ESG Responsibilities of Mining Enterprises

Being the abbreviation of Environmental, Social and Governance, ESG is one kind of investment concept and enterprise evaluation criteria that focuses on corporate achievement in environment, society and governance, instead of financial performance. Based on ESG evaluation, investors are able to observe corporate ESG performance to evaluate the contributions made by their investments and the enterprise to promoting sustainable economic development and fulfilling social responsibilities.

In July, 2020, a well-known international law firm, White & Case, conducted a survey among 67 senior decision makers in metal mining industry. When asked how to enhance resilience for mining industry in the future, 22% interviewees chose ESG as their answers, second only to supplying chain excellence (37%); when asked what to put priority on in mining industry in the future, 26.3% interviewees chose ESG policies as their answers, second only to productivity enhancement (28%).

1. The Year of 2020 Is Deemed as The First Year of ESG Era in Chinese Market

Since long ago, investors had been paying increasing attention to corporate performance in environmental protection and social responsibility realization. However, there was no clear definition of ESG for evaluation. The issuing of UN PRI in 2006 was a big driving force for the development in this field. In the same year, international investment bank, Goldman Sachs, released an ESG research report that pioneered the concept combination of environment, society and governance, and clearly brought up the idea of ESG. After that, international organizations and investment institutions have continuously deepened the idea of ESG by inventing comprehensive and systematic information disclosure criteria and performance evaluation method centering on the three aspects of ESG, thus shaping a comprehensive ESG system. Leading international investment companies are gradually launching ESG investment products.

In June, 2018, MSCI index incorporated A-share companies into MSCI Emerging Market Index and MSCI Global Index, and all the listed companies incorporated into MSCI Index would have to go through ESG evaluation. Under the setting where ESG investment influence is getting more and more significant, enterprises begin to attach importance to ESG responsibilities and disclose ESG information in CSR reports. Some listed companies other than A+H shares also change their report names into ESG reports.

In December, 2019, The Stock Exchange of Hong Kong Ltd. released updated ESG guidelines and made related adjustment in listing rules that took effect on July, 1, 2020. Hong Kong listed companies must abide by the updated ESG guidelines to disclose ESG reports in 2021 fiscal year.

In November, 2019, MSCI Index ESG research team disclosed its ESG evaluation results of over 2800 listed companies; on May, 21, 2020, MSCI Index announced that it would disclose ESG rating of nearly 36000 global mutual funds and ETF to the public. The entire public is able to access ESG indicators of these funds by logging in MSCI website.

On September, 14, 2020, Shenzhen Stock Exchange modified and released Evaluation Method on Disclosure of Listed Company Information of Shenzhen Stock Exchange, of which Article 16 brings up for the first time that evaluation indicators incorporate “if or not proactively disclosing the implementation of ESG, if or not the reports are full and completed”.

A major change in international investment field in 2020 is that the international community was relocating its focus from CSR to ESG. Currently, 90% of big transnational enterprises disclose their ESG performance proactively; global investors also attach unprecedented importance to responsible investment that is represented by ESG. This will continuously generate influence on investment institutions, stock exchange platforms, listed companies and all industries.

2. Difference Between ESG Reports and CSR Reports

Full name of CSR is Corporate Social Responsibility. CSR report is also called sustainable development report. As early as January, 4, 2008, SASAC released Instructions on Central Enterprises Implementing Social Responsibilities that requires that central enterprises establish social responsibility report system. When conditions allow, enterprises shall regularly release social responsibility reports or sustainable development reports.

In June, 2016, SASAC specially printed and issued Instructions on State-owned Enterprises Better Fulfilling Social Responsibilities, which brings up that enterprises shall proactively fulfill their social responsibilities and make transparent behaviors that abide by laws and moralities to take responsibilities for stakeholders, society and environment during operation so as to create comprehensive value involving economy, society and environment to the utmost extent and achieve sustainable development. These are our important measures to deepen the implementation of the spirit of the Third Plenary Session, the Fourth Plenary Session and the Fifth Plenary Session of the Party’s 18th National Congress, and deepen the reform of state-owned enterprises. In the meantime, this is also an inevitable choice if we aim to meet the requirements brought by sustainable economic and social development and if we aim to improve corporate core competitiveness.

In conclusion, CSR reports or sustainable development reports are driven by policies issued by SASAC and Securities Commission, while ESG reports (other than listed companies in A+H shares) are so far more driven by the market.

3. The Influence Generated by ESG to Metal Mining Industry

(1) Cost of production

The Paris Agreement, approved on the Paris Conference on Climate Change on December, 12, 2015 and signed in New York on April, 22, 2016, provides guidelines for the entire globe to deal with climate change after the year of 2020. The long-term goal of The Paris Agreement is to contain temperature increase of global average temperature within 2 degree centigrade compared to preindustrial period, and to make efforts to contain temperature increase within 1.5 degree centigrade.

On September, 22, 2020, President Xi Jinping proposed the idea of Carbon Neutral by the year of 2060 on the General Debate of the 75th UN General Assembly. This means carbon emission in China from 2020 to 2060 will have to be contained to almost zero from 16 billion tons per year.

