Our investment process seeks to identify well-managed companies engaged in activities related to the production of gold and silver. This Charter sets out what we believe to be some of the key attributes of a well-run mining company in relation to material Environmental, Social and Governance (ESG) issues. These issues can range from environmental problems such as greenhouse gas emissions, to social issues such as a lack of diversity and inclusion. When these factors are poorly managed, they substantially increase business risk. Conversely, when well-managed, we believe these factors increase the likelihood of a company creating long-term sustainable value for its owners and generating a positive impact on society. Using a materiality approach (as outlined by the Global Reporting Initiative 3 guidance[1]), this Charter highlights key ESG issues associated to the industry and explains how we seek to understand a company’s approach and performance against these topics. We believe ESG should be built into future decision making and included as part of the risk management approach of a company.
United Nations Global Compact
Our preference is for companies to adhere to the principles of the UN Global Compact (UNGC)[2], which we view as the minimum standards of responsible corporate behaviour. If a company is viewed by the manager as violating the UNGC principles, the fund manager will initiate a dialogue to gain clarity and encourage positive changes. If improvement proves challenging or the issue remains unresolved, the fund manager will reconsider future investment and may explore divestment options.
Corporate governance
We believe that good corporate governance reflects a company's commitment to acting in the best interests of all shareholders, and is an important factor that we consider during our research process.
We recognise that our investible universe includes companies of various sizes and stages of development and are willing to be pragmatic as to how our general expectations of governance apply, particularly with respect to smaller companies and the geographic regions in which each operates. However, as these companies grow over time, we are keen to ensure that their approach remains suitable, and look to understand how their governance and strategy will evolve. Key areas that we may consider include board composition, skills and independence, whether executive incentives are properly aligned to supporting and promoting long-term performance, and the extent to which boards have oversight of and responsibility for the key ESG issues facing the company.
Business control
The separation of ownership and control is often cited as a primary reason for not investing in a number of regions globally. Nevertheless, we recognise that, even within our investment universe (restricted to the Americas and Australia), companies may need to manage interactions with community-led organisations. We appreciate that these organisations play a significant role and cannot be overlooked. Our preference, though, is for companies to maintain transparency in their operations and governance. This approach helps us to better understand the individuals who control the business and determine whether our interests are aligned.
Taxation
We recognise the importance of effective taxation for mining extraction and the positive impact this can make to domestic revenue mobilisation, especially in developing countries, and when conducted correctly. Our preference is for companies to manage their tax affairs in a way that reflects the broad economic realities of their business operations.
Environmental issues
Mining companies are particularly exposed to environmental issues, due to the energy-intensive nature of operations, generation of large volumes of waste (some of which is hazardous), alterations to land impacting biodiversity, and use of chemical reagents and water required for processing activities in an environment in which natural resources, such as water, are increasingly scarce, and availability cannot be predicted as consistently as in prior periods. If environmental issues are not appropriately anticipated in planning, and managed poorly during operations and closures, the environmental impacts of mining activities can become material financial risks to companies. Further, as some countries look to strengthen regulation around key environmental issues, such as increasing the cost of carbon[3], environmental impacts may pose heightened risks to returns.
Reducing greenhouse gases
We consider a company’s performance on climate change, with a focus on energy sources, operational efficiencies to reduce greenhouse gas (GHG) emissions and use of technology. We encourage the companies in which we invest to set longer term targets on how they transition to alternative fuel sources as their mine plans evolve. Our preference is for these targets to be linked to corporate strategy and executive compensation. Until low carbon technologies such as hydrogen become commercially viable as an alternative fuel for haulage trucks in open pit mining, we are prepared to accept a reduction in emissions intensity (as opposed to a reduction in absolute emissions) to encourage new mining projects and facilitate growth. For projects in development, our preference is for companies to incorporate the latest process control technology into the mine design to maximise energy efficiency while reducing water consumption and waste.
