Opportunities and threats of the Mining Industry

Introduction

There are many common myths and misunderstandings about the term “sustainability”. For example, it is often believed that sustainable development is only a very recent concern. Even though it is true that today’s notion of sustainability is a post-WorldWarII-concept (LITERATUR?) and that it has been raised by 1970’s publications such as The Limits of Growth by the Club of Rome, the basic idea is much older. For example, most indigenous cultures had an inherent understanding of sustainability in terms of not taking more from nature than they needed, and not more than it could give (LITERATUR?). The key difference today is that growing global economies and technological advance have led to practices which are harmful to the environment. It is, however, another myth that sustainability is only about the relation between economy and the environment. Sustainable development also affects social and cultural issues. Its key questions are ethical, asking for best practices. Sustainability is about improving the lives of every single individual, explicitly including future generations. In order to do that, individual and collective outcomes as well as short-term and long-term results of actions taken have to be balanced against each other.

In the following I will first give a general overview on sustainability and how it can be achieved in business, showing that this goal cannot be approached one-dimensionally. I will then apply these ideas to the mining industry which is challenged both internally and externally by recent developments related to sustainability. I will show up how those threats can be turned into opportunities.

Sustainability

The basic definition of sustainable development given by the UN’s Brundtland Commission in 1987 (as cited in DesJardins, 2007, p.13) describes it as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. [1] First of all, sustainability puts development in the place of pure growth, which is the main principle of the standard, “neoclassical” economic model. Development focuses on the change of quality (“better”) rather than quantity (“more”). The implication of this is that progress and well-being cannot be measured by the GDP – it has to be taken into account for what purpose money is spent (ibid., p. 71). Furthermore, the approach to handling resources has to change (see below, Multiple Capitals).

As stated by Joseph DesJardins (2007, p.1), sustainability rests on three pillars: Economy, Ecology, and Ethics. Economy is concerned with the production and distribution of goods and services, ecology looks at the way natural systems work and how humans interact with them, and ethics deal with the question on finding the right decision and on what is good.

The neoclassical model focuses on profit – it is the responsibility of a business “to make as much money as possible while confirming to the basic rules of society, both those embodied in law and those embodied in ethical custom”. (Milton Friedman as cited in DesJardins 2007, p.44) Under this paradigm, businesses (as well as people) are obliged to do no harm. However, their obligation to prevent harm is less strict and may be overridden by other factors (e.g. stockholder interests), and there is no obligation to actively do good as it would “impose unreasonable burdens and limitations on individual freedom.” (DesJardins, 2007, p. 45) The sustainable paradigm focuses on well-being and improving the lives of people instead. Businesses (and the profit which is necessary to entertain them) are seen as a means to that, not as an ends.

For sustainable development it is vital that all stakeholders are taken into account for any decision – be it in business, legislation, education, or else. Stakeholders are all people who are affected by a decision, explicitly including people living far away or in future times (see below, The Long Term).

Under the standard economic model, businesses can be forced to pay attention to sustainability by market forces (i.e. consumers, suppliers, competition or the relative price) or, if this does not result in a desirable effect, by political forces (i.e. voters, government / legislation). But „sustainable business also requires leadership from business”. (DesJardins 2007, p. 62) As much of a business’ behavior is left to managerial discretion, good governance of a business is often referred to as the fourth pillar of sustainability (or Quadruple Bottom Line, together with ethics, ecology, and economics).

The Long Term

As stated above short-term and long-term outcomes of decisions have to be balanced in sustainable business. Furthermore, economical, ecological, and ethical goals “must be balanced over the long term.” (DesJardins, 2007, p. 10) Therefore, actions that promise short-term profit must always be given a second look: What will happen in the long term? How will this action affect the ability of future generations to fulfill their needs? As needs are not only financial, but also biophysical (i.e. concerning shelter, healthy food, water, and air, etc.), social, cultural, and aesthetical, a long-term view must incorporate these perspectives as well. The best approach in terms of economy is to treat those aspects not as resources, but as capital.

Multiple Capitals

Sustainable businesses must provide a net positive contribution to all forms of capital over the long run. They must recognize that they are built on many different premises – not only financial ones, but also ecological, social, or intellectual ones. Treating these premises as capitals instead of resources promotes decisions which do not exploit or deplete them but rather treat them sustainably so that they are kept vital and profit can be drawn from them over a long term.

