Moving the needle on mining’s social license to operate

Tarah Masniuk: Welcome to The Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape. I’m your host, Tarah Masniuk. Please join me as we explore today’s most pressing issues with special guests that will give you some new perspective and help you make sense of what really matters.

Nathan Monash: And when I think about the challenge of addressing that, I think to a phrase that was mentioned at a recent meeting with the Lundin Foundation, which is that partnership is the new leadership. So I didn’t make that up, but that is, I think, a very powerful statement.

Tarah Masniuk: On today’s episode, we’ll explore sustainability in the mining industry. In particular, we’ll examine the most pressing environmental, social and governance or ESG challenges for the industry, what one mining company is doing to meet its sustainability ambitions and how sustainable finance is helping move the needle. For today’s discussion, I’m pleased to introduce my guests, Nathan Monash and Hugo Bonilla at Lundin Mining. Nathan Monash is Vice President of Sustainability and is an experienced mining sector executive with a career spanning more than 20 years. Prior to his current role, Nathan led Lundin Gold’s sustainability activities during the construction and operation of the Fruta del Norte mine in Ecuador. Before joining Lundin in 2015, he held senior positions at Anglo Gold, Rio Tinto Alcan, the International Finance Corporation, and the World Economic Forum. Hugo Bonilla is Director of Corporate Social Performance and is an experienced thought leader and sustainability executive. Hugo joined Lundin in 2020 and leads the transformation of Lundin’s global social performance and human rights functions. Prior to his role, Hugo was a partner at Environmental Resources Management and held consultancy roles with Replan Inc. Good morning, Nathan and Hugo, welcome and thank you for joining us on today’s episode of The Sustainability Agenda.

Nathan Monash: Thanks Tarah for this opportunity to speak about Lundin Mining and to speak about our approach to sustainability and how that links to the SLL that we’ve been working on with you for the past few months.

Hugo Bonilla: Thanks, Tarah, for having us.

Tarah Masniuk: Nathan, we typically begin our episodes with a little context for our audience. Can you tell us about Lundin Mining and its vision as part of the critical minerals industry?

Nathan Monash: Sure, thanks Tarah. Lundin Mining is a diversified base metals company. Our production is heavily weighted towards copper, but we also produce nickel, we produce zinc and gold. We are a global operation. We operate in Europe and North America and South America and over time we’ve been increasing our focus upon what is known as the Vicuña district in Argentina and Chile. Now as the energy transition picks up speed and markets expect there to be much greater demand for critical minerals and that’s an incredible opportunity for Lundin Mining. We are committed to providing the copper, the nickel, the zinc that the world is going to need in a manner that is consistent with our approach to sustainability. So our approach incorporates aspects of environmental stewardship around greenhouse gas emissions, water management, aspects of thriving communities, which we approach through community investment, through our investments in education and infrastructure, the matters in which we empower our workforce through our commitments to health and safety, providing opportunities for our employees, and an approach to human rights that cuts across all of our activities.

Tarah Masniuk: Hugo, given that context that Nathan shared, the company operates in a hard-to-abate sector. So what do you see as the most pressing ESG challenges for the mining industry? And can you share some key insights into how Lundin plans to address these?

Hugo Bonilla: Yes, of course. As we know, mining is needed for the transition to a low carbon economy and it’s necessary. It is a sector that is difficult to abate and it has significant challenges. Multiple different studies have found that for the mining industry, the social license to operate is one of the key challenges. And it is that increasing societal expectation for a just transition, not just any type of transition. We’re going to need to engage better and do a better job in terms of how collectively as an industry we are working to maintain and build and appropriately manage that social license. In addition to that, to reduce the amount of emissions that we have as a sector, the decarbonization aspect of sustainability is also another challenge. The needs for capital to invest in these transitions is also an important aspect and not only the access to capital, but also the technology available to enable us to move at the speed that we need to move. Another aspect that is really important I consider to be the management of our supply chain, our value chain overall. A lot of our impacts, both positive and negative, come from the relationship with our supply chain and our value chain overall. but also on a key topic that is growing in prominence as well, which is the human rights discussion and how we are collectively managing our human rights impacts and risks as an industry and how we’re reducing and participating appropriately in managing those potential risks. And so to summarize, I think that we need to ensure that we’re walking along the lines of the societal expectations for a just transition on aspects of the social license, decarbonization, and management of our value chain and human rights. What are the things that Lundin is doing to address some of these aspects. Lundin has been, over the past 10-15 years, and throughout its history has been working on adopting sustainability at the core of its business. And over the past four years we’ve been working quite a bit to create a strategy and build a strategy that leads the way. Nathan mentioned our effort to move towards environmental stewardship, to have thriving communities, to empower our workforce and be able to modernize our business and make sure that we advance in that way. 

