ESG reporting is urgent to ensure best practice

Modernising the Federated Mining Model is urgent to ensure sustainability

Two recent events suggest that the ‘federated’ organisational model seen in many mining companies is not sustainably meeting societies expectations of Environmental, Social and Governance (ESG) performance – the release of the Global Tailings Standards (GTS) and the Australian Federal Parliamentary Inquiry into the destruction of significant heritage sites at Juukan Gorge. The ‘federated’ model is one where multiple business units operate independently or semi-independently of a central corporate entity. Some are grouped by region or commodity but maintain local decision-making rights. There are variations and degrees of control from the corporate centre, ranging from very little control outside financial reporting and policy setting to higher levels of control where the corporate centre maintains teams of technical experts that work in parallel or oversee operational functions to ensure they are meeting corporate, industry and regulatory standards.

Why the GTS was needed

The GTS was primarily a response to the January 2019 tailings dam failure in Brumadinho, Brazil which cost the lives of more than 270 people. It wasn’t the first time, with the Brumadinho tragedy following the failure of another tailings dam operated by Samarco in 2015, which caused 19 fatalities, significant environmental destruction and resulted in criminal charges being laid against executives of Samarco and its JV partners BHP and Vale. Communities, governments and investors are all increasing pressure for better standards in the management and governance of tailings facilities. The industry responded. The GTS was the result of a historic multi-stakeholder collaboration involving the mining industry through the International Council on Mining and Metals (ICMM), governments represented by the UN Environment Programme (UNEP) and investors through the Principles for Responsible Investment (PRI), represented by the Church of England Pensions Board and Council on Ethics for the Swedish National Pension Funds. The new standards are also crucial as failures at Brumadinho appear to be as much a failure of good governance as they were of the dam’s compromised integrity.

How governance lapses trump good intent

Siloed mining operations have often been at the heart of serious governance lapses. Reports from the Australian Federal Parliamentary Inquiry into the destruction of the culturally significant 46,000-year-old Juukan Cave site in the Pilbara region of Western Australia, found the cultural sensitivity and historical importance of the caves was not well understood across all the key areas of the business, suggesting a breakdown in governance and internal reporting. Consequently, much time and no doubt money was spent with lawyers to find documents and evidence as to who had approved what and when and questions have been asked as to whether the entities administrating the traditional owner groups have sufficiently robust governance practices and systems in place to adequately manage this complex stakeholder engagement. While local decision making historically had a sound basis because of challenges communicating with remote operations, the federated model creates siloed departments and systems which can obfuscate the right information travelling to the right executives or board in a timely fashion. Added to this, the increasing transparency and speed of information flow create further weaknesses for a federated model where decisions, or a lack of action at the region or operation can have dramatic negative effects on a company’s corporate reputation and potential future access to capital. There is a plethora of systems, often spreadsheets, that hold information of critical value to the corporate entity that are not aggregated or governed. Modern software systems make silo boundaries permeable without the need for business re-organisation. Data and knowledge can be automatically routed to decision makers at the right time, in a format that serves the purpose and with traceability that provides confidence and governance of the processes and accountabilities.

The way forward for modern mining

It is becoming clear that modernising the federated model will require mining companies investing in modern technology solutions that increase the connectivity between data, knowledge and decision makers right across their entire business. Little wonder that mining companies are scrambling to reshape their governance to overcome the historical reporting limitations and create a more robust and holistic view. It’s a positive step forward that the industry is working to implement very quickly, albeit with the encouragement of new standards and examples of reputational risks through ESG. A large number of K2fly’s Resource Inventory clients have drawn a direct link between Resource Governance and Tailings Governance. We see it going even further, into less readily defined areas such as cultural heritage, land access and mineral rights, all of which together contribute to ESG and therefore need to be considered collectively. The release of the GTS sets a new benchmark for multi-stakeholder collaboration and drive to improve industry performance on tailings, as well as sending a strong signal to the mining industry that ESG reporting needs to improve. Now is the time for other governance structures, codes and systems that support mining ESG initiatives to be put in place in a consistent way to prevent further disasters destroying lives in local communities, impacting unique cultural heritage treasures and spoiling the environment. The world is watching.