Low carbon transition
The mining industry has an important role to play in the transition to a low carbon future. We recognise that a mine creates GHG emissions, but also provides materials for the transition to a lower carbon economy. For example, silver must be mined to enable the production of solar panels and batteries used to generate and store renewable energy. We consider the social elements of a company’s GHG reduction strategy in line with the principles of the Just Transition[4].
In addition to climate change, we consider a company’s approach to water consumption and discharge, tailings (mineral waste) management, site remediation, and management of biodiversity impacts across planning, operating and site closures. It is important to consider climate change as part of a broader environmental context, evaluating relevant material environmental issues based on their significance to each business (as guided by key stakeholders), especially during the advanced exploration and development phases of a mining project.
Our preference is for companies to strive for best practice, going beyond local environmental permit requirements to ensure a high level of risk management. We also look for company-wide risk frameworks such as an Environmental Management System, certified to ISO 14001[5].
Health and safety
Mining operations often involve hazardous working conditions. Accordingly, we believe that companies should provide safe working environments and strive to target “Zero Harm.”
Achieving this target necessitates a dedicated and consistent effort on managing both fatality and accident prevention while embedding a safety culture across the business. We also believe that companies should evolve policies and procedures over time and increase employee awareness using training so that operational risks can be mitigated and managed. We seek to understand whether companies are encouraging robust health and safety practices by linking relevant performance indicators to executive compensation.
Social performance
We understand that management of labour and community relations is critical for successful mining operations, and we seek to invest in companies that value and prioritise this. Poor labour relations and local community engagement can result in worker strikes, mine blockades, damage to assets and interruption to earnings. Mobilising large workforces within remote regions can present significant challenges to the successful management of community relations.
Companies may operate in jurisdictions such as Canada and Australia, where traditional owners have underlying claims to land. In these cases, our preference is for Impact Benefit Agreements[6], Social Economic Participation Agreements and Indigenous Land Use Agreements to be structured towards financial participation, so that local communities and indigenous peoples[FP1] benefit from the success of the mine. We believe that companies should adopt considerations of Free Prior Informed Consent (FPIC) and comply with requests from indigenous peoples not to apply for or enact ministerial consent to destroy a heritage site, even if it goes against commercial interests. We see greater stability and reduced risk over the long term if heritage is respected and financial interests are aligned between the mining company, the government, and the local and indigenous peoples.
Licence to operate
A key aspect of a mining company’s viability relates to its social licence to operate. The industry’s reliance and impact on both local communities and governments requires it to manage these relationships carefully and in a responsible manner. A breakdown in these relationships can lead to mine closures, loss of mining permits, and expropriation of assets. Our preference is for companies to maintain a constructive relationship with local governments and regulators, and to leave a positive impact on the societies in the areas in which they operate.
The governance of mineral resources is viewed with increasing importance by nations who rely on their extraction as a significant percentage of national income. As a result, companies that focus on maximising short-term shareholder profits over a longer term approach of maximising the mine life may be viewed as exploitative. In severe cases, this could result in punitive taxation or even confiscation of the asset to the detriment of shareholders. We are encouraged by companies that weigh the potential benefits and risks of short-term decision-making. Embracing a more balanced approach could foster greater harmony with stakeholders and mitigate risks for shareholders.
Remediation
The remediation of sites is often overlooked once mining has finished. Mines have previously been sold during the declining phase of production, leaving the cost of environmental cleanup to companies and governments, who often cannot afford to do the work. The degree of information connectivity now means that, for long term value creation, walking away and risking reputational damage is no longer a wise approach.
Bribery and anti-corruption
The mining sector can be particularly exposed to bribery and corruption due to complex supply chains, operations located in higher risk regions and interactions with governments in these regions across the lifetime of the mine. We acknowledge the importance of greater transparency and monitoring and believe that companies are enhanced by having robust governance structures in place to effectively manage these risks and minimise the possibility of significant domestic and international penalties.
