Climate Considered: Gold Investing

view original post

chonticha wat

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.

Important Disclosure

Please note that VanEck may offer investments products that invest in the asset class(es) or industries included in this webinar.

The views and opinions expressed are those of the speaker and are current as of the video’s posting date, and are not necessarily those of VanEck or its employees. Video commentaries are general in nature and should not be construed as investment advice. References to specific securities and their issuers or sectors are for illustrative purposes only. This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data.

Sustainable Investing Considerations: Sustainable investing strategies aim to consider and in some instances integrate the analysis of environmental, social and governance (ESG) factors into the investment process and portfolio. Strategies across geographies and styles approach ESG analysis and incorporate the findings in a variety of ways. Incorporating ESG factors or Sustainable Investing considerations may inhibit the portfolio manager’s ability to participate in certain investment opportunities that otherwise would be consistent with its investment objective and other principal investment strategies.

ESG investing is qualitative and subjective by nature, and there is no guarantee that any of the proprietary assessments of material ESG issues or the factors used by VanEck, or any judgment exercised by VanEck will reflect the opinions of any particular investor. Information regarding responsible practices is obtained through voluntary or third–party reporting, which may not be accurate or complete, and VanEck is dependent on such information to evaluate a company’s commitment to, or implementation of, responsible practices. Socially responsible norms differ by region. There is no assurance that the socially responsible investing strategy and techniques employed will be successful. An investment strategy may hold securities of issuers that are not aligned with ESG principles.

ESG integration is the practice of incorporating material environmental, social and governance (ESG) information or insights alongside traditional measures into the investment decision process to improve long term financial outcomes of portfolios. Unless otherwise stated within an active investment strategy’s investment objective, inclusion of this statement does not imply that an active investment strategy has an ESG–aligned investment objective, but rather describes how ESG information may be integrated into the overall investment process.

There are inherent risks with equity investing. These risks include, but are not limited to stock market, manager, or investment style. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

The Gold strategy is subject to the risks associated with concentrating its assets in the gold industry, which can be significantly affected by international economic, monetary and political developments. The strategy’s overall portfolio may decline in value due to developments specific to the gold industry. The strategy investments in foreign securities involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, or political, economic or social instability. The strategy is subject to risks associated with investments in Canadian issuers, commodities and commodity–linked derivatives, commodities and commodity–linked derivatives tax, gold–mining industry, derivatives, emerging market securities, foreign currency transactions, foreign securities, other investment companies, management, market, non–diversification, operational, regulatory, small– and medium–capitalization companies and subsidiary risks.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.

No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Securities Corporation.

© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.

Van Eck Securities Corporation, Distributor666 Third Avenue, New York, NY 10017

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.