Antofagasta steps up ESG requirements for suppliers
18th August 2022
Antofagasta is demanding improved sustainability practices from its suppliers as a key part of its purpose to develop mining for a better future, thus bringing suppliers gradually into line with its own internal standards on environmental, social and governance (ESG) matters.
“We can only achieve our purpose if we extend our influence beyond our own remit of operations to our partner companies,” says René Aguilar, Vice President of Corporate Affairs and Sustainability.
“Our priority is for supplier companies to reduce their greenhouse gas (GHG) emissions, in line with our climate change strategy, but we are also focused on their governance, local hiring and diversity and inclusion practices, which can directly benefit the regions where our operations are based,” he says.
The Procurement area’s strategy involves applying an internal carbon price to tenders for specific goods and services, such as explosives, mine haulage trucks and transport of personnel, as well as ESG criteria to evaluate bids for contracts worth over $10 million, mainly covering only large companies. The new measures complement the energy efficiency and safety criteria already used in bid evaluations.
At the same time, Antofagasta is helping local micro, small and medium-sized suppliers in the regions where it operates to get ready for these conditions in the future through workshops on ESG matters. “Regional and smaller companies need training in this area to prepare themselves to take on these challenges,” explains Antonio Velasquez, Corporate Procurement Manager.
Tackling emissions
Antofagasta’s Climate Change Strategy commits the company to reducing Scope 1 (direct emissions from its own or controlled operations) and Scope 2 (indirect emissions from the generation of electricity) by 30% by 2025, and to achieving carbon neutrality by 2050.
Its four mining operations have renegotiated their power purchase agreements and by April 2022 all of them had switched entirely to renewable sources, meaning Scope 2 emissions have largely been solved.
The focus is now on Scope 1 emissions, caused mainly by the use of diesel in mine haulage trucks, and Scope 3 emissions, which are indirect emissions that are related to the company’s activities but caused by upstream (suppliers) or downstream processes that it does not control or own. In 2021, the company made an initial calculation of its Scope 3 emissions, which it is currently refining, with a view to setting a reduction target for these emissions next year.
“Practically all of the company’s decarbonisation challenges involve working with suppliers,” says Velasquez, pointing out the company’s reliance on suppliers for mine haulage trucks.
To address the issue, the Procurement area is working closely with its Energy counterpart in bids for tenders in which a carbon price is applied. The Energy area checks the greenhouse gas (GHG) emission calculations provided in offers and applies the company’s internal carbon price per tonne of carbon dioxide equivalent (tCO2e), thus assigning a cost to the emissions.
“We established a demanding internal carbon price in 2021 that we are using it to make decisions when we compare economic offers,” says Velasquez. “An offer that is a little more expensive but emits less, will be economically better for us.”
In the case of contracts worth over $10 million, a qualitative assessment is also made on how thoroughly companies are measuring and managing their carbon footprint. Suppliers that consistently measure Scopes 1, 2 and 3 emissions verified by a third-party, and have a strategy and clear targets to reduce GHG emissions can get the highest score in this ESG category.
Social and governance practices
A similar points system is used to assess suppliers’ social performance based on their local recruitment and diversity and inclusion (D&I) strategies. For example, in the D&I area, companies that include targets in the bid that surpass both Chilean industry standards on the participation of women in the workforce and national legislation on hiring people with disabilities can be awarded top marks in that category.
Likewise, in the governance area, Antofagasta assigns extra points to suppliers that have a public code of ethics and an anonymous whistleblowing channel.
The company has defined a clear points system for all the ESG categories ranging from 0 for no presented strategy to 100 for fully meeting Antofagasta’s expectations. The ESG component is explained in detail in the bidding rules and usually has a combined maximum weighting of 20% in bid evaluations.
The plan is to make ESG requirements even stricter. “We are currently defining specific goals for suppliers in terms of local employment and diversity and inclusion, in line with what we have internally,” says Velasquez. These are expected to be rolled out in 2022.
Antofagasta is working closely on ESG performance with suppliers of strategic products such as explosives, trucks, acid and lime, many of whom share its concerns, says Velasquez. For example, it has signed a collaboration agreement with Caterpillar and Komatsu on the transition to zero emission trucks.
In another innovation, the company is preparing a Circular Economy Strategy for its Procurement area that would address matters such as the packaging, pallets and general logistics of how goods are transported, as well the potential reuse of products like tyres and steel, says Velasquez.
It is also preparing a Sustainable Procurement Strategy and Code of Conduct for Suppliers, containing the minimum standards expected of companies that provide the company with its goods and services.
Finally, Antofagasta has hired a third party to conduct an ESG rating of its main providers of goods and services to map their ESG risks and establish a sustainable supply chain. The initiative will allow the company to identify what areas it needs to focus on to improve different suppliers’ sustainability performance, according to Velasquez.