ESG has become the most discussed topic on boards of directors in the extractive industry. Using the example of Polyus, we understand what ESG is in gold mining
What makes ESG different in gold mining
The ESG challenges faced by gold miners are familiar to any large industrial company. It covers all three major aspects of ESG – Environmental, Social and Governance. But since we are talking about the extraction of natural resources, the ecological aspect occupies a special place.
ESG challenges in the industry
- climate change and decarbonization;
- quotas for greenhouse emissions;
- loss of biodiversity;
- waste problem
- circular economy
- Responsible use of water.
- labor and health protection;
- staff training and development;
- Activity licenses
- Impact on local communities.
- integrating ESG into corporate governance;
- science-based goals;
- risk control;
- supply chains;
- Disclosures and thematic reports.
Like other industries, gold mining relies on the United Nations Sustainable Development Goals (SDGs) to work with ESG. But there are additional industry standards. First of all, the principles of activity developed by the International Council on Mining and Minerals (ICMM).
“The UN Sustainable Development Goals are very general and can be applied to a person, a company or a country. The ICMM transferred these goals to the extractive industry, taking into account the peculiarities of technologies, production and localization,” explains Daria Grigorieva, Director of Sustainable Development at Polius.
The ICMM documents reflect issues specific to mining companies. For example, waste management – special facilities for storing the liquid phase of waste generated during ore dressing. Health and safety is a separate issue. The ICMM principles suggest that a company should constantly strive to improve health and safety. The ultimate goal is not to harm the lives and health of employees.
These principles are supported by various guidelines and checklists. They help to integrate ESG into all aspects of the activity and build a system of sustainable development properly. “But there is still no company in the world that 100% fulfills all the principles outlined by ICMM. Rather, it is an ideal picture of an ESG mining company for the future that we strive to achieve,” Grigoryeva adds.
How industry reports
Rating analyst Mikhail Kaptsov of RAEX-Europe, who compiled the ESG rating for gold miners in Russia, said most gold miners have medium or low ESG scores. This is due to the fact that there is still little information in the public domain about sustainable development work. Reporting practices are only evolving, with only a few market participants making full disclosure of the data.
Polius, which ranks second in the rankings, began dealing with ESG issues in 2012. The first sustainability report was released in 2015. Every year, the volume of data disclosed has increased, and now the company reports on 128 unreported indicators. Financial.
In addition to the main report, Polius publishes topical papers. For example, in 2021, the first “Water Report” was released, which describes in detail the practices in the field of water consumption. Reports on biodiversity monitoring and waste safety are also planned.
The sustainability management system became part of the gold mine operating model. It defines the requirements for all stages of the life cycle of things – from exploration to closure or conservation.
“Polyus’ sustainability has evolved from disclosing non-financial results to strategic consulting within the company. This transformation meets stakeholder expectations and market demands,” explains Grigorieva.
Climate Change: Green Energy Certifications
In gold mining, there is a marked trend towards decarbonization, as they say in RAEX-Europe. According to expert estimates, by 2030, the carbon intensity of energy used in industry could be reduced by 35%. The main reason is that players of their generation have moved from fossil sources to “green” energy.
Over the past three years, Polyus has reduced its specific greenhouse gas emissions by 28%, from 0.063 tons of carbon dioxide equivalent per ton of processed ore to 0.045. Last year, it became the first major gold mining company in the world to cover its entire electricity needs with renewable energy.
The company entered into direct contracts with hydropower, as a result, the share of “green” energy in total consumption approached 90%. “There was a backlash, which we could not end with direct agreements,” Grigorieva recalls. Polyus then decided to purchase “green” I-REC certifications to offset its greenhouse gas emissions. As a result, the company has become a 100% “green” consumer of electricity.
“We understand that certificates are a temporary financial instrument for the period until we have 100% converted to direct contracts with renewable energy suppliers. But we are moving towards this goal,” the company emphasizes.
