About 2/3 of the world’s exploration and mining companies are headquartered/listed in Canada. And increasingly, extractive companies (particularly those with some appetite for political risk) are searching and developing new resources in developing countries and frontier regions.

Over the past few years, the CSR discussions amongst Canadian (= mostly international) extractive sector and its stakeholders has moved forward. This includes shared expectations on key issues emerging from consultations held in 2006 (better known at the National Roundtables in Canada) which were memorialized in the attached consensus Advisory Group Report – March 2007 (PDF, 2.3 MB). The Canadian Government responded in March 2009 with the publication of a new CSR strategy ‘Building the Canadian Advantage: a CSR Strategy for Canadian International Extractive Sector’ (DFAIT_CSR-March2009, PDF, 483 KB). In this strategy, the Canadian Government announced that it will promote widely-recognized international CSR performance guidelines, including the Global Reporting Initiative (GRI) for CSR reporting. It seems that some Canadian junior and mid-tier mining companies decided to kick start the process in a pro-active manner: they started reporting.

NovaGold produced its first sustainability report earlier this year. NovaGold s a pre-production mining company with interests in two of the world’s largest gold and copper-gold projects, a substantially constructed gold mine and other exploration-stage properties (Donlin Creek, Southwest Alaska; Galore Creek,  Northwest British Columbia;  Ambler , Northern Alaska; and Rock Creek, Northwest Alaska).  

Similarly, Osisko, which is also a pre-production mining company, published its 2009 sustainability report in line with the GRI reporting framework.  Osisko is currently building the Canadian Malartic gold mine in the Abitibi mining district. (Note: Osisko had already published its first, forward looking sustainability report for 2008 in 2009.)

Several weeks ago, Agnico-Eagle Mines Limited also made good on its promise to publish its first CSR report. AEM is a Canadian-based, mid-tier gold producer with mines in Canada, Finland and Mexico (LaRonde, Goldex, Lapa, Meadowbona all in Canada, Kittila Finalnd, Pinos Altos, Mexico).  This report – well – reports against the Mining Association of Canada’s  Towards Sustainabile Mining and the GRI reporting framework/indicators.

Red Back Mining, an emerging mid-tier, gold producer listed in Canada, published its inaugural 2009 sustainability report recently. Red Back’s mining operations are located in Ghana (Chirano) and Mauritania (Tasiast).  [Disclosure: I assisted with the production of this sustainability report.]

Also in 2010, Lundin Mining Corporation, a mid-tier, base metals mining company produced its first sustainability report in line with the GRI framework. Previously, Lundin Mining had already published a couple of annual CSR reports. Lundin Mining’s operations are located in Portugal, Sweden, Spain and Ireland. In addition, Lundin Mining holds a development project pipeline and an equity stake in Tenke Fungurume copper/cobalt project in the Democratic Republic of Congo. [Disclosure: I assisted also with the production of this sustainability report.]

Considering that we are still in the early part of the sustainability reporting season, all signs are that Octopus Paul may well be right – again! We should expect a new cohort of Canadian mining companies producing their first sustainability reports.

Do you think this will shift some of the inevitable comments on how first-timers should further improve their reporting practices to – instead – encourage those who remain ’free riders’ by not reporting to get on with it? Also, have you come across other new CSR and sustainability reporting efforts in the extractive sector? Kindly send us a link to these new reports.  

Mehrdad Nazari, Senior CSR, GRI & ESIA Advisor, PRIZMA (Blog: www.prizmablog.com, Web: www.prizmasolutions.com)

Those who have discovered the business case of sustainability reporting have probably realized that they are half way there before they even started. They see that, due to listing requirements, they have good governance and accountability structures already in place. They also have accounting and human resources departments, policies and practices in place – and already collect  a lot of useful data (and additional data could be collected with ease). ‘Tick off’ a bunch of GRI disclosure requirements and indicators. Many companies also have environmental, health & safety policies and management systems in place to enable regulatory compliance and support efforts aimed at continuous improvement. ‘Tick off’ a dozen or two additional GRI indicators. Add knowledge of industry-wide stakeholder engagement initiatives, and company/project specific stakeholder engagement/mapping (particulalry well developed in the extractive sector) and you have most – if not all – of the ingredients for a good GRI report in place. However, this information and related context and stories are perhaps confined within departmental silos and disbursed throughout the reporting organization. Pulling this data together is not a major problem.

