The rising demand for ESG
In a world grappling with climate change, the imperative for businesses to perform in an environmentally sensitive manner has never been greater. It is not enough to simply pledge to change, society expects businesses to prove they are doing more, and this expectation extends beyond mining to all sectors. This shift has led to a major industry response – 49% of the ASX200 disclosed as having a net-zero target in the 2022 financial year. The Government has outlined its plan to achieve net zero carbon emissions by 2050 and there has been a sharp rise in Environmental, Social, and Governance (ESG) investing. In 2021 there was a 55% growth in ESG-integrated funds, representing $500 billion worth of assets coming under management.
This behavioural change, coupled with Government policy incentive, has led to the mining industry beginning the shift from traditional carbon intensive operations to ‘greener’ projects. This has bought its own challenges. Questions have been raised around the claims of some organisations overstating their ESG impact – commonly known as ‘greenwashing.’ In 2022, the Australian Environmental Defence Office filed a complaint on behalf of PCWP and Lock the Gate Alliance alleging Glencore of misleading climate claims. Despite Glencore’s commitment to a 50% reduction by 2035 and achieving net-zero emissions by 2050, the 2022 Resource and Reserves Report suggest coal production, particularly in Hunter Valley mine, could continue well beyond 2050, with some tenements undergoing a routine renewal process.
As the pressure from shareholders and society to engage in ESG related investments increases, so does the difficulties faced by investors themselves. The EY Climate Change Sustainability Services survey found that 98% of investors evaluate non-financial metrics for decision making. This is up from 64% back in 2013. With so many potentially conflicting claims being made however, how do investors accurately identify ESG inclined investments within the mining industry?
Technology’s role in accurate reporting
Technology has a significant role to play in increasing transparency when tracking environmental impact. In our recent 2023 State of Play Mining Industry Survey, 27% of respondents believed blockchain tracking was the best method to certify low-emission commodities.
Blockchain, a distributed ledger technology, can serve a twofold purpose. For mining companies, it can improve their transparency and traceability in the recording of their carbon emission data and other climate related activities. For investors, it has the benefit of providing certainty to their shareholders that their ESG investments are legitimate.
A recent example of the application of blockchain tracking is the collaboration between Sentient Equity Partners (a private equity firm specialising in the global resources industry) and the xx Network. The primary objective behind the partnership was to leverage the network’s blockchain capabilities to publicly report ESG compliance, thereby enhancing transparency. The partnership had a notable impact on the critical minerals industry- the private equity firm entered an agreement in 2022 to sell the Rincon lithium brine project in Argentina to Rio Tinto. Utilising blockchain technology to post the mine’s ESG compliance data became a top priority, reflecting Rio Tinto’s “strong commitment to reducing its carbon footprint,” as highlighted by Sentient managing partner Mike de Leeuw.
From an investor’s standpoint, blockchain technology provides greater confidence in the validity of the data they are using to make investment decisions. Blockchain can be used to provide accurate data across the entire supply chain, and there is very little risk in the data being manipulated or changed in any way. All of this goes a long way to increasing investor trust in the sustainability performance of particular companies using the technology. National Australian Bank’s use of blockchain in an agricultural context is a great example of what could be done with mining. The bank has encouraged its rural borrowers engaging in green loans to report data on the blockchain platform founded by the venture capital unit. This is aimed at increasing transparency and reducing the risk of greenwashing.
Despite the advantages of blockchain, there are certain limitations which may halt its success as the ultimate solution for certifying low emission commodities. One of the largest issues is scalability. As it is a decentralised network, the systems struggle to process large volume transactions within a brief time frame. Furthermore, if the technology was to be adapted to mid to large companies, issues with excessive transaction costs may occur. Due to the nature of blocks, forces of supply and demand exist when multiple transactions are being processed at one time on a network, resuting in miners potentially being charged higher fees to have the blocks installed on the chain.
Blockchain technology is still very much in its adolescence in terms of adoption for ESG reporting but has taken its first solid steps in application. There may be teething issues bringing the technology to a point where it is applicable on a large scale, but the benefits offered could outweigh the current reporting procedures in place. It has already demonstrated its use within the investment world with Sentient Equity Partners, as well as certifications capabilities with organisations such as Nord Hydro. It remains as a key piece in the puzzle towards ultimately reaching net zero emissions by 2050.