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Aiming for change – Stewardship in the mining sector

Home / EOS Blog / Aiming for change – Stewardship in the mining sector

Bruce Duguid
22 August 2016

In our engagement with mining companies, we focus on a variety of issues, ranging from climate change to health and safety and governance.

Setting the scene

Much of the world’s higher grade mineral resources can be found in the more remote parts of developing nations, where there is frequently poor infrastructure and weak governance. Operators can therefore face significant local environmental and social risks. While best practices can help mitigate many of these risks, climate change presents a number of structural challenges that require a whole-business response. The first of these is the energy and therefore carbon-intensive nature of mining itself, which involves shifting large quantities of bulky materials, followed by their processing and smelting. The threat of carbon pricing is a significant business risk and mining companies must focus on energy efficiency and renewable energy solutions. The second threat is to the demand of the products, which often are the cause of emissions, such as coal, or which may be substituted by other, lower-carbon and lighter materials, for example aluminium for steel. The good news for mining companies is that while some commodities appear threatened by the move to a low-carbon economy, others should do better, such as copper, which supports better grid infrastructure and the electrification of transport, uranium, which is used in nuclear power generation and lithium and cobalt, which are used to make batteries for electric vehicles.


Disclosure of climate change risks

Mitigating the risks mining companies face from climate change has been a core part of our engagements with companies. We have focused on improving corporate reporting of climate risks, setting an objective relating to the disclosure of asset portfolio resilience to climate change for several of the mining companies in our engagement programme.

We have asked companies to stress-test their portfolios – analysing their assets to see how they would perform in different circumstances – using recognised greenhouse gas emissions scenarios, such as those developed by the International Energy Agency. This includes analysis of their existing portfolios, as well as the new pipeline of products over a period to at least 2035. Furthermore, they should assess the impact of changes in demand for commodities on the supply curve and develop price implications before communicating the impact of the resulting scenarios qualitatively and quantitatively and describe their response to the scenarios and the implications for strategy.

One notable example has been the publication of climate change portfolio analysis by Anglo-Australian multinational mining company BHP Billiton in 2015. It set a welcome precedent in transparency by a major company regarding preparedness for the challenges of climate change. The scenario-based analysis underpinning this publication was the result of a successful engagement by Hermes EOS in 2014. Somewhat reassuringly for investors, due to BHP Billiton’s welldiversified portfolio, the work set out that even in a more extreme 2°C scenario with a cost of carbon of $80/tonne – the latest cost of carbon in the EU emissions trading scheme was €5.60/tonne on 30 June 2016 – climate change is estimated to reduce the operating margins of the company over a 20-year period by approximately only 5%. While demand for some commodities is anticipated to fall in a lowercarbon economy, the company expects it to rise for others. We have used this precedent to encourage the company’s peers to carry out a similar exercise.

Shareholder resolutions

As part of the Aiming for A coalition of investors, we filed climate change-related shareholder resolutions at oil and gas majors BP and Shell in 2015 in the belief that carefully crafted, supportive but stretching shareholder proposals can play a positive role in encouraging best practice during the transition to a low-carbon economy. Such resolutions also highlight the need to balance the short- and longerterm aspects of shareholder value creation. Throughout 2015, we raised the idea of filing similar resolutions on the disclosure of asset portfolio resilience to climate change with the chairs of three major diversified mining companies, namely Anglo American, Glencore and Rio Tinto, all of which are listed in London.

Board support increases the likelihood that a resolution will be passed and ensures management will be committed to implementing the resolution. While each chair indicated his informal personal backing during the engagement, formal board support could not be guaranteed. It was necessary to demonstrate the scale of long-term institutional investor support by meeting the required thresholds for co-filing required by company law.

The shareholder resolutions we recommended our clients to co-file asked for enhanced disclosure of the companies’ approach to climate change risks, including management of operational greenhouse emissions, their strategic portfolio resilience to low-carbon scenarios, research and development into low-carbon solutions, their public policy position on climate change, as well as their overarching corporate governance framework and link to key performance indicators.