Financial capital needs little explanation here – it is needed for investments, payments, wages, etc. By the use of financial capital, physical capital can be built up – infrastructure, facilities, machinery, etc. Natural Capital refers to resources (services and goods of nature which can be used for business purposes) as well as to healthiness of the environment (its processes and functions) and intact landscapes, which are of economic use (tourism) and increase the quality of life (see DesJardins, 2007, pp.68-70). Natural Capital is therefore related to human capital – health, education, skills and abilities of people, who are furthermore the providers and holders of intellectual (knowledge, creativity, innovation) and social capital [2] , the latter referring to the quality and quantity of relationships with others, but also the level of cooperation and trust within a community.

Opportunities and Threats: The Mining Industry

Mining is the extraction of valuable metals or minerals from the earth. In a wider sense, mining means the extraction of every non-renewable resource, including oil, gas, or even water. Mining consists of several phases: Exploration of a possible site, getting the permit for mining, setting up the mining site (including the hiring of local staff), mining itself, and finally, after the site has depleted, its abandonment. The mining industry is currently facing various challenges, the most prominent ones being related to the environment, employment, and energy. The core product of mining is hardly to be called sustainable, but may be considered a necessary evil. Furthermore, many sustainable solutions are available for the circumstances and conditions in which mining happens.

Many of the problems arising in mining are site-specific. As soon as a resource has been detected and a mining enterprise is projected, the mining company has to enter into a discourse with local stakeholders. Since the public mostly thinks of mining as “a ‘dirty’ Industry with a poor record of environmental and social performance” (Hutchins, Walck, Sterk, and Campbell, 2005, p. 18), it is often difficult to find a working solution. Hutchins, Walck, Sterk, and Campbell (2005, pp. 21-26) provide a tool to that by identifying all groups of local stakeholders and analyzing their ideas, beliefs, and values, their emotional involvement, their identity, belonging, and social purpose, and finally the boundaries they draw (whom they include or exclude).

It is then most promising for companies to include these stakeholder groups into a discourse of Corporate Social Responsibility and address them according to their profile. Acting socially responsible to local communities can result in a perceived societal legitimacy (see Hutchins, Walck, Sterk, and Campbell, 2005, p. 26) which makes it easier to obtain a permit for mining (also see Brown & Flynn 2006). It is furthermore important to address the risks (both environmental and social) perceived by local stakeholders and to carefully negotiate those perceptions with the actual risks (which mostly differ). Getting certificates from independent authorities like the ISO (Certificates 9001 & 14001) [3] will most likely help to enable trust, thereby contributing to the social capital of the company. However the standards of these authorities might be high and must first be met. Apart from self-imposed restrictions the company must make clear that they are obeying all applying governmental laws and regulations. Transparency on the company’s accountability, disclosures, procedures, and technology in use not only helps making it trustworthy to the local community, it is also attractive for potential customers of the company (see Hutchins, Walck, Sterk, and Campbell, 2005, p. 26).

Another issue that addresses the local stakeholders is employment. While mining certainly brings money to local business, it often leaves unemployment behind once the site has depleted. From the industry’s perspective, there is a lack of well educated workforce willing to spend their life in the often remote areas of mining (see Morrison, 2006). High salaries will attract workers, but these most likely develop little loyalty to the company and might leave as soon as they have saved enough money. Morrison (2006) proposes various solutions to the workforce problem of the industry: In the short run, apart from hiring local (often indigenous) population, who often suffer from unemployment, are already at the site and feel loyalty to it, more female participation would be a good thing: Nowadays, less physical force is needed in most operations of mining. Furthermore, apart from being sustainable, encouraging emancipation might be valuable for PR. Finally, having a mixed-sex workplace environment may be much more appealing to workers of both sexes (“work-life balance”).

To overcome staffing problems the long run, education is needed. It is a good idea to launch school support and provide educational material or money for educational staff. Apart from the PR value, it can teach children on mining (amongst other topics, typically environmental ones) and fascinate them – they might grow to become miners. Another idea is to offer “incentives, including training and education, in return for a fixed term of commitment. The gamble is that some of these recruits will come to love the culture and the environment and will stay beyond minimum commitment.” (Morrison, 2006) To make these solutions beneficial to the host community, it should be ensured that (short-term) locally hired staff takes part in the (long-term) training programs, leaving them behind with a qualification when the mine is abandoned.

To become more environmentally friendly, mining companies around the world have been engaging in Life Cycle Assessment (LCA) since the 1990s (see Durucan, Korre, and Munoz-Melendez, 2006). “The objective of conducting a life cycle assessment […] is to decrease total environmental burden by quantitatively determining where the highest-impact improvements on reducing inefficiencies can be found.” (Swallow, 2009, p. 140, emphasis by Swallow) Durucan, Korre, and Munoz-Melendez (2008) provide a tool for mining LCA, in which the “mining system is broken down into three sub-systems – namely extraction (production), mineral processing and waste handling.” LCA is very dependent on the accuracy of the data used for it. Therefore well-educated staff is needed to conduct it, pointing again to the above mentioned sustainable strategies for employee development. Ideas resulting from LCA include investing in new technology (e.g. shovels, procession methods) which is more energy-efficient and less water-consuming, and research on where production waste could be used in a cradle-to-cradle approach (e.g. selling waste rock to builders, ore procession waste to chemical industry).

