The age of ESG: the evolving role of the risk manager

What is ESG exactly?

Before I answer that question, some context would be helpful. For many years the priority of the Risk Manager has been clear: understand the most material financial risks facing the organization, and ensure it has the controls in place to manage its exposure. However, in recent years, and increasingly so as of late, there has been a shift of focus to also consider non-financial, and particularly, ESG risks.

ESG refers to the three key factors used to evaluate the sustainability and ethical impact of a company or an investment:

• Environmental factors assess a company’s impact on the natural world, including its use of resources, energy efficiency, and waste management
• Social factors examine the company’s impact on society, including issues such as human rights, diversity and inclusion, and community involvement
• Governance factors look at the company’s internal structures and policies, including executive compensation and shareholder rights

Together, ESG factors are used to evaluate a company’s overall sustainability and impact on society, with the goal of encouraging responsible business practices and investments.

Why have ESG factors become so important for Risk Managers?

Why has there been this shift in stakeholder focus on ESG issues? Primarily this reflects a growing stakeholder recognition of the prominence of ESG risks. This is reflected in the World Economic Forum’s (WEF) 2023 Global Risk Report, which is dominated by ESG risks. Half of their top ten short-term risks relate to the environment, and six of the top ten long-term risks – including the top four – are categorized as environmental. Almost all have direct or indirect ties to ESG.

These risks have particular relevance to the mining industry. Environmental risks such as climate change remains a top concern, with extreme weather events and water scarcity posing significant challenges to operations. The WEF report also highlights the risks associated with increased competition for resources, which could lead to geopolitical tensions and trade disputes. Social risks are also a significant concern for mining companies; the WEF report notes the potential for social unrest and labor disputes, particularly in regions where mining activities have led to displacement and environmental degradation. Human rights abuses, including child labor and forced labor, are also a major risk that must be addressed. Finally, governance risks, including corruption and bribery, are another key challenge for mining companies. The WEF report notes that inadequate regulatory frameworks and weak enforcement can create opportunities for unethical practices.

The particular relevance of ESG risks to the mining industry is again underlined in EY’s annual report “Top 10 business risks and opportunities for mining and metals”.

Their 2023 report lists ESG, climate change, and license to operate as three of the top four risk. The report puts particular emphasis on water stewardship and biodiversity as topics that are emerging as urgent priorities that are tightly linked to climate change risk. EY also highlights stakeholder expectations that miners should better assess ESG risks and opportunities, and articulate these through transparent, outcome-based reporting.

ESG is no longer just the concern of the Sustainability department

So back to my original question: has the world changed, or did I change?

Given that the day-to-day focus of my role at Goldcorp was not radically different from my time in sustainability consulting, I would say it was the world that has changed; during my time at Goldcorp, ESG risks were among the most material risks facing the organization.

Our department spent the majority of our time on risk-based projects, including deep-dive investigations into some of the most pressing risks facing the organization. The inclusion of someone with my background on the Risk team, was an acknowledgement of the prominence of the ESG risks facing the organization. ESG risk now sat along more traditional risk focus areas such as finance, treasury, and IT. I spent my time at Goldcorp ensuring that the company had the processes and procedures in place to respond to stakeholder pressures relating to ESG.

I believe my experience reflects a larger societal focus on ESG issues, and a growing pervasiveness of this subject. The growing focus on ESG trends is radically changing the role of the Risk Manager, who will increasingly play a critical role in bringing about sustainable change in mining companies. In this article, we will explore some of the changes facing Risk Managers and the mining industry at large as ESG takes an increasingly prominent role, and provide some tangible next steps to consider as mining companies come to grips with the ESG challenge.

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