Special Report - It's the Right Think, It's the Wise Thing

Sustainability imperatives in the mining sector In a tight economic climate, companies in all sectors look for ways to trim their expense structures. Thats especially true in capital intensive industries like mining. While initiatives related to sustainable development may have been slated for the cutting board in the past, those days are now done. Despite the cyclical nature of the business, organizations that fail to maintain their focus on sustainable development risk compromising their future viability. There are many compelling reasons why mining companies should remain committed to integrating social and environmental concerns into their business operations: To earn a social license to operate, companies must demonstrate their commitment to sustainability. For members of the Mining Association of Canada, this involves adhering to the Associations Towards Sustainable Mining (TSM) initiative, which aims to improve the industrys reputation by advancing its sustainability performance. As more organizations adopt standards like these, non-member companies will likely face growing pressure to comply as well. To improve operational and environmental performance, mining companies need to find ways to minimize their reliance on energy and water. In addition to cutting down on greenhouse gas (GHG) emissions, these activities can help conserve scarce resources and reduce potential risks to human health. To enhance regulatory compliance, companies have to put processes in place to ensure adherence to both emerging regulations, like new carbon legislation, and to evolving industry standards. To preserve healthy community relations, mining companies must also foster improved stakeholder engagement. This is particularly critical as increased awareness of environmental issues such as climate change, demand for energy, resource scarcity, population growth and globalization are driving stakeholders to action. Surveying the risks If sustainable development makes good business sense in strong markets, it becomes even more essential in weaker markets. Mining companies simply cannot afford the risks associated with engaging in unsustainable practices. As one example, consider the issue of climate change. Increasing governmental regulation, the emergence of carbon markets and industry action all point to the role climate change plays on the

global stage. The issue is particularly acute in Canada, which has 0.5 per cent of the worlds population but contributes approximately 2 per cent of the global total of GHG emissions making it one of the worlds highest per capita emitters. It was in response to trends like these that the federal government released its plan to reduce GHG emissions by 20 per cent by 2020. Several provinces have followed suit with regulations of their own. The mining industrys consumption of electricity makes it a significant contributor to climate change. According to data from the Canadian Industrial Energy End-Use Data and Analysis Centre (CIEEDAC), the mining industry consumed 5.6 per cent of all electricity consumed in industry in Canada in 2007, and contributed 5.9 per cent of total GHG emissions. Beyond the environmental impacts of climate change, the issue poses real risks to the mining industry. These include: Regulatory risks, such as the potential costs of compliance and reporting requirements across different jurisdictions and regulations Physical operations risks, such as the potential for operational and infrastructure impacts due to extreme weather events, rising annual temperatures and altered precipitation patterns Financial risks, such as those related to carbon liabilities Market risks that may arise due to changing demand patterns Strategic risks related to accounting for uncertainty such as future regulation, technology availability and the price of carbon Supply chain risks, as suppliers factor in increased costs for compliance and energy Litigation risks, as affected communities or non-governmental organizations challenge companies or specific projects on the basis of their GHG emissions Human capital risks related to attracting and retaining appropriate talent Some mining companies are already taking action to address these issues. For instance, in addition to reporting emissions through the Manufacturing Association of Canadas TSM initiative, many companies are engaging in more extensive reporting and disclosure, adopting energy management programs to reduce their GHG emissions and developing focused climate change strategies. Companies that truly hope to derive long-term benefits from their actions, however, must do more than respond to specific sustainability trends in a vacuum. They must also take steps to integrate their sustainability practices into their existing management practices. This approach is particularly important in the current economic climate, as it can ultimately help companies maximize the return on their sustainability investments. Building sustainability into your operations As companies struggle to do more with less, an integrated approach to sustainability becomes more important. For instance, by integrating a standalone sustainability framework into an overall risk management program, you can leverage existing practices and processes while keeping sustainability on the corporate agenda. Companies that do this well tend to adopt integrated governance structures that include oversight at the board level, advisory and goal setting at the executive level and operational implementation at

the business line level. They also have established sustainability strategies that are the product of enterprise-wide planning and risk management. In keeping with these best practices, aim to develop your sustainability strategy in concert with your business strategies and include stated clear objectives. Support the strategy with policies and guidelines, align it with accepted industry standards and focus it on clearly defined issues that are pertinent to your organization. Leaders in this area also tend to communicate their efforts in terms of impacts, as opposed to inputs and outputs. For instance, consider disclosing the amount of energy saved through conservation programs rather than simply discussing pure energy consumption. Similarly, rather than simply tracking the land that has been disturbed and reclaimed, disclose the amount of land that has been reclaimed back to ecologically productive status. This will put your disclosures in language your stakeholders understand and go a long way towards demonstrating your strategic sustainability goals. Managing stakeholder expectations Aligning your sustainability practices with your other risk management practices can also help you better identify and focus on your sustainability priorities. Even in the best economic times, companies cannot afford to engage in every identified initiative. Pick those areas where your actions are likely to have the most positive long-term impact. As you begin to narrow your focus, effective and continuous stakeholder communication remains critical. If you realign your sustainability efforts, be sure to convey this message to stakeholders. At the same time, explain what steps you are taking to respond to these imperatives, both over the short- and long-term. The importance of this type of stakeholder communication and engagement cannot be over-stated. The mining industry answers to a huge host of stakeholders, including Aboriginal groups, investors, non-governmental organizations, governments, industry associations, employees and unions, local communities, customers, supply chain partners and the media. Mining activity impacts on many of these groups can be acute and far-reaching, with long time horizons. In many cases, stakeholders even have the ability to affect the success or failure of business projects or operations. In working with these various groups, aim to establish and manage the stakeholder engagement process, adopt industry accepted best practices, consult with stakeholders to encourage their ongoing involvement and ask for feedback. Take the example of a mining company operating in a remote region where energy supplies are intermittent and brownouts are frequent. One effective way to resolve this issue while winning community support might be to work with the local community to set up a renewable energy project. In addition to securing a supply of energy and cutting down on GHG emissions in the process these innovative community partnerships can help to foster exceptional community goodwill and can potentially result in companies being awarded government investment credits or accessing fast-track mining permits. The business benefits Its long been said that contributing to positive social and environmental performance is the right

thing to do. In the world of business, it is also the wise thing to do. Mining companies that adopt effective sustainability programs mitigate their operational risks, maintain their social license to operate and earn the stakeholder goodwill they need to enable profitable operations. They may even enjoy a share price benefit. The evidence is increasing less anecdotal; companies that outperform financially typically demonstrate strong sustainability performance as well. By Valerie Chort and Glenn Ives, Deloitte Canada Valerie Chort is a partner at Deloitte Canada and national leader of the firms Corporate Responsibility & Sustainability practice. She can be reached at 416- 601-6147 and vchort@deloitte.ca. Glenn Ives is a Vice Chair at Deloitte Canada and the North American Mining leader. He can be reached at 604-640-3159 and gives@deloitte.ca