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Some ESG Chickens Come Home to Roost

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After years of hammering the mining industry with negative press and exclusion from ESG funds (meaning more difficulty in raising capital for the miners), BlackRock is backpedaling because it has finally realized how many minerals go into electric vehicles and other green technologies. The ESG chickens are coming home to roost as the scarce minerals become more expensive. ESG was always really just a way for the big dog mutual fund companies to charge higher fees and to put CEOs’ politics in your portfolio. Now, firms like BlackRock must reconcile with the world they’ve created. Harry Dempsey reports in the Financial Times:

BlackRock, the world’s largest asset manager, has warned that investor reticence towards mining risks starving the sector of capital and stymying the energy transition by creating shortages of metals vital for green technologies.

Evy Hambro, global head of thematic and sector-based investing at the US group, said funding needed to flow into the industry to ensure an adequate supply of materials for products from wind turbines to electric cars as well as to upgrade power grids.

“If people don’t give this sector a chance, then the energy transition is going to be impeded by the scarcity of materials to build everything required,” he said. “This energy transition is starting to expose some weaknesses in that kind of complacent attitude.”

The mining sector remains unloved by investors despite record profits for many big companies last year, and despite widespread expectations of a boom in demand for metals such as copper, iron ore and nickel to supply the technologies and infrastructure required to reduce the world’s dependence on fossil fuels.

Valuation multiples for mining companies have been languishing, according to Hambro. BHP, Rio Tinto, Glencore, Anglo American and Vale have an average price to forward earnings ratio of 8.5 times versus 18.5 for the S&P 500, according to S&P Capital IQ and Refinitiv.

“The further you get away upstream from the renewable power companies, the lower the multiples go,” said Hambro. “But you can’t have the renewable power companies or electric-vehicle manufacturers without everything upstream of them. There’s this massive gap in valuation.”

Executives in the sector increasingly grumble that the cost of capital is too high for them to develop projects at a time when commodity prices have dropped off their highs and costs have surged.

Mining companies are often excluded from environmental, social and governance investment frameworks, but the sector’s contribution to decarbonising the global economy and its own efforts to cut emissions generated in the production of metals have been “overlooked”, said Hambro, who co-manages the BlackRock World Mining Trust.

The influential mining investor expects a re-rating for the sector as perceptions change.

Action Line: Your investments shouldn’t be guided by someone else’s politics. When you’re ready to discuss a portfolio built just for you, I’m here. In the meantime, don’t make the big mistakes with your money. Click here to download my free special report on the Top 10 Investing Mistakes to Avoid.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.
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