3 Mining Stocks for ESG Investors to Watch

- August 25th, 2021

ESG is one of many tools people can use when selecting companies to include in their portfolios, with ESG ratings helping investors and companies stay on top of risk issues.

Investors’ interest in environmental, social and governance (ESG) credentials when looking at stocks has been increasing in recent years. 

ESG is one of many tools people can use when selecting companies to include in their portfolios, with ESG ratings helping investors and companies stay on top of risk issues.

There are a few companies providing ESG ratings, including Morningstar’s Sustainalytics — an independent ESG and corporate governance research, ratings and analytics firm.

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Speaking with the Investing News Network (INN), Dana Sasarean, Sustainalytics’ associate director of mining research, said ESG is quite complex, as there are multiple ways of incorporating ESG in investments.

“I can’t see any downside to looking at ESG,” Sasarean said. “Oftentimes, investors are actually overlaying this information on top of their own standards. So oftentimes, I think it’s not necessarily the end-all game, it’s almost like a validation.”

Here INN looks at three mining stocks for ESG investors to watch. These have high ESG ratings according to Sustainalytics, which looked at 117 companies within the precious metals industry and 149 companies within the diversified metals industry.

“Our approach to ESG risk rating starts with assessing a risk exposure, and then we deduct a managed risk out of that in order to reach an unmanaged risk value, this is the core of our risk rating,” Sasarean said. “We combine on the risk side, a low-, medium- or high-risk exposure with weak, average or strong management, and the result goes onto a scale that goes from negligible and low to medium, to high and severe.”

Most mining companies fall into the medium range, and quite a few are in the severe rating.

“That’s because, number one, they have a number of issues that they have to deal with, which have a high capacity to affect returns and business growth,” Sasarean said. “In terms of management, disclosures are still weak in some companies, they are still catching up, especially in emerging markets.”

She added that even companies that have strong disclosure, strong management and are large companies operating in difficult jurisdictions still have to deal with high levels of control policies, and have a lot of business risk and reputational risk.

Interestingly, within the mining companies assessed, the top two companies included in the precious metals category are streaming and royalty companies.

“For the royalties companies, we recognize that they don’t have a direct exposure to a number of issues,” Sasarean said. “We focus there on bribery, business ethics, human capital development, and corporate governance. So I think there’s more room here too, but disclosure is not enough yet.”

Read on to learn more about the top three stocks in mining with high ESG ratings from Sustainalytics assessment. All data for stock prices and year-to-date gains was gathered on August 19, 2021.

1. Wheaton Precious Metals (TSX:WPM,NYSE:WPM)

Current price: US$42.99; year-to-date move: -5.31 percent

Wheaton Precious Metals is one of the largest precious metals streaming companies in the world. The company has entered into agreements to purchase all or a portion of the precious metals or cobalt production from mines for an upfront payment and an additional payment upon delivery of the metal.

Wheaton currently has streaming agreements for 23 operating mines and 8 development stage projects. The company’s production profile includes a gold stream on Vale’s Salobo mine, and a silver stream on Newmont’s Peñasquito mine.

The company has a 9.4 rating score from Sustainalytics, which is considered negligible risk, with low exposure and a strong management of ESG material risks.

2. Franco-Nevada (TSX:FNV,NYSE:FNV)

Current price: US$146.70; year-to-date move: +11.81 percent

Franco-Nevada is the leading gold-focused royalty and streaming company. The company has the largest and most diversified global portfolio of royalties and streams by commodity, geography, revenue type and stage of project with more than 400 assets in total.

The dual listed company generates revenue from various forms of agreements, ranging from net smelter return royalties, streams, net profits interests, net royalty interests, working interests and other types of arrangements.

The company has a 9.5 rating score from Sustainalytics, which falls under negligible risk, with low exposure and a strong management of ESG material risks.

3. Teck Resources (TSX:TECK.A,TSX:TECK.B,NYSE:TECK)

Current price: US$19.82; year-to-date move: +14.3 percent

Teck Resources bills itself as one of Canada’s leading diversified resource companies, with business units focused on zinc, copper, steelmaking coal and energy. The company is a top copper producer in the Americas, with four operating copper mines and a pipeline of development projects in North and South America.

The company has a 19 rating score from Sustainalytics, which is low risk, with high exposure but a strong management of ESG material risks. Teck Resources ranks first among its peers within the diversified metals industry assessed by the firm.

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Securities Disclosure: I, Priscila Barrera, currently hold no direct investment interest in any company mentioned in this article.

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