Mining companies with higher ESG ratings outperform the broader market
Mining companies with higher ESG (environmental, social, governance) ratings outperformed the broader market through the Covid-19 crisis, delivering 34 percent average total shareholder return over the past three years — 10 percentage points higher than the general market index. Photo: Supplied
By Edward West
Mining companies with higher ESG (environmental, social, governance) ratings outperformed the broader market through the Covid-19 crisis, delivering 34 percent average total shareholder return over the past three years — 10 percentage points higher than the general market index.
This was according to PwC’s 18th Annual Review of the Top 40 Mining companies, which examines global trends in mining. Although many companies in the Top 40 mines understood the importance of ESG, some still viewed it as a tick-box exercise, the survey said.
Net profit in the sector was up 15 percent, cash on hand rose 40 percent, and market capitalisation rose by nearly two-thirds to $1.46 trillion (R19.8bn).
Top 40 revenue was $545bn for 2020, up 4 percent from 2019.
Higher prices for gold and iron ore and modest gold and copper production increases were the main drivers of revenue growth.
Copper was the stand-out performer, contributing $122bn to overall revenue. Its higher price reflected increased demand, which resulted in part from a market shift towards commodities that were valuable in the global transition to a low-carbon future.
“As a key ingredient for the ‘electrification’ of economies, copper will likely be at a premium for some time.” The price of copper reached an all-time high in May 2021. Based on consensus data, the average price of copper was predicted to increase by 40 percent in 2021, PwC said.
The survey said forecasts indicated that the Top 40 mining companies would report record-high revenue and earnings before interest, tax, depreciation and amortisation levels and the second highest net profit.
Demand for minerals that went into clean energy technologies was expected to increase six-fold in 20 years.
Top 40 coal production fell 12 percent in 2020. Coal mining deals slipped from five in 2018 to zero in 2019 and 2020.
PWC Africa mining leader Andries Rossouw said the global mining sector had demonstrated resilience and agility in adapting operations during the pandemic.
And while the drive towards environmental sustainability had created a volatile landscape for mining companies, it also presented an opportunity for transformation.
“The past year has demonstrated how putting ESG at the core of a strategy is crucial for delivering growth. It’s clear investors in this sector will continue to be drawn to companies that embrace ESG policies,” said Rossouw.
Only 30 percent of the mining companies surveyed embraced tax transparency reporting in 2020. The report found a further 39 percent of mining chief executives were extremely concerned about tax policy uncertainty, more than double the number in the previous year’s survey.
Tax transparency, a key ESG metric, gave miners the chance to highlight their significant financial contributions to their communities and resulting improvements in education, infrastructure, and quality of life. The majority of Top 40 companies did not produce tax transparency reports in 2020.
PwC South Africa Mining tax leader Laetitia le Roux said mining companies should embrace tax transparency as an integral part of their ESG strategy.
“This will support the sector to be more transparent about the taxes and rents they pay and the social benefits these contributions deliver, such as hospitals, schools and infrastructure,” she said.
Miners needed to engage with stakeholders and start to “bake” ESG into their strategies. Miners should also set targets regularly, report progress transparently and refine their approach continually.
The survey said the uptake of renewable energy and commodity recycling was projected to increase, driven by the falling cost of generation, rising carbon taxes, the push to move to a more sustainable circular economy, and the growing number of governments and organisations committing to net-zero emissions by 2050.