Mining ethics - How to Manage Social and Environmental Risk for Oil, Gas and Mining conference report

Materials World magazine
7 May 2012

The oil, gas and mining industries will have to re-evaluate their strategies for managing social and environmental risks. Mining and CSR specialist Elizabeth Adey reports on a recent event in London, UK.

It was clear at the How to Manage Social and Environmental Risk for Oil, Gas and Mining conference that social responsibility has moved up the agendas of oil, gas and mining companies, with increased pressure on industries to be more responsive to meeting the needs of local people. Financial representatives who were present at the conference said that scrutinising projects to assess social and environmental risks, prior to decisions being made regarding project finance, is now more common practice. Peter Moore, of Export Development Canada, discussed the role of financial institutions in managing environmental and social risks prior to making financial decisions, and stated that demand is growing for banks to take further measures in developing sustainability and reputational risk committees. Moore referred to the ‘evolution of ethical finance emerging from changes to the Equator Principles’, which provide a credit risk management framework that is used for project finance transactions. The media attention created by projects that banks have financed was also raised by Tim Bescoby, Head of Environmental, Social and Ethical Risk at Royal Bank of Scotland, relating to the need for increased transparency in how companies operate.

21st Century challenges

The requirement of companies to adapt how they currently operate was explored by numerous speakers. Professor Tom Burke, Environmental Advisor to Rio Tinto, summarised the changes in how social risk is currently viewed, describing a paradigm shift connected to the growing awareness of the worldwide challenges we face. Back in 2009, Professor John Beddington, then Chief Scientist for the UK Government, referred to the combination of these pressures, in addition to the potential impacts of climate change, as the ‘perfect storm’ of events. On the same note, at the conference Burke questioned the capability of mining companies to maintain how they currently do business in light of the Intergovernmental Panel on Climate Change (IPCC) report that estimates temperature rises in the range of three degrees Celsius by the end of the 21st Century.

While John Beddington did not make specific links to geopolitical risks presented through maintaining the global supply of metals and minerals, these issues undoubtedly add to the ‘perfect storm’ of events. Global population is estimated to reach nine billion by 2050 and population growth alone will exert substantial pressure on the supply and availability of resources such as food, fresh water, energy, minerals and metals. This is particularly timely given the recent changes by the Chinese Government to reduce the quota of rare earth elements (REE) exported, with China presently supplying at least 95% of the world’s REE. The importance of maintaining REE supply is intensified given their use in the production of renewable technologies. The mining industry has responded to changes in the supply of REEs by China, with more than 200 REE projects currently being explored. Of these projects, only a small percentage will be economically feasible to exploit, and there are associated time constraints regarding the speed at which deposits can become fully operational mines. At present, Arafura Resources working on two projects for REE in Australia (Nolan’s Bore deposit in Central Australia and Whyalla in Southern Australia) and Molycorp in North America (Mountain Pass - which is scheduled to reopen) are likely to start production soonest.

Social licence to operate (SLO) was a common theme raised at the conference, referring to the inherent need of companies to ‘gain and maintain’ their SLO, both within their host communities and in a much wider social context. SLO refers to projects achieving community support and approval. The International Finance Corporation Performance Standards (IFCPS) have recently been revised, with changes to the IFC sustainability framework incorporating measures to help companies achieve and uphold their SLO. The IFC PS provide a risk management tool applicable at a project level. Reviewing the impact of changes to the IFC PS on projects, Nick Flanders from the IFC talked about the changes introduced in January 2012, describing the variability in how IFC PS apply to projects that the IFC are involved in financing. While it is clear in the table below that every project developed will present different risks, it also shows how not all IFC PS apply to every project. Changes to the standards reflect the increasing importance of minimising social risks from a project. A company can demonstrate this by developing a true understanding of the community in which they operate and use this knowledge to create stakeholder engagement and community development plans. The importance of establishing effective grievance procedures for a project was raised by several people, with Flanders aptly equating the use of grievance mechanisms as the ‘canary in the mine’. Further changes to the IFCPS now require projects to review their carbon footprint and incorporate energy saving solutions into project design. In 2002, the Mining, Minerals and Sustainable Development (MMSD) project suggested that the mining industry alone accounted for between 4-7% of global energy usage. However, today this figure is likely to have risen. The negative publicity financial institutions have received was commented on in several presentations at the conference, especially when they are seen to be ‘financing climate change’, with Bescoby outlining the need for companies to invest more in green technology. Annual sustainability reporting, such as through the Global Reporting Initiative (GRI), provides companies with the opportunity to measure their annual performance, thus contributing to their overall public disclosure of information and transparency.

Whilst it was proposed that social media provides a platform whereby a company’s actions come under global scrutiny, the use of social media to publicise positive messages was raised by Lucy Goodchild from the GRI. Incidents such as the BP Gulf Oil spill, or more recently Total’s Elgin gas leak platform in the North Sea, highlight the power of social media in raising public awareness of negative incidents, with media stories being displayed at the touch of a button.

Further coping strategies and innovations will be paramount in helping oil, gas and mining companies adapt, defend and future-proof their operations under the progressively demanding conditions of the 21st Century. Disconcertingly, Goodchild referred to our current use of global energy resources as being ‘equivalent to consuming one-and-a-half planets’ and while delegates considered methods to respond to these global circumstances, it was clear that industry may only be observing the tip of the iceberg.