Tarah Masniuk: Thanks, Hugo. And I want to pull on that thread a little bit between the financing and the sustainability piece. So, you know, we have been working together over a number of months on the Sustainability Linked Loan and it did recently close. So congratulations. For our listeners, a Sustainability Linked Loan or SLL, it’s really a loan that links company performance on certain key performance indicators with cost of capital. So given your SLL focuses on both an environmental and social key performance indicator, Nathan, can you speak to the key learnings and outcomes you gained from going through the process of establishing the SLL for the Lundin team?

Nathan Monash: From my perspective, one of the most important learnings or the most important aspects of developing the SLL was that there was a collaborative spirit between the banks and the company from the very beginning. We were all seeking an outcome that would create a new integration of sustainability and finance through this SLL instrument. And we also decided early on, and I say we, I mean the company and also the group of banks with whom we’ve been working, that we wanted to be innovative in our selection of KPIs. And therefore we needed to recognize that there’d be challenges with this approach. We weren’t going to be using KPIs that were simply taken from previous SLLs that we would be trying to do something new. And that we would need to be patient and transparent and on both sides explain our approaches and the models that we were using and ensuring that the metrics that we were trying to include in the SLL were truly understood by all parties. And that took time. Certainly one of the learnings from my side was that this is, it’s a long process, but when there is that collaborative spirit, we can really achieve something quite innovative. Another key learning that I would highlight is the alignment that the SLL can bring internally. The most obvious aspect of that is that the finance and sustainability teams, we’ve been working together on the SLL in a way that is new for us. We’ve been working together for many, many years, but this was a new opportunity to integrate key aspects of the finance and sustainability functions. And it brought the teams together in a new way. I think that by establishing sustainability KPIs that are linked directly to the financing for the company, also these KPIs can now be cascaded more effectively down within the organization, there’s joint buy-in from the finance and the sustainability teams.

Tarah Masniuk: Thanks, Nathan. So what I heard there, innovation, doing something new, stakeholders and collaboration, really some powerful words there. Thank you for sharing. Hugo, you mentioned earlier on the social license to operate index, and I wanted to build on that. Lundin has employed a unique approach. Can you describe the S-L-O index and how it’s transforming your community relationships at the company’s mining sites and share any recent initiatives or milestones?

Hugo Bonilla: Back in 2020, we started launching what we can call the Social License to Operate Index, which is basically a methodology that is based on community perception surveys that are conducted on a regular basis and that basically gathers the information on what are the aspects that the community considers to be the drivers of the trust that they may have or not on the company. What are the things that drive trust and acceptance on the company? This is based on academic research conducted for over a decade from CSIRO from the University of Queensland from Australia. And it basically uncovered that through looking at community perceptions from the mining industry and the resource sector, there were key set of drivers that really influenced acceptance and the most important one was trust and there were key things that influenced trust. Through these surveys we can continuously understand what our communities are appreciating or not about our relationship with them. Some of the key aspects associated with the things that drive trust overall across the board are things like the concept of procedural fairness. Or the concept of the distribution of benefits, economic benefits associated with mining, or the concept of environmental impacts, which impact negatively on the level of trust that there may be on a company. To elaborate the concept of procedural fairness, which is at the basis of what we are measuring for our Sustainability Linked Loan, we are measuring what is the community’s perception of the company listening to them and respecting them? Is the perception of people that the company is following up on its commitments? Do people perceive that the company is enabling them to participate actively on decisions that are impacting them? And is the company willing to openly modify some of its internal operations and practices based on concerns that the community may have? And so this reflects ways in which the community will feel that the company has a meaningful relationship. And so that’s what we’re measuring right now. How are we using this? This is crucial. This is enabling us internally to understand, is our engagement being effective? Are we saying the right things? Are we listening and hearing and responding appropriately to the things that the community is telling us? And then what are the things that we really need to be looking inwards? And it has opened a lot of doors. Why has this opened a lot of doors? Because it has provided us with data, data that we can put in front of people that before were hearing stories only and we didn’t have a lot of, we had just some empirical information. Now we have actual data behind some of these decisions and we can monitor and measure. With this methodology, we understood that what you don’t measure, you cannot improve. And so now that we have measurements, we actually are working really hard to improve and see how each one of the policies and practices that we adopt are having an impact on our relationship and it’s really also driving internal engagement as well as external engagement with our stakeholders outside.

