Metal producers remain vital for the transition to the low-carbon economy, supplying the raw materials for electric vehicles among other products, while the world will be reliant on fossil fuels for many years to come, he says.
It would therefore be more effective to find solutions to decarbonize the much-maligned sector rather than treating it as the ‘new tobacco’, says Berkouwer, portfolio manager of the Robeco Sustainable Global Stars Equities fund.
He recently discussed the issue of the vexed and sometimes conflicting environmental, social and governance (ESG) issues of the major mining companies while participating in several ‘Mining and ESG’ panels at the Indaba mining investment conference in South Africa.
“Investors face a paradox as miners play a crucial role in the transition to a low-carbon economy,” he says. “Effectively, they are the gatekeepers in providing the essential raw materials needed, for example, to power electric vehicles and the whole infrastructure around them, for which we need 10 times more metals than today.”
“No miner is the same, but even those that have little coal exposure are greatly unloved by investors: they trade at half the valuation levels of other industrial companies, despite having a superior return on invested capital (ROIC), 35% higher dividends and generate one and a half times more free cash flow.”
“Even though the big global miners outperform the general market on just about every financial metric, the MSCI Metals and Mining Index has significantly underperformed for many years. It seems like there is always a stick to beat a miner with.”
Coal miners are a case in point: some large investors have called for companies deriving 25% or more of their revenues from thermal coal to be excluded from portfolios; Robeco advocates a lower figure of 10% for its sustainable portfolios.
“From an environmental point of view this totally makes sense – thermal coal miners are not needed in the energy transition. But whether we like it or not, thermal coal is still one of the lowest cost energy sources and remains a large portion of primary energy demand for many years to come, particularly in emerging markets,” says Berkouwer.
“So those demanding that companies get rid of their coal assets as soon as possible should be very cognizant of the fact that many of these companies play a crucial role in local economies. They create lots of jobs and build necessary infrastructure, and they simply lack the resources to radically alter their model. We can target the environmental aspect of their ESG, but from the social perspective, it is simply not that easy.”
Berkouwer says one way to do this is for the miners to switch to renewable energy for their own power, and to electrify their transport fleets, since their use of electricity and fuel make up about 70% of their emissions.
“There are many interesting examples of this happening, such as Chilean copper miners signing contracts to use renewable energy sources at 40% lower cost than fossil fuels,” he says. “One major mining company is trialing hydrogen-powered equipment for underground ventilation, while another is using captive hydroelectric power assets in Canada.”
“Another innovation is using zero-carbon inert anode technology for smelting aluminum which, for example, could save 6.5 million tons of CO2 a year in Canada alone – equivalent to taking two million cars off the road,” Berkouwer says.
“If this works, it will be a huge breakthrough, since making aluminum is by far the most energy-intensive process out there. It uses 15 times as much energy as steel-making and is very carbon heavy, given that most smelting is done through coal-fired power generation.”
Berkouwer says miners should get better at promoting their own public image, highlighting the essential role that they play in the modern world. This may also enhance their downtrodden market value.
“Miners should also be more pro-active in integrating ESG, making clear how a threat can be turned into an opportunity. Miners have had too many failed investments in the past with cost overruns and perennial project delays.”
“Our modern societies have been built on the shoulders of mining companies; they are the gateway to the wider economy, even in today’s tech age. In contrast to a tobacco company, miners and their customers are often part of critical infrastructure, and even deemed to be of ‘strategic interest’.”
“As with all sustainability topics, the issue is not that straightforward. Several miners are still controversial, but have big plans for portfolio reviews (i.e. phasing out thermal coal) and are already investing in improving their environmental footprint (i.e. lowering their cost structure).”
The users of their materials also need to change their ways, and both suppliers and customers need to work together. We have seen the first fossil fuel companies take up that responsibility after investors (among other interested parties) engaged with them. They have started collaborating with their customers, too.”
“We believe that simple screening or exclusion methodologies do not cut it. When you divest from a company, you transfer the ‘problem’ to another party that might not care, or might care less, about climate change. That is why we as Robeco apply a large range of strategies and tools, to be as effective as we can to help bring about change.”
“And yes, thermal coal does indeed not belong in a sustainable portfolio, and the discussion about whether it should be in any portfolio is something we need to debate every day, along with other controversial products. But we hope to show that the issue is much more complex than people may think.”
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商号等： ロベコ・ジャパン株式会社 金融商品取引業者 関東財務局長（金商）第２７８０号
加入協会： 一般社団法人 日本投資顧問業協会