The focus on ESG and social licence to operate in the mining industry continues to grow and investors making significant impacts with the investment decisions.
Speaking on a recent panel discussion, Mans Carlsson-Sweeny, Head of ESG Research at Ausbil Funds Management explained why Rio Tinto was recently dropped from Ausbil’s $30 million sustainable equity fund. There has been severe backlash against Rio Tinto following the destruction of the 46,000-year old cultural site in Juukan Gorge. Ausbil’s ESG team held several meetings with the company before making the decision to drop them from their fund: discussing issues such as how Rio Tinto was working to engage with traditional elders, events leading up to the destruction, the consequences to management, and more.
For Ausbil, who dropped Rio from their portfolio back in August, the company had previously featured highly in the fund just a month earlier. Before this incident, Rio had been working on improving their ESG scores, targeting issues like climate change, divesting from their coal assets, and focusing on employee health and safety. Carlsson-Sweeny explains that one of the key factor for them to reinvest in Rio Tinto is that they need to demonstrate a strong relationship with traditional elders, noting that social licence to operate is now vital for companies in this industry.
A recent Morningstar report points to the fact that sustainable investing is on the role. Though they still make up just a fraction of the Australian market, sustainable fund launces have grown significantly since 2015 and sustainable investment products have grown at a rate of one per month in 2020. The authors of the Morningstar report, Grant Kennaway and Peter Gee, note that “There is a new wave of investors around the world who have intertwined their personal views and beliefs with their investment decisions.” And the opportunities for investors are growing as new ESG-focused funds continue to come to market.
Following Rio Tinto’s destruction of the Juukan Gorge caves, we’ve seen other major mining companies come forward with strengthened ESG mandates. BHP Group has vowed to work together with traditional owners and grow their influence in order to protect cultural heritage sites in Australia. On October 13th they released a statement saying that they are working with the First Nations Heritage Protection Alliance to establish a set of principles for negotiations with traditional owners on mine plans.
Transparency is one of the key factors for investors to make ESG-based decisions and for companies to develop best-practice. Carlsson-Sweeny explains that “By engaging with companies, we can encourage them to adopt what we think is best practice on several issues and preserve investors’ capital.”
For more on ESG investing, check out this recent interview with Jacqui Murray, Partner, Investment Team Leader at Resource Capital Funds…
