Transforming Mining into a Development Industry

Yet the wild increase in demand has not meant smooth sailing for the mining industry. Lower productivity and spiraling costs are driving down profits. And growing awareness of mining’s ugliest side effects has led to increasingly vocal—and effective—opposition to mining companies’ activities, especially from communities and indigenous peoples, which also hurts profits.

“I cannot sit comfortably with the future we’re confronting,” says Mark Cutifani, CEO of industry giant Anglo American.

It is a state of affairs that Cutifani and others within the industry are working to change.

He serves with Peter Bryant, a KIN senior fellow, as cochair of KIN Catalyst: Mining Company of the Future. It is a program of the Kellogg Innovation Network, or KIN, the Kellogg School’s initiative to bring together growth and innovation leaders from business, government, nonprofits, the arts, academia, and defense.

During the public launch of their industry-wide efforts, the group outlined its Development Partner Framework: principles designed to help mining companies transform their industry from the inside out by adopting more sustainable practices.

The overall goal of the project, Cutifani says, is to shift mining from an extractive industry—a position with almost purely negative connotations—to a development industry that serves as a responsible, reliable partner for both local communities and the environment.

Listening to Detractors

To make that shift, dramatic changes are needed across the industry. Critics point to a host of harmful mining effects from South America to Southeast Asia: environmental degradation, birth defects caused by polluted waters, loss of traditional culture, and even outright violence sometimes resulting in deaths.

The impetus for some mining companies to publicly confront their unsavory impacts has been facilitated, ironically, by the very products their industry has helped make widely available. With a smart phone—a device that uses a laundry list of rare earth metals and other minerals—even isolated communities can post damning photos online.

“I think social media has enabled a lot of this,” says Peter Bryant. “It’s kind of let the cat out of the bag.” Now, communities can be heard. A photo of something happening in the middle of Peru can hit worldwide media the next day. “Ten, fifteen years ago, nobody would ever find out,” he says.

Indeed, disputes with local communities, governments, and other stakeholders have currently slowed or halted around $25 billion in mining projects. “For me, that’s a really scary number,” Cutifani says. But instead of blaming stakeholders, it is time to take a long, hard look in the mirror. “We must listen to our most ardent detractors.” As a result, the KIN Catalyst team included extensive engagement with environmental groups, community and indigenous peoples advocates, global charities such as Oxfam, NGOs such as the United Nations Habitat, and the Catholic and Anglican churches, who together co-created the Development Partner Network.

Embracing External Pressures

Lauren Pagel is policy director for Earthworks, a nonprofit that works on behalf of communities and ecosystems affected by mining. She is in favor of a thoughtful sustainability framework for mining companies to follow: “It’s good to have that dialogue.”

But because compliance is voluntary and nonbinding, the real prize for sustainability advocates is third-party verification. Unlike with diamonds or organic foods, there is currently no external stamp of approval for responsibly sourced minerals.

Yet there is a system within sight, Pagel says, and Anglo American was a key player in its development. The company worked with labor and environmental groups, and local communities, to help establish the Initiative for Responsible Mining Assurance (IRMA). The independent certification process could be up and running early this year.

Other, related industries, such as the jewelry industry, have also been instrumental in developing IRMA. Jewelry accounts for roughly 45% of global gold demand, according to the World Gold Council. An engagement ring, in contrast to the inscrutable innards of a smart phone, is easily recognized as a product of mining. Following revelations of the appalling violence of “blood diamonds,” big-name jewelers such as Tiffany have taken the initiative to avert similar crises with metals.

Even companies without widespread brand recognition are prodding mining companies to alter practices. Diego Areces, Mining, Minerals and Metals President at Schneider Electric, says his company has a stake in the success of mining; the company works with the mining industry to trim energy use and ensure the industry’s notoriously long supply chains work as efficiently as possible. And if mining succeeds, his business thrives, Areces says.

Ethical Obligations

However, the interest in reform goes beyond mere economics. Mining companies need to adopt more sustainable practices, Areces says, because mining companies—in fact, all companies—owe it to society. When companies first arose several centuries ago, he says, “They were created to feed a family, to have social purpose. Over time they became money-making machines.” Today, mining companies must remain economic engines but also become social and environmental ones.

“Technology is the thing that is going to help us achieve what we’re preaching,” Areces says. Technology can address a host of issues: lowering energy consumption, keeping water clean, automating work within mines to keep humans safe, even allowing communities to stay put while mining happens underfoot.

Yet, Areces says, the promise of technological transformation is not materializing, because of “a major lack of investment.”

Mining companies are not investing because profits are down. “When everything is going well, we don’t invest because we don’t need to; when everything is going badly, we don’t invest because we don’t have the money,” Areces says. And the industry’s other major source of technological advances—the government, particularly the military and aerospace sectors—has also slashed research and development programs.

Even though mining companies may not be investing in revolutionary technology, Pagel, of Earthworks, says she is seeing some companies invest in getting consent from local communities and indigenous populations who will be most affected by mining projects. And she says it makes financial sense to do so.

“Contentious mining projects are the ones that take the longest,” Pagel says. Some companies now simply see it as part of their business model to get local communities consent on a project. But, she says, it’s slow going, and “I think there should be more companies that do.”

Not Going Anywhere

Overall, says Larry Meinert, an economic geologist and head of the Mineral Resources Program at the U.S. Geological Survey, “most people are not aware of how much they rely upon mineral resources.” The materials required to make everything from computers to the kitchen sink, cars and the concrete streets we drive on, were, initially, housed underground. “Mineral resources are the building blocks of civilization,” Meinert says. “I don’t think that is in any way an overstatement.”

Given this reality, Areces says, “the discussion is not about mining, yes or no—the discussion is about how to do mining right.” He and many others are watching to see who will do so first.

“The tipping point,” says Peter Bryant, “is when one company is seen to have a competitive advantage over others as a result” of adopting sustainable practices.

Editor’s Note: Read more about KIN Catalyst’s Development Partner Framework: The Mining Company of the Future. The Ford Foundation’s president Darren Walker recently hosted the framework’s launch at the foundation’s Manhattan headquarters.