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GLOBAL MININGINVESTMENT CONFERENCE 2010
STATIONERS’ HALL ● CITY OF LONDON ● TUESDAY-WEDNESDAY, 28-29 SEP 2010
www.ObjectiveCapitalConferences.com
Investment Conferences
Sustainable MiningAidan Davy – Senior Programme Director, ICMM
DAY 2 - SESSION 6: SUSTAINABLE MINING & CONFLICT RESOURCES
Other sponsors & participating organisations:
GLOBAL MININGINVESTMENT CONFERENCE 2010
Lead sponsors:
Media partners:
www.icmm.com
Sustainable Mining:Extracting value from ESG performance
Aidan Davy, Senior Program Director
Overview of presentation
www.icmm.com
Growing pressure on ESG disclosures
Mining sector risks overall and ESG issues
Investor interest in ESG risks
Selected ESG risks and ICMM activities/ members performance
Conclusion
Growing pressure on ESG disclosures
www.icmm.com
Dodd-Frank Wall Street Reform and Consumer Protection Act (2010) includes provisions to:
Report payments by project and by recipient government (1504)
Provide quarterly reports on a variety of Health & Safety related matters (1504)
Due diligence measures on “conflict minerals” from the DRC (1502)
SEC issued guidance on Climate Change Disclosures (02/10):
Requires listed companies to disclose impacts of climate change
‘Physical impacts’ includes changes in water availability or quality
Investor-led calls to listing authorities and stock exchanges to require companies to consider the sustainability of their business model
Mining sector risks
www.icmm.com
Commodity price Interest rate risks
Currency Risks Equity risks
Political instability War/civil disturbance Expropriation Breach of contract
Life cycle aspects, e.g. recyclability, disposal
Chemicals management/ inherent HSE risks
Supply/value chain Market access
Business interruption H&S and ESG Failure of systems Regulatory non-
compliance
Resource access – land, energy, water
Access to capital & talent
Climate change Reputation
Risk convertibility in the mining sector
www.icmm.com
Commodity price Interest rate risks
Currency Risks Equity risks
Business interruption H&S and ESG Failure of systems Regulatory non-
compliance
Life cycle aspects, e.g. recyclability, disposal
Chemicals management/ inherent HSE risks
Supply/value chain Market access
Political instability War/civil disturbance Expropriation Breach of contract
Resource access – land, energy, water
Access to capital & talent
Climate change Reputation
ESG operational issues in mining
www.icmm.com
Anti-corruption stance
Transparency
Political involvement
Ethical Business Practices
Labour relations
Diversity and equal opportunities
Occupational Health & Safety
Labour issues in supply chain
Labour & Working Conditions
Energy and Greenhouse Gases Water resources (use, pollution, management)
Biodiversity Land (use, contamination, management)
Tailings management Solid waste management
Air emissions (excluding GHG) Emergency Preparedness Closure
Artisanal and Small Scale mining Communities (impacts and social investment)
Conflict and security provision Involuntary resettlement of communities
Cultural heritage Local economic development
Environmental Responsibility
Social and economic contribution
Top 10 Global Pension Fund Markets ($20.4 trn)
www.icmm.com
Source: UNCTAD (2010). Investment and Enterprise Responsibility Review
Scope and influence of Responsible Investment
www.icmm.com
Source: UNCTAD (2010). Investment and Enterprise Responsibility Review
No. of Responsible Investment indicators
No. of Responsible Investment indicators
No
. o
f p
ensi
on
fu
nd
s
Ave
rag
e A
UM
per
fu
nd
(S
US
bn
)
51
22 27 66
73
135
UNCTAD analysis of world’s 100 largest pension funds:
As of February 2010, PRI had 700+ signatories (currently 800+) with AUM of over US$20 trn
Do sell-side analysts give a XXXX?
