Introduction

In recent years, Environmental, Social, and Governance (ESG) criteria have become vital components of corporate strategy across various industries. Many companies are increasingly focusing on ESG reporting and audits due to rising regulatory requirements and stakeholder expectations. However, while compliance is important, companies should prioritize integrating ESG principles into their core business models rather than simply viewing ESG as a box-ticking exercise. Here's why embedding ESG deeply into business operations is crucial for long-term success and sustainability.

Preface

During our interim project management assignment in Bolivia and Chile in 2023, our team was tasked with creating a comprehensive feasibility study increasing the local content value creation in each region for our prestigious North American client known for their expertise in extraction technology and engineering tailored for the mining and commodity industry. By actively engaging in extensive dialogues with a diverse range of local suppliers and industry managers within the mining sector, we gathered valuable insights and fostered strategic partnerships vital for project success. This immersive experience enabled us to cultivate a profound understanding of the intricacies and nuances surrounding the practical implementation of ESG guidelines specifically tailored for mining projects in the region.

This blog also aims to highlight how important it is to first think about the transformational power of adapting the business model before thinking about ESG audits. Unfortunately, we see in many industries, far beyond the mining sector, that quite a few companies are actually only concerned about how to introduce the ESG audit quickly. The audit should be nothing more or less than the end of the process.

Background

After studying abroad for a year at the Universidad Católica de Chile, Santiago de Chile, Chile, as part of my Executive MBA program in the 1990s, I worked as a project engineer in the project and technical purchasing department of an Australian-British-Chilean copper mining consortium. During this time I had the unique opportunity to get to know various mining projects in Chile, Bolivia and Argentina. I immediately realized what it means to work at an altitude of between 2,800 and 4,000 meters, how extremely scarce the water resources are and how sensitive the issue of informing and involving the regional, mostly indigenous, population groups and communities and allowing them to participate in the development is. The ways and means of doing this are extremely broad and have to be constantly rebalanced locally. Nothing has changed to this day - quite the opposite.

ESG and the Mining Industry in Emerging Markets - Case Study: Bolivia

In Bolivia, local communities are actively involved in discussions regarding new mining projects. Environmental, social, and governance (ESG) rules are crucial in this process. According to a report by the Center on Global Energy Policy at Columbia University SIPA, ESG factors can impact the region's ability to fulfill its role in sourcing critical minerals needed for the energy transition. The report also highlights that ESG considerations should be integrated into mining practices at both corporate and government policy levels.

ESG issues have political implications that extend beyond mining activities in producing countries. For example, state ownership in Bolivia is linked to issues around resource nationalism for the industrialization of lithium.

The Mining Industry & ESG

Mining companies and the involved suppliers within the value chain can ensure that they follow ESG principles by integrating ESG risks and opportunities into their strategies and operations. They should communicate and provide transparency to stakeholders regarding their targets and performance.

To move from pledge to action, mining companies must be set up to respond to ESG opportunities, challenges, and risks. This requires an operating model that facilitates visibility, accountability, and collaboration between departments, along with a clear governance structure.

According to the guidelines of our North American client, ESG considerations should be integrated into mining practices at a corporate and government policy level. The report also highlights that ESG issues have political implications that extend beyond mining activities in the producing countries.

In summary, mining companies and suppliers can ensure that they follow ESG principles by integrating ESG risks and opportunities into their strategies and operations, communicating and providing transparency to stakeholders, and setting up an operating model that facilitates visibility, accountability, and collaboration between departments, along with a clear governance structure.

Mining Companies and Local Communities

Mining companies and th erelated suppliers can collaborate with local communities to ensure that they follow ESG principles by engaging in dialogue with them and considering their concerns. According to our project mission experience, mining companies should focus on opportunities for value creation, enable successful delivery of opportunities and commitments, and look around the bend to prepare for tomorrow's challenges.

Mining companies should also consider the following steps to ensure that they follow ESG principles:

1. Transparency: Mining companies should be transparent about their operations and provide stakeholders with information about their ESG performance.

2. Inclusion: Mining companies should include local communities in decision-making processes and ensure that their voices are heard.

3. Collaboration: Mining companies should collaborate with local communities to identify and address ESG risks and opportunities.

By following these steps, mining companies can ensure that they are operating in a socially responsible and sustainable manner.

