ESG- Driven Transformation In Nigeria's Mining Sector: Bridging Policy, Practice And Profitability

Introduction

Mining has become one of the key drivers of Africa's economic growth and development. The continent has some of the world's largest reserves of gold, diamonds, platinum, cobalt and other critical minerals, and have, through the abundance of these resources, attracted substantial foreign investment, created job opportunities, and spurred infrastructural development. In Nigeria, mining has been an integral part of its economy since the early 1900s, contributing significantly to the country's GDP (before the oil boom post-1950), jobs, and foreign exchange revenues. The country has a plethora of mineral resources, including oil and gas, coal, gold, limestone and tin, amongst others.

The rapid expansion of mining activities has posed significant challenges, particularly in terms of environmental degradation, social upheaval and governance issues. These issues have led to the rising conversation around the need for the integration of Environmental, Social and Governance (ESG) concepts into Nigeria's mining sector. ESG is a comprehensive business approach that considers not only the financial performance of entities but also their impact on the environment – with emphasis on long-term profitability and sustainable growth. The ESG framework has evolved drastically in the past few decades. The concept seeks to incorporates ESG considerations into business and investment decisions, thereby encouraging sustainability and ethical behavior. Adoption of the concept in mining should therefore emphasize the delicate balance of harnessing natural resources while safeguarding the ecological and social fabric for future generations.

Mining methods across Nigeria

Mining methods in Nigeria are diverse, ranging from open pit mining (surface) to underground mining, each with unique impact on the overall landscape of mineral extraction in the country. The predominant methods in the country are discussed below:

1. Open-Pit – This is the most common form of mining in the country. It is typically used to extract minerals found near the earth's surface. The method involves removing the overburden - the process of removing top rock or soil layer; to access the mineral deposit. In Nigeria, open-pit mining is often used for extracting minerals such as gold, iron ore, and bauxite. This form of mining is characterized by significant environmental disruption.
2. Underground - This method is employed to extract minerals located deep below the earth's surface. It involves creating tunnels and shafts to reach and extract the minerals. While it is less common than open-pit mining in the country, this method is used for minerals like gold and lead/zinc in regions where surface mining is not feasible.
3. Quarrying – This is often classified as a form of surface mining, focused on extracting building materials such as granite, limestone, sandstone, clay, marble and other minerals essential for the building and construction industry. The activity of quarrying tends to impact the immediate environment by altering landscapes and generating enormous amounts of dust.
4. Placer - This is a process of extracting valuable minerals from alluvial deposits such as riverbeds, stream beds and beach sands. This technique takes advantage of the natural process of erosion, in which solid minerals (such as gold, platinum, tin etc.) are chemically or mechanically disintegrated (through weathering), transported through flowing watercourses and deposited as part of sand (alluvium) at the riverbed downstream. Placer mining is typically considered less invasive than other mining methods since it does not require extensive land degradation. It is relatively common in Nigeria, especially in the north and west, where rivers and / or streams cut across mineral-rich formations. It is popular among artisanal and small-scale miners because of its low-cost and relatively simple mineral collection and extraction processes.

The different mining methods present unique ESG considerations that require careful and focused attention, especially in Nigeria, where crude (as opposed to mechanized) mining is prevalent. The consequences of these mining activities are significant, impacting environmental sustainability (through pollution and habitat destruction), social fabrics (through health crises, child labor and community displacement), and governance (due to regulatory gaps and / or limitations). Mitigating the impact is essential for promoting sustainable and responsible mining in the country.

For instance, coal mining in Udi Plateau, Enugu State has significantly impacted the region since its discovery in 1909¹. While it has accelerated economic growth in that region, it has also caused environmental degradation, water contamination, and socioeconomic issues. An environmental impact assessment (EIA) study in select communities in that state revealed that acid mine drainage pollution from coal mining is, arguably, a major obstacle to the supply of potable water. The mine water, contaminated by sulfur-rich solutes and groundwater from fissures, is highly acidic, corroding mining and plumbing equipment. Additionally, air emissions from blasting, excavation, and mine spoil waste burning, particularly during the dry season, contribute to air pollution².

