Mining

The mining sector is subject to evolving and expanding expectations from stakeholders including communities and their representatives, host and home governments, NGOs, civil society, project finance institutions and the media.

As mining companies exhaust the more ‘easily’ accessible resources, exploration and extraction activities are moving into ever-more difficult terrain, often in emerging economies or regions of weak governance where there may be active or recent conflict.

Key challenges and opportunities

Climate change and water impacts

Resource extraction and production are both energy-intensive and water-intensive. With climate change and stress to freshwater resources at the top of the agenda for most stakeholders, mining companies are actively addressing the risks and opportunities associated with both issues.

Leaders in the sector are progressively reducing the GHG emissions and energy consumption at the operations level while conducting water ‘footprints’ to determine the risks and opportunities associated with their water use and to implement efficiency initiatives to reduce their demand, especially in areas where freshwater sources are limited or under severe stress.

Revenue transparency

Despite efforts such as the Extractive Industry Transparency Initiative (EITI), mining companies continue to face considerable obstacles in their ability to disclose revenues in some of the markets where they operate. Examples range from lack of transparency in transfer-pricing agreements to lack of reporting on revenues accrued from joint ventures and subsidiaries. In both cases, companies and host governments are keeping information from community stakeholders and allowing the possibility of corruption and disproportionate profit taking.

The list of countries participating in the EITI continues to grow and there is a significant list of candidate countries including the Democratic Republic of Congo and Iraq. Further, a provision in the recent US Frank-Dodd Reform Bill requires companies involved in the “commercial development of oil, natural gas, or minerals” who are registered with the Securities and Exchange Commission (SEC) to report to the US government all taxes, payments and royalties paid to foreign governments.

Sustainable communities

It has become a business imperative for companies involved in global resources exploration and extraction to demonstrate their ability to contribute to long-lasting sustainable community development. Social investments are often a condition of IFC financing or a contractual obligation. This not just a mere cost of business but a right to access mineral wealth that is often articulated as a contractual obligation and vital to securing a ‘social licence to operate.’

There may be a considerable lag before new extractives projects generate taxes or royalties that governments can spend on social and economic development, especially with green field projects. Further, today’s in situ oil, gas and mining operations are highly technical and mechanized, creating fewer prospects for employment beyond the construction phase. For extractives companies, aligning their efforts at the operational level with local needs, values and concerns helps create value for host communities over the decades that resource extraction is likely to occur.

Human rights and security

Companies in the resource sector often operate in zones of weak governance where institutional capacity for protecting human rights may not exist. Host governments may also consider active mines to be assets of national importance requiring protection by security forces at the cost of the peace and prosperity of local communities

Leaders in this sector have all developed and implemented human rights statements or policies and conduct extensive training programmes for their managers, employees, contractors and security providers. Further, companies may subscribe to the Voluntary Principles on Security and Human Rights, an initiative by governments, NGOs, and companies launched in 2000.

Further, in the wake of several completed and pending lawsuits against resource companies, the United Nations General Secretary named Harvard Professor John Ruggie the United Nations Special Representative of the Secretary General on human rights and transnational corporations and other business enterprises. Prof Ruggie has since developed a ‘protect, respect and remedy’ framework.

While the obligation to uphold human rights principles rests with governments, all actors in society – including businesses – have a responsibility to promote and respect human rights, particularly of those people directly affected by their operations. Beyond the obvious reputation, legal and human costs, companies involved in allegations of human rights violations may experience unforeseen negative consequences. Companies may be hesitant to enter new operating environments where similar conditions occur, or may lose their social or legal licence to operate, affecting the viability of new projects and resulting in lost opportunities.

Sustainability reporting

In the US, as noted earlier, forthcoming legislation requires SEC-registered mining companies to report taxes, payments and royalties to foreign governments. It is incumbent on companies processing minerals such as coltan and gold to disclose to the SEC whether these are ‘conflict minerals’ from the Democratic Republic of Congo (DRC) or adjoining countries. Indeed, companies throughout the minerals value chain are obliged to validate chains of custody. Companies who report taking no action if they find they are sourcing from the DRC face no financial penalties as such but their sourcing practices have to be independently audited and published.

There are other powerful reasons for extractive companies to report and engage. Global stories – in particular, the 2010 Deepwater Horizon oil spill – are prompting them to reinforce their sustainability systems and disclosure plans. They are also responding to customer (and consumer) expectations of brands such as Tiffany’s. The GRI puts the case well and also uses sector specific supplements – the GRI Mining and Metals Sector Supplement was finalised in 2010. The International Council on Mining & Metals mandates reporting and assurance to its 20 members.

Credentials

• We have been helping global mining company Rio Tinto develop its approach to social and environmental reporting since 2004.
• We worked closely with the global steel company ArcelorMittal for three years between 2006 and 2009. This work included strategy development, reporting, development of policies and guidelines and implementation of stakeholder programmes. Of particular note, we helped the company develop its first CR review.
• We have been providing AA1000 assurance to Holcim since 2006. In addition, in 2009 we helped establish a stakeholder panel to provide input into Holcim’s materiality assessment and report development.
• We helped Arup develop its strategy for providing infrastructure services to the extractives industry.
• We supported the 20 members of the International Council on Mining & Metals by coordinating their contribution to the development of the mining and metals sector supplement to the Global Reporting Initiative’s G3 Sustainability Reporting Guidelines.