Resource recycling is becoming both more popular and easier, because it is seen as an alternative to exploiting natural resources and the technology is becoming better and more affordable. But even though more and more minable resources (especially metals) are becoming recycled, resource demand is still growing as more countries are becoming developed and are craving for commodities (foremost China and India, where one third of the world’s population lives, see Ashby, 2008). However the prices for resources stagnated due to the recent economic crisis while extraction is getting more expensive.

Rising energy costs (due to environmental regulation) are eating up mining profits, while local power grids are oftentimes not trustworthy (see Ashby, 2008). A possible solution would be for mining companies to generate their own electricity (ibid.): Not only do companies often own land upon which solar, water, geothermic or wind power plants (whichever fits the location best) can be installed, there may even be tax incentives or other governmental funds available. Generated power could be used for production, and, once the mine has depleted, sold to the local power grid. The plants would furthermore generate sustainable jobs for the local population (see above).

When planning their own power plants, mining companies should opt for clean energy from renewable sources. Such technology has really benefited from governmental funding in terms of reliability, efficiency, and affordability. It implementation would make the company more appealing to environmentally conscious customers. Mining is a supply industry, but customer pressure on producers of retail goods is likely to be passed on up the supply chain. Furthermore, reducing emission will prove beneficial in upcoming carbon trade and other governmental incentive programs, and might even attract investment in the company (see Ashby, 2008, as well as Brown & Flynn, 2006). Furthermore, mining companies might find themselves delivering just the product needed for the construction of the machines for their plant, as reported by Ashby (2008). Since clean energy technology is a growth industry which is not only desired by society in general but also encouraged by the government, keeping close contact to the producers of such technology might establish a vital and long-lasting business relationship. Once the company is safe on the emission side, stakeholder contact to organizers of carbon trading etc. might pay off as well (see Brown & Flynn, 2006).

Another energy-related topic is water. In many mining-relevant areas, access to freshwater is decreasing, and mining in general is a water-intensive business. Once a mining company enters a site, it competes with the local community on water use. Furthermore communities are increasingly sensible to the danger of (ground-) water pollution by mining companies. This problem needs to be settled in the above mentioned CSR discourse. Companies could offer to engage in recycling the water polluted by the site. Luckily, the technology for this involves the uses of certain metals, sands and minerals which might just be the product of said companies (see Brown & Flynn, 2006). Promoting this technology could boost their sales.

Summary and Conclusion

Even though some managers may still think in terms of the old standard economic model, a new societal consensus is emerging that sustainable development, not unguided growth, of the economy is the best way to address current environmental, social, and cultural problems. This does not only necessitate a change of consumers’ minds, but also in the minds of executives. Whenever paradigms shift, old models become unviable and have to be adjusted or even replaced by new ones. In economy, the sooner a business adapts to the new situation, the better it will be off.

Literature

Ashby, M., 2008, Is the mining industry ready to go green?, Mining Engineering, ProQuest Science Journals, Vol. 60, Iss. 11, p. 33.

Brown, B., Flynn, M., 2006, The Meta-trend Stakeholder Profile: Impacts on the Mining Industry, Greener Management International, ABI/INFORM Global, Vol. 54, p. 49.

Clement, D., 2002, An interview with Gary Becker, The Region, Minneapolis, Vol. 16, Iss. 2; p. 16.

DesJardins, J.R., 2007, Business, Ethics, and the Environment, Upper Saddle River, NJ: Prentice Hall.

Durucan, S., Korre, A., Munoz-Melendez, G., 2006, Mining life cycle modelling: a cradle-to-gate approach to environmental management in the minerals industry, Journal of Cleaner Production, Elsevier, Vol. 14, Iss. 12-13, pp. 1057-1070.

Hutchins, M.J., Walck, C.L., Sterk, D.P., Campbell, G.A., 2005, Corporate Social Responsibility: A Unifying Discourse for the Mining Industry?, Greener Management International, ABI/INFORM Global, Vol 52, p. 17.

Morrison, D., 2006, The mining world in 2016, Mining Engineering, ProQuest Science Journals, Vol. 58, Iss. 11, p.9.

Swallow, L., 2009, Green Business Practices For Dummies, Hoboken, NJ: Wiley Publishing.