The Calvert Sustainability Research Department’s recent review of the mining industry reveals the many challenges the sector must surmount on its journey toward sustainability
The Calvert Sustainability Research Department routinely reviews the sustainability performance of an industry segment to keep us abreast of emerging environmental, social and governance (ESG) issues and to update the Calvert Signature™ Strategy sustainability criteria. Calvert is focusing on the oil, gas and mining sectors through the first three quarters of 2009 following our review of the integrated oil and gas sector last year. Extractive Industries Sustainability Analyst Paul Bugala finished the department’s review of the mining industry in late April. This process helps us identify companies moving in the right direction even if they are not yet meeting the most stringent ESG criteria applied to our Signature Strategies.
Details of the Review
Calvert’s review of this challenging yet vital industry featured analysis of nine companies representing a cross-section of the sector’s geographical exposure, assets and market capitalizations. Calvert evaluates how mining companies deal with the many challenging realities of their operations. Responsible mining companies demonstrate long-term commitments to diminish and, where possible, avert adverse outcomes and are accountable to both shareholders and those who bear the industry’s externalized costs.
Calvert’s investment evaluation of mining companies considers all seven of the firm’s ESG criteria: workplace practices; human rights; Indigenous Peoples’ Rights; governance and ethics; product quality and safety; community relations; and environment. However, in the mining industry, several key criteria are most critical in assessing a company’s performance and impact. These are Environment (including response to climate change); Human Rights/Indigenous Peoples Rights; Workplace Health and Safety; and Community.
Evolving Best Practices
While there may be no other sector with more adverse social and environmental impacts than mining (with possible exception of oil and gas), few industries have come as far over the last decade in terms of the willingness of leading companies to acknowledge and address their fundamental sustainability challenges. For example, today leading mining companies have improved management of their human rights risks and impacts, begun limiting their use of water and other resources, and broadened their transparency and disclosure. Still, ever growing demand for minerals often found in environmentally- and socially-challenging settings pushes the need for continuous innovation in sustainability.
Large-scale mining operations have significant implications for the overall economies, patterns of development, the environment, and livelihoods of local communities and host countries. Metals mining is the source of more toxic pollution than any other industry in the United States1 and in many other countries where its operations are significant. Once they are closed, large-scale mines may create serious reclamation and mitigation challenges that are too often borne by the public or ignored. While the industry’s safety practices and performance have improved dramatically, mines—especially the deepest coal, platinum and diamond operations—are among the world’s most dangerous workplaces. Large-scale mining requires vast amounts of water, is energy-intensive, and one of its products—coal—is the source of more carbon dioxide emissions than any other material.2
Mining also has skewed patterns of development and the character of governance of many countries. Mineral-dependent developing countries are particularly vulnerable to corruption and conflict. The concentration and volatility of mining-generated wealth can exacerbate economic and cultural divides and often aggravates the disadvantages of women, indigenous peoples, and the rural poor.3,4
Indispensable Outputs and Innovation
However, the products of the mining sector are the foundations of modern industry, commerce and investment, with demand continuing to grow. In 2008, mining industry capital expenditures, including exploration costs, reached an all-time high of $116 billion, according to McKinsey.5 However, despite persistent demand from China, in particular, broad economic challenges are prompting short-term forecasts of mining capital expenditures at lows last seen in the early 2000s.
The years that followed the last mining capital expenditure slump brought record high mineral prices due to a lack of supply and, perhaps not coincidentally, the emergence of key mining sustainability efforts such as the Mining, Minerals and Sustainable Development project and the International Council on Mining and Metals. The coming years may feature a similar run-up of mineral commodities prices and innovation in sustainability, as having the social license to operate improves access to diminishing mineral resources.
Companies Making Progress—Still Short of Signature Criteria
Calvert’s mining industry review found five major companies that still do not meet all seven Signature Criteria, but have made progress in addressing their common sustainability challenges over the past decade. The following are examples of the good practices and some of the pressing challenges for those companies.
Alcoa has made and exceeded ambitious water use goals and has best practice greenhouse gas (GHG) reduction targets. The company has also been a vocal supporter of effective climate change regulation. However, although its human rights programs have improved, the company’s human rights commitments should expand and strengthen in line with its growing worldwide presence. These commitments include participation in the Voluntary Principles on Security and Human Rights (the Voluntary Principles), and alignment with the United Nations Global Compact.
