Panel 3: ESG linked mining finance and investment was moderated by Iain Duncan, Partner, Energy, Natural Resources and Infrastructure, Simmons & Simmons.
The panel consisted of:
· David Williamson, Head of Operations, Environment and Sustainability Department, European Bank for Reconstruction and Development
· Jamie Strauss, CEO, Digbee
· Dmitry Aksakov, Head of ESG Banking, VEB.RF
· Kay Hope, EEMEA Corporate Credit Analyst, Bank of America
· Katya Gorbatiouk, Primary Capital Markets – Russia, CIS, Central Asia, London Stock Exchange
· Dr. Yulia Cherepanova, Head of ESG Investment, Mayen Capital Management
Evolving developments in ESG and Sustainability Reporting was one of main topics of the discussion.
Kay Hope started the discussion with the general direction she can see in her engagements with mining companies and investors. ESG is bringing changes to transparency, innovation, and competition. Investors are looking to diversify from Oil & Gas to MIFTs (metals important to future technologies). To date over 3 trillion US dollars’ equivalent of loans have been issued to fund the Green, Social and Sustainable linked commitments. Over 40% of those were issued in 2021. The growth of ESG funding is expected to continue bringing the total investment in Climate Change Action to 120 trillion US dollars by 2050.
David Williamson spoke on behalf of EBRD which manages on behalf of 223 members around 4.95 bln Euros investment portfolio in the private sector. The bank is not a profit- and loss-making organisation and directs its investment to stimulate economic growth. Green transition is playing a key part in EBRD’s projects and represents over 50% of the capital expenditure. The demand for ESG-linked finance is growing geometrically. In practical terms, the definition of sustainability, monitoring, and measurement represent challenges for investing. The key to success is to match financial tools with results and commitments. There are lots of opportunities for ESG finance innovation.
Katya Gorbatiouk agreed that compliance with ESG-disclosure is one of the critical impediments to companies. The recent announcement of the IFRS foundation of harmonised sustainability reporting standards should help to overcome the defragmentation of frameworks and help companies to focus on transition. Jointly with the United Nations, London Stock Exchange is developing climate reporting standards which many stock exchanges around the world started adopting. She also suggested that private investors can play a crucial role in the transformative process by developing engagement protocols that are highly detailed and focused on the deep issues and might not only be focused on the English language disclosure but also on the local languages. Katya also highlights that it will be also helpful if the companies are not expected to be perfect from day one (as it can turn them avoid this kind of engagement altogether) and instead set milestones.
Jamie Strauss noted that the global mining industry has raised less than 4 bln US dollars of green bonds to date and is frozen off the green bond market. To open this market up, investors need credible data. However, meeting data transparency demand can be especially challenging for the junior mining companies as they simply might not have the resources to disclose the data in the way that they are asked to. This makes investing in the industry more challenging.
“Disclosure is not enough,” says Kay. “It is not a tick a box exercise. We need to have targets; what the current situation, what you are going to do about it, how you are going to do it, how much is going to cost?”. The sustainability-linked bond market is terrific for smaller companies as it allows them to link their KPIs to the bond value. Keeping up with the ESG commitments can help companies to increase the value of their bond and puts the power in their hands.
Dmitry Aksakov agreed that setting realistic transition goals is very important and it might not be reasonable to apply pure green bonds equally to all the companies as some of the requirements are way too high for some of the companies. That’s why the bank has created its own rule book for green financing in Russia. The projects are divided into Green and Transitional. Currently, the transitional projects represent the majority of transactions as purely Green projects are rarely financially viable.
Yulia Cherepanova commented that the majority of the companies she has been in contact with do not see the ESG transparency as a necessary aspect to highlight in their meetings with the potential investors. The demand for sustainability is high but it might be hard to comprehend for some people how the mining industry can be sustainable. And there is a lack of quality data about sustainability. This, in her opinion, makes mining less attractive to investors, especially to impact investors.