Partner Content by Baker Steel

ESG versus performance? For investors in mining it shouldn’t be a choice

How ESG investing in mining can deliver superior risk-adjusted returns

Baker Steel Capital Managers LLP

Environmental, social and governance (“ESG”) driven investing now sits at the core of many investors’ strategies and has prompted renewed evaluation of companies, investment managers, and whole sectors to ensure best practice on ESG issues. Undoubtedly for the mining sector, as an extractive industry, ESG factors must be front and centre of companies’ and investors’ minds.  For Baker Steel, an active long-term investor in mining equities, the prominence of ESG research is welcome, indeed assessment of ESG issues has always been a key element of our investment due diligence and risk management processes. 

Change is underway in the mining sector as companies strive to meet ESG goals, yet some investors may still feel that a choice exists between seeking returns and a commitment to ESG factors. We are convinced this is not the case. Baker Steel has implemented a rigorous, proprietary ESG framework, through which we can engage actively with ESG issues during our stock selection process. We believe our comprehensive ESG framework and engagement with industry bodies on ESG issues, coupled with the consistent risk-adjusted outperformance by our range of funds, places Baker Steel among the leaders in mining ESG investment.

Baker Steel Capital Managers LLP – An ESG leader in mining investment

A robust ESG assessment framework

  • In-house ESG screening and scoring
  • Proprietary company research
  • Third-party ESG data incorporated
  • Engagement with industry bodies - UN PRI, LuxFLAG¹ ESG label for UCITS sub-funds

Sustainable Finance Disclosure Regulation (“SFDR”)

  • Baker Steel’s UCITS sub-funds are Article 8 SFDR funds
  • Baker Steel has opted to consider Principle Adverse Impacts 
  • Details published regarding promotion of environmental and social characteristics (Article 10)

Change is underway in the mining sector from the dual forces of ESG investing and the green technology revolution.  ESG investing is increasing the scrutiny of companies’ practices by stakeholders, directly impacting how investors evaluate the sector and allocate capital. Any willingness among investors to put up with bad or outdated practices by miners, with regards to ESG issues, is fading fast. Progress will continue to be driven by investors, such as Baker Steel, choosing to promote sustainability.

The mining sector has made substantial progress in recent years towards achieving ESG goals, including improvements to energy efficiency, water efficiency and emissions reduction across the sector, as well as improved safety for staff. For example:

  • Over the past 15 years, US mines have seen a 63% reduction in the fatal injury rate (National Mining Association).
  • 75% have a dedicated Sustainability Committee (c.85% for our UCITS portfolios) *.
  • 80% have Energy efficiency, Water efficiency & Emissions reduction policies (c.90% for our UCITS portfolios) *.
  • 90% of companies have Ethics & Human Rights policies (c.95% for our UCITS portfolios, with the only exceptions operating in countries where legislation is effective and enforced) *. 

*Source: Baker Steel Capital Managers LLP, data based on research of 120 mining companies.

This ESG progress has been supported by industry organisations, including the International Council of Mining & Metals and the World Gold Council, but of course there is much further to go, with large disparities remaining between companies. ESG-related challenges for miners can often be highly visible, creating negative perceptions about the industry, and the reputational cost of mistakes can be high. Importantly for mining companies, over 80% of the twenty largest mining investors are now signatories of the UN Principles of Responsible Investing (UN PRI), and so the pressure on miners to continue improving ESG performance is relentless.

The other major force impacting miners is the green technology revolution, which promises to transform the industry in the coming years amid a surge in demand for speciality metals and materials. Mining companies are inextricably linked to fast developing green industries, most notably EV production, battery development and renewable energy. Miners undoubtedly play a vital role within sustainable development, however there is still much progress to be made by the industry.