Environmental and Social Governance (ESG) Explored in Recent Infill Thinking Article with Input from Michelle Lee, P.G.:
There is a growing ESG concern involving frac sand production tail risk, specifically mine site reclamation.
Typically end-of-mine-life liability, reclamation obligations can accelerate into present funding needs (and environmental risks) when mine owners fall into financial distress and default on financial obligations. Today, more than a few plant owners find themselves in this situation.
In plant owner bankruptcy proceedings, the ESG concern becomes: who will be around to clean things up if the company goes under, has no cash, and has to abandonmine sites?
Three related questions could become more important going forward as well:
When is reclamation liability triggered in plant closures? Many plants are being temporarily idled instead of permanently closed. However, some have slim prospects to return to operation given structural changes in the supply base. So how long will the can be kicked down the road on site reclamation in these cases? And how well will zombie sites be monitored?
On some new local sand frontiers, like Texas, there is no mine regulator and minimal reclamation oversight. What will owners of shuttered plants in these theaters do to ensure proper reclamation and mitigate environmental risk so the industry doesn’t catch flack?
How will the financial aspects of this liability factor into the potential for consolidation of zombie capacity, which could restore rational pricing in this sector?
This Could Be An ESG “Scarlet Letter” – Proactive Education On Reclamation Is A Must For The Frac Sand Industry Today
Reclamation is something that we believe individual firms and trade associations in frac sand should proactively address and educate the public on at this point in the cycle. Comprehensive documentation on reclamation policy deserves a home in sustainability reports and ESG compliance materials and strategies. “Here’s what we do to ensure we properly reclaim the land we mine” should become a staple in brand literature.
We believe that even a few negative headlines in the mainstream press about sand mine owners walking away from frac sand site reclamation responsibilities could give the entire industry a “scarlet letter” from an ESG perspective.
When the mainstream press gloms onto any misstep in the industry, plant owner track records on reclamation could become an important point of ESG differentiation. And there is no doubt that the press will glom onto any and all reclamation shortfalls.
Case in point is this local report from Wisconsin last week. Wisconsin Public Radio’s headline reads: “County says Superior Silica Sands hasn’t set aside funds for mine reclamation or installed required groundwater monitoring wells.”
The dollar figure of the liability in the article is nominal, but the headline cuts deep. More than ever before, investors expect entire industries (and the individual firms that comprise them) to demonstrate compliance with high environmental care standards in order to access fresh capital sources. This expectation applies throughout the asset lifecycle, even at the tail.
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