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Do Investors Really Care about ESG?

Kitco News

(Kitco News) - Environmental, Social, and Governance (ESG) has come to the forefront for the mining industry by investors demanding increased attention to ESG matters and data. "Doors are closing for companies that are not disclosing ESG in a fashion that is acceptable to the underlying investors," emphasized Jamie Strauss, CEO and Founder of Digbee.  Digbee is an ESG disclosure and data platform for the mining industry.

"At the same time, if we begin to disclose ESG in a standardized form that investors can credibly track, then pools of capital and green money will become available. The green money is vast and most of those groups are allowed to invest in mining, but they choose not to," Strauss told Michelle Makori, Lead Anchor and Editor-in-Chief of Kitco News, on the sidelines of the Mines and Money London conference.

Strauss said that currently the stock prices of mining companies that are not ESG compliant are not moving significantly to the downside, but he expects in 12 to 18 months those stocks will be impacted. "I think it's only a matter of time before companies that don't embrace ESG will become uninvestible by the mainstream institutional groups. What is happening is the cost of capital is changing day by day," he explained. "There's clear evidence that cleaner companies, which are more positively scored ESG companies, have a lower intrinsic risk and therefore benefit from a lower cost of capital."

Strauss revealed that sustainability reports are becoming more common at the large and mid-cap sized companies. "They are being used more, but they are driven on a self-assessment and marketing basis. There's a limited amount of third-party assessment to those reports," he said. "We have to move away from self-assessment. We as a mining industry must try to find credibility. This means we need to attract new pools of capital and doing this on a self-assessment basis is not going to work. We need to go above and beyond."

The mining sector has an extremely poor reputation, Strauss continued. "The mining industry is the worst perceived industry on the planet, other than possibly oil and gas. You can see this in the Standard & Poor's ratings for the sector."

Strauss explained that ESG is currently being driven by finance onto the companies. "The companies are now listening and restructuring strategies. They are restructuring their whole disclosure process," he said. "It's now becoming much more integrated between finance and the companies themselves, which will hopefully lead to action."

"What was different about COP26 this year, the United Nations Climate Change Conference, is that it was driven by the financial world, rather than from governments," Strauss added. "The efforts to try and integrate ESG is at the heart of finance, whether it's the mining industry or not."

Besides the goal of reaching net zero carbon emissions, Strauss stressed that there are many other areas that mining companies can help manage the environmental impact. "It's also nature. We talk about the positive nature of mining sites. How can you effectively impact in a positive fashion these sites, which is exciting because this gives the opportunity to take mining into a new era while winning the hearts and minds of society," he said.

Discussing the cost of ESG to mining companies, Strauss pointed out, "ESG does not necessarily have to be a higher cost. There is a cost element to it but there are efficiencies that come out of it, such as reducing energy, and improving relationships with local stakeholders to hopefully eliminate blockades, etc. Looking at my crystal ball, ultimately mining companies will try to avoid discounting of commodity prices because they are not ESG accredited."

Strauss explained that his company Digbee, "provides a standardized form of assessment through a third party, which is future looking."

For more on Strauss' views on ESG, please watch the full video above. Follow Michelle Makori on Twitter: @MichelleMakori

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.