Why ESG poses the greatest risk and opportunity for the mining sector

When we think of the mining and metals industry, it’s not often associated with the superfluous buzzwords linked to environmental, social and governance (ESG) practices. The industry itself contributes to roughly eight per cent of the global carbon footprint, and in many cases, has been a cause for violating human and environmental rights. The two Vale dam bursts in Brazil in 2019 (and the most recent one in December 2023), and land disputes with Canadian Indigenous communities in July 2023 are only a couple of examples that shed light — or shadow, rather, on the contentious debate of whether to excavate.

The mining industry, though, does come with its perks. According to a 2022 Abacus Data poll, 80 per cent of Canadians showed support for Canada’s producers in the mining sector, largely due to its economic benefits, the creation of more jobs, and efforts to reduce negative environmental impacts. The sector’s increased participation with Indigenous communities continues to make headway in countries like Canada, the United States, and Brazil, among many other regions around the world. 

A 2024 study conducted by KMPG found that a strong majority (91 per cent) of Canadian mining leaders are hopeful that Canada will soon lead the world in critical minerals, and nearly all (98 per cent) industry leaders who were surveyed agreed that their respective organizations require more commitment from the government, greater investment, and better tax policies to bolster its progress. 

While experts agree that ESG issues have been further embedded in mining strategies, decision-making, projects and reporting, it also remains the highest risk for mining companies. If not adopted correctly, subpar ESG strategies could lead to under-investment and the closing of operations, hence Ernst & Young’s 2023 report on the top-10 business risks and opportunities to the mining and metals industry: ESG. 

But ESG is evolving in the mining sector, forcing miners to consider different issues and broaden their capabilities to manage them effectively. According to a 2024 EY report, the top ESG issues that are likely to face the most scrutiny from investors are waste management (44 per cent), climate change (31 per cent), water stewardship (31 per cent), and nature/biodiversity (28 per cent). Investors expect miners to better assess risks and opportunities and articulate these through transparent, outcome-based measurement and assurance. 

Curtailing the effects of climate change puts the mining sector at the forefront of finding transformative solutions to reduce its carbon footprint, and investors are also taking it seriously. According to a 2024 study by Ernst & Young, ESG issues were viewed as the biggest threat to the mining sector (24 per cent) among investors for the third year in a row, with the main priority being climate change responses and energy transitions (29 per cent). 

If such is the case, then the mining sector has a long road ahead. The same above-mentioned KMPG study conducted in 2024 found that less than a quarter (23 per cent) of Canadian mining leaders have formally committed to reach their carbon emission reduction targets by 2050 or earlier, while nearly the same proportion (24 per cent) have not yet formally committed to such targets, but are in the process of doing so. The same study highlighted that 10 per cent of mining leaders in Canada do not have either an ESG or carbon reduction strategy, and seven per cent have no plan to reduce their carbon footprint.

Environmentalism and governance are no doubt a part of the bigger picture within ESG, given 46 per cent of investors say the reduction of carbon footprint among producers will be the biggest structural change they expect to see in the industry, according to a White & Case 2022 Mining & Metals market sentiment survey. 

To address the ‘S’ in ESG, working toward a social licence specific to Canada requires compassion and respect for Indigenous history, Indigenous culture, and the impacts of intergenerational trauma from colonial development. It requires a sensitivity and understanding of Indigenous and social justice to fairly share opportunities and mitigate the impacts of mineral development. 

Carrying a social licence to operate (SLO), however, is also seen as the biggest risk facing mining companies today and increasingly becoming analogous to a mining permit, which can take between 10 and 15 years in Canada. A SLO is a reference to the discernment made by shareholders toward an industry, company, or project operating in any region considered legitimate or socially acceptable. 

Miners face new expectations, including contributing to livability and protecting cultural heritage. Long-standing challenges, such as strengthening Indigenous trust, require a more concerted effort. Recent pushback from several First Nations against Ford’s provincial government, for example, includes a filed case at the Ontario Superior Court of Justice arguing that the current system is in direct violation of their Treaty and Charter rights, given that miners are permitted to stake claims without consulting First Nations. 

The province argues it has its own right to mine land that is separate from the right to own it. If organizations are genuine about their commitment to further true reconciliation and provide adequate value to help vulnerable communities thrive for future generations, it may continue to attract support from investors, the government and Canadians alike.

The past few years, however, have shown strong favourability among the Canadian public for mining in the country. In fact, in 2022, 88 per cent of Canadians approved of mining in Canada, if companies adhered to the standards of TSM (Towards Sustainable Mining) developed by the Mining Association of Canada. And with ESG now being an integral facet in the mining industry, pressure is growing to advance current standards of evaluation and performance, especially as it relates to transparency and assurance. 

The impact of artificial intelligence (AI) on the mining sector is another component to consider, given its rapid-fire expansion across several industries and its demand reaching sprawling heights. AI is gathering data throughout each step of the mining value chain, including navigating mines with autonomous vehicles, optimizing plant processes with advanced precision extraction methods to identify mineral deposits, predicting maintenance measures through sensor data to analyze potential pitfalls, and issuing predictive methods to enhance demand forecasting by accommodating product and inventory. 

At the pace it is currently running, the need for minerals and metals, especially silver, lithium, copper, nickel, palladium and gold, is consequently mounting. Big players in the mining game are investing in joint ventures or partnering with organizations in a collaborative effort to access or gain capital, amalgamate novel skills in highly specialized areas, and work to rub shoulders with the government. Take Ivanhoe Electric’s alliance with Ma’aden Aluminum Company in Saudi Arabia, for example, which is using AI technology for mineral exploration.

In years ahead, more rigorous reporting will become critical if companies are to meet growing expectations from investors and avoid accusations of “greenwashing,” a term that reflects misleading or false prerogatives about the environmental benefits of a product or service. Miners that achieve this can get an edge on competitors in many ways — from accessing capital, to securing a license, to operating and attracting talent. Otherwise, investors may opt out of investing in mining companies that do not operate in accordance with decarbonization targets or activities. Such considerations of sustainability are pivotal to matters of transaction, which could make or break the mining sector. And in this case, the weight of ESG practices may be worth more than gold.

Lisa Byers comes from a mixed background of advertising, research, and community engagement, having worked and volunteered for the likes of Leo Burnett, Ogilvy, United Nations, McGill University and Ipsos Public Affairs.