Mining companies need to start thinking seriously about ESG
European law firm Fieldfisher has observed a notable uptick in enquiries from mining clients on how to comply with increasingly strict standards on environmental and social governance (ESG).
However, many companies still fail to obtain legal advice on their obligations.
Regulatory non-compliance and perceived failures to implement and uphold ethical practices have led to a spate of litigation on ESG-related matters against mining companies, particularly on health and safety and environmental issues.
Activist shareholders staging protests at AGMs and other company meetings has also become a real concern for mining businesses.
Since February 2017, when the London Stock Exchange launched its first “guidance for issuers on the integration of ESG into investor reporting and communication”, anecdotal evidence suggests the number of London-listed mining clients seeking legal advice has increased, but not commensurately with the volume of new regulations and guidelines that have been introduced in the UK and internationally.
Extractives companies are facing sharper scrutiny of the way they handle various environmental issues, including pollution, tailings management, habitat protection and site remediation; and social concerns, such as the rights of indigenous people, health and safety, security and workforce rights.
The growing emphasis on ethics and sustainability is being driven by customers, investors, regulators and industry initiatives – as well as a genuine desire among some companies to conduct their operations in a sustainable way.
Legal and social expectations
In addition to the LSE's ESG guidance, which was last updated in January 2018, various influential international bodies have set, or are in the process of setting, standards that mining companies are now being held to.
Despite some lingering uncertainty around the application of the US Conflict Minerals Rule, which was brought in as a consequence of the 2010 Dodd-Frank Wall Street reform law, many large companies have anticipated its implementation and started consistently reporting and conducting due diligence on the use and provenance of 3TG (tantalum, tin, tungsten and gold) and derivatives in their products.
Some 3TG miners will soon face similar compliance obligations under the EU Conflict Minerals Regulation, which takes effect from 1 January 2021.
In June 2018 the World Gold Council began consulting on its Responsible Gold Mining Principles, which aim to set clear expectations for investors, downstream gold supply chain participants and other stakeholders as to what constitutes responsible gold mining.
The London Metals Exchange has joined other exchanges in becoming an advocate for ESG reporting and is poised to roll out responsible sourcing protocols developed in conjunction with market participants – the first of which are due to become mandatory by the end of 2022.
Other bodies, including the Global Battery Alliance, launched in 2017 by the World Economic Forum, aim to galvanise and coordinate the international community’s efforts to accelerate movement towards socially responsible, environmentally sustainable activities in high-risk value chains.
The International Council on Mining and Metals (ICMM) is also developing ESG performance requirements
Commenting on this trend towards more robust ESG in the mining sector, Fieldfisher’s head of mining, Jonathan Brooks, said:
“While in the past, ESG was seen as a concern reserved for mid-to-large cap mining companies, there has been a noticeable trickle-down effect in the last two years to the small-cap and junior end of the market.
"These companies need to sit up and take notice, not just to be compliant, but to unlock the benefits that come from implementing ethical and sustainable business practices.
“Risk-averse lenders have started to warm to the more responsible image of the mining industry and moves to share the profits of resource exploitation more equitably between key stakeholders have been met with approval by most lenders.
“Demonstrating good ESG is increasingly seen as vital to securing investment in mining projects – particularly traditional equity financing from public markets and alternative financing from offtakers, private equity and multilateral and bilateral financial institutions and contractors."
Fieldfisher mining lawyers and guest speakers from the World Gold Council and Thor Explorations will be discussing the trend towards more rigorous ESG practices at its Africa Week Mining Lunch, which is being held at its London office, Riverbank House, 2 Swan Lane, EC4R 3TT on Wednesday 5 June 2019. If you are interested in attending, please contact email@example.com for more information.
Fieldfisher is a European law firm with market leading practices in many of the world's most dynamic sectors. We are an exciting, forward-thinking organisation with a particular focus on energy & natural resources, technology, finance & financial services, life sciences and media.
Fieldfisher's dedicated energy and mining teams advise companies, commodity trading houses, banks and investment funds on a wide range of matters. We have been active in the energy and natural resources sector for over 50 years and have a team more than 100 lawyers internationally.
Our mining team is recognised as a leader in alternative financing for mining companies - please click here to download our latest guidance document.
The firm is also the second largest adviser to mining companies on London's AIM market and the third largest adviser to all AIM companies.
Our network has more than 1,450 people working across 25 offices providing highly commercial advice based on an in-depth understanding of our clients' needs.
We operate across our offices in Amsterdam, Barcelona, Beijing, Belfast, Birmingham, Bologna, Brussels, Dublin, Düsseldorf, Frankfurt, Guangzhou, Hamburg, London, Luxembourg, Madrid, Manchester, Milan, Munich, Paris, Rome, Shanghai, Turin, Venice and Silicon Valley.
Fieldfisher was named as a top 20 firm by the FT Innovative Lawyers Awards 2018.