Building better relationships: responsible investment and the mining and metals industry

Investors’ views on social and environmental issues are critically important to the mining and metals industry, given the potential for these views to influence investment decisions. From the mining and metals industry’s perspective, the emergence of responsible investment represents a significant opportunity as it suggests that one of the industry’s key stakeholders – one that wants to ensure its long term (financial) success – is concerned about encouraging high standards of social and environmental performance. There is clear alignment between the interests of these investors and the interests of the industry as a whole. Over the past year, the International Council on Mining and Metals (ICMM) undertook a stakeholder research project to better understand the relationship between the mining and metals industry and the socially responsible investment community. The project comprised three components. We conducted detailed interviews with over 30 investment managers and SRI research organisations across North America, Europe and Australia, with the aim of developing a better understanding of how investors view the industry’s performance on environmental and social issues. We also reviewed the portrayal of the mining and metals industry in the responsible investment press and in reports issued by responsible investment research houses. In addition, we held a series of discussions with ICMM members about their experiences of engaging with investors on social and environmental issues. A summary of this research can be found at Link to report. The messages from the investor interviews were strikingly consistent. All of those interviewed stressed that effectively managing social and environmental issues is an integral part of delivering high quality mining and metals projects. As a consequence, they expect companies to have appropriate policies, systems and controls in place to manage these issues and to report on performance. Investorsacknowledged the significant improvements in the industry’s approach to social and environmental performance that have occurred over the past decade, in particular in relation to health and safety, environmental management, security and human rights, and the strategic use of social investment. However, they also stressed that the sector has a significant social and environmental footprint. There was broad consensus that the issues of greatest concern to investors include community relations, climate change (mitigation and adaptation), bribery and corruption, and free, prior and informed consent (FPIC) of Indigenous Peoples. The mining and metals companies interviewed considered that there is generally good dialogue between companies and their investors on social and environmental issues. Companies view this dialogue as valuable because it offers a sounding board for the industry on societal expectations of the industry. It can also provide an early warning of new or emerging issues. Companies are also optimistic that responsible investors will make an important contribution to supporting efforts to raise standards across the mining and metals industry as a whole.
Our interactions with responsible investors identified two areas where communications between companies and their investors could be improved. The first is that investors should appreciate that CSR/sustainability reporting will not address all of the questions that they have about companies’ social and environmental performance and it is only one way that companies communicate with investors. For example, providing a complete account of a controversial project or a detailed explanation of a company’s position on FPIC is often better done in face-to-face meetings. A better outcome is achieved when investors and research houses go beyond written reports, and engage more actively with companies to understand what the industry is really doing and the potential for and limits to change.

The second is that companies need to be realistic in their expectations of investors. Many companies assume that responsible investment analysts have a deep knowledge of the mining and metals sector. The reality is that most responsible investors/analysts – because they cover multiple sectors, geographies and issues – are not mining experts (nor can they be expected to be). In order to make valid assessments of companies, ICMM encourages these analysts to invest time in understanding the realities and challenges that the mining industry faces and to reflect this in their engagement with and expectations of the sector.Mining and metals companies should take care to address queries at an appropriate level and provide (or have available) appropriate supplementary information to provide the analyst with the full context on the issue in question. These suggested areas for improvement are essential building blocks for our shared agenda with investors, which is that raising standards of social and environmental performance across the industry is an integral part of ensuring that the mining and metals sector delivers better long-term returns for investors.

Aidan Davy is Deputy President and Senior Program Director, ICMM and Claire White is Manager, Social and Economic Development, ICMM.