Major costs associated with sustainability reporting – especially in the extractive/mining sector – is already ‘sunk cost.’ Most – if not all – the policies, activities, monitoring and stakeholder engagement which provide the platform for sustainability reporting are already in place. The reporting part is thus largely a marginal cost item.

Perhaps reporting could be compared to the top part of the floating ice berg: the visible part above the water line represents the smallest portion of the mass (in an ice berg it is about 1/8^th and for reporting, this would be a much smaller proportion). Sadly, most organizations have generated the mass of data and activities needed – now floating largely invisible below the water line  - but have failed to leverage that investment to also generate their first sustainability report.

So what drives the costs of inaugural sustainability reporting? Here I will briefly touch on capacity building, GRI Application Level, credibility and assurance , and desk-top publishing and disclosure.

Some investment in training and capacity building is often required for first time reporters. Options include attendance of “generic” GRI courses which were conceived for report coordinators. These courses do not cover GRI’s technical protocols or sector supplements in any great detail. This is one of the reasons first time reporters use experienced external consultants to coach them through their first report. Or they go through a couple of internal “mock reports” before finally getting up their courage to disclose their reports. The really worried types do both and – in the mining sector – still pray to Saint Barbara, the saint of miners, when disclosing their first report.

Another cost driver is the selection of the so called GRI Application Level. GRI requires that reporters should declare an Application Level (although some 25% of reporters in GRI’s 2009 database chose not to do so). These are designated A, B or C with a “+” if part/all the report/data was externally assured (a hotly debated topic which I will not address in this blog). The Application Levels reflect coverage of the GRI reporting framework, such as approach to management discussion and analysis, and number of Performance Indicators reported on.

The Application Level declaration appears to be creating psychological barriers to reporting. For many, the use of A, B and C conjures up images of school grades. Imagine the challenge of approaching your CEO and requesting resources to generate a sustainability report which targets ‘only’ a ‘C,’ an entry level advocated by GRI for first-time reporters (requiring only 10 indicators).

The approach to boost the credibility of the inaugural report can also become a cost driver. This is especially true if that that approach is – in my view – mistakenly equated to external assurance. External assurance, provided by the big four accounting firms and a few other niche providers, can become a major cost driver. First time reporters would be well advised to take a look at Tech, a mining and metals major, or other long-time reporters in their sector. Tech is an early adopter of GRI’s sustainability reporting framework and has produced annual sustainability report since 2001. However, Tech only used an “External Review” (a limited form of assurance) in 2007. There are many better – and typically more cost effective – ways to boost the credibility of inaugural reports. Acknowledging critical stakeholder voices and discussing challenges/failures in addition to including the obligatory picture of smiling school kids are amongts the most effective ones. And they are free of charge!

Other cost drivers include approach to report production, desk-top publishing and disclosure choices. Reporters will need to chose between “free” in-house drafting/editing and desk-publishing (and associated opportunity costs), and outsourcing. They will also need to consider if they want to invest in printing glossy reports or creating web-posted PDF report using recycled electrons.

Do these cost drivers resonate with you? Or have you come across more significant cost drivers for inaugural sustainability reporting which should be mentioned here?  Please share your comments and observations. For a related publication, please access also my publication Sustainability Reporting using GRI: Lessons Learned.

Mehrdad Nazari is a Senior CSR, GRI & ESIA Advisor at PRIZMA. He provides GRI-certified training courses and boot camps on sustainability reporting. He also assists junior and mid tier mining companies with their inaugural sustainability reportering effforts.