The Central Economic Working Conference was convened in Beijing on December, 16 to December, 18, 2020, which clarified that carbon emission peak and carbon neutral in China should be well carried out in 2021. Carbon dioxide emission of China strives to peak by the year of 2030 and strives to achieve carbon neutral by the year of 2060. We need to accelerate the optimization and restructuring of industrial structure and energy structure to promote the occurrence of coal consumption peak; we also need to go all out to develop new energy and accelerate the construction of market for energy using right and carbon emission right nationwide to improve double-control system of energy consumption. In addition, we need to continue the fight against pollution prevention and control so as to achieve synergy effects in pollution and carbon reducing. We need to carry out nationwide afforestation on a large scale to enhance carbon sink capability of ecosystem.

Carbon emission is priced clearly and 50% of global carbon dioxide emission is charged. This ratio is going up by 10% with the launching of China’s carbon emission trading market. Ministry of Ecological Environment has drawn up Management Measures on Carbon Emission Right Trading (Pilot) that will take effect on February, 1, 2021. This marks the official commissioning of China’s carbon emission right trading system (national carbon market) that will finally cover 8 sectors, i.e. power generation, petrochemical industry, chemical industry, building materials, steel, non-ferrous, papermaking and domestic civil aviation. Mining companies occupy about 4-7% of greenhouse gas emission globally. Therefore, profitability of mining companies will surely be influenced with the increase of carbon emission price. That is how ESG and profit of enterprises are closely connected.

(2) Product mix

In order to realize the goals of The Paris Agreement, in the future 10 years, market will have some changes in the demands for metal type. As a result, mining companies should accordingly adjust their product mix. According to the prediction of McKinsey&Company, the significant increase of NEV will greatly drive the increase of demands for nickel, cobalt, lithium and rare earth; the demands for uranium will increase by about 50-100% thanks to the increase of nuclear energy; the demands for copper will slightly increase while its recovery rate increases; the demands for iron, aluminum, lead, chromium and manganese will remain unchanged thanks to the increase in their recovery rate. The demands for coal will reduce by over 50% due to energy structure change.

4. ESG Certification

On November, 1, 2010, ISO convened its launching ceremony of Guidelines and Standards for Social Responsibilities (ISO26000) in ICC in Geneva of Switzerland. However, ISO26000, instead of a management system, is just Guidelines for social responsibilities, which means it cannot act as a third-party certification or be used as rules or contracts. This makes ISO26000 different from Quality Management System Standard (ISO9001) and Environment Management System (ISO14000).

Although there is a lack of international certificate for ESG, some associations and enterprises are still working hard to this direction.

(1) Copper Mark

The Traceability System, Copper Mark, initiated by ICA (International Copper Association), was launched in April of 2019. It is one of the efforts made by ICA to match the entire copper supply chain to the increasing standards and responsible copper production expectation. Mongolia Oyu Tolgoi LLC and USA Kennecott Utah LLC of Rio Tinto were the first two ICA member companies that acquired Copper Mark.

International Copper Association consists of big international mining companies including Codelco, BHP Billiton, Glencore, Freeport-McMoRan and Anglo American. LME requires that all the metals in the exchange must satisfy the standards of sustainable development. As a result, although Copper Mark certificate is a non-mandatory choice, it is still attractive to potential participants because companies with this certificate are responsible suppliers that meet the requirements of LME.

(2) EcoVadis certification

EcoVadis is a cooperative platform that evaluates suppliers based on ISO26000 social responsibility guidelines. The platform allows some big enterprises to evaluate their suppliers in terms of their environment and social responsibilities grade. EcoVadis adopts the mode of online examination, i.e. combining its information system and expert networks to provide users who buy its solutions with simple and reliable information, covering 150 types of purchasing scope, 150 countries and information of 21 indicators (from “carbon dioxide emission” to “child labor existence”). The platform grants gold medal, silver medal and copper medal based on their scores.

5. ESG Activities of International Mining Giants

On February, 26, 2020, the second biggest mining company, Rio Tinto, made announcement that it would invest USD 1 billion in reducing carbon footprint and aims to realize zero carbon emission by the year of 2050.

On June, 16, 2020, the fourth biggest iron ore manufacturer, FMG, made announcement that it aims to reduce carbon emission by 26% by the year of 2030 and realize carbon neutral by the year of 2040.

On December, 4, 2020, Glencore made announcement that it aims to reduce carbon emission by 40% by the year of 2035 and realize zero carbon emission by the year of 2050.

On December, 14, 2020, Codelco of Chili, the biggest copper manufacturer, made announcement that it aims to reduce carbon emission by 70% and reduce inland water consumption by 60%, and to recover 65% industrial wastes, by the year of 2030.

6. ESG Activities of Chinese Enterprises Involved in Mining

(1) Ningde Amperex Technology Ltd.

On November, 25, 2020, Ningde Amperex Technology Ltd. announced its strategic partnership with RCS Global Group, so as to ensure its responsible purchasing of cobalt, lithium and graphite. Ningde Amperex Technology Ltd. will expand its responsible purchasing to the fields of aluminum, copper, nickel and manganese. According to their agreement, RCS will conduct ESG examination on Ningde’s material suppliers so as to evaluate if their raw materials meet requirements of environment and human rights, thus striving to promote sustainable development of responsible supply chain.

