The mining industry has made positive recent strides towards environmental, social and governance (ESG) initiatives, creating further opportunities for investors, according to a new research paper from Barings, one of the world’s leading financial services firms.   

Analysis by Barings concludes that a quiet revolution is underway in the mining industry as companies work to transform and differentiate themselves, rebutting common misconceptions around ESG practices in the sector. It finds that many mining companies are making significant strides in each element of ESG, stemming from a change in management culture that embraces new technology and working practices.

Environmental
The mining industry has adopted innovative technology in a substantial shift to change its impact on the environment. Examples of technological innovations include the use of artificial intelligence (AI) to reduce mine footprints and the introduction of driverless trains and trucks that limit emissions.

The introduction of AI technology additionally creates operational efficiencies by maximising extraction value whilst minimising operations and environmental impact.

Many mining companies are working to reduce greenhouse gas (GHG) emissions by powering machinery with renewable options. This move comes from both a managerial shift and increasing investor demand for low-carbon intensive products, as the ESG credentials of supply chains has moved into sharper focus.

The research found further advancements to the environmental impact of mining, including:

• Power for the community: An industry-wide effort to support local businesses that provide goods and service to the mine
• Access to finance: Renewable energy projects that allow mining companies to access capital through green bonds
• Power from hydrogen: The move towards using hydrogen as a ‘green’ power source
• Waste reduction: Increased efforts towards using fibre optic cabling and satellite monitoring to reduce waste involved with extraction
• Changing institutional culture: Introduction of corporate ESG literature, alignment to the Sustainability Development Goals (SDGs), and corporate efforts to reach carbon neutrality

Social
The mining industry’s historical links to environmental destruction, child labour and slavery has forced the industry to take robust action to change, particularly in response to enhanced governmental efforts. The research found that several mining companies have made public commitments to eradicate child labour and adopt and advocate new policies that aim to protect human rights.

Other improvements in the mining industry’s initiatives to become good stewards of the community include:

• Protection of workers: Addressing the issue of excessive inhalation of dust particles at mining operations and introducing top-down zero tolerance approaches to safety, such as technological advancements that work to lower fatality rates in the industry
• Healthcare in the community: Expanded healthcare from company hospitals to local communities as well as employees, which help the world better manage global diseases such as tuberculosis and HIV
• Advancing the local economy: Hiring indigenous workforces with the aim of promoting them to take over operational management at the mine
• TakinDemonstrating accountability:g accountability for insignificant safety practices, such as the CEO of BHP taking a 25% annual bonus cut following a single fatality at its mine

Governance
The research analyses the incessant challenges the mining industry faces with corruption, including balancing the risk to the company’s reputation and its balance sheet with the potential of value creation through investing in a new mine in a ‘poorer’ country. One successful way firms have managed this issue is through obtaining a ‘social license to operate’, following a robust set of guidelines to do so.

Mining firms have placed governance at the core of industry transformation by introducing initiatives, such as:

• Creating meaningful relationships with local authorities to open dialogue when issues occur
• Taking part in vigorous pushback on corruption within the industry by increasing levels of transparency on corporate policy

Commenting on the research, Clive Burstow, Head of Equity Natural Resources at Barings said: “While there is a long road ahead, there is undoubtedly a quiet revolution taking place in the mining industry. Supported further by our research, we have seen remarkable shifts in mining companies’ attitudes towards make mining more ESG compliant. In today’s world, technology provides the tools to create a more sustainable future and we are encouraged by the engagement of mining firms taking place in this industry transformation.

“From an investment standpoint, we are seeing two major trends: investor demand for better practices in the mining industry and robust investment opportunities in transformative mining companies, through engagement or green financing. At Barings, we work to identify early leaders and assess where returns will emerge that are better and more sustainable than peer companies. We expect that elements of this ancient industry are on the trajectory to become leaders in technological, operational and social change that will set standards for mining firms – and all firms – for years to come.”

About Barings
Barings is a $346+ billion* global financial services firm dedicated to meeting the evolving investment and capital needs of our clients and customers. Through active asset management and direct origination, we provide innovative solutions and access to differentiated opportunities across public and private capital markets. A subsidiary of MassMutual, Barings maintains a strong global presence with business and investment professionals located across North America, Europe and Asia Pacific.

*As of June 30, 2020