It seems that many in the audience – and perhaps even amongst those on the panel – were surprised to learn about the discovery-to-production value chain in the mining sector. PDAC’s presentation helped the audience appreciate the 98% failure rate and cash-flow negative status in the industry, with few discoveries ever leading to a producing mines. Probably for the first time, many in the audience realized that the largest numbers of companies in the mining sector are Micro/SME sized and not the big brands most people associate with this sector. It is also in this ‘upstream’ space where the seeds of good/bad community relations are planted which will continue to influence above ground (extra-financial) risks/opportunities and relationships for years to come.

Perhaps some also realized the sustainability reporting challenges faced by the exploration and junior segments. I wonder how much of that filtered into the discussions of the working group developing the GRI Metals and Mining Sector Supplement. The industry participation of that GRI working work, it becomes evident that it was heavily tilted towards the majors and members of the International Council on Metals and Mining or ICMM. And before sharing the list with you, let me pause to acknowledge and commend ICMM and all of their members (and other organizations) who all participated in GRI’s multi-stakeholder process. 

The participants of the GRI working group included the following companies (and I added a ‘*’ to denote ICMM membership): Ambatovy (major owners Sheritt and Sumitomo*); Anglo American*; BHP Billiton*; Newmont Mining*, European Nickel (recently merged with Rusina);  First Point Minerals Corporation; Placer Dome (now part of Xstrata*); Rio Tinto*; Sumitomo Metal Mining*; Teck* and Vale*.  Clearly, the majors (and their needs) were very well represented.

Outliers in the industry bunch on the GRI working group included European Nickel (recently merged with Rusina) and First Point Minerals. Perhaps these two and others in the exploration cum junior sector (including PDAC) can reach out to their peers to help make the business case and separate the misperceptions associated with the GRI framework from reality – or develop other workable approaches to help create more shareholder/sustainability value.

My own efforts in this realm include developing and offering the first GRI-certified training program in North America, providing more tailored boot camps and supporting junior/pre-production and mid-tier miners to develop their inaugural sustainability reports, and publishing articles and blogs to raise awareness (see also my article “Sustainability Reporting using GRI: Lessons Learned” which appeared in the November 2009 issue of the Mining.com Magazine), and highlighting convergance of GRI with other frameworks (such as IFC Performance Standards/Equator Principles) used by a variety of investors and political risk insurers. 

What do you think PDAC and others should do to help junior/mid-tier mining segment cross the reporting chasm and start their sustainability reporting journey?

Capital project sponsors seeking project finance and political risk insurance from IFC, EBRD, Equator Banks and Export Credit Agencies (such as Export Development Canada or EDC) sometimes feel the need to reach for headache pills when they commit to meeting the IFC Performance Standards and, its derivative, the Equator Principles. Heartburn treatment is sometimes added when they try to meet the associated monitoring requirements for quarterly and annual monitoring reports. The associated systems and data cost lots of time and money to produce. Given focus (tunnel vision?) on compliance with loan or subscription agreements, the systems and data sets have not been recognized as a tool to create more shareholder value for the company. But this is about to change.

When asked, I jumped at the opportunity to lead a conference break out session on sustainability reporting during IFC’s Corporate Responsibility Forum on Strategies for a Competitiveness and Shared Value (held in mid June 2010 in Washington DC). IFC distributed the fresh-off-the-press guidance note on “Getting More Value Out of Sustainability Reporting” and we had an opportunity to explore concrete case studies with the help of IFC clients, a GRI approved trainer on sustainability reporting (yours truly), and other sustainability report makers and users. Some of the examples discussed included the following:

IFC investee Dialogue, which operates in the mobile telephony sector in Sri Lanka, leveraged the systems and information being collected based on the IFC Performance Standards to generate its A-level inaugural sustainability report. Dialogue topped the country’s corporate accountability ratings for the Year 2009, in its inaugural year of publication and is recognized as Sri Lanka’s most coveted brand.

