ESG competent boards can help shape mining companies’ long-term direction and balance competing
interests, as well as anticipate risks and opportunities. (Photo: Unsplash)

A 2023 report by Heidrick & Struggles, INSEAD and BCG, found that only 29% of board directors globally feel knowledgeable enough to challenge or monitor execution on sustainability, and 89% rely only on management updates to stay informed on the topic of ESG. Meanwhile, 48% said that knowledge or experience in sustainability is not part of the competency matrix for their board selection.

These numbers are worrying given the rising number of greenwashing accusations that are being levelled at miners, and also considering that 73% of respondents to a survey by Baker McKenzie of 600 senior legal and risk leaders worldwide found ESG to be the greatest legal dispute risk to organizations in 2024. In mining and metals specifically, executives ranked ESG as the biggest risk to their businesses in 2024 for a third year straight in EY’s Top 10 business risks and opportunities report.

Houston, We Have a Problem
It’s important to acknowledge the difference between competency and skill. The former relates to the way in which ESG (factors that help investors and companies assess how sustainability impacts business risk) is understood, while the latter implies a level of expertise. Board members cannot be expected to become ESG experts overnight, nor should they try. But, to carry out their duties properly and with an appropriate level of diligence, they do need to maintain a high-level understanding of which ESG-related matters are important today, how they relate to their company and its activities and how they’re evolving.

Dekker explained: “If directors keep on top of key ESG issues, they will be better equipped to meet their oversight obligations. For instance, to be more effective in overseeing strategic direction for the company, and to ask the right questions of leadership teams to ensure that ESG risks are being managed properly.” Do you think most mining companies have enough ESG proficiency at the executive and board level today? I asked Dekker and Freele. “No,” was their unequivocal answer. “That’s the truth in most industries,” Freele replied. “It’s a reality of how fast the space is changing. A 2018 NYU study of Fortune 100 board members found that only 29% had relevant ESG credentials. Today, that number is 43%. Things are changing, but it’s still a big issue, particularly for smaller companies. In the meantime, the topic seems to only keep growing in importance.”

Dekker added: “Historically, executives and directors were not recruited for their ESG credentials. Even though there’s a growing understanding of the importance of that competency in managing company risk, in most cases, the capabilities of senior leaders and directors have not caught up yet with the level of requirement. Some companies have a director with expertise in sustainability. However, ESG themes touch the entire organization, and so a much broader range of individuals at that level need to understand ESG-related issues and their implications for the company.”

Freele agreed: “One of the biggest changes that we’re seeing is the shift from only having one sustainability expert on boards to ESG being seen as a fundamental board director competency. Even if a board has a sustainability expert, ESG is so vast and rapidly evolving that they’re likely to have gaps in their knowledge. For an issue that’s so important and broad reaching, it’s dangerous to have only one person who has a good grasp of the basics or is specialized in a particular sub-field of sustainability. That’s especially challenging for smaller companies that need to be really strategic about who their board members are and what expertise they bring to the table.”

Anglo American’s board visits the Quellaveco copper project in March 2020. (Photo: Anglo American)

It’s the responsibility of boards to oversee capital allocation, constructively challenge and monitor strategy delivery and set each company’s risk appetite. Today, all of these require directors to be proficient in ESG. “Board members are also responsible for appointing individuals to executive roles,” Dekker reminded us. “If they themselves are not competent in ESG, then how can they ensure that the leaders they’re appointing are sufficiently qualified? When it comes to ESG, so-called competence greenwashing is a legitimate source of risk for businesses today.”

For mining companies, sustainability is not new. It’s the speed at which the interrelated disciplines of environmental and social performance have coalesced with governance into a single concept — ESG — the formalization of reporting and disclosure requirements, and the way the topic has shot up the agenda of investors, stakeholders, regulators alike, that has left the industry lacking when it comes to ESG oversight.

“Because of the speed and velocity of change, long-term board members might not have cultivated the relevant competencies yet,” said Dekker. “And individuals with the necessary skills might not be those who typically get recruited to boards from a traditional candidate pool.”

