Part 1, The Increasing Criticality of ‘S’ in Mining ESG explained that while “S” social considerations have typically received less investor attention than the more tangible “E” environmental issues, strong social performance is increasingly perceived as table stakes for mine operators, investors, policymakers and the public at large. Conversely, the risks of getting it wrong include significant downsides for all those stakeholders, and potentially devastating consequences for local affected communities, ranging from deteriorating living standards, social division, human rights abuses, and even conflict.
While mining companies have historically focused on inbound risks to their operations from local communities, there is a growing appreciation that they must also address and mitigate risks to communities, and associated perceptions (and at times outrage), to communities from their mining operations. Failure to do so risks loss of their SLTO “Social License to Operate,” the informal – but essential – broad based acceptance by communities, governments and other stakeholders they need to function. But societal trust is dwindling, and expectations are evolving, and to maintain a SLTO going forward, the mining industry will have to move beyond just risk mitigation and compliance and focus more effort on social performance and managing their operations in ways that contribute to overall positive social value for host and Indigenous communities. This follow-on article provides an overview of concepts and frameworks for doing so –striving to create an enduring “social contract” for the mining industry.
Growing International Consensus and Regulatory Scrutiny to Address the Issue
In December 2022, state actors at the COP15 meeting in Montreal agreed to launch the Sustainable Critical Minerals Alliance1. Its purpose: to drive the global uptake of environmentally sustainable and socially inclusive and responsible mining, processing, and recycling practices and responsible critical minerals supply chains. Building on existing work in this area in the multilateral sphere and elsewhere, members of the Alliance (Canada, Australia, France, Germany, Japan, United Kingdom, and United States) will voluntarily work towards developing sustainable and inclusive mining practices and sourcing critical minerals that:
- Employ a nature-positive approach by encouraging industry practices or collaborating with industry on practices that prevent biodiversity loss, protect species at risk, support nature protection and minimize pollution, including driving towards net-positive benefits to the natural environment
- Support local and Indigenous communities by respecting the respective rights and interests of local and Indigenous communities through engagement; promoting safe working conditions and responsible labor standards, diverse and inclusive workforces, supporting safe living conditions; and including members of Indigenous and local communities in economic benefits from mining that affects their well-being
- Help fight climate change by reducing greenhouse gas emissions and working towards achieving net-zero emissions by no later than 2050, and promoting mining, processing, and recycling processes that advance sustainability through ESG standards
- Restore ecosystems by adopting requirements for reclamation and remediation to close and return mine sites to their natural state where feasible, and holding responsible parties accountable for environmental harm
- Build a circular economy by promoting material stewardship, including by-products and recovery from waste, keeping products in use longer as well as accelerating the reuse, and recycling of critical minerals, which may reduce the number of new mines required to supply the minerals needed
- Foster ethical corporate practices through sustainability reporting to investors and the public, and by implementing due diligence in mineral supply chains as laid down in relevant internationally accepted guidelines.
While largely focused on environmental issues aligning with the G7 2030 Nature Compact commitment to halt and reverse biodiversity loss by 2030, the Sustainable Critical Minerals Alliance also brings much needed attention to the “S” social performance concerns related to mining. But with the social challenges reasonably defined (we still have much to learn), and an international commitment made to address them, the focus turns to “How?”
Robust Social Performance: Easier to Propose than Execute
Political unrest, climate-related disasters, global food shortages, rising inflation and energy costs, supply chain disruptions, and the lingering impacts of COVID are all exacerbating the tensions between mines and local and Indigenous communities where, in some instances, inequalities are growing, and social value is not being created and, in the worst cases, actually eroded. Mining companies that don’t take social performance seriously are going to face increasing problems and alienation. From afar, it can be relatively easy to talk about social performance and “propose” what to do. However, appreciation of the realities of boots-on-the-ground implementation is what separates the many ESG theorists from the few seasoned practitioners: the mine–community interface is where the real social performance happens and the SLTO is won or lost. But one must always remember that a SLTO is of benefit to the company only and would satisfy its desire to secure broad community acceptance. You will never hear a host community celebrate the presence of a SLTO – they need to see tangible benefits. In addition, because every mine—and every host community—is contextually different, there is no one set of “best practices” that can be magically applied to all situations. Rather, there are a variety of constantly evolving “good practices”. A gold mine in Australia or Kazakhstan is not going to face the same set of social risks and issues as a copper mine in Botswana or Chile. Nevertheless, three core principles are pretty much globally relevant across all cultures. Host and Indigenous communities need to:
- Be listened to
- Be able to trust mining companies and their employees; and
- See meaningful and tangible benefits from the mining operations.