Manila Water, a public private partnership which provides water and wastewater services to 5.6 million people from 23 cities and municipalities in the Philippines, used its sustainability reporting process to better articulate its sustainability strategy and performance. In 2009, the Interfaith Center on Corporate Responsibility (ICCR), a coalition of nearly 300 faith-based institutional investors representing over $100 billion in invested capital evaluated the adequacy of environmental, social and governance (ESG) disclosure of 12 water utility companies and assessed how well they met investor needs. Manila Water outranked privately owned companies in the UK and US, coming third in the benchmark study -and collected other awards and recognition along the way.

Gold Reserve Inc (supported by Prizma) became the first pre-production, junior mining company listed in Canada to use and leverage its environmental and social impact assessment studies designed to meet IFC Performance Standards and Equator Principles to create an inaugural sustainability report.

Getting a ‘bigger bang for the buck’ creates shareholder value. Leveraging systems and data designed to meet IFC Performance Standards and Equator Principles can be used to produce sustainability reports. It may surprise you how little extra efforts is involved in this process…!

As noted in a media release, the dispute reolution mechanism would be utilized to help settle disputes stemming from operations of Canadian extractive companies abroad. The Office of the Extractive Sector Corporate Social Responsibility Counsellor was created in March 2009 as part of the government’s CSR Strategy for the International Extractive Sector (and I have blogged about the CSR Counceller before). 

The role of the Counsellor is designed as an impartial advisor and facilitator who brings parties together to fix problems and resolve disputes. The new dispute-resolution process is slated to launch in the fall. Additional information, including details of consultation locations, are posted here: Corporate Social Responsibility Counsellor.

One of the interesting side questions around the dispute resolution mechanism and the CSR Councellor’s Office many may be this one: will it take the wind out of the controversial Bill C-300? This is a private member’s bill brought by Liberal MP John McKay, about which I blogged previously (Continued Industry Opposition to CSR Bill C-300 in Canada and CSR Bill C-300: A Storm in the Tea Cup?)

The recent article in the Vancouver Sun, rhetorically entitled “Will mining suffer if Bill C-300 becomes law?”,  notes that Bill C-300 is before the Foreign Affairs and International Development Committee, and that it could be back in the House for a vote before the summer recess.

Do you think that the role of the Extractive Sector CSR Counsellor will weaken or perhaps even make Bill C-300 obsolete?

Mehrdad Nazari is a Senior ESIA and CSR Advisor at PRIZMA.

When IFC launched its new Sustainability Framework in April 2006, it defined expectations of IFC’s clients – and clients of Equator Principles Financial Institutions – towards a more outcome oriented approach and more effective community engagement.

The CAO’s review focused on IFC’s implementation in areas relating to community-company relationships and community impacts. As part of its study, CAO reviewed 30 IFC projects, commissioned field work and stakeholder perception surveys for five projects, and conducted outreach to obtained feedback from civil society.

The CAO’s findings acknowledge general improvement of community engagement but identified also variability and gaps and around impact mitigation activities and Action Plans, as well as in reporting on development impact. The CAO report is critical of IFC’s implementation of its Broad Community Support commitment (seel also an earlier blog) and describes IFC’s approach as highly restrictive and not transparent. Also, the Note highlights that IFC’s Advisory Services are not readily available to support lower capacity companies who need extra support to upgrade their management systems.

 In terms of IFC’s Financial Intermediaries, the CAO Note identifies improvements but laments substantial gaps between theoretical environmental and social requirements and their practical application. The CAO Note also suggests that IFC’s environmental and social due diligence is affected by inconsistent support by investment staff in different investment department.

Paging through the CAO’s Advisory Note, I wondered how supported the few environmental and social specialists feel at many of the Equator Principles Financial Institutions and the Export Credit Agencies. Most of them will not have access to the depth of experience and expertise, nor the policy framework and associated mandate available within a multilateral financial institution like the IFC…

Mining projects in emerging markets seeking commercial and bi/multi/lateral finance and political risk insurance need to ensure that their development plans conform to the IFC Performance Standards (and its derivative, the Equator Principles). These guidelines tend to be incorporated in bankable feasibility studies and social and environmental assessments (better known as ESIAs or SEAs). And conformance of project plans and performance against these guidelines are typically reviewed by Independent Engineers on behalf of financiers. Now, GRI has integrated keyIFC Performance Standards into the GRI Metals and Mining Sector Supplement . Specific references have been identified further below.

