IMARC 2024: ESG and the power of a positive story
- 22 November 2024
Mobilisation of trillions of dollars of investor capital around “responsible” and sustainable mining practices under the Global Investor Commission on Mining 2030 banner represents a sophisticated step up from what happened five years ago when Larry Fink met Greta Thunberg in Davos, Switzerland.
“What do I say to her?” Fink reportedly asked his minders. “Tell her you’ll sell everything,” was the response.
The BlackRock head didn’t end up diverting too much of the asset manager’s ocean of funds away from thermal coal, but its blunt fund filtering and public signalling weren’t great for mining.
“The world's biggest asset manager divesting from certain minerals meant the mining industry, in totality, got a bad name or was tarred with the one brush,” Tribeca Investment Partners’ Todd Warren said at IMARC 2024 in Sydney, Australia.
“You could definitely see a clear correlation between [BlackRock’s initial] statement and the underperformance of many aspects of this industry.”
Contrast that with the work of the Mining 2030 commission and the circa-85 financial institutions backing it (with plus-$15 trillion under management). The commission’s basic premise is the world needs mining and minerals for the clean energy, industry, agricultural and urban revolution underway, but only if the mining is done right.
It wants the world’s biggest sources of mining industry investment – and major investors in connected industries – to communicate and work with miners to get a holistic set of responsible and sustainable mining decrees agreed and then set big financial wheels in motion around those higher standards.
That is expected to see smarter – not more – reporting by mining companies and better filtering by investors large and small.
With IMARC 2024 the latest forum to hear of rising generalist investor interest in mining on the back of the industry’s elevation in global government and industry energy and security discourse, convergence of the Mining 2030 initiatives and a new global mining multi-stakeholder governance model could occur as a wave of new money comes looking for opportunities in the sector and potentially impacts its cost of capital.
“People now understand the need for mining and really understand the story,” said Pala Investments’ Tom Solomon.
“We are seeing a lot more generalists trying to get up to speed.
“It may start with a niche commodity that may be a battery metal but it is filtering through the whole sector.”
IMARC 2024 heard investors, generally, were driving mining towards improved environmental, social and governance (ESG) behaviour and reporting well before Larry met Greta, before Climate Change took over the industry’s sustainability agenda, and before COVID and Vladimir Putin got the world thinking harder about supply chains and geopolitics.
Catastrophic tailings dam failures in Brazil spurred the Church of England and then the Global Investor Commission on Mining 2030; Rio Tinto sacked senior leaders after public relations disasters in Australia; and the world’s No.1 brand, Apple, started naming names on a (albeit selective) list of ethical metal suppliers.
Community and customer expectations are right alongside investors as forces shaping mining’s 2025 ESG landscape.
Mining industry people argue it has always been so. But there are some profound changes and more coming.
“The concept of a social license to operate has been around in mining for a long time and that is important,” said Resource Capital Funds’ Lauren McGregor.
“But I think stakeholders in a community are not going to be celebrating a mine's social license to operate. That doesn't mean that a mining company is actually delivering any tangible benefit to its immediate stakeholders.
“So I think there’s a shift and certainly companies that we see doing this really well are thinking about ESG not just from a do-no-harm, comply-with-the-legislation to get to the lowest cost option [and] get our permit, but they're thinking about this more holistically.
“They are thinking about the value that they can bring to the project in the longer term by actually delivering tangible benefits back to communities.
“That is a shift in mindset.
“Quantifying some of these benefits … is a gap at the moment which makes it difficult for a board to assess the options in the same way that they might do trade-off studies on engineering aspects of a project.
“But it's definitely an area where more work is being is being done.”
EMR Capital CEO Jason Chang said while “pricing good ESG behaviour” beyond increasingly measurable and comparable decarbonisation efforts remained difficult, ESG was relevant to two stages of investment for the private equity firm. EMR had invested more than $10 billion in 10 projects in seven countries over the past decade.
“ESG is fundamental to how we assess an investment and really fundamental to how we create value,” Chang said.
“On entry it is binary.
“If a project doesn't meet threshold ESG requirements it's no go for us.
“The E, the S and the G are all very important … but the E and the S are potentially quite fatal [for an asset owner].”
Similarly, when raising capital, good ESG either meant “you get the equity or you don't get the equity, or you get the debt or you don't get the debt”.
“On the other hand enhancing ESG on the exit of the investment can create value,” Chang said.
“One of the things that we do focus very much on is how can we enhance the E and the S so that when we exit we get a premium for the asset and across our portfolio we have been very successful across the five projects we've exited in a number of jurisdictions.”
