Tailings dams and ESG – how are investors driving change?

29 April 2020
Following the collapse of a tailings dam in Brazil, asset managers and investors around the world have joined together to call for industry change.

After the Brumadinho disaster in 2019, the safety of tailings dams became a topic of international conversation.

It’s thought there are at least 3,500 tailings dams around the world, and that there have been more than 30 recorded major tailings dams failures between 2009 to 2019. While they may be small in number, the impact of these dams failings on local communities and environments can be devastating. Pollution, destruction of buildings and landscape, and loss of life can all occur, and with investors paying more attention to environmental, social and governance (ESG) factors, stock values can also be impacted as a result.

While they may be small in number, the impact of these dams failings on local communities and environments can be devastating. 

We take a look at what tailings dams are and what happens when they break, as well as showing that Royal London Asset Management (RLAM) is one of many asset managers fighting for clearer reporting and higher standards to prevent further tragedies.

What are tailings?

During the mining process, rock is ground to fine sand in order to extract the ore or minerals - the valuable materials that are sold for profit. The other materials that hold no value are considered waste, known as ‘tailings’. These tailings often contain toxic, harmful substances such as mercury, arsenic and even cyanide. To protect the environment and people around the mines, this waste material must be carefully and safely stored.

What are tailings dams?

Tailings dams are the structures that contain this mining waste. Unlike dams that are built with concrete to store water and create reservoirs, tailings dams make use of earth and the actual sediment itself. Water is used when processing ore, and this, along with the tailings, is used to form an embankment.

While this may seem to be an economical method, it isn’t as safe as using a concrete structure because tailings are prone to leakage and breakage. As such, there needs to be stringent monitoring and maintenance to make sure they’re strong enough to hold.

What happened at Brumadinho?

It’s thought this will have a lasting impact on the local ecosystem. 

On January 25 2019, hundreds of workers at the Córrego do Feijão iron ore mine in Brumadinho, Brazil, were eating lunch in the cafeteria when Dam 1 burst. This released a fast-paced mudflow that crushed everything in its path - including the alarms that would have sounded to warn workers to evacuate.

The final death toll reached 248, including 22 people who weren’t recovered. There were also 11.7 million cubic meters of tailings released into nearby water sources that were absorbed through the ground. It’s thought this will have a lasting impact on the local ecosystem.

What did RLAM do?

Following the Brumadinho disaster, the Church of England called on asset managers and institutional investors to sign a letter that proposed the creation of a global, independent public classification system that would help to regulate safety risks of tailings dams.

RLAM was a signatory of the letter, which resulted in significant changes being introduced. The Mining and Tailings Safety Initiative launched a number of new initiatives on 24 January 2020, the eve of the disaster’s first anniversary. Among these initiatives was the launch of the first ever global public database of over 1,900 tailings dams (tailing.grida.no) and a set of investor principles for mining companies, as well as principles for investors financing the mining sector.

RLAM also created its own database to allow asset managers to make meaningful comparisons between the UK’s four largest mining companies: Glencore, BHP Billiton, Rio Tinto and Anglo American. These companies constitute the vast majority of RLAM’s mining exposure, and as such, RLAM had meetings with each of them following Brumadinho assess how they were managing their tailings assets.

What did they find?

RLAM was impressed with the technical competence and day-to-day monitoring of Rio Tinto and BHP Billiton, who both make sure their dams are kept in good condition.

RLAM was largely satisfied that their policies and practices upheld the highest international standards – namely the Canadian Dam Association’s (CDA) or the Australian National Committee on Large Dams (ANCOLD).

They found the biggest risk when it comes to governance is in relation to non-managed assets, or dams that aren’t actively overseen. While having active representation on the board is important, it’s not enough to ensure that safety standards will be met, since analysis suggests that it can take a very long time for best practices to filter down.

The company with the highest risk from the assessment was Glencore. The company is in the process of aligning its dam systems and protocols with CDA requirements, but unlike the other miners, it does not intend to publish them. Glencore has far and away the most exposure to upstream dams, which are generally the riskiest. The company also operates in developing countries, where national standards aren’t as a high as those from the CDA or ANCOLD.  

RLAM was also interested in how the miners accounted for tailings dams within their financial statements. They rarely provide public estimations of the financial risks, on account of the fact that there’s a relatively small chance of individual dams collapsing. It emerged through conversations with RLAM that many of them produce internal-only assessments. Even where one miner (Anglo American) provided a public document, it referred to internal documents, making it difficult to see how it actually accounts for tailings risks.

So what does this mean?

Glencore, BHP Billiton, Rio Tinto and Anglo American have made a number of commitments for how they shall resolve issues and improve issues of concern.

RLAM will of course be keenly monitoring to ensure they make good on these promises, as well as encouraging companies with higher risks to improve their oversight and standards. With a new International Council on Mining and Metals (ICMM) standard set to be published this year, there should also be future improvements across the wider industry as a whole as well.

RLAM will of course be keenly monitoring to ensure they make good on these promises

With regard to Brumadinho specifically, Vale (the owner of the dam) has since created an independent Safety and Operational Excellence Department, which works separately from the Board. It’s hoped that this separation will help lower the risk of conflicts of interest while also improving oversight.

The International Council on Mining and Metals (ICMM),, the United Nations Environment Programme (UNEP) and the United Nations-backed Principles for Responsible Investment (PRI) share a commitment to improving tailings storage facilities worldwide and are working to establish an international standard. As signatories of the PRI, RLAM is supportive of this initiative and will engage with companies in a bid to improve the safety and reporting of tailings dams to help protect environment, workers and communities. 

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.