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ESG and Gold: A Conversation on Progress and Potential

March 08, 2022

Read Time 7 MIN

This Q&A explores ESG initiatives within the gold industry and how these factors are incorporated into our investment approach.

When it comes to sustainability and/or ESG,1 gold mining—along with various other “extractive” industries—is generally misunderstood and, often times, unduly punished for these misconceptions.

As ESG has taken on greater relevance in recent years, the gold mining industry has become more transparent, and this progress, with what’s likely to transpire in the near future, may not be completely evident to the general investing public.

I sat down with Imaru Casanova, Deputy Portfolio Manager of VanEck’s active gold strategy, to find out about the improving ESG initiatives within the industry and how the investment team integrates these factors in their approach.

TOM BUTCHER, DIRECTOR OF ESG: Ima, I know that you and Joe [Foster, Portfolio Manager and VanEck’s Gold Strategist] have now been incorporating ESG into your investment decisions for a number of years. For you to do so, the industry must be doing something!

IMARU CASANOVA, DEPUTY PORTFOLIO MANAGER: First of all, Tom, I really must correct you! We have always incorporated ESG into our investment decisions. All that’s happened more recently is that we’ve made the process a little more formal. I think of this as being similar to how I describe ESG and gold mining companies to our investors: The work has, actually, been going on for decades!

In fact, these companies have always rigorously incorporated and addressed ESG aspects in the development plans for their mines. However, now, they are getting much better at disclosing this information, describing what they are doing and engaging with stakeholders. As for the VanEck gold investment team, our process now includes dedicated, specifically ESG, engagements. In addition to meeting with management to discuss operating and financial results, we also meet with the sustainability heads to discuss ESG exclusively. As you can imagine, the main challenge is the amount of data, the lack of standardized reporting to help us sort through all the data and in some cases the lack of historical data so we can assess trends. But I see all of these improving.

BUTCHER: Has disclosure around sustainability by mining companies started to improve?

CASANOVA: Yes, more and more companies are providing stand-alone sustainability reports which are increasingly more comprehensive and detailed. I remember that, not that long ago, if there was anything, all you could find on sustainability was some small section of a website, often with some rather nebulous mission statements.

We have come a long way from that. The larger companies are obviously leading the way. But the burden is high for the smaller, junior companies—it takes a lot of resources—so the disclosures tend not to be quite so good for the smaller guys.

For my purpose, where there are deficiencies, it is in how the information is actually presented. Tables with historical data are very helpful. These are what we look for, so that we can quickly find and analyze the relevant information. I would also like to see more investor days and company presentations dedicated exclusively to ESG so we can get more depth.

BUTCHER: Many of the larger and mid-tier mining companies now have dedicated individuals in ESG-focused leadership roles. Has this helped both to improve and facilitate your investment process?

CASANOVA: Most definitely. It is these individuals that we want to communicate with. They know the details, they have the data and they are the ones that are leading the efforts. In general, it is so much more helpful for us to speak to them rather than the CEO or CFO. At first these roles were not “investor facing”, so there was a bit of a learning curve in terms of effective communication, but so far, it has been a very good experience for us.

BUTCHER: With the IFRS2 and its ISSB3, do you think gold mining companies will soon be producing the equivalent of ESG MD&As4 alongside their financials and standard MD&As?

CASANOVA: It certainly looks that way. This goes back to my previous comments on trying to navigate all this data: a standard would obviously be very helpful. But I think the challenge is that this really does need to be sector specific. I think what the World Gold Council is doing with its Responsible Gold Mining Principles (RGMPs) is a great start: a framework specifically for the gold industry.

I think if that could evolve, in addition, into a reporting framework or standard on ESG adopted by all the gold companies, it would greatly increase transparency and get us the data we need. It makes me think, and this is much simpler of course—it is just one metric, but introducing the AISC5 metric many years ago really improved disclosures for the industry. It made a huge difference that, now, when most companies talk about costs, they are all pretty much talking about the same costs. Looking at that metric paints a much better picture of what margins truly are. The same could be achieved, I think, with some standardized metrics on sustainability for the gold miners.

BUTCHER: For the companies in which you invest, is it better to subscribe to third-party sustainability/ESG data or doing the research yourself?

CASANOVA: I think it will continue to be a blend of the two. We can always use external research, but it is also important to develop your own in-house tools. Similar to what we do with the financial models, it’s nice to see what others have to say, and we like having access to outside research, but in the end, we rely on our internal models and analysis for our investment decisions.

BUTCHER: Let’s talk about diversity. How do you approach the issue in the context of a gold mining company?

CASANOVA: All aspects of diversity are critical to me. However, I tend to focus on gender diversity in my discussions with the companies as this is the data that most, if not all, companies provide today. And I tend to focus on the board gender diversity more specifically. Not least because I think that is the “low hanging fruit.”

Personally, I think gender parity at the board level is a very achievable target in the short term. It’s not like net zero carbon by 2050. It really is something that can happen in the next few years. So, I do bring it up and make sure a company knows it is important. On a positive note, we are seeing a good trend in the sector. I always tell people I get very excited when I see that there has been a director change at a company, because there is a very high chance the new director is a woman. Which is great. But we have still some way to go.

BUTCHER: Proxy voting can be a useful tool. When it comes to the election of directors or a resolution on executive compensation and it was something with which you had an issue, would you make your views known via proxy voting at an AGM?

CASANOVA: Absolutely! When it comes to CEO compensation, we have been tracking the data for many years. If we see a disconnect between a company’s performance and pay relative to its peers, we will make sure our views are known through our vote. We also expect companies to link compensation to ESG targets, in addition to operational and financial targets. While Glass Lewis handles our proxy voting, we make a point of voting on these issues and, if necessary, we will vote against its recommendations to express our views. It’s also worth noting that, when we do this, we will inform our passive funds’ portfolio management teams of the active gold strategy’s decision. If they agree with our rational they may also change their votes.

BUTCHER: Do you think that active engagement with companies on these and other sustainability-related issues is important?

CASANOVA: As shareholders our engagements with companies on these issues is so important. Not only because we get the information we need for our analysis, but also because the companies receive our feedback and understand our priorities. And, hopefully, that can drive change and improvements on what we consider are certainly very important issues.

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1 ESG: Environmental, social and governance

2 IFRS: International Financial Reporting Standards Foundation

3 ISSB: International Sustainability Standards Board

4 MD&A: Management Discussion and Analysis

5 AISC: All-in sustaining costs

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