Many have acknowledged that the mining industry has a societal trust deficit that no amount of fancy public relations spin or “awareness raising” will fix. The industry cannot just keep telling its story louder and louder in the hope that they will magically build trust. Genuine trust will have to be built from the ground up through for example greater host and Indigenous community involvement in mining projects, especially through focusing on local procurement and truly local employment – and thereby stimulating local economic prosperity across the project life cycle. Companies also need to prioritize more inclusive policies, actively engage host communities in decision-making, develop reciprocal relationships that are partnership-based, rather than just transactional, and deliver meaningful benefits that contribute to sustained socio-economic well-being. And while a junior mining company is unlikely to have the budget or internal bandwidth to address all the issues a global mining major can, they can adhere to these principles and more broadly, ensure that core values such as respect for fundamental human rights occupy the highest levels of focus.
Identifying the Actual Issues Which Need to be Addressed
Historically, successful operators have been well versed at identifying and addressing the specific technical issues that might impact operations and are increasingly adept at doing so for social risks to their business continuity. But to minimize the mine’s impact on community resiliency, there needs to be a comprehensive and honest assessment of current and ongoing socio-economic risks and impacts generated by their operations, coupled with a deliberate focus on the more palatable opportunities. The types of direct and indirect risks to consider are wide-ranging, dynamic, and interrelated, and may include:
- Undermining fundamental human rights
- Social order disruption or cultural value disintegration
- Loss of traditional rights and ecosystem service amenity
- Involuntary physical or economic displacement
- Removal of provisions for vulnerable or marginalized peoples
- Reduced community physical and psychological health, safety, and well-being
- Immigration of mine labor
- Gender specific adverse impacts
- Increased negative anti-social behavior and criminality
- Motivation for bribery and corruption
- Influx of artisanal miners
- Lack of community awareness and emergency preparedness (including with respect to tailings management)
- Retrenchment and the socio-economic impact of mine closure.
We must recognize that from society’s perspective, just because a mining company is claiming to do no harm does not mean that it is doing good. Hence, companies should assess whether they are cultivating meaningful stakeholder relationships, contributing to what many call “shared value” – creating economic value in a way that also creates value for society by addressing its needs and challenges – and making measurable positive impacts. While these impacts are local, their effects range much farther: numerous examples have shown that lack of genuine attention to social risks and impacts – and failure to respond to community concerns, discontent and activism – will likely translate to costly delays, reputational damage, the inability to secure permits, operational disruptions, and even complete shutdowns. Furthermore, such ramifications have knock on effects for future mine developers, and by extension, the ability of the entire mining industry to build societal trust and meet the growing global demand for the critical metals and minerals vital to achieving global decarbonization targets.
Defining the Social Performance Function
While appreciation of the importance of professional social performance is evolving (and arguably growing), there is regrettable “competency greenwashing” coupled with a limited understanding of the role and responsibilities of the social performance function. Social performance is essentially an ongoing task that requires experienced and knowledgeable professionals who demonstrate flexibility, creativity, and responsiveness. The function is typically charged with operationalizing social performance policies and “good practices” ESG standards through on-the-ground strategies of engagement, communication, negotiation, conflict resolution, and development programming. Recent research conducted by the University of Queensland suggests the function should focus on three main areas:
- Efforts by the mining company to understand local stakeholder and Indigenous perspectives.
