The head of the biggest London-listed gold producer has called for common reporting standards on environmental, social and governance performance in the mining sector, saying current methods of ESG scoring are often inconsistent, inaccurate and an exercise to “tick the boxes”.
Vitaly Nesis, chief executive of Polymetal, said fund managers were confronted with a “smorgasbord” of ESG ratings, many of which did not reflect reality.
“In the cases where you need to measure actual relationships with the workforce or the host communities . . . rating agencies frequently lack a robust analytical framework,” Mr Nesis told the Financial Times. “They just tick the boxes . . . on whether there is this policy on site, or whether this is this statistic provided.”
As big institutional investors focus more heavily on sustainability, a plethora of companies have started offering ESG scores. These include Sustainalytics and index providers such as MSCI, as well as credit rating agencies Moody’s and S&P Global.
However, it is not clear that metrics prepared by analysts sitting thousands of miles from operations provide an accurate reflection of a business’s ESG risks. This is particularly important for mining, which by nature involves altering the environment.
Industry consultants cite the example of Rio Tinto, which scored highly in metrics used by investors but was tipped into crisis by the destruction this year of two ancient Aboriginal rock shelters in Australia.
“We have many cases where investors are led to believe that a certain company is advanced in terms of ESG only to later discover that it’s not true,” said Mr Nesis.
He added: “You can’t base your estimate of the relationship with the workforce, for example, on a self-reported employee satisfaction score. I know at least a couple of ESG score providers who do just that.”
Mr Nesis said the ESG investment drive would “benefit hugely” from a common set of rules similar to the International Financial Reporting Standards that allow investors to compare financial statements from companies around the world.
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“I’m not saying financial reporting is not without issues . . . but it is a reasonably uniform and reasonably reliable way for investors to make informed decisions without needing to invest a lot of time and money to obtain objective information,” he said.
Polymetal, which has a market value of £8.3bn, operates eight mines and a state of the art processing plant in Russia and Kazakhstan, and produced 1.6m ounces of gold last year. The company, which is a member of the FTSE 100 index, has won plaudits from investors for its approach to ESG and its focus on two jurisdictions.
It is often referred to as the “Russian Randgold”, a reference to the Africa-focused group that was the UK’s biggest gold miner for years until its takeover by Barrick in 2018.
Mr Nesis said Polymetal started to focus on ESG issues well before they became “fashionable” about three years ago.
“We realised very early on we needed to have constructive and cordial relationships with stakeholders on the ground,” he said. “Local communities are very worried about environmental issues, first and foremost water quality and availability but then also biodiversity and deforestation.”
In 2018 Polymetal became the first Russian company to join the Dow Jones Sustainability Index, and last year it obtained a sustainability-linked loan with Société Générale.
“I think good ESG performance will correlate positively with shareholder returns not short term but definitely longer term,” said Mr Nesis. “Over five to 10 years, good ESG performance will bear financial fruit.”