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EUROPE’S FIRST ESG-FOCUSED GOLD MINING ETF TO LAUNCH ON LSE THIS MONTH

Europe’s first gold mining exchange traded fund (ETF) with an ESG-focused mandate will launch on the London Stock Exchange in July.

The AuAg ESG Gold Mining UCITS ETF tracks an index that ranks gold miners for ESG characteristics and only includes the sector’s 25 ‘best in class’ companies for ESG risk, based on screening from independent specialists Sustainalytics.

Created in partnership with boutique precious metals and green tech-focused AuAg Funds, the ETF will allow ESG-focused investors a unique opportunity to participate in the gold mining sector.

The fund is equally weighted to avoid concentration risks in larger gold miners. However, the possible underweighting of a few dominant mega-companies may also provide a beneficial return profile for the ETF in a bull market for gold and gold miners.

“We’re delighted to launch the AuAg ESG Gold Mining UCITS ETF (ESGO) which allows investment in the companies that extract precious metals, with an active ESG approach,” said AuAg chief executive Eric Strand.

“Mining is an industry that has seen vast improvements in all aspects of ESG, but standards vary across regions and companies. ESGO helps investors get exposure towards gold mining companies with the best ESG credentials and invest in the sector more responsibly.”

Mining, oil & gas and renewable energy news from around the world

STATE OF PLAY REPORT FINDS AUSTRALIAN MINERS ANTICIPATE ELECTRIFICATION

A new survey of over 450 Australian mining executives has found that mine electrification is widely expected to take place over the next 20 years, in one of the most pressing transformational imperatives for the industry.

Around 89% of respondents in the State of Play’s 2021 electrification survey said they think mine sites will electrify within the next 20 years, while over 60% expect the next generation of mines to be all-electric.

In support of the electrification thematic, the State of Play platform earlier this year created the Electric Mine Consortium, which is comprised of several mining and service companies from across the value chain.

The collaborative organisation is predicated on a trifecta of health, environmental and economic benefits that can be attained with mine electrification. Notably, 91% of respondents in the survey think electrification will spur new business models, while 53% would electrify for cost reasons.

State of Play co-founder Graeme Stanway told Australian Mining that electric equipment would allow for a shift to a clean future for mining where machinery is safe, automated and battery-powered.

“This would effectively cut out two of the biggest issues in mining: carbon impact and particulate exposure and result in zero carbon emission mines,” he said.

ESG performance in Latin America: The road forward for the extractive sector

How miners across Latin America can ensure the feasibility of their projects with greater ESG investment, by Remi Piet (Embellie Advisory)

The overall ESG performance of extractive industries has been coming under increasing scrutiny from investors and stakeholders over the last decade at least. Two factors will only further this trend in the next few years: 1) Higher international standards, including new regulations on transparency of supply chains in the mineral sector. 2) Regular opposition from local communities affected by extractive projects. Both will strengthen the need for better ESG strategies, in particular at the regional and local levels. These growing demands and tensions can be found in all mining jurisdictions, but it is particularly the case in Latin America as proven by recent election results and social unrest fuelled in part by anti-mining sentiments.

Investors and operators in Latin America now understand that they need to better assess above-ground risks and deliver on ESG commitments if they want to ensure the sustainability of their investments and the social licence to operate of their projects. The question of how to achieve this has been central to many of the Zoom webinars that we have attended in the last year.

One continent, many realities

Domestic pushes for better ESG performance will take very different forms in Latin America from one country to the next. In Peru, Pedro Castillo watered down his most drastic anti-mining proposals and tempered his campaign rhetoric after the inclusion of moderate leftist economist Pedro Franke in his advising team.

Moreover, Castillo does not have the support in Congress to modify the Constitution or increase royalties. His central political campaign promise however was to increase investments in the education and health sectors, in particular in mining regions, where the mining sector will have to step up its contribution.

Remi Piet

Remi Piet is a senior partner at Embellie Advisory - a boutique consultancy providing abovethe-ground risk analyses, counter-party risk assessments, ESG due diligence, community/ stakeholders agreements facilitation and social licence to operate solutions to the extractive sector in Latin America and Africa. Remi holds a Phd in Latin American political economy and Master degrees in sustainable development, business administration and economics. Remi has field experience in 70+ countries (Latin America, Africa and the Middle East) working with UN agencies and universities as well as helping investors, extractive companies and local communities reach agreements towards the inclusive development of mining territories.

