The mining industry is experiencing mounting pressure from investors to prioritise environmental, social and governance (ESG) principles and incorporate them into operational decision-making, Webber Wentzel partner Nomsa Mbere has said.

Speaking at a seminar in Johannesburg, on November 1, Mbere emphasised the significance of ESG principles as guiding principles to address critical challenges such as climate change, social inequality, and resource depletion, acknowledging the pivotal role of the mining sector in societal development.

“Transformative leadership within the industry is, therefore, key,” she said.

Mbere said transformative leadership within the industry was needed to effectively integrate ESG principles into organisational structures. She highlighted that integrating ESG principles was crucial for the industry to address its historical negative impact on the environment and communities, and to ensure its long-term sustainability.

Mbere noted that achieving a sustainable impact in the mining sector would demand a holistic and long-term approach that balanced economic interests with environmental and social responsibilities.

Examining the duties of directors and senior management in the context of the law, Mbere pointed out that there was a broad scope of directors' duties that required adequate consideration of climate change risks, their impacts, and the increasing recognition of human rights violations.

South African law already encompasses statutory duties of care related to environmental impacts, with specific demands for companies to establish audit committees that evaluate and monitor various ESG principles at the board level, including social and ethics committees.

Mbere noted that, within this context, boards were facing growing legal scrutiny regarding the standards of care for assessing ESG impact. The King IV report serves as a guide for companies and recommends that boards must act in good faith and in the best interest of the company.

“Such actions must go beyond legal compliance and ensure that management strives to do the right thing for the company, society, and the environment while promoting good governance. Both must ensure that the company has access to individuals with the relevant knowledge, skills and experience in ESG matters and sustainability,” Mbere said.

She underscored the need for management to strive to do the right thing for the company, society and the environment, all while promoting good governance. She also emphasised that setting the tone for an ethical culture must start at the top, with leadership on the board recognising that the sustainable future of the company depended on how it responded to sustainability issues, setting an example for the rest of the organisation.

Climate change posed substantial risks to companies if not appropriately managed, requiring board members to possess the experience and skills necessary to understand these risks, develop suitable responses, and allocate resources to mitigate them effectively, she said.

From an investor perspective, Mbere mentioned the Second Code of Responsible Investing in South Africa (CRISA) of 2022, which applied to asset managers and asset owners voluntarily aligning themselves with the principles of responsible investment. CRISA comprises five voluntary principles for responsible investment and emphasised ESG stewardship, enabling ESG integration in investment arrangements and capacity building, collaboration, and alignment with ESG factors.

Governance is also a focal point, promoting sound governance structures, processes, transparency and meaningful disclosure to enable stakeholders to make informed decisions.

Mbere highlighted forthcoming legal directives, such as the European Union (EU) Directive on Corporate Sustainable Due Diligence, which will impact on South African companies.

“The EU has taken a bold step towards sustainability becoming a legislative feature not only in Europe but also affecting us here in South Africa. The EU directive will require companies to integrate the implementation of due diligence policies into their corporate strategy, compliance with which must be overseen and monitored by the board,” Mbere explained.

Directors, when fulfilling their duties to act in the best interest of the company, will increasingly have to consider the consequences of their decisions on sustainability matters, she warned, noting that the board and senior management would be expected to recognise climate-related risks and opportunities relevant to their industry, supply chain and geographic location.

Mbere outlined the core values that leadership must implement to integrate ESG principles effectively.

“We need value-driven leadership that understands ESG principles and must integrate them into the organisational structure and align business goals with sustainability objectives. Leadership should champion ESG as a core value in shaping a sustainable future for the company.

“Leadership should also identify and address ESG-related risks, understanding that inaction can disrupt economies and cause social unrest, thereby compromising the delivery of long-term returns and value to stakeholders. They must foster trust with stakeholders, not just shareholders but also government, host communities, investors, regulators, and be committed to decarbonisation,” Mbere said.

She said that achieving carbon neutrality involved pursuing innovative ideas and technologies to meet future demands while adhering to environmental and social limits.

Therefore, she said, mining industry leadership should lead with foresight, courage, wisdom and purpose-driven principles, taking into account competing interests.

“The composition of leadership should ensure diversity in age, gender, ethnicity and professional experience, to encourage diversity of thought, world view and approach,” Mbere said.

In the mining sector, she stated, such an approach would facilitate the implementation of sustainable mining practices that minimise environmental damage, promote responsible water management, protect and restore local ecosystems, and engage in reforestation.

It will also ensure responsible mineral resourcing, promote a circular economy approach, engage effectively with local communities, invest in local education, health, infrastructure, and economic development, provide safe and fair working conditions for employees, and offer transparent ESG reporting, demonstrating progress toward sustainability goals.

She said this shift toward ESG principles could be expected to enhance the industry's reputation, attract ESG-focused investors, provide greater access to capital, and appeal to a more socially conscious workforce.