ESG: An Ethical Explorationist’s Quandry

ESG: An Ethical ESG: An Ethical ESG: An Ethical Explorationist’s Explorationist’ s Explorationist’s Quandary Quandary Quandary

Dr Cathryn MacCallum, Sazani Associates, and Dr Matt Jackson, Akobo Minerals AB, discuss the growing importance of environmental, social, and governance principles to mineral exploration.

Achange in attitude towards environmental, social, and governance (ESG) issues has been brewing in the exploration industry for several decades, but exploration geologists have recognised this for much longer. Perhaps for centuries, ambitious exploration geologists have travelled the world to realise a profit from newly discovered mineralisation. In many cases, these geologists enter the industry with a desire for adventure and spend many years living among remote communities and in pristine wildernesses. With such experiences, it is natural to develop a fondness for the people and nature, and a desire to protect both. Given the high profile failures of some mines, it is hardly surprising that some exploration geologists might be disappointed when they are successful. It would certainly not be unusual for a geologist to view the site of their career highlight – a profitable mine – and actually be disappointed. Humans oft en live with contradictory feelings and as such, a successful exploration geologist lives with pride in their success but also profound disappointment at the destruction they have initiated.

As part of the global push towards a greener society, minerals are required to support the generation of new battery technologies and to construct renewable energy infrastructure. It has been accepted that while it is important to round the economy circle, there is still a requirement for minerals. This is particularly true of critical raw materials. As the climate crisis develops and the impacts on society become worse, the need to discover new minerals for the green-transition will also become clearer. While the successful exploration geologist might be disappointed with the impact on society and the environment, mining is in fact essential to society itself. So, perhaps the quandary seems reasonable.

Working in Latin America in the 'noughties', the complexities of what is now known as ESG context became apparent to both authors of this article. Years later, facing similar complexities in Ethiopia, Akobo Minerals reached out to Sazani Associates to guide and place ESG consideration at the heart of their exploration activities.

Global megatrends have created an ESG spotlight

This quandary no longer exists exclusively in the explorationists mind. In recent years, other groups in the mining industry have become more focused on the problem. The world is growing, demand for raw materials is increasing, and these raw materials are simultaneously becoming harder to find. All of the mineral assets that are easy to exploit have been discovered, leaving behind those in increasingly complex geological, technological, environmental, and social contexts.1

In a study of the world’s next copper mines, the Sustainable Minerals Institute (SMI) found that 75% of the copper metal tonnes included non-price sensitive risks. Gold explorers are obsessed with the grade and tonnage of their deposits because they have a huge impact on profitability. Humans are now moving into a world where much of the success of a mining project lies not only in the quantity and quality of an orebody, but also on its impact on society. Indeed, as the SMI discovered, 75% of the world’s future copper production may never be mined due to ‘price-insensitive’ factors.2 Such price insensitive factors include many considerations within the remit of ESG that can lead to conflict including Indigenous people’s rights, complex land tenure, poor or weak governance, and corruption issues.3

Skyrocketing demand for minerals is clashing with increasing scarcity, and that scarcity puts pressure on people and the environment. Understanding the ESG context from the outset and considering risks to both the project and the ESG context is increasingly accepted as a viable way forwards. It is oft en the exploration geologists who are a project’s first boots on the ground (depending on the mineral asset), sometimes following the local footsteps of artisanal miners, so the way forwards must start with them. Understanding and managing ESG risks and impacts from the outset can positively aff ect both exploration work and the value of a discovery.4

Figure 1. Aerial view of the Akobo River, an important regional resource.

Figure 2. The Akobo River.

