New ESG Benchmark For Mining?

New ESG Benchmark For Mining?

gesrey

By Gianmarco Migliavacca

BHP (BHP) is raising the bar for the controversial mining sector with an ambitious new social value framework and scorecard to better engage with investors.

As ESG requirements have gained traction, mining companies have struggled to obtain permits to build mines and even to renew existing licenses. This is delaying projects and creating bottlenecks at a time when various metals are desperately needed to support the transition to clean energy. In our view, the root cause of the problem is the industry’s bad reputation for past environmental disasters, pollution, biodiversity loss and disturbance to local communities. However, we believe BHP, the world’s largest miner, has found a promising path forward.

On June 28, BHP introduced a new social value framework and scorecard with six social value “pillars”: decarbonization, environment, indigenous partnerships, workforce, communities and supply chains. The pillars track the U.N. Sustainable Development Goals, with underlying goals that are in line with existing public sustainability frameworks. Under each pillar, the company has defined metrics and milestones to track and measure progress. For instance, under “environment,” the aim is to achieve “nature-positive” outcomes by 2030 for 30% of the land/water under its stewardship. BHP has pledged to complete biodiversity baseline mapping by 2023, and define nature-positive plans (as agreed with local communities) for targeted assets by 2024. For perspective, BHP’s previous environmental commitments have simply been to avoid a “net loss” of biodiversity and prevent disturbance events. The company has committed to invest $4 billion through 2030, or ten times its $400 million pledge as of 2019.

In our view, these are big steps forward. By introducing a detailed social value scorecard with metrics and milestones to be reported annually, the company is also increasing transparency and accountability, which in turn may enable more productive engagements with stakeholders, including active investors like us.

Following BHP’s presentation and commitment to embed its new framework in strategy, processes, corporate culture and capital allocation policy, we have raised our internal NB ESG Quotient rating on the miner, as we believe the company is setting itself on a path to strengthen its ESG credentials. With its new framework and scorecard, the company is enhancing its “social license” to operate across a more ESG-sensitive world. This could enhance its position versus peers when applying for new projects or renewing its licenses. Importantly, BHP is showing the rest of the industry a possible path forward, and setting high standards as a first mover.

Hopefully, other miners will follow.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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