The Business Case for ESG and Community Engagement in Mining Projects

Copper Investing
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As the resource sector continues to grow, the spotlight is on community engagement and ESG strategies to ensure local communities share in the economic benefits of mining projects.

The exploration and mining sector is playing an important role in the global transition to a green economy, providing the necessary resources for everything from electric vehicles to alternative energy. As such, ethical and environmentally friendly practices have become core indicators of success in the resource sector.

Global organizations have proven throughout history that engaging with the communities in which they operate can pay considerable dividends. Many companies in the industry have been practicing ESG strategies well before it became a buzzword. In recent years, this awareness has been passed to investors, who are increasingly looking into ESG and sustainable mining projects to direct their investment towards responsible companies.

This article will explain the basis for sustainable investing and why community engagement is important from an investment perspective.

Principled profits

For anyone unfamiliar with the term, ESG stands for environmental, social and governance. First coined in the 2004 United Nations Report Who Cares Wins, ESG is a set of 21 criteria used to assess a company's impact on the environment, the community and its people.

A company that operates sustainably is less likely to run afoul of regulators or be embroiled in a lawsuit over abusive practices. Consequently, there's a much lower risk that regulatory penalties or legal costs will have an impact on the business's bottom line.

Reducing risk is especially important in today’s climate, where regulations on corporate sustainability and accountability are becoming increasingly stricter.

In the resource sector, strong social and environmental practices also allow companies to build trust with communities in close proximity to exploration or mining projects. It is important to keep residents of those communities informed about the benefits that come from the project, such as job creation, economic development, and improvements to local infrastructure. Community members may also be given the opportunity to participate in decision making while the project enjoys more significant support and access to a larger workforce.

Ultimately, a junior exploration company that prioritizes ESG practices can offer a clearer insight into its performance. Enhanced reporting standards lead to greater transparency. A survey by PwC reveals a significant trend among investors: a preference for companies that align with their values. Nearly 80 percent of the participants consider ESG risks crucial in their investment decisions. Notably, half of the respondents were willing to withdraw investments from companies that neglect ESG considerations. Furthermore, an impressive 75 percent believe that prioritizing ESG objectives, even at the expense of short-term profitability, is a commendable approach.

Building a greener mining sector

Emissions from the mining industry as a whole are estimated to range from 1.9 to 5.1 gigatons. The global copper industry alone produced 22 million metric tons of copper in 2022, contributing between 0.2 percent and 0.3 percent of global greenhouse gas emissions. This may not seem significant, but with demand projection expected to more than double by 2050, copper production emissions are also expected to skyrocket. Increasing demand for other critical minerals required for the global electrification transition could also result in even higher emissions, if not addressed accordingly.

This is why ESG has become a critical component of the transition to a green economy, particularly in the resource sector. For the mining industry to help achieve an economically inclusive green economy, several things must happen.

First, governments and mining companies must collaborate to develop more sustainable and environmentally sound projects. This collaboration could come in the form of tax incentives, favorable legislation, or direct investment. Although many regions have regulations in place around sustainability and rehabilitation, mining companies should go beyond adherence and seek to minimize their environmental impact as much as possible.

Finally, mining companies need to directly engage with all stakeholders involved or potentially impacted by a project – particularly local communities. Meaningful ESG reporting is one way mining companies can provide transparency and build mutual trust with community stakeholders.

Cultivating meaningful community engagement

We've already touched on how mining projects can benefit from community engagement. There's another side to that argument. According to research by Tanzania-based non-profit HakiRasilamali and research firm International Peace Information Service, projects that lack local community support face several roadblocks.

Residents may regard mining jobs as inaccessible while their communities struggle to tap into the economic benefits provided by a mining project. Combined with a general lack of understanding about how mining can enrich them, communities may become resistant to a project's development. In the worst-case scenario, protests may interrupt or even completely derail development.

Companies that fail to effectively engage with municipal and regional governments may become susceptible to regulatory penalties ranging from fines to criminal charges.

An effective community engagement program must address anti-mining sentiment, provide full transparency to community members and account for local regulations. Successful community engagement also goes together with environmental sustainability. Professional consulting firm Stantec advises mining companies to focus on empowerment by making members of the community active participants in a project's development while also building personal relationships with community leaders.

Lastly, an engagement program should explore opportunities to develop and improve the community. For instance, Barrick Gold (TSX:ABX,NYSE:GOLD) provided an alternative source of income for communities near its North Mara project via an agribusiness initiative. The mining company also invested $7 million in the development of roads, water, power, healthcare and education and purchased from local suppliers whenever possible.

Barrick Gold is not the only mining company with a track record of successful community engagement and empowerment initiatives.

Forte Minerals (CSE:CUAU,OTCQB:FOMNF,FWB:2OA) operates on a foundation of corporate governance, compliance and corporate social responsibility. The company adheres to a strict code of conduct with standards and guidelines applicable to not only employees but also leadership, consultants, and third-party partners. Operating solely in Peru, the company has a long history of working closely with local communities in the country.

To ensure all aspects of its operation comply with and foster mutual respect with local communities, Forte Minerals’ in-house social engagement team works with an experienced environmental consulting firm to achieve beneficial synergies with local communities.

There's also Agnico Eagle Mines (TSE:AEM,NYSE:AEM) and IAMGOLD (TSE:IMG,NYSE:IAG), which were both recognized for their environmental stewardship and community engagement in the 2021 Towards Sustainable Mining Excellence Awards. Agnico Eagle leveraged low-carbon technology to establish a distribution network that provided clean drinking water to community residents near its Pinos Altos project in Chihuahua. IAMGOLD, meanwhile, worked with a local entrepreneur to incorporate a recycling program for plastic waste management at its Essakane project.

Investor takeaway

Historical evidence shows that companies actively building solid connections with local communities in their areas of operation often see significant economic gains. These advantages improve not only the company's financial health but also greatly benefit the wellbeing of the residents. This trend is especially notable in the exploration and mining sector. As investors become more aware of this dynamic, they increasingly consider a company's commitment to ESG principles a critical factor in their investment decision-making process.

This INNSpired article is sponsored by Forte Minerals (CSE:CUAU,OTCQB:FOMNF,FWB:2OA). This INNSpired article provides information which was sourced by the Investing News Network (INN) and approved by Forte Mineralsin order to help investors learn more about the company. Forte Minerals is a client of INN. The company’s campaign fees pay for INN to create and update this INNSpired article.

This INNSpired article was written according to INN editorial standards to educate investors.

INN does not provide investment advice and the information on this profile should not be considered a recommendation to buy or sell any security. INN does not endorse or recommend the business, products, services or securities of any company profiled.

The information contained here is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Readers should conduct their own research for all information publicly available concerning the company. Prior to making any investment decision, it is recommended that readers consult directly with Forte Mineralsand seek advice from a qualified investment advisor.

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