The role of international reporting codes

Since the early 2000’s, the mining sector has committed itself to transparency and materiality in their reporting of exploration activities through use of reporting international codes, governed by the Committee for Mineral Reserves International Reporting Standards (CRIRSCO). These CRIRSCO codes and/or instruments include names familiar to exploration geologists: PERC, JORC, NI-43-101, SAMREC, etc. While each is linked to a region, such as PERC in Europe or JORC in Australia, many of the codes are used transnationally, with a shared aim of enabling investors to make informed decisions based on an understanding of grade, tonnage, and ‘modifying factors’. The ‘modifying factors’, once only considered when suff icient grade and tonnage was inferred, are increasingly being required from the outset as the determination of ESG factors becomes associated with the value of a resource.

The South African Mineral Reporting Codes have led the way forward, including ESG within their modifying factors. At the time of writing, PERC, JORC, and SME codes are following suit. The Canadian NI-43-101, as a government instrument, presents a more complex process that has resulted in the Canadian Institute of Mining (CIM) preparing a good practice ESG guidance to sit alongside the NI-43-101.

So where does this leave the exploration geologist and their hammer? What should an exploration team do when facing ESG issues? Junior exploration companies dominate the sector, having made more than 60% of all discoveries over the last 10 years.5,6 Most junior exploration companies are highly cost conscious, and their exploration geologists are likely to feel pressure to focus on rocks as opposed to ESG, but it is argued that juniors cannot aff ord to ignore ESG. This presents a big challenge, but a potentially manageable one if such consideration can be proven to add value to the project.

A question of value and values

In parallel with the reporting codes, the investment sector is putting a spotlight on ESG factors at the exploration stage. A good example is the Digbee on-demand data, research, and ESG platform for the mining industry, which provides an online screening and matchmaking service for projects and investors. Major mining companies are also prioritising acquisition of junior discoveries that have a low ESG risk profile. Environmental issues, for the most part, are understandable and manageable at the exploration stage, because of their quantitative and scientific nature and characteristics. Social and associated governance issues, while increasingly acknowledged as being material, are complex, qualitative, and subject to change without prior warning. Exploration permits rarely require formal engagement processes and communities are rarely consulted as part of the process. More oft en than not, engagements are grounded in the culture and values of the explorer with a conscience. When managed well with demonstrable relationships of trust and ongoing dialogue, it is oft en said that a social licence has been achieved.

Social licence to operate, originally coined to describe acceptance more than 30 years ago, is accepted and acknowledged as a key business risk to the sector, topping the EY risk charts for 3 years in a row, and has been used by national governments as a defence in international arbitrations.7 However, while accepted, it remains a value laden term, a feature of doctoral and academic social science research and being wrongly associated with an absence of protest instead of a strategic approach to achieving acceptance.8

Geologists, oft en as the first to make contact with the communities and people whose livelihoods depend on the area they are wanting to explore, are rarely social scientists or social performance specialists. For the exploration geologist, this just adds to confusion as to what does and what should this mean in the field?

Achieving and maintaining a social licence

How should an exploration geologist navigate and manage securing a social licence? What attributes should they adopt? How should they address issues from previous explorers? Understanding the importance and value of a social licence is as important as understanding when to call in the ‘specialists’.

In an attempt to answer these questions and translate social science for geoscientists, Dr Cathryn MacCallum, co-author of this article, proposed that a social licence requires an understanding of the human terrain, ubiquity and diversity of social fissures, cracks, and seams.9 In other words, a social licence to operate can be regarded as the outcome of three interrelated aspects: understanding the ESG context, eff ective engagement, and shared value opportunities.

Understanding the ESG context

The pre-existing relationships, values, and dependencies on and with the natural resources in the area where exploration activity is planned. In short: who does what, where, when and how, and who owns and/or controls access to the natural resources? What is the status of relationships and interrelationships within and between communities and governance structures, how is power defined, determined, and manifested?

Effective engagement

Initiating, responding to, and maintaining eff ective relationships requires the aforementioned understanding, knowledge and defining of the characteristics of diff erent stakeholders, with stakeholders defined as individuals and entities with an interest in the project, potentially aff ected by or able to have an eff ect on the desired outcome. Building relationships of trust and transparency, that are both respectful, responsive and culturally appropriate, requires dialogue.

