‘Over five to ten years, good ESG performance will bear financial fruit’
Polymetal CEO calls for clearer standards for environmental, social and governance performance assessment
Sustainable businesses are now attracting more investment, so many companies are trying to improve their environmental, social and governance (ESG) performance ratings. At the same time, ESG assessment lacks clear criteria and standards.
Existing environmental, social and governance performance ratings do not always provide an accurate reflection of a business’ ESG risks, says Financial Times citing CEO of Polymetal Anglo-Russian precious metals mining company Vitaly Nesis. A number of companies including Sustainalytics, MSCI, Moody’s and S&P Global have launched ESG scores after big institutional investors started paying more attention to sustainability. However, rating agencies frequently lack a robust analytical framework, considers Nesis. “They just tick the boxes [...] on whether there is this policy on site or whether this is this statistic provided.”
As metrics are usually prepared by analysts sitting thousands of miles from operations, they do not always reflect reality, which is particularly important for mining, as it involves altering the environment. “We have many cases where investors are led to believe that a certain company is advanced in terms of ESG only to later discover that it’s not true,” says Nesis. For example, Rio Tinto mining group had high results in metrics used by investors, but the company has been caught up in crisis this year due to the destruction of two ancient Aboriginal rock shelters in Australia.
According to Nesis, the ESG investment drive needs a common set of rules similar to the International Financial Reporting Standards used to compare financial statements from companies around the world. He admits that financial reporting may also have some issues, but “it is a reasonably uniform and reasonably reliable way for investors to make informed decisions without needing to invest a lot of time and money to obtain objective information”.
Polymetal, the biggest London-listed gold producer, started to focus on ESG issues well before they became “fashionable” about three years ago, says Nesis. “We realised very early on we needed to have constructive and cordial relationships with stakeholders on the ground,” he says adding that local communities are very worried about environmental issues, first and foremost water quality and availability but then also biodiversity and deforestation.
Polymetal CEO considers that good ESG performance will correlate positively with shareholder returns in the longer term. “Over five to ten years, good ESG performance will bear financial fruit.”