In the Northern region of Nigeria, artisanal gold mining has become one of the mainstay of the communities. It is typically carried out by local miners who use crude tools, poor skills and unhealthy procedures. While this form of mining is essentially a livelihood strategy in rural areas, it is sometimes carried out illegally. Such unregulated activities cause severe environmental impact to the host communities, including environmental deterioration, pollution, as well as health-related and safety concerns. Also, mercury³ contamination poses serious risks to pregnant women, infants, and young children who unfortunately, may be involved in gold mining operation.

A recent study conducted in mining areas⁴ in Zamfara State further corroborated the harmful environmental effect of artisanal gold mining in the area, including unconfirmed number of fatalities caused by mine walls collapsing and pollution of water of the host communities amongst others. The effect of such indiscriminate form of mining on host communities creates a threat to sustainability of immediate environment (including the inhabitants).

Since the discovery of commercial lithium deposits in Nigeria in 2019, the mining sector has been availed of new opportunities worth exploring. The growing global demand for lithium-ion batteries, notably for electric vehicles (EV) and energy storage systems has created a significant opportunity for the country to capitalize on this mineral resource. However, recent reports indicate that the exploration of lithium deposits in Nasarawa state (which is largely driven by the construction of lithium processing factories in the region), has exposed the surrounding communities to environmental, social and security challenges. This has left a bitter aftertaste for the inhabitants of the region⁵.

Given the above, one may conclude that operators in the Nigerian mining sector are yet to fully embed ESG considerations in their processes and operations. This should be a concern for every stakeholder, including the operators, investors, regulators and the citizens who ultimately bear the brunt of the environmental impact of such unhealthy practices.

Interplay between Policy, Regulations and Regulators in Responsible Mining

Effective regulatory frameworks are crucial for fostering ESG-centric and responsible mining practices in the country. The Nigerian Minerals and Mining Act of 2007 ("the Act") provides the legal basis for the management and development of mineral resources in the country. The Nigerian Minerals and Mining Regulations of 2011 (issued pursuant to the Act) contain several provisions which indirectly lend credence to the country's commitment to responsible mining in the country. Other relevant (but not mining specific) legislation include - the National Environmental Standards and Regulations Enforcement Agency (Act) of 2007. This law aims at ensuring environmental protection and sustainable development. There is also the Climate Change Act (2021) and associated carbon regulation frameworks; and the Environmental Impact Assessment (EIA) Act (1992) amongst others.

Despite the existence of these regulations, emphasis on ESG in mining has not been encouraging. In addition, the Nigerian Mines Environmental and Compliance (MEC) Department which was set up to ensure that mining companies adopt and maintain procedures that are environmentally friendly in their operations, appear to function with limited scope and coverage based on its mandate, as far as the social and governance pillars of the ESG framework are concerned.

There is therefore a need to revisit the existing legislation (such as those listed above) to ensure that there are more ESG-specific compliant obligations, measurable metrics for determining compliance and where applicable, strict(er) penalties for non-compliance. The regulators should also be duly empowered to enforce the laws, and their roles properly spelt out and expanded in these laws. Such roles will include, but are not limited to:

1. Conducting Audit and Inspection: Enhance the conduct of EIA audits of mining operations to verify compliance with set standards on pollution, land rehabilitation, and community engagement. This is the core of MEC's statutory roles, typically carried out as a prerequisite for granting, extending / renewing and / or converting mining leases or licenses. However, more work needs to be done to enhance monitoring and tracking, especially the "governance" metric.
2. Stipulating Disclosure Requirements: Establish guidelines or regulations which require mining companies, especially listed ones, to consistently track and report ESG metrics and performance to the regulatory authorities.
3. Prescribing Enforcement Mechanisms: Determine penalties, fines, or operational suspension to be applied to firms violating ESG regulations. Non-compliance can also be publicly disclosed, leveraging reputational risk as a compliance motivator.

These measures are critical for safeguarding biodiversity, water resources, and soil quality, as well as ensuring that mining activities do not leave a long-term negative impact on our environment.

