Financiers changing companies’ behaviour
Financial institutions and other investors are driving the shift towards green energy and the rise of impact investing
Executives in the mining and other environmentally taxing sectors are becoming more serious about sustainability as financiers and investors demand more sustainable practices from companies who want their money.
Global sustainability consulting firm Environmental Resources Management (ERM) said on Wednesday during the launch of its 2019 sustainability report that financing institutions and other investors are driving the shift towards green energy and the rise of impact investing by walking away from companies and projects that do not take issues such as environmental, social and governance (ESG) concerns into account.
“The banks, the lenders, private equity, international financing institutions are all now asking questions about projects,” said ERM CEO Keryn James.
These investors were using their financial muscle to influence how businesses do business by considering issues such as climate change and energy transition when deploying capital, she said.
“The money is saying if you don't address sustainability issues, we don’t believe that your business will be sustainable in the long term and therefore it presents an investment risk that we are not prepared to take any more.”
In SA, banks have adopted a firm stance on addressing climate change, with Standard Bank putting a resolution on the issue for its shareholders to vote on in June.
Though Standard Bank’s majority shareholders voted against the resolution to disclose the extent to which it is exposed to climate change risks, it was nonetheless a watershed moment as this was the first time shareholders in a South African company voted on such a resolution.
James said investors were using tools such as green bonds, which are frequently oversubscribed, to show companies that they want them to move towards sustainable ways of doing business, such as using renewable energy.
“They are using their financial muscle to try to influence the kinds of decisions that businesses are making.”
James said that globally private equity firms had more than $400bn in funding that was searching for projects with a strong approach to sustainability.
Mining house Goldfields said even the mining sector, where in the past profits were generated at the expense of the environment, investors are demanding a balance between the two.
“There are a lot more ESG investors now who fully get it. There’s a lot more financial institutions who make sure that when they give you a loan, at least you tick the boxes where it matters,” said Goldfields' vice-president of corporate affairs, Sven Lunsche.
Even traditional investors now understand that if companies do not do sustainability properly, they will not survive in the long-term, he said.
“If you carry on not sharing any of the benefits with communities adjacent to your mine, they are going to make sure that either the government stops you or the community itself,” said Lunsche.
Seara Macheli-Mkhabela, head of corporate affairs at Anglo American, said the mining house has seen an increase inf questions about sustainability from investors in the past few years.
Correction: August 29 2019
An earlier version of this article said 90% of questions that Anglo American gets from investors relate to sustainability. In fact, the company cannot quantify the percentage of queries it gets about sustainability.
Also, Environmental Resources Management was incorrectly referred to as Environmental Research Management.