“The mining industry has long struggled to attract folks with a sustainability background,” Freele added: “If we’re not bringing in people at an early career level and growing them within the industry, then it’s going to be hard to place or attract those people into top positions later in their careers. There’s a gap when it comes to ESG and sustainability hires that runs all the way through the hierarchy of companies in this industry.”

Upskilling to Close Competency Gaps
In addition to nurturing ‘homegrown’ sustainability talent to fill future board roles, there’s also a pressing need for boards to close any competency gaps today through upskilling directors and/or harnessing external sources of expertise. “There’s a range of ways that leaders can educate themselves on ESG,” said Dekker. “For example, companies can invite specialist practitioners to deliver training and workshops to board members on a one-off or ongoing basis. They can invite stakeholders to shed light on key ESG challenges, and there might be respected peers who can speak to the board. There might also be opportunities for board members to visit sites to gain firsthand exposure to ESG topics and how they affect the communities and ecosystems in which the company operates.”

Freele said there are lots of good online resources that directors can use to stay up to date on developments. Sympact, for instance, produces curated quarterly ESG reports on the latest global developments for mining directors and executives, and some international associations, like the Institute of Corporate Directors, the Conference Board and CPA Canada / Australia, offer toolkits and guidance to help senior leaders meet growing demands for ESG action from investors, regulators and other stakeholders.

Visting projects and speaking to community members firsthand can provide directors with
important perspectives on ESG matters. (Photo: Anglo American)

Noticing a gap for curated, practitioner led ESG training that’s mining industry specific, Sympact launched the Responsible Mining Academy in May 2024. This is an online platform through which the team delivers educational courses, one of which is specifically aimed at directors and executives. “We found that in most of our projects, for client teams to effectively own the process and outcome, a training or coaching component was often required to bring everyone up to speed before the project could begin,” explained Dekker. “So, we decided to turn that content and experience into a package that would be on demand, selfpaced, and delivered via a modern, online learning platform, accessible from anywhere with a good internet connection.”

The ESG Primer for Directors and Executives covers all the basics: the evolution of ESG, drivers and trends, assessing materiality, impacts on risk and strategy, and a deep dive into mining’s most pressing ESG topics. There’s also detail on reporting and disclosure, intersections with leadership accountability, oversight obligations, core ESG capabilities required at a senior level, and questions for board members and executives to ask of their teams to understand if risks are being understood and managed. Live facilitated sessions also provide opportunities for discussion and group work with peers from other companies.

“We’ve had a positive response so far,” said Dekker. “There are a lot of people, particularly in senior roles, who have wanted to undertake training but couldn’t find the right fit, or couldn’t access other courses due to time commitments.” However board members choose to educate themselves on ESG, they must commit to doing so now, and view their learning journey as an ongoing endeavor. “Expectations of companies to understand what their social and environmental impacts and risks are, take meaningful actions and disclose them transparently are growing,” said Dekker. “These expectations are not just coming from a single place, like regulators, investors or insurers, they’re coming from employees, the general public, suppliers and downstream customers too. ESG is now a fundamental part of being a responsible mine operator.”

If mining continues to be seen as an industry that lacks integrity and does not do its part to safeguard a sustainable future for humanity, then companies are going to continue facing significant difficulties in social acceptability and attracting the talent and capital that they need to thrive, which poses a serious risk. “Senior leadership ESG competency is fundamental to effectively navigating this risk and ensuring organizational resilience, in what is often seen as a highrisk industry by investors,” said Freele. “Ultimately, why would anyone choose to invest in a company knowing that its directors and executives are not on top of some of their biggest risks?”

Outside Expertise Brings Value to Boards
Cripps Leadership Advisors published an interesting paper in May 2024 titled ‘Adapting to change: evolving mining boards to fit a dynamic future.’ This explored ways that mining companies can build balanced boards with competency in emerging themes, including sustainability. Rowan Phendler, Director for Natural Resources and author of the paper, spoke to me about his key findings.

“ESG is a top priority for mining companies today,” he said. “Organizations are under increasing scrutiny from all angles, but particularly from investors — there are very few large-scale private equity firms investing in mining today. With constant evolution and improvement in ESG that may change, but executives and boards must place a sustainability lens over everything that companies do going forwards if they want to increase investor confidence, tap into new pools of capital, and gain community acceptance for new projects.” Phendler pointed out that most tier one miners now have at least one board member with a sustainability background, and many of those have been recruited from outside of the mining sector. However, that effect hasn’t trickled down to fully to the mid tiers and juniors yet. “There’s a big difference between sustainability capacity and competency at the board level of large, medium and small companies,” he said.

Mining boards, even at tier one companies, tend to be small relative to the size and scope of the company. For instance, in his paper, Phendler states that the top 100 listed mining companies in 2023, had an average board size of just 10 members. For smaller companies who have even fewer members, it’s essential to be selective about which skills and competencies directors bring to the party.

Building ESG competency can allow board members to more fully participate in shareholder meetings, and answer any questions that arise.
(Photo: Brandon Payne / World Bank)

“In addition to all board members having a solid understanding of sustainability issues, there is a place for companies to have ESG specialists on their boards,” said Phendler. “But for that to work, those individuals need to be able to offer their expertise to the board in a strategic way and they must have a good grounding in business principles too. Dominic Barton and Kaisa Hietala of the Rio Tinto board who contributed to my paper described these people as having a skill set shaped like a capital letter T. The top of the T represents competency in business, and the upright part represents expertise in a field, such as ESG.”

He added that balance is important. To be able to leverage specialist sustainability capacity, boards must also have a good grounding in mining-specific disciplines, such as geology and material science, capital markets and project economics.

Going Above and Beyond in ESG
According to Phendler, when it comes to ESG, compliance is no longer enough. “Companies are not going to create significant change in this world just by being ESG compliant,” he said. “To go beyond that, they need directors and executives who understand and care deeply about sustainability. Given that there’s a lack of homegrown sustainability talent in mining right now, companies need to look to other industries that are further ahead to find those individuals.”

Cripps provides global search and leadership advisory services for industrial sectors, including mining, new energy, oil and gas and more. This allows it to look across these verticals for individuals with the necessary skills and capabilities. According to Phendler, the firm has seen an uptick in search requirements for executives and board members who have ESG credentials and/or sustainability backgrounds. Today, approximately 30%-40% of board member searches list these as a requirement.

To facilitate learning, mining companies can invite ESG practitioners to deliver training and workshops to their board
members on a one-off or ongoing basis. (Photo: Unsplash)

He continued: “Profiling strong candidates against criteria beyond the usual strengths and trip wires to predict more pertinent capability is obvious, but it’s easy to skip over without being rigorous and intentional about it. Capabilities, such as adaptability to innovation, openness and critical thinking in relation to topics such as ESG or having the leadership impact to galvanize a following around new directions, and a more integrated agenda for growth are key. Organizations do not want to be stuck in the past when others are leaning into their board’s strengths to propel themselves ahead.”

Another key takeaway from Phendler’s paper, is that, by ensuring boards have sufficient ESG competency, there’s an opportunity to encourage teams to consider it, not only as a risk mitigation tool, but also one for value creation, at every stage of the asset lifecycle. This will look different for every project, but it might, for example, ensure that Indigenous knowledge and governance are embedded into project design and oversight, or that biodiversity is properly accounted for in valuations.

These are not just the right things to do, but also huge economic, social and environmental opportunities for all. Sustainable business is the future and having individuals with an eye for new value streams and potential dividends is a must have today.

“Often people from outside of an industry or organization can ask the best questions, because they bring a fresh perspective which helps leaders to look at a situation differently,” said Phendler. “Sometimes when we seek a sustainability expert from outside of mining for a board or leadership role, they will ask us if there’s a real opportunity for them to make an impact on the company and its future. People care that corporate commitments are backed up by real, meaningful actions, and delivering those starts and ends with the board.”

