GEMM April 17th Vancouver S.Kibsey ,BSc,BEng,MBA,CFA,SIPC VP Equity Risk Management Caisse de depot et placement du Quebec
Introduction:Components of Sustainable Investing : Governance Social Responsibility Environment Environment Economics Economics APPROACH : DIALOGUE 2
Introduction : Dialogue with Stakeholders Environment / Government / NGO / Regulators Employees / Suppliers Shareholders / Debtholders Management / Board/STAKEHOLDER PANEL Trade –Industry Assoc. Community / Clients ESG CONSIDERATIONS IN THE LIFE CYCLE AND VALUATION OF May-3-12 3 MINING ENTERPRISES
Introduction: Dialogue with the Stakeholders R.Edward Freeman- Strategic Management: A Stakeholder Approach `` any group or individual who can affect or is affected by the achievement of the organization`s objectives``. The basic premise of stakeholder theory is that the stronger your relationships are with other external parties, the easier it will be to meet your corporate business objectives; the worse your relationships, the harder it will be. Strong relationships with stakeholders are those based on TRUST, RESPECT and COOPERATION. Mel Wilson ( Ivey Business Journal) - Shareholders and investors want optimum return on their investments- Employees want safe workplaces and job security- Customers want quality and low prices- Communities want local investment and environmental protection- Regulators want full compliance- Management wants to deliver on financials, etc…..There is acknowledgement that the goals of economic stability, environmental protection, social justice, good governance are common across many stakeholder groups- -- however there may be a debate among them on the level of priority or urgency. ESG CONSIDERATIONS IN THE LIFE CYCLE AND VALUATION OF May-3-12 4 MINING ENTERPRISES
1.SUSTAINABILITY ISSUES OFTEN DOMINATE THE RISK PROFILE OF LARGE PROJECTS Example from Risk matrix for a South American mine project Core sustainability issue Major civil Government disruption due to becomes unfriendly >5% war, rebellion, toward foreign severe turmoil investment Negative impact on Negative impact on Major accident with Major accident with Severe conflict with Severe conflict with Collapse of local Collapse of local expected NPV* 1-5% impact on people local economy or environment community/NGOs % Adoption of new Severe conflict with <1% standard on safety, work unions environment <1/100 >1/100 - <1/20 >1/20 Probability 5 * Reduction in project NPV when taking into account the full impact of the event and its probability of occurrence Source: McKinsey
1. ESG Risks are High for the Mining Sector - (thanks to UBS may17th 2010 esg analyser) ESG CONSIDERATIONS IN THE LIFE CYCLE AND VALUATION OF May-3-12 6 MINING ENTERPRISES
1. MANAGE THE RISKS ALONG THE SUSTAINABILITY JOURNEY and GENERATE OPPORTUNITIES Shape “The strategic thing to do” Manage “The clever thing to do” Defend “The right thing to do” • Obtain a “license to • Ensure long-term • Develop a competitive Objective operate” viability of the advantage business business • Protect and enhance • Take a long-term view • Turn risks into Approach to risk and reputation on risks opportunities • Differentiate the opportunities business • No choice • Grow share Why do it? • Stay in the pack • Grow margins • Attract and retain talent 7 Source: Interviews; McKinsey
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1. RISK OF SUSTAINABILITY AS A MANAGEMENT SCIENCE BEING STILL IN ITS INFANCY Lifecycle of management practices Mature Getting there – only a few have it Early days Typical • Untrained people • Specialists • Experts characteristics • Ad hoc processes • Processes in place but • Processes embedded in day- not well adapted to not well adapted to to-day to-day business needs • Non existent or • Sophisticated, but not • Sophisticated, adapted tools simplistic tools well adapted tools • Isolated champions • Several believers • CEO is the champion 9 9 Source: McKinsey
2.ISSUE/PRIORITY/OPINION To get stakeholders to communicate : need education-certification of all stakeholders in the supply chain on sustainability and and forums for dialogue so there is an exchange from finance to operations and the rockface to the boardroom
2.Two Important Governance Structures to embed sustainability � A) Trade-Industry Associations in the Supply -Value Chain -Norms (External Driver) � B) Stakeholders Panels - Consultation/Advice/Dialogue (Internal Driver)
A.Greater Governance : Trade Associations � In general 7600 in US and 1600 in UK � Set a level playing field for industry players worldwide on ESG � Set guidelines and protocols to manage ESG � Set guidelines and protocols to manage ESG risks � Improve an industry`s image based on real changes and provide education on ESG � Set a platform for dialogue with Stakeholders and peers
A.Mining is usually early in the Value-Chain (UNEP-FI) ESG CONSIDERATIONS IN THE LIFE CYCLE AND VALUATION OF May-3-12 13 MINING ENTERPRISES
A.Despite Early Days- there are a lot of standards- Mining Example (thanks to Stratos and Julie Gelfand) Industry Initiatives: TSM,ICMM,PDAC Management Systems Standards : ISO 14001,OHSAS 18001, ISO26000 International Voluntary Initiatives : UN Global Compact, EITI, VPSHR, OECD Guidelines, Carbon and Water Disclosure Projects Reporting standards : AA1000, GRI Financial standards : IFC-SEPS Indices : DJSI, Jantzi Commodity Standards : Resp. Jewel., Int Cyanide, Kimberly 14
A.Importance of trade associations in the supply (value) chain Example : Gold production Exploration PDAC Mine 60 % (15 companies produce ~ 50 % of mine production) RJC RJC RJC EICC EICC WGC LBMA WJF LBMA ICMM Bullion Refining Manufacturing Retail MAC-TSM Banks ARM CASM Capacity 40 % Jewlery 90 % Unallocated utilization 10 % Industrials 10 % Allocated ~ 50 % 40 % Finance SCRAP 40 % (300,000 sources)
B.Greater Governance :Stakeholder Panels � A great source of input and feedback for a CEO, management group, board of directors, CSR and IR professionals � Creates a forum for discussion and exchange on investment and ESG risks � Very low cost and very independent 16
B.Stakeholder panels � Composition: about 10-15 people meet 1-4 times per year � Investors (equity and debt) � Community leaders (national,regional, and local) � NGO`s (environment,social,governance) � Consultants (environment,social,governance) � � Customer Customer � Supplier � Human Resource professional � Company Operations (corporate,field,union) � Trade Association Representatives � Independent facilator (sustainability expert) � Government Representative 17
Finally!!! What Investors need: � 1) Education for the Investor Relations Director at Companies and all employees from rockface to boardroom � 2) Sustainability Reports that include ESG and geopolitical risk analysis � 3) Companies to create STAKEHOLDER PANELS, discuss ESG on quarterly conference calls, and include at least 1- ESG on quarterly conference calls, and include at least 1- hour session on sustainability during their analyst day � 4) Companies to include a member of the board with sustainability experience � 5) Information providers such as Jantzi, GMI,MSCI and Carbon and Water Disclosure Projects � 6) Good information and guidelines from the TRADE Associations along the supply chain 18
Conclusion: Our ESG assessment tools require good intangible information 7 criteria 50 Individual elements Judgement required Integration into the Qualitative score Valuation of the enterprise L'INTÉGRATION DES FACTEURS ESG DANS 19 L'ANALYSE FONDAMENTALE
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