ESG Investing…for Resource Extractors? Is That Even Possible?

How do resource companies—those who extract large amounts of commodities from the earth—meet new ideas on ESG investing?


ESG stands for Environmental Social and Governance, and it means investing money in sustainable ways.

But can resource extraction companies be ESG compliant when they are removing huge amounts of rock—like open pit mines—or bringing billions of barrels of hydro-CARBONs to the surface?

They can…sort of, says Sarosh Nanavati, an investment research analyst with the Pennock Idea Hub in Toronto.He specializes in finding investments that score high in ESG for his clients—the competitive fund managers (the “buyside”).

“Environmental concerns (the “E” in ESG) are generally where most resource companies run into controversy,” he says.

“These relate to the impacts which their operations have on land, water and air.Common examples would be things like waste management, like mining tailings, or excess gas flaring.


Source: University of Oxford/Arabesque Partners

“For a mining company it’s a bit simpler.It’s about using best practices to minimize their environmental impact, and adequately sharing the benefits of resource development with the local communities in which they operate.

Oil producers have another hurdle to face, he says. “Energy companies must of course do the same (manage their “controllables”), but they face additional scrutiny for the environmental impact of their end products.”

Prior to specializing in ESG, Nanavati had a lengthy career on Bay Street on both the buy side and sell side, including 18 years as a fund manager investing primarily in the resource space.So he’s been on the other side of the fence, and he knows what these fund managers want in ESG investing.

“For me, I focus on using ESG analysis to improve investment performance. Fund managers are interested in outperforming their peers, and they’re looking at ESG analysis as a way of doing that.

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