How do you think will the publication of the new GRI Mining and Metals Sector Supplement and/or linkage with IFC Performance Standards influence sustainability reporting amongst mining companies (juniors, mid-tier, majors)? How will these new Sector Supplements relate to PDAC’s e3plus, A Framework for Responsible Exploration, and MAC’s Towards Sustainable Mining (TSM) frameworks?

Indicator Protocols – Society (SO)

SO1 (Nature, scope, and effectiveness of any programs and practices that assess and manage the impacts of operations on communities, including entering, operating, and exiting) lists IFC Performance Standard 1 (Social and Environmental Impact Assessment and Management Systems) as its reference.

MM6 (Number and description of significant disputes relating to land use, customary rights of local communities and Indigenous Peoples) and MM7 (The extent to which grievance mechanisms were used to resolve disputes relating to land use, customary rights of local communities and Indigenous Peoples, and the outcomes) both use as their references IFC Performance Standard 1 (Social and Environmental Assessment and Management System) and IFC Performance Standard 7 (Indigenous Peoples).

MM9 (Sites where resettlements took place, the number of households resettled in each, and how their livelihoods were affected in the process) uses IFC Performance Standard 5 on Land Acquisition and Involuntary Resettlement as its reference.

Indicator Protocols Environment (EN)

 MM2 (The number and percentage of total sites identified as requiring biodiversity management plans according to stated criteria, and the number (percentage) of those sites with plans in place) refers to IFC Performance Standard 6 on Biodiversity Conservation and Sustainable Natural Resource Management.

EN20  (NOx, SOx, and other significant air emissions by type and weight) includes as one of its references IFC’s Environmental, Health and Safety Guidelines.

Indicator Protocols Set on Human Rights (HR)

 MM5 (Total number of operations taking place in or adjacent to Indigenous Peoples’ territories, and number and percentage of operations or sites where there are formal agreements with Indigenous Peoples’ communities) uses IFC’s Performance Standard 7 (pertaining to Indigenous Peoples) as one of its references.

During the March 2010 PDAC exploration and mining convention in Toronto, the Export Development Canada (EDC), hosted an event entitled “Who are you and what have you done with my banker?” This event took a ‘process-oriented’ look at how the environmental and social requirements for various sources of capital for mining and metal projects are integrated into due diligence and decision making processes, and what that means for sponsors seeking project finance and political risk insurance.

During his presentation, John Middleton of the IFC highlighted that the topic of ‘Consent,’ was deliberately not adopted when the IFC Performance Standards were developed and launched in 2006. However, this topic is now back on the table during the on-going review process of the IFC Performance Standards (see also my previous blog: Review of 3 years of IFC Performance Standards).  

It is not surprising that Indigenous People/affected communities want to be able to have a say about if, what and how development should take place. Similarly, the extractive industry is concerned about their perception of veto power embodied by the world ‘Consent’ and how this might be used (or misused) to dilute their legal titles and undermine their investments.

There is already precedence set on using the term ‘Consent’ by another multilateral financial institution: the European Bank for Reconstruction and Development (EBRD). It’s 2008 Environmental and Social Policy and associated Performance Requirements, which are largely modeled after the IFC Performance Standards, the EBRD refers to specific vulnerability of Indigenous Peoples and the 2007 UN Declaration on the Rights of Indigenous Peoples. EBRD now requires that the prior informed consent of affected Indigenous Peoples is required for specified project-related activities.

There is another fascinating aspect about the concepts of Broad Community Support, which can exist even if not everybody approves, and Consent, which may be offered through an MOU or similar process and can also exist when not everybody supports a project. These concepts remind me of a marriage. Good ones contain an implicit need to earn support/consent which does not end with a signed paper – it has to be continuously earned and strengthened to withstand the ups and downs of real life – warts and all.

