The Mining & Metals Sector under scrutiny by stakeholders has developed a mature approach to ESG strategies, although its involvement in controversies is still a source of risk
New Vigeo Eiris report reveals stable performances in the management of the sector’s ESG challenges, but especially mining companies remain plagued by controversies affecting some key material topics such as Water, relations with Communities, the Health & Safety of employees and Human Rights.
The report provides Vigeo Eiris’ exclusive opinion on 203 companies belonging to the Mining & Metals sector. The report includes the sector’s strengths, innovations and best practice as well as controversies, vulnerabilities and emerging challenges such as water and energy management in relation to expanding climate change initiatives and regulations. It analyses performance scores and advanced indicators on critical issues such as energy transition, business ethics, due diligence on social and environmental risks in the supply chain, human capital and human rights, governance, executive remuneration, transparency on taxes, integrity of lobbying practices, the level of sustainable products & services, and contribution to the UN Sustainable Development Goals.
The Mining and Metals sector is divided into three main subsectors: Mining only companies, Metals only companies and Mixed companies.
Vigeo Eiris awarded an average overall score of 33.6 to companies in the Mining & Metals sector, on a scale of 0 to 100. The sector’s performance remains stable since our previous analysis.
The sector ranks 10th out of Vigeo Eiris’ 39 sectors, which cover a total research universe of 4,851 companies. Previously, the sector ranked 9th.
Sector leaders are concentrated in Europe, whilst laggards are mostly listed in Asia Pacific. This appears as a consequence of rather limited stakeholder pressures and still few developed legal requirement from companies listed in Asia Pacific, compared to the European ones.
The Mining & Metals sector reporting rate is 61%, slightly above the universe average (59%), with European companies communicating most comprehensively on their ESG policies, practices and performances.
ESG risk mitigation scores are limited in relation to reputation (40/100), operational efficiency (36/100), human capital (30/100) and legal security (30/100). These limited risk mitigation scores are illustrated by the sector’s high involvement in controversies (one of the most exposed of the whole Vigeo Eiris Universe).
The capacity of the sector to tackle climate change and support the transition to a low-carbon economy remains weak (21/100). European companies lead the sector in efforts to integrate climate risk management into their strategies.
The sector faces 474 controversies, affecting 55% of the companies: 9% are involved in critical cases, 32% in high severity cases, 12% in significant cases and 2% in minor cases. The most recurrent controversies concern relations with local communities, water management, health and safety issues and human rights.
Important consolidations between some of the biggest companies in the gold mining sector have occurred in the past few months, such as the merger between Barrick Gold and Randgold in September 2018, and later in January 2019 the merger between Newmont and Goldcorp.
Climate Change big challenge for this carbon-intensive sector:
Climate-related risks and the expected transition to a lower-carbon economy affect particularly the energy intensive Mining & Metals sector. Vigeo Eiris results show that 52% of companies have an intense or high carbon footprint while 71% display a weak performance in terms of energy transition. Overall, Mining & Metals companies obtain a weak average score (29.6/100) in terms of energy use and related GHG emissions in the production processes. In addition, growing climate-change pressure from investors and regulators has pushed several mining companies to exit from their thermal coal operations. Rio Tinto Group has already removed all exposure to thermal coal, while also BHP and Anglo American have been cutting output. Glencore, the biggest shipper of thermal coal, is considering limiting production.
Dam Tailings Safety under increased investor scrutiny:
Following the catastrophic tailings dam failure, operated by mining company Vale, in Brumadinho, Brazil, the Investor Mining & Tailings Safety Initiative, other investors and the PRI, put pressure on mining companies to improve disclosure about safety practices at waste dams. This is the first time that investors have demanded transparency and disclosure of mining companies on this scale.