www.icmm.com
Investigated overall impact of CSR strategies on securities analysts recommendations (16yr horizon)
Examined perceptions of analysts on value creation (or value destruction) potential of CSR strategies
Initially, CSR strategies perceived as value-destructing. Later, CSR strengths seen as value-creating: shift from sell to buy recommendations
Higher ability analysts more likely to reward CSR strengths
ESG risks and project finance
www.icmm.com
International Finance Corporation (IFC) has set the standards for addressing ESG risks
IFC Performance Standards embraced by EPFIs – represents over 90% of project finance deals
Mining investments of over $26 bn between 2005 and 2009
Despite a dip in 2009, likelihood is that activity will increase
IFC Performance Standards under review – bar likely to be raised
US
$ b
illi
on
s (
tota
l)
Project finance rise.... and fall
US
$ b
illi
on
s (
min
ing
)
5
10
15
20
25
30
35
Source: Harvard Business Review (2010). An overview of project finance and infrastructure finance
Value of global mining sector M&A deals (US$ bn)
www.icmm.com
(September)
Source: PwC (Sept, 2010). Mining Industry Briefing: M&A in the Global Mining Sector
Transaction service providers increasingly address ESG risks as part of M&A due diligence
Carbon Disclosure Project – Global 500 (2009)
www.icmm.com
Note1: Materials includes: Metals & Mining (45%), Chemicals (35%) and Construction Materials, Containers & Packaging, and Paper & Forest Products (20%).
Includes mining & metals
Source: PwC (2009). On behalf of The Carbon Disclosure Project
Disclosure scores
Perf
orm
ance
sco
res
Note 2: As of September 2010, CDP initiative backed by 534 institutional investors with more than $64trn in AUM
ICMM activity on Climate Change
www.icmm.com
Climate change is of significant interest to ICMM member companies
Mining industry estimated to contribute approx. 1.8% to global GHG emissions
Many metals produced are essential to pollution prevention ‘green technologies’
ICMM members working to establish themselves as part of the solution to the climate change challenge
Current efforts involve sharing information to improve understanding of issues and drive implementation of best practice technology
Water availability & quality
www.icmm.com
Source: CERES (2010). Murky Waters? Corporate Reporting on Water Risks
Water disclosure scores by sector (out of 100):
Increasing importance of Indigenous Peoples
www.icmm.com
Indigenous Peoples are increasingly important in terms of resource access
EIRIS, CAER and The Ethical Funds Company all promoting FPIC (ideally large ‘C’)
Not just NGO’s advocating: Co-Operative Bank’s support for Beaver Lake Cree Nations vs. Tar Sands in Alberta
EIRIS analysed 250 companies from FTSE All World Developed Index: Oil & Gas (47%), Mining (36%); Forestry (10%) and Agribusiness (7%)
Indigenous Peoples – selected indicators
www.icmm.com
% %
% %
Agribusiness
Forestry & Paper
Oil & Gas
Mining
Indigenous Policy FPIC (consent/consultation)
ResettlementIndigenous employment
Source: EIRIS (2009). Indigenous rights: risks and opportunities for investors
ICMM member ‘policy’ commitments
www.icmm.com
1. Implement ethical business practices and apply good corporate governance
2. Integrate SD in corporate decision-making 3. Uphold fundamental human rights
4. Manage risks based on sound science 5/6. Improve EHS performance
7. Conserve biodiversity & participate in integrated land use planning
8. Encourage life cycle approach to materials management
9. Contribute to community development
10. Publicly report, independently assure and engage openly and transparently
Mining and Protected Areas Mining: Partnerships for Development
Climate Change Mining and Indigenous Peoples
Mercury Risk Management Transparency of Mineral Revenues
10 Principles for Sustainable Development
6 Position Statements
Reporting & Assurance by ICMM members
www.icmm.com
Adopting systematic approaches to reporting material risks, which reflects enhanced ESG performance
Undertaking robust assurance of sustainability reports to enhance credibility and trust
Understanding how/which ESG efforts contribute to value creation/protection
Enabling investors & analysts to better differentiate between companies
Do mining investors respond to ESG factors?
www.icmm.com
Vedanta resources share price (2010)
Concluding remarks
www.icmm.com
“ESG analysis will benefit from improved reporting and corporate governance structures. But attention should also be paid to the need for improvements in the coherence and consistency of ESG analysis itself.”
ESG factors are increasingly a mainstream concern for investors
Not just buy-side analysts, but increasingly sell-side analysts who have an interest and influence
ESG factors will continue to grow in importance in terms of project finance and M&A activity
ICMM members demonstrate leadership in terms of ESG commitments and performance
UNCTAD (2010). Investment and Enterprise Responsibility Review
For further information please contact:
Aidan Davy, Senior Program Director
www.icmm.com
Other sponsors & participating organisations:
GLOBAL MININGINVESTMENT CONFERENCE 2010
Lead sponsors:
Media partners:
