Mxolisi Mgojo – CEO and Executive Director of Exxaro Resources
The South African mining industry has rolled into 2021 with confidence and strength achieved during the previous year from commodity prices, which remain supported at high levels. This is despite the disruption on operations from lockdowns and protocol measures in response to the spread of the COVID-19 pandemic. Mining companies continue to weather the effects of a global economic downturn through prudent cost-cutting, capital rationing and returning cash to shareholders. However, there was also an impressive response from the industry to partner with government and other social players to address local and national challenges related to medical facilities and accessories as well as community well-being during the first wave of the pandemic. The display of collaboration witnessed during 2020 bodes well for addressing future challenges in the country and the long-term sustainability of the mining industry.
Exxaro is a significant company in South Africa’s economy that firmly believes in serving the well-being of our host communities and the environment; thus investing in holistic ESG strategies is more important than ever to enable a COVID-19 recovery through collaborative relationships and sustainable practices that will increase resilience, reduce poverty, and allow everyone to prosper.
ESG in uncertain times
In the recent past, ESG criteria were predominantly focused on environmental impact (“E”) and related governance issues, such as climate change. However, since the COVID-19 pandemic has affected the everyday lives of people across the world, more companies are realising the importance of the social (“S”) and governance aspects of ESG. Stakeholder accountable businesses see that helping communities get through uncertain times is as critical to business success as reducing greenhouse gas emissions. If host communities do not recover, neither will business, with a knock-on effect on national economic performance. This is the reason companies should prioritise all aspects of the ESG mix to enable a post-pandemic recovery.
Exxaro’s approach to ESG is holistic and aims to achieve ‘value beyond compliance’ and sustainability in all of our operations. This has been our approach before the pandemic and prevailed with strength during 2020 and will continue to drive our operations long after the pandemic is over. We believe that this is true for all businesses: a holistic ESG strategy is the only way to achieve true business sustainability and stimulate economic recovery. Sustainable development has become more important for organisational success and the success of our country as a whole.
Investing in sustainability
Investors have also given more impetus to the importance of sustainability, with increased attention on issues like employee health and safety, business resilience, diversity & Inclusion and biodiversity. The World Economic Forum’s Global Risk Report has identified the two greatest risks to the global economy in 2021 as water scarcity and failure to adapt to climate change. Rising global temperatures undeniably lead to severe weather events such as droughts, floods, hurricanes and other natural disasters that will have a severe impact on the health, safety, well-being and economic prospects of communities and businesses. Investors know that damage to key infrastructure and natural resources will cripple economic growth and remove any opportunity for investment and wealth creation, hence the focus on the most sustainable businesses as the best investment opportunities.
In the past, many companies failed to address sustainability because there was a lack of support from shareholders and investors who saw this as an expense that would not generate financial returns or merely the responsibility of government. This perception has shifted significantly in recent years, and after COVID-19 especially, more shareholders are becoming insistent that mining operations demonstrate social and environmental responsibility.
There is increasing evidence that companies that are ranked highly on ESG aspects do not only contribute towards measurable societal and environmental goals, but they also produce higher returns for investors. This explains why more investors are looking for strong ESG organisations to invest in; they want to see that sustainability is integral in the construction of their investment portfolios. This is particularly true in the mining and fossil fuel industry, with this sector subject to great scrutiny and pressure to make a just transition to cleaner energy and contribute to a lower carbon world. Africa Focus: Autumn 2020 went as far as to state that “mining companies that show their ESG objectives are achieved (or at least achievable) are more likely to attract investors and customers, while those that do not adapt may be unsupported in the future, notwithstanding their mineral deposits.”
Commitments to ESG
It is interesting to see how companies are responding to this increased demand for responsible investments. During the COVID-19 pandemic, we have seen many businesses and individuals donate more than R3 billion to the Solidarity Fund and other initiatives; as well as take real steps towards keeping their staff, stakeholders and communities safe. In the mining and energy sector, companies are conscious to diversifying into clean energy and socially responsible mining in order to ensure future success.
At Exxaro, we know that renewable energy is a critical part of our future, which is why we have invested in 239MW of Cennergi windfarms. The investment has had the dual impact of a positive contribution to the National transition to renewable energy and Exxaro’s financial performance. Our coal operations have also focused on reducing energy consumption, primarily through developing self-generated electricity from renewables, further reducing carbon emissions. We are planning a low carbon growth for our minerals business, i.e. a decarbonised mining operations in minerals that will enable a low carbon economy. and our water management policy focuses on efficient use through reuse and recycling which reduces the amount potable water consumed for industrial application.
For the financial year to 31 December 2020, we achieved a record safety performance for the organization with more than 45 months without a fatality and record LTIFR of 0.05. As a largely mechanised mining business, this performance is attributable to investment in Proximity Detection Devices to prevent personnel injury from mining equipment. There was also significant investment in safety training, communication and awareness initiatives. These and other ESG performance attributes are enabling us to build a firm foundation for future sustainability and commitment to achieving a carbon neutral footprint by 2050.
Regarding the material ‘social’ indicators of our ESG performance, strengthening our social capital through improved stakeholder relationships remains a critical priority – it is a base upon which we collaborate for impact and was instrumental in our ability to respond to community needs in relation to COVID-19 during 2020. We engaged with ease and responded with urgency throughout our operations to needs for medical facilities (COVID-19 testing labs) and accessories for health workers, food parcels for community members and continued with infrastructure projects related to water for future hygiene needs. Further, we aim to transfer 90% of our post-mining land to emerging farmers in local communities and creating partnerships to support their commercial agriculture activities. Creating alternative and entrepreneurial opportunities that are independent from mining provides a (just) transition path for local communities as mines reach inevitable closure.
Our socio-economic development strategy is aligned with our strategic objective to impact positively on society through education, healthcare, infrastructure and economic wellbeing, which are amongst the basic human rights provided in South Africa’s Constitution. Companies that have a strategic perspective on ESG see these commitments not as compliance, but as a matter of integrity. Maintaining social responsibility requires strong, ethical leadership and a real belief in the difference it will make.
Looking ahead
The challenges presented by the pandemic has presented a unique opportunity for mining companies to significantly shift their perception of ESG. As it becomes clearer that responsible, sustainable companies provide good returns for investors, there will be even more incentives for companies to prioritise ESG. The sooner companies realise this, the sooner they will be able to build resilience and agility against future challenges through sustainability.