By Jonathon Hanks, writing for Anglo American’s A Magazine

For many people the concept of mining companies being committed to sustainable development is a classic oxymoron. Not only is their business model entirely dependent on the extraction of a finite non-renewable resource – and thus by definition not sustainable over the long term – but the extractive sector also has a reputation (deserved or otherwise) for despoiling the environment, disregarding worker safety, and being complicit in human rights abuses in areas of weak governance.

While businesses generally are seen to pursue profits at the expense of people and the planet, the mining sector is perceived as being particularly egregious in seeking to maximise the private gains of its activities while ‘socialising’ the losses. Indeed, it could be argued that mining and resource companies have provided the feedstock – both real and metaphorical – for the global carbon-based economy that is beginning to show the symptoms of misplaced business and market values.

Although it is right to have a healthy scepticism of the sustainability pronouncements proffered by leading mining companies, it would be wrong to dismiss the important positive contribution that many of these companies are making to society and it would be mistaken to underestimate their potential in effecting a broader transition to sustainability. However, for mining companies to play this transformative role will require uncommon levels of leadership, including a genuine willingness to question and challenge some deeply held guiding assumptions. It will require mining executives to appreciate the complexity and systemic nature of the sustainability challenge, and to recognise that current, incremental changes towards sustainability are not sufficient and that as the King III governance standard argues “a fundamental shift (is needed) in the way companies and directors act and organise themselves.”

Sustainability: A fundamental shift

While sustainable development may be a notoriously elusive concept – and one that has been defined in different ways by different parties to justify significantly different intentions and outcomes – at its heart it is fairly straightforward. It is about adopting a developmental path that improves the quality of life of current generations, yet that leaves future generations with at least the same capacity and options for development that we have at present.

It may be simple to articulate at a high-level perhaps, but it is profoundly challenging to implement in practice, particularly given the context of the global financial crisis, the existing levels of socio-economic inequality, a declining natural resource base and an anticipated 50% increase in global population. Add to this the growing resource demands of a developed China and India and the implications of climate change, and it becomes obvious that addressing these challenges is not simply a question of becoming more transparent, more generous in one’s corporate social investment programme, or more resource efficient.

The full extent of this challenge is articulated in the South African government’s recently released Draft National Strategy on Sustainable Development, which calls for “a more radical redefinition of our development path” informed by a new set of values and behaviour that recognises that socio-economic systems are dependent on and embedded within ecosystems. This is the crux of the dilemma: how to address the obvious developmental concerns of poverty, inequality and unemployment, while at the same time decoupling economic growth from resource use. For a sector whose business is dependent on resource use, this is a compelling dilemma.

Following business-as-usual with slightly refined risk management and eco-efficiency practices will not be enough to engage seriously with this challenge. Leading environmentalist William McDonough makes this point clear in a telling analogy: if we are driving south and realise that we are heading in the wrong direction, driving south more slowly won’t take us north.  We need to change direction completely.

Changing direction: Addressing the system flaws

Changing direction requires an understanding of the preferred alternative destination. In his recent bestseller Hot, Flat and Crowded, Thomas Friedman identifies three fundamental flaws that he believes have contributed to the current financial crisis and that, if not addressed, will have potentially catastrophic social and environmental consequences: the systematic under-pricing of the true costs and risks of our activities; the pervasive application of ‘the worst sort of business and ecological values characterised by a profligate and hedonistic approach to economic life’; and the tendency of markets (and individual companies) to privatise gains and socialise losses.

Addressing these challenges will not be easy: we have grown up in a generation that appears hot-wired to accept quantitative economic growth as the overriding objective of societal activity and that has become accustomed to price signals that suggest limitless availability of resources, despite the fact that some of the most fundamental inputs to the economy – fossil fuels, phosphorous and water – may soon be facing significant supply constraints and/or policy limitations. Acknowledging and preparing for such challenges places increased responsibility and expectation on forward-looking business leaders.

Adapting to societal turbulence

On a finite planet, an economic system that seeks unlimited growth based primarily on non-renewable resources will inevitably result in a situation where demand will outstrip supply. In such a situation, all human activity including business will face increasing societal turbulence. There are compelling indications that we are already within a period of such turbulence: the recent fluctuations in stock price, firm mortality, weather patterns, oil prices and the nature and speed of technology dissemination are all indicative of profound volatility and uncertainty. With this volatility comes greater likelihood for ‘black swans’: high-impact, hard-to-predict events that are beyond the realm of our normal expectation, or what Donald Rumsfeld less prosaically refers to as ‘unknown unknowns’. The recent Icelandic volcano and, arguably, the BP Gulf oil spill are examples of the types of such unanticipated events that can cause profound business turbulence.