Why Now? The Imperative for Change
Mining executive and seasoned ESG advisor, Kevin PCJ D’Souza, has also written recently about this subject. What’s changed? I asked him. “From an investor point of view, due diligence and post-investment approaches surrounding ESG have really tightened up in the past few years,” he explained. “There’s a growing expectation from signatories to the Principles for Responsible Investment (PRI) including many traditional and non-traditional mining investors, while proxy advisors are becoming increasingly prescriptive concerning ESG accountability and having an effective oversight structure.

“National security agencies are clamping down on greenwashing. A lot of governance codes and corporate governance are changing, and many boards don’t have the capacity to oversee all this disruption. If board members want to create and protect company value, then they need to be savvier when it comes to ESG.” D’Souza believes that not every board will need a full-time sustainability or ESG expert immediately. For example, some smaller companies or those operating in lower-risk jurisdictions might be able to manage with members who have a good level of competency, and maybe seek advisory capacity when needed. But, he said, for everyone, ESG needs to be top of mind.

“ESG issues and opportunities have become ‘mission critical,’ so they must be a regular topic of the board agenda, preferably through a standalone committee,” he explained. “In that committee, it’s important to understand accountability through a clear charter or governance guidelines, so that management knows what their roles and responsibilities are. “As you mentioned earlier, there are courses and executive programs that can bring that level of awareness to the board. Boards can also focus on recruiting directors who bring ESG fluency and experience to the table — people who understand business too and can relate to multi-stakeholder perspectives. The board needs to be a strategic partner to management, exercising their ESG and business judgment to establish ethical guardrails, always without overreaching and trying to manage.”

He added that it’s important boards understand they can’t just rely on advisors or copy and paste what other companies are doing in ESG. They should diligently consider their general duties, potential liabilities, and market expectations concerning ESG, and they must understand the company’s unique ESG-related vulnerabilities and how they should react through informed crisis scenario planning.

“Lastly, boards are uniquely positioned to serve as a counterweight to management’s focus on near-term results, and so can shape the company’s long-term direction and balance competing interests, as well as anticipate ESG risks and opportunities,” said D’Souza. “To do all of these things, they might need to think about bringing more permanent in-house ESG capability to the board.”

The Risks and Opportunities
D’Souza said that, until recently, most mining boards treated ESG as an acceptable risk. As long as there were no legal implications, a ‘keep our heads down and it will all be fine’ mentality applied. But events like Brumadinho and Juukan Gorge showed that boards can’t afford not to have oversight on ESG issues. And they can’t be overconfident in their crisis management and preparedness. “The potential financial and reputational impacts of failing to govern ESG properly can be far-reaching, including societal distrust, having permits rescinded, litigation etc.,” said D’Souza. “These duties of care are now codified in legislation and directors can be held personally liable.”

He noted, however, that if boards build their ESG competency, can ask the right questions and constructively debate and evaluate what companies need to do and why, then they can talk to management about ESG and influence informed decisions. They can support cultural change within companies and ensure the right oversight protocols and controls are in place for performance and reporting. They can incentivize executive behaviors to ensure that ESG goals are met. They can also participate more fully in shareholder meetings, answering ESG-related questions, whether asked directly or through proxy advisors.

“Directors can even help anticipate what the company should be doing in ESG to get ahead,” said D’Souza. “To do that, they need to be able to differentiate between what are true operational ESG risks, what are ethical imperatives, and what could be impact/innovation opportunities and how to respond to each. For example, they might determine that the company needs to get a better handle on human rights or biodiversity so that the rush for critical minerals doesn’t undermine ESG values. This foresight will be essential to a just transition.”

And So, To Work
To end, I’d like to leave you with a quote from the Heidrick & Struggles report mentioned at the beginning of this article; one which neatly summarizes this discussion. “The job of the board today is more challenging than in recent history,” said Alice Breeden, Co-Leader of the European CEO & Board at Heidrick & Struggles. “Against the backdrop of economic uncertainty, rising social activism, and critical climate targets that are slipping from reach, boards require a new breadth of expertise that far extends beyond the traditional, operational, and financial health of a business. If progress on sustainability is to improve, it is clear that further education, broader director diversity, and greater prioritization of ESG in the boardroom must be standardized to meet the challenges of the current environment.”