Do ESG efforts create value?

This was the question posed by Bain & Company and EcoVadis in assessing how environmental, social, governance (ESG) activities and outcomes have impacted more than 100,000 companies.

Their findings suggest the answer is an emphatic ‘yes’—in addition to benefiting the planet and society, ESG performance is associated with higher profit.

They found four major correlations:

  1. Companies with more women on the executive team had better financial results.
  2. Renewable energy usage correlated with higher margins in carbon-intensive industries (like mining).
  3. Companies that focused on ethics, environmental and labour practices within their supply chains were more profitable.
  4. ESG leaders had higher employee satisfaction.

These results are only the latest in a raft of reports that suggest setting ESG targets, tracking results, embedding ethical decision making, securing sustainable supply chains and practices that reduce emissions and increase diversity are all associated with higher profitability.  

Of course, quantitative studies like this can’t prove that sustainability efforts necessarily led to these strong financial outcomes – a range of factors are at play.

Our experience at ReGen Strategic is that most companies recognise ESG is important, but are not really sure where to start or how aggressively they should pursue their ESG goals. This is particularly so in the mining industry, where resources companies are often seen by the public as directly adding to the level of carbon in our environment through their operations.

IGO is one example of an Australian mining company that successfully changed their business by embracing better ESG performance. Their very purpose ‘making a difference’ is linked to the decarbonisation of our planet, with a strategy linked to ethical and sustainable production, carbon neutrality, and people – all areas identified by the study.

IGO was founded as Independence Gold in 2000 and was listed on the ASX in 2002. For the next decade the company built a successful business in gold and base metal mining.

In 2014, Peter Bradford was appointed CEO and the company started on a new path. In 2015 the first sustainability report was published, and in 2017 IGO’s strategic direction was refocused to clean energy metals. Since that time, base metal and gold mines have been progressively divested, large solar farms and battery storage facilities have been built, carbon has been partially offset, and a range of lithium and other clean energy metal projects were acquired or commenced.

Fast forward to 2023, and IGO is uniquely placed as the only company globally producing four key raw battery materials: nickel, lithium, copper and cobalt. All these elements will play a critical role in the transition to a zero emissions future, with demand expected to accelerate quickly in the coming years.

Of the four correlations mentioned in the study above, IGO has achieved 57 per cent female representation on the board and make up 75 per cent of the senior executive. It has adopted renewable energy, with its largest mine building a 15.5MW solar farm and 10MWh battery storage system. IGO’s supplier evaluation methodology prioritises ethical decision making when selecting and managing suppliers, as well as upholding fundamental human rights through the supply chain as described in the Modern Slavery Statement. And finally, 89 per cent of employees said they were proud to work for IGO, with a similar percentage saying IGO was accepting of diverse backgrounds.

IGO’s pathway to sustainable development is maturing and they are increasingly adopting ESG frameworks and reporting standards. There is a long way to go, but the company has resolutely embarked on an ESG path, and brought their employees, investors and stakeholders on the journey.

So, has it paid off?

Well, if you invested in IGO stock five years ago, you would now have seen a 174 per cent return on your investment, compared to a 21 per cent increase in the ASX index. Last month, IGO reported record net profits after tax of $412 million for the March quarter.

You be the judge.


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