Our latest ‘Critical Conversation’ podcast features an exclusive interview with Evy Hambro and Karina Litvack, discussing the ‘ESG megatrend’ and what it means for investors and resource companies.
Karina Litvack is a Non-Executive Director at Eni and a leading figure in sustainable investment. Evy Hambro is Global Head of Thematic and Sector-based Investing and CIO of the Natural Resources team at BlackRock. Both speakers are also members of Critical Resource’s Senior Advisory Panel. The discussion was moderated by Daniel Litvin, Founder and Managing Partner of Critical Resource.
In this 30-minute conversation, recorded on 4 September 2020, Evy and Karina share thoughts on the trajectory of ESG investment, the role of investors and boards in encouraging change and the potential existential threat faced by resource companies in the face of climate change.
Among the key points raised by Evy:
- The demand for increased transparency on ESG by investors has been phenomenal and fantastic.
- There is now a need for greater standardisation and clarity of ESG metrics and data. Companies and investor must work together on this.
- We’re seeing a substantial shift in the cost of capital in relation to ESG performance – companies that perform well in this area will get rewarded by the market, both in terms of access to capital and how they get valued. Evidence of this trend can be seen in the big gap between the multiples that thermal coal companies trade on today versus those of producers of other commodities, such as copper.
- Boards should maintain a long-term view. This may involve facing down the short-term ‘pitch fork’ mentality of some minority activist investors as they seek immediate results, or punchy headlines, potentially contrary to the interests of a company’s broader set of stakeholders.
Among the key points raised by Karina:
- For companies, the drive for ESG transparency and data should not just be about disclosing metrics and meeting targets but about delivering a more resilient company.
- The oil and gas sector – like the coal industry – is being de-rated by investors as a result of ESG considerations. The oil and gas industry faces an inevitable disruption of an existential kind.
- Oil and gas companies need to reimagine themselves. The industry cannot be just about providing fuel anymore – it has to re-imagine itself as an industry that delivers mobility, cooling, heating and light.
- Oil and gas companies also should set scope 3 targets. This is not a brand-building exercise but about commercial survival.
- While investor stewardship has taken centre-stage, divestments, or the threat of divestment, are increasingly being used by investors, and are part of a spectrum of tools for holding companies’ feet to the fire. We’ve seen actions by major investors such as the Norwegian sovereign wealth fund having ripple effects and focusing everyone’s minds on ESG and climate change.