ESG Case Study - BHP Mining
This is a critical look into the challenges of Mining and ESG
ESG CASE STUDY
In this blog have just touched in some of the issues. Excuse the pun. This is a minefield . It highlights the some of the concerns of ESG and ideas how to solve this.
Executive Summary
BHP Billiton is one the world’s largest mining companies
• Copper is situated in Santiago given proximity to our major copper assets in Chile;
• Iron Ore is situated in Perth given proximity to our major iron ore assets in the Pilbara;
• Coal is situated in Brisbane given proximity to coal mines in Queensland’s Bowen Basin and New South Wales; and
• Petroleum is situated in Houston given proximity to onshore and offshore oil and gas interests in the US.
By definition, their Business sums up a major ESG Dilemma.
Their business like many others by definition is in contradiction of ESG. The same can be said about Tabaco Companies -like William Morris, and big Oil & Gas companies, airlines, shipping, transport and more.
This has sparked a big debate in ESG that ESG needs to be split into two areas –
1. Sustainability Ie Environment (leading to impact weighted Accounting.
2. Social & Governance I personally would agree to that. It would be a lot clearer – I would still keep the acronym ESG but propose to change the emphasis E for Environment with E for Ethics. And that boils down to integrity.
When one looks at the BHP Website, they have good intentions. Lots of slogans. (see below) When looking at Yahoo, they give the a very negative rating – highly controversial. When drilling down further, I would give them a low transparency Ratings.
Yes, they have disclosed
· No fatalities for a second consecutive year; total recordable
· Injury frequency decreased 11% to 3.7 per million hours worked I would like to understand how many people and what level of injury was caused. I want to know the Social policy and conditions of these miners.
There is obviously a big gap in pay between the executives and those who risk themselves physically So, how do we resolve this dilemma? One approach is Impact Accounting which is being researched, studied and promoted by Harvard Business School.
https://www.hbs.edu/impact-weighted-accounts/Pages/default.aspx impact-weighted accounts are line items on a financial statement, such as an income statement or a balance sheet, which are added to supplement the statement of financial health and performance by reflecting a company's positive and negative impacts on employees, customers, the environment and the broader society.
It would be interesting to see what provision BHP would need to make under this accounting policy. Giving Back US$175 million invested in environmental and social programs, including a US$50 million donation to the BHP Foundation which .7% of BHP Profit in 2021 which was US$25.9 bn.
The question remains – what is a fair contribution? In India, Public Companies are obligated to 2% to CSR Programs. You would think, that this % should be 10%. Indeed, looking at the slogans and the problematic abuse of mining and petro chemical companies on world’s resources , there is a strong case to argue that it should be higher, and in line with the calculation of Impact weighted Accounts.
The Integrated or Impact Report It would appear that BHP do not have an Integrated Report or Impact Report. https://www.bhp.com/sustainability/approach By way of comparison,
I urge you to look at the Tesla Impact Report and my blog on this. https://www.persofi.com/post/the-tesla-s-p-esg-500-index-controversy
Not only does BHP not have an integrated report, nor disclose any KPIs nor is there an real effort to address their ESG Supply chain , Recycling /Waste or clear carbon offsets including
We can make a further comparison to Newmont Mining https://www.newmont.com/sustainability/sustainability-reporting/ Some extracts of the 2019 Report The report also includes an update on Newmont’s efforts – such as protective measures at operating sites and the establishment of a $20 million fund to support communities – to help manage the impacts of the COVID-19 pandemic. Newmont’s sustainability efforts have been recognized by several independent organizations: For the fifth year in a row, Newmont was named the top gold miner in the Dow Jones Sustainability World Index (DJSI) Newmont earned a “B” score from CDP for its 2019 Climate Change and Water Security performance Newmont was added to the Corporate Human Rights Benchmark’s (CHRB) 2019 evaluation and was ranked 12 th out of more than 200 companies that were assessed against the CHRB’s human rights performance For the second consecutive year, Newmont was included in Bloomberg’s Gender-Equality Index (GEI) for its efforts to advance qualified women in the workplace. However, Both BHP and Newmont do not disclose Scope 1, 2 and 3 Emissions.
Some of the questions to ask are:
1. Would these companies meet the new SEC regulations on Climate Disclosure? The SEC’s draft climate disclosure rules require public companies to report on Scope 1-3 emissions, carbon offsets, and climate-related risks. Scope 3 emissions made its way to the proposed rules. Carbon offsets will need to be specified. Assurance requirements to come in phases.
2. Is the CFO and the Finance team involved in the ESG Story?
3. What is the level of thought and expertise going into to address these issues
4. What is the ESG budget in terms on manpower and international advisors and software
5. Who is driving this > Finance , IT or management
6. How are these companies dealing with… Oversight of ESG in the Supply Chain BHP – “We are a global business with over 9,000 suppliers around the world, many of which are small to medium-sized businesses that are local to our assets. We have approximately 80,000 employees and contractors who work in more than 17 countries around the world.” These suppliers need ESG oversight> Recycling / Waste One big area where mining companies can and be involved is in recycling and waste. Transport is another. Water Usage Is another area for further consideration Natural Carbon Offsets - Support for Regenerative practices – Forests & Agriculture This is an area for further thought. Supporting solutions for Natural Carbon sequestration, Technology & Innovation
Here I want to highlight
1. ESG Accounting & transparency– today there is increasing use of Technology to measure the impact – This can through Enterprise Software, tracking suppliers, Big Data and Ai, track and trace technology and interactive BI reports. This is not a burden, but can lead to cost savings, energy efficiency (smart Grids)
2. Innovation – This transparency should lead to energy efficiency ( use of smart grids / Renewable Energy) and the introduction of ideas and Technology to drive Water, Recycling , waste , transport, materials reusage etc. In Summary, I have just touched in some of the issues. Excuse the pun. This is a minefield . It highlights the some of the concerns of ESG and ideas how to solve this.
About Upgrading ESG ° is a holistic approach to upgrading ESG to Impact. The starting point is to understand the Company, its CEO, and its business positioning. From this we base, we provide:
1. Framework – establish a framework for the CEO, The CFO, the sustainability / ESG team and the Board to address the risks and opportunities. This could be in the form of self-assessment, consultancy, and training.
2. Action Plan to embed ESG into the Business process – Data collection ,management integrated into business and its supply chain . This is provided with strategic partners in data collection , the use of Big Data Ai ESG Tech, track & trace.
3. Integrated Reports - providing a solid governance solution. Some outputs – Realtime ESG Dashboard pulled directly into the Integrated report, with customized reports for directors and management
4. Impact / Net Zero strategy & solutions – Included are suggestions of real solutions for energy efficiency (cost savings) , waste and recycling , staff and customers. We tackle key Industries affected most – Finance , Real Estate and Retail (food) with a special focus on Supply chain , Investment portfolio and Product ESG (scope 4)
5. Provision on Non-Executive ESG Director service