Applying ESG fundamentals from boots to boardroom

Ngaire Tranter, Principal, Wattle Environmental

For both sports and the mining game, Michael Jordan captured it best when he said, “Get the fundamentals down and the level of everything you do will rise.”

Since Environmental, Social and Governance (ESG) started topping the mining industry risk lists, the focus has gradually shifted from the fundamentals of social and environmental performance to branding and reputational management.

No one is saying that the latter is not important; however, there appears to be confusion about what ESG actually is, where it fits with business as usual, or whether it should even be there in the first place.

Think of ESG as the scoreboard in a cricket match, which allows spectators to know how their team is performing against a particular set of rules. Without ESG, interested parties (be they regulators, investors, shareholders or the wider community) cannot determine if you are playing by the rules or compare performance more broadly to understand if you’re delivering to a particular standard.

ESG as a concept is, in fact, 20 years old. It was introduced into the business lexicon in 2004 by a United Nations Compact explicitly focused on ensuring that capital investment considers the issue of sustainability. Since that time, numerous publications and guidance papers covering these themes have been developed by many of the world’s largest investment governing bodies.

Financial institutions and, more recently, private equity firms have been reliant upon these frameworks to make risk-based decisions on their investments in the complexities of mining projects.

Over time, this has permeated down into operational and internal organisational behaviours, which, on one hand, reflects the importance of communicating with cornerstone investors and, on the other hand, provides an easy way of communicating a broad array of environmental, social, and governance matters.

However, despite popular thinking, ESG, with all its rapidly changing terminology and catchphrases, is not the practice of managing your operational performance, being a good corporate citizen with your host communities or contributing to ecological gains in the long term.

It is simply a process for communicating to a particular and very influential set of stakeholders. In fact, I would argue it’s a concept that has been overused and applied in inappropriate settings, resulting in an oversimplification of complex challenges, expenditure in potentially the wrong places and, in the worst cases, causing unintended consequences.

Our industry can negate these issues by returning our focus to the fundamentals. And as an aside, this will assist with ensuring that our organisations don’t fall foul of criticism or disclosure-related compliance matters because of the ESG dial being turned up too high.

There are three key fundamental areas that require focus from mining organisations and their supply chain:

• Social and environmental performance within our operations and our host communities

• Corporate governance - the process of identifying and managing risks and opportunities in a strategic and values-driven way

• Sustainability reporting - the process of adopting appropriate reporting standards and transparently communicating relevant and material matters to the broad spectrum of stakeholders

Organisations and the people within them only have so much time. Given that sustainability, social and environmental matters span across companies and their operational footprints it’s vital that these three activities are incorporated into business as usual and that time is spent efficiently with outcomes in mind.

We’re looking at the actual functions of sustainability, social performance and environmental management practices as they function within an organisation.

Ideally, the split of time and investment should be at the foundational level of operations. Understandably, when new reporting standards such as the Australian Sustainability Reporting Standards (ASRS) are introduced or updated, there may be additional intensity of time spent on other elements; however, this should be project-based and should not distract from the grassroots functions of a mining organisation's business.

This ratio of time spent on each fundamental principle applies throughout the life cycle of a mining project. It’s reflective of the weighting that’s needed to bed down the foundations of our operational management, and social and environmental performance. And it should always apply from boots to board room.

I encourage those of you who aren’t getting your boots dirty to consider what you are missing from the fundamentals and what risks this is introducing to your organisation. Perhaps it's time to give the buzzwords a rest and get on with it.

Sustainability and readiness for the commencement of ASRS (which will affect all mining organisations and their supply chains in the coming years) mean that more than ever, we must pass the pub test.

How do we do this? By understanding our footprint, being confident that we know the practicalities, and transparently communicating with our vast array of stakeholders - not just the finance sector - and reporting our progress each step of the way.