In particular, the extent to which stakeholder-centred companies integrate environmental, social and governance (ESG) factors into their operations is not only reflected in the improvement of the operations of stakeholders in the sectors in which they operate, but also causes them to attract more attention from investors.
In a study conducted by global asset management firm Arabesque in conjunction with the University of Oxford, 88% of the 200 studies analysed showed that good ESG practices lead to better operational performance, while 80% showed that stock price performance is improved by positive sustainability practices.
It has also led to change within the investor community, where ESG investing is predicted to overtake traditional investing in Europe as soon as 2025. Companies with stronger ESG track records in their operations are now more favourably evaluated and preferred by investors. In addition, it is widely recognised as crucial for better risk management.
In the ‘energy transition’ in the context of climate change, mineral requirements are expected to quadruple for clean energy technologies, which will require far more minerals than their counterparts by 2040 in order to meet the targets of the Paris Agreement (as in the Sustainable Development Scenario). In addition, to reach net zero globally by 2050 means that up to six times more minerals will be needed in 2040 than today for a faster transition to these technologies, which will require lithium, nickel, cobalt, graphite, copper, aluminium and rare earths.
This is because lithium, nickel, cobalt, manganese and graphite are crucial for battery performance. Rare earths are required for permanent magnets used in wind turbines and electric vehicle engines. Electricity grids require large amounts of copper and aluminium, and copper is the cornerstone of all electricity-related technologies.
The growing importance of critical minerals in a decarbonised energy system also requires those working in this field to broaden their horizons and assess potential new areas of risk. The scope of risk goes beyond the environment. Failure to manage these risks properly can expose governments and companies to ESG-related ethical and reputational criticism.
The most important reason why ESG risks are so important is that it is the right thing to do for the affected areas. As the world makes progress towards global climate goals, it is inevitable that the energy transition must be ‘people-centred’ and ‘inclusive’. At this point, the importance of people once again comes to the fore.
For example, according to the International Energy Agency (IEA, ESG impacts of mining projects include geopolitical tensions, armed conflict, human rights violations, bribery and corruption, emissions, water stress and biodiversity loss. This is because the proper management of mineral resources can support economic development by contributing to public revenue, lifting disadvantaged populations out of poverty and providing a decent economic livelihood.
For these reasons, as recognised in the IEA publication, stakeholders should further support efforts to improve governance, transparency and accountability of the mining sector globally.
Here, the real change should start with stakeholder-based companies and lead to the change/transformation of the sector. Because companies that do not take ESG factors into account or do not take the necessary precautions may lose investment, have difficulty in obtaining a social licence for the sites they operate in, experience supply shortages, be directly exposed to climate risks in water-stressed areas, and experience difficulties associated with conflict-affected or high-risk areas.
In this context, embracing change is a priority, and the development, holistic integration, implementation and enforcement of strong ESG standards and reporting frameworks at all levels requires support from technical assistance and capacity building, transparency, anti-bribery and corruption, supply chain monitoring and legal frameworks.
Looking at the sample processes; it is seen that the positive effects that ESG factors can theoretically provide can be achieved especially by improving governance.
As a result, for the development of societies / sectors according to the highest possible ESG standards; it is key for individuals and stakeholder-centred companies to change their behaviours, raise their awareness and cause the formation of governance resources to support them in this regard.