Debate Highlights ESG Complexities

The Society for Mining, Metallurgy and Exploration (SME) held its annual conference in Denver in late February, and nearly 6,500 people attended the event. The conference opened with a keynote session and the discussion this year revolved around environmental, social and governance (ESG) policies. A panel was assembled to discuss: Embracing ESG to Build Trust in Mining Investments. The panel included Ryan Bond, head of climate and sustainability insurance initiatives for Marsh and Aidan Davy, COO, International Council on Mining and Metals (ICMM).

The moderators asked the panelists a series of prepared questions. The first question: Contrary to published data that ESG factors continue to accelerate among investors, insurance carriers, private equity, other lenders, there has been a recent rise in anti-ESG rhetoric and the politicization of ESG investing. In your opinion, what might be driving this anti-ESG sentiment and how has it affected how you think about ESG and related priorities?

Bond and Davy are both from the U.K. and neither are involved with equity investments or mine finance. “[ESG reporting] is something that is being ‘considered’ in all parts of industry,” Bond said. “We see customers stalling on the approach while they try to understand how to move forward. From an insurance perspective, most of the challenge is currently in the U.S., and the insurance and re-insurance business is exceptionally global, especially in the mining and metals space. The debate is important and should happen. Ultimately it is delaying progress.” Later in the discussion Bond would admit that insurance carriers are more concerned with risk, like the failure of tailings dams and other potential losses, and they are behind the curve when it comes to ESG.

ICMM’s Davy explained that ESG is simply a framework that reduces investment risk. He said there is a political and a practical dimension to anti-ESG sentiment. “Some U.S. politicians see ESG as virtue signaling and question its practical value,” Davy said. “Others see it as a smokescreen for companies to pretend they are doing something when they are not.”

From a practical standpoint, there are questions surrounding the ESG rating agencies, Davy explained. “They are in the business of providing ESG ratings to fund managers to integrate that into their investment decision process,” Davy said. “When you look at the spread of ratings coming from these agencies, they are widely dispersed. At best you’re seeing weak to moderate correlation of the ratings compared to credit agencies, who have high correlations. That is problematic.”

The panelists overlooked another aspect to the anti-ESG movement. The U.S. Securities and Exchange Commission (SEC) has proposed policy that would mandate ESG reporting for publicly held companies and many view this as an attempt to bypass the U.S. legislative process where it would likely fail. ESG is a good thing and companies should set goals, strive to achieve them, and report on their success (and failures), but it’s not yet the law of the land.