Involving the Mining Sector in Achieving Land Degradation Neutrality

Mining companies drive economic growth and progress, but can contribute significantly to environmental degradation if their operations are not carefully managed.^6–8 The industry itself cannot operate without disturbing land, so it has direct impact on land quality. While there are several ways of assessing carbon, water, or ecological footprints, there is no comprehensive methodology to assess the whole impact of mining operations on land, including its renewable and abiotic resources. This lack of metrics and knowledge could help to explain the limited engagement by mining companies in sustainable land management (SLM) to date. Tackling this issue could also open up new opportunities for broader engagement of the mining sector in the collective efforts of the international community to achieve the Sustainable Development Goals (SDGs) in the years ahead.

 

The main international policy framework addressing land degradation is the United Nations Convention to Combat Desertification (UNCCD). Since the Rio+20 Conference in 2012, the UNCCD has embraced the concept of land degradation neutrality. Land degradation neutrality (LDN) is further enshrined in policy in SDG target 15.3, which by 2030 aims to “combat desertification, and restore degraded land and soil, including land affected by desertification, drought and floods, and strive to achieve a land-degradation neutral world.“⁹ LDN demands that land degradation is reduced through the use of SLM practices and that degraded land is restored. In practice, however, rehabilitation may be more achievable than restoration.

The mining sector must contribute to efforts towards LDN for two main reasons. First, the sheer scale of environmental disruption means the industry could help make significant progress towards LDN. For example, the mining sector alone uses two-thirds of the overall electricity consumed in Zambia,¹⁰ while mining concessions account for more than 10 percent of the total landmass in countries such as Peru and Mexico.¹¹ Only a fraction of these concessions is actively mined at any given point in time, so the proportion of land used for mining is much smaller than that used for agriculture. A crucial difference, however, is that mining uses land very intensively. In many cases, landscapes are altered so much that conventional restoration of disrupted ecosystems becomes difficult, if not impossible.¹² Second, large multinational corporations (MNCs) dominate the mining sector. This means vast progress could potentially be made by focusing on just a small subset of actors.

Still, the size and severity of environmental impacts from mining make it difficult to develop effective solutions. Land is affected by mining throughout exploration, construction, operation, closure, and post-closure stages of a mine’s life cycle.^{6, 13} Even establishing the impact of mining operations on the environment throughout each stage already poses a significant challenge. The environmental disruption is not only linked to the extraction of minerals but typically includes a range of other impacts such as clearing of large areas of vegetation and thus loss of biodiversity, construction of access roads and other infrastructure, excavation and disposal of vast amounts of waste rock and tailings, water pollution through chemical leakages, changes to the architecture of water bodies, and soil erosion.¹⁴

For this reason, the UNCCD commissioned a pilot study focusing on large mining MNCs to see how aware and interested mining companies are in LDN and SLM. The pilot study also identified existing best practices and looked at how they are perceived to be linked to corporate financial performance.⁵ Initial findings showed that SLM and LDN attract clear interest. SLM and LDN are seen as key processes and targets in global efforts to combat land degradation where public and private interests converge: public interests focus on the global benefits delivered; private interests see benefits to companies’ reputations. However, both concepts have not yet gained traction within the mining sector. A range of existing good SLM practices can be identified within corporate social responsibility (CSR) programs, only they are often labelled differently. Companies have started to report on their SLM performance in their nonfinancial reports, but as it is fairly novel, this reporting is not very well developed yet.

Importantly, there is limited understanding of the financial implications of SLM practices in the mining sector. A positive link between corporate social performance and financial performance is vital if SLM and CSR activities more generally are to become mainstreamed into standard company behavior. For example, potential benefits can be expected to include increased productive potential of restored and rehabilitated ecosystems, improved risk management, better relations with government officials and local communities, more efficient resource use, improved compliance with local rules and regulations, and reputational benefits. All of these would in turn be expected to have a positive impact on corporate financial performance.¹⁵ Making the business case for SLM-related CSR in the mining sector gives additional, strong evidence to present to private and state mining enterprises. This kind of evidence could stimulate socially responsible corporate behaviors, including investments in SLM. Showing that SLM policies affect the financial viability of mining projects could catalyze behavior and disclosure at national and corporate levels. Indeed, the World Business Council for Sustainable Development (WBCSD) has already recognized the need for a clear framework to be put in place to help businesses to engage in and contribute to LDN. They note that “land degradation can directly impact a company’s cost structure and profitability by affecting the availability and cost of its resources, among other factors. Land degradation neutrality therefore needs to be recognized as an investment that can help companies sustain their operations in the long run.”¹⁵

In our pilot research,⁵ mining company representatives as well as their stakeholders pointed to case-based examples where specific SLM activities were perceived to have a positive impact on corporate financial performance. In this context, respondents specifically mentioned improved compliance with national-level rules and regulations and thus better risk management, improved relations with government bodies, and better relations with local communities.⁵ Yet, while results showed there is unlikely to be a negative relationship between SLM and corporate financial performance, more empirical evidence is needed to generate a robust general business case—as is the case in other fields of corporate sustainability, too.

