Waiting for the Green Rush
It’s been widely noted, with the energy transition, that we are moving from a hydrocarbons- to a minerals-based economy. Less well known, is that the mineral resources required to reach current net-zero targets exceed known supplies. Projected shortages extend not just to rare earths and battery minerals – which are a major concern – but also to mainstream metals. The International Energy Agency (IEA) predicts that, on the current trajectory, global production of copper and nickel will satisfy only 70% and 80% of the respective requirements by 2035.
These constraints are further exacerbated by geopolitics, as many critical minerals are disproportionately sourced from a single country or region, rendering supply susceptible to political expediency or price manipulation.
With demand increasing for its products, one might expect mining investment too to be increasing. The IEA estimates that between now and 2040, $800 billion needs to be invested into mining to have any chance of limiting the average rise in global temperatures to 1.5º C. However, according to a November 2023 report from the European Securities and Markets Authority, as a percentage of assets under management, commodities are down from 9% in 2009 to 2% today.
To better understand this situation, Metals for Humanity (M4H) – a specialist consultancy that designs and implements strategic CSR projects for mining companies – commissioned a report by FT Longitude, an affiliate of the Financial Times, to canvas 150 large-scale investors about their attitudes towards mining.
Aerial view of a processing factory and sand mine.
Investor Reluctance
The mining-investment gap is remarkable in that most institutional investors subscribe to the United Nations Principles for Responsible Investing and the Science Based Targets Initiative, whose goal is to promote economy-wide net-zero emissions by 2050. The FT report showed that, for most investors, the connection between the energy transition and mining is clear. Yet, the indispensability of mining is not reflected in valuations.
Apple’s market cap is almost double the combined market cap of the top 50 listed mining companies. Likewise, the valuation multiples of major mining companies are weak.
According to S&P Capital IQ and Refinitiv, the average forward priceto-earnings ratio of BHP, Rio Tinto, Glencore, Anglo American and Vale is 8.5 times, versus 18.5 for the S&P 500.
These results are no doubt influenced, in part, by natural economic cycles. But decarbonisation is a structural mega trend that the previous UK government has characterised in terms of a “green industrial revolution”. Its effects obviously will be felt beyond standard market fluctuations.
Neither mining’s acknowledged connection to their principled professional commitments, nor the prospect of profiting through an apparent counter-cyclical buying opportunity is enough to convince investors to invest in mining. The survey asked why.
Investor Worries
While investors are wary of the business model (extraction rather than value adding) and political risk, the single reason most investors gave for their hesitancy towards mining was concern over mining’s impacts on local communities.
Though notable that this ostensibly ethical concern would dominate more hard-nosed considerations amongst mainstream investors, it is hardly surprising that community impacts made the list. By its nature, mining is a difficult and disruptive business, and it is fair to say that, historically, the industry has not taken the
interests of all who it touches duly into account.
But when it comes to social performance there has been a veritable sea change in the industry in recent years. Community relations is now a C-suite responsibility in every major mining company. Greater and more effective efforts can always be made.
But there has been a palpable change in the industry, and examples of positive benefit are not too hard to find. It is incumbent on the mining community to articulate these changes persuasively and cogently.
Changing the Script
This situation is partly due to cognitive bias; mining suffers from social stigma.
A recent GlobeScan survey ranked mining beneath oil & gas and the tobacco industry in terms of public trust. Academic psychology has shown just how difficult it is to counter such a long-settled view. Part of the problem, too, has to do with communication challenges specific to social performance.
Unlike the financial or environmental dimensions of business, that are expressed quantitatively, the relationship between a company and a local community is fundamentally qualitative. It is hard to capture this aspect in a generic metric.
Mining companies are not particularly adept at communicating their social achievements, to a predominantly sceptical audience. The credibility deficit combined with the lack of an easy, all-purpose means for conveying social performance make it difficult for investors to appreciate the changing picture.
There is much that mining companies can and should do to improve their social performance. But even as they do, the aforementioned challenges will remain.
Positively impacting communities.
The report makes five related recommendations.
Mining companies should:
- Develop an ESG framework for decarbonisation and a strategic social investment programme with measurable impact;
- Go beyond a ‘do-no-harm’ policy; social initiatives must ensure that host communities are properly engaged and can see, experience, and understand the benefits of mining operations and related products;
- Work towards greater visibility and transparency of mining operations and processes, employing independent third parties to offer objective validation;
- Develop an evidence-based communications programme, sharing key data and meaningful stories that can reach wider audiences, to shift the public perception of mining from being the problem to being part of the solution;
- Work to standardise ESG data to enable investors to better appreciate and easily compare companies across the mining sector, recognising progressive, investment-worthy practices.
Given all that depends on it, every effort should be made to ensure greater convergence between progressive mining companies and committed investors. The path forward requires a unified commitment to transparency, community engagement, and effective communication to bridge the investment gap and secure a sustainable future for the green transition.
