What are we looking for?
Mining companies that recognize the value of water.
Integrating sustainability considerations into investment analysis is considered a “new” practice by some investors, and one that is more aligned with philanthropy than profit-seeking. However, Goldman Sachs Group Inc., an institution many would associate with capitalism in its purest form, wrote more than 10 years ago that water was “the petroleum for the next century." Michael Burry, featured in Michael Lewis’s The Big Short, was one of the first investors to spot the impending U.S. housing market crash and make an active bet against it, making hundreds of millions of dollars in the process. His trading is now focused on one commodity: water. If investors with this kind of track record are focused on water, it is probably worth considering. And at the very heart of the issue is probably the first financial concept anyone learns: Don’t spend more (drawing from aquifers) than you earn (the rate at which aquifers are replenished).
Of the 54 industry groups classified under the Thomson Reuters Business Classification scheme, only utilities use more water than metals and mining. With the latter such a key industry to our economy, we will look at how Canadian miners compare with the best performers globally.
First, we consider how dependent companies are on water withdrawal by looking at the number of cubic metres withdrawn per million U.S. dollars in revenue. We screen for companies using less than 10,000 cubic metres. This might sound like a lot, but the average for a metals and mining company is 33,400 cubic metres.
Next, we look at the proportion of this water withdrawal that is freshwater. Talk of water shortages are in reference to freshwater specifically (think Cape Town, which had a very severe and high-profile water shortage recently, and is on the ocean). When companies use non-freshwater sources, they aren’t competing with local populations and agriculture. We require that no more than 75 per cent of water withdrawn be from freshwater sources.
Finally, we look at the amount of water that is sourced internally by recycling or reusing and thus avoiding further withdrawals. We require this to be at least 70 per cent of water sourced externally.
More about Refinitiv
Refinitiv, formerly the financial and risk business of Thomson Reuters, is one of the largest providers of financial markets data and infrastructure, serving more than 40,000 institutions worldwide. Refinitiv’s ESG data cover more than 400 environmental, social and corporate governance metrics.
What we found
The screen yields five companies with one Canadian representative – Toronto-based Agnico Eagle Mines Ltd. While it exceeds the other four miners listed in terms of water withdrawn relative to revenue, Agnico also reports on cubic metres of freshwater used per tonne of ore processed (not shown), and this figure has improved to 0.37 of a cubic metre of water per tonne processed, down from 0.63 in 2009. The gold miner also reduced the volume of water released to the environment from mining operations to 9.8 million cubic metres in 2018, down from 11.9 million cubic metres in the previous year.
Aluminum maker United Co. Rusal recently became the first Russian borrower to sign a sustainability-linked loan. The financing, where the amount of interest paid on the loan is tied to sustainability targets, drew a higher level of interest than initially expected, despite the fact that it was also met by the market with some skepticism over that country’s environmental record. Rusal’s corporate structure is also somewhat convoluted: It is incorporated in Jersey (where majority shareholder En+ Group PLC is headquartered and incorporated), headquartered in Cyprus, and its main stock listing is in Hong Kong – despite the fact that most of the trading volume, revenues and assets are in Russia.
Investors are advised to do their own research before trading in any of the securities shown here.
Hugh Smith, CFA, MBA, is director of Refinitiv’s ESG and investment management business for the Americas, and is a director on the board of the Responsible Investment Association of Canada.
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