Investors tight-lipped over ESG failings at ArcelorMittal after Kazakhstan disaster

Fatal fire at coal mine puts spotlight on investor engagement with metals and mining group on health and safety.

Sustainability advocates have called on investors to step up ESG engagements with ArcelorMittal following a fatal accident at the group’s Kazakh subsidiary. 

On 28 October, a fire at the Kostenko coal mine in the central Karaganda region killed 46 miners. The facility was operated by ArcelorMittal Temirtau (AMT), which manages eight coal mines in Kazakhstan, as well as the country’s largest steel plants.

The division’s health and safety record has been under scrutiny following a series of fatal incidents. In the past two years alone, 23 workers have died in eight separate incidents at AMT’s facilities.

In response to the latest tragedy, which was the worst in Kazakhstan’s history, Kazakh president Qasym-Zhomart Toqaev said it would end co-operation with ArcelorMittal. The company subsequently announced that it had signed a preliminary agreement for the transfer of ownership of AMT to the local government.

Advance engagement

ArcelorMittal is one of the targets of the Principles for Responsible Investment’s (PRI) human rights engagement initiative, Advance

The Luxembourg-based group is being engaged by six investors, led by BNP Paribas Asset Management and Candriam. EOS at Federated Hermes, Federal Finance, OFI Asset Management and Trusteam Finance are “collaborating investors”.

Responsible Investor reached out to all investors in the group for comment on their engagement with ArcelorMittal in the context of the AMT disaster and nationalisation.   

Federal Finance told RI that it excluded ArcelorMittal from its investments in spring this year due to the firm’s involvement in the coal sector and its poor ESG performance, including on health and safety. 

The French asset manager said it met with ArcelorMittal in September for an “ESG discussion” with another asset manager. It stressed that engagement was not part of the Advance initiative.    

“Almost the entire meeting was devoted to the subject of the company’s Kazakh mines and the very serious accidents that have occurred,” Hugo Mebrek, an ESG analyst at Federal Finance, told RI. “We were not satisfied with the company’s responses and felt that the subject was very sensitive.”

He added that Federal Finance will continue to engage with ArcelorMittal on ESG as a non-shareholder.

Candriam said it could not comment on engagement activities with ArcelorMittal as part of the Advance initiative. A spokesperson told RI that the asset manager does not invest in ArcelorMittal through any of its sustainable strategies and had total exposure to the group of around €2 million at end-June.

Federated Hermes also declined to comment. RI understands that the firm’s only holding in ArcelorMittal is a small position in the credit portfolios.

The other members of the Advance investor group for ArcelorMittal either declined to comment or had not responded at the time of publication.

RI also reached out to the firm’s top 10 shareholders, which includes Blackrock, Vanguard, T Rowe Price and Invesco, according to Morningstar Direct.  

Only Invesco provided a comment, with a spokesperson saying that the investor has been involved in engagement with ArcelorMittal to address material ESG risks.

“Those conversations are ongoing and we will continue our proactive engagement and to seek progress in the company’s management of working conditions,” it added.

According to BlackRock’s engagement summary report for Q1-Q2 2023, the asset management giant engaged the firm in May 2023 on a series of issues, including healthy and safety. 

Sector sustainability 

Advocates of sustainability in the mining sector called on investors to step up scrutiny of and engagement with ArcelorMittal on health and safety.

Phil Bloomer, executive director of the Business and Human Rights Resource Centre, said that the Kostenko disaster demands action by responsible investors.  

“ArcelorMittal’s tragic record of harm at this mine, coupled with previous reassurances of commitment to health and safety standards, highlights the need for a thorough-going review of the company’s human rights due diligence across its operations and supply chains, and a radical shift in corporate culture,” he said. 

This was echoed by Adam Matthews, chief responsible investment officer at the Church of England Pensions Board. 

“Investors in ArcelorMittal will need to urgently understand why this happened given the previous incidents of the company,” he said. “It is also essential any causes are understood and considered sector wide. It will be vital we ensure we understand if this was specific to local circumstances or whether it presents broader considerations.”

RI also approached ICMM, an industry body focused on improving sustainability in the metals and mining that represents 25 of the world’s largest mining companies.

CEO Rohitesh Dhawan, told RI: “It is imperative that we all learn from this accident. ICMM stands ready to support the company, and the mining industry association of Kazakhstan (AMME) which is an association member of ICMM.”  

ArcelorMittal is not a member of ICMM.

Financial impact

According to UBS’s research team, AMT accounted for less than 5 percent of ArcelorMittal’s enterprise value at the time of the nationalisation and had recently been “cash-negative”.

Analysts at ABN AMRO – ODDO BHF pointed to underinvestment as a likely cause of the accidents at the group’s sites in Kazakhstan in the past few years, noting that companies such as BHP and Anglo American have invested to mechanise their mining operations, reducing the use of labour.

“ArcelorMittal’s Kazakh mines, which are a legacy of the Soviet era, are probably dilapidated and the group has doubtless not invested enough,” they said.

They added that, while the nationalisation of AMT will likely have a limited impact on the group’s earnings, the incident “does a lot of damage to the group’s reputation”.

“Even if the safety failings seem to be limited to Kazakhstan, they do not help its plans. We are thinking in particular of a possible acquisition of US Steel, for which the group is reportedly bidding.”

UBS analysts also flagged the possible impact of “ESG concerns” on ArcelorMittal’s share price – although this was not apparent in the week following the Kostenko disaster. After an initial decline of 4 percent following news of the accident, the group’s shares had risen 7 percent at the end of last week.  

ArcelorMittal was rated “high risk” by Sustainalytics at the time of the accident, and was given the firm’s highest controversy level.

ArcelorMittal response

A spokesperson for ArcelorMittal told RI that the firm is in regular dialogue with its investors on material ESG topics, including safety.

“We know that our investors have particular concerns over the recent safety results in Kazakhstan. We have the same concerns. ArcelorMittal is devastated by this accident which claimed the lives of 46 of our colleagues. The entire organization will be galvanised to ensure an accident of this magnitude never occurs again,” they said.

The spokesperson added that “a lot of actions have been implemented” to improve safety across the group in the past two years, and the firm will be “looking forensically at these actions to see how they can be further strengthened and progress accelerated”.

They said further details will be shared at the group’s third quarter results on Thursday.