What is the impact of ESG on the share price of a mining company?

The global metals and mining sector is increasingly exposed to ESG risks, including issues related to water, emissions and deforestation. At the same time, investor interest in mining companies operating in the environmental space is growing exponentially across the world. Additionally, investors are closing the doors on companies that are unable to disclose ESG information in a way that is welcomed by investors.

ESG has come to the forefront due to increasing investor demand for environmental, social and governance issues and data. Decisively, investors began to consider measures beyond financial statements. They also provided a new set of criteria against which mining standards can be measured.

Good reading: Why Big Players Should Focus on ESG Membership – Australia’s Mining Sector

What is ESG?

ESG comprises a set of criteria used to assess a company’s environmental, social and governance (ESG) performance. Investors can assess these financial metrics to identify investment opportunities, growth prospects, and significant risks in the market.

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ESG is directly linked to sustainable investing or often referred to as ESG investing, which has generated financial gains while reflecting positive effects on society. ESG assessment is a type of forward-looking assessment of a company’s ESG performance that assesses the organization’s preparedness for future risks and opportunities.

The ESG scores obtained by the company measure the verifiable reported data published by the company in the public domain.

Good reading: Explained: climate change and the role of the mining industry

ESG and green investment

Green investment

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A lead on the systematic and standard form of ESG disclosures can significantly encourage green money pools to invest in the mining sector. Sustainability reports are becoming more and more popular in mid to large cap companies, but the problem with these is that they are assessed on a self-assessment basis and not on a third-party assessment.

The industry must move away from self-assessment to find a credible solution to attract new pools of green investment.

ESG and the company’s stock market performance

Currently, the stock prices of mining companies that are not ESG compliant are not falling, but the industry may experience a downward trend in the years to come. It is expected that companies that do not join ESG will become uninvested by traditional institutional groups.

This could help cleaner companies with positive ESG scores have lower intrinsic risk and benefit from a lower cost of capital, as the world moves towards carbon neutrality in the decades to come.

Must read: What is the impact of ESG on mining companies?

Final result

With more savvy and environmentally conscious investors, ethical investing has become very popular these days. Higher ESG performance can dramatically increase green investment in mining companies.

Richard L. Militello