Rivaled perhaps only by oil, the metals and mining industry accounts for some of the most visible impacts on the environment, its inhabitants, and surrounding communities.
Crisscrossed scars of surface mines and miles-deep bores are evidence of the disruptive efforts to procure ore and minerals. Virtually everything about the mining process poses tangible risks to the future of the environment, including the use of massive mine-site equipment, tons of explosives, processing infrastructure, and chemical stews required to extract the desired materials.
Yet reliance on metals is only growing: demand has surged for rare earth metals, which underpin innovations in computer memory, smartphones, and solar panels. As these materials often have no easy substitutes, investors are turning to environmental, social, and governance (ESG) engagement to push progress in wide swaths of the industry.
Metals and Mining: Historically Hazardous Processes
Simply put, extracting metals and minerals from the earth is a messy business.
Ratings firm S&P Global concludes that “mining is by nature hazardous to the environment,” given its likelihood of introducing toxic elements into the air, water, or soil. The crushing of ore can also disrupt local ecosystems, while leaching processes risk leaking toxic fluids.
Awareness of “tailings,” or waste from mining operations, has also heightened among institutional investors. These frequently toxic scrap materials are commonly stored in ponds or dams, but a number of catastrophic facility failures prompted investors managing $13 trillion in assets to call for increased disclosure.
A 2021 mining industry survey by international law firm White & Case found that more than 45% of key industry decision-makers expected ESG issues to represent the largest risk to the industry, far outdistancing issues related to COVID-19. Furthermore, nearly 79% of those surveyed said they expect investors to push the industry more aggressively on ESG.
Active monitoring and engagement on ESG issues allows investors to navigate the fine line of market demand and broad impact.
Industry Responses Continue to Evolve
The rising prominence of ESG discussions both broadly and within the sector has pressed the metals and mining industry to adopt new standards.
Companies may no longer act with impunity, as Rio Tinto discovered after destroying a historically significant Aboriginal site in Australia in May 2020. The incident led to the departure of the CEO and two other executives.
On the other hand, a recent Climate Action 100+ progress report says that multinational company BHP has regularly met with investors to discuss ESG issues and set emissions targets and reduced fossil fuel use goals. Luxembourg-based steel company ArcelorMittal also expanded its investor engagement efforts and committed to carbon neutrality by 2050, bolstered by a renewable-fueled production process.
Industry-oriented organizations such as global human rights advocacy group Business & Human Rights Resource Centre and the International Council on Mining and Metals also work to hold companies accountable.
Ultimately, any metals and mining industry assets may represent an uneasy truce for an impact investor. However, active monitoring and engagement on ESG issues allows investors to navigate the fine line between market demand and broad impact.