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 recognised by the Global Reporting Initiative1), 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
We expect the companies in which we invest to adhere to the principles of the UN Global Compact (UNGC)2, which we view as the minimum standards of responsible corporate behaviour. Where a company is in violation of the UNGC the fund manager will engage to seek clarity and improvement. If improvement is not possible or the violation is seen to be unchangeable, no investment or divestment will occur.
Corporate governance
Good corporate governance is an indicator of how likely it is that a company will be run in the interests of all shareholders and is something which we prioritise when researching companies.

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. 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 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.

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 universe (restricted to the Americas and Australia), companies may need to manage interactions with community-led organisations. While we understand that these organisations cannot be ignored, we expect our investee companies to operate and be governed in a transparent way in order to help us understand those who control the business and whether or not our interests are aligned.

We recognise the importance of effective taxation for mining extraction and the impact this can positively make to domestic revenue mobilisation, especially in developing countries, and when conducted correctly. To this extent, we endeavour to look at a company’s approach to tax and expect companies to manage their tax affairs in a way that reflects the economic realities of their business operations.

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. If managed poorly, the environmental impacts of mining activities can become material financial risks to companies.

We carefully consider a company’s performance on climate change, with a focus on energy sources, operational efficiencies to reduce 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. We also expect these targets to be linked to corporate strategy and executive compensation. Until hydrogen becomes commercially viable as an alternative fuel for haulage trucks in open pit mining, we are prepared to accept a reduction in emissions intensity to encourage new mining projects and facilitate growth. For projects in development, we expect companies to incorporate the latest process control technology into the mine design to maximise energy efficiency while reducing water consumption and waste.

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 Transition3 .

In addition to climate change, we consider a company’s approach to water consumption and discharge, tailings (mineral waste) management, and site remediation and management of biodiversity impacts. It is important that climate change is not viewed in isolation and instead all material environmental issues are equally assessed, especially as further exploration or development of a mine occur.

We expect companies to strive for best practice, going beyond local environmental permit requirements to ensure the highest level of risk management. We also look for company-wide risk frameworks such as an Environmental Management System, certified to ISO140014 .
Health and safety
Mining operations often involve hazardous working conditions. Accordingly, we expect companies to provide safe working environments and to target “Zero Harm”. This target requires a relentless focus on managing both fatality and accident prevention while embedding a safety culture across the business. We expect to see continuous improvement through both policies and procedures, as well as awareness and training to mitigate and manage these risks. We also look to see if companies are incentivising strong health and safety performance through linking relevant metrics to executive remuneration.
Social performance
We understand that management of community relations is critical for successful mining operations and aim to invest in companies that respect and prioritise labour and community relations. 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 labour relations.

Companies may operate in jurisdictions such as Canada and Australia where traditional owners have underlying claims to land. In these cases, we expect Impact Benefit Agreements , Social Economic Participation Agreements, and Indigenous Land Use Agreements to be structured towards financial participation, so that local communities and indigenous people benefit from the success of the mine. Our base expectation is that companies comply with requests from indigenous communities 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 people.
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. We expect 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 expect companies to carefully consider the benefits and risks of short-term decision-making, particularly as a more balanced strategy may lead to greater harmony with stakeholders and reduced risks to shareholders.
Bribery and anti-corruption
The mining sector can be particularly exposed to bribery and corruption due to complex supply chains located in higher-risk regions. We recognise the need for increased transparency and monitoring, and we expect companies’ governance structures to adequately address these risks to avoid the threat of large domestic and international fines.
Our approach: Company disclosure and engagement
In order to understand a company’s approach and performance against these topics, the company needs to provide a sufficiently detailed level of disclosure. 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. For larger companies, we expect more sophisticated disclosure of the nature of these key risks, management practices and performance against Key Performance Indicators. Where we are unable to understand a company’s approach due to lack of disclosure, we will look to engage with management and the board to clarify any concerns and suggest improvements where necessary.

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 reflects industry best practice, and to inform our approach and engagement with the companies in which we invest.

The value of active minds: independent thinking