The following article is the full speech I presented to miners in British Colombia at the AME Roundup conference earlier today.  

I acknowledge that prospecting and early stage exploring up in the heart of BC or deserts of Mexico can seem a world away from the headlines of Wall Street Journal or Financial Times. The implications of our actions relating to ESG will be the difference between a vibrant and successful sector to an extent that we have not previously recognised to a sector that struggles to find acceptability, has a very high cost of finance and has limited recruitment opportunity. The relevance of these changes is as important in large boardrooms as it is with prospectors and exploration companies here in this room.

There are enough people in the world who have implored on the reasons for change due to global warming, deforestation, social justice etc  My effort here is not to add to this but to set out the reality of change, the implications it has  at Boardroom, through each corporation and throughout the supply chain that supports these companies.

We need to take heed, this is not a practice run, ESG is not a fad.  This sector relies upon a very small pool of capital to fund the extremely hard work and risky business of exploration.  We all acknowledge that exploration activities must be supported and if we are to meet the needs of society then it must prosper and grow. But we need to recognise this is at the behest of investors and these investors are demanding more than just financial return, they want to see the operations of companies operating in a more sustainable way.  

Soft and hard law initiatives have combined with investor demand to incorporate ESG as a mainstream function of investor decision making; A recent survey by SustainAbility, found that 65% of institutional investors use ESG ratings at least once a week in their work. But it is not just institutions that matter, Sustainable investing was born and energised from today’s millennials that have greater economic power than any generation before them.  The financial sector has recognized this and is adapting fast to accommodate, which has implications for all of us.

Whether one accepts global warming or not is irrelevant, the weight of investing money has already pushed past the point of no return. Pushing against this, particularly in an industry that lacks credibility and survives through an already restricted pool of capital, risks further isolation but also fails to grasp the opportunity of a generation both in terms of sector status and attracting new investment.

A point of clarity is required here.  The mining sector, so often led by Canada and the Centre of Excellence here in BC, has a positive track record.  The sector has however completely failed to communicate itself effectively.  Yet, ESG is an opportunity to change this direction, it is a means of communication and it can be used to showcase the positives and to demonstrate the commitment to improving sustainable operations all around the world. 

My thanks to Kendra and all the organisers for their perseverance in ensuring this conference was able to go ahead.  I have sat in on many presentations in the last few days and I note the inclusion of the need for a sustainable future spoken by so many.  But policy and words are not enough, I don’t see the urgency of this being applied. Major incidents in the world of mining in recent years were not as a result of poor policy but because of the failure to act on the back of it.  Excellence in exploration now needs to go hand in hand with excellence in sustainable operations – embracing this will define new investment, bridge gaps that have been prevalent for decades and bring untold benefits to companies, local stakeholders, nature, shareholders and others.  

The momentum of change is now very clear: there will be increased scrutiny on the sector and how the plans to improve sustainability stack up going forward.  The weight of this responsibility falls on the obligations of Boards of Directors.  It is their duty to demonstrate a transparent means of communication to those that it affects.

Interestingly, it’s not regulation that is driving this momentum, although external stakeholder pressures are of course one of the influences, it is brand awareness within asset owners and the belief of improved long term performance by investors. Your company valuation will increasingly be interdependent on the way you are perceived through transparent disclosure of ESG  – than it is solely on mineral wealth. The mining industry has a terrible track record of development.  A credible means to track ESG therefore provides fund managers with the means to direct capital to those companies that can demonstrate above average characteristics of lower risk. This itself raises the prospect of further polarising sectors and companies but creates an opportunity for others… 

Many changes relating to environment, social and governance have already taken place in different types of frameworks at Industry level, local level, national and international levels. But of note is the increasing number of countries adopting Stewardship codes as part of Corporate Governance for asset owners.  Canada updated its equivalent in May 2020 through the Canadian Coalition of Good Governance. This is an investor led coalition and includes mining investors: BMO, Blackrock, Franklin, CPP, OTP, and RBC Asset Management as members and many other endorsers.

I won’t go into detail on these Codes but suffice to say they are influencing the whole investment spectrum, they are designed to improve monitoring of a corporate Board’s oversight of strategy and risk, performance and compensation, including material environmental, social and governance factors. The output of this can already be felt through greater engagement, advocacy and lobbying – while also increased exercise of voting rights, impacting the reputations of Directors. This is not simply limited to institutions but now also through active social media campaigns emboldening private investors. It is now standard practice for Individual Directors or entire Boards to find large blocks of votes against through either unfulfilled governance or lack of transparency.

