How junior miners can meet the new ESG funding hurdles

The conversation around environmental, social, and governance ESG considerations in mining has grown increasingly sophisticated over the last decade, giving rise to an evolving set of requirements that companies must meet in order to secure funding. 

In the past, projects were primarily evaluated on their financial viability and resource potential. Now, many investors require a comprehensive ESG strategy before they will even entertain the prospect of funding a venture. This trend is particularly evident among royalty companies and pure equity funds. These entities, which typically fund late-stage exploration and development projects, are now incorporating strict ESG standards into their investment criteria. 

And whereas ESG concerns were once often seen as secondary considerations to be addressed when the major financial and technical hurdles had been cleared, their importance has risen. A growing number of boards will not even contemplate investing in a project that doesn’t meet ESG criteria from the outset, particularly in the high-risk pre-production phase, where accessing capital is often the make-or-break factor for junior mining companies.  

The criteria used by investors to evaluate projects have changed, too. Once heavily focused on environmental stewardship, they are now broader in scope and include social and governance matters that are just as critical as ecological impact.  

The growing emphasis on ESG metrics, not just from traditional sustainability advocates but from the very entities financing mining projects, represents a sea change in how capital is allocated. What is becoming clear is that companies looking to secure funding must now meet more stringent standards, not only demonstrating responsible environmental practices, but also showing tangible benefits for local communities. It is forcing mining companies, especially the juniors, to place a greater emphasis on ESG compliance as a core part of their business strategy rather than have it be an afterthought. Let us take a closer look at the ESG evolution and how industry players can meet new requirements. 

Environmental standards 

Environmental stewardship has long been the cornerstone of ESG in the mining sector. From water management and air quality to biodiversity protection, and tailings disposal, investors have demanded that companies demonstrate their ability to minimize ecological disruption. 

Today, however, it’s not just about meeting baseline environmental regulations; investors want to see a proactive approach to environmental management. Projects are increasingly required to integrate best-in-class environmental practices, ranging from the use of cleaner technologies to minimize greenhouse gas emissions to adopting strategies that mitigate long-term ecological impacts. 

Investors are particularly keen on projects that also push the boundaries of innovation. For example, projects that incorporate renewable energy sources into their operations or use advanced waste management technologies to reduce their environmental footprint are seen more favourably. 

A company’s ability to showcase a clear plan for environmental risk management can significantly enhance its attractiveness to investors. Moreover, the rise of green financing instruments, such as green bonds, has further incentivized mining companies to align with environmental objectives to secure more competitive funding. 

The social factor 

While environmental issues remain a central concern, investors are increasingly weighing social factors just as heavily. This shift is partly a response to growing awareness of the impact mining projects can have on local communities. Investors now want to see clear benefits for the regions where these projects operate, particularly in developing countries where mining often represents a major economic activity. 

Community engagement is no longer an optional part of a mining project’s ESG plan—it is a requirement. Investors expect mining companies to actively involve local communities in decision-making processes and ensure that these communities share in the economic benefits of the project. This may include local hiring practices, training programs, infrastructure development, or initiatives that contribute to long-term economic stability in the region. 

Furthermore, social factors now extend beyond community relations. Investors are increasingly looking at how projects address broader societal concerns such as the protection of human rights, workplace safety, and diversity in hiring. Companies that can demonstrate a strong social governance framework, including fair labour practices and equitable treatment of local stakeholders, are much more likely to attract funding. 

Governance 

Governance, the third pillar of ESG, has also taken on new importance in the investment process. Investors want to see strong corporate governance frameworks that ensure transparency, accountability, and ethical business practices in place, particularly in the mining industry, where the complex nature of global operations can make companies more vulnerable to corruption, legal disputes, and reputational risks. 

Today’s investors are scrutinizing how mining companies govern themselves. They are looking at the composition of their boards, executive compensation structures, risk management policies, how companies address issues such as tax transparency, anti-bribery measures, and regulatory compliance. 

Companies that fail to maintain robust governance practices risk not only losing investor confidence, but also facing legal and financial penalties that can severely undermine their long-term viability. 

Prioritizing ESG compliance 

For exploration and development companies, particularly juniors operating in the high-risk pre-production phase, the message from investors is clear: ESG compliance is no longer optional. There is no one-size-fits-all approach to meeting these standards, as different projects will face different environmental, social, and governance challenges based on their location, scale, and scope. However, what is evident is that companies that prioritize ESG compliance early on in their project lifecycle stand a much better chance of securing the capital they need to bring their projects to fruition, everything else being equal. 

Exploration and development companies must take a proactive stance on ESG, integrating it into every aspect of their operations. This means not only adhering to environmental regulations, but also fostering meaningful relationships with local communities and ensuring strong governance practices are in place. Those that fail to do so may find themselves shut out from critical funding opportunities in an increasingly competitive and ESG-focused marketplace. 

As the ESG landscape continues to evolve, mining companies will need to stay agile, adapting to new standards and investor expectations. For those that rise to the challenge, the rewards — both in terms of securing capital and maintaining a positive reputation — will be well worth the effort. 

— Robert Mason, founder and principal of Mason Law, has been providing strategic legal counsel in the areas of Mining and Corporate Finance for more than 20 years and he assists clients with ESG matters.