Anglo American’s strong human rights policies and programs benefit greatly from the company’s Social Impact Assessments and the Socio-Economic Assessment Toolbox. The company is also a vital supporter of the Voluntary Principles and the Extractive Industries Transparency Initiative (EITI). In addition, it has made great strides in addressing the high incidence of HIV/AIDS in its workforce in Sub-Saharan Africa. Yet, despite the laudable efforts of senior management and resultant improvements, Anglo American’s fatalities totals are still unacceptably high, especially in its deep platinum mines in South Africa.
BHP Billiton’s clear prohibitions of Riverine Tailings Disposal (RTD) and Deep Sea Tailings Placement (DSTP), and commitment to not explore or mine in World Heritage listed properties are best practices. The company also does strong reporting of land and energy use, emissions, and waste. However, Calvert’s sustainability concerns include BHP Billiton’s status as the world’s largest producer of uranium. The company should also demonstrate more consistent support for the collective bargaining rights of its employees in Australia’s Construction, Forestry, Mining and Energy Union (CFMEU).
Newmont’s implementation of and advocacy for revenue transparency is best practice and indeed a leadership position recognized beyond the sector. In addition, reporting of land use, waste and emissions is also a welcome priority of the company. Newmont has also taken critical steps toward addressing its human rights challenges, but Calvert urges the company to implement the recommendations of the recent shareholder-mandated review of its relationships with local communities in a transparent manner. The company also should report its progress toward addressing the potential pattern of recurrent significant and substantial safety violations at its Leeville Mine in Nevada as noted by the U.S. Mine Safety and Health Administration in March 2009.
Rio Tinto’s acknowledgement that even legally permitted projects may not go forward if there is sufficient community opposition demonstrates an exemplary commitment to the rights of local communities. The company also has strong reclamation and biodiversity programs. However, like BHP Billiton, Rio Tinto’s uranium production raises lifecycle concerns and there are significant environmental and human rights challenges at two of the company’s joint ventures. In particular, Rio Tinto should have a strong interest in encouraging its joint venture partner Ivanhoe Mining to divest of the Monywa Mine in Burma in a manner consistent with the Block Burmese JADE (Junta's Anti-Democratic Efforts) Act of 2008 and U.S. Executive Orders 13448 and 13464.
An Emerging Issue: The Role of Junior Miners
The mining industry review also revealed areas where Calvert’s evaluation of the sector may be enhanced to reflect emerging realities. Among these, the growing prominence of junior mining companies, those with market capitalizations less than $50 million, in exploration activities is particularly interesting from an ESG perspective.
According to Metal Economics Group data, junior mining companies spend more money on exploration than any other segment of the sector. 6 This makes sense, as smaller mining companies are more inclined to expose themselves to the capital risks involved in mining exploration. Further, equity financing in junior mining companies has surged, as investors try to take advantage of soaring mineral values without paying for the overhead of larger, more stable companies.7
For the past several years, about 40 percent of mining exploration spending has focused on remote parts of South America and Africa, where the livelihoods of local communities are often agrarian and the enforcement of environmental and other regulations may be inconsistent.8 Large mining companies that operate in environments such as these often have the experience, policies and programs necessary to avoid the most adverse environmental and human rights impacts. Junior mining companies, which run lean and are often short-lived, rarely can match the capacity and commitments of larger companies. Because the exploration phase of mining development can have significant environmental and human rights impacts, the growing prevalence of junior miners poses significant ESG challenges.
Due to their size or private nature, junior mining companies are not in the Calvert Social Index universe. However, the Calvert Sustainable Research Department has begun investigating how the Equator Principles and other ESG-related financing standards may be used to improve the performance of junior mining companies. Updates on our progress will be available at calvert.com.
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Current and future portfolio holdings are subject to market risk.
1U.S. Environmental Protection Agency. “Toxic Release Index, 2007.” http://www.epa.gov/tri/tridata/tri07/brochure/brochure.htm.
2U.S. Department of Energy. Energy Information Administration. “U.S. World Carbon Dioxide Emissions from the Use of Fossil Fuels.” http://www.eia.doe.gov/iea/carbon.html.
3Ross, Michael. “Extractive Sectors and the Poor.” Oxfam America. October 2001. http://www.oxfamamerica.org/newsandpublications/publications/research_reports/art2635.html.
4Power, Thomas. “Digging to Development.” Oxfam America. September 2002. http://www.oxfamamerica.org/newsandpublications/publications/research_reports/art3576.html.
5BHP Billiton. Interim Results 31 December 2008. http://www.bhpbilliton.com/bbContentRepository/docs/2008InterimResultsPresentation.pdf.
6Metal Economics Group. “Expenditure Summary.” February 2009. http://www.metalseconomics.com/pdf/Mining%20Journal%20Exploration%20Record%20(Feb%202009).pdf