently dealing with COVID-19 and the immediate requirements to comply with social and physical distancing requirements in their mine operations, and ensuring the safety of their employees and customers, it does not mean that the trends we were seeing prior to February 2020 are simply going to vanish.
While liquidity and workforce considerations will be top of mind for the boards of mining companies over the next few months, environmental, social and governance (ESG) factors are nonetheless becoming an increasingly prevalent focus for the mining industry and mining companies. Although Canadian securities exchanges and Canadian Securities Administrators have extended deadlines for reporting issuers to hold annual general meetings and file certain financial statements, annual reports and proxy circulars will still have to be published and filed in 2020. Additionally, investment decisions will continue to be made each day, despite the uncertainty we are experiencing in the equity and debt markets. Mining companies’ disclosure materials relating to ESG factors will remain relevant notwithstanding COVID-19.
Both “socially conscious” investors and investment firms generally are considering ESG criteria when evaluating mining companies. These factors are central in measuring the sustainability and societal impact of an investment, and we are seeing a high correlation between strong ESG and long-term investment performance.
ESG-aware investors want to know that mining businesses understand, and are actively taking steps to manage, mitigate and reduce, ESG risks. They want evidence that the board and the executive team are addressing ESG risks in the corporate strategy, and that governance protocols and operational systems are in place for assessing ESG performance, and holding the board and executive team accountable. ESG-focused mining boards are viewed as essential in driving the move towards a more sustainable future.
Investors are also holding mining companies to increasingly higher standards of accountability, particularly in the environmental context. Shareholder activists are leading the drive for mining companies to reshape their asset portfolios by either modifying existing operations or divesting operations that do not meet key ESG performance indicators.
As investors have increasing options with respect to where they invest their money, we are seeing this translate into an expectation that mining companies will improve their ESG performance. For those that do not evolve with these shifting investor demands, the pool of capital available to them is expected to decrease. On the other hand, mining companies that adopt and implement transparent and measurable ESG strategies / KPIs will likely have a greater amount of capital available to them and at a lower cost. One significant environmental concern that mining companies will need to continue to focus on is surrounding water scarcity. Investors expect mining companies to adopt different ways of either removing or reducing water consumption from mining processes. Water sent to tailings ponds and evaporation from dams / tailings ponds currently represents a significant loss of water in many mine operations. One global mining company is working towards the development of a fully “waterless” mine with the ultimate goal of eliminating the use of fresh water from all of its processing operations. Other mining companies are researching and testing dry (non-aqueous) processes, and collecting and analyzing data on water evaporation.
With contributions from Kendal Allemekinders student-at-law.