Why CSR Matters in Mining

May 22, 2018

Corporate social responsibility (CSR) is rapidly becoming a significant issue for all businesses, not merely those in the traditionally green or sustainable industries. Companies are finding it beneficial, and in some instances, necessary, to strengthen their corporate social responsibility efforts.

The pressure to implement CSR initiatives is three-fold:

  1. For the sake of being perceived as a good corporate citizen
  2. To position the company as a preferred partner/vendor for other organizations who purchase materials and include them in their supply chain
  3. To demonstrate a company’s desire to do the right thing.

Industries with a potentially broad environmental impact – such as mining – which are subjected to additional scrutiny by activists and governmental entities, are feeling even more pressure than the typical business to get involved in sustainable and responsible initiatives. When undertaken, sustainability efforts can result in many benefits for employees, the geographic area in which a firm operates, the environment, and the company itself.

Because suppliers have the potential to introduce additional risk to a mining operation, mine owners and operators must consider the compliance of their contractors and vendors who work with the mine as third-party entities. When undertaking CSR initiatives, mine operators may also find it prudent to include a supplier prequalification and screening process.

This approach will ensure that suppliers and contractors are also complying with the relevant sustainability or social initiatives an operator has deemed important. It can also support a firm’s efforts to obtain or maintain contracts with large or important customers that want their entire supply chains to embody ethical or sustainable policies.

CSR: A Business Imperative for Mine Operators

Mining operators must cope with a variety of standards that combine to create a CSR imperative: internal organizational initiatives, external regulatory authorities, and less tangible social compliance pressures. While internal and external standards are increasingly mandated by corporate guidelines, government rules, or environmental regulations, social compliance is often unregulated and less defined.

Companies which seek to enhance their reputations with consumers or business partners often voluntarily implement CSR programs to demonstrate that their business is free from undesirable practices and risk, to increase their sustainability, and to prepare for future regulatory requirements.

While implementing a CSR program may make obvious social sense, calculating the economic value of CSR initiatives can be challenging. It’s much easier to recognize the financial impact of penalties associated with internal or external noncompliance.

Mining operators that fail to meet regulations are often significantly fined or penalized by regulatory authorities. Such sanctions can be devastating to a mining operator and organizations expend considerable effort to avoid being cited. Conversely, the consequences of not implementing corporate social responsibility policies are not as easily measured when compared to the fines resulting from regulatory noncompliance.

However, there are very real potential business impacts resulting from social noncompliance. Even though mines may not deal directly with consumers who may make sustainability or corporate social responsibility a priority, the customers of a mine may deal directly with the public, and they don’t want to put their brand image at stake by working with an organization that doesn’t observe relevant sustainability policies.

A mine that fails to prioritize corporate social responsibility could lose valuable contracts as their customers become more concerned with brand image and distance themselves from such suppliers.

Keeping partnerships intact isn’t the only reason a firm should strive to establish corporate social responsibility policies. An organization’s value is closely linked to disruptions within its supply chain; in fact, company value can suffer long after a disruption occurs.

A 2005 study “The Effect of Supply Chain Disruptions on Long-term Shareholder Value, Profitability, and Share Price Volatility” indicated companies suffering from a supply chain disruption will experience stock returns 33 to 40% lower for the year leading up to and two years after they reveal a supply chain problem.

Further, disruptions can result in a 114% drop in return on sales, an 11% increase in costs, and 7% lower sales growth, according to the research. This makes it critical for mining operators – and their customers who use their products – to take precautions in regard to corporate social responsibility.

Whether it’s for their own reputation, or to address the concerns of their customers who rely on them for raw materials, mine operators must consider the broad CSR and sustainability practices of their business.

To learn more about which CSR issues are significant in mining and best practices for CSR implementation, download the BROWZ eBook Current Issues in Mining Compliance: Corporate Social Responsibility.