Sustainability 2.0 - May 2013

Sustainable development: a key issue for investors?

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Susan McGeachie

It’s no secret to mining and metals companies that sustainability makes good business sense. Over the last several years, there has been a distinct focus on sustainability in the sector, with the majority of attention on stakeholder and community relations.

We know that sustainable development impacts the bottom line and helps organizations maintain a social licence to operate in communities around the world. What many companies don’t necessarily realize, or don’t spend enough time emphasizing, is that sustainability efforts attract investors — existing and new.

But attracting the attention of investors through increased investment in and management of sustainable development initiatives has always been a nebulous undertaking for many companies in the mining and metals industry. The reason? The primary reporting framework used today to monitor and disclose sustainability-related performance metrics focuses largely on the reporting needs of stakeholders outside the investor community.

How we got here

It’s been 13 years since a group of mining CEOs met in conjunction with the World Economic Forum to discuss the disconnect between mining practices and societal values. The eventual outcome of that meeting was the game-changing report Breaking New Ground: Mining, Minerals, and Sustainable Development, from the International Institute for Environmental Development (IIED). It highlighted the shared understanding of development between mining executives and community groups and really set a new way of thinking in motion across the industry.

Now, over a decade later, the IIED reports a marked improvement in the understanding of sustainable development. There’s still work to be done, of course, but the industry has come a long way. One of the biggest missed opportunities many point to is still the lack of communication to stakeholders on companies’ sustainability efforts, targeted to the specific information needs of each stakeholder. And in an environment where economic uncertainty is driving greater risk aversion among investors, this is exactly the group you want to be engaging.

Investors weigh in

Investor interest — and concern — in sustainable development increased around the same period that mining and metals companies began paying more attention to the issue. Investors together formed a global network, the Principles for Responsible Investment, to help signatories (now numbering over 1,100) incorporate sustainability into investment decision-making and ownership practices.

In response to this heightened investor interest, national regulators began to take action. Denmark and South Africa require publicly listed companies to integrate sustainability information in their corporate reporting, and the UK, Europe, Australia and Japan have similar requirements under consideration.

The primary concern of many of these investors continues to revolve around return on investment. Which begs the question: how, and to what extent, are climate change, water resources, biodiversity, corruption and community relations material for investors?

Efforts to address the materiality gap between disclosure of these issues in regulated filings and investors’ interest in them have been undertaken by many national securities regulators, including the Canadian Securities Administrators and the US Securities and Exchange Commission, both of which issued environmental reporting guidance for continuous disclosure documents in 2010.

Now what?

Clearly demonstrating the value of corporate sustainability efforts to new and potential investors is a crucial step in facilitating longer-term discussions and enabling enhanced value-add projects. The importance of sustainability issues to investors is already widespread and will only increase.

Companies that invest in telling this story can shape their investor base to attract longer-term views that support these investments. But to get there, executives need to identify, prioritize and strategically manage the sustainability factors most relevant to investor decision-making, and develop a framework for articulating the financial value of these investments. By doing so, mining and metals companies can mitigate the effects of capital constraints by attracting a broader investment base.

Sustainable development isn’t only about corporate responsibility — it’s about growth.

This article was recently published in the Canadian Mining Journal.