In the end, we successfully met the required thresholds by bringing together over 100 supportive institutional investors for the shareholder proposal submitted at Rio Tinto and 50 for the resolution at Jerseybased Glencore. We eventually also managed to pass the required 5% alternative threshold for the shareholder proposal at Anglo American. In total, investors responsible for more than $8 trillion, including clients of Hermes EOS, were involved in filing the resolutions.

At the AGMs of the respective companies, the shareholder proposals received overwhelming support, namely 99% at Glencore, 98% at Rio Tinto and 96% at Anglo-American.

Anglo American committed to finalising energy efficiency targets at its AGM, following the restructuring of the business. It also agreed to carry out further analysis of the resilience of its principal commodities to low-carbon scenarios, as well as to explore the link between remuneration and climate change-related key performance indicators.

Rio Tinto meanwhile promised to work with institutional investors to explore new ways of analysing climate change risks.

With the shareholder resolutions all passed, we are now working with the companies to help define the nature of the additional disclosure required to meet the requirements of the shareholder resolutions, which ideally should be part of the strategy section of their annual reports, and give feedback on first drafts. Glencore has already published its view of the robustness of its business to low-carbon scenarios and committed to conducting this analysis on the basis of a 2°C scenario, which is particularly important given the company’s relatively high exposure to thermal coal.

Public policy work

As part of our engagement, we collaborated with the Institutional Investors Group on Climate Change (IIGCC) to produce the document called Investor Expectations of Mining Companies – Digging deeper into carbon asset risk which outlines the approach and disclosure that investors expect of mining companies concerning climate change risks.

We are also working with the Task Force on Climate-related Financial Disclosures, set up by the chair of the Financial Stability Board, to establish guidelines for standardised risk disclosures by companies on climate change. This will help to increase the scope of reporting across more companies, as well as its comparability. It should also mean that we do not have to use the administratively cumbersome approach of using more shareholder resolutions to achieve the disclosure required by investors across the industry.

Social engagements

In addition to the focus on environmental issues over the last year, we continue to engage on social issues. This has entailed ensuring that during the cost-savings programmes introduced at many mining businesses following the downturn in commodities, companies are not cutting corners on health and safety, environmental protection and investment in their social licence to operate. It includes programmes on community relations, as tension with local communities can lead to significant reputational, operational and financial risks.

While acknowledging that fatalities are difficult to eliminate, in our engagements we have pushed for effective and culturally sensitive health and safety training and that systems and procedures are in place across all operations globally and audited and updated regularly. In general, we have seen health and safety standards improve across the sector, reflected in, for example, lower lost time injury frequency rates.

Good governance

We also continue to engage with mining companies on good governance. In the wake of the Bento Rodrigues dam disaster in Brazil in November 2015, where a dam burst as a result of mining operations by Samarco, a joint venture between BHP Billiton and Brazilian mining company Vale, we have stepped up our engagement efforts on the governance of joint venture-operated mines. Above all, we want to make sure that lessons are learned and applied to future mining operations across the industry.

So while the activities of mining companies naturally have an impact on the environment, locally and globally, as well as on communities living or working near mines, in our engagement we have pressed for better environmental, social and governance standards in their operations. We are pleased about the steps the mining companies have taken on climate change, for which we have helped pave the way, and will continue our engagements in that and other areas.

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Bruce Duguid Bruce Duguid is a director at Hermes EOS and leads engagements with environmentally-exposed companies across the mining, oil and gas and utilities sectors, as well as corporate governance engagements in the UK. He is the lead author of the Institutional Investors Group on Climate Change’s 'Investor Expectations of Mining Companies – Drilling Deeper into Carbon Asset Risk’. Prior to joining Hermes EOS he was head of sustainability at the UK Green Investment Bank, where he spent four years working on the project to establish the bank and then building its sustainability function. Before working in sustainability, Bruce worked in corporate strategy as a management consultant at the Boston Consulting Group and as head of strategy at Visa Europe. He is also a qualified lawyer in England and Wales and holds a degree in Natural Sciences from Cambridge University.
Read all articles by Bruce Duguid

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