The countdown has begun for Australia’s miners who must meet the rising demand for data transparency to prove the ESG credentials of their products. ESG pressures are building, and regulation is getting more complex but there are solutions on the horizon.
- Australian mining is facing growing demand for transparency and ESG data from regulators
- Globally, regulation is on the increase and will impact exports and investment opportunities
- The EU is dramatically ramping up regulation, inspections and fines for their importers, putting pressure on exporters
- Attracting investment will increasingly be tied to ESG performance data
- Digital Product Passports are emerging global standard for transporting ESG claims in minerals and metals supply chains
In an era of growing environmental and social consciousness, consumers, investors, corporate buyers, and regulators are increasingly demanding products that are environmentally and socially responsible. Leading the charge against greenwashing is the EU’s new Corporate Sustainability Due Diligence legislation that may see fines as large as 4% of a corporation’s total global turnover for failing to “identify, and where necessary prevent, end or mitigate the negative impact of their activities, including that of their business partners, on human rights and the environment.” This is a potential threat for miners, with only the best performing and most transparent firms granted access to the EU, regardless of the route the supply chain takes.
International compliance regimes are complex and overlapping, difficult and time consuming to meet, reducing the competitiveness of products with poor ESG performance. This trend will put mining companies under increasing pressure over the next decade if they do not invest now in effective supply chain data management. Thankfully, modern technologies and data standards are set to make regulatory compliance across multiple markets significantly easier for producers over the next few years if they act now.
ESG compliance pressures are rising, bringing risk, cost, and complexity to Australian miners
Consulting firm EY reported that ESG is the top priority for Mining in 2024. Mining represented nearly 60% of all Australian exports in 2019 and the EU is Australia’s second largest trading partner, with over $10bn in minerals exports annually. Given these figures, it is worthwhile for industry to pay attention to the data that will support ESG compliance. These key ESG trends are likely to impact Australian mining:
- Emissions reduction targets: Governments are setting ambitious emissions reduction targets to combat climate change and Australian mining will be subject to increasing pressure to reduce its emissions footprint. ESG requirements are being flagged as a significant part of the Australian Climate-related financial disclosure regulations and the EU is beginning to introduce Carbon Border Adjustment Mechanisms (CBAMs) that will see high-emissions products hit with carbon tariffs or completely excluded. Offsets that producers might buy to satisfy local regulations will not be accepted by foreign regulators, particularly the EU, forcing producers to materially meet emissions standards without offsets. While not yet implemented, the US Inflation Reduction Act includes provisions for a potential CBAM, which could significantly increase the cost of high-emission imports, making them less competitive with US-made goods.
- Product traceability regulations: The EU battery passport regulations will come into effect next year - from 2024, manufacturers in Europe must disclose the carbon footprint of their batteries and from 2027 comply with a CO2 emissions limit, regulated by the European Union (EU) with independent auditors checking compliance. In Australia, the Clean Energy Regulator is introducing the Guarantee of Origin Scheme to certify the emissions from hydrogen and other low-emissions energy products. Many countries and blocks, including the EU, Australia, Canada and the United States are beginning to introduce Critical Minerals Strategies that signal tighter regulation around traceability and data transparency.
- ESG investments: ESG investments are roughly one third of all investments globally and rising. Institutions and analysts are demanding better, more trustworthy sources of data to ensure assets maintain their value. If Australian mining is to remain competitive in a period of modest global growth, then significant investment capital will be required – attracting that capital will depend heavily on a miner’s demonstrated ESG performance. In a recent SMH article, The National Australian Bank signalled a move towards significant interest differentials based on company ESG credentials, a trend that will inevitably hit heavy emitters hard.
- Human welfare standards: Consumer demand for ethically produced products is growing, and governments are responding by strengthening human welfare standards in supply chains. Australian mining will need to meet these standards to remain competitive in the global market. This could include regulations on engagement with indigenous communities, and the demonstration of compliance with labour standards such as the Modern Slavery Act.
- Algorithmic due diligence: Investors, regulators, and consumers are increasingly demanding transparent and standards-compliant data from companies to prove their ESG performance, backed by trusted actors in the supply chain. The only way for this to scale to global levels is through ‘algorithmic due diligence,’ where trusted, verifiable, machine-readable credentials and claims data can be assessed at scale by regulators. Australian mining will need to adopt robust ESG reporting practices to meet these demands and maintain investor confidence. These needs create a significant tension between transparency and commercial privacy, something many traditional paper-based compliance schemes have failed to address.
The backdrop to all these pressures is the increasing rate of greenwashing which is now reaching an industrial scale and threatening to undermine trust in ESG claims. In the US, 68% of executives now admit their companies are involved in greenwashing, accelerating government action. We may see a global sustainability arms race where nations continually increase the thresholds on imports as a form of protectionism. The only solution for Australian miners is to lower emissions and increase transparency.
B2B Digital Product Passports: a solution to the growing demand
Fortunately, supply chain data management in the mining sector is already very advanced and delivering competitive solutions, with many of the large accounting firms like SAP and KPMG already offering mature platforms and solutions. Where they are all struggling is in exchanging data between platforms and this is where the B2B Digital Product Passport offers a universal standard that they can all agree on.
B2B Digital Product Passports are a simple open-source solution to the growing demand for ESG-compliant products. DPPs are simple digital records that track the lifecycle of a product, providing detailed information about its origin, production methods, and environmental and social impact. Compliance and conformance claims can be issued by regulators and attached to DPPs, allowing producers to demonstrate their commitment to ESG principles through their entire supply chain and provide buyers and regulators with the transparency they demand. In the next few years, DPPs are set to be a ubiquitous standard that producers, materials accounting and production management platforms can all easily integrate as a seamless way of transferring product information.
A new standard for DPPs is being developed by the United Nations Centre for Trade Facilitation and Electronic Business (UNCEFACT) as a global standard for product conformance and supported by global standards firm GS1. The standard will be released in early 2024 in UNCEFACT Recommendation 49.
About the Author
Steve Capell is recognised as a global thought leader in digital trust and digital trade and a co-founder of GoSource, an ICT service provider specialising in digital transformation for government and enterprise customers. Steve has been a key contributor to the United Nations Centre for Trade Facilitation and Electronic Business (UNCEFACT) to develop guidelines and standards to accelerate the global transformation of digital trade using verifiable credentials. He is currently the project leader for UNCEFACT Recommendation 49 on Digital Product Passports.