Fidelity International sustainable investing analyst Sue Lyn Stubbs said: “Having your social license and good ESG credentials gives you access to capital and access to talent and in a downturn those two factors are critical for any mining company.
“As the world transitions to a net zero future talent will be critical and really articulating your ESG credentials and driving a value-added culture will be critical for future production and for a lot of mine sites.
“We're going to start to see differentials between companies and we're going to see that as a strategic advantage going forward.
“Over the last few years companies have come out with big promises when it comes to ESG, climate and sustainability. If we do enter a downturn or the economic backdrops gets harder what happens to these promises? Do some of them become unfulfilled?
“What we're looking for are those proxies around integration of ESG. Is it part of your company's DNA? Is it hard-wired into your governance structures around incentives and board oversight? Is it hardwired into your capital management strategy? These are proxies that investors use to understand how credible your ESG strategy is and in the future we think it will really drive strategic advantage and will hopefully future proof your production profile.
“So when we're looking at our portfolio and investing in the sector we're eyes wide open around some of those key risks and where ESG mismanagement can lead to those kind of social-license-to-operate risks.”
On the operator side there is caution and some confusion about a rising tide of reporting and regulation, mitigated for some by the work of a multitude of industry groups to streamline recognised standards on everything from tailings dam management to biodiversity and then the connection with financiers and governments via the likes of the Mining 2030 commission.
But there is absolute clarity on the implications of getting ESG right or wrong.
“The decisions that we make are really around value creation. ESG risk, sustainability, is an anchor for everything. It has always been part of our DNA,” said Fiona Murfitt, vice president sustainability at A$10 billion gold miner Evolution Mining.
“But what has changed is that it's very much a strategic imperative.
“Rather than it's something that's good to do it is absolutely imperative and a licence to operate matter.
“That's the biggest change.
“If you are not doing that well I liken it to the ticket to the dance.
“You might not get an extra premium for it but if you’re not doing it you're not going to go to the dance.”
World Gold Council chief financial officer Terry Heyman said work by the world’s main umbrella mining bodies, in concert with members, on a consolidated “standard and multi-stakeholder oversight system” was leading to the same juncture. The work was aimed at not only relieving reporting and regulatory congestion, but positioning the industry to tell a simpler, hopefully more positive, story about its future.
“This is a sea change for the mining industry because this is the mining industry saying, we’re going to move away from industry-led standards that have a pure industry governance body to a multi-stakeholder governance approach … that will support the broader adoption of responsible mining practices,” Heyman said.
“The hope is that will bring governments and downstream and broader stakeholders on board because they recognise there is legitimacy around the community at large supporting the need for mining and the way in which mining is done.
“It’s going to have really positive impacts down the road in terms of trust and confidence in metals and mining products.
“Customers are increasingly looking for confidence in the way metals are produced.
“But I think the big driver is going to be the capital markets and at some point it will become untenable to get access to capital markets if you are not demonstrating [compliance with the consolidated standard].
“That doesn't mean you are a leader. It means you are committed to responsible practices.
“License to operate is so frequently talked about in the mining industry and it operates at so many different levels ... [but] I absolutely expect that within a few years we will see that in order to be a mining company you need to conform with the consolidated standard.
“And that isn't meant as a threat. That’s meant as an opportunity for the mining sector.
“We need that infusion of capital to support these mining projects [and] this is a way to unlock that capital.”
Tzila Katzel, head of sustainability at Sandfire Resources, said the international Taskforce on Nature-related Financial Disclosures, representing a group with circa-$20 trillion of assets, was already in view.
“We’ve got mandatory climate reporting. We will have mandatory nature reporting … [and] that will happen sooner rather than later,” she said.
“We're just seeing this multiplicity of events coming together.
“I actually think as a sector mining could really lead when it comes to nature positive.
“We've made as a sector a big contribution to biodiversity conservation. And it's not often acknowledged.
“We’ve got vast amounts of land under our ownership or under our control. One of the goals when it comes to nature positive is to have 30% of our terrestrial terrain under conservation.
“We’ve been involved in managing nature through our land management processes … and what we do through rehabilitation. We have a huge amount of knowledge that’s already there. And now some of these international frameworks are giving us a little bit of structure and a common language, maybe, to be able to really excel and have some kind of competitive advantage in that space as a sector.
“In the past it has been really unmeasurable.
“A lot of it is about understanding nature as an economic value and then applying economic terminology. And we did this with climate really well; we treated carbon pollution as an externality and [then] we internalised it with a carbon price.
“I think we can do the same with nature.”
