Alliance Notes : Presentation on responsible lithium mining, A Historical and Contemporary Analysis of Public Debt and Reform, An Evening of Emerging Markets, ESG and Entertainment on Zoom

Monday, August 3, 2020

                             Alliance Notes, 8/3/20


Announcements and Upcoming Events


Thursday August 6 at 10am EDT: Our extractive industries working group will host a presentation on responsible lithium mining by Nikolaus McLachlan of GIZ, the German Development Bank. Nikolaus led a recent project that visited the massive Salar de Atacama salt basin where SQM and Albemarle have been mining lithium, an area characterized by water stress. Lithium is a critical battery ingredient and key to the energy transition in mining, but there is a lot to learn about the impact of its extraction on the environment and local communities. The project has investigated claims of irresponsible production practices and identified potential mitigation options to improve the sustainability of lithium supply. ** Connect via this link. ** 

On Thursday August 6 at 2pm EDT: The Alliance’s Debt & Fiscal Governance Working Group welcomes Jacob Soll, Professor of Philosophy, History, and Accounting at the University of Southern California for a historical perspective on debt crises. His talk is titled “The French Revolution and the Greek Debt Crisis: A Historical and Contemporary Analysis of Public Debt and Reform.  As a reminder, Debt & Fiscal Governance Working Group engages policymakers, independent policy experts, and emerging markets institutional investors to discuss fiscal transparency, accountability, and governance best practices across the public sector balance sheet. Please see the Alliance’s white paper on improving debt oversight, enhancing fiscal transparency, and accelerating efforts toward environmental sustainability. If you are a financial professional, please join this event by registering in advance here.

Wednesday September 9 at 1800 BST/ 1pm EDT:  Here is an early Save the Date for the Alliance’s Virtual Back-to-School (“Maybe?”) Event: An Evening of Emerging Markets, ESG and Entertainment on Zoom (“Where Else?”) Enjoy a drink at home while mourning the end of summer but celebrating the importance of ESG in emerging markets.  Learn more about the Alliance’s directors and their work, have a few laughs, and reconnect with the emerging market community.  We promise the moderators won’t mute you.  At least not without a warning.  More details to follow, but you can register early here.

Summary of Past Events


Petrobras’s Trailblazing ESG Webinar

Petrobras’s trailblazing ESG Webinar Source: NRGI

On 15 July the Alliance co-hosted a webinar with management of Petrobras, the Brazilian oil giant, on the company’s climate strategy. This came in the wake of the company’s announcement of support for the Task Force on Climate-related Financial Disclosures (TCFD) and its recommendations. 

See the company’s presentation, our transcript of the webinar, and access the full replay

Petrobras’s support for TCFD is a milestone, given that Petrobras is merely the second EM-listed energy producer to make such a commitment. In their presentations, CFO Andrea Almeida, Head of Investor Relations Carla Albano, and Corporate Emissions and Climate Change Manager Viviana Canhão laid out how decarbonization fits into the company’s overall strategic pillars; how the company has made carbon a central focus of the business; and what concrete steps the company is taking to improve its carbon footprint. 

Many of these steps are fleshed out in Petrobras’s recently-updated Climate Change Supplement, in which the company put forward six climate-related targets, including zero growth in absolute emissions from 2015 to 2025, a 32% reduction in carbon intensity over that period, and zero routine flaring by 2030. The progress the company has already made in reducing the carbon intensity of its operations is significant,  with emissions per barrel (scope 1 & 2) of the E&P business falling from 30 kgCo2/BOE in 2009 to 17.3, and with a targeted further reduction to 13-15 by 2025. This has allowed the company to keep absolute emissions roughly unchanged over the past decade, despite a nearly 40% increase in production. 

At the same time the presenters acknowledged that more remains to be done, and the TCFD announcement and webinar represent more of a beginning than an end to the process. Areas of further development in the company’s approach to carbon could include: more development of a renewables strategy; roll-out of more comprehensive carbon capture technologies; introduction of explicit Scope 3 targets; and greater use of carbon pricing in scenario analysis. We look forward to fostering further engagement between Petrobras and the investment community on these issues.


