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Mining a valuable resource: why ESG is material for credit investors

Research and investment experience tells us that ESG creates a differentiating factor for investors, who need to look beyond credit metrics to develop a more complete picture of corporate risk and potential return. ESG risks influence credit spreads, and therefore the prices of credit securities. New research by Dr Michael Viehs, Engagement and Research Manager and Anna Chong, Credit Analyst at Hermes Investment Management explores how the relationship holds up in one sub-sector of the asset class: basic materials, which is particularly exposed to ESG risks.

This issue also looks at two case studies – mining companies Vale and Freeport McMoran – to show how contrasting ESG profiles influence views on how instruments should be priced.

Dr Michael Viehs, said: “Extracting and processing the world’s natural resources is both integral to the global economy but also fraught with risks due to labour relations and social and environmental concerns, which can ultimately impact financial performance. Nearly all global miners with a diversified base of operations need to mitigate ESG risk.”

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