How is ESG shaping the business agenda in the mining and metals industry?

The mining industry has a pivotal role to play in supporting energy transition. Mined minerals, metals and rare earths are essential ingredients in the production of cleantech, EV batteries and solar panels as demand increases rapidly for greener sources of energy.

The tightening economic picture caused by rising inflation and cost of raw materials is pressuring profitability in the mining industry as commodity price volatility does not allow expenses to be passed on.

Our mining experts, Paul Watts, Graham Ricketts and David Hough explore how ESG is shaping the business agenda for the mining industry.

An increase in ESG reporting

For mining companies, both reporting requirements and best practice reports are increasingly influenced by the central role of ESG in the industry.

Paul Watts, co-head of mining and metals, comments:

“We are seeing our mining and metals clients starting to release sustainability reports alongside annual results, sometimes on a voluntary basis ahead of regulatory changes, reflecting recognition by the industry of the need to keep on the front foot with ESG as it becomes a must have for both potential new investors and existing stakeholders.”

The importance of ESG capex

David Hough, audit partner, comments:

“Increasingly investor decisions are made with a focus on ESG, and mining businesses are remaining resilient to cash flow pressures caused by increasing raw materials costs by maintaining capital expenditure in this area. Investment in renewable energy sources such as solar and wind is attractive as alongside achieving decarbonisation targets doing so reduces reliance on volatile national infrastructure.”

ESG and investment

We are only just starting to see the UK government focusing on investment in mining, having published its first Critical Mining Strategy in July 2022, which aims to protect the supply of critical minerals which impact the UK businesses, including boosting domestic production of some minerals.

Historically, mining companies have had to explore many options for funding particularly at early-stage. Paul Watts notes that access to capital for exploration companies is still challenging, but businesses that can demonstrate proof of reserves are increasingly able to attract development funding and offtake sales contracts if their project is related to a key mineral required for energy transition projects.

Graham Ricketts, co-head of mining and metals, comments:

“The $1 billion agreement in June 2023 for ACG to buy two Brazilian nickel sulphide and copper mines is a good example of the increasing inter-relationships between mining and ESG. That deal involves investment by mining companies and carmakers and will see the refinement of mined nickel sulphide at Glencore’s refineries with the final product being used in electric vehicle batteries.”

Business leaders in the mining industry are aware of the ESG lens applied by investors to scrutinise the businesses they invest in. We have seen a rise in the use of green loans and Sustainability Linked Loans in the sector.

How can RSM help

Key areas where we can work with you to help you to overcome challenges and maximise opportunities are highlighted below.

• we have significant experience of capital markets transactions in the mining and metals sector combined with a deep understanding of the technical requirements involved, including liaison with competent persons and other specialists;
• we understand the necessary board procedures and how best practice corporate governance can work for the natural resources sector;
• with investors focusing on Environmental, Social and Governance (ESG) factors, our experts advise our clients on their ESG profile;
• we provide a pragmatic and collaborative audit and use our international network to tailor the audit flexibly and effectively to the geographies and decision makers of our mining and metals clients; and
• our financial modelling team undertake model audit and due diligence assignments for lenders and developers.

Please contact Paul Watts if you would like to discuss how these issues may impact your business.