ESG is back in the spotlight for the Australian resources sector, as The Association of Mining and Exploration Companies (AMEC) Director of Commonwealth Policy Neil van Drunen, speaking at a recent event, commented that the Joint Ore Reserve Committee (JORC) code was “not designed to factor in ESG considerations”.
We covered the draft JORC code update recently, noting that among many changes, ESG is on the table to be included in the updated draft code which is under consultation until 31 October 2024.
AMEC’s point is that regulating disclosures around potentially “subjective” ESG considerations unnecessarily complicates the JORC code, particularly for early stage projects where a mineral resource estimate is designed to be a guide to future potential.
So why is ESG of such importance that it’s being considered as a factor in the JORC code? The past 10 years saw the stratospheric rise of ESG in capital markets, with the dual belief from investors that 1) sustainable investing is “the right thing to do”; and 2) companies who had been doing the right thing by their people & the environment were objectively outperforming their peers on equity returns.
The explosion of data metrics prompted various bodies to put guidelines in place, which eventually evolved into regulation around classification of which economic activities are considered environmentally sustainable (EU Taxonomy, published 2020); classification of funds on different levels of sustainability integration (Sustainable Finance Disclosure Regulation (SFDR) in 2022); inaugural standards in 2023 for sustainability-related disclosures in capital markets issued by the International Sustainability Standards Board (ISSB); and Australia’s mandatory climate-reporting requirements, which are set to phase in from 1 January 2025.
At the same time, a proliferation of sustainable equity funds and a formalisation of “sustainability” as an investment approach saw investors pouring money into sustainable strategies. This appears to have peaked in 2021, with inflows of $417.5 million (33% of total global equity inflows that year) according to Morningstar.
With such a significant proportion of global equity funds directly tied to sustainable investment, meeting ESG standards became a matter of urgency for companies of a size to attract institutional investors – meaning they had to step up their sustainability reporting and strategy or shut out a significant pool of capital.
How is that pool of sustainable capital tracking? Since the heady days of 2021, sustainable fund flows have been more modest. In fact, in 2024, according to Morningstar, global sustainability equity flows are net negative for the year and global sustainable fund performance is no longer consistently outperforming, sitting around the median of all investment strategies.
That’s the global landscape – what about closer to home?
A recent report by Goldman Sachs calculated the size of the market for Asia-Pacific (APAC) focused funds. This research showed sustainable strategies represent just ~6% of Total APAC-focused (ESG and non-ESG) equity assets under management as of end-2Q24.
It must be remembered that the process for the revision of the JORC code has been going for several years, commencing when ESG was at its recent peak.
Despite the ESG market being smaller than the peak, the established principles and legislated measures means that sustainable investing is here to stay. The regulatory landscape appears to have so far been successful in providing a roadmap for standardisation of reporting ESG data, which allows sustainable investors to objectively evaluate their investments.
The JORC code covers exploration results, mineral resources and ore reserves so there appears to be logic for the inclusion of ESG metrics. At what point it should be reported on seems to be the main point of contention.
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Photo by Greg Rosenke
