ESG & energy transition, mining sectors biggest transition for 2022

Against a backdrop of record commodity prices and the pressure for miners to boost their ESG credentials, the sector is seeking to position itself as a trusted partner in fighting climate change.

FREMONT, CA: The year 2021 will be recognised in the mining and metals industry for two distinct themes. First, there was the incredible recovery from the COVID-19 epidemic, which drove commodities prices skyrocketing to never-before-seen heights. Second, ESG has become a mainstream component of business and will continue to be top-of-mind in boardrooms.

While the business proved surprisingly resilient to the pandemic's initial shock, it was also well-positioned to profit from the worldwide recovery in 2021. Commodity prices soared as trillions of dollars in global stimulus spurred a resurgence in both industrial and consumer demand. Along with coal and natural gas, copper, iron ore, and lithium all set new highs. Miners were able to deliver record profits and send out bumper dividends to shareholders after years of restructuring firms and being extremely disciplined in bringing on new supplies.

Despite the record prices, it became evident that environmental, social, and governance (ESG), which has been gaining traction in the last two polls, is now critical in attracting investors and maintaining a social license to operate. Companies that have focused on their environmental, social, and governance (ESG) performance are reaping the rewards.

When it comes to ESG, the mining industry has been caught between two opposing concepts. On one hand, there is the ongoing pressure from fossil fuel mining, as well as recent tragedies that have tarnished the entire industry's image, such as the catastrophic dam collapse in Brazil and the loss of historic aboriginal heritage sites in Australia. More positively, the industry has grown more proficient at arguing that it is becoming a significantly cleaner—and more sustainable—sector and that with this enhanced ESG performance, it can be a trustworthy and trusted partner in mining the commodities that will enable the green transition. This transition provides the potential for the sector in the future, assuming that individual players can verify their ESG credentials in all areas.

For the second year in a row, respondents believe that ESG issues would continue to be a significant danger to the sector in 2022, with 24 percent seeing it as the most serious threat, rising to over 40 percent when climate-related activism and legislation are factored in. While this is not surprising, a more sophisticated conversation is taking place, and businesses are realizing that there is an opportunity for those who can properly manage this risk. The risks of resource nationalism, supply chain instability, and a Chinese recession also increased since 2021.