Argonaut is committed to investing responsibly in the resources sector. The Argonaut Natural Resources Fund intends to support those ASX listed resource companies that operate in a responsible manner in regards to their Environmental, Social and Governance (ESG) obligations.
The Fund’s three stage investment process incorporates an investment screen that evaluates companies based on their ESG performance. This forms an important input into the investment decision making process.
Mining is necessary
The world is at an environmental tipping point. Climate change is real and there is a need to transition away from higher emitting fossil fuels to more environmentally sensitive solutions.
A key step on this journey is the transformation of the transport and power generation sectors as continued technology advancements drive the costs of battery storage, wind turbines and solar cells down and efficiency and productivity up.
Electric powered vehicles are likely to assume the leadership position in global transport over the next twenty years driven by comparable upfront costs but improved operating performance and substantially reduced maintenance costs. Similarly, power generation is likely to transition from a large dependence on thermal coal for baseload power to a substantially higher dependence on renewable energy sources supported by battery storage.
The role of the resources sector in this changing landscape is to provide the commodities demanded from this transition in a financially and environmentally efficient manner. We expect to see the resource sector increase its allocation of capital to drive increased production of required commodities such as copper, nickel, cobalt and lithium (among others) and, correspondingly, reduce investment in fossil fuels.
The Importance of Environment, Social and Governance (ESG) performance in the investment process
Investing involves responsibility. For a company to be assessed as “investment grade” it not only needs to achieve required financial metrics but also pass our ESG filter:
- Does it meet acceptable standards in regards to the impact it is having on the environment,
- How does it treat its workforce and the communities in which it operates; and
- How effective are its internal systems and procedures.
Mining activities by their nature involve a degree of environmental disruption. Our investment process includes the following environmental screens;
- Is this mining activity necessary.
- Should this mining activity be undertaken in this geographic location.
- How effectively is the environmental impact being managed.
- How effectively is the environmental impact being reported.
- What is the company’s environmental track record.
Mining activities can have both positive and negative impacts on society. They can provide employment and growing economic prosperity on one hand, whilst on the other hand they can result in worker exploitation and destruction of communities. Our social screening includes the following;
- Is the workplace health and safety record acceptable.
- Are the workplace conditions fair and reasonable.
- Are human rights being upheld.
- Is the company actively involved in supporting community programs in areas it operates.
- How important is the mining activity as a local employer in the region.
Governance focuses on the ways companies are run. Our screening process includes the following assessments:
- Is the remuneration structure of the Board and senior management reasonable.
- Does the company have an acceptable degree of diversity, including gender and race.
- Is the level of financial and operational disclosure adequate.
- How well does the company plan for management succession.
- Are Shareholders interests protected.
- How well does the company communicate with external stakeholders.
A focus on ESG needs to be more than a marketing tool, it needs to be fully integrated into the decision making processes of the Fund. Initiatives that are already in place include;
- Argonaut has integrated an ESG screening process into its three stage investment process.
- Argonaut funds will not invest in thermal coal operations as our position is that there are more environmentally friendly means of producing electricity than coal fired power stations. Companies generating more than 25% of their total revenue from thermal coal will not pass our investment filter.
- Argonaut believes that active communication and discussion on topical environmental, governance and social issues is an important obligation for professional investors. Argonaut will post reports on issues faced by our investee companies and discuss how we evaluate and re-act to breaches to our responsible investing guidelines.
- Nothing in this Article should be construed as personal financial product advice. This Article does not consider any of your objectives, financial situation or needs. It contains general financial product advice only and you should therefore consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision.
- This Article is based on information obtained from sources believed to be reliable. Argonaut has made every effort to ensure the information in this Article is accurate, but we do not make any representation or warranty that it is accurate, reliable, complete or up to date. Argonaut accepts no obligation to correct or update the information or the opinions in it. Opinions expressed are subject to change without notice and accurately reflect our personal views at the time of writing.
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