- Bridging local stakeholder/Indigenous and company perspectives to generate dialogue and mutual understanding.
- Facilitating necessary organizational change to continuously improve social performance.2
To do so, the in-house social performance function (sometimes called community relations or sustainability) must be adequately resourced and proportional to the identified social impacts, as well as the anticipated mining-induced changes. The research goes on to recommend that social performance be developed as a core competency connected to business planning. As with other established business support functions such as Health & Safety and Human Resources, the function should be appropriately positioned within the company hierarchy and properly supported, organized, managed, and held accountable.
It is important to note that social performance solutions do not have to be overly complicated, but they do need to be fully aligned with the company’s objectives, attuned to the socio-cultural context. As a start, companies can benefit from taking time to develop plans at both the local and national level to see how their activities could contribute to the host development trajectory and align with the strategic priorities of national governments. And after solutions are set out and agreed with stakeholders, timely follow through on commitments is crucial.
Predictive Social Impact Assessments
Host communities are never homogenous or singular, so companies need to conduct an appropriate socio-economic baseline and a predictive social impact assessment (SIA) to capture both quantitative and qualitative data. These assessments must go beyond simple geographical descriptions of an area with generic societal attitudes, and instead provide a real sense of the socio-political history and cultural context along with candid analysis of possible direct and indirect risks and impacts. Unfortunately, many SIAs often fail to meet this fundamental requirement and are justifiably undervalued.
Done properly, a competent SIA can be a useful impact prediction mechanism that contributes to social performance management throughout the mine life cycle, from conception to post-closure. Importantly, this requires adopting a variety of social research techniques from key informant interviews and consultations to demographic surveys, reviewing NGO reports and social science/anthropology reports, listening to oral histories, to conducting various participatory group exercises (e.g., participatory rural appraisal (PRA)). Once the real (and perceived) direct/indirect impacts and opportunities are identified, mitigation and management plans can be drafted. But the SIA stage is only one step on the social performance journey. Robust, sustained, and impactful social performance involves more than mitigating and managing social risks and negative impacts – companies need to deliberately focus on capitalizing on the socio-economic opportunities and deliver compelling and measurable positive social impacts, thereby helping to demonstrate the true impact of the mining industry, but importantly, with genuine humility, empathy, and respect.
Operationalizing Social Performance
Armed with a better understanding of social risks and impacts, companies can then identify and understand what appropriate and pragmatic social performance “good practices” are, and how to operationalize them through workable internal processes, operating standards, and procedures that are integrated into broader company-wide risk and management operating systems. The management system must help prioritize, integrate, and address social performance goals of key internal and external stakeholders, including local employees, host and Indigenous communities. This should include everything from proactive engagement planning and access to remedy (grievance management), honoring social commitments and maximizing local content, to implementing community participatory monitoring and delivering on strategic social investments – remembering that a SLTO cannot be secured through a compliance or “do no harm” mindset alone. In addition, companies must also focus on addressing workplace behaviors, diversity, equity and inclusion, and apply the same rigor of existing health and safety regimes to psychological safety and employee well-being.
The systemization of social performance approaches and practices are maturing and today there are many publicly available “good practice” frameworks and toolkits that can help companies of all sizes draft and implement appropriate social performance management plans and operating procedures (see “Assessing social performance ‘good practices’”). The resulting documents should be culturally attuned, workable, and “live” i.e., continuously improved based on implementation experiences – but the real crux is in actual execution. Throughout the life of a mine, companies must continuously explore ways to understand host and/or Indigenous community aspirations and concerns (e.g., through community perception surveys), make a positive difference in their lives, follow through on promises and commitments, and strive to leave a positive legacy – as this is the true measure of social value. Evidence has shown that robust social performance can play an important role in strengthening social and economic resilience in host communities. As the International Council of Mining & Metals (ICMM) has noted, if there is an overarching theme that one can apply to all situations, it is that companies should seek to create “beneficial outcomes for local communities and wider society from their activities, engagements, and commitments.”4
Assessing social performance “good practices”
RCF uses a comprehensive social assessment social due diligence process that follows a disciplined framework and systematic methodology that eschews the conventional “tick the box” approach. Operational ESG knowledge and grounded management experience are a vital part of our due diligence and overall investment stewardship approach.
