In celebration of Climate Week 2022, learn from Deputy Portfolio Manager Imaru Casanova how VanEck’s gold investment team is engaging with companies in its portfolio on climate factors and how gold companies are working to meet their emissions reduction targets.
What unique climate-related factors are driving corporate investment decisions and engagement?
Let me start by saying that with the gold strategies, the active gold strategies, we’ve spent the last few years, the last 2-3 years, formalizing the way we incorporate ESG (environmental, social, governance) factors into our investment process. Of course, these factors have always been part of our decision-making and company selection, but we’re trying to be clearer and more transparent and more formal about how we do it.
As part of this process, we started a few years ago not only to hold regular management meetings with companies in the portfolio, but also to engage with them on an annual basis to discuss environmental, social and governance issues, and environmental and social issues in particular. We find more opportunities to discuss governance issues related to processes etc. but the environmental and social aspects we thought would require a separate meeting to focus on the key drivers for our businesses at least annually.
That was step one. Then, as a second step, this year we sent out templates to companies to collect what we think are the key metrics.
I won’t go into all of them here, but when it comes to climate, it’s the obvious ones: Scope 1, Scope 2, and Scope 3 emissions. And what we’re asking companies to do is provide historical data so we can see the trend.
Ultimately, when it comes to climate, what we look at in our portfolio companies is 1) that they are in the process or have already set goals, and 2) the roadmaps of how they are going to achieve those goals.
Most companies, at least most larger companies, have already set targets for reductions over the next 10 years, and many of them have set a target of carbon neutrality by 2050.
Which technologies will companies use to achieve the climate goals?
How these companies will achieve the targeted emission reductions comes from different areas. It’s all about technology and that technology is in different stages.
They have technologies ready to be used and deployed. You are ready to implement. Then there are technologies that are in development, and then there are other areas that are really in the research stage. These are the ones that may be driving the longer-term goals but are still in the research phase.
There are a few key areas for the gold miners in our portfolio. Number one is fleet electrification, electrification of mobile devices. The resulting emissions reductions are a big driver and a big part of the plans these companies have to meet their goals.
The other source is renewable energy. Either to convert to local self-generation, as many of these mines are located in areas where local power generation is required (self-generation of electricity), i.e. to switch to renewable sources, or to switch to greener grids.
These two are key components of industrial decarbonization and of course come with challenges. One of the big challenges is battery storage, both for the electrification of vehicles, since they are large vehicles, and for the storage of renewable energy, battery technology is extremely important.
This energy needs to be stored, and while battery technology is evidently already in use, there is still much in the development and research phase that will enable these companies to achieve their goals.
Then companies look at the use of alternative fuels such as hydrogen and biofuels, as well as other more environmentally friendly fuels.
Then comes energy efficiency. Businesses can produce less carbon if they find ways to be less energy intensive. Optimizing processes and operations is another area in which companies try to make a profit.
Finally, and this is something companies are trying to use but don’t rely on and feel they may need to use, there are some carbon community offset projects. Most have made it clear that they do not expect to rely heavily on these projects, with some companies saying no more than 10%. This includes nature-based solutions: areas where carbon can either be captured or reused, or stored in a way that offsets the company’s emissions.
These are really the areas that companies are focusing on to achieve carbon neutrality.
What does the future of these companies look like?
We’re encouraged to see how companies set their goals first – most of them have them or are working towards them.
Second, we are encouraged to see how plans are developing to meet these goals. At first we were given some pretty general plans, and now companies make plans annually that are more detailed: where specific projects are, or specific sites, outlining how that reduction in emissions is going to be achieved and where it’s going to come from.
That’s very good too. And finally, we are very pleased that companies are disclosing all this information, through very comprehensive sustainability reports that contain all the information and data that we as investors and stakeholders want to publish and disclose.
For example, Newmont (NEM), the world’s largest gold mining company, produces not only a comprehensive sustainability report, but also a climate report that analyzes all climate-related risks and opportunities. This shows the level of disclosures we are currently seeing from the gold miners.
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