Does ESG contain the seeds of its own destruction?

Los Bronces

TALK about a pickle.

Mining companies worldwide are in a new scramble, and it is one aimed at green metals or ‘critical minerals’. These include copper, cobalt, nickel and lithium, and they are indeed critical to unlocking new energy sources to replace the fossil fuels linked to climate change.

The trend is being fuelled by growing concerns over environmental, social and governance (ESG) factors, which have become almost wired into the DNA of corporate capitalism in the 21st century. Mining boardrooms have embraced this wide agenda, not least because of the sector’s legacy issues and also with an eye to a rapidly evolving regulatory environment.=

But here’s the rub: a perception has emerged that this same ESG agenda is hampering the mining sector’s ability to get critical minerals projects off the ground.

“ESG is driving an increasing demand at the same time as it is constraining supply. That’s exactly what’s happening,” Rohitesh Dhawan, CEO of the London-based International Council on Mining and Metals (ICMM), said in an interview.

There are a number of recent high-profile green metals projects that have been scuppered by ESG issues. In January 2022, the Serbian government, in response to public pressure stemming from environmental concerns, pulled the plug on a $2.4bn lithium project being pursued by Rio Tinto, which had already spent $450m on the boondoggle.

Also this year, Chile’s new leftist government rejected the environmental permit application for the extension of Anglo American’s Los Bronces copper mine amid a public outcry over its proximity to a glacier.

Meanwhile, gold projects – which often include copper potential – are getting snagged up. AngloGold Ashanti’s gold/copper Quebradona project in Colombia, for example, has been delayed by up to two years by the country’s environmental regulator.

This article first appeared in The Mining Yearbook 2022 which can be accessed free of charge here >>

“The world will be short of these green metals and therefore the transition into battery metals will be unaffordable, which – and I wouldn’t say it’s our view – means the penetration rates that the world expects from battery-powered vehicles is going to be much lower and the internal combustion engine is going to be here much longer,” Neal Froneman, the CEO of diversified miner Sibanye-Stillwater, which has branched into green metals, said in an interview.

The stakes are high as demand for such minerals is set to explode.

“The shift to net zero will require more mining, not less. The rapid scaling of the low-emission energy systems of the future — solar and wind power, electric vehicles (EVs) and grid-scale batteries — will be highly material-intensive. The production of a solar farm requires three times more mineral resources than a similar-sized coal plant, and constructing a wind farm needs 13 times as much as a comparable gas-fired plant,” accountancy firm PwC said in June in its annual report on the world’s top 40 mining companies.

For four commodities which are the most constrained – copper, platinum, nickel and lithium – we think that you can only get to 40% of the emissions reductions to meet the Paris goals by 2030.

“Demand for critical minerals is expected to grow significantly over the next three decades. The International Energy Agency estimates that the annual demand for critical minerals from clean energy technologies will surpass $400bn by 2050, which is equivalent to the annual revenues of the current coal market. This might seem like a long way off, but miners are already struggling to keep up with the demand for critical minerals.”

Falling short

“We can put some hard numbers on it,” says ICMM’s Dhawan. “For four commodities which are the most constrained — copper, platinum, nickel and lithium — for those we think that you can only get to 40% of the emissions reductions we need to meet the Paris goals by 2030, because the rest is constrained by a lack of availability of metals.”

Dhawan is referring to broadly agreed international targets to cut the carbon emissions that the vast majority of scientists have linked to rapid climate change and extreme weather events.

That’s a sobering forecast which, as Sibanye-Stillwater’s Froneman says, could keep the internal combustion engine on the road for much longer than anticipated.

But it’s not all doom and gloom.

“This demand-supply gap isn’t going to delay action, but it is going to spur innovation. It is going to get new technologies quicker to market to extract metals and minerals in more efficient ways and in newer ways than we have done before,” Dhawan says.

As an example, he notes the rise of “regeneration mining”, which has its roots in the remining of tailings dams for gold on the Witwatersrand. This is a Rio Tinto initiative that has wide applications across the industry.

Rio has partnered with RESOLVE, a Washington-based non-profit organisation, to launch Regeneration, a startup aimed at extracting critical minerals from waste dumps and tailings.

Dhawan says this is “a new kind of business model and technology solution that will see us mining mine waste to extract metals and minerals because that waste pile already exists. In the past we did not have the technology or the will or the business models to access these assets.”

Human rights

The rights of communities around the world who live in proximity to transition minerals will also come sharply into focus.

