ESG Capital report highlights ESG adoption and performance among small cap miners

ESG Capital adoption performance small cap miners ASX environmental social corporate governance
A report on ESG adoption and integration shows many small cap companies recognise its importance, but are yet to follow through.

ESG Capital has produced an extensive report exploring environmental, social, and corporate governance (ESG) adoption and integration among various small cap mining and metal companies.

The report aims to highlight to small cap companies with defined market caps ranging between $50 million and $500 million (excluding coal companies) and what good corporate ESG performance looks like.

The study looked at 10 corporate ESG attributes that can enable investment, create value and support the management of material risk.

ESG Capital managing director Steve Morgan said, “We see the attributes that are requested by investors of companies in this space and have broadly based our analysis on this data.”

These corporate attributes have long been embraced by large mining companies listed on the ASX but, according to the report, the adoption has been far less widespread amongst small cap companies.

ESG Capital closely analysed 220 companies in its research for the report, looking at companies’ ASX releases, reports, disclosures, presentations, websites and corporate governance documents and policies.

Of the 220 companies followed, 112 were involved in battery minerals, with 74 being gold companies and 34 other small caps prioritising commodities such as potash, phosphate, iron ore and mineral sands.

ESG Capital works with such ASX mining and metals groups, many of which are early on with ESG adoption and integration, aiding companies in becoming ESG investment-ready.

ESG considered but not implemented

Through the research conducted, the overwhelming theme established is small cap mining and metals companies are grasping the notion and significance of ESG, but a large proportion are yet to follow through with execution.

Of the 220 companies analysed, studies found that 145, or 65.9% of companies showed acknowledgement of ESG or sustainability, with many of the companies yet to adopt and action any relevant measures.

ESG Capital experts believes there is likely a number of reasons behind this including internal resourcing and capability issues required for the practical application on ESG.

In ESG Capital’s analysis of ESG attribute scores across small and large cap companies, the myth that ESG can be followed/adopted solely by large caps due to size and scale proved largely untrue.

It’s been found that a number of small caps, including FYI Resources (ASX: FYI), Evolution Energy Minerals (ASX: EV1), New Century Resources (ASX: NCZ) and Aeris Resources (ASX: AIS) are managing to establish a robust corporate approach to ESG, irrespective of market cap.

Greenwashing risks a concern

ESG Capital notes there is an element of greenwashing risk associated with acknowledging ESG, but not backing it with a defined and clearly communicated strategy, or disclosures.

With the surge in the demand for “green” investment products, the Australian Securities and Investment Commission (ASIC) has confirmed greenwashing as a focus for 2022.

Mr Morgan suggested that the antidote for greenwashing risk was the presence of an “appropriate ESG strategy, that is grounded in proper process and backed with accurate performance data.”

ESG disclosures

From the entirety of the 220-company sample size, just 16% of the companies produce some form of ESG disclosures or sustainability report, whether it be included in an annual report or released separately.

Only 59% of the companies had the presence of any quantitative ESG data, a key driver of robust and verifiable ESG performance

ESG Capital believes these numbers will grow overtime, as the development of strategy or the adoption of ESG standards begin to be implemented more so by these companies, particularly as a result of increased engagement by investors.

Climate action

Of the companies analysed, 70% have not yet revealed or do not have in place, tangible action on the management of climate risk; however, an acceleration of activity in this area is expected in the near future.

Companies involved with commodities such as phosphate, potash, mineral sands, iron ore, and diamonds led the segment in regard to taking action on climate risk.

As for critical minerals and especially gold mining small cap companies, the percentages were rather high, with 71% and 93%, respectively, yet to take any concrete action on climate risk.

Board diversity

Of the 220 companies, 31% have at least one woman on its board, “which is encouraging” according to Mr Morgan.

Directors on small cap boards are often limited, with opportunities to embrace a more gender-diverse board made more difficult than large cap companies with bigger boards.

Despite these limitations, Mr Morgan said, “With almost a third of the companies reviewed managing to find a way to cultivate some gender diversity at a board level, we think it sets a great example that it can be done”.

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