20 September 2022

Beyond counting just the coins: the key to a clearer picture of ESG reporting

Sustainability reporting that captures impact on society is crucial to understanding value, as demonstrated by the extractive industry, argues Diane Tang-Lee

The background

At COP 26 in November 2021 came the announcement that a number of investor-focused frameworks will consolidate into the International Sustainability Standards Board (ISSB). This is a game changer for sustainability reporting as it means there will be only one prominent investor-focused framework in the future.

My organisation, the International Council on Metals & Mining1, or ICMM, supports this consolidation as it is important for ensuring comparability of sustainability disclosures and reducing the reporting burden.

However, we believe that ISSB’s ‘financial materiality’ approach, which evaluates the inward effect of sustainability factors on a company’s enterprise value, is too narrow to provide a true picture of an enterprise’s interactions with ESG factors.

Conversely, the Global Reporting Initiative (GRI) embraces a more holistic ‘impact materiality’ approach which assesses a company’s outward impact on sustainable development. Therefore, ISSB ought to uphold its collaboration agreement with GRI to ensure that the standards it develops will be consonant with GRI’s impact materiality approach. 

Why is assessing a company's outward impact as important as measuring the effect of the outside world on a company?

Assessing a company’s outward impact on sustainable development, also known as ‘impact materiality’, is important for a few reasons.

The financial materiality approach is not sufficient to provide financial market actors with adequate information to assess the sustainability performance of a company. For example, local community engagement based on participatory processes is important especially for an industry like mining.

"Sustainability reporting must include more than impacts on a company's own finances"

Robust social performance management and long-term investments in community development programmes are important for securing and maintaining community support for a mining project. The absence of this may not pose an immediate financial threat to a company but would have longer term financial repercussions if the project becomes delayed or suspended due to a lack of community support.

Research found that the most frequent costs of company-community conflict in the extractive sector are those arising from lost productivity due to temporary shutdowns or delay. A major, world-class mining project with capex of between $3 billion and $5 billion will suffer costs of roughly $20 million per week of delayed production in net-present-value terms, largely due to lost sales.

This is why we are calling for counting more than just the money. A company’s impact on the local community can make or break a mining project.

To evaluate a company’s impact on local communities, both positive and negative, GRI has a set of requirements which include the reporting of percentage of operations with implemented local community engagement activities, impact assessments, and/or development programmes based on participatory processes.

GRI Standards focus on the impact that companies have on the environment, people and economies, which is of interest to a broad range of stakeholders, including investors. We believe sustainability reporting must include more than impacts on a company’s own finances but also a wider, more comprehensive look at how the firm impacts the external world.

ICMM supports the ‘two-pillar corporate reporting system’ to be established by the collaboration between ISSB and GRI, as reflected by our recent submission to ISSB’s consultation on the Sustainability Disclosure Standards covering the general requirements for sustainability-related financial information and climate-related disclosures. This partnership to develop coherent and streamlined reporting frameworks is important also because it is better for companies to concentrate their energies on making a real contribution to sustainability such as engaging with communities or reducing water use, rather than reporting to address competing demands.

Why ICMM members are at the forefront of sustainability reporting

Diane Tang-LeeWith increased recognition of the value of both financial and impact materiality, companies and investors are concerned about how to manage the challenges of an increased burden of reporting. The fact that ICMM members commit to report against GRI, the most widely recognised and adopted framework underpinned by impact materiality, is a testament that sustainability reporting with an impact lens is feasible and helps improve the impact that companies make on the outside world – what gets measured gets managed.

We are not complacent but continue to find ways to do more than the minimum. ICMM members go beyond the scope required by GRI in a few aspects, including ICMM’s water reporting framework and social and economic reporting framework.

These frameworks are aligned to GRI but also go beyond, such as the requirement to report an overview of the range of education and skills programmes deployed outside of workforce, spanning number and types of programmes, spend and beneficiaries (disaggregated by gender and ethnicity).

While GRI standards are required at the corporate level, through ICMM's Mining Principles which cover the full range of ESG topics and all commodities, we are also strengthening social and environmental performance at the mine-site level, validated by independent third-parties, to help enhance the credibility of the reported information.

In view of the increasing scrutiny of information disclosures at the site level, one way of managing the burden of reporting is to differentiate between corporate level 'quantitative' disclosures as opposed to asset level 'qualitative' disclosures relating to the quality of management for a broad range of ESG performance areas. More than 30 of the Performance Expectations under the Mining Principles focus on quality of management, allowing practical and meaningful disclosures at the site level while encouraging companies to identify and improve on areas that have not yet fully met the Performance Expectations (see an example from Teck Resources here).

What next?

Given that the establishment of ISSB was supported by finance ministers and central bank governors from more than 40 jurisdictions at COP26, we expect that there will be a significant push from regulators and investors for companies to report against ISSB.

We welcome any future opportunity to work with ISSB and related stakeholders to define a set of standards that is practical, fit for purpose, and coherent with GRI’s reporting framework.

Embracing the GRI’s more holistic reporting of a company’s performance is indispensable for attaining a comprehensive look at impacts on communities, the environment, and economies.

Diane Tang-Lee is a manager at the International Council on Metals & Mining.


1- ICMM is a global leadership organisation for sustainable development that seeks to create a safe, just and sustainable world through responsibly produced metals and minerals.