Expert Insight

Industry must rethink the concept of value

A balanced approach to stakeholder engagement is central to managing risk

August 12, 2020

Cecilia Jofré

Expert Insight
February 21, 2020

ESG in mining is synonymous with sustainability. Sustainability in mining is the ability of the industry to navigate through a series of interconnected risks and opportunities while they create long term sustainable value for their stakeholders.

Mining is a high-risk and highly regulated industry with very visible and direct impacts on the environment and on communities. The industry often operates in a multi-site, multi-cultural and multi-language environment, needing a dynamic and integrated risk mindset. Mines traditionally have worked in operational siloes and this has influenced the way that they manage risk as well.

Integrated Risk Management mirrors the move to integrated thinking, which has been affected by three major shifts in the corporate world in the 21st century:

1. Siloed to integrated thinking

Companies have come to appreciate that operating in an interconnected eco-system requires that they actively consider the relationships between the various operating and functional units and the various capitals that the organisation uses and how it affects these, in turn. This is referred to as ‘integrated thinking’. Decision making in such an eco-system requires an integrated approach to how information flows and is disseminated. Yet despite this requirement, many companies have maintained a legacy of siloed operations where they don’t share information across their departments and across their value chain. This impacts on their ability to make effective and timely decisions.

2. Financial capital market systems to inclusive capital market systems

This shift has seen the world move from a financial capital market system to a more inclusive capital market system, where capitals other than financial – for example intellectual, natural, social and relational – are considered. Until recently, companies measured their performance strictly on financial terms. Yet, the survival and success of the modern company is inextricably linked to creating sustainable and long-term positive outcomes for society, business and the environment. In order to do this, companies need to be forward looking, becoming alert to the risks and opportunities that a dynamic market presents to steer themselves through this landscape in order to create long-term sustainable value.

3. Shareholder primacy to stakeholder inclusiveness

Providing returns to shareholders is no longer the sole ‘raison d-être' of a corporation and mining companies are no exception. Organisations need to consider the legitimate interest and expectations of current and future stakeholders in creating value. This means that the shareholders of a company are no longer the primary beneficiaries of value, but that companies need to create sustainable long-term value for a variety of current and future stakeholders across a multitude of capitals. Shareholder interests are thus placed on the same level as those of customers, employees, suppliers and communities. Performance of the creation of such value needs to be communicated to stakeholders and to those representing them such as organized labor, rating agencies and investment firms.

All companies, not just mining companies, are part of an ecosystem. In their production, their outputs have long-term impacts on the inputs that they rely on. The mission of a company is not just to increase one of those capitals but to create a balanced approach. This is well recognised by the following quote by Goldman Sachs: “If you ignore sustainability, you’re going to be worthless.” Investors are recognising this truth more and more.

If you ignore sustainability, you’re going to be worthless

There has been a change in the perception and evaluation of what value really means. Over the past 40 years, value has flipped on its head; from tangible market value being viewed as the most important to a recognition of the intangible value creation. Know-how, brand, reputation, market penetration and of course, sustainability, are examples of intangible values. Looking at the value of these, is looking forward to the future. This ties into the concept of ESG, and the ways investors evaluate companies to determine real value.

Strategies for managing ESG

The main ESG factors in investment decision making are governance, supply chain, human rights and climate change. With all these external influences on organisations, how do they create lasting, sustainable value?

In defining a strategy to manage ESG and to create value, it is important to keep a few key points in mind. An ESG strategy needs to cater for both internal and external aspects:

• Integrated thinking (breaking down siloes)

• CFO and CSO collaboration

• Focus on material risks and impact

• Transparent reporting

• Education and awareness.

ESG discipline requires a forward-thinking strategy rather than simple, mindless compliance to regulation. It requires creating a framework for outcomes and embedding ESG into every aspect of the business.

What gets measured, gets managed. It is important to identify both operational and strategic KPIs and then manage organisational performance with data that provides visibility, intelligence and insight into the true health of the business.

When collaborating with clients, we set out to understand how they plan to manage their risks and opportunities. The preference is for an integrated risk management system that gives the leaders of the organisation the tools to clearly see where these risks lie, and use data to assess and manage those risk.

Our clients have used the operational metrics tracked in IsoMetrix to create performance dashboards feeding into their sustainability reports, creating a baseline against which they can track and measure their progress. This has also allowed them to communicate to a broad range of stakeholders about how they create long-term sustainable value and how are they performing on their environmental, social and governance objectives. They have used this information to obtain ESG ranking from institutional investor ratings agencies, to make themselves more attractive to potential investors.

Managing ESG risks allows companies to unlock value in their businesses, avoid negative consequences and build a reputable brand while satisfying the demands for information and accountability from stakeholders and society at large.

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

Expert Insight
August 12, 2020

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