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Emerging ESG issues in mining for 2024

ESG 2024

Expect to see a greater environmental, social and governance (ESG) focus in the mining industry in 2024.

Requirements for disclosing climate and nature-related financial threats, opportunities and responsibilities for protecting human rights (including Indigenous people) are key emerging ESG trends for mining companies in 2024 and beyond.

That is the view of Kate Vershinina and Ludovic Rollin, principal and senior ESG consultants, respectively, at SRK Consulting.

“Mining companies will have to consider additional ESG risk factors in 2024 that they haven’t looked at in as much depth before,” Vershinina said. “Of course, every mining project is different and has its own ESG risks; however, mining companies will generally face heightened ESG risk reporting requirements in the year ahead.”

Rollin said stakeholders will increasingly apply a human rights perspective when evaluating the performance of mining companies.

“From access to land, clean water or the protection of cultural heritage … human rights are fundamental factors of ESG trends,” he said. “Communities will increasingly exercise their rights to free, prior and informed consent about mining projects that may impact their land, livelihood and environment – and confront more projects on those grounds.”

Vershinina and Rollin stressed that decarbonisation, nature positive and social licence to operate are not new ESG issues. Rather, the growing awareness of ESG-related risks in the mining industry requires organisations to further disclose their strategies and performance addressing those risks, and these requirements will increase in coming years due to ongoing regulatory and social changes.

“Some mandatory ESG reporting requirements will come with new changes in national legislation with regards to climate-related financial disclosure, the protection of human rights and the environment,” Vershinina said.

“Other good ESG practices and voluntary reporting will be driven by international standards for responsible mining.”

“In addition, financial markets will continue to push the bar for higher ESG strategy and performance disclosure along with the rise of stakeholder expectations in the resource sector.”

Vershinina and Rollin note the interconnection of emerging ESG trends.

“Ultimately, these trends are connected by natural disasters linked to climate change,” Rollin said. “Stakeholders will want more information on how mining companies plan to decarbonise their operations, how they can deliver nature positive outcomes at a project, and how their project protects human rights.”

Here’s a snapshot of the three emerging ESG trends Vershinina and Rollin believe will underpin the mining industry in 2024.

Mining companies will be increasingly held accountable for a lack of environmental vigilance. Image: SRK.

Decarbonisation strategy and disclosure

The Federal Government’s proposal, Climate-Related Financial Disclosure, could mean companies across industries have to disclose climate-related information as part of their general financial reporting.

For some companies, the changes could start as early as the 2024–25 financial year.

In October 2023, the Australian Securities & Investments Commission (ASIC) described the shift to mandatory climate-related disclosure as the “biggest change to corporate reporting in a generation”.

“As the world grapples with climate change, regulators, investors and the wider community are increasingly expecting businesses to be clear about how they are managing the risks and opportunities presented by this global challenge,” ASIC chair Joe Longo said.

At this stage, final details of the climate disclosure reform is unknown. In October 2023, the Australian Accounting Standards Board (AASB) released an exposure draft, Australian Sustainability Reporting Standards – Disclosure of Climate-related Financial Information. Consultation ends on 1 March 2024.

However, the strategic direction of the proposed reform is clear. The government wants companies to shift from a compliance mindset with climate change reporting to one that uses these disclosures to better inform stakeholders of an organisation’s climate risks and opportunities, and how the organisation intends to create long-term value for stakeholders through decarbonisation.

Vershinina said mining companies will have to consider how they communicate their decarbonisation strategy in 2024, with good practice seeing initial reporting followed by the delivery of a clear decarbonisation strategy.

“This change is about much more than disclosing specific climate-related risks,” she said. “Fundamentally, it’s an opportunity for mining companies to disclose their broader strategy for a clear path to decarbonisation.”

Communicating decarbonisation strategy will present new challenges, Vershinina believes.

“Reporting on carbon emissions and other climate-related information is important, but it’s essentially quantitative information on what’s happened,” she said.

“Disclosing decarbonisation strategy is forward-looking and raises questions about the required capital expenditure for the organisation to adapt to climate change.”

Adding to this complexity is heightened regulatory focus on ‘greenwashing’, where companies claim to be environmentally friendly, sustainable or ethical for marketing or investment purposes but have provided unclear sustainability-related considerations for investment strategies.

Rollin said mining companies will need to find the right balance with their decarbonisation communication.

