Mining’s top ten ‘S’ trends in ESG for 2023

The full original article from which the below is adapted was originally published by The Northern Miner , written by Rachel Dekker and Elizabeth Freele, here.

To say 2022 was tumultuous is an understatement. War, inflation, climate disasters, energy crisis, political unrest, food shortages, inflation, supply chain disruptions, market volatility: the past year was anything but business as usual for most. ESG began to experience a backlash, facing criticism as a “woke capitalist” distraction. And while climate change continued to dominate, a growing focus emerged on social risks and impacts, including human rights, trust, social unrest, diversity and inclusion, and more.

With so much upheaval, it can be difficult to spot the trends and anticipate what lies ahead for mining company ESG journeys. As standards and regulations further embed social topics in expected ESG practice, you can expect “S” to feature more prominently this year. But what might that look like? Here is a summary of our top 10 “S” trends mining companies should take note of and take action on in 2023.

(1) Global crises driving local risk

2022 saw a confluence of global challenges that had decidedly local impacts, affecting the resilience of countries, regions, and communities. Cost of living increases pushed 71 million into poverty by August 2022. Socio-economic stress often leads to social unrest, likely to be a growing operational challenge at asset-level.

(2) Investors expecting more robust community practices

Codification of social management practices is maturing, including ICMM’s 2022 Performance Expectations and a growing list of industry and commodity-specific standards, principles, and protocols. Tailings management will be a key area of action as industry-wide implementation progresses on the Global Industry Standard on Tailings Management (GISTM), which contains a robust set of community-level requirements that don’t reflect most companies’ current practices.

(3) Mainstream operationalization of UNGPs

The UN’s Guiding Principles on Business and Human Rights (UNGPs) have rapidly become the global standard for corporate human rights and asset-level community feedback (or grievance) mechanisms. Multiple industry frameworks including the RGMPs, GISTM, IRMA, the Equator Principles, and ICMM PEs explicitly reference alignment with the UNGPs, and?even the new GRI Reporting Standards include UNGP disclosure. As human rights legislation proliferates globally in 2023, understanding your gaps in aligning with the UNGP “Effectiveness Criteria” will be essential.

(4) Drive to improve DEI performance

Amidst rapidly growing expectations of mining company action on diversity, equity, and inclusion (DEI), multiple reports have now revealed widespread discrimination, harassment, racism, and sexual violence symptomatic of industry-wide inadequate efforts to create safe and inclusive workplaces that attract and retain a variety of talent. Meanwhile, major proxy advisory firms update their proxy voting policies on DEI and asset managers seek disclosure on a broader range of DEI themes. Mining CEOs indicated to EY that DEI performance is the social topic on which they expect most investor scrutiny in 2023.

(5) Shifting materiality and ESG prioritization

As ESG continues to mature, companies will need to shift away from outdated disclosure processes that focus excessively on opinions of select stakeholders, in favour of more meaningful materiality approaches, founded on a robust analysis of impacts to prioritize ESG action, even when it's uncomfortable. 2023 will see “double materiality” emerge as foundational to effective risk management, with mining’s social impacts likely to demand more strategic attention. And with ESG litigation on the rise, weak action and disclosure means risking great financial, relationship, and reputational costs.

(6) ESG standardization and harmonization advances

Broad criticism of the vast inconsistencies among ESG disclosure standards, requirements, and related rating and ranking frameworks are prompting continued efforts to standardize and harmonize. 2023 will see the much-anticipated completion of the ISSB, setting THE global standard for (investor-focused) sustainability-related disclosure. Meanwhile, efforts to regulate ESG rating agencies will advance in the EU. As a systems lens emerges across the ESG landscape, calls for transparency seek to enable stakeholders to understand and compare the level of embeddedness and success of company ESG practices.?

?(7) Radical transparency

To help build credibility within an often-distrusted sector, both voluntary and mandatory disclosures are promoting radical transparency on impacts, risks, and performance, which will prove uncomfortable for many companies. The GISTM, GRI, EU Sustainability Reporting Directive (CSRD), and other initiatives will set a new tone in 2023 for disclosure on a broader range of topics to a broader range of stakeholders.

(8) Lens on value chains

The often hidden social risks and impacts in raw material value chains are shifting into focus. Mandatory due diligence and disclosure requirements are emerging across the world. While many emerging climate disclosure rules (expected in 35 jurisdictions) will cover Scope 3 emissions, human rights legislation has also been enacted or tabled in at least 15 countries, many with a growing focus on modern slavery and supply chain due diligence. Miners can expect more attention on their human rights performance from downstream value chain partners and investors.

(9) Growth of “green-hushing”

In 2022, numerous companies rushing to put out vague and lofty commitments, particularly on climate goals, faced significant accusations of greenwashing from critical stakeholders questioning the substance behind their objectives. We now see a growing new trend of "green-hushing." A recent South Pole report found that 25% of companies now don’t plan to talk about their science-aligned climate targets at all, usually to avoid scrutiny, thereby risking erosion of stakeholder trust and social acceptability.

(10) Taking a stance on social issues

Russia’s invasion of Ukraine demonstrated that not only consumer brands but mining companies, too, are expected to “care.” Several mining investors and operators opted to divest from or sell Russia-based assets and many more were compelled to issue position statements to clarify their rejection of Russia’s actions. The 2022 Edelman Trust Barometer suggested that “societal leadership” is now seen as a “core function of business”, but PWC’s 2022 Corporate Director Survey suggests that most Boards are still not substantially discussing social issues as part of their governance responsibilities.

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Though polarization and politicization of ESG are on the rise in the USA and beyond, the trend of ESG becoming embedded in global business and investment practices shows no signs of abating in the year ahead. The underpinning principles of managing business risk through responsible governance and sustainable operations remain valid as ever, regardless of the politics of the day. Miners and their investors will do well to ensure they are equipped to manage and govern responsibly in a world of volatility and increasingly interconnected human and environmental impacts; 2023 may just be the year to cultivate that crucial social performance skillset.

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Interested to learn more? Check out the full article at The Northern Miner. Be sure to check out the previous 2022 take too!

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Elizabeth Freele and Rachel Dekker are the co-founders and managing partners of mining sustainability think tank and ESG consultancy Sympact. Sympact supports companies in ensuring their social performance meets growing expectations through advisory services, training, and thought leadership products.