An introduction to reporting in the extractive sector
Reporting is the practice of publicly disclosing and communicating the economic, environmental, and social performance of a company. Sustainability reporting is crucial for a sustainable business. However, it is not just about collecting data or writing a report – it is about internalizing and improving an organization’s commitment to sustainable development.
The World Economic Forum has ranked environmental and sustainability risks as top risks for businesses, society, and, in the end, all of humanity. To mitigate such risks, it is important to share the process and have concrete data in line with accredited and verified frameworks and standards. Putting numbers alongside pledges or sharing data to back up information helps clarify progress to stakeholders.
Why does it matter to report?
At first, collecting information about extraction activities and their impacts helps the company to identify, monitor and mitigate potential economic, social, and environmental risks. At the same time, if communicated transparently and to the affected stakeholders, it can facilitate accountability of a company’s actions. Thus, collecting and sharing information transparently, not only supports companies’ accountability, but also opens dialogue between stakeholders and the extraction industry. Furthermore, it allows for grievance mechanisms to be put into place. At the same time, transparency also builds trust between the company, local communities, and civil society. Reporting on sustainability gives investors the opportunity to understand the challenges and benefits of the operations. Once a trend is established, it is possible to follow up on sustainability efforts of the company.
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Sustainable Management in the Extractive Industry
Currently, on a global scale, the sector is lacking what can be considered substantive reporting: This means that we find very little correlation between increases in public reporting and increases in company results, i.e. improving the situation on the ground of economic, social, and environmental impacts. Stakeholders increasingly require information on the environmental and social impacts at the mine-site level presented in a local context. There is limited value derived from reporting which sums up results from numerous and geographically dispersed projects at corporate level, especially as impacts may vary greatly depending on the location (UNEP 2020).
Instead, proper reporting requires more detailed, mine-site-disaggregated data (as published by a few companies) that can provide much more useful information than lengthy reports focused on individual case studies and company-wide statistics (RMI, 2022). This development is strongly driven by new regulations for companies to assess their actual and potential human rights and environmental impacts throughout their operations and along their supply chains (i.e. particularly requiring information on the site-level).
To make substantive reporting happen, companies need to assess the extent to which they perform against specific targets. More and more companies need to set specific targets for the full range of economic, social, and environmental measures. While the extractive industry is familiar with using targets for tracking other issues, such as greenhouse gas emissions or the gender balance of boards, there is less evidence on implementation of progressive rehabilitation, the functioning of grievance mechanisms, and the management of noise and vibration levels (RMI, 2022).
Nowadays, one of the major challenges for reporting is how to communicate efforts for different purposes effectively to different stakeholders across several countries. For example, for it to be of use to stakeholders, such as host-communities, NGOs and investors, the reporting needs to move from the global corporate level to a more granular, mine-site level (UNEP 2020). Companies need to adapt their communication to their many stakeholder groups and pay particular attention to the needs of host-communities. Currently, companies use different reporting standards or frameworks to fulfil these diverse requirements (purpose, target audience, level of aggregation), one such example is the SASB Metals and Mining Sustainability Accounting Standard which primarily intended for reporting for investors, whereas the Global Reporting Initiative (GRI) aims to provide information for all key stakeholder groups of companies.
Sustainability reporting and trends
Annual reporting is, today, in most companies, complemented with sustainability reporting that is in line with some of the standards described below. The most recent trend is to compile these reports into an annual and a sustainability report and to give the full picture with all the details in a complementary sustainability index. Often, integrated reporting is aimed at providers of financial capital. Its underlying objective is to get a better allocation of financial capital by giving investors an improved understanding of how a company creates value.
One example of that is the reporting from the mining and metals company Boliden. Boliden’s Annual and sustainability report, with a more detailed Sustainability index report, answers to the following standards: Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Taskforce on Climate-Related Financial Disclosures (TCFD), UN Global Compact and ICMM Mining principles.
- GRI (Global Reporting Initiative) is an independent, international organization that helps businesses and other organizations to report and take responsibility for their impacts, by providing them with a standard to communicate those impacts. The GRI Standard is one of the world’s most widely used standard for sustainability reporting. The standard contains a number of areas and there is a possibility to report on applicable subjects in a systematic way with a chosen level of details, it can be used for all types of organizations, and different kinds of stakeholder audiences. Indeed, it is the most commonly used standard for the extractive industry in Europe.
- SASB Standards guide the disclosure of financially relevant sustainability information by companies to their investors. Available for 77 industries, the Standards identify the subset of environmental, social, and governance issues most relevant to financial performance in each industry.
- The Task Force on Climate-related Financial Disclosures (TCFD) guides companies on disclosing climate-related financial risks to investors, lenders, insurers, and other stakeholders. TCFD is primarily a theme or pillar-based recommendations framework, one that is increasingly being used throughout the finance and banking sectors, and championed by the US Securities and Exchange Commission (SEC), UK Financial Conduct Authority (FCA), the National Association of Insurance Commissioners (NAIC), and the Singapore Exchange (SGX).
- The IFRS Sustainability Disclosure Standards were created in 2022 by the International Sustainability Standards Board (ISSB) to serve as a global format for sustainability and climate reporting that meets the needs of CFOs and investors. Although, they are still in development, given the IFRS’s influential role in financial reporting, these standards will help connect sustainability reporting information with a company’s financial statements and accounting.
Focus on medium-to-large companies with an audience of investors, CFOs and finance
- The UN Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labor rights, environment and anti-corruption. Boliden has been a signatory to the UN Global Compact since 2012.
Apart from the major standards, there are also a number of industry initiatives to report and follow up in a systematic and transparent way. There is a clear trend towards development of voluntary industry initiatives as complementary to more general standards described below. Many reporting standards are not sector specific, which should be seen as a driver to develop more industry sector initiatives in the extractive industry.
- TSM (Towards Sustainable Mining) initiative: TSM initiative is the Mining Association of Canada’s (MAC) commitment to responsible mining. Members commit to a set of guiding principles and are required to report on their performance annually through 30 environmental and social performance indicators.
- ICMM (International Council for Mining and Metals) mining principles: ICMM’s Mining Principles respond to evolving societal expectations of the mining and metals industry.
- Initiative for Responsible Mining Assurance (IRMA): IRMA’s approach to responsible mining is to certify social and environmental performance at mine sites globally using an internationally recognized standard that has been developed in consultation with a wide range of stakeholders.
- Finnish Network for Sustainable Mining: The sustainability standard used by the Finnish network draws from the Mining Association of Canada (MAC) TSM standard, adjusted to the Finnish legal framework.
Too many standards or finding the correct standard for the right purpose
Today, there are over 600 different sustainability standards, industry initiatives, frameworks, and guidelines all around the world, which can make sustainability reporting a complex, research-heavy, and repetitive process.
The decision of which sustainability reporting standards and frameworks to use is an important early step on the path to improving a copmany’s sustainability performance. Generally, it is better to focus on doing a few things well instead of trying to do everything. The recommendation is to start with a few established, priority standards. Using established, independent sustainability standards can help an organization set goals, establish priorities, measure performance and progress, anticipate risks, and manage change.
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Sustainable Management in the Extractive Industry
Sustainable Management in the Extractive Industry
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