Water consumption: closed cycle and the use of produced water
Gold mining requires a lot of water, which is used for water transportation, and at meetings with analysts, questions are regularly raised about the shortage of this resource, says Grigorieva. “In Russia, this does not seem very acute, but, for example, the problem is very relevant in African countries. There, manufacturing companies that use large quantities of water take it mainly from the local population, ”she notes.
Polios operate in the basins of four large rivers – the Yenisei, Angara, Lena and Kolyma – and the risks of water shortages here are minimal. However, the company is constantly reducing its consumption from natural sources. Between 2016 and 2020, the specified intake of fresh water per tonne of ore processed decreased by 28%.
Polyus covers about half of its water flow needs during field development. In addition, rain and melt water are taken into the production cycle. In order to further reduce consumption from the well, the company wants to use more associated and borehole water, which is now drained after treatment.
A closed water circulation system operates in the ore assets of the gold mine. Thanks to it, almost all the water used (93.5%) is recycled in the production processes.
Read more about Polyus’ use of water resources in the company’s Water Report.
Waste: the new waste standard
In 2019, Brazil had a major accident at a waste facility for mining company Vale. The breach of the dam led to an environmental disaster and loss of life. This drew the industry’s attention to the social and environmental risks present here.
A few months later, investors representing the Mining and Residue Safety Initiative sent requests to 700 gold mining companies demanding disclosure of tailings data. 400 answered, including Polius. “It was interesting for us to collect and discuss this information within the company. Previously, it seemed that this was technical data that was not of much interest to anyone,” says Grigorieva.
The global standard for waste management soon followed. It was jointly developed by ICMM, the Community of Principles for Responsible Investment and the United Nations Environment Program (UNEP). Subsequently, in support of global standards, the International Council on Mining and Farming issued a set of best practices and a compliance protocol upon which any waste facility could be checked against the standard.
Polius, who was involved in developing these documents, expects implementation to take 3-5 years. The new standard and all its manuals are in the public domain. Therefore, the developers hope that the new rules will be implemented not only by ICMM participants, but also by other mining companies, and this will bring the mining industry closer to an accident-free future.
Social indicators: safety and health
Since it is a complex and often dangerous production, among the social aspects, gold mining prioritizes safety and worker protection. A few years ago, Polyus introduced KPIs for company-wide security. It applies to all employees of the company – from ordinary workers to senior management.
KPI is based on two indicators. First, on the Bradley Scale, which reflects the level of safety culture. Secondly, on the LTIFR coefficient – the frequency of injuries of temporary disability per 200 thousand hours worked. In 2020, the safety culture on the Bradley Polius Scale increased from 2.4 to 2.6 points. The LTIFR incidence rate was 0.10, which is considered a good industry benchmark.
Recently, the company began to develop a risk management system that will cover three main areas at once – environmental protection, labor protection and industrial safety. “We want to provide such a level of security that Polyus employees and contractors will always return from work without any harm to their health,” the company says.
Against the background of the coronavirus pandemic, the health of employees and contractors in those aspects that are not related to occupational injuries has also become the focus of attention. “Companies with programs to take care of employee health, medical examinations, etc., passed through 2020 more easily,” Grigorieva says.
Why ESG’s role will grow
In 2020, the attitude towards the ESG agenda has changed more than ever: it is beginning to play an important role in most industries. “Today, ESG is one of the most frequently heard topics at board meetings of large companies. These issues are discussed from a strategy and ratings perspective, as well as through a focus on risk management and crisis prevention,” says Polius.
For investors, sustainability has also become a determining factor. “At every investor meeting, this is the number one issue that needs to be discussed,” Ross Petty, Chairman of Pan American Silver and Equinox Gold, said at the AME Roundup 2021 industry conference.
Going forward, the increased focus on ESG can provide companies with not only investor confidence, but direct commercial returns as well. At the same conference, experts did not rule out that minerals are valued differently depending on how they are mined. Products derived from sustainable practices will sell for a higher price.
The first major forum on environment, society and governance of Russia was held in Moscow on October 14, 2021 with the support of the RBC Media Decade. You can find the results of the ESG-(R) Evolution conference on the event page.