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Highlights
- ESG has come to the frontline because of increasing demand from investors.
- ESG includes a set of criteria used to evaluate a company's performance on the Environmental, Social, and Governance (ESG) grounds.
- A track on systematic and standard forms of ESG disclosures can significantly encourage green investment in a company.
The global metals and mining sector is increasingly exposed to ESG risks that include issues related to water, emission, and deforestation. Concurrently, the interest among investors for the mining companies that are operating in the environmental space is increasing exponentially across the globe. Furthermore, the investors are closing doors for the companies that are unable to disclose ESG in a manner that is welcomed by investors.
ESG has come to the frontline because of increasing demand from investors towards environmental, social, and governance-related matters and data. Decisively, investors have started to consider metrics beyond financial statements. They have also provided a new set of criteria against which mining standards can be measured.
Good Read: Why Big Players Need To Be Focusing On ESG Adherence - Mining Sector of Australia
What is ESG?
ESG includes a set of criteria used to evaluate a company’s performance on the Environmental, Social, and Governance (ESG) grounds. Investors can assess these financial metrics to identify investment opportunities, growth prospects, and material risks in the market.
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ESG is directly linked to sustainable investing or often known as ESG investing, which has raised financial gains while reflecting positive effects on society. The evaluation of ESG is a type of forward-looking assessment of a company's ESG performance that assesses the organisation’s preparedness for future risks and opportunities.
ESG scores earned by the company measure the verifiable reported data released by the company in the public domain.
Good Read: Explained: Climate Change and the Role of Mining Industry
ESG and green investment
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A track on the systematic and standard form of ESG disclosures can significantly encourage pools of green money to make investments in the mining sector. Sustainability reports are becoming more popular in mid-cap and large-cap companies, but the problem with these is that they are assessed on a self-assessment basis and not on third-party assessment.
The industry needs to move away from self-assessment to find a credible solution to attract new pools of green investment.
ESG and share performance of the company
Currently, share prices of the mining companies that are not ESG-compliant are not going down, but the industry can witness a downward trend in coming years. It is expected that the companies that don't embrace ESG will become un-investible by mainstream institutional groups.
This could help cleaner companies with positive ESG scores to have a lower intrinsic risk and get the advantage from a lower capital cost, as the world is advancing to attain carbon neutrality in coming decades.
Must Read: How is ESG impacting mining companies?
Bottom Line
With more learned and environmentally cautious investors, ethical investing has become very popular nowadays. A higher ESG performance can significantly increase green investment in mining companies.
