Commentry

The financial bottom line isn’t the only thing that counts for stakeholders these days. Increasingly, they’re paying close attention to a company’s ethical and environmental performance — its non-financial metrics and sustainability practices.

The Dow Jones Sustainability Indexes define sustainability as “a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments.”

What stakeholders think and believe about a company’s sustainability practices could affect profits and share prices, and pose risk to its reputation and brand.

We believe companies are forward-looking when they expand their risk management and internal audit agendas to include a host of non-financial risk factors and to report on them publicly. These same companies are also finding ways to turn non-financial risks into competitive advantages.

Hence the rise of sustainability reporting — a growing trend that matters more than ever in the mining industry.

Sustainability reports need to be objective and honest, focusing on successes, challenges and failures, with a clear statement of a company’s policies and commitments.

While companies can create their own reporting format, using a recognized framework adds credibility. For instance, the Global Reporting Initiative’s Sustainability Reporting Guidelines are a globally accepted reporting format. G3 (third generation) guidelines are now available, along with a mining and metals sector supplement.

For companies thataremembersof the Mining Association of Canada (MAC), there are four performance indicators that companies need to report against year-over-year: tailings management, energy management, external outreach and crisis-management planning.

A good sustainability report shows a balance between qualitative and quantitative targets, which are useful benchmarks for future reports.

Reports should show historical data whenever possible and provide feedback on why performance has changed over time. While stakeholders want to see quantitative metrics whenever possible, the fact is you can’t quantify everything.

Stakeholders want to see that responsibilities and accountabilities have been defined, and a demonstration of what you’re doing to help mitigate difficult risks.

Third-party verification is another way to gain credibility. Because sustainability reports are starting to contain more and more quantifiable data, companies are being asked to have these reports assured.

Many of the largest mining companies assure their reports — a fact that is also driven by industry groups such as MAC, as well as the International Council of Mining and Metals. Both these organizations call for member companies to obtain third-party verification of their sustainability reports, which will provide comfort to stakeholders that there are no material errors in the information being reported.

Sustainable development is good corporate governance. In fact, it is more common for internal auditors to manage the controls around environmental and social processes. The involvement of internal auditors demonstrates to line management the importance the company places on these issues and gives a board confidence that key controls are in place.

On the other hand, a poor sustainability track record exposes a company to an assortment of risks, including credit, reputation, security, and funding risks, as well as regulatory issues.

For mining firms, good reporting on sustainability heightens transparency and ultimately results in enhanced reputation, increased confidence from investors, insurers and financial organizations. As well, positive sustainable development efforts will resonate long after a mine closes.

Twenty years ago, corporate performance was measured primarily by financial data. Today, leading mining companies are applying long-term sustainability in day-to-day decision- making and overall business strategy.

This approach contributes to early identification of risk and opportunities, resulting in broader business benefits and competitive advantages, which go a long way in helping to maintain a company’s licence to operate.

–The author is co-leader of Ernst & Young’s Sustainability Assurance and Advisory Services practice. www.ey.ca