RCS Global Group locates its headquarter in Berlin of Germany. RCS is dedicated to providing enterprises and mines with blockchain technology solutions from mine field to market, which enables enterprises and mines to number their mineral products.

(2) Zijin Mining

On September, 25, 2020, Zijin Mining announced its top-down ESG management structure led by board of directors and disclosed a series of statements involving environment, society and governance. This manifests Zijin’s confidence and determination to accept supervision from the public and fully improve its ability to gain high quality sustainable development.

As Zijin Mining is getting more and more international, investors are paying more and more attention to issues concerning its environment, society and governance. In particular, as one of the first A-share listed companies selected in MSCI, Zijin Mining is faced with new topics during its progress of internationalization, such as ensuring environmental protection, occupational health and safety, human rights protection, anti-corruption and anti-bribery, responsible supply chain and community investment in its project territory worldwide.

For this purpose, Zijin Mining decides to get connected to international market by fully improving the construction of ESG management system during reform deepening. The board of directors offers strategic committee the functions of leading and supervision on ESG issue management. It also set up ESG management committee to be in charge of the development, setting and implementation of ESG working goals and inspect major ESG trend and evaluate related risks and opportunities. In addition, the board of directors set up ESG working group that consists of responsible persons from multiple function departments related to corporate social responsibilities, so as to take care of implementation details of related policies and goals.

In the meantime, Zijin Mining announced 8 statements including Corporate Policy Statement on Ecological Environmental Protection, Corporate Policy Statement on Human Resources Management, Corporate Policy Statement on Safety and Health Management, Corporate Policy Statement on Business Ethics Management, Corporate Policy Statement on Supplier Management, Corporate Policy Statement on Report Management, Corporate Policy Statement on Water Resource Management, Corporate Policy Statement on Safety and Human Rights Protection. These manifest fundamental policies made by Zijin Mining in its progress of sustainable development, i.e. making comprehensive deployment in climate change, water resource protection, biodiversity, community and human rights protection, staff safety and health, anti-corruption, supply chain management. These documents are actually Declaration of the company for sustainable development.

In addition, Zijin Mining aims to incorporate ESG-related requirements into corporate systems for improvement while it is carrying out reform deepening. Zijin Mining hopes to ensure, through objective management, that comprehensive management of ESG will be reflected in transformation of all aspects of business. The updated Working Instructions of Strategic Committee of Board of Directors of Zijing Mining has incorporated ESG into evaluation on management staff of the company. Plus, ESG is connected to annual performance and salary.

(3) GEM

On December, 3, 2020, GEM announced that the company and its wholly-owned subsidiaries had reached agreement with Switzerland Glencore to extend their strategic purchasing agreement (as for coarse intermediate goods of cobalt hydroxide by power battery raw materials) to December, 31, 2029, as well as increase contracted quantities. This agreement clearly defines responsible purchasing and sustainable terms, for reference of domestic enterprises. Major content of its terms are as follows:

1. The both parties agree that, environmental, social and governance (ESG) is the pillar of the long-term contract partnership, which ensures that raw materials are not related with human rights issues and other risks. The production and source of raw materials of great importance.

2. In the light of the suggestions brought up by Due Diligence Guidelines for Responsible Supply Chain of Minerals in Regions Affected by Conflicts and with High Risks issued by OECD, the both parties agree that all related production is carried out under third-party warranty.

3. The selling party agrees, based on OECD harmonized standards co-formulated by RMI, RCI and CCCMC, that it will annually conduct third-party audit on each business of KCC and Mutanda and commonly called due diligence standards for cobalt refinery supply chain.

4. The buyer party agrees to annually conduct third-party audit on all facilities owned and/or operated by its affiliated companies. These facilities are used for refining and producing materials (GEM operating) according to this contract, which are in accordance with OECD standards co-formulated by RMI, RCI and CCCMC, and commonly called due diligence standards for cobalt refinery supply chain.

5. The both parties agree to adopt CIRAF, which is an industry-wide risk management tool developed by cobalt research institute to help cobalt supply chain participants to identify risks concerning production and purchasing. The both parties promise to disclose ESG by using CIRAF.

7. Conclusion

2021 is the opening year of the “14th Five-Year Plan” as well as the year when two centenary goals meet and switch. China has clearly brought up the goals of carbon peak and carbon neutral, so our mining enterprises should formulate their own timetable as soon as possible to meet the two goals. When formulating emission reduction goals, enterprises need to not only consider direct emission, but also set up long-term objectives by taking into consideration indirect energy emission and other indirect emission.

International mining giants are taking action and Chinese enterprises have to work hard to catch up, because ESG is sure to grow into one of the important measures for enterprises to compete in the future. For achieving high-quality development, Chinese mining enterprises have to attach great importance to ESG responsibilities. Mining enterprises that value ESG social responsibilities are sure to gain favorable economic returns in the future.