It is expected mineral explorers and developers worldwide will be embracing environmental, social and governance (ESG) standards at a faster pace during 2022, according to ESG Capital managing director Steve Morgan.
“There are still some knowledge gaps that exist in this segment of the market in terms of how to go about it, but there are very few well-governed small-mid cap resources businesses that aren’t moving on ESG now,” Mr Morgan explained.
ESG isn’t just impact, it’s intention
ESG is often thought of as purely an impact focused concept.
This is why it has traditionally been associated with producers and those in advanced development stages where environmental and social impacts are clear and apparent.
Mr Morgan, who is a Global Reporting Initiative (GRI) Certified Sustainability Professional, says that what has changed in the ESG space, it is now being viewed through an intention lens.
“Investors and lenders are asking the questions of resources companies of all stages from pre-IPO to advanced explorers: What are you doing on ESG? What standards will you report to? What ESG topics are you going to actively manage and how can you demonstrate performance on them?”
“And, if you can’t answer those questions as a director or executive, it shows a distinct lack of intention on the company’s behalf.”
Mr Morgan added that companies in their early stages need a “proportionate” approach to ESG compliance and can’t be expected to produce detailed data from day one.
“They can communicate their plan and provide guidance on implementation of that plan.”
Investor expectations are following the money
As it matures, the connection between ESG and investment returns in the mining sector becomes clearer.
A 2021 study by PwC showed that mining companies with higher ESG ratings have an average total shareholder return 10% higher the general market index.
Its figures like these that continue the “trickle down” of ESG focus from the largest miners through to the mid and small caps.
ESG as window
ESG can be considered a corporate framework for stakeholder capitalism.
Investment advisory service company BlackRock chairman and chief executive officer Larry Fink recently outlined his definition of stakeholder capitalism in his 2022 annual chief executive officer letter: “It is capitalism, driven by mutually beneficial relationships between you and the employees, customers, suppliers, and communities your company relies on to prosper. This is the power of capitalism.”
Explorers and aspiring developers with lofty ambitions know all too well that success is dependent on bringing a wide range of stakeholders together and executing a plan.
Part of this is effectively navigating the ESG risks and opportunities.
It’s this window that well-structured and clearly communicated ESG strategy and reporting provides to investors and lenders, and it has fast become an integral part of mining deals.