The pilot study’s findings suggest an urgent need for solutions that promote a common understanding of SLM and LDN, upscaling existing good practices, and providing incentives and an enabling policy context for mining companies to effectively engage in SLM and contribute towards LDN. Solutions should enable mining companies to gradually neutralize the ‘land footprint’ of their operations in all stages of mineral exploration and development. Crucially, solutions should provide incentives for mining companies to mainstream SLM practices and enable them to do so in a financially viable way, in turn strengthening the business case for SLM and ultimately moving towards LDN. The next section sets out two possible solutions: i) certification of SLM practices (preventing degradation and improving land, but also providing the metrics and incentives towards virtuous land management approaches and LDN); and ii) development of a LDN fund (providing competitive finance for projects that contribute to LDN through land rehabilitation and companies that invest in SLM practices both on- and off-site).

 

Certification

 

Certification is a procedure that provides written assurance that a product, process, or service complies with certain standards.¹⁶ Compliance is certified by agreed methods that are recognized and approved by a third-party certification body or certifier that has no direct interest in the economic relationship between the supplier and the buyer. These standards can be established by the industry, including exporter/retailer groups. Certification is already used in the forestry sector where, for example, the Forest Stewardship Council provides a certification system for timber and forest products. Similarly, soil management and land use management are already at the core of sustainability certifications such as the Roundtable on Sustainable Palm Oil (RSPO), the Roundtable on Responsible Soy (RTRS), and Global Roundtable for Sustainable Beef (GRSB). Another example is the Fairtrade Foundation, which uses certification to claim that products meet certain environmental, labor, and developmental standards. An example in the mining sector is “Fairtrade gold and precious metals,”¹⁷ an initiative that links consumers of jewelry with the source of their purchase through standards and certification, thereby aiming to safeguard small miners in the supply chain. A well-known issue with certification and standards is that lots of different private standards can emerge, each covering different issues within the same sector.¹⁸ Furthermore, while certification can help raise the environmental performance bar,¹⁹ it can also create niches and reduce the perception of particular standards and behaviors as being normal or mainstream.²⁰

Despite these challenges, certification of SLM and land rehabilitation/restoration efforts could incentivize mining companies to invest in SLM practices, helping to engage them in moving towards LDN. The range of existing commodity standards needs to be assessed in order to identify which aspects of SLM are being addressed. To achieve this will require the use of indicators. Crucially, these indicators should capture actual SLM impacts rather than merely focusing on management processes or practices, which is often the case in CSR reports. In other words, indicators should focus directly on actual SLM performance on the ground and processes that are implemented in order to manage SLM performance. Indicators used in the certification process would need to be site-specific, given the wide range of SLM and restoration practices that could be undertaken to address particular types of land degradation and degraded land. The UNCCD already uses three general LDN indicators: i) trends in land cover and land use change; ii) trends in land productivity, and; iii) trends in soil organic carbon stocks. These could be complemented through the certification to include (using the RSPO as an example) SLM practices such as no use of fire when preparing land, avoidance of extensive development on fragile and marginal soils and steep slopes, soil fertility maintenance and prevention of erosion, water table management, and subsidence prevention in peat soils. Assessment using these kinds of indicators would allow gaps in SLM coverage to be identified in existing certification schemes, identifying opportunities for existing standards to become more closely aligned with SLM.

The scale of certification in the mining sector would also need careful consideration. SLM would need to be certified at project level, as companies with many concessions across multiple countries may not achieve the necessary standards as a whole business, even though particular projects within particular mining operations may do so. However, a company could be certified LDN if it meets the necessary standards of zero net land degradation across all of its operations.

Certification may be a particularly useful solution if it is linked to International Organization for Standardization (ISO) standards that the mining sector is already working towards, as it is important that any SLM or LDN certification solution does not place too much of an additional burden on companies. In addition to current schemes that already contain some element of SLM within their indicators, existing organizations such as the International Council on Mining and Metals (ICMM) have requirements for membership that cross-cut many of the aspects of the definition of SLM (see Table 1). Implementing a certification scheme linked to the ICMM could therefore be an achievable and realistic way forward, particularly because some of the world’s largest mining companies already have internal standards relating to land. For example, Rio Tinto has a land-use stewardship standard that is applied to all its operations with a view to fulfilling corporate, community, and other stakeholders’ expectations around sustainable land use.²¹

LDN Fund

 

A second solution that could advance LDN in the mining sector, as well as in other sectors, is the establishment of a public–private sector fund that would help spur the development of bankable projects that deliver social and environmental benefits while providing market (or above) average financial returns to investors. Spearheaded by the Global Mechanism of the UNCCD, the idea for a LDN fund emerged in 2014, following consultations involving several different groups engaged in identifying sustainable solutions to the problem of land degradation. A first concept note on the Impact Investment Fund for Land Degradation Neutrality was presented during the World Investment Forum in Geneva on 14 October 2014.^{22, 23}

Creation of a fund is important for two reasons. First, regulatory pressures in national legislation are likely to increase and tighten for companies that have a large land footprint, particularly since countries have adopted SDG 15.3 on LDN. Second, market demands for SLM are intensifying from consumers and shareholders who are demanding more socially responsible operations. Whatever the driver, finance for SLM and land rehabilitation—particularly in developing countries—is currently a bottleneck.^{24, 25} Conventional financing instruments and investment strategies can inadvertently penalize responsible operations compared with unsustainable ones.^26–28 At the same time, the dual drivers mentioned above are now creating conditions for a more conducive financial architecture to emerge; one which has the potential to support a systemic transition towards LDN.