Some proponents of ESG practices contend that the evolution of the initiative has fostered the emergence of some global best practices, which mining stakeholders can adopt. Some of such practices are discussed below:

1. Tax Transparency Reporting: Making public disclosures of comprehensive tax information by jurisdiction (i.e., country by country tax contribution), voluntarily or mandatorily, including tax strategy, governance, and tax risk management. It is aimed at showing whether a business pays the right tax based on corresponding economic activities and addressing concerns about aggressive tax planning.
2. Corporate Governance at the Board level: Creating specific committees or roles within the board to supervise ESG initiatives and ensure accountability i.e., Board oversight and the utilization of global reporting frameworks such as Global Reporting Initiative (GRI) to enhance transparency and accountability.
3. Carbon Management and Resource Efficiency: Setting targets based on scientific guidelines to reduce greenhouse gas emissions, aiming for carbon neutrality or net-zero emissions. For instance, about a fifth⁶ of the world's large public companies, including Microsoft, Apple, Ford, Amazon and Sony as well as global mining companies⁷ such as Newmont Corporation, BHP, Anglo American, Rio Tinto, Vale S.A. etc., have committed to emission reduction targets that adhere to strict net-zero aligned targets by 2050 or before, whilst implementing strategies to reduce resource usage, waste, and pollution, including water conservation, waste recycling, and sustainable sourcing of materials.
4. Diversity and Inclusion of Relevant Stakeholders: Promoting workplace diversity and inclusion of relevant business stakeholders by engaging them in dialogues/conversations to address their concerns and incorporate their feedback into business strategies.
5. Emphasis on Ethical Business Practices: Setting up policies to prevent the incidence of unethical behaviours such as illegal mining, bribery and corrupt practices through due diligence, promoting integrity culture amongst employees, as well as mandating suppliers to adhere to ethical standards and sustainability criteria (reduction in Scope II emissions).
6. ESG Consideration for Investment Decisions: Inclusion of ESG ratings, scores or markers as part of contracting qualification criteria may be beneficial for detecting risky ventures or future-friendly businesses, thereby improving investment decisions.

Other noteworthy practices include the selection of relevant ESG framework based on businesses' reporting need, setting of ESG goals relating to the framework selected, identification of metrics for measuring the goals, collection of ESG data, translation of ESG programs that proves a business' commitment to investors and the utilization of technology to automate the process of defining key indicators and reporting on those key indicators⁸.

Notable Trends in Mining and ESG

The mining sector is facing more scrutiny and attention as global priorities tend towards sustainability and climate resilience. Recent trends, discussed below, are influencing the industry's future.

