Environmental, Social and Governance (ESG) standards are a set of non-financial performance indicators. Investors typically use them to assess a company’s performance from a sustainability and societal impact perspective, so as to inform investment decisions, and companies typically use them to de-risk a project and measure their risk profile for investors.
To standardise the ESG narrative, companies can start by incorporating ESG into their core business model and decision-making. This will assist to set qualitative disclosures and quantitative metrics (KPIs) and report on them transparently.
There are various international efforts for uniform ESG standards, e.g. the SASB (industry-focussed) and TFCD (pillar-focussed).
Linking back to the UN’s 2030 Sustainable Development Goal Agenda and contributing to the Sustainable Development Goals, we are now in the “Decade of Action” which makes it more imperative for businesses to focus on ESG and which drives the “actionable impact” that the ESG standards have.
There are some 400 sustainability reporting instruments in different countries, the majority of which are mandatory. Most recently, in 2019 the European Union passed a law requiring disclosures on sustainable investment and sustainability risks. The European Parliament will be the first supranational regulator that will establish a common set of standards for determining whether an economic activity is environmentally sustainable or not.
SA’s mining industry is moving in the direction of developing mining-specific standards on ESG to guide monitoring and disclosures, beyond the current independent reporting requirements under current legal frameworks (e.g., Mining Charter, procurement spend, environmental permitting compliance and Social and Labour Plans).
Operationalising ESG as a culture: Companies need to move away from seeing ESG as a reporting and data gathering exercise, to extracting value from it.
ESG standards need to inform all business decisions and be understood and believed in by all management, supervisors, employees, and business units and functions.
Deloitte’s 6 recommendations on sustainable investing, and thus incorporating ESG into operational culture are:
- Embrace a commitment to value beyond compliance
- Earn investor trust
- Mainstream shared value and shared responsibility
- Anticipate and influence the regulatory environment
- Unlock value beyond compliance (measuring sustainability performance)
- Meet market demands for greater disclosure
Webber Wentzel’s Economic Development Plan (EDP) can help mining companies to:
- Identify the industry, regulatory, geopolitical, and social risks they face
- Establish reporting metrics
- Identify programs to track performance
- Advise on data collection and disclosure
- Align ESG functions with board oversight
- Integrate these goals into every aspect of the business.
The EDP must be done on a company-by-company basis, making ESG goals easier to implement in practice.