Tellimer

Russia: Assessing the "E" in metals & mining ESG — Risks and opportunities

  • The investment community is becoming increasingly aware of the risks and opportunities related to carbon businesses
  • Metals & mining remains one of the most carbon-intensive industry; move to a climate-neutral society needs new solutions
  • Our new research product “Eco-Warrior” monitors the situation, tracks new trends and highlight key ESG developments
Russia: Assessing the "E" in metals & mining ESG — Risks and opportunities

The investment community is becoming increasingly aware of the risks and opportunities related to carbon intensive businesses, which is gradually transitioning to new production methods and incorporating a wider set of considerations to comply with environmental, social and governance issues (ESG). This year ESG fund inflows have been growing at a higher pace across all asset classes: equities, bonds and money markets. Global ESG equity inflows grew 150% y/y to $76 bn according to Emerging Portfolio Fund Research. The number of ETFs tracking the MSCI ESG indexes has grown 34% since 2018 to 180 ETFs. Despite the fact that ESG equities comprise a modest 4-5% of total assets, continued progress in EU Green Deal implementation and the Paris Agreement make the topic more acute. The EU Green Deal provides an action plan to move to a clean, circular economy while restoring biodiversity and reducing pollution. The Paris Agreements’ main objective is to reduce the impact of climate change by capping the global temperature rise this century to within 2 degrees Celsius of pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 degrees Celsius.

The metals and mining (M&M) industry remains one of the most carbon-intensive. In terms of industry emissions, metallurgy comprises about 6.5% of all GHGs emitted in Russia, which ranks the country 4th globally. According to the World Steel Association, in 2018 GHG emissions in the steel sector alone accounted for around 7-9% of direct emissions from the global use of fossil fuels. We note the vital role M&M companies play in the development of the energy, transport and construction sectors.

The move to a climate-neutral society requires new solutions, which in turn requires massive investment. While climate change issues and the preservation of water resources top corporate agendas during Capital Markets Days billions of dollars are being poured into various initiatives. Nornickel, whose ESG position was severely challenged this year through the series of accidents in the region of Norilsk, announced a $5.5 bn plan for the next 10 years. The money is earmarked for environmental projects. We believe that in the near future the environmental footprint and regulatory misbehavior will mean just as much as financial parameters for businesses. We initiate our new research product, “Eco-Warrior” to monitor the situation in the M&M and Fertilizer sectors and to track new trends and the ESG ratings of companies in our coverage universe and to highlight key ESG developments.

In focus:

  • Paris agreement: Has everybody agreed?

  • EU Green Deal: New climate goal on the way

  • Nornickel: Ecological lessons learnt. Updated strategy enables transition to a greener world

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