Mining Companies with High ESG Ratings Outperform the Market in Financial Performance

A sustainability and tax analysis of the top 40 mining companies reveals that the future of the industry will be led by those companies that actively adopt consistent sustainability, social responsibility, and corporate governance policies.

“During the peak of the COVID-19 pandemic, the highest ESG-rated miners delivered financial performance above that of the overall market, with an average total shareholder return of 34% over the past three years, 10 percentage points above the overall market rate.”

The figures come from Mine 2021, PwC’s 18th annual Top 40 Mining Companies Report, which examines global trends in the industry. The report also reveals a 12% drop in coal production by these companies during 2020, highlighting the sector’s continued transition towards net-zero emissions reduction.

With data including a 15% increase in the sector’s net income, 40% increases in cash on hand, and a nearly two-thirds growth in market capitalization to $1.46 tn, the report also reveals signs of optimism for 2021. Forecasts indicate that the top 40 mining companies will report record levels of revenue and EBITDA and the second-highest net income. At the same time, demand for minerals used in clean energy technologies is expected to increase six-fold over the next 20 years.

Leonardo Viglione, a partner of PwC Argentina, leader of the Mining Industry, commented: “Undoubtedly, the future looks very good for the mining industry. The year 2020 left an excellent financial state that should translate into improved shareholder returns and new project developments, but also into greater investments in the industry’s conversion to sustainability and environmentally friendly operating processes (green production). ESG factors are no longer just a social license to operate: the industry will have to start changing the mindset to include these issues into the DNA of corporations, just as it did in the past with people’s safety. Going forward, it is clear that shareholders in this sector will be increasingly attracted to companies that actively embrace ESG policies.”

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Fiscal transparency: vital importance for ESG issues

Fiscal transparency, a key ESG metric, provides an opportunity for miners to highlight their financial contributions to communities and the resulting improvements in education, infrastructure and quality of life.

However, while fiscal transparency is one of the primary ways for companies to demonstrate their commitment, only 30% of the top 40 mining companies filed fiscal transparency reports in 2020. According to the report’s data, 39% of mining and metals company CEOs are extremely concerned about tax policy uncertainty, more than double last year’s (18%). This represents a long-term risk for the sector.

“In a context where the resources of the State are starting to be less and less, as a result of the pandemic crisis, we see a tendency to many changes in tax matters in legislation that generally tend to increases in the tax contribution for companies. This, which is evident at a global level, is also reflected in Argentina – for example, in the changes in the income tax rate or changes in export duties applicable to mining activities”, commented Fernando López Menéndez, Managing Director of PwC Argentina, Tax & Legal area.

“Customers, employees, communities, governments, and suppliers now expect companies to create sustainable value. Mining companies must incorporate tax transparency as an integral part of their ESG strategy. In this way, the relationship with the taxes and revenues they pay and the social benefits derived from those contributions to hospitals, schools, and infrastructure will be clearer,” concluded López Menéndez.

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(Featured image by xusenru via Pixabay)

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First published in ComunicarSe, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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