Shared value

Linking the vitality and sustainable development of an area to a company’s competitiveness. This is achieved by building on the knowledge of the local context and determining mutual opportunities for shared benefits.10 This prepares the ground for strategic, manageable investments that do not create unsustainable dependencies.

Case study: Ethiopia

The Akobo Minerals AB gold project in southwest Ethiopia is at resource definition stage with numerous additional targets. While working alongside local artisanal miners, company geologists discovered a high-grade gold deposit (20.9 g/t). The discovery has the potential to open up a new mining province in an area which was pristine wilderness only 12 years ago. Company geologists regard themselves as having an excellent relationship with the communities around where they work, but they are also cognisant that as their project develops, the relationship may well change.

The project is situated in a region where artisanal and small scale mining (ASM) takes place. There are established artisanal mining villages on the periphery of the licence area with extensive ASM activity across the Akobo project licence area. There are no rehabilitation or restoration measures in place to ameliorate the environmental impacts caused by artisanal mining, which in turn impact negatively on the region’s ecosystem services.

As the Akobo Minerals project develops and infrastructure improves, the project can expect a further

influx of people either engaging in ASM and or seeking employment. The presence of such a rich natural resource base, combined with the ASM activity, presents both a potential opportunity and a risk to Akobo Minerals. As a junior exploration company with a conscience and desire to be responsible and minimise the potential ESG risks to the operation, it realised there was a need to get external support to maintain what it now calls its social licence.

The company reached out to Sazani Associates, a non-profit group specialising in community engagement and sustainable livelihoods, with an established history of working across East Africa.

Working together, Akobo Minerals is building on its current standing to further develop an eff ective relationship with the communities in the area, built on dialogue, mutual respect, and trust. Through mapping the existing natural resource use and the ecosystem services in the area, the intent is to work with the host communities to reduce ecosystem vulnerability and support the communities that depend on natural resources in the area to improve their quality of life in a sustainable manner, without causing dependency on Akobo Minerals.

To achieve this, Sazani is in the process of developing a sustainable natural resource management plan (SNRMP). SNRMP is a working title for the plan, which will hopefully be renamed by the community through the development process. This plan will involve three stages: Stage 1 will prepare a situation analysis that combines an ESG risk and opportunity assessment with a rapid rural appraisal of the area to assess the stability of the ecosystem, as well as the vulnerability of the communities in the project area. Stage 2 will focus on the preparation of a sustainable natural resource management plan to guide effective and progressive management of relationships. The plan will draw on the situation analysis of what ecosystem services that the community depend up on and how access, control, and ownership of the natural resources is governed. Stage 3 will be a provision of ongoing technical support for the establishment of a payment for ecosystem services (PES) scheme, managed by the community for the community, as a key outcome of the implementation of the SNRMP. PES schemes are community focused approaches to generating income through conserving the natural environment. The establishment of a PES scheme, as a market-based mechanism to encourage the conservation of natural resources, will facilitate the autonomous sustainable development of the area and will be a ground-breaking approach for the mining sector.

Figure 3. Artisanal mining near the Akobo River.

Conclusion

As social licence continues to dominate the business risk indices, an understanding of the basic principles of social licence to operate are essential skills for the junior exploration companies that dominate this activity.7 Understanding what is not known is equally important, as well as also knowing when to bring in the specialists. By partnering with Sazani at an early stage, Akobo Minerals hopes it will enable the project to truly demonstrate the importance of being strategic and considering social license, in terms of strategic competitiveness and as being responsible miners.

ESG has become an essential consideration for the exploration geologist. Gaining an understanding of what is required is an essential attribute for success in the minerals sector of the 21st century. Hence the quandary for an exploration geologist has become not whether to engage in ESG studies, but rather: how to do it?

References

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