The ‘S’ in ESG:

Mission Critical For A Just Transition

At its core, the ‘social’ pillar of ESG is about businesses committing to and respecting human rights

The supply of critical minerals is a key enabler of the world’s path to net zero emissions. Low-emissions technologies such as solar photovoltaics, wind turbines, batteries for energy storage and magnets for electric vehicles (EVs) rely on critical materials for their production and performance. As the global energy transition gains momentum, the demand for these critical minerals will increase significantly.

Australia is racing against the clock to achieve net zero by 2050, with much ground to be made in the next 7+ years to meet interim targets and timeframes for emissions reduction. Critical minerals extraction rates will need to increase dramatically in order to meet these timeframes and support this energy transition.

It would be easy to simply focus on the mining industry’s critical role in decarbonisation and energy transition. It’s also crucial to do it right. Energy transition needs to be a just transition that ensures not only the embedding of environmental sustainability, but also social protections, Indigenous rights, skills training and community development. In other words, a transition that leaves no one behind.

Australia has signed on to the Sustainable Critical Minerals Alliance

The Sustainable Critical Minerals Alliance (the Alliance), launched at the United Nations Biodiversity Conference (COP15) in Montréal on 12 December 2022, is a Canada-led initiative to promote sustainable, environmentally and socially responsible mining practices for the critical minerals sector. Signatories include France, Germany, Japan, United Kingdom, the United States and Australia. It would be great to see additional countries joining the Alliance in coming months for greater global momentum.

Through the Alliance, member nations commit to voluntarily working towards developing sustainable and inclusive mining practices and sourcing critical minerals that¹:

Employ a Nature-Positive Approach, such as by guarding against biodiversity loss

Support Local and Indigenous Communities, such as by respecting their rights and interests through engagement, responsible labour standards, diverse and inclusive workforces and safe living conditions

Help Fight Climate Change, such as by decarbonising their operations and value chain

Restore Ecosystems, such as by returning mining sites to their natural state where feasible
Build a Circular Economy, such as by accelerating the reuse and recycling of critical minerals

Foster Ethical Corporate Practices, such as by implementing due diligence in mineral supply chains as laid down in relevant internationally accepted guidelines.

As Australia’s critical minerals sector takes a spotlight on the world stage, this is an opportunity for Australian critical minerals companies to also take the competitive advantage and proactively display their responsible business credentials. This could lead to improved access by Australian critical minerals companies to high quality assets, talent, partnerships, networks and brands.

Australia’s Critical Minerals Strategy

In line with the intent of the Alliance, at the end of 2022 the Federal Government issued its Critical Minerals Strategy discussion paper for public consultation. The discussion paper notes that Australia’s critical minerals sector has an important global role to play in developing new sovereign capabilities and industries, building reliable, competitive and diverse supply chains and providing economic benefits for Australia², and reflecting Australia’s commitment to broader ESG standards. Further, the Strategy seeks to:

Build genuine partnerships with First Nations Peoples and which align with the objectives of Closing the Gap³ and implementation of the Uluru Statement from the Heart⁴, and
Encourage cultural change to help engage more people in a safer and more inclusive workplace in the critical minerals sector.

First Nations Peoples are rights holders and key stakeholders for the critical minerals sector. First Nations Peoples also hold significant knowledge about their Country and natural environment. In this context, respect for and protection of Indigenous rights is a critical success factor for the critical minerals sector and progress towards a just energy transition. In particular, Indigenous engagement and partnerships should seek to enable Indigenous Self-determination and embed Free, Prior and Informed Consent (FPIC).

Some within the mining industry are evolving their focus from social licence to operate, towards achieving shared social value, which is centred on proactively driving value for communities through strategic partnerships and economic prosperity. The move beyond social licence to social value is more important than ever before, and it depends on maintaining high standards of environmental, social and governance (ESG) credentials. The risks associated with the ESG impacts of mining projects has seen the critical minerals sector seeking to demonstrate their own credentials as ethical and sustainable producers of critical minerals while they continue to face increasing scrutiny from downstream business relationships, investors and civil society. As a member of the Alliance, Australia’s Critical Mineral Strategy will not only need to reflect the priorities for the development of the critical minerals sector but also a commitment to protecting and respecting human rights, local and Indigenous communities, and the environment. By embedding a respect for human rights, businesses will not only manage their risks, but also tap into new opportunities.

“Clean energy transitions will create jobs, enhance our quality of life and ensure a cleaner, healthier environment. A people-centred approach ensures the benefits and costs involved in the transformation of our energy system are distributed fairly and in a way that protects the most vulnerable in society. People-centred clean energy transitions require a focus on skills, decent jobs and worker protection; social and economic development; equity, social inclusion and fairness; and engaging people as active participants.”

International Energy Agency - Recommendations of the Global Commission on People-Centred Clean Energy Transitions⁵

Conclusion

We understand why environmental concerns continue to dominate the ESG agenda. However, business can’t forget about the ‘S’ in ESG. Global environmental issues such as climate change, pollution, biodiversity loss and exploitation of natural resources can have a profound effect on the quality of the lives of people. When we examine environmental issues, and the proposed solutions, understanding that these are intrinsically linked to social equity and justice will ensure that the approach to ESG risk management is a holistic, people-centred, human rights-based approach.

In this ever changing, fast paced world it's incumbent on all entities to ensure that no one gets left behind - and this provides Australian critical minerals entities with a profound opportunity to market themselves on a global stage as responsible businesses across E, S and G domains.

Actions to support the S in your ESG strategy, include exploring and developing:

Human rights impact assessments to inform ESG strategies and risk management
Reconciliation Action Plans and First Nations engagement strategies
A Human Rights Policy, coupled with supporting processes and controls
Comprehensive modern slavery strategy
Diversity, inclusion and wellbeing strategies
Proactive social supply strategies and related supply chain engagement plans
Measurement and reporting approaches to track progress on S in ESG goals.

What are human rights?

The United Nations General Assembly adopted the Universal Declaration of Human Rights (UDHR) on 10 December 1948, which is considered ‘a common standard of achievement for all peoples and nations’. It has since evolved to become known as the International Bill of Human Rights, which brings together several United Nations guidance documents including the UDHR. This bill defines 30 areas around what human rights are, including civil, political, economic, social and cultural rights that everyone in every state should have. Stemming from this, numerous treaties, laws, declarations, guidelines and principles have emerged around the world relating to human rights. These often focus on the role of nation states, however, the United Nations Guiding Principles on Business and Human Rights (UNGPs) bring these responsibilities to all types of business enterprises. In a business context, human rights can include providing decent and safe workplace standards, equal access, privacy rights, environmental responsibility and anti-corruption.

References

For more information on the Critical Minerals Alliance and how PwC can support critical minerals entities with their ESG needs, please reach out one of your contacts below.