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ESG Investing Presents Rare Opportunity for Miners

mining construction worker standing on a hill

According to a 2020 Metals and Mining Survey conducted by Fitch Ratings and CRU, mining companies are facing increasing ESG (Environmental, Social, Governance) risk scrutiny from investors.

Via Fitch Ratings and CRU,

“Several high-profile mining disasters and emissions controversies in recent years have increased investor scrutiny of ESG risks.

And that as a result,

“Many large mining companies in these regions are now considering carbon risks in their strategies and investing in renewable capacity and mine electrification to reduce carbon exposure and stabilise energy costs.”

The report goes on to state that companies that fail to manage their exposure to ESG risks could face challenges when it comes to future financings,

“ESG risks can affect credit profiles. In several instances, rating downgrades and Negative Outlooks have followed major ESG controversies. Growing scrutiny of ESG risks could lead to a higher cost of capital for issuers deemed to have insufficiently managed these risks, particularly those that lack country and business model diversification.”

But increased scrutiny of miners isn’t just a good thing for the sustainability of the environment — it’s a good thing for the sustainability of the mining sector itself. With a growing number of resource investors entering retirement, the resource sector needs new blood now more than ever before… and ESG conscious Millenial and Gen X investors could be the answer.

Via Bloomberg,

“. . .Millennials and Gen-Xers are expected to inherit $30 trillion of wealth in a massive generational transfer over the next 30 years, and many want to avoid investing in companies with a large climate footprint.”

Moreover,

“It’s the realities of the world we live in — the increasing economic power of younger investors and decision makers and the headlines around climate change and social justice issues that are turning investor decision-making processes toward ESG factors,” [Daniel Straus, vice president of ETFs and financial products research at National Bank Financial] said.

With a new generation of investors focused on ESG risks, miners that embrace ESG principles are poised for growth. And they likely won’t have to wait 30 years to experience this growth, either — capital flows into ESG vehicles are already on the rise.

Via Bloomberg,

“Net inflows into Canadian exchange-traded funds that track companies focusing on environmental, social and governance factors has surged to C$740 million ($544 million). That has already outstripped the C$200 million invested in 2018 and the C$142 million last year, excluding seed capital, according to TD Securities Inc. With 15 new ESG products launched in Canada this year, investors now have 38 ETFs focused on impact investing to choose from.”

The Next Generation of Miners Will Depend on ESG Investing

Increased ESG scrutiny from investors isn’t a burden or a threat to the resource sector — it’s an opportunity. Miners that minimize their exposure to ESG risks and clarify how they’re doing so to the market will likely win over the next generation of investors. In the process, they’ll secure the growth capital they need to expand while having a more positive impact on the environments and communities in which they operate.


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