GEMM April 17th Vancouver S.Kibsey ,BSc,BEng,MBA,CFA,SIPC VP Equity - - PowerPoint PPT Presentation

GEMM

April 17th Vancouver S.Kibsey,BSc,BEng,MBA,CFA,SIPC

VP Equity Risk Management Caisse de depot et placement du Quebec

Introduction:Components of Sustainable Investing :

Governance Social Responsibility Environment Economics

APPROACH : DIALOGUE

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Environment Economics

Introduction : Dialogue with Stakeholders

Environment / Government / NGO / Regulators

Employees / Suppliers Shareholders / Debtholders

Community / Clients

Trade –Industry Assoc.

Management / Board/STAKEHOLDER PANEL

Introduction: Dialogue with the Stakeholders

R.Edward Freeman- Strategic Management: A Stakeholder Approach `` any group or individual who can affect or is affected by the achievement of the organization`s objectives``. The basic premise of stakeholder theory is that the stronger your relationships are with other external parties, the easier it will be to meet your corporate business objectives; the worse your relationships, the harder it will be. Strong relationships with stakeholders are those based on TRUST, RESPECT and COOPERATION.

Mel Wilson ( Ivey Business Journal) - Shareholders and investors want optimum return on their investments- Employees want safe workplaces and job security- Customers want quality and low prices- Communities want local investment and environmental protection- Regulators want full compliance- Management wants to deliver on financials, etc…..There is acknowledgement that the goals of economic stability, environmental protection, social justice, good governance are common across many stakeholder groups--- however there may be a debate among them on the level of priority or urgency.

1.SUSTAINABILITY ISSUES OFTEN DOMINATE THE RISK PROFILE OF LARGE PROJECTS

Example from Risk matrix for a South American mine project

Core sustainability issue

>5% Negative impact on

Government becomes unfriendly toward foreign investment Severe conflict with Collapse of local Major civil disruption due to war, rebellion, severe turmoil Major accident with

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* Reduction in project NPV when taking into account the full impact of the event and its probability of occurrence Source: McKinsey

1-5% <1% Negative impact on expected NPV* % Probability <1/100 >1/100 - <1/20 >1/20

Severe conflict with local community/NGOs Adoption of new standard on safety, environment Collapse of local economy Major accident with impact on people

• r environment

Severe conflict with work unions

• 1. ESG Risks are High for the Mining

Sector - (thanks to UBS may17th 2010 esg analyser)

• 1. MANAGE THE RISKS ALONG THE SUSTAINABILITY JOURNEY and

GENERATE OPPORTUNITIES

Objective

• Obtain a “license to
• perate”
• Ensure long-term

viability of the business

• Develop a competitive

advantage Defend Manage Shape “The right thing to do” “The clever thing to do” “The strategic thing to do”

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Source: Interviews; McKinsey

business

• Take a long-term view
• n risks

Approach to risk and

• pportunities
• Protect and enhance

reputation

• Turn risks into
• pportunities
• Differentiate the

business

• Stay in the pack

Why do it?

• No choice
• Grow share
• Grow margins
• Attract and retain

talent

• May-3-12

8 ESG CONSIDERATIONS IN THE LIFE CYCLE AND VALUATION OF MINING ENTERPRISES

• 1. RISK OF SUSTAINABILITY AS A MANAGEMENT SCIENCE BEING STILL

IN ITS INFANCY

Typical characteristics Early days Getting there – only a few have it Mature

• Untrained people
• Specialists
• Experts
• Ad hoc processes
• Processes in place but

not well adapted to

• Processes embedded in day-

to-day

Lifecycle of management practices

Source: McKinsey

not well adapted to business needs to-day

• Non existent or

simplistic tools

• Sophisticated, but not

well adapted tools

• Sophisticated, adapted tools
• Isolated champions
• Several believers
• CEO is the champion

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2.ISSUE/PRIORITY/OPINION To get stakeholders to communicate : need education-certification of all stakeholders in the supply chain on sustainability and and forums for dialogue so there is an exchange from finance to operations and the rockface to the boardroom

2.Two Important Governance Structures to embed sustainability

A) Trade-Industry Associations in the Supply -Value Chain -Norms (External Driver) B) Stakeholders Panels

• Consultation/Advice/Dialogue

(Internal Driver)

A.Greater Governance : Trade Associations

In general 7600 in US and 1600 in UK Set a level playing field for industry players worldwide on ESG Set guidelines and protocols to manage ESG Set guidelines and protocols to manage ESG risks Improve an industry`s image based on real changes and provide education on ESG Set a platform for dialogue with Stakeholders and peers

A.Mining is usually early in the Value-Chain (UNEP-FI)

A.Despite Early Days- there are a lot of standards- Mining Example

(thanks to Stratos and Julie Gelfand)

Industry Initiatives: TSM,ICMM,PDAC Management Systems Standards : ISO 14001,OHSAS 18001, ISO26000 International Voluntary Initiatives : UN Global Compact, EITI, VPSHR, OECD Guidelines, Carbon and Water Disclosure Projects

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Reporting standards : AA1000, GRI Financial standards : IFC-SEPS Indices : DJSI, Jantzi Commodity Standards : Resp. Jewel., Int Cyanide, Kimberly

