Expert Insight

Engagement unlocks value for juniors

Aligning with in-country SDG plans crucial to winning and maintaining social lic

August 12, 2020

Todd Romaine

Expert Insight
February 21, 2020

Growing concerns around environmental, social and governance issues are weighing heavily on the global mining industry, both operationally and from a capital markets perspective.

Top sector performers are predominantly clustered in western markets and tend to be more focused on ‘best practice’ disclosure of their long-term operational, financial and non-financial performance. Larger corporations with wider resources and a greater capability to provide data around ESG disclosure for the use of data providers are significantly outperforming smaller mining companies, especially those that are concentrated in Asia Pacific and Africa.

These larger groups focus on data that is sufficient for an investment or voting decision, hence score better and are more protected from interpretation, compared to juniors who may well have a stronger positive social agenda but are constrained to advertise it.

Meanwhile, the majority of market-led frameworks and guidelines are not sufficient to provide true reflection of reality, as they only highlight the need to enhance transparency and promote a box-ticking template for a broad range of investors or fulfil certain key performance indicators. ESG as a topic is evolving from a tool that is designed to provide a structure and language to assess business performance into a barrier to access capital.

Various discussions at Indaba 2020 showed that the changing public discourse in relation to ESG highlights growing belief that mining and resource companies can only improve their performance by incorporating ESG standards into core business strategies and commercialising their ESG commitments.

Conversely, the concept of social licence is given less importance, despite being fundamental for mining projects in any jurisdiction. The risk of not having it is therefore harder to measure. As identified in the report by Vigeo Eiris looking at 203 mining and metals companies, 38% of all controversies faced by the sector are related to negative impacts on communities.

This shows that social license to operate is under continued pressure and is increasingly scrutinised by all sorts of stakeholder groups, including investors who find it difficult to quantify and measure the legitimacy gap.

Case study: Danakali in Eritrea

Digging deeper under the levels of superficial ESG reporting and complex ESG metrics into the actual integration of sustainable practices into on-site operations, the challenge of having a customised and coherent approach to stakeholder engagement becomes unquestionable.

Clearly, companies are at different stages of adopting ESG practices, but the sector as a whole faces an enormous challenge, largely driven by the geopolitical and social contexts they operate in. A ‘one size fits all approach to ESG’ is no longer a solution. Companies’ internal ESG ecosystems must be tailored to their local market, with significant consideration to cultural and economic differences.

As a developer and future operator, Danakali’s approach to sustainability is based on understanding how the Colluli potash project can be developed to serve the best value to the environment and the people of Eritrea.

Right at the launch of our sustainability programme, we decided that the key to building trust and long-term relationships with our stakeholders in Eritrea and in the region would be to tailor our corporate approach to the priorities of community stakeholders on the ground, rather than to be solely guided by widely accepted but often so isolated ‘best practices’.

This approach has been embedded into Danakali’s plans and, on the ground, community management requirements have formed a key part of our corporate strategy to help us achieve significant progress in laying the foundation for the start of operations.

Different jurisdictions demand different approaches to their operators and even where a host state does not have mandatory ESG policies in action, unlike, for instance, Nigeria where it is a legal requirement to sign Community Development Agreements, miners need to increase responsibility to listen to the needs of their key stakeholders and respond with appropriate ESG practices.

Danakali did not start this journey from a blank slate and was fortunate to have been supported by the United Nations Development Programme (UNDP), which prepared an independent analysis of the potential contributions of Colluli to Eritrea’s United Nations Sustainable Development Goals (SDGs).

The report was undertaken in 2018 by senior economists on behalf of the UNDP and assessed a wide range of econometric data. The document includes findings from engagements with Eritrean government officials, relevant public institutions and other Colluli stakeholders. It highlights five areas of direct impact and the high potential of these to positively contribute to 13 of the 17 SDGs.

The Report is a big endorsement that asserts Colluli’s potential to significantly boost the Eritrean economy and support the sustainable development agenda of Eritrea. Reports like this are powerful tools for junior miners with limited discretionary capital for marketing to use in promoting themselves as a force for good.

Engagement is therefore at the heart of SDG planning and implementation processes

The UN SDG framework is becoming an increasingly important catalyst to inspire efforts and collaboration. Despite significant progress toward SDGs, Africa is still lagging on socioeconomic development.

Relatively on track to meet three SDG goals – SDG 5 (gender equality), SDG 13 (climate action), and SDG 15 (life on land) – the region as a whole shows that there are still widespread gaps in understanding the distances to SDG targets.

At the same time, at a country level, this progress proves more efficient and effective when the SDGs receive official endorsements by government and are incorporated into state action plans and national strategies.

North Africa is expected to be ahead of the curve according to country performances on each of the SDGs. In the case of Eritrea, the country compares well with the Africa Infrastructure Development Index (49/54), the Africa Regional Integration Index (41/52) and demonstrates good progress on certain SDGs, particularly, on goals three, 13 and 15, according to 2019 Africa SDG Index.

Eritrea has experienced stable growth driven by increased investment in the mining and extractive sectors. It expects to deliver an average annual GDP growth rate of circa 4-5% GDP between 2019-2024, as the economic growth strategy highlights a focus on scaling-up infrastructure investments specifically water and energy, to promote agricultural and industrial transformation.

The country is changing, and Colluli is an important part of its development. As identified by the UNDP report, Colluli was forecast to comprise 3% of the country’s GDP, 50% of the country’s exports by 2030, and will support 10,000 direct and indirect local jobs.

Local stakeholder engagement is therefore at the heart of SDG planning and implementation processes, and projects like Colluli can be instrumental in a country’s national development plan, bringing the potential to boost the national economy and potentially transform industrial sectors in the region.

Colluli will also become a model supplier of affordable premium fertiliser to help transform yields and food security across Africa and the world.

When a particular asset plays a strategic role in a nationally-owned sustainability agenda, the success of its development becomes instrumental to establishing relationships with stakeholders that can generate cooperation and development extending beyond the sector.

One such stakeholder group, social impact investors, is particularly interesting as it adds a new dimension to stress testing a project’s social value going beyond just ‘tick-boxing’ analysis.

Particularly in the African context, regional cooperation with stakeholders who are supportive of industrial and economic development, can be game-changing for projects such as Colluli, as the social value that it has a potential to bring ranges from food security, to climate action within Eritrea and broadly in African agriculture.

Active collaboration in the implementation of national SDG plans and strategies is therefore one of the inherent features of a stakeholder engagement approach.

Danakali is a commercial partner, helping to build and support the Mining Journal Stakeholder Engagement programme

Expert Insight
August 12, 2020

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