Sustainability Cambridge - April 2022

Lessons from the mining sector: Engage with the issue, not the company

Tailings dams, the vast toxic lakes used to store the by-products of mining operations encapsulate the sustainability challenge in the mining industry. Often built cheaply, more dams are collapsing in an increasing trend impacting communities and families in a sector where waste is treated as an externality rather than as part of the business.

Three years ago, the Church of England Pensions Board, CEPB, looked again at how it engaged with companies on the subject. The problem lay with the pension fund engaging with mining groups, seeking assurances and disclosure on their tailings operations, rather than engaging with the problem itself.

“You’ve got to engage the issue and address the problem,” said Adam Matthews, chief responsible officer, CEPB, speaking at Sustainability in Practice at Cambridge University.

That meant getting up to speed on tailings dams; finding out how many companies have them and the universal standards (there were none) under which they operate. “We understood what we needed to start to push for,” recalls Matthews. Three years down the line, CEPB was armed with data on which listed mining groups have tailings dams and where they are located. It found some dams pose huge risks sited next to communities – while others are well run and in remote areas.

In 2020 the industry adopted a universal standard, the Global Industry Standard on Tailings Management, reached as a consequence of investor pressure alongside the support of the UN and PRI, and industry buy-in. “Investors were at the table, driving the process,” said Matthews. “We need to get to the point where we can be assured all dams are operating to the Standard, practices are changing and boards know this is a major priority for their investors. “In a next step, CEPB has started to vote against companies not committing to the Standard.

Water and accesss to minerals next

The pension fund is also isolating other issues in the mining sector similarly critical to the transition and which pose uncomfortable questions for companies. These include sustainable water use and access to minerals. For example, most car companies’ electric vehicle production targets are not connected to the reality of their existing supply chains. Elon Musk recently tweeted Tesla may get into the lithium mining and refining business directly and at scale because the cost of the metal, a key component in manufacturing batteries, have gotten so high.

“We are looking at issues to ensure how this sector addresses systemic challenges,” says Matthews.  “If we are going to meet demand, we need more mines and expansion, yet new mines can take many years to come on online.”

Matthews noted how investors need to get tougher when they engage; engaging with an attitude and interventions that reflects the size of the challenge. CEPB is invested in a number of mining groups, but Matthews said any change has to be sector-wide. One company may do well like Anglo American where he named outgoing CEO Mark Cutifani as crucial to helping drive forward climate and environmental plans – but when others pollute or neglect workers’ rights, the whole sector loses its social licence. “You get external pressure on you, asking how you can invest in a sector that kills people.”

Universal owners

Matthews stressed the importance of working with others. Rather than trying to drive change alone he stressed the importance of building partnerships with other like-minded asset owners to drive systemic change. “There are strategies you are able to deploy once you understand your position,” he said.

Matthews said that pension funds do have legitimacy to push for change. They are acting on behalf of their members to shape issues on a global scale. Still, he noted investors do have a careful path to navigate because some action points are areas for governments – although he noted areas where governments should act, but don’t. The mining industry is crucial to society, yet one of the worst industries at managing systemic change, he said.

Delegates heard how for universal owners, externalities created in one part of the portfolio will be paid for in other parts yet universal owners can’t stock pick their way out.

Universal owners can have an impact via their asset allocation, and the threat of divestment does scare companies. “Tactics are available to universal owners to get companies to change their behaviour,” said Ellen Quigley, sustainability advisor to the CIO, University of Cambridge, who is also a senior research associate at the Centre for the Study of Existential Risk.

She said oil companies will see their cost of capital rise if fewer banks lend to them. She urged investors to engage with banks given most new capital flowing into fossil fuels comes via bank loans and bond issues. She added investors can also steer clear of fossil fuel infrastructure because it is visible and not data dependent.



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