Although environmental, social and governance- (ESG-) related standards initially emerged in the mining sector in response to external pressures, conformance with such metrics has also contributed to improved business outcomes for mining companies, supporting long-term sustainability, according to management consultancy McKinsey Eastern Europe, Middle East and Africa operations practice leader Zak Gaibi.

To comply with ESG frameworks and meet stakeholder expectations, mining companies have focused on efficient use of resources, such as water and power, resulting in positive impacts on the environment as well as the bottom line, he adds.

ESG has also elevated the importance of safety, environmental stewardship and the further development of skilled labour, all of which will “pay long-term dividends”, suggests Gaibi. However, he notes that there is significant room to do better in these areas.

To a lesser degree, emerging consumer pressure for “green” minerals and end products has the potential to create “product differentiate beyond lowest price”, says Gaibi.

He elaborates that the global energy transition has increased demand for critical minerals such as lithium, cobalt and rare earth elements, which are essential for renewable-energy technologies, with the extraction of these minerals required to meet stringent ESG criteria to satisfy downstream industries and end consumers.

Further, ESG has also become a critical factor in investment decisions, notes Gaibi. “Institutional investors now prioritise ESG risks and opportunities, with 79% of them incorporating ESG into their investment strategies, leading mining companies to adopt more transparent and measurable ESG goals to attract and retain capital.”

He explains that many companies are increasingly adopting various technologies, such as carbon accounting tools, emissions tracking systems and renewable-energy solutions, to reduce their environmental impact and improve ESG performance.

Technological development is also shaping ESG alignment, with partnerships between software providers and advisory firms playing a critical role in creating end-to-end ESG solutions to help mining companies navigate complexities more effectively, says Gaibi.