ESG policies boost mining investor confidence

By Nelson Bennett, Business in Vancouver

July 6, 2020

On April 20, Teck Resources Ltd. (TSX:TECK.B) released a 76-page first-quarter financial report that reported an $800 million decline in earnings compared with Q1 2019, due in large part to the impact of a global pandemic.

And on May 20, Teck released a 114-page sustainability review for 2019 that details its progress on environmental, social and governance (ESG) issues.

That progress includes:

• A 279,000-tonne reduction in carbon dioxide (CO2) emissions since 2011;

• A 249-terajoule reduction in energy use;

•5,781 hectares of land reclamation;

• $225 million spent on aboriginal business procurement;

• $19 million in community investments; and

• 32% of new hires being women in 2019.

That report followed an announcement in March that Teck was committing to a 33% CO2 reduction by 2030.

Institutional investors are increasingly looking at ESG and sustainability reports because they have become earmarks of well-managed companies, according to Daniel O’Brien, PwC’s Western Canada lead for sustainable business solutions.

While the mining sector took a hit from the pandemic in 2020’s first half, as the world moves into recovery, O’Brien said there could be a significant influx of capital back into the markets, and companies with good ESG policies stand to benefit.

“That capital will largely be controlled by larger institutional investors that have a very strong viewpoint on ESG,” he said. “They see ESG as a proxy for a well-managed company.”

According to PwC’s annual report on mining in British Columbia, the province’s mining sector held up well in 2019, even though commodity prices began to fall in the latter part of the year.

“THAT CAPITAL WILL LARGELY BE CONTROLLED BY LARGER INSTITUTIONAL INVESTORS THAT HAVE A VERY STRONG VIEWPOINT ON ESG. “THEY SEE ESG AS A PROXY FOR A WELL-MANAGED COMPANY”

Daniel O’Brien, Western Canada lead for sustainable business solutions, PwC

And B.C. miners appear to have weathered the covid-19 pandemic better than some of their peers elsewhere. In some cases, it may be because some already have strong ESG policies, which would include health and safety measures that helped them address worker safety issues posed by covid-19.

Some companies in B.C. either reduced production or temporarily shut down some operations to address worker safety during the pandemic.

“In the last six weeks, we’ve seen many of those operations either come back online or return to full production levels,” said Mark Patterson, PwC’s B.C. mining leader.

While metallurgical coal prices are currently soft, gold prices are up, and even copper prices have risen recently – a possible early indicator of global economic recovery.

“In the gold space, we’ve obviously seen gold prices respond very positively to current circumstances of uncertainty,” Patterson said. “I think the expectation on the gold side would be … maybe growth in exploration and, in the longer term, hopefully development opportunities coming out of a higher gold price environment over the next little while.”

Michael Goehring, president of the Mining Association of BC, said the PwC report confirms how important mining is to the province.

It points to a $216 million increase in direct payments to government and increase of 1,563 direct jobs since 2017. The mining sector in B.C. had capital expenditures of $1.5 billion in 2019, compared with $1.1 billion in 2018.

The increases in revenue to government occurred even though revenue to mining companies in B.C. overall was down by $1 billion compared with 2018.

“The numbers point to the need for policymakers and the industry to work together to improve our province’s fiscal and regulatory conditions so our mines and smelters can compete and succeed in global markets,” Goehring said.

“I would argue, with the right policies in place, mining offers British Columbians a significant opportunity to help our economy grow and recover from covid-19.”

O’Brien said companies that take ESG policies seriously may stand a better chance of attracting investment capital.

“There’s some early indication that companies with a strong ESG profile – low risk related to ESG – are outperforming peers in terms of their financial performance and stock prices,” he said. 

“Mining companies that are doing a good job of reporting on ESG, and indicating how they’re progressing towards their targets and objectives, are going to be the ones that are well-positioned to attract that capital.”