Communicating Environmental Programs for Higher Investment AppealBy Alejandro Ehrenberg | Mon, 04/06/2020 - 17:45
The Principles for Responsible Investment (PRI) is an investor-led initiative created in partnership with the United Nations. As described on the PRI’s website, the initiative follows a set of six principles, forming a “voluntary and aspirational set of investment principles that offer a menu of possible actions for incorporating Environment, Social and Governance (ESG) issues into investment practice.”
PRI’s relevance lies in the fact that institutional investors manage a surplus amount of money to affect ESG results. According to PwC estimates, global assets under institutional investors’ control will reach US$100 trillion in 2020. In comparison, the US’ nominal GDP in 2017 was US$19.4 trillion. As Responsible Investor concludes, “if just a fraction of the overwhelming financial leverage that institutional investors possess were brought to bear to combat climate change, we could more than fulfill the Paris climate goals.”
According to PRI, there are approximately 2,250 investors that have signed the initiative, amounting to more than US$80 trillion assets under management. It should come as no surprise, therefore, that mining companies are jumping on the ESG wagon. This is good in itself, as strong environmental and social programs, in addition to ethical and transparent governance, results in reduced risk and enhanced performance. But solid ESG practices also serve to catch the eye of ESG-savvy investors, which is crucial in an industry like mining where financing is notoriously tight.
Indeed, mining companies need to have several environmental and social programs in place to secure what is known as the social license to operate. This intangible license is the consent from the mines neighboring communities to develop and operate the mining project. As one of the most salient risks for mining operations is that their neighboring community blockades entrance to the mine and stops production, miners take this license seriously.
Nevertheless, there is a missed opportunity if initiatives to bolster up this intangible license are not communicated to the larger investment community. To this end, communication is key. ThinkParallax, an ESG communication agency, has produced a useful whitepaper on the matter. The whitepaper points out that “companies must evolve their communication strategies to meet investor demands, as well as actively engage with rating agencies. Strong storytelling around ESG initiatives can help companies create clarity in a way that amplifies social and environmental impact, while satisfying and even exceeding demands for increased transparency.”
Miners have an advantage over other industries, as ESG issues are not tangential to their business. On the contrary, ESG, in the form of the Social License to Operate, is at the heart of contemporary mining. It is only a matter of devising the right communication strategies for reaping its full benefits.