“As the pace and scale of the energy transition accelerates, and demand for minerals likewise increases, scrutiny of these mining projects is likely to intensify, including from their earliest exploration phases. A responsible, human rights-centred approach to transition mineral extraction, built on the foundation of community consultation and consent, can create value and mitigate risk for investors and communities alike. Communities … increasingly demand this of the corporations seeking entrance to their land,” the Business and Human Rights Resource Centre said in a recent report.

In the US, where such minerals are regarded as having strategic as well as commercial value, the report pointedly notes that most of the “untapped transition minerals in the country — 97% of nickel, 89% of copper, 79% of lithium and 68% of cobalt — are within 55 kilometres of Indigenous American reservations”.

Phil Bloomer, executive director at the Business and Human Rights Resource Centre, says a long history of dispossession has left many indigenous people worldwide in close proximity to the resources now needed for the energy transition.

“Since colonial times indigenous peoples have … been shoved into lands that were seen [to be] without value, and suddenly those critical minerals that are in the sub-soil are now extremely precious to us.”

South Africa’s former homelands, or Bantustans, relics of rural poverty most black South Africans were forced to call home under apartheid, are a case in point. They straddle much of the country’s platinum belt and remain flashpoints of social unrest, a state of affairs that is often rooted in failures to consult broadly with communities. Such ructions can and have had material impacts on production.

ICMM’s Dhawan notes that mining companies are quickly reducing their CO2 emissions, helping to ease some of the environmental concerns around the mining industry.

Nature-positive: staying ahead of the curve

Another scramble that is going on is mining companies launching their own ESG initiatives, partly in a bid to stay ahead of the regulatory curve, and partly to meet growing investor demands.

Teck Resources, one of Canada’s leading mining companies, with copper and nickel assets, earlier this year announced a goal to become “a nature-positive company including through conserving or rehabilitating at least three hectares for every one hectare” affected by its mining activities.

“For Teck, working to become nature-positive means that by 2030, our conservation, protection and restoration of land and biodiversity will exceed the disturbance caused by our mining activities from a 2020 baseline,” it says.

Its ESG commitments include a $10m Indigenous Stewardship Fund to support such communities in the regions in which it operates.

Sibanye-Stillwater, in partnership with the Endangered Wildlife Trust (EWT), a South African conservation NGO, has undertaken what it says is a global first to measure its total biodiversity footprint at all of its direct operations.

This is aimed at arriving “at a state of net zero environmental deterioration and/or a net gain” when mines are being closed and the landscape rehabilitated.

What this effectively means is an undertaking to return the mined area into the natural state that obtained when operations began.

“Footprinting allows companies to track and manage improvements against an established baseline to act responsibly for their impacts. Restoring an inherited trashed wetland to a functional state, for example, could be seen as a net gain,” says Gabi Teren, a programme manager at EWT.

Mining companies are being proactive as regulations worldwide tighten just as this new minerals rush is gaining pace. From nature-positive to net zero emissions targets from specific baselines, an entirely new vocabulary has emerged – a boon to consultants, among others. But it does herald a cleaner and greener mining industry.

Still, the bottom line is that for countries and the global economy to reach various emissions targets, critical minerals need to be mined and produced at a faster pace in the face of new and increasing hurdles.

Mining projects are long term and boardrooms will be increasingly wary about making final investment decisions in the wake of Rio Tinto’s Serbian fiasco, which cost the company $450m.

This is an expensive lesson, but critics might note that it is one Rio and other mining companies can learn from.

Since colonial times, indigenous peoples have been shoved into lands that were seen [to be] without value, and suddenly those critical minerals that are in the sub-soil are now extremely precious to us.

The Business and Human Rights Resource Centre, in its report which covers the issue, points out that rural communities in the vicinity of the lithium project believe Rio provided little information and what it did provide was seen as confusing and even inaccurate.

Fairly or unfairly, this was the perception and it fuelled public discontent with the project. Consulting widely with communities and other stakeholders – armed with data on the existing state of the target environment – can make all the difference in the early phases of a project.

Meanwhile, the race is on to cut the carbon emissions that are warming the planet, and that is going to require a massive pipeline of critical minerals projects. One irony may well be that the mining industry reaches its own emission reduction targets long before the world meets those established in Paris – not least because green metals will be in short supply.

This article first appeared in The Mining Yearbook 2022 which can be accessed free of charge here >>