A LDN fund could help to finance companies’ compliance, particularly where there is no robust and competitive financial market for that. It could also open a route for some companies that identify sustainability as a source of comparative advantage to engage in ‘more than compliance’ strategies, by channeling more into SLM/LDN activities. Indeed, the WBCSD notes that it makes business sense for mining companies to internalize SLM within their operations to ensure future profitability.¹⁵

A mining site (or entire mining company) can move towards land degradation neutrality by using SLM practices throughout its operations and investing in land rehabilitation to compensate for the residual land footprint it generates.^{1, 29, 30} A LDN fund could provide commercial finance (e.g., nonconcessional loans) to those mining companies that need external capital to restore the mining site after closure and/or rehabilitate degraded land elsewhere—under rigorous conditions of equivalence—to compensate for their land footprint. Alternatively, a mining company could choose to invest in the LDN fund as part of its CSR activities. This extends a company’s efforts to tackle land degradation beyond the largely on-site focus required for its license to operate, providing the opportunity for more systematic protection of land-based ecosystem services throughout a mine’s operations.

While the modus operandi of such a LDN fund is currently evolving under the leadership of the UNCCD’s Global Mechanism, it is expected that the fund would operate as a public–private partnership for blended finance and that it will generate financial returns from interest paid on loans or dividends from equity investments. While managed by a private sector investment management firm, and mainly targeting private institutional investors, public resources (e.g., from governments and development agencies) would cover investment risks of a relatively new LDN ‘space,’ particularly in emerging markets, and provide technical assistance for bankable project development.

Because of the significant environmental and social risks involved, the fund will have to follow strict sustainability standards and responsible investment criteria. Land ownership and land tenure considerations, for instance, will have to be carefully assessed for each investment decision. Existing safeguards and performance standards (such as the IFC Performance Standards on Environmental and Social Sustainability; the Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests in the Context of National Food Security, etc.) could be used to support rigorous due diligence processes, ensuring the fund only supports projects that contribute to LDN and allaying environmental and social risks posed by the project throughout its life cycle.³¹

The LDN Fund is a promising solution because of three of its inherent characteristics that distinguish it from other funds already in place: i) its scale—after an initial starting phase, the ambition of the fund is to mobilize more than USD$1 billion to significantly contribute towards achieving LDN by the year 2030 through efforts that might need to be deployed over 12 million hectares each year; ii) the blended capital structure of the fund, which would pool resources from public and private investors with different risks/returns; and iii) a triple bottom-line business model, designed to pursue financial returns alongside environmental and social benefits, while at the same time contributing to multiple SDGs (e.g., ecosystem restoration, habitat/biodiversity protection, climate change mitigation and adaptation, ‘green’ employment opportunities, increased food and water security, and the empowerment of local communities and of female small-scale landholders).

Final Thoughts

 

Achieving LDN at a global level as targeted by the SDGs would imply the introduction of SLM practices and land rehabilitation and restoration projects over a combined surface of approximately 12 million hectares of land, representing the current land degradation footprint of the global economy. This is a vast endeavor that cannot be handled by a single institution and will inevitably require the combination of an array of instruments, mechanisms, and entities deployed across a range of different sectors of the economy. In the absence of a politically practicable, legally binding global agreement forcing compliance with the international UN target, market forces offer a useful solution to generate the necessary transformational change at the appropriate level and scale. In this regard, public policies and announcements, such as the voluntary SDG targets, can play an instrumental role in sending a signal to market operators, the effectiveness of which will ultimately depend on the public commitments that follow.

Our analysis of the mining sector revealed a potentially vast, largely untapped opportunity for engaging mining companies in socially and environmentally responsible operations compatible with SLM and LDN. Mining companies would engage in such activities for at least one of two reasons: i) compliance and/or ii) convenience. With no legally binding regulatory frameworks in place, we argue that they would ultimately engage if there is an enabling context that creates or reinforces the business case for SLM/LDN. Such an enabling context may result from both public and private sector policies and strategies and would not necessarily need to depend on centralized governance structures or institutions. Market-driven solutions such as industry standards for sustainable land management or land stewardship certifications, together with innovative financial solutions to mobilize adequate patient capital, could provide the right incentives to trigger the necessary response.

Certification, combined with an independent, private-sector managed LDN Fund could together create the enabling context that would help bring the mining sector more centrally into efforts to enhance land quality. While our focus here has been on mining, the solutions we propose would also be suitable for application in other land-based sectors such as forestry, agriculture, tourism, and energy.

Acknowledgments

This work was funded by the Global Mechanism of the UNCCD. Many thanks to Alison Eskesen, Siv Øystese, and Ashim Paun for their inputs to the discussions that informed this paper.

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