ESG in the Mexican Mining Industry. Part Two

The needs of modern life require the mining industry. The materials extracted from the soil and subsoil are necessary both for the construction of roads, electronics, and automobiles and for the generation of electric power. Undoubtedly, the economic development of a society is tied to the development of this extractive industry. Year after year, society’s concern about and interest in the impacts generated by mining grow by leaps and bounds, especially on environmental matters. An example of this is the discourse of figures such as Greta Thunberg and Alexandria Ocasio-Cortez, condemning the negative impacts that the mining industry can have. This concern and interest lie in the fact that when mining is poorly managed, it can have devastating impacts on the environment; however, if it is carried out responsibly, it generates significant socioeconomic benefits and supports the achievement of all of the United Nations (UN) Sustainable Development Goals (SDGs), catalyzing economic development in many low- and middle-income but resource-rich countries, as is the case of Mexico. In this second part of the document “ESG in the Mexican Mining Industry,” we will address those criteria and aspects that bear on the mining industry in environmental matters and will identify the main risks and opportunities faced by the organizations that form part of it and, drawing on our experience, we will outline some general ideas and tools to mitigate or take advantage of them, as the case may be. ESG and the Responsible Mining Index Arising from social interest and concern and from the intention to provide the mining industry with general tools to navigate in light of ESG criteria (Environmental, Social, and Governance), there is a series of associations and organizations at the global level working to share best practices in the industry. One of these is the Responsible Mining Foundation (RMF), an independent nonprofit organization based in Switzerland focused on the preparation and dissemination of the Responsible Mining Index (RMI) every two years. The RMI is a report whose main objective is to foster continuous improvement in responsible mining through the transparent evaluation of the performance of the world’s large mining companies on economic and ESG matters, highlighting the best practices of market participants. While the RMI only evaluates the performance of companies against a variety of indicators and is not a certification or standard, the truth is that, by highlighting leading practices, it opens the door to the ongoing improvement of the corporations that form part of that industry. Moreover, by encouraging the disclosure of information on on-site practices and incidents, reports such as the RMI prove especially useful for companies seeking to improve on economic and ESG matters, as they can adapt the recognized practices in their daily operations. This is because responsible mining operation requires companies to understand, among other things, environmental values and to take measures to avoid and mitigate lasting or permanent negative impacts on ecosystems and resources. The “E” (Environmental) of the Mexican Mining Industry The environmental criteria evaluated and reported by the RMI are especially relevant, above all in the absence of standardized impact metrics that allow for their comparability. That is why we consider that the axes evaluated by the RMI in environmental matters undoubtedly help to remedy that shortcoming, contributing to the organizations that form part of the mining industry identifying those environmental criteria that bear on the industry and that generate the main risks in this area. This is so that they may act accordingly and better navigate the “E” of the ESG criteria. In these lines, with respect to environmental best practices for the mining industry in 2022, the RMI divides them into seven main axes, of which we will address the first three. The third and fourth parts will address the rest. Environmental management Environmental management is the comprehensive understanding and effective management of the environmental risks and opportunities related to climate change, emissions, waste management, resource consumption, water conservation, and the protection of biodiversity and ecosystems. In accordance with the information developed by the UN, traditional corporate approaches to environmental management will not be sufficient to successfully address the main environmental challenges of the 21st century. The RMI reports that, to combat the foregoing, companies are opting to implement a cyclical management approach of “Plan, Do, Check, Act” for the protection of the environment. The basic elements of this type of management system include: setting objectives, assessing potential environmental risks and impacts, preventing and mitigating adverse impacts, carrying out environmental monitoring and evaluation, and reporting on their actions and effectiveness. Fortunately, this is a commonly performed practice in Mexico arising from the obligations, conditions, and terms imposed on the holders of an environmental impact authorization. To date, the applicable legislation in Mexico requires the holders of such authorizations to guarantee the impact through a guarantee instrument, to periodically report on the progress of mitigation strategies, to submit an environmental surveillance program, to have an environmental supervisor, among others. This type of environmental management instrument serves to ensure that the strategies authorized in the environmental impact assessment are oriented toward an effective implementation of environmental policy based on the regulatory principles in the matter and do not consist of exchanging one problem for another. Tailings management The milling process to extract minerals and metals from rock often involves the use of chemicals and generates enormous volumes of waste. These, known as tailings, are composed mainly of pulverized rock, water, and processing chemicals. Generally, these are channeled to large-surface reservoirs, where they are retained by means of earthen dams. There are a variety of risks and impacts associated with tailings storage facilities, since (i) they contain chemical residues and high levels of metals; (ii) storage facilities are prone to leaks, which can cause the contamination of groundwater and surface water; and, in the worst case, (iii) tailings dams can fail catastrophically, releasing large quantities of these that can seriously affect the environment and local communities, as in the case of the rupture of the dam at the Feijão mine in 2019 (owned by the Brazilian mining company Vale) that left dozens dead and missing. Best practices regarding the management of this type of waste, according to what is reported by the RMI, include assigning responsibility for their management at the highest levels of the company, adopting the best available technology, ensuring that corrective actions are implemented in a timely manner, and permitting independent review of the investigation and selection of the site, the design, construction, operation, and closure of the facilities, with public disclosure of the findings. In our experience advising mining companies on environmental matters, we have seen limited implementation of best practices in tailings management in the Mexican industry. Especially with regard to the public disclosure of findings. While the lack of public information might be understandable (for reasons of confidentiality or in order not to damage companies’ public image), the truth is that transparency in processes guarantees greater confidence on the part of investors and society. Water One of the main social concerns surrounding mining is the high risk of water contamination. This is especially so because of the historical background of disasters or accidents in the Mexican industry that resulted in serious impacts on the environment and local communities. Such as the spills of toxic waste and metals from the Buenavista del Cobre mine, a subsidiary of Grupo México, into the Sonora and Bacanuchi rivers that occurred on August 6, 2014. Nevertheless, the mining industry has the possibility of implementing efficient water management and wastewater treatment strategies that guarantee proper management without having negative impacts on its operation. In accordance with the International Council of Mining & Metals (ICMM), these strategies include financing wastewater treatment plants for neighboring communities and monitoring the quality of the water discharged by the mine and by those communities above what is required by law. Additionally, while it is not specifically an efficient management practice, at the global level transparency regarding the use of this vital resource and the impacts on its quality have become standard practice for companies. Indeed, some of these are demonstrating leadership regarding water-use transparency by making water monitoring data accessible to affected communities and to the general public. Such as Barrick, the copper and gold miner with operations in the Americas and Africa that since 2017 has published a water management report. Transparency provides a greater likelihood of establishing the trust with local communities and with society in general that is necessary to avoid conflicts and secure the social license to operate without controversy. In general, the best practices implemented at the global level in environmental management, tailings management, and water go hand in hand with transparency and accountability, since this guarantees confidence on the part of society in the mining project and a better reputation for the company, which translates into greater economic growth for it. To read the first part of this document, please click here. For additional information on the subject of this note, please contact our experts: Edmond Grieger, Partner: +52 (55) 5258-1048 | egrieger@vwys.com.mx Ariel Garfio, Partner: +52 (55) 5258-1048 | agarfio@vwys.com.mx

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