In this exclusive interview with Critical Resource, Namrata Thapar, IFC’s Global Head of Mining, suggests that ESG-related scrutiny should focus on a ‘beyond compliance’ mentality and discusses progress on diversity, water management, shared infrastructure and in-country beneficiation as key issues in need of greater attention from companies.
Investors are demanding more – the creation of long-term shareholder value
“The approach to ESG issues has certainly improved during my 20 years in the resource industry. However, there is room for the industry to do more, and many of the bigger companies who previously were leaders have faltered. In parallel, the negative perception of the industry often outweighs the good things many companies are doing, since they have not been able to translate their actions on ESG into clear narratives.
This is not to say that narrative should take precedence over action. The biggest change I have seen is that good ESG performance is now seen as vital for securing investment. This applies not just to large- and mid-cap companies. The investor base is demanding more – and if an investor has a dollar to spend, they will opt to put it into a company with a management committed to a well-developed ESG framework and practices on the ground, over one that has failed to develop good practices or is unable to translate its good practices into a clear narrative about the importance of ESG to its business.
For IFC as an investor, a project must comply with our Performance Standards and report on key performance indicators, including revenue and contract transparency, employment and gender impacts, community development programs, and climate-related targets.”
The next challenge is going beyond compliance and showing measurable impact
“As a responsible investor, supporting companies in the right direction on environmental and social issues has always been a priority for IFC. We want companies to go beyond compliance, toward more integrated strategic thinking around societal impact. We are clearly seeing elevated concerns around climate change, biodiversity and tailings management, which is driving ESG higher on the agenda of investors and boards. We see that board members and their expertise are increasingly focused on ESG issues, with independent reviews, requirements for public reporting and disclosures becoming more mainstream. My hope is that this will increasingly translate into concern about on-the-ground impacts.
To this end, we in the spring of 2019 worked with a number of leading impact investors to launch the Impact Investing Principles. The Principles – adopted by around 80 investors – require that investments be managed with attention to both financial performance and impact at all stages of the investment cycle. Now we need to work with the signatories and others to create greater transparency and discipline in the changing investment market. For the first time, investors will have access to increased public disclosures on how institutions and impact funds are managing their investments and can benchmark them against emerging best practices.”
Diversity and inclusion have improved, but we need to continue to build on the momentum
“Diversity is a key part of the growth and maturing of any industry, not just mining. Fifteen years ago, I would typically be the only woman in the room working on a mining project. This has changed substantially – I now have a lot of female counterparts in leadership positions. We also see more women on boards, in senior management and throughout the value chain. These have been positive changes and it’s important to continue to build on this momentum.
Many investors have put in place requirements or goals on gender parity, and companies are getting better at thinking and reporting on these issues. I sincerely believe diversity in the workplace is important as it helps generate differing viewpoints which in turn enables better decision making and fosters superior results. In 2018, IFC put out a new gender toolkit providing practical tools to assess obstacles to equality and inclusion not only in the workplace but also in the supply chain and community. It is critical to look not only at the leadership level, but at the system as a whole.”
Shared capital investment can enable sustainable growth of the mining value chain
“Mining projects can be critical catalysts for growth in developing countries, including through local hiring, training and education, or supporting SME development. With the capital intensity of mine development increasing, there are further ways in which cooperative approaches can lead to win-win outcomes. One of these is shared infrastructure, where companies should be more proactive in seeking partners to build infrastructure such as transport facilities. Another concerns power supply, where renewables projects to power mines can be scaled up in partnerships to generate cheaper, reliable and green energy, which can also be shared with communities.
More broadly, in-country beneficiation for greater value creation is an issue that many governments are increasingly looking for from investors and companies. A big hurdle often lies in a lack of access to key inputs required for processing, which need to be imported at significant cost. Another one is the lack of infrastructure and power. Growth through sharing capital investment may become the future norm and imperative for the sustainable and economic development of the mining value chain.”
Water management is a key issue in need of greater industry attention
“Water is a shared finite resource with hard social, cultural, environmental and economic value. It is both a human right and a requirement. For these reasons, IFC views water as a key risk factor in social stability, which could grow with the effects of climate change. Given the mining industry’s dependence on water, restricted access to water and its potential social implications pose a growing risk to the industry. Companies need to adopt a holistic approach to water management to make sure resources are sustainably managed and to ensure secure access in the future. This is also an area where shared solutions across companies, municipalities and local communities can yield positive results.”
Namrata Thapar is Global Head of Mining at International Finance Corporation (IFC), the private sector arm of the World Bank Group. She leads IFC’s investment team responsible for supporting the mining sector and developing IFC’s mining business with a focus on sustainability and development impact across the emerging markets.