We assess companies’ social performance and their adoption of “Good Practices” which involves the development and demonstrable implementation of a variety of practical tools, from an umbrella Social Management Plan (SMP) to more specific action plans/operating procedures (that adopt and appropriate mitigation hierarchy) depending on the socio-economic context that are focused on:
- Stakeholder/Indigenous people’s engagement (including Free Prior and Informed Consent (FPIC))
- Human rights (especially with respect to modern slavery and interaction with security)
- Community health, safety & security
- Influx management
- Social obligations
- Cultural heritage
- Grievance resolution
- Strategic social Investment/community development
- Local content (procurement and employment)
- Involuntary resettlement (physical or economic)
- Community emergency preparedness
- Tailings management
- Participatory monitoring
- Artisanal and Small-Scale Mining (ASM)
- Social transitioning (aimed at mine closure)
- Supply chain management
- Occupational Health and Safety (including hygiene)
- Labor rights
- Employee engagement and well-being
- Diversity, equity, and inclusion
- Contractor management
Industry experience shows that failure to fully account for social factors could materialize in long-term underperformance. We look for companies that can demonstrate an authentic commitment to ESG including social performance; who understand that a “social license to operate” must be earned; and that adding social value is crucial. Through ongoing investment stewardship, we provide direct and practical ESG support and guidance to our portfolio companies to help them on their ESG maturity journey.
Becoming Genuine Stewards of the “Just Transition”
Although social performance largely comes down to local issues, the stakes could not be more global. As the world strives to embrace a more circular economy through increased recycling, reuse, and repurposing of secondary minerals – the irrefutable reality is that we simply must increase mining activity to produce the critical minerals needed for a clean-energy world. For many producing countries this could be an opportunity to drive economic growth, secure investment, jobs, and government revenue – all of which contribute to achieving the UN’s Sustainable Development Goals. Decarbonization provides opportunities for growth in the mining sector, entering emerging frontiers and encountering different host communities and rights holders, including Indigenous groups.
The importance of aligning with the Paris Agreement to help limit global warming is widely understood, but less so the social impact of the net zero transition. The G7 governments agree that failure to tackle ESG governance challenges head on could make the energy transition a “resource curse” rather than a blessing for many producing countries. The rapid transition to a low-carbon economy must not increase biodiversity loss, global inequality, or injustice as result. The UN calls this a “Just Transition”: greening the economy in a way that is as fair and inclusive as possible to everyone concerned, creating decent work opportunities, and leaving no one behind.
So as demand for critical minerals grows, the mining industry can expect their social performance credentials to be more closely scrutinized by governments, host communities, investors, and wider civil society, especially for their contribution to the well-being and quality of life of host and Indigenous communities. Already, the traceability of these critical minerals, and the ability to demonstrate the provenance with strong ESG performance, is deemed increasingly vital for end-users such as the battery, automotive, and electronics industries.
Without further efforts to increase transparency and robust ESG governance, the rapid demand for critical minerals is likely to drive economic instability, corruption, and environmental and social harm – all of which could derail global efforts to fight climate change. That’s why social “S” and environmental “E” performance for mining are inextricably linked – and learning from history to avoid the negative ESG impacts of previous commodity booms is so essential. That is why Resource Capital Funds is striving to continuously improve industry efforts to prioritize and improve social performance, and as part of our active investment approach, bring genuine social performance expertise to companies we invest in while guiding and encouraging more comprehensive ESG accountability, hoping to inspire greater trust in the mining industry and to prompt a fuller understanding of the benefits it can provide.
Looking to humanity’s future, mining is not a choice. How we mine is.
This material is provided for educational purposes only and should not be construed as research. The information presented is not a complete analysis of the commodities landscape.
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