Lithium mining at Salinas Grandes in Argentina. Ksenia Rogozina, Shuttlestock
An excellent man, like precious metal, is in every way invariable
(John Locke, philosopher 1632 – 1704)
In this op-ed for The Crucible, Ingrid Putkonen, Managing Director and Founder of Metals for Humanity (M4H) asks whether institutional investors are going off mining. What policies or initiatives would keep capital engaged in an industry so critical to energy transition? This article draws on a survey by M4H and FT Longitude who interviewed 150 asset managers from around the world, to learn what financiers really think about mining.
Their report, Fuelling the Green Transition: The Mining Investment Gap is published this month.
We are at a critical moment in history: the global energy transition has captured the world’s attention but the mining industry’s role in bringing it to pass does not enjoy the same understanding. And it needs to, because mining is critical to creating a sustainable planet.
Almost every facet of modern life depends on metals and minerals. That iPhone in your pocket depends on cobalt. But the mechanics of how that cobalt comes to be mined, processed and purified barely penetrates the public consciousness. We would far rather focus on the finished product. Mining is messy, it is, literally, dirty.
The mining industry is also central to realising the policy commitments of the Paris Climate Accords. Mining supports global efforts to wean industries off hydrocarbons and fossil fuels, in favour of renewable energy, by supplying the essential materials needed for this transition. Yet, the mining industry’s role in net zero transition is underappreciated by many institutional investors, despite their commitment to ESG-focused investments.
And when it comes to encouraging investors to direct their investments, they have been attracted to the tangible, downstream technologies including electric vehicles, batteries and renewable energy. The irony is that none of these would exist without the work of mining companies. More worryingly, demand for some of these materials is set to outpace supply from 2030, as this table (top right) from McKinsey demonstrates.
Do no harm
The phrase ‘do no harm’ is familiar from the medical world, where it forms part of the original Hippocratic Oath. It is not the preserve of medical practitioners alone, however: the idea has recently been invoked in the mining sector, a sector which is widely disfavoured and misunderstood, to urge practitioners to move beyond do no harm, to an even higher standard. Increasingly, there are miners who work with independent third parties to develop social and environmental programmes of real value, developing a new ESG framework fit for today. Doing so will enable the sector to market its products more effectively and cogently, positioning the industry not just as a practical necessity, but as a committed partner in development.
It’s all about the money – and its social benefits
Of course, institutional investors have strong reservations about allocating capital to the mining sector. Nearly 40% fear that mining companies will have a negative impact on the local communities in which they operate, potentially leading to allegations of human rights abuses. As Michael Rae, Fund Manager at the M&G Climate Solutions Fund notes:
For us to invest in a mining company, it would need to be best-in-class in terms of governance and labour practices”.
The stakes could not be higher. As Benedikt Sobotka, CEO of Eurasian Resources Group and co-Chair of the Global Battery Alliance commented recently:
The global energy transition may be hindered due to an in- creased reticence to invest alongside a forecast paucity of materials, skills and a general lack of understanding.”
But it’s not all doom and gloom. As the FT/M4H survey discovered, 76% of institutional investors either agreed or strongly agreed that mining was essential to achieve a green economy. Only 13% disagreed, either more or less strongly.
This is clear cause for optimism over the long-term prospects for the mining sector, especially as companies are increasingly aware that adopting ESG criteria is of benefit to their businesses. And there are clear case studies that demonstrate this trend.
In 2022, Antofagasta Minerals adopted a policy of using 100% renewable energy sources across its mining portfolio. This step has the added advantage that, both during operations and once a mine life ends, the localised power source can be used by local communities. Developing power and electricity infrastructure in developing nations is a clear benefit and an action of some permanence that mining companies can undertake to improve the lives of their host communities.
Looking a little further back, over a decade ago, First Quantum Minerals began running numerous health programmes in Zambia, which stemmed from its desire to promote the health and safety of its staff working in its mines in the country. The scheme is still continuing and covers an expanded range of health issues. Another example is Fresnillo plc, the world’s largest primary silver-mining company, which uses the antibacterial properties of silver to help provide clean water to communities living near its silver mines and to other underserved rural and urban communities in Mexico.
In its pilot phase, Fresnillo’s ‘Pure Silver Initiative’ benefitted over 32,000 people across three states and in Mexico City, bringing silver-based water disinfection and sanitation solutions to schools and healthcare clinics.
Institutional investors are becoming increasingly aware that responsible companies will see their share prices trade at a premium compared to those of their peers:
And nearly 50% of investors surveyed by Metals for Humanity expressed readiness to invest in mining companies even if they sacrifice returns on investment in the short term in service of social and climate change goals.
What comes next?
George Bernard Shaw once said: “The single biggest problem in communication is the illusion that it has taken place.”
And the sector as a whole needs to communicate the associated benefits more effectively. As Evy Hambro, BlackRock’s Global Head of Thematic and Sector based investing, said:
The industry doesn’t do a good job of telling people about the positive side of its impact.”
One way to address this shortcoming would be to leverage third-party organisations such as the Science Based Targets Initiative (SBTi), whose goal is to define a target-setting standard for financial institutions to promote economy-wide net zero emissions by 2050.
The end of carbon offsetting?
The SBTi standard is particularly exacting insofar as it does not permit carbon offsetting: rather than condoning polluting in one country simply because, say, a forest is planted in an-other, in order to gain credit in accordance with the SBTi, a mining company must objectively reduce its overall carbon footprint. Some argue that this would actually enhance the share prices of mining companies. By contrast, investors now see right through the smokescreen of offshoring pollution.
A world beyond ‘do no harm’
Without mining, there can be no green transition. Identifying reasons for investor reluctance towards the mining sector – which is reflected in modest valuations of listed mining companies – helps identify tangible steps which mining companies must take to allay those concerns.
To make the sector more attractive to investors, mining companies must demonstrably prioritise ESG best practices across their global operations: a holistic approach that reflects all aspects of ESG, going beyond ‘do no harm’ to aim instead to be ‘best in class’.
The future of the world depends on it.
By Ingrid Putkonen, Metals for Humanity
Metals for Humanity (M4H) is a specialist consultancy that designs and implements strategic social programmes in partnership with mining companies.
M4H programmes leverage the unique properties of metals and minerals, transforming basic resources into tangible solutions to help foster resilient, independent communities.
M4H additionally seeks to increase public understanding of the importance and benefits of metals and minerals in society. By helping to better realize the mining sector’s potential as a partner in development, M4H seeks a world in which ‘metals work for us all’.
Read the M4H and FT Longitude report FUELLING THE GREEN TRANSITION: THE MINING INVESTMENT GAP here
https://www.metals4humanity.org/pdf/fuelling_the_green_transition.pdf