“Woolly Mammoths in a Tar Pit”? The Outlook for Sovereign Defaults in EM 

As part of the Alliance’s ongoing Debt, Sustainability and Governance series, we convened a panel last Thursday, July 30, on future sovereign defaults in EM, with Lee Buchheit of the University of Edinburgh Law School; Nick Robins of the Grantham Research Institute at LSE; Mike Hugman of Ninety One; and Yerlan Syzdykov of Amundi Asset Management; the lively discussion was moderated by the Alliance’s Fergus McCormick and Abby McKenna. 

The panelists highlighted several proposals aiming to mitigate a debt crisis triggered by the economic fallout from the COVID-19 pandemic. The proposals involve a range of mechanisms, financing structures, and conditionality that might help EM countries avoid another “lost decade.” Despite their diverse backgrounds and perspectives, the panelists overwhelmingly agreed on the need for investors to differentiate between short term responses to the immediate COVID crisis and longer term responses to the next stage of the crisis, which will need to address debt sustainability issues.

Here are some of the themes that emerged from the discussion: 

  • The next stage of the COVID crisis will be more difficult for many EM countries as short-term liquidity measures expire. More than 100 countries have requested IMF assistance this year, and many will find it difficult to avoid a default in 2021 unless debt markets develop new mechanisms addressing needed debt relief.
  • If the crisis worsens, sovereign defaults will be inevitable. In such a scenario, the panelists’  emphasized the importance of a systemic approach, as the simultaneous renegotiation of individual instruments across several sovereign issuers would bog down efforts to contain the crisis. In the words of panelist Lee Buchheit: Negotiating creditor by creditor, instrument by instrument would be a fate worse than that of a “bogged down woolly mammoth in a prehistoric tar pit. You’ll never get out.”
  • This acute crisis can and should be used as a catalyst to transform sovereign finance markets, setting them up to better address the environmental and sustainability challenges of the next 20 years. Market innovations should both solve near-term refinancing needs and increase the longer term resilience of sovereign borrowers.
  • The United Nations Sustainable Development Goals (SDGs) can be more realistically and quickly achieved if the private sector works together with International Financial Institutions (IFIs) to meet this challenge.
  • There is increasing support among the investor community for solutions that are linked to SDGs, as investors appreciate that returns will be enhanced if countries make progress on longer-term sustainable goals.

The next event in our series will be a historical perspective on debt crises with Professor Jacob Soll -- see above.


NRGI on Battery Minerals and the Congo

DRC Mining

Last month, the Extractive Industries Working Group hosted Erica Westenberg and Kaisa Toraskainen of the Natural Resource Governance Institute (NRGI) to present a recent report on battery minerals, “Priorities to Improve the Electric Vehicle Battery Supply Chain” (co-authored with the Berkeley Center for Law, Energy, and the Environment and published here). They also summarized recent work as part of a forthcoming updated Resource Governance assessment for Democratic Republic of Congo, the world’s largest supplier of cobalt. A longtime collaborator with the Alliance, NRGI helps countries maximize the benefits from their natural resource endowments, using revenues from those resources to benefit citizens while minimizing corruption and state capture. See their presentation here, touching on both topics.

On battery minerals, Erica emphasized the importance of battery technologies to the energy transition, but cited a lack of coordinated action and accountability across the battery supply chain, hindering sustainability efforts. Her recommendations included better data transparency and information-sharing across the supply chain and between governments and companies; greater application of supply chain sustainability best practices by defining and categorizing existing standards and initiatives; and new incentives for supply chain actors to participate in standards and initiatives, such as sustainability labeling and certification initiatives. 

Turning to the  Democratic Republic of Congo, Kaisa noted the importance of the DRC to the energy transition -- not only as home to over half the world’s cobalt reserves but also the location of the world’s largest copper deposit (Kamoa-Kakula, under development by Ivanhoe). Mining represents 30% of DRC’s revenues, and 90% of its exports. Resource governance has been weak in DRC, but a 2018 mining code raised taxes and royalties while taking steps to improve transparency. The new code requires both the government and SOEs, which have historically been a source of corruption, to run competitive and open tender processes, and to disclose the beneficial owners of mining assets. However, NRGI has found that these legal requirements are not being fully implemented on the ground. Investors should push for full implementation of the new code as well as disclosure of financial statements by the SOEs.

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that enables institutional emerging market investors to support good governance, promote sustainable development, and improve investment performance in the governments and companies in which they invest.