Mining companies need to start thinking seriously about ESG
The introduction of new, tougher standards together with recent case law, point to a harsher, less forgiving approach to enforcement and larger fines for regulatory non-compliance and failings in relation to environmental and social governance.
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.