Ms Evans – the Canadian CSR Councellor at the Department for Foreign Affairs and International Trade Canada (DFAIT) – concluded that CSR was neither a fad nor a silver bullet. She considered it to be an integral element of modern mining which can meet profitability and other stakeholder expectations.

Reflecting on her work in the NGO sector, Ms Evans noted that the mining sector was “an ideal sustainable development partner.” Given capacity, long term horizon, captured nature of assets, and influence in emerging markets, she felt that the mining sector can play a leading role in enabling and delivering on the UN Millennium Development Goals. Ms Evans also noted that the mining industry does not need to do more, but do it a smarter way. In particular, she singled out the need to work more collaboratively with other sectors.  

I would like to leave you with two of Ms Evans’ observations and wonder how you feel about them: First, that framing CSR only in terms of risk management is not a very compelling vision for others to get on board. Second, the prevalence of mistaken assumptions that performance improvement speak for themselves.

The Toronto Stock Exchange (TSX) boast an impressive number of listed mining companies: 2,262 early stage companies in the TSX Venture Exchange, and 1,570 companies in the TSX ‘proper’ (or the senior market).  At first thought, researching a large percentage of them did not seem a wise choice before packing my bags for my upcoming trip to attend PDAC in Toronto…

 But looking at the largest 50 listed firms on the TSX  quickly confirmed my worries: size does matter! The quoted market value is one of the best predictors (although perhaps not the causal linkage) of the existence of a CSR or sustainability report. Here are the detailed outcomes of rummaging through the web sites of the largest 50 TSX-listed firms.

If their quoted market value exceeded about $5 billion (about a dozen companies, by 31 Jan 2010), they either already have a GRI-type sustainability report or have CSR reports which could be relatively easily converted to  a ‘B-level’ GRI reports (Cameco and First Quantum Minerals) or a GRI report is expected imminently (Agnico-Eagle Mines’s report announced for Spring 2010). However, there are outliers of this group: Eldorado Gold Corporation, Ivanhoe Mines Ltd and Silver Wheaton Corp. Neither appears to have disclosed or announced plans for any CSR or GRI-type reports.

The reporting picture of companies with a quoted market value between $2 billion and $5 billion changes significantly.  Only 5 of the 13 companies in this size bracket produce CSR or GRI reports. Those who have not publically disclosed or announced any CSR/GRI reports at this time include Franco-Nevada Corporation, Centerra Gold Inc., Paladin Energy Ltd., Equinox Minerals Limited, Pan American Silver Corp., SouthGobi Energy Resources Ltd and Uranium One Inc.

Amongst the 21 companies which are in the $1 billion to $2 billion bracket, only three companies have disclosed formal CSR/GRI reports. Kudos goes to HudBay Minerals, Sherritt and Gabriel Resources.  

To me, this outcome was a bit of a surprise given the mountain of programs and data these companies are likley to be sitting on. Most of the companies which do not disclose CSR/GRI reports should be able to leverage their existing programs, systems and data to generate solid, B-level sustainability reports without major additional efforts or costs.

Prior to looking at the statistics above and reflecting on comments and concerns being raised during delivery of 10 GRI-certified short courses in Canada, I highlighted the following in a recent mining publication (Sustainability Reporting using GRI: Lessons Learned, which is available here): The report, “Count me in: The Readers’ Take on Sustainability Reporting” (2008), which was developed by SustainAbility and KPMG and captured views of nearly 2,300 survey respondents, confirmed that publishing a sustainability report has a strong positive impact on readers’ perceptions of a reporter. The report also notes that ninety percent of readers indicated that their views of a company had been influenced by reading its sustainability report. Of these, 85 percent indicate a more positive perception. It seems that more mining companies that are keen to generate their social license and differentiate themselves from their peers could use sustainability reporting to avoid leaving too much “reputational value” on the proverbial table.

Why do you think so few of the largest TSX listed companies produced CSR/GRI reports? Also, do you think that CSR and/or GRI reporting in this sector may be on the upswing in the mining sector?