The corporate response to sustainability is essentially about seeking to understand and anticipate the nature and extent of this turbulence. It is about adopting a long-run perspective to competitiveness informed by a sound appreciation of how resource constraints and potential social instability will impact on a business’s core value drivers. And it is about building trust and regaining business’s social legitimacy that will be increasingly contested as long as business is seen to be putting short-term personal gain at the expense of longer-term societal interest. The recent BP oil spill was recently characterised by President Obama as an “environmental 9/11”; in terms of reputation and regulation it may do for the oil and gas and extractive industries what the recent sub-prime crisis has done for the financial sector.

In periods of such turbulence, successful companies, including those in the mining sector, will be those that have the ability to respond more creatively and more rapidly to disruption than their rivals. These more agile companies will have the required competencies to more readily seize opportunities within their existing business model, and they will have the imagination and vision to identify and seize game-changing opportunities that challenge their current business model. This is not about being good at crisis management; rather it requires continuously anticipating and adjusting to trends that can permanently alter the earning power of the business, before the case for that change has become immediately obvious.

Drawing on the evolution of all complex systems, and on an understanding of the characteristics of successful companies, it is suggested that this corporate agility is a function of two primary characteristics: the company’s willingness and ability to change what it does and/or how things are done (its ‘adaptive capacity’), and its ability to develop and leverage mutually respectful relationships of exchange (its ‘transactive capacity’). Mining companies are not typically associated with a willingness to question their business model or with being highly innovative: “we’re in the business of digging rocks” is not an uncommon refrain. Similarly the sector doesn’t have the best reputation for frank dialogue or for the establishment of partnerships with some of its harshest critics. Yet these are the competencies that companies in this sector would be well advised to develop if they wish to prosper in the context of turbulence; and these attributes are fundamental if the sector is to make a meaningful contribution to sustainability and have a net positive contribution on human, social and natural capital.

Towards transformative leadership in the mining sector

In assessing the contribution that business can provide in effective the transition to a regenerative economy, it is instructive to recall the role played by a small group of business leaders – including some from the mining sector – in the transition to democracy in South Africa. Arguably, the response of this progressive group of business leaders was informed more by economic considerations than by any moral imperative to address apartheid, a principal driver being the realisation that the human and societal costs of apartheid were destroying the foundation upon which business’s longer-term prosperity depended. As it was with apartheid, so it should be in addressing the challenges of sustainability. Businesses flourish best in societies that prosper; unless and until business leaders appreciate the interdependency between economic prosperity, social justice and functioning ecosystems, society’s and business’s longer-term interests will continue to be compromised.

There are various instances where the mining sector has contributed meaningfully towards alleviating certain societal challenges that are typically government’s responsibility because of the mutual benefits in doing so. The more obvious examples of this include skills development, adult basic education, infrastructure development and HIV/Aids. A specific recent example is the recent collaboration between two mining companies in South African to address two specific challenges; their eMalahleni Water Reclamation Plant not only treats badly polluted mine water, it also supplies 20% of the local municipality’s water requirements to meet the needs of local community residents.

Despite their obvious negative impacts – or perhaps because of them – many of the larger companies in the sector have shown some leadership in terms of sustainability governance practices. In a recent assessment of the sustainability reporting activities of South African companies, for example, ten of the top eleven rated reports were from the mining and metals sector, reflecting a consistent trend in local and international reporting. Mining companies have also been amongst the best performers in terms of disclosure on climate change issues, as assessed by the Carbon Disclosure Project’s leadership index, and many have shown some leadership through their commitment to voluntary emissions reduction targets, the implementation of emissions reduction initiatives and the adoption of carbon costing in project decisions. The sector has a whole has also shown a general responsiveness to societal expectations through the Mining, Minerals and Sustainable Development (MMSD) consultative project and the resulting ten sustainability principles of the International Council on Mining & Metals (ICMM).

While these initiatives are commendable, they fall short of the full transformative change that sustainability requires. For mining companies to be active participants in this transition, we would need to see them becoming willing advocates in readjusting the pricing of risks and resources, and moving away from a business model that continues to externalise the societal costs of its activities. If they are genuinely committed to sustainability we would want to see these companies presenting a clear vision of the role they would be playing in a resource-constrained future; we would need coal companies, for example, to demonstrate what product stewardship means in practice in the context of global climate change and to define how their business model will adapt to a carbon-constrained future. If these companies are committed to addressing social inequality, then we might want to see some measures being taken to address internal income inequality, and an end to what seems to be a worsening Gini coefficient within corporates. And we would need to see a greater contribution in the sustainability debate of the larger mining establishments from China and India, as well as more active engagement of some of the smaller (including artisanal) mining operations.

These are not easy expectations of mining companies. But achieving a ‘fundamental shift’ to business-as-usual is not meant to be easy.