This initiative can be a game-changer for the whole mining industry. After the accident, Vigeo Eiris downgraded Vale’s ratings on all affected drivers (Accidental Pollution, Waste, Water, Audit & Internal Controls, Health and Safety and Community Impact), resulting in a decrease of 2 points of the company’s CSR score. In total, 27 mining companies were involved in at least one controversy related to accidental pollution over the past three years, counting for 35 controversies overall. Four cases were of critical severity, while another 18 were of high severity.
Responsible Sourcing of Conflict Minerals as an emerging challenge: Keeping climate change within manageable bounds will require a wide adoption of green technologies. Many of these technologies, however, rely on the use of minerals sourced in high-risk areas with poor human rights practises. The most significant example of this being cobalt, an essential component in the cathode of rechargeable lithium-ion batteries powering electric vehicles, sourced mainly in the Democratic Republic of Congo. However, while supply chain governance for certain minerals, including tin, tungsten, tantalum, gold and diamonds, is improving, such initiatives have not yet been expanded to include most of the minerals and metals central to green energy technologies. As a result, a wide array of stakeholders are calling companies in the sector to go beyond legislative requirements and implement a broader approach to responsible sourcing. When it comes to the integration of social issues in supply chain management, the average overall performance is weak (28.9/100), with only 16% of companies adopting some due diligence measures to prevent conflict minerals from entering the supply chain.
50% of Mining & Metals companies integrate ESG objectives in their remuneration policy: Due to the nature of their operations, Mining & Metals companies are heavily exposed to CSR risks across their operations. The sector is showing leadership on the integration of ESG risk factors into its Corporate Governance Strategy and internal risk processes. Almost 50% of M&M companies in the sector take into consideration CSR issues when determining variable remuneration of their executives, in comparison to only 17% of companies in VigeoEiris’ universe. A similar trend can be seen when it comes to presenting CSR topics to shareholders; almost 32% of all Mining & Metal companies apply this practice, compared to only 14% for all companies in VigeoEiris’ universe.
Improving performance on Health and Safety of employees: Mining and Metal companies are usually exposed to high risks related to the occupational safety of employees and contractors due to the nature of their operations and the qualifications of their employees. Therefore, companies in this sector tend to invest heavily in measures to prevent health and safety accidents and guarantee the safety of their employees. The Mining & Metals sector ranks 5th position in terms of health and safety promotion compared to VigeoEiris’ universe. However, controversies related to this topic are still highly prevalent in the sector, being the third most frequent (with 73 cases overall) for Mining & Metals companies. In 17 of these cases, companies showed a remediative or proactive approach, disclosing the corrective measures intended to address these issues. Emerging market companies show in general less transparency in how they deal with the cases.
Social license to operate of mining companies under continued pressure: Overall, Mining companies demonstrate a good awareness of the importance of community and human rights issues in their operations. But it’s also one of the most scrutinized sectors by external stakeholders, such as NGO’s. There is also high societal expectation of transparency of revenues from operation from extractive industry. Nevertheless, less than half of the companies include ‘transparency on revenues’ in their community policies and support the Extractive Industries Transparency Initiative. Similarly, only 34% show significant transparency on taxes paid. Most controversies related to human rights concern the respect of property rights and resettlement, respect of indigenous people rights, use of security forces, and the right to Free and Prior Consent. This type of controversies accounts for 15% of all cases faced by the sector, while allegations related to negative impacts on communities (lack of social impact assessments, local economy, taxes…) account for 38% of all controversies faced by the sector.
Best performing areas:
o Board of Directors
o Audit & Internal Controls
Worst performing areas:
o Atmospheric Emissions
o Responsible Lobbying
Top Performing Companies:
o Europe: Norsk Hydro (69/100)
o North America: Teck Resources (58/100)
o Asia Pacific: BHP Group (Australia); Rio Tinto (Australia) (54/100)
o Emerging Markets: Gold Fields (55/100)
Companies making best progress since 2017:
o Europe: Eramet (+16)
o North America: No Progress
o Asia Pacific: Daido Steel Company (+12)
o Emerging Markets: Votorantim (+3)