To celebrate Climate Week 2022, learn from Deputy Portfolio Manager Imaru Casanova about how VanEck’s gold investing team is engaging with companies within its portfolio on climate factors and how gold companies are working to meet their emissions reductions targets.
Which unique climate–related factors are driving investment decisions and engagement with companies?
Let me start by saying that when it comes to the gold strategies, the active gold strategies, we’ve spent the last years, the last 2–3 years trying to, I guess, formalize the way we incorporate ESG (environmental, social, governance) factors into our investment process. Needless to say, those factors have always had been part of our decision making and company selection but we’re trying to make it more clear and transparent, and more formal, how we do that.
As part of that process, a few years ago we started to not just have regular management meetings with companies in the portfolio, but to also engage with them annually to discuss environmental, social and governance issues, and specifically environment and social. We find more opportunities to discuss governance issues related to process et cetera, but the environment and social aspects, we thought, require a separate meeting to, annually, at least, to really focus on what the key factors are for our companies.
That was step one. Then, as a step two, what we’ve been doing this year is we’ve been sending templates to the companies to collect what we consider are the key metrics.
I won’t cover all of them here, but when it comes to climate, it’s the obvious ones: scope 1, 2 and 3 emissions. And what we’re asking of companies is to provide historical data so that we can see the trend.
Ultimately, what we’re looking at from our – come from portfolio companies when it comes to climate is 1) that they are in the process of or have already set targets and 2) the roadmaps the path that they’re laying out in how they are going to achieve those targets.
Most companies, most of the larger companies at least, have already set targets for reductions in the next 10 years and a lot of them have set the target of carbon neutrality by 2050.
What kinds of technology will companies use to achieve the climate targets?
How these companies are going to achieve the reductions in emissions that they are targeting comes from different areas. It’s all about technology and this technology is in different stages.
You have technologies that are ready to use and deploy. They’re ready to be implemented. Then there are technologies that are in development and then there are other areas that are really in the research stage. Those are the ones that may potentially drive the longer–term goals but are still very much in research stage.
For the gold mining companies in our portfolio there are some key areas. Number one is the electrification of the fleet, electrification of mobile equipment. The reductions from emissions that would come from that are a big driver and a big part of the plans that these companies have to achieve their targets.
The other source is renewables. Either to switch the local self generation of power, because a lot of these mines are in areas where local generation is required (self–generation of power), so switch that to renewable sources, or to switch to grids that are more environmentally friendly.
Those two are key components of decarbonization of the industry and it comes with challenges, of course. One of the big challenges is battery storage, both for electrification of vehicles, as these are large vehicles, and for storage of renewable energy, battery technology is extremely important.
This energy needs to be stored and while battery technology is obviously already in use, there is still a lot that is in development and research stage that these companies can use to meet their goals.
Then companies are looking at the use of alternative fuels, such as hydrogen and biofuels, and other fuels that are better for the environment.
Then comes energy efficiencies. Companies can produce less carbon if they find ways to be less energy intensive. The optimization of processes and operations is another area where companies are looking to achieve some gains.
Lastly, and this is something that companies are trying to use, but not rely on, and they feel like they might have to use, are some carbon mutualization offsetting projects. Most have made it clear that they don’t expect to rely on these projects heavily, some companies have said no more than 10%. They include nature–based solutions: areas where carbon can be either captured or re–utilized or stored in a way that offsets the company’s emissions.
Those are really the areas where the companies are focusing on in their goal to achieve carbon neutrality.
What does the future hold for these companies?
We’re encouraged to see companies, first of all, setting their targets – most of them have or are working on it.
Two, we’re encouraged to see the plans to achieve those targets developing. At first, we got some plans that were pretty general and now, annually the companies are producing plans that are more detailed: where specific projects or specific sites are, outlining how this reduction in emissions is going to be achieved and where it’s going to come from.
That’s also very good. And ultimately, and finally, we’re very happy to see that companies are disclosing all this information, via very comprehensive sustainability reports that include all the information and the data that as investors and stakeholders, we want to be published and disclosed.
Newmont (NEM), for example, the largest gold mining company in the world, not only produces a comprehensive sustainability report, but they also produce a climate report which analyzes all the risks and opportunities related to climate. This goes to show the level of disclosures that we’re seeing from the gold mining companies at present.
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