Investors must 'challenge' mining companies on board composition

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Investors should challenge extractive companies on the level of scientific knowledge on boards and ensure they evaluate the impact of adverse weather on their business, according to a guide by the Institutional Investor Group on Climate Change (IIGCC).

The guide – ‘Investor Expectations of Mining Companies’ – is meant to develop market best practice, according to lead author Bruce Duguid, associate director at Hermes EOS.

It also aims to ensure company boards make decisions in the long-term interest of shareholders.

Stephanie Pfeifer, chief executive of the IIGCC, added that the investor community was setting out “as clearly as possible” its expectations of mining companies in the lead up to the UN climate change conference in Paris.

“The guide has been developed to help investors step up their engagement with the mining sector as part of their ongoing efforts to better manage climate risk across their portfolios,” she said.

The guide sets out a number of investor expectations in the area of company governance, the reduction of greenhouse gas emissions, and how effectively the risk stemming from climate change is incorporated into business plans, but also a company’s level of lobbying, as a means of stress testing business strategy.

It suggests companies be asked about their views of carbon price, and how their views are aligned by any shadow carbon price already employed for their internal models.

It also says companies should be challenged on their views of crucial carbon abatement policies, such as the US clean power plan and the Australian direct action policy, enacted after the current government abolished the fixed price on carbon.

In line with recent calls for oil companies to sever ties with trade associations that lobby in ways at odds with a company’s public pronouncements on climate change, it urges investors to demand disclosure of the governance procedures in place to monitor views of industry groups funded by companies.

Directly addressing board compositions, investors are urged to ask whether any board members have an understanding of the economics of climate change, “including an understanding of the policies and technologies likely to prove disruptive to long-term demand for key commodity groups”.

Emma Herd, chief executive of the Australian and New Zealand Investor Group on Climate Change, said the guide would allow the market to react to climate change “by driving thorough scenario testing, risk analysis and transparency” among mining companies.