“Companies will be expected to provide clearer information and demonstrate allocated realistic resources to support their decarbonisation strategy,” he said. “But if they overpromote their strategy or do not match it with sustainability-related actions, they could be pursued for greenwashing by the Australian Competition and Consumer Commission.”

A Federal Government proposal could mean mining companies have to disclose climate-related information as part of their general financial reporting. Image: SRK.

Biodiversity protection

Vershinina believes that nature-related risk management and potential limitations related to reporting of biodiversity issues will be of higher concern for mining companies in the coming years.

“As stakeholder focus on nature positive grows, companies will need to understand their nature-related dependencies, threats and opportunities, how they incorporate nature into their business strategies, and how they report and act on evolving nature-related issues,” she said.

“This is particularly critical if an organisation has identified material nature-related dependencies, impacts, risks in its operations or value chains, or is located in areas of particular importance for biodiversity protection or Indigenous Peoples, communities and wider stakeholders,” she said.

In December 2022, the Australian Government released its Nature Positive Plan: Better for the Environment, Better for Business. The report was a response to the Independent Review of the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act), released in October 2020.

New national environmental law will cover matters of national environmental significance, restoration actions and restoration contributions, regional planning, communication engagement and consultation, First Nations engagement and participation in decision making, and data and information.

A draft set of environmental standards is expected to be published later in 2024, following consultation taking place until 30 March 2024.

The Federal Government is also committed to establishing an independent national environmental agency – Environmental Protection Australia (EPA) – to ensure compliance with the new Act.

New laws are also being prepared to create an independent head of Environmental Information Australia (EIA), who will oversee State of the Environment reporting and other environmental data.

Vershinina said the likely result of these and other expected environmental requirement changes is that Australian miners that have relied on voluntary biodiversity codes, such as the International Council on Mining and Metals’ Good Practice Guidance for Mining and Biodiversity, will face heightened requirements on biodiversity outcomes in the coming years.

“Stakeholders will expect clearer information on the biodiversity protection strategies of mining projects,” Vershinina said. “They will want to know if a company’s policies and activities are appropriate for managing an organisation’s nature-related risk.

“Mining companies will need to clearly state their approach to material nature-related risks. They will also have to work closer with First Nations communities and other stakeholders affected by adverse impacts from nature loss.”

Rollin said that the proposed changes represent a major shift in biodiversity protection for mining companies in Australia.

“These changes will go well beyond the traditional avoid, mitigate and compensate approach to minimise the impact of activities on habitats and species,” he said.

“This is about mining companies creating a ‘nature positive outcome’ at their project, as Australia follows international trends on biodiversity protection and reporting practices.”

Biodiversity reporting will become a bigger issue for mining companies in the coming years. Image: SRK.

Human rights considerations

Vershinina and Rollin believe that regulatory changes to climate-related disclosures and new national environmental laws in 2024 will require mining companies to bring forward stakeholder engagement on projects.

“If companies wait until the design phase of their project to engage with a local community, it will be too late,” Vershinina said.

“Traditionally, some companies have felt it’s too early to engage at the exploration phase because it’s unclear if the project will move into production. That approach has greater risk today because communities are far more connected due to technology; they have a greater understanding of their rights, and are more sophisticated in their opposition.”

Vershinina said resource depletion might cause potential competition for those scarce resources, which will also require earlier community engagement. Water is one of the examples.

“As Australia experiences more droughts and floods, competition for clean water resources will grow,” she said. “Communities will want more information on how a mining project’s need for water will affect the community’s access to water, or access by other industries, such as agriculture.”

The opportunity, Rollin said, is for mining companies to engage early with stakeholders to understand their concerns and consider how it is aligned with the company’s policies, while also ensuring that stakeholders’ needs inform the company’s ESG strategy.

“A mining company could discuss the use of renewables at a potential project and how those assets could be shared with a remote community, for example,” Rollin said. “Or how new industries and opportunities could be created for communities when the mine closes.

“The key is to have this engagement as early as possible, to help communities better understand their project and to gain their view on ways to create shared value.”

SRK Consulting is a leading, independent international consultancy that advises clients mainly in the earth and water resource industries. Its mining services range from exploration to mine closure. SRK experts are leaders in fields such as due diligence, technical studies, mine waste and water management, permitting, and mine rehabilitation. To learn more about SRK Consulting, visit www.srk.com

This feature appeared in the February edition of Australian Mining.

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