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Harmony, Gold Fields lead reporting on ESG issues in SA - Moneyweb

Tuesday, 2 February 2021

Gold mines do better than the rest of the industry with regards to environmental, social and governance issues.

Mining is traditionally a dirty and dangerous business. Mining operations have a huge impact on the environment, often affect the health of their workers and are regularly accused of not doing what they should in the communities in which they operate.

Things are improving. In the case of formal mining companies, mines admit their shortcomings and strive to improve their environmental, social and governance (ESG) performance.

All the mining groups in South Africa have set goals with respect to their ESG metrics and report on them extensively, giving stakeholders and critics the opportunity to measure their compliance and progress.

With regard to reporting on ESG issues, gold mines seem to be better than other mining companies in SA, according to research published by Risk Insights and Instinctif Partners. Risk Insights is a risk management company and Instinctif Partners is a business communications firm focusing on ESG reporting.

Risk Insights has developed its own proprietary ESG rating tool which management says uses artificial intelligence and machine learning algorithms to analyse publicly available disclosure reporting, integrated reports and media coverage to produce ratings for companies based on ESG metrics.

It has just published a ranking of listed SA mining companies based on the companies’ 2019 annual reports (the most recent available for all the companies).

Risk Insights notes that the research and rankings are based on disclosure of ESG metrics and not the actual performance. However, one can argue that reporting and measuring ESG metrics would go hand in hand with a company’s actual efforts to improve its governance and social and environmental impact.

'Critical component’ of disclosure

An increase in stakeholder focus on ESG has exacerbated the need for mining companies to assess ESG risks and opportunities as a critical component of their disclosure, says Anashrin Pillay, CEO of Risk Insights.

"Many mining companies in South Africa have implemented voluntary ESG reporting standards over the last few years.

"Our research shows that governance disclosure still makes up more than 60% of total disclosure on average for the mining sector in 2019. Social factors [are] at 18.7% and environmental disclosure is [at] 21.1%," says Pillay.

While the Risk Insights ESG database includes data for all listed companies on the JSE from 2016 to 2020, the mining sector is of particular importance due to its perceived and actual impact on people, communities and the environment. In addition, mining is still big business in SA.

The research report notes that mining companies constitute approximately 10% of the total market capitalisation of the JSE, contribute 9% to SA’s GDP and account for close to 3% of employment.

The research was conducted across the 36 listed mining companies.

The 10 best listed mining companies ranked according to ESG disclosure

Company ESG score %
Harmony Gold 102 661 15%
Gold Fields 90 583 14%
Sibanye-Stillwater 78 466 12%
Kumba Iron Ore 67 981 10%
Glencore 60 457 9%
AngloGold Ashanti 60 413 9%
Anglo American 52 911 8%
African Rainbow Minerals 52 769 8%
BHP Group 48 947 7%
Exxaro Resources 47 888 7%

The research has shown that SA mining companies have good disclosure overall, especially gold mines, according to researchers.

The ESG ranking of SA mining companies sees Harmony Gold, Gold Fields and Sibanye-Stillwater occupying the top three positions in terms of overall ESG disclosure, with other gold mines on the list of the top 10 too.

Kim Polley, managing partner of Instinctif Partners, says it isn’t surprising that the gold miners rank so well. "The industry has been robustly regulated for a number of years and has made many strong commitments towards ESG and sustainability goals globally.

"In fact, the World Gold Council published a report entitled 'Gold Mining’s Contribution to the UN Sustainable Development Goals’ in December 2020 that outlined how leading gold mining companies are making a significant contribution towards the UN’s sustainable development goals.

"However, what is key is that there is a clear opportunity for other commodity miners to step up their own ESG agendas too," says Polley.

Environment impact

In a sector where environmental factors are top of mind, Harmony Gold, Gold Fields and Sibanye-Stillwater are the top ranked companies in terms of environmental disclosure.

"Mining companies are facing sharper scrutiny of the way they handle various environmental issues, including pollution, waste-water management, habitat protection and site rehabilitation.

"This growing emphasis on ethics and sustainability is being driven by customers, investors, regulators and industry initiatives, as well as a genuine desire among companies to operate in a sustainable way," says Polley.

She notes that environment issues are important in terms of impact investing, which is growing in popularity.

Social responsibility

The gold miners again come out as the top ranked companies in terms of social disclosure, where measures like employee health and wellness are considered. A big focus is the upliftment of communities in which the miners operate and the securing of a social licence to operate.

Polley says that a licence to operate has evolved beyond the narrow focus of societal and environmental issues.

"There are now increasing expectations of shared value outcomes from mining projects," she says.

"Any misstep can impact the ability to access capital or even result in a complete loss of a mining licence, particularly in light of the increased use of social media, which makes potentially negative publicity more globally visible than ever."

Governance

The research has found that regulatory compliance, whether with regards to the mining charter or carbon tax legislation, remains the core disclosure for mining companies.

"Governance disclosures, especially about health and safety protocols, dominate all mining companies ESG risk registers. But it is interesting that the South African mining sector appears balanced when comparing governance, social and environmental disclosure," says Pillay.

ESG measures are important

Pillay lists four key risks that mining companies should focus on in 2021:

1. Governance: Non-alignment of ESG disclosure and integration

Disclosure should align with actual strategy to reduce ESG risk and to create value for all stakeholders, says Pillay. It also allows for year-on-year measurement.

"There are a number of regulatory and legislative requirements in mining of different commodities and the sector, by large, adheres to these. However, it is worth considering what can be done to go beyond the requirement to proactively implement enhanced governance," says Pillay.

2. Social: Diversity and inclusivity

Pillay says transparency around gender, race and inclusivity is important to attract talent and for brand reputation. "While the mining industry has made good strides in terms of diversity in its workforce over the past few years, there is still a requirement to look beyond the physical numbers of diverse employees or the diversity of the demographics, to inclusion.

"Inclusion focuses on valuing, recognising and leveraging diversity which will help optimise businesses. Another issue gaining prominence in SA is board diversity, both in terms of colour and gender," says Pillay.

3. Governance: Health and safety

Achieving optimal health and safety levels has been especially difficult in the last 12 months as operating during the Covid-19 crisis has come at a high cost.

At the same time, the pandemic has heightened stakeholder expectations around how miners prepare for, manage and monitor all high-impact risk exposures, say Pillay.

He notes that the SA mining sector recorded a 40% improvement in mining safety in 2019.

4. Environment: Climate change

Reducing carbon emissions has become a focus with most of the larger mines outlining plans to reduce emissions, but many (especially smaller companies) have made slow progress. This "may threaten their ability to access capital" in the market, says Pillay.

"Mining companies that power their operations with renewable energy, operate electric or hydrogen-powered truck fleets and integrate recycling in their value chains will be best placed to sell low-carbon premium minerals," he says.

Pillay says that implementing stronger ESG measures will be a key commercial driver for mining companies to enhance their ability to attract capital and remain sustainable. "Impact investors are increasingly integrating ESG into their investment process," he says.


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