At KPMG’s 16th Annual Mining Executive and Director Forum held virtually on Jan. 19th, we interviewed mining executives Randy Smallwood, president and CEO of Wheaton Precious Metals Corp. and current chair of the World Gold Council, and Marcia Smith, senior vice-president of sustainability and external affairs at Teck Resources Ltd. on the challenges for businesses and investors alike to respond to ESG risk management and performance.
Many mining companies have been practising responsible resource development long before sustainability became a mainstream business theme.
After all, mines can’t be built without a social licence to operate, which comes from the general, ongoing acceptance from local communities, Indigenous peoples and governments to extract resources from their regions.
However, increasing investor concern in how miners manage extra-financial risks and acknowledgement of the industry’s role in providing critical materials for the transition to a low carbon economy has stressed the importance of mining’s commitment to improving environmental, social and governance (ESG) performance.
In KPMG’s latest global mining risk survey, 91 per cent of industry respondents said having a clear ESG strategy was imperative, while 83 per cent said their success is measured against ESG targets.
Although 92% of Canada’s top 100 companies (by revenue) now report on sustainability according to the 2020 KPMG Survey of Sustainability Reporting, an issue for miners is how their ESG efforts are being measured amid a growing number of national and international standards. KPMG’s 2020 global mining risk survey) highlights that only about 35 per cent of respondents globally and 27 per cent in Canada agree that investor ESG expectations and measures are clearly understood and consistent across the market.
“This can make it challenging for businesses and investors alike to respond to ESG risk management and performance,” said Roopa Davé, a partner in KPMG's Sustainability Services practice.
Davé mentioned various initiatives have arisen in attempt to standardize ESG frameworks to satisfy both the growing investor appetite to measure and monitor sustainability performance and companies’ ability to respond.
Teck Resources Ltd., a Vancouver-based producer of copper, steelmaking coal and zinc, is “very committed to responsible mining and mineral development,” Marcia Smith, the company’s senior vice-president of sustainability and external affairs, said during the KPMG mining forum.
“It’s not a stretch to say sustainability is really at the heart of everything we do,” she said. “That may sound sort of corny to people, but it really isn’t. It’s part of what we do every day as we produce the materials the modern world needs.”
Smith said communities, Indigenous Peoples, governments and investors, expect the company to meet ambitious and continuously improving ESG standards.
“If we can’t do that then ultimately, we will not be able to deliver value to our shareholders,” she said.
In March 2020, Teck set a goal to be carbon neutral across its operations by 2050 and has several measures to meet that goal, including reducing emissions and using cleaner power sources.
“We are proud of the progress that we’re making,” Smith said, “but there is no doubt in our minds that the work we have to do in ESG and sustainability is a constant work in progress. I think that’s the whole point: it is a continuous improvement journey.”
Randy Smallwood, president and CEO of Vancouver-based Wheaton Precious Metals Corp., which invests in mining companies through streaming agreements, said ESG performance is critical when deciding which companies to do business with and invest in.
“I can’t underscore the importance of being selective about where we invest,” he said during the KPMG forum.
“We want to make sure the assets we’re investing in have good foundations and good strength behind them,” he added. “Long term success in any industry, in any business, requires a good strong, holistic approach…. ESG is an important part of that: the licence to operate and to function.”
Smallwood acknowledged that Wheaton has a unique position as both an investor and company responding to its own investor needs. That perspective allows his company to work directly with its mining partners to ensure their ESG practices are aligned and up to the standards that Wheaton is measured on as well.
“We have an overlying mantra at Wheaton: ‘The more successful our partners are, the more successful we are,” he said.
Both Smith and Smallwood agree there are challenges to meeting ESG expectations given the different and growing number of local, national and global standards.
“I think the world needs to move to some standardization,” Smith said, describing the current roster of frameworks as “slightly overwhelming.”
Teck has aimed to narrow down its frameworks by choosing those it believes are most relevant to its operations such as the Global Reporting Initiative (GRI), the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB). Teck is also a member of the Mining Association of Canada, which has the Towards Sustainable Mining (TSM) standard, and The International Council on Mining and Metals, which has its own ESG principles.
Smallwood, who is also the current chair of the World Gold Council, said miners are constantly improving their ESG performance but agrees a more consistent reporting framework will help the companies and investors measure and analyze their results and is a driver for his involvement with the World Gold Council. Ultimately, a lot of these standards and frameworks have significant overlap, and it’s a matter of understanding that and focusing on what is important or material to the business and its stakeholders.
“It’s all good business [and] required to be successful,” he said of responsible mining practices. “We are always improving; it’s a journey we’re all on. So much of it comes down to how do we report our efforts and show some of these benefits and the progress being made… It’s a matter of putting those frameworks in place.”
And while it has historically been difficult to measure the direct shareholder benefit of having a strong ESG performance, Smallwood said companies that maintain a strong social licence tend to be more successful, which is reflected in how they’re valued by investors.
“When a company has a strong reputation, you can sense the level of comfort that shareholders and investors have with respect to that company versus ones that are a little bit more challenging and riskier,” he said. “It does make a difference from the investing side.”
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Best practices for implementing and reporting on World Gold Council RGMPs