Tarah Masniuk: Well, to use your words, trust is really at the core, right? And that helps drive progress. I really appreciate the insights into leveraging that data to measure and improve your policies and procedures and then practices ultimately, right, in these communities. So that’s really great context. Thank you for sharing. Speaking of progress, Nathan, I’m wondering if you can speak to your progress towards achieving your 2030 goals of reducing your emissions and what are some of the challenges that you’ve had to overcome at the company and what are the changes you expect going forward?

Nathan Monash: Yeah, so we’ve been making good progress on our 2030 goal, which is a 35% reduction of our scope one and scope two emissions versus our 2019 asset base and baseline emissions. As with most companies, most mining companies, that’s involved the focus upon our scope one and scope two emissions. That’s because those are the emissions that we control directly. Those are the emissions that we best understand. And over the past years, made quite strong progress on that. We’ve been implementing power purchase agreements to bring more renewable energy into the business. We’ve been looking at opportunities to develop our own renewable power supplies. We are also taking a close look at our operations and looking for operational efficiencies. And so we are well on our way to meeting that 2030 target. But in terms of challenges, and as we look to the future, Lundin Mining is similar to many other mining companies in that when we look at our complete emissions profile, many of our emissions are scope three. Those are the emissions that are associated with our up and downstream activities. So essentially, somebody else’s scope one and scope two emissions that are linked to our business. And when I think about the challenge of addressing that I think to a phrase that was mentioned at a recent meeting with the Lundin Foundation, which is that partnership is the new leadership. So I didn’t make that up, but that is, I think, a very powerful statement. When we think about how the mining industry and how Lundin Mining can go forward to address scope three emissions, it will be about promoting partnerships. This will require new areas of collaboration across the sector with affiliated sectors such as shipping, for example, or our suppliers of heavy machinery. We’ll need to be partnering with academic institutions. And together, we need to promote innovation. We need to update the practices that are being implemented within the business in order to take a more comprehensive view on those scope three emissions. A rough number is that represents two-thirds of Lundin Mining’s greenhouse gas emissions. So if we want to truly impact the emissions that we have, we need to be looking at scope three as well. I think that’s the big challenge going forward.

Tarah Masniuk: Thanks, Nathan. So partnership is the new leadership. I love that. And it dovetails really well into my last question. Given the ever greater emphasis on sustainability and mining, how do instruments such as the SLL move the needle? How can we achieve greater uptake and promote innovation through these instruments?

Hugo Bonilla: That’s a great question, Tarah, and I think that it speaks to the response that Nathan just gave in terms of the promoting the working collaboration in partnerships between several multiple industries. In this context, the work we did together with you and with the finance industry and with the mining industry to really understand some of the challenges that we collectively have to overcome. I think that these discussions raise awareness about these challenges and also raise internal awareness of topics and issues that need to be further addressed. It helps build a platform for people within the corporate teams as well to further elaborate on our agenda internally to drive the needle further and faster in terms of sustainability in the context of the social license to operate index. For instance, these discussions raise the profile of this tool that we’ve had and enabled us to have further impact within not only our corporate team, but also at our site teams. And so those conversations really drive a sense of the importance that this transformation has for companies. I think that with more innovation, we are putting forward right now an innovation in how we measure the social license that can be adopted and taken by other companies. I think that these exercises enable creation, creation of new ideas. And if we don’t just take, as Nathan mentioned, the typical indicators or KPIs, but people really make these Sustainability Linked Loans theirs, whatever makes sense for them. We will see a lot more innovation in this area that can drive the agenda further and faster. I think that that’s what we are observing.

Tarah Masniuk: Thank you, Hugo and Nathan, for taking the time to join the show today and thank you listeners for tuning in. 

Nathan Monash: Thank you so much Tarah for this opportunity.

Hugo Bonilla: Thank you for having us.

Tarah Masniuk: Please join us next time as we tackle some of sustainability’s biggest questions, providing different perspectives to help you move forward. I’m your host, Tarah Masniuk, and this is The Sustainability Agenda.

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