Can you share a bit about ResponsibleSteel’s mandate and its importance to the mining and investment sector?
ResponsibleSteel was established as an international, multi-stakeholder, standard-setting, assurance and certification organization focusing on responsible, low-GHG steelmaking. It is a unique organization, enjoying the support and membership from a growing number of major international steel producers, mining companies, and downstream steel users/buyers in the automotive and construction sectors.
ResponsibleSteel has decided not to establish its own mine certification programme, and is working to recognize or accredit credible programmes that meet its environmental, social, and governance (ESG) requirements. This avoids duplication and will provide support for credible mine certification programmes.
Investors are increasingly looking to independent certification systems to demonstrate high levels of ESG performance and reducing GHG emissions. As lenders and investors work to reduce their climate risk and make net-zero carbon emission commitments, ResponsibleSteel is well placed to provide them with the information and data they need to help them make informed investment and lending decisions.
What is the history of sustainable or ESG-focused investment?
ESG investing has its origins in the concepts of ethical investment that were first developed by faith-based organizations seeking to align their approach to investment with their wider beliefs. Over the last thirty years, investment approaches have become increasingly sophisticated, taking account of social (labour, health, safety, community) and environmental (water, biodiversity, climate) issues, in addition to ethical concerns.
It is now conventional for asset owners, such as pension funds and their asset managers, to include ESG issues into their investment decision making, and a growing body of evidence shows that longer-term outperformance is possible from these investment approaches. Over the last few years, the value of assets under ESG investment management approaches has risen substantially, and is now thought to have reached US$40 trillion.
Why do we see this growing focus on sustainable investment?
Investors are looking to maximize their “risk-weighted returns”. In other words, they want to generate the greatest financial return while recognizing that some investments are riskier than others. Many ESG issues are now seen as risks that can damage profitability and therefore returns. So, as the data improves, and the links between good ESG and financial performance are strengthened, it is no surprise that the market is driving ever higher levels of ESG investment.
Independent certification has been a useful tool to link companies along a value chain with civil society in order to develop and agree on common standards
Who are some of the leaders in sustainable investing and what sets them apart?
There are now many government and private sector pension funds in North America, Europe and, increasingly, Asia-Pacific, who have wholly embraced ESG investing approaches and now require the asset managers which invest funds on their behalf to take them into account to reduce the long-term ESG risks that can occur. The leaders in sustainable investing have a deeper knowledge of the ESG risks of the companies in which they invest, and work to reduce these risks by either excluding these companies from their portfolios, or engaging with them to make company management aware of the risks, and the importance of addressing them in a timely fashion.
Who are some leaders in the sustainable steel space and what sets them apart?
I would say that all of the companies which have joined ResponsibleSteel are leaders in sustainability and are managing their businesses for long term success. They recognize that good ESG performance is becoming necessary to maintaining their license to operate (the ability to maintain regulatory support and customer confidence) and their access to capital (the ability to maintain access to the debt and equity funding required to run a business over the long term).
How has the COVID-19 pandemic shifted the discussion around decarbonization, sustainability, and ESG?
Over the last year, customers and investors have become increasingly concerned about a range of ESG issues: local community rights, mine safety, tailings disposal issues, labour rights, water use, air pollution, biodiversity and, probably the biggest issue of all, GHG emissions reduction. There is now strong alignment between government commitments and plans to decarbonize national economies, supply chain carbon reduction commitments, and media/civil society/investor pressure to act quickly in alignment with the challenging targets of the Paris Agreement to limit global temperature rise to 1.5 degrees Celsius.
Industrial sectors and companies are now at risk of losing their licenses to operate and their access to capital if they fail to act quickly to deliver good performance on ESG and carbon emissions, as capital is directed away from poor performers, where the risks are higher, towards those with a good track record.
How can the work that is being done at ResponsibleSteel be duplicated across other metals or within the mining industry overall?
Independent certification has been a useful tool to link companies along a value chain with civil society in order to develop and agree on common standards on important environmental and social issues. Many commodities, such as timber, coffee, cocoa, and palm oil, have well-established certification systems that are shaping the way these commodities are grown and produced.
Similar developments are now taking place in mining and metals, and a large number of systems are under development. Some are national, while others focus on mining or individual metals, including steel or copper.
Looking ahead, the number of systems is likely to continue to grow and then, over time, will be driven by market and investor requirements. Consolidation will take place, with the best and most credible systems persisting to underpin the continued sustainable development of the mining and metals sector.