Our approach: Company disclosure and engagement
In order to understand a company’s approach and performance against these topics, the company should provide a sufficiently detailed level of disclosure for us to assess. While we recognise that smaller companies will have limited resources, we also highlight the significant benefits available to them in the capital markets from managing and mitigating key operational risks and evidencing this management via data collection and more robust disclosures. For larger companies, more detailed disclosures are encouraged to ensure that performance can be evaluated against management objectives. If we encounter challenges in understanding a company’s approach due to limited disclosure, we will seek to engage with the management and the board to address any questions and offer constructive suggestions for improvement. If through disclosure and engagement we are not able to gain comfort that these risks are being sufficiently managed, and in particular where we do not believe these risks to be adequately reflected in the market’s valuation of the business, we might choose to reduce our position or sell our holding entirely.
We review this Charter periodically to ensure it continues to align with industry best practices and to guide our approach and interactions with the companies in which we invest.
Footnotes
1GRI - Understanding materiality can unlock accountability (globalreporting.org); and GRI Standards English Language
2The Ten Principles | UN Global Compact
3Safeguard Mechanism – Department of Climate Change, Energy , the Environment and Water
4IIGCC – The Institutional Investors Group on Climate Change
5ISO - ISO 14001:2015 - Environmental management systems — Requirements with guidance for use
6Best practices for Impact Benefit Agreements - ScienceDirect
Please note the following Jupiter Gold & Silver strategy risks
- Investment risk - there is no guarantee that the strategy will achieve its objective. A capital loss of some or all of the amount invested may occur.
- Sector concentration risk - the strategy’s investments are concentrated in natural resource companies, and may be subject to a greater degree of risk and volatility than a fund following a more diversified strategy. Silver tends to outperform gold in a rising gold price environment and it tends to underperform gold when sentiment moves against the sector.
- Strategy risk - as the strategy invests in other collective investment schemes, which themselves invest in assets such as bonds, company shares, cash and currencies, it will be subject to the collective risks of these other funds. This may include emerging markets risk and smaller companies risk.
- Company shares (i.e. equities) risk - the value of Company shares and similar investments may go down as well as up in response to the performance of individual companies and can be affected by daily stock market movements and general market conditions.
- Concentration risk (number of investments) - the strategy may at times hold a smaller number of investments, and therefore a fall in the value of a single investment may have a greater impact on the strategy’s value than if it held a larger number of investments.
- Currency risk - the strategy is denominated in USD but may hold assets denominated in, or with exposure to, other currencies. This share class is denominated in GBP. The value of your shares may rise and fall as a result of exchange rate movements.
- Smaller companies risk - smaller companies are subject to greater risk and reward potential. Investments may be volatile or difficult to buy or sell.
- Liquidity risk - some investments may become hard to value or sell at a desired time and price. In extreme circumstances this may affect the strategy's ability to meet redemption requests upon demand.
- Derivative risk - the strategy may use derivatives to generate returns as well as to reduce costs and/or the overall risk of the strategy. Using derivatives can involve a higher level of risk. A small movement in the price of an underlying investment may result in a disproportionately large movement in the price of the derivative investment. Derivatives also involve counterparty risk where the institutions acting as counterparty to derivatives may not meet their contractual obligations.
The value of active minds: independent thinking
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
Important information
This is a marketing communication. This document is intended for investment professionals and is not for the use or benefit of other persons. This document is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the individuals mentioned at the time of writing, are not necessarily those of Jupiter as a whole, and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of the information, but no assurance or warranties are given. Issued in the UK by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. Issued in the EU by Jupiter Asset Management International S.A. (JAMI), registered address: 5, Rue Heienhaff, Senningerberg L-1736, Luxembourg which is authorised and regulated by the Commission de Surveillance du Secteur Financier. No part of this document may be reproduced in any manner without the prior permission of JAM/JAMI.