Morgan Stanley says FMG and Sandfire are pick of the ASX mining bunch for ESG, while Rio Tinto languishes

A tally ranking miners on criteria like environmental impact, executive bonuses and mine site deaths has put Fortescue and Sandfire Resources on top, while Rio Tinto sits among the cellar dwellers. Investment bank Morgan Stanley examined 19 large ASX-listed mining companies across 14 environmental, social and governance (ESG) performance categories. The environmental component included the volume of carbon dioxide emitted, plus water and energy use. “We consider the environmental impact of miners as rates of intensity relative to revenue; for the consumption of energy and water, and CO2 emissions,” Morgan Stanley stated. Meanwhile, the social categories ranged from the employee turnover rate to injuries and deaths on site, while governance encompassed factors like gender diversity and the performance bonus targets dangled in front of executives. The likes of BHP, Rio, Fortescue, South32, Northern Star Resources, Lynas Rare Earths, PLS, IGO, Iluka Resources, Mineral Resources and Sandfire were captured in the Morgan Stanley list. Iron ore miner Fortescue and copper miner Sandfire jointly took top spot after both meeting 11 of the 14 criteria. FMG missed out on reaching thresholds for water extraction, board independence and board tenure — essentially directors staying on a board too long, while Sandfire failed to reach the benchmark for carbon dioxide emissions, board tenure, and having a declining injury rate. IGO, PLS and Whitehaven Coal rounded out the top five, with MinRes, BHP and Northern Star the next three on the leaderboard. Syrah Resources, which has a graphite mine in Mozambique, was at the bottom with just four of the 14 categories met, tied with Sydney-headquartered Indonesian nickel miner Nickel Industries and Rio Tinto. Rio failed all of the environmental criteria and two of the four safety categories. The safety failures were due to having worker fatalities within the past two years and for not having a decreasing injury rate. Rio ticked the boxes for adequate female representation across its workforce and board of directors, but the tenure of its directors and the short and long-term performance incentives on offer for its leaders did not pass muster. “For capital-intensive and operationally focused firms, we prefer to see long-term incentives linked to a mix of total shareholder return, return on capital, and free cashflow,” Morgan Stanley stated. “For mining and upstream energy companies, with high commodity price exposure, we may also like to see targets on unit production costs. “We think mining management scorecard factors should include safety, pollution, water usage, circular economy, and decommissioning.” Among the broader findings, Morgan Stanley’s analysis concluded safety and performance were not mutually exclusive. “Although we were not able to find sufficient data to support a view that improving the safety performance results in lower costs, in our view, there is a correlation,” the bank stated. “We have found that at the very least, a safe workplace is not a trade-off against productivity, with lower operating costs and safety statistics typically achieved concurrently. “We also consider the positive impact for the workforce and broader community that come with a higher female percentage of workers — although we found no correlation between female workers and safety performance.”

Morgan Stanley says FMG and Sandfire are pick of the ASX mining bunch for ESG, while Rio Tinto languishes

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