1. Responsible Mining: This concept is deeply seated in ESG. It connotes techniques to guarantee that mineral extraction has minimal environmental impact, respects local communities and adhere to ethical norms. It involves taking steps to reduce ecological damage, prevent pollution, and rehabilitate mining sites after extraction. This encourages social responsibility through fair work practices, engagement with communities, and contribution to the socioeconomic development of mining regions, whilst keeping operations within the ambits of the regulatory framework and authorities.
2. Climate-Centric/Smart Mining: This concept aims to integrate mining operations with climate change mitigation and adaptation measures. It addresses the carbon footprint of mining operations and the industry's role in the transition to a low-carbon economy. It focuses on practices that lowers greenhouse emission and utilizing renewable resources to target net zero carbon emissions. Although, climate-centric mining is novel and largely unexplored in Nigeria, the increasing demand for ecofriendly mining operation will compel businesses in the sector to account for climate change. It will be nearly impossible to develop a climate adaptation plan for local communities affected by mining activities unless a "climate change vulnerability assessment" (CCVA) is conducted first. CCVA is aimed at identifying the vulnerability of species (including humans) to the effects of climate change, where and when they are vulnerable, and why they are vulnerable, while also considering the social, economic, and environmental systems on which people rely. This critical condition is noticeably absent from the EIA guidelines and standards, environmental regulations, and policies currently in use in Nigeria.
   A study conducted by the World Bank in 2019⁹ succinctly captured the building blocks of climate-smart mining to include climate mitigation, climate adaptation, reducing material impacts and creating marketing opportunities. Achieving climate-smart mining in Nigeria requires an all-stakeholder approach that begins with the realization that mining host communities are individuals with rights, and that their dignity should be respected and protected. This will help to raise awareness about the importance of building people-centered mining and environmental framework, which will be aided by the inclusion of community impact assessment and climate change vulnerability assessment.
3. ESG Investing: This concept assumes that environmental, social, and corporate governance factors significantly impact a company's overall performance and profitability. By taking into cognizance these ESG factors, investors gain a more comprehensive insight into the companies they support, which some schools of thought argue, helps mitigate risks and identify opportunities. This holistic approach enables investors to take more informed decisions that align with both financial goals and ethical values. The proponents of this view believe that integrating ESG criteria into investment strategies promote sustainable and responsible business practices, ultimately leading to long-term value creation.
   For some investors, ESG investing extends beyond a simple acronym to a practical approach for evaluating how a company serves its stakeholders, including workers, managers, communities, customers, shareholders and indeed, the environment.¹⁰
4. ESG Rating: This entails assessment of a company's long-term exposure to ESG risks. These risks, which include concerns like energy efficiency, worker safety, and board independence and diversity etc., would in turn, impact financial performance. Investors that utilize ESG rating to enhance financial analysis might acquire a more comprehensive understanding of a company's long-term prospects.
   A high ESG rating on one hand indicates that a company is effectively managing its ESG risks in comparison to its peers. A low ESG rating on the other hand indicates that the company has a higher unmanaged/ unchecked exposure to ESG risks. Along with ESG reporting, ESG rating can assist investors to understand a company's priorities and potential long-term risks.¹¹

Other notable recent trends in mining and ESG include digital transformation and automation using Internet of Things (IoT) devices and data analytics to aid predictive maintenance, real-time monitoring of mining operations and optimizing production processes, green mining and carbon neutrality amongst others.

Conclusion

Nigeria's mining sector holds enormous opportunities for economic growth and development. However, the journey ahead must involve prioritizing ESG considerations as a crucial strategy for overcoming the challenges associated with the "resource-curse" phenomenon. The future of mining in the country will require a conscious effort to integrate ESG principles into all facets of the value chain. This will not only protect the environment and benefit local communities but also establish Nigeria as a leader in sustainable mining operation.

It is no gain-saying that ESG-centric mining practices will boost economic progress while protecting the well-being of present and future generations. Businesses that incorporate ESG principles and practices will benefit, in the long run, from decreased operational cost and increased profitability, enhanced access to cheaper capital from positive public reputation and a veritable competitive differentiator tool.

The mining industry is at a tipping point where responsible mining, climate-centric practices, and strong ESG frameworks are increasingly essential. Embracing these trends will not only address global environmental and social concerns but also position businesses for long-term success in a rapidly changing market. As the sector strives for sustainability, continued innovation, collaboration, and strict adherence to ethical norms will be critical in developing a resilient and responsible mining industry.

Footnotes

1. (PDF) Coal Mining and the Nigerian Environment A Study of Enugu Coal Mines 1916 1970

2. ENVIRONMENTAL IMPACT ASSESSMENT OF COAL MINING ACTIVITY IN ENUGU METROPOLIS, ENUGU STATE, NIGERIA

3. Often used for gold processing

4. (PDF) Assessing the Impact of Artisanal Gold Mining in Anka Communities, Zamfara State, Northern Nigeria

5. Nasarawa lithium mining is repeating Niger Delta oil exploration havoc — Environmental activists - Vanguard News

6. A Fifth Of World's Largest Companies Committed To Net Zero Target

7. https://www.azomining.com/Article.aspx?ArticleID=1862

8. 9 best practices for ESG reporting & strategy (diligent.com)

9. Climate-Smart Mining Framework (worldbank.org)

10. What Is ESG Investing? – Forbes Advisor

11. What Is an ESG Rating? | The Motley Fool