I want to now turn to some of the practicalities of ESG, most of which are not new but the transparent disclosure of which allows a management and its Board to rationalise core issues and provide a transparent means to communicate this to all its stakeholders.

As Jody Wilson Raybould so eloquently put the other day at this conference, “let’s not complicate the uncomplicated.”

There are many areas that influence how an effective operation is managed. For junior miners it might be:

  • Ability to finance
  • Upholding the Social License to operate
  • Value appreciation
  • Recruitment and retainment of staff
  • Board obligations

However we describe it, the role of stewardship is the means to create a durable business model which can be supported by:

  • An enhanced corporate reputation
  • Improved risk management
  • Creation of Long Term Shareholder value

Governance serves the ability for both the Social and Environmental aspects to work and operate effectively.  Governance has a core role to play in how all aspects of ESG are developed, deployed and managed.  For instance, it will likely include:

  • Board composition – not only relating to diversification but to ensure the culture of ESG is incorporated from the top of the organisation all the way through
  • Bribery and corruption – where policy needs to not only be written but then acted upon on a day to day basis
  • Executive remuneration – brings all these different points together and incentivises management to excel both at discovering new mineral deposits but alongside strong sustainable practices. 

The evolution of ESG in 2022 will likely see investors becoming more discernible with the data they use and will need to see how corporate policies are being implemented and monitored.  This goes hand in hand with benefits that ESG can provide.  A well thought out environmental and social governance system that provides objective and transparent metrics to management and the Board can then be acted upon to reduce water consumption, reduce power usage, improve waste management, improve engagement internally and externally leading to better staff retention, improved recruitment and stronger local stakeholder relationships. 

Looking to the future, three areas are likely to be significant talking points in coming months.  

Reliable data

Firstly is the quality of data being published and relied upon to make investment decisions.   Reliance on consistent and meaningful data is therefore likely to become a significant differentiator for investing funds.  Fund managers are increasingly seeking to see independent assessments that provide not only a management’s commitment but also a means to credibly track ESG and for management to set out their organizational, environmental and societal goals in a clear and consistent way.

Ecosystems matter

Secondly, is the rebalancing towards nature and social topics. COP26 clearly stole the show last year, dominating the climate theme but at the same time it raised many interconnected areas that are addressed through nature and social change.

Blockchain is ready

Thirdly, Blockchain in order to validate the provenance of the underlying commodity.  Apple last year announced they had removed over 140 smelters or refiners from their supply chain as they were unable to validate the responsible sourcing of minerals.  Their claim of responsible sourcing, which many of us laughed at being impossible only a few years ago, is happening.  Blockchain is the conduit in achieving this goal. Every company in the mining industry will be influenced by this over the next few years.  If, as an explorer, you can’t prove how you have managed your company and your exploration site through an ESG lens, expect the impact of your economic discovery to be muted.  The value of discoveries will no longer rely entirely on geology and metallurgy but on the provenance of the project, on the relationship you have with your stakeholders, on the acceptability of your governance to wider society and on how you have managed your environmental and nature footprint. 

Smelters and refiners are being removed from the supply chain – this is the first step to impact differential pricing of metals.  Those mine sites that can prove their provenance will be acceptable, those that can’t will find a smaller pool of customers and therefore the emergence of discount pricing for the same underlying ore qualities.  Provenance does not start from ore production but from the time when the local First Nations Group was engaged, from the moment explorers start drilling, from the moment that the management group tied its compensation to ESG goals.  Blockchain will provide the means for companies to communicate their independent ESG assessments and to ensure their customers have an historical record of commitment.

In summary. I have been in this industry for 35 years and have been inspired by the people who passionately believe in their project and their industry.  It is energised by the tenacity of these people to discover and promote their projects.  

ESG is your friend, it can provide more value to this industry than any other. It is the single most influential change to the sector that can engender confidence, conviction and trust to a sector that has limited reserves of this.  

The exploration sector is neither immune nor disconnected from these changes, it is intrinsically linked to it, can be a leader and a major beneficiary.

The weight of finance is now too large to ignore, the implications of not embracing are too big to ignore, the percentage of the investing public who care in this is too big to ignore and the opportunities to those that adapt are too big to ignore.