In Chile, Elisa Loncon - a university professor and activist for Mapuche educational rights - was elected by a new Constitutional Assembly to preside over the rewriting of the Constitution. In Brazil and Colombia, green and left-leaning parties lead in voting intention for next year’s elections and in Ecuador, while investment-friendly Guillermo Lasso was elected last April, the ballot showed a strong surge of support for Pachakutik candidates behind Yaku Perez who almost edged Lasso in the first round.

To complete the panorama, the June 6th elections in Mexico were a relative setback for Andres Manuel Lopez Obrador at the federal level, but his Morena party won 11of the 15 governorships, many in mining states. The recent reforms to the royalty disbursement regime (Fondo Minero), which drastically cuts revenues channelled to local mining communities, will demand greater ESG investments from the mining sector.

Similarly, in Argentina, President Alberto Fernandez keeps relative support in mining provinces, in comparison with his possible opponents. He has previously called for increased contributions from mining companies.

The need to harness high commodity prices, increase ESG investments and improve their return is therefore clear for miners across Latin America. Political interference, economic conditions during the pandemic and social demands all lead towards increased pressure to design ambitious and efficient ESG strategies to secure supplies and the sustainability of investments.

On the positive side, there are also many benefits to increased investor and public scrutiny on the ESG impact of mining companies in Latin America. One of them is the improved reporting by the extractive sector itself on its ESG practices. As shown by the wave of recently published sustainability reports taking over our mailboxes, it is undeniable that industrial miners and investors have increased their focus on the issue.

If self-reporting has obvious methodological flaws, one must admit that mining companies in Latin America have a better grasp of the quantification of their economic impact on territories and stronger monitoring processes of their environmental performance on the heels of the disastrous Mariana and Brumadinho dam collapses in Brazil.

Refocusing on ‘S’ and ‘G’

Yet, by definition ESG performance encompasses three sets of criteria (Environmental, Social and Governance), each demanding very different expertise and methodologies. As our research interviews and perception studies among mining affected communities in Latin America regularly confirm, progress on social licence to operate of many projects are limited at best and contributions to governance quality are scarce.

If mining companies made progress in documenting their improved environmental standards, the positive impact of mining investments on the social wellbeing of affected communities and their contribution to improved governance (the ‘S’ and the ‘G’ of ‘ESG’) is less obvious. To make matters worse, data is harder to collect to sustain that claim.

Similarly in Latin America, environmental regulations stepped up faster than the needed regulations to reach free prior informed consent of communities despite the ILO 169 (Indigenous and Tribal Peoples Convention,

1989) being ratified by most countries on the continent. As a result, requested impact assessments and traditional ESG due diligence ahead of financing or M&A decisions have been skewed towards environmental compliance rather than on the monitoring and analysis of social and governance impacts.

The reputation of the sector in Latin America suffered from poor investment decisions that did not weigh enough social and governance variables in their due diligence methodologies and ultimate investment decision. Demonstrations against companies failing to reach community agreements made regular news headlines, disadvantaging sustainably run operations.

Nevertheless, the potential contributions of a responsibly run mining operation to the improved governance and inclusive development of a territory are important and obvious. A simple mapping of Sustainable Development Goals to mining operations offers insights on how to implement ESG corporate strategies towards the sustainable development of mining territories and communities. But to make that case to mining communities in Latin America, companies need to adopt a change of paradigm.

This paradigm change needs to include a move away from traditional top-down communication or irregular facilitation of agreements with communities worsened by the pandemic restrictions. It should start with a transparent dialogue on mining contributions to a territory including a socialisation of best practices in local content, societal contribution and support to good governance.

The constant overemphasis on the economic contributions of the mining sector to host territories at the expense of more comprehensive explanations has reinforced unreasonable expectations in local content and reduced the spotlight on social and governance initiatives.

Mining communities in Latin America rarely perceive – and in many cases never receive – most of the argued trickledown benefits of mining investments. Many reasons can be underlined as recurring causes, from the weakness of local institutions to national and regional competition over royalties disbursement.

However, wherever you place the blame, the result remains the same and mining companies in Latin America will have to increase their ESG investments to bridge the rift of perception and communication with local communities.

Best practices and innovative solutions

To end on a positive note, there are ways to achieve this objective for companies willing to harvest the recent surge in commodity prices into sustainable investment with