Have you heard of a company called Rio Tinto? Surely. Have you heard of a company called Alcoa? Maybe not. And have you heard of a company called Apple? I bet you have. How do these three distinct companies come together in the ESG space?

1. May 2018
Petra Daroczi
Thomson Reuters
ESG myth: the mining sector will be
last to embrace ESG.
IN OTHER WORDS, INVESTORS IN MINING COMPANIES ARE MUCH LESS
AFFECTED BY ESG CONSIDERATIONS THAN INVESTORS IN OTHER
SECTORS.
Have you heard of a company called Rio Tinto? Surely. Have you heard of a company called Alcoa? Maybe not. And have you
heard of a company called Apple? I bet you have. How do these three distinct companies come together in the ESG space?
In case you have missed, Reuters breaking news came out on 11
th
May that Rio and Alcoa will launch a joint venture called
“Elysis” to develop and commercialise the world’s first carbon-free aluminum smelting process. If you are no miner like me you
probably didn’t know that 1) aluminum smelting (the process of burning alumina) releases large quantities of greenhouse gas, 2)
aluminum is one of the most important raw material inputs into the fabrication of consumer electronics (amongst other goods).
A quick search using the “Search & Discover” app, which uses artificial intelligence to look for keywords/terms across content
(news, broker research, filings, and transcripts) in just a few seconds, sheds light on the fact that the JV is backed by Apple who
will invest USD 10m. We learn that Apple has been quite resolute to reduce it carbon footprint across the board: only last month
it announced the move to 100% clean energy at its facilities.
So far, so good. Alcoa is partnering with one of the largest mining companies in the world, it is developing a groundbreaking,
environmentally-sustainable process to produce one of the most widely-used metal raw materials, and it has potentially already
secured a large customer who will be incorporating its final produce in its supply chain.
What about its ESG factors? Is Alcoa really living up to its “sustainability” leadership?

2. ESG MYTHS THOMSON REUTERS
While Thomson Reuters-sourced ESG data on Alcoa is only available from 2016, there is a lot of useful information in this raw
data.
We learn that Alcoa is quite ambitious in the “E” (environmental”) sphere: it has already set specific objectives for resource
reduction, for water and energy efficiency; it is setting an example amongst its peers by generating more than 30% of its total
energy from renewable energy sources; and it has engaged in a number of ‘environmental partnerships’, such as NGOs,
industry organizations, governmental organizations, etc. to improve environmental issues.
An interesting clue to how the company is thinking about ESG and sustainability relates to the metric “Climate change
commercial risks: Is the company aware that climate change can represent commercial risks abd/or opportunities?”: As the
below screenshot indicates, this is mentioned a number of times in its Sustainability Report. The exact source, paragraph, page
number are all indicated to give analysts a peace of mind as to the reliability of the data.
Another interesting find in terms of the “S” (social) relates to injuries, which is quite an important aspect of basic materials
(mining, chemicals, packaging, etc.) companies. The ESG Peer view tool, a visual dashboard enabling the comparison of
sectors/geographies/metrics, helps us understand where Alcoa stands in terms of the Total number of injuries to million hours
(Injuries and fatalities including no-lost-time injuries relative to one million hours worked): out of 76 companies in the basic
materials sector, it ranks number 8 with 10.66 injuries. There is clearly some improvement to make in its safety & work accident
procedures.

3. ESG MYTHS THOMSON REUTERS
If we were to draw a quick conclusion, we could say that 1) ESG is indeed extremely relevant to the mining sector, 2) ESG and
sustainability issues should indeed be incorporated into the investment analysis and decision-making process since these have
important implications on the long-term performance of the company (think of Alcoa’s sustainable aluminum-making process
and Apple as a long-term customer), 3) mining through (literally) ESG data for a company can reveal a lot of additional insights
as to how the company operates and thinks of its future strategy.