Mining sector anticipates ESG regulations, standardization: Natural Resources Forum

Miners are bracing for new environmental, social and governance regulations and reporting standards, as demand for minerals grows, said participants at the Natural Resources Forum, a not-for-profit organization, in London this week. Regulations will be the key driver of adherence to ESG principles moving forward, most agreed.

Standardization of guidelines issued by a cluster of ESG-focused organizations such as the Responsible Minerals Initiative and the International Council on Mining and Metals may also be needed to boost the sector's environmental and social acceptability, according to miners, traders, analysts and financiers at the event held at the London Stock Exchange and virtually. Organizations' guidelines currently tend to vary because they group together companies at different parts of the supply chain.

"Climate has become political," said Mark Wade, head of sustainability research and stewardship at asset manager Allianz Global Investors in a panel on responsible finance. "We need to standardize reporting requirements and to grow from ‘green' finance to ‘sustainable' finance."

The UK's Financial Conduct Authority, a regulatory body that operates independently of government, in August started to prepare ESG-related guidelines and strategy to support financial and industrial sectors with regard to the UK's commitment to achieving a net zero economy by 2050. It is "now working within the government's task force... with a focus on near-term metrics… not just 2050," said FCA ESG division manager Tim Rowe during a session on regulatory frameworks.

The FCA is working with organizations including the International Organization of Securities Commissions to establish a global standard on a cross-border basis, Rowe said.

The EU is set to adopt a new Corporate Sustainability Reporting directive within weeks.

Central and other banks worldwide are increasingly undertaking climate stress tests, one delegate noted.

Gillian Davidson, chair of the sustainability committee of copper, zinc and lead producer Central Asia Metals, said the mining sector is "in anticipation of regulation." Establishment of critical minerals strategies in various countries, highlighting the overall need for more critical minerals supplies, could potentially have a huge impact on sectoral regulation, she said.

"For real change we depend on government policy," said Paul Jefferiss, non-executive director of The Carbon Trust, an independent climate consultancy.

Jennifer Anderson, managing director and co-head of sustainable investment and ESG at Lazard Asset Management, said sustainable finance regulations "look challenging for mining companies."

Strategies, guidelines and self-regulation

Some asset managers see divestment, for instance from fossil fuels, as a potential solution to some ESG issues in the commodities space. Jonathan Grant, principal advisor, climate change group strategy at miner Rio Tinto, said however that he "wasn't convinced" this kind of divestment strategy has any impact on emissions. "Customers need investments," he said in a panel on decarbonization.

A plethora of guidelines already available to mining, which operates with diverse products in various geographies, may be confusing to end-consumers seeking "green" products, forum participants agreed. Some standards focus more on carbon footprints and others on issues including child labor, they noted. OECD guidelines however "help to give some transparency," said Craig Woodburn, global head of ESG at battery producer start-up Britishvolt.

There's also an element of self-regulation, Woodburn indicated. "We are dictated to both by customers and by our own expectations," he told a panel examining how electric vehicle metals and battery technology may accelerate the transition to a zero-carbon future.

Minerals producer and trader Glencore International's cobalt responsible sourcing director Anne-Marie Fleury said she saw a strong lead on "hugely important standards" from downstream industries, including OEMs. "Mining isn't pushing back on this, but we need more dialogue between downstream and upstream," she said.

Glencore produces or trades no fewer than 60 different commodities, and is present in jurisdictions including the Democratic Republic of Congo, which produces 60%-70% of the world's cobalt supplies. Children skipping school to work in DRC artisanal mines has been an issue for around a decade, leading some to consider boycotting artisanal material, Fleury said.

Jessica Fung, head strategist at Pala Investments, an investor in the battery materials space, noted that the United Nations' Principles of Responsible Investment are currently being overhauled to see if they are "fit for purpose".

Florian Mayr, partner in Germany-based clean technology advisory company Apricum, said companies and markets will naturally trend towards cleaner and more acceptable technologies, for instance in the battery metals area. "Rather than asking for more money for cobalt-free batteries, the trend is to move to other chemistries that may be cheaper," he said. "Very promising" sodium-ion battery chemistry -- using sodium rather than lithium compounds as a battery base -- is now attracting more attention, with the potential to reduce future demand for currently "sought after" metals, he noted.

Green premiums

Price premiums for green products aren't yet emerging, according to Marc Bishop Lafleche, CEO of minerals royalties company Ecora Resources (formerly Anglo-Pacific Group). "However, what we are seeing is that dirtier products are attracting a discount," he said.

Effective premiums, for instance for low-carbon steel and aluminum, may be obtainable only with establishment of a global carbon price, which would also help speed decarbonization, speakers said.

"Carbon pricing is one of the most effective ways we can control emissions," said Rio Tinto's Grant. "There may be issues with the Emissions Trading System, but cap and trade is definitely the way to go."

Harry Boyd-Carpenter, managing director, climate strategy and delivery of the European Bank for Reconstruction and Development, said "the dynamic" of a global carbon tax is coming and that introduction of the EU's Carbon Border Adjustment Mechanism will bring it home that "it's high risk to be high carbon." Introduction of carbon taxes will reduce companies' reliance on the voluntary carbon market, he said.

Other nations, including China and Kazakhstan, are also operating systems of carbon tax, the meeting noted.