Can you tell us a bit about Resource Capital Funds and your role there?
RCF was established in 1998. We’re a mining focused fund, so we provide financial support to mining companies. So far we’ve provided funding to 187 mining and mining services companies across 51 countries and 32 commodities. We invest across the full development risk profile, so anywhere from exploration companies, construction, operating companies, and also services and mining innovation companies and then across the full capital structure.
My role as Investment Team Leader is to source investments and then coordinate the RCF Due Diligence process into potential investments, making those recommendations, and then ultimately managing the investment for our investors.
How does RCF integrate ESG into your investment decision making process?
We have had a full-time Responsible Investment Officer at RCF for the past eight years. So it’s an important part of our investment decision-making. She sits with our technical team and forms part of our due diligence team when we’re looking at investments.
If we look at breaking down the ESG, on the environmental side, this is focused a lot on payment status. We look at water management plans, emissions plans, tailings management, and have an increasing focus on biodiversity. On the social side, this is a lot about stakeholder relations. We are looking at where the company is for their project status, where we feel they should be for that stage in the project, and really get a sense of how the company interacts and how they feel about the community. We also put people on the ground to assess what the community thinks about the company. A particular focus on the social side is if there is a resettlement required or if it includes artisanal miners. Finally, on the governance side, a big focus is on country risk into the investment.
Then there’s the people in relation to ESG. So there is really a big focus on whether there is capability within the company, having a dedicated resource, to manage ESG and this is a gap we often see in the junior companies. Then it’s the attitude at the board and senior management levels to ESG matters.
With this engagement RCF has around ESG, is focus on pre investment decision-making, investment decision-making, or is it ongoing throughout the lifespan of your investment in a particular company?
It depends on the level of our investments. For companies where we have significant ownership levels, we have implemented an ESG committee. In some cases this has been a management committee and in others it has been a board subcommittee which we get involved in. The purpose of this is to provide the company with ongoing guidance and support for how to manage these ESG matters.
We also quite often get nomination rights to appoint a board member and we have successfully found some people with good ESG backgrounds to put on boards to help bolster that skillset.
Can you take ESG practices from one company and put them across to another?
To give a recent example, I worked with a copper company in Africa that were early in their journey of ESG recording. With clearance, we were able to share reporting from another company based in Africa that had put together some early stage reporting. This gives companies a good example of what’s out there, what other junior companies are able to do, and a solid template to start from.
So part of it is just sharing learnings across our portfolio where we can. I think the other part is understanding who the experts are in this field – who are there to help. There are certainly a range of consultants and there are people out there that can step in to a junior company help the company assess what it needs to do.
Junior companies are often quite small and a lot of their focus is on exploration and the development of their projects and they often don’t have the resources in-house to provide the level of ESG coverage that you’d like. So, do you provide that extra level of assurance in that area?
With quite a few of our companies one of the things that we recommend they do is to get someone to come in and do a gap analysis – to really assess where they stand, not just against local laws (which quite a few companies are typically focused on), but to really assess how the companies are performing in policy and practice against international standards such as IFC Equator Principles, because they’re the standards that international investors will assess them against when they’re looking to invest.
So, we help them by directing them to the right people that can come in and assess that. We then get an ESAP, an Environmental Social Action Plan, which sets out things that the company can do over time, with reasonable implementation dates and we really right-size the work program for the company and where it’s at.
As the world focuses more on electrification, it is learning how much we need from the mining industry to make that happen.
Do you have any specific examples you can share from some of your companies? Looking at the environmental side, what are some initiatives that your companies have done?
A lot of the environmental side of ESG is permitting focused. One example is our response to some of the tailings dam disasters. We stepped back and did a review of our entire portfolio, looking at and reassessing the risk of the tailings dams. This was not just our initiative, it’s something that the investors in our fund were requiring at that time. When events like that happen, it makes you stop and think and examine whether we have adequately assessed that risk.
RCF often invests at an early, or a development stage in a project. To what extent are you looking at the full life of mine and end of mine life environmental impact?
When we look at an investment, we are looking at the company all the way through to closure. While we may be investing early in some companies, we consider ourselves to be a long-term investor. Our average investment is for four to five years, but it can be much longer. So we see ourselves as a material, long-term investor, and we are looking for ethical investments where companies are doing the right thing. So, the earlier the stage where we get in, the more actual opportunity we have to ensure their plans and their designs are done in accordance with the latest standards and best practice.
The image of the industry has been damaged recently by the incident with Rio Tinto destroying some heritage sites. How do you think the industry is performing?
This is obviously a complex matter. I’m based in Western Australia, so this is very close to home, and it certainly made us stop and review our practices. We’re currently in due diligence on an investment now and we’ve looked at the scope of our focus there to ensure that we were adequately looking at heritage and local ownership issues. The important aspect there is to focus not only on legal compliance, but we also need to be aware of community standards and changing expectations. As I said earlier, social is focused on a snapshot in time, and so understanding where sentiment is heading is important because standards are increasingly becoming stricter in this area for good reason.
When we do our due diligence, it is so important that we do that on the ground; we check to understand what the community thinks about the company and what the stakeholders think about the company. This is not necessarily looking at strict legal compliance, but really how this company is seen, and that really paints a potential risk profile that may be not foreseen at the time.
The mining industry has the opportunity now to really get behind decarbonization and the renewable sector, given that it will provide great opportunities for miners to supply the materials for this process. This must be a fantastic opportunity for the mining industry to improve its public image.
I think mining’s image is something that we have always struggled a bit with and certainly the industry’s mistakes have huge impacts.
So, it’s hard to combat that. As the world focuses more on electrification, it is learning how much we need from the mining industry to make that happen. While previously we might have talked about the need for mining to advertise the good it does, I think now the general discussion of how much we need these metals to go into these products to help the world, is improving over time.
On the governance side of ESG, what are some of the initiatives that RCF is encouraging?
Part of this is in forming an ESG committee when needed, especially if it is a particularly high-risk area for the company and ensuring there’s ESG capability on the board. One area of focus for us is in board diversity and in ensuring that quality debate at the board level occurs. There is a lot of focus about diversity and there is still a long way to go in the junior company space, but it is certainly one of our assessments.
Board members don’t always need to be ex CEOs or 20-year mining engineers. If you broaden the skills criteria that you need for a successful mining company board, you’ll soon realize that there are a whole suite of diverse people from different backgrounds. You need to look at what skill sets are really needed on the board and where the gap is, which can help point you to new candidates and a greater pool.
I think junior companies can break the need for a candidate to have five previous boards under their belt and should be willing to look at people with very good executive backgrounds, good interactions with boards in their career and a good understanding of governance – they could be fantastic board members. I also think giving someone that first board role will help break down diversity issues.
If you put it as a requirement to gain diversity, you will find that your candidate pool widens.
Are you still making investments at the moment?
We are seeing good investment at the moment. There were a couple of months earlier this year where companies really paused to assess how they were doing and likewise, we were focused on our existing investments and how they were reacting to COVID-19. But over the last couple of months, we have seen a willingness to raise capital and progress projects. So appetite is still there for investments and we are active in the market.
Do you think the pandemic has impacted companies’ ESG efforts, forcing them to cut corners or has it put it into focus and brought it front and center?
One thing I have seen in the companies that I’m actively involved in is that mining teams are a very resilient bunch and they’re very good at reacting to issues that affect their operation. And throughout this pandemic, we have seen companies doing what they need to do to keep their people safe and to keep their projects going. I see it as a different risk to manage, but certainly one that all the systems and processes designed to manage other risks could be applied to. And we’re certainly seeing some great responses within our
portfolio.
