Responsible Investing in Natural Resources

By Keiran Doyle

Keiran is a postgraduate research student currently based at the Camborne School of Mines with the University of Exeter, carrying out a research project investigating the safety & sustainable development of small-scale, high-grade mining operations. His PhD is being conducted as part of the ‘IMP@CT’ Project, which involves multiple industry & academic partners across Europe, is being funded by the EU’s Horizon 2020 programme for research and innovation.

Growing populations drive demand for natural resources

The extractives sector, responsible for extracting raw materials and natural resources from the ground, is essential for supporting our growing global population. This growth is placing increasing stress on the industry to provide sufficient supply in order to meet societal demands. Due to this continued growth in world population, mining operations are at greater risk of causing more widespread impacts, particularly on local communities and sensitive ecosystems. Therefore, it would be reasonable to say that mining investors have a growing responsibility to ensure that the company or project they intend to financially support is demonstrating a minimum level of commitment to environmental, social and governance (ESG) issues, and vice versa.

How can we invest responsibly and extract sustainably?

However, a few questions remain… What exactly is ‘Responsible Investing’? How can it be measured and delivered effectively? Can the UN Sustainable Development Goals (SDGs) help to drive responsibility in the mining industry? And is the role of an investor to solely consider ‘responsible’ companies, or should they play more of a supportive role in order to help companies become responsible?

The ‘Responsible Investing in Natural Resources’ Conference, held at the Geological Society’s Burlington House premises on the 7^th-8^th October 2019, aimed to answer these questions, with several high-quality talks, panel discussions and in-depth breakout discussions which all had a focus on responsibility in the extractives sector. These talks covered a wide variety of topics, including ESG in a business context, the meaning of ‘responsibility’ in the  extractives industry, the criteria that matter to responsible investors, framing stewardship in mining, and the use of data to inform decision-making from an ESG perspective.

Discussions in the Lower Library of Burlington House during the conference.

Agreeing on a definition within a ‘plethora of standards, frameworks and regulations’

Discussions on the first day of the meeting focussed on a collective agreement about what responsible investing means, and what its characteristics are. The second day covered what various stakeholders may expect to be asked in order for them to prove to investors that they are demonstrating responsible practices & behaviours, and what would constitute ‘good’ and ‘bad’ answers to each question so that potential best practice criteria may be gleaned.

There is a vast plethora of standards, frameworks and regulatory documents, such as the Equator Principles, the SDGs, GRI standards, the ICMM performance expectations, etc., which were produced by various NGOs, including IRMA, ICMM, TCFD, EITI and so on. These outline the minimum requirements for companies looking for assurance and accreditation in order to increase their attractiveness to potential investors. However, with the large volume and extent of cross-duplication of existing standards, it can prove difficult to determine whether one is ‘better’ than another, which further complicates the decision-making process for investors when faced with multiple investment options. Further complexities arise for investors when many reporting codes and standards only apply to a limited number of commodities, or aspects of mining (tailings management, mine design & safety, human rights & ethics). Therefore, the goal for industry and associated investors in terms of standardisation & regulation should be to compile 1-3 comprehensive documents of principles and practices based on existing frameworks and guidance, that encompasses the extractives sector and its associated ESG risks more broadly to streamline the investment decision-making process, creating a mutual benefit.

The timeline of standards, frameworks and regulations which apply to the assurance and accreditation of the extractives industries.

Challenges to progress

The subjectivity of responsible investing makes settling on a single definition challenging, due to the inherently dynamic complexities surrounding the extractives sector, including:

• Environmental issues, such as waste management, pollutants, emissions, water sanitation, wildlife and ecosystem conservation, reclamation & post-closure.
• Social issues, such as community relations, communication, human capital, occupational safety, welfare, employment, education, healthcare & human rights.
• Governance issues, such as insurance, management systems, company hierarchy, meeting compliance standards, transparency in decision-making & accountability.

Arguably, investors should play a more active role by co-ordinating more on ESG strategy with partner companies and their associated projects deliver sustained responsibility performance. For this, investors should have their own set of standards and requirements in order to facilitate those responsible practices and should be encouraged to demand more disclosure and transparency from their partner companies. Natural resource investors should also be able to access and capture relevant, useful data (e.g. biodiversity tracking, traceability, environmental life cycle assessment, whole value assessments using the SDG framework) to further justify their decision-making, and support partner companies with meeting responsibility targets.

The UN Sustainable Development Goal Framework.

Defining responsible investing is a complex and multi-faceted challenge, however it would be reasonable to suggest that it is about (a) enhancing returns through verifiable ESG performance, (b) creating the greatest shared value that benefits all stakeholders, and (c) driving ESG improvement by influencing the strategic direction of the company and co-ordinating accordingly to deliver on a responsible strategy.