A.Importance of trade associations in the supply (value) chain

Example : Gold production

Exploration Mine 60 %

(15 companies produce ~ 50 % of mine production)

PDAC RJC EICC RJC SCRAP 40 %

(300,000 sources)

Refining Bullion Banks Manufacturing Retail WGC ICMM MAC-TSM ARM CASM LBMA EICC LBMA RJC WJF

Capacity utilization ~ 50 % 90 % Unallocated 10 % Allocated 40 % Jewlery 10 % Industrials 40 % Finance

B.Greater Governance :Stakeholder Panels

A great source of input and feedback for a CEO, management group, board of directors, CSR and IR professionals Creates a forum for discussion and exchange

• n investment and ESG risks

Very low cost and very independent

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B.Stakeholder panels

• Composition: about 10-15 people meet 1-4 times per year
• Investors (equity and debt)
• Community leaders (national,regional, and local)
• NGO`s (environment,social,governance)
• Consultants (environment,social,governance)
• Customer
• Customer
• Supplier
• Human Resource professional
• Company Operations (corporate,field,union)
• Trade Association Representatives
• Independent facilator (sustainability expert)
• Government Representative

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Finally!!! What Investors need:

1) Education for the Investor Relations Director at Companies and all employees from rockface to boardroom 2) Sustainability Reports that include ESG and geopolitical risk analysis 3) Companies to create STAKEHOLDER PANELS, discuss ESG on quarterly conference calls, and include at least 1- ESG on quarterly conference calls, and include at least 1- hour session on sustainability during their analyst day 4) Companies to include a member of the board with sustainability experience 5) Information providers such as Jantzi, GMI,MSCI and Carbon and Water Disclosure Projects 6) Good information and guidelines from the TRADE Associations along the supply chain

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Conclusion: Our ESG assessment tools require good intangible information

7 criteria 50 Individual elements

L'INTÉGRATION DES FACTEURS ESG DANS L'ANALYSE FONDAMENTALE 19

Judgement required Integration into the Qualitative score Valuation of the enterprise

Tools : In-house Creation « Mining Industry Example »

(thanks to Marie-Claude Provost)

Sustainability Memory-aid

Company Name : ___________________________________ = Positive efforts / results

= Concerns

1. Management A) Transparency in Reporting: Clarity & Fullness B) Code of Business Conduct C) Leadership Succession Planning

C) Leadership Succession Planning D) Risk Management Program E) Credible & Conservative Reserve Estimation F) Fair and Open costs per unit calculations G) Board member accountability , efficiency & gender H) Appropriate share and capital structure I ) Written policies and targets / engage in dialogue 2. Shareholders/Board A) Development of long life, high growth assets B) Low costs -spending management C) Strong Returns on Investments D) High shareholders value and returns on equity E) Low dilution of assets F) High level of contact & quality of communication

Sustainability Memory-aid

Company Name : ___________________________________ = Positive efforts / results

= Concerns

3. Employees/Suppliers A) Health + Safety B) Career Development (local recruitment) C) Gender Equality

Tools : In-house Creation « Mining Industry

Example »

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C) Gender Equality D) Whistle Blowing Mechanism E) Efficient Communication & Feedback F) Pension & Benefit Plans 4. Community (Indigineous Population) A) Communication / Engagement / Consent B) Social & Economic Infrastructure C) Education D) Health / Wellness E) Respect for Cultural values and human rights F) Town-site Development G) Sustainability / Diversity of Economic Needs H) Investments / Charities

May-3-12 ESG CONSIDERATIONS IN THE LIFE CYCLE AND VALUATION OF MINING ENTERPRISES

Tools : In-house Creation « Mining Industry Example »

Sustainability Memory-aid

Company Name : ___________________________________ = Positive efforts / results

= Concerns

5. Environment A) Water, Air management & filtration B) Energy uses C) Reclamation, vegetation, biodiversity

C) Reclamation, vegetation, biodiversity D) Disposal E) Toxic chemical management F) Monitoring & Improvements G) Response to "Carbon Disclosure Project" 6. Government and NGO's A) Adhere to laws, regulations, codes, and guidelines B) Establish a communication forum with opponents C) Pay taxes, royalties, and duties D) Represent country of origin with dignity E) Use the highest of standards F) Diversification of political risk

Tools : In-house Creation « Mining Industry Example »

Sustainability memory-aid

Company Name : __________________________________ = Positive efforts / results

= Concerns

7. Sustainability Program A) Sustainability report annually B) Regular & Detailed score card

A) Sustainability report annually B) Regular & Detailed score card C) Advisory Board representing all stakeholders D) Site co-ordinators E) Vice-presidency of CSR/Sustainability F) Report evolution of sustainability programs G) Third Party Certificate / Audit

Application : Quantifying the Qualitative Evaluation An example from a Mining Analyst

1) Management Quality = 20 points (of which 5 is directly sustainability and risk) 2) Board of directors Quality = 10 points (Governance) 3) Competitive Environment and Position (Porter Analysis and Physical Environment) = 30 points 4) Value Creation = 20 points (Social License) 5) Financial Health = 20 points

Cost of capital adjusted for ESG

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ESG impacts the

BOTTOM LINE