We encounter the effects of climate change more and more every day. For example, in Turkey, we are experiencing a winter without snow on New Year’s Eve. Despite this, people still do not think about the consequences of their actions. Because when people do not experience climate impacts in their own lives, they either do not listen to warnings or do not accept them as real. This leads to the result that people’s behavior as individuals turns into a permanent social approach. At this point, it becomes important to change the behavior of individuals first.
This is also the case for companies. Companies that think about the effects of their actions and take measures to prevent negativity become more valuable. According to the biannual authorized sustainability reporting survey conducted by the global accounting firm KPMG, about half of all companies now report climate risk in their financial reporting. This risk has increased significantly, especially in the last two years.
In particular, the extent to which stakeholder-centered companies integrate environmental, social, and governance (ESG) factors into their operations is not only reflected in the improvement of the processes of stakeholders in the sectors in which they operate but also causes them to attract more attention from investors.
In a study conducted by global asset management firm Arabesque in conjunction with the University of Oxford, 88% of the 200 studies analyzed showed that good ESG practices lead to better operational performance. In comparison, 80% showed that positive sustainability practices improve stock price performance.
It has also led to change within the investor community, where ESG investing is predicted to overtake traditional investing in Europe as soon as 2025. Companies with more robust ESG track records in their operations are now more favorably evaluated and preferred by investors. In addition, it is widely recognized as crucial for better risk management.
In the ‘energy transition’ in the context of climate change, mineral requirements are expected to quadruple for clean energy technologies, which will require far more minerals than their counterparts by 2040 to meet the targets of the Paris Agreement (as in the Sustainable Development Scenario). In addition, to reach net zero globally by 2050 means that up to six times more minerals will be needed in 2040 than today for a faster transition to these technologies, which will require lithium, nickel, cobalt, graphite, copper, aluminum, and rare earths.
This is because lithium, nickel, cobalt, manganese, and graphite are crucial for battery performance. Rare earths are required for permanent magnets in wind turbines and electric vehicle engines. Electricity grids require large amounts of copper and aluminum, and copper is the cornerstone of all electricity-related technologies.
The growing importance of critical minerals in a decarbonized energy system also requires those working in this field to broaden their horizons and assess potential new risk areas. The scope of risk goes beyond the environment. Failure to manage these risks properly can expose governments and companies to ESG-related ethical and reputational criticism.
The most crucial reason why ESG risks are so significant is that it is the right thing to do for the affected areas. The energy transition must inevitably be ‘people-centered’ and ‘inclusive’ as the world progresses towards global climate goals. At this point, the importance of people once again comes to the fore.
For example, according to the International Energy Agency (IEA), ESG impacts of mining projects include geopolitical tensions, armed conflict, human rights violations, bribery and corruption, emissions, water stress, and biodiversity loss. This is because adequately managing mineral resources can support economic development by contributing to public revenue, lifting disadvantaged populations out of poverty, and providing a decent economic livelihood.
For these reasons, as recognized in the IEA publication, stakeholders should further support efforts to improve governance, transparency, and accountability of the mining sector at a global level.
Here, the real change should start with stakeholder-based companies and lead to the change/transformation of the sector. Because companies that do not take ESG factors into account or do not take the necessary precautions may lose the investment, have difficulty in obtaining a social license for the sites they operate in, experience supply shortages, be directly exposed to climate risks in water-stressed areas, and experience difficulties associated with conflict-affected or high-risk areas.
In this context, embracing change is a priority. The development, holistic integration, implementation, and enforcement of strong ESG standards and reporting frameworks at all levels requires support from technical assistance and capacity building, transparency, anti-bribery and corruption, supply chain monitoring, and legal frameworks.
Looking at the sample processes, it is seen that the positive effects that ESG factors can theoretically provide can be achieved, especially by improving governance.
As a result, for the development of societies/sectors according to the highest possible ESG standards, it is vital for individuals and stakeholder-centered companies to change their behaviors, raise their awareness, and cause the formation of governance resources to support them in this regard.