Alliance Notes: Panelists Discuss How Countries Can Fight Both Covid-19 and Climate Change, TPI's Diversified Mining Report and the "Steel Conundrum"

Wednesday, May 13, 2020

 

This Week at the Alliance

 

Announcements

Tuesday, May 12, 11am EDT – ESG Initiative Call on Best Practices with MSCI’s Ric Marshall

Our next ESG Initiative call will feature Ric Marshall, Executive Director of ESG Research at MSCI, for a discussion of best practices in ESG investing. 

Prior to his current role, Ric was Chief Analyst at GMI Ratings, which was acquired by MSCI in 2014. Ric was named one of the top individual analysts in corporate governance by respondents to the Thomson Reuters Extel 2013 global survey.

Thursday, May 14, 9am EDT – Extractive Industries Working Group Call on Community Consent with Oxfam’s Emily Greenspan

Quiz: What do the following projects have in common?

  1. Vedanta’s iron ore projects in Goa
  2. Pan American Silver's Escobal mine in Guatemala
  3. Anglogold Ashanti’s La Colosa project in Colombia 
  4. Southern Copper’s Tia Maria project in Peru
  5. Constellation Brands’ brewery project in Baja California, Mexico

Answer: All five are multi-billion dollar investment projects that have been halted as a result of opposition from local communities. Such incidents are on the rise as international recognition of the rights of indigenous peoples has grown. For multinational companies, especially in the extractive industries, the need to engage with local communities and achieve “free, prior and informed consent” (FPIC) for a project has become increasingly important. And yet, many extractives companies lack comprehensive policies on community engagement , especially in emerging markets.  

This Thursday at 9am, join us for a call with Oxfam’s Emily Greenspan, who will discuss community consent: the international frameworks that govern it, the risks that multinationals run in  neglecting it and some examples of FPIC best practice for companies to  achieve better outcomes.  

Emily has worked on community consent issues for 15 years and has authored multiple editions of Oxfam’s Community Consent Index, which ranks the performance of 38 multinationals (including EM players Anglogold Ashanti and Vale). This work has taken her around the world, including deep into the Peruvian Amazon to inspect Frontera’s controversial Block 192, associated with dozens of spills and protests.

Alliance Panelists Discuss How Countries Can Fight Both Covid-19 and Climate Change

Source: Jahan Chowdhury, NDC Partnership.

Where do ESG priorities rank for emerging-markets governments managing expenditures for an unprecedented health crisis, economic recession, and severe market pressures? The resounding answer from the International Financial Institution (IFI) community is that sustainable practices should be a top-line item for EM countries fiscal planning—but is that feasible given their resources?

On April 28, the Alliance organized a webinar, hosted by Reuters Events, to explore this priority given the challenges that EM countries face in responding to the coronavirus pandemic. Our Research Director Fergus McCormick, Jahan Chowdhury of NDC Partnership, and the Inter-American Development Bank’s Gianleo Frisari unpacked the state of EM government finances and how public sector transparency and climate change planning could help them “recover better” from this crisis (in the words of UN Secretary-General Antonio Guterres).

The panelists echoed the IFIs’ sentiment that addressing today’s health emergency does not preclude planning for tomorrow’s impending risks. Fergus highlighted the urgency of climate change preparedness both for EM, which could suffer even worse hits from climate shocks than from Covid-19, and for developed economies. All could miss the Paris Agreement’s 2°C if structural changes are not implemented universally and soon. The post-pandemic recovery presents a golden opportunity to strengthen balance sheets and introduce climate-friendly policies. But how will governments finance this cost? IFIs will undoubtedly grant official sector debt relief for low-income countries, but this may not be enough. Fergus and Jahan discussed the need for IFIs to encourage both middle-income countries and low-income countries to adopt sustainable practices through assistance programs and government-led initiatives.

Jahan argued that aligning government-led approaches, such as guarantees and infrastructure investment, to the UN’s Sustainable Development Goals would make a strong business case to investors as well as assure their sustainability credentials. Governments’ cooperation with IFIs on best practices and public sector transparency will help restore citizens’ and investors confidence in the system. This was the implication of IMF Managing Director Kristalina Georgieva’s closing statement at the Spring Meetings this year, when she encouraged governments to “keep the receipts.”

Source: NDC Partnership.

Gianleo compared Covid-19 to an ESG-type disaster. Both the virus and an environmental shock are non-stationary (i.e. increasingly unforeseeable), regressive (i.e. prone to vicious cycles), potentially inter-dependent, and systemic risks. The coronavirus might be the most currently pressing global emergency of its kind, but this should motivate—not prevent–governments’ preparation for future ESG challenges, including climate change. Indeed, many best practices championed by the climate change community, such as forward-looking risk assessments, are now being implemented to address Covid-19 risks. The SEC has gone as far as to ask companies to include forward-looking risk assessments in their earnings releases for upcoming quarters. This warrants optimism that climate risk disclosure could enter the scope of the SEC agenda as well.

There is no easy path for EM countries seeking to address the varied pressures bearing down on their economies, but IFIs, policy experts and our panelists agree that steps can be taken to implement green recoveries and minimize systemic risks. Investors and asset owners have a duty to join that call as well. – Claire Meier Underhill

TPI’s Diversified Mining Report and the “Steel Conundrum”

Novolipetsk Steel plant, Russia. © Robert Kolyhalov under a Creative Commons Attribution-Share Alike 4.0 International license.

Last week, the Transition Pathway Initiative (TPI)—the asset owner–led program to assess companies' preparedness for transition to a low-carbon economy—published its first report on the global diversified mining sector. This study, produced in conjunction with the Grantham Research Institute at the London School of Economics, evaluates the emissions profile of the world's ten largest diversified miners by market capitalization, implementing the sectoral decarbonization approach that the TPI has used with other high-emitting sectors, such as energy and utilities. The initial group of ten miners includes three EM giants: Vale, Norilsk and Grupo Mexico. TPI plans to expand its coverage to a wider range of miners in coming months; all their data is freely available online through TPI’s assessment tool

Measuring carbon emissions is never a straightforward task, but the report makes clear that mining presents a unique set of challenges. As with oil and gas, the mining process itself does not produce a huge amount of CO2; it is the emissions produced further on in processing—known as Scope 3 emissions—that are significant. However, compared with oil and gas, mining produces a much more diverse range of commodities, each with its own downstream carbon footprint. This diversity presents TPI with a number of analytical challenges. 

The first challenge: how to benchmark the carbon intensity of companies producing very different product mixes? TPI has addressed this by measuring emissions in terms of a standardized copper-equivalent output, calculated using average historical commodity prices. Another challenge for TPI relates to a specific commodity: steel, the production of which is the biggest source of emissions for the mining industry overall. Steel has two main ingredients -- iron ore and metallurgical coal. Which of these commodities should be held responsible for the Scope 3 emissions generated when steel is made? TPI’s answer to this “Steel Conundrum” is to assign the emissions to iron ore rather than coal. As a result, iron ore-heavy producers such as Vale, Fortescue and Rio Tinto come out of TPI’s study as having significantly higher carbon footprints compared with a company such as Anglo American, which mines a significant amount of coal. Such outcomes are likely to generate a stirring debate among mining executives and investors alike. 

While controversies are inevitable, it is clear that this report represents another step forward in developing an analytical framework to understand and assess the full emissions profile of mining. We hope to discuss the report with the authors in an upcoming meeting of our extractive industries working group. – Andrew Howell

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