ESG in resource extraction

ESG in resource extraction: unpacking how this crucial governance topic impacts a fundamental global industry. Environment, social and governance (ESG) has a unique relationship with resource extraction. Stakeholders are paying much more attention to the sector through an ESG lens, particularly the “E” pillar, given the sector’s obvious influence on the environment, sustainability, and climate change. While companies' embrace of ESG varies, it is becoming a bigger topic in resource extraction boardrooms. Here’s what you should know about it. Quick recap ESG is primarily an investing tool for stakeholders to measure the impact of a company’s operations on the planet, its people, and its governance. It’s a broad, young topic with numerous metrics, some more relevant to specific industries than others. Meanwhile, resource extraction incorporates any withdrawal of natural materials for human use. It includes coal, oil and gas, and also includes rocks, minerals, biomass, timber and water. Understanding ESG in resource extraction All three pillars of ESG - not just “E” - are hugely relevant to a field like resource extraction: Environmental considerations frequently involve minimising ecological damage, reducing greenhouse gas emissions, managing waste effectively, and conserving water. Companies are adopting innovative technologies to lessen their environmental footprint and mitigate the impacts of climate change. Social factors encompass the treatment of workers (who often work long, tiring hours in a sector like resource extraction) and respecting the rights of indigenous and local communities (conflicts in this area frequently become a topic of national, if not international, news. 3. Governance standards involve establishing ethical business practices, transparency in operations, and compliance with legal regulations. Poor governance is just as possible in resource extraction as in other industries. However, given resource extraction's impact on daily life, bad decisions can have huge ramifications. Strong governance frameworks help prevent corruption, enhance company reputation, and build stakeholder trust. Why should my resource extraction company consider ESG? ESG is a corporate buzzword that doesn’t quit, and for many in resource extraction, it can feel like a negative - and endless stream of red tape or barriers to business. That’s not what ESG is supposed to be. At its core, ESG is merely a tool to analyse risk and opportunities in a modern, broad business context with multiple stakeholder wishes. Here are three reasons why considering ESG is a logical choice for resource extraction boards: Risk management. Incorporating ESG principles helps identify and manage risks that could jeopardise a company's operations, legal standing, or reputation. In the modern business world, any of these things can easily be undone overnight. Investor attraction. Investors increasingly follow the trend and prioritise ESG performance in their investment decisions. If your company follows the same path, it will attract these investors’ attention more than companies than companies that don’t. Therefore, demonstrating strong ESG credentials makes you more likely to attract investment and achieve competitive financing. Licence to operate. ESG is often as much about the law as principles, especially in jurisdictions like the EU, where thorough sustainability reporting legislation has been passed. Meeting ESG standards is crucial for obtaining and avoiding regulator penalties and ensuring you maintain your operating license. How do we implement ESG in resource extraction? Before you look at the list below, remember that every company is different. You and your board will need to analyse your own corporate strategy and determine other action points to complement the ones below, which are on the more general side: Comprehensive ESG assessments: Conduct thorough assessments to identify environmental risks, social impacts, and governance practices. This forms the basis for developing targeted strategies to address ESG issues. Stakeholder engagement. Engage regularly with all stakeholders, including local communities, employees, governments, and investors, to understand their concerns and expectations. Sustainability reporting: Adopt transparent reporting practices to disclose ESG performance, using recognised frameworks such as the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB). It’s crucial that you understand these frameworks and which one might be best for you. Collaboration and partnerships. Work with governments, NGOs, and industry partners to share best practices, leverage resources, and amplify positive impacts. Are there challenges to this? Absolutely, but not to the degree that they’re unmanageable. The main hurdles include the vastness of ESG and the complexity of the regulations surrounding it. You might also face high implementation costs, which can cause worry in the short term, or you might need more tech innovation to cope. Just remember that these challenges fall into the category of “short-term pain for long-term gain” and that —if you plan correctly—their impact on your organisation could be small. Pursue the proper education, consult the right experts, bring the right knowledge onto your board, and foster a culture of continuous improvement to address these challenges effectively. In summary: ESG in resource extraction is no longer optional but a fundamental component of business in the 21st century. By prioritising environmental protection, social responsibility, and strong governance, companies can ensure long-term sustainability, contribute to global efforts to combat climate change, and build a more equitable society. As the world moves towards a more sustainable future, the resource extraction industry will play a pivotal role in shaping the balance between economic growth and environmental stewardship.

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Diploma in Corporate Governance

Certified Company Secretary Professional

Diploma in Environmental, Social and Governance (ESG)

Technology & Governance for Boards

Company Secretary

Overview of Corporate Governance

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CSRD Reporting

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Attend online and in-person events to get the practical skills and insights you need to make an impact as a leader.

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