Focus: San Cristóbal - The Prime Mining Hub in Bolivia

San Cristóbal is one of the largest open-pit mining operations in Bolivia, operating under mining contracts signed with the State. It focuses on safe operations, state-of-the-art technology, social commitment, and respect for the environment. In 2022, it produced 327,000 tonnes of zinc-silver concentrate and 67,000 tonnes of lead-silver concentrate. The region contributed USD 402.1 million in taxes, royalties, and surface rental fees in 2022. It invested more than USD 2.2 million in measures to reduce water use and waste generation, thus mitigating impacts on local biodiversity. The achievements are attributed to its workforce of more than 2,300 workers distributed in the camps and the offices in Potosí and La Paz, as well as to its 1,800 contractors. It applies voluntary international standards, including ISO 45001, OSHA, MSHA, and ACGIH, ensuring high standards in occupational health and safety.

The 2022 Sustainability Report highlights its ongoing commitment to supporting projects in community development, education, health, and infrastructure. Its investments in the communities surrounding the mining operation totaled USD 2.9 million.

Key Learnings and Recommendations

Based on our project experience, mining companies and the suppliers within the value chain should focus on opportunities for value creation, enable successful delivery of opportunities and commitments, and prepare for tomorrow's challenges.

Mining companies should also be transparent about their operations and provide stakeholders with information about their ESG performance. They should include local communities in decision-making processes and ensure that their voices are heard. Mining companies should collaborate with local communities to identify and address ESG risks and opportunities.

Mining companies and related suppliers operating in Bolivia can adopt a business model that integrates ESG principles into their operations.

Here are some steps that companies involved in the value chain of mining industry can take to ensure that they follow ESG principles:

1. Integrate ESG Risks and Opportunities into Strategies and Operations: Mining companies should integrate ESG risks and opportunities into their strategies and operations. They should communicate and provide transparency to stakeholders around their targets and performance.

2. Collaborate with Local Communities: Mining companies should collaborate with local communities to identify and address ESG risks and opportunities. They should engage in dialogue with them and consider their concerns.

3. Ensure Transparency: Mining companies should be transparent about their operations and provide stakeholders with information about their ESG performance.

4. Include Local Communities in Decision-Making Processes: Mining companies should include local communities in decision-making processes and ensure that their voices are heard.

5. Set Up an Operating Model that Facilitates Visibility, Accountability, and Collaboration Between Departments Along with a Clear Governance Structure: Mining companies must be set up to respond to ESG opportunities, challenges, and risks. This requires an operating model that facilitates visibility, accountability, and collaboration between departments along with a clear governance structure.

Implementing ESG in the Mining Sector

To implement ESG rules for the mining company and suppliers, a project management plan can be created with the following steps:

1. Define the Scope of the Project: Define the scope of the project by identifying the ESG risks and opportunities that need to be addressed. This will help in identifying the resources required for the project.

2. Identify the Stakeholders: Identify the stakeholders who will be impacted by the project. This includes local communities, employees, shareholders, and other stakeholders.

3. Develop a Project Plan: Develop a project plan that includes the objectives, timelines, budget, and resources required for the project. The project plan should also include the roles and responsibilities of the team members.

4. Implement the Project Plan: Implement the project plan by executing the tasks identified in the plan. This includes engaging with local communities, integrating ESG risks and opportunities into strategies and operations, ensuring transparency, and including local communities in decision-making processes.

5. Monitor and Evaluate the Project: Monitor and evaluate the project to ensure that it is on track and achieving its objectives. This includes measuring the impact of the project on local communities, employees, shareholders, and other stakeholders.

By following these steps, mining companies can ensure that they are operating in a socially responsible and sustainable manner.

Conclusion

Incorporating ESG into the core business model is not just about meeting regulatory obligations or producing glossy sustainability reports. It is about fundamentally rethinking how a business operates to create long-term value for all stakeholders. By embedding ESG principles deeply into their strategies and operations, companies can build resilience, enhance their reputation, drive innovation, attract talent, and achieve sustainable financial performance. In an ever-changing business landscape, focusing on ESG is not just a moral imperative; it is a strategic advantage.

In summary, ESG rules are important in the mining industry, especially in the context of new mining projects. They help ensure that mining practices are sustainable and socially responsible and that the environment is protected. By integrating ESG principles into their operations, mining companies in Bolivia can ensure that they operate in a socially responsible and sustainable manner. This approach not only benefits the environment and local communities but also enhances the long-term viability and reputation of the mining industry. Through transparency, inclusion, and collaboration, the mining sector can navigate the challenges and opportunities of ESG, paving the way for a sustainable future.