Driver for Change

One of the fastest growing sectors is that for indices, led by the benchmarking of companies according to their sustainability standards. The consumption of metals and minerals is at the sharp end as investors focus on the use of natural resources.

Go to the profile of Chris Hinde
Nov 15, 2018
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In a head-spinning statistic, there are now more than 3.7 million indices that measure markets. In its second annual survey, the Index Industry Association (IIA) concludes that the number of indices rose 12% in the year to June 2018.

The IIA's CEO, Rick Redding, attributed the increase in indices to the requirements, particularly from fixed-income investors, for more fine-tuned benchmarks. The indices available range from the performance of small Chinese companies through African debt derivatives to companies that adhere to Catholic values. All this measuring has been boosted by the rising popularity of passive investing.

Stock market indices amount to over 80% of the total and the fastest growing individual sector is for benchmarks that track and weight companies according to their environmental, social and governance (ESG) standards.

Adding to this list is the World Benchmarking Alliance, which was launched last month by the United Nations Foundation, insurance company Aviva and the Index Initiative (supported by the Dutch government). Described as a 'Driver for Change', this initiative is designed to make it easier for investors to direct capital to sustainable businesses. It is part of a longer-term plan to find a way of pricing individual company's impact on the environment, which is not currently captured in conventional valuation models.

This benchmarking initiative is timely because the World Wildlife Fund (WWF) has just published its latest 'Living Planet' report, which makes for uncomfortable reading. The report highlights an astonishing 60% fall in wildlife populations in little over 40 years, with only one-quarter of all land remaining substantially free of the impact of human activity — and this is expected to fall to just 10% by 2050.

The Living Planet report highlights the inadequacies of the short-term plans of corporate and political leaders; five-year targets do not start to address these long-term environmental considerations. The report's verdict is that current behaviour is eroding the planet's economic productivity potential, ie we are outspending our means.

Indeed, we are now consuming 70% more natural resources each year than the earth can sustain. Earth Overshoot Day (the date when more natural resources have been consumed than the planet can renew in an entire year) fell on August 1st this year (www.overshootday.org). Although this 'overshoot' date has been relatively unchanged since 2011 it was two months later in 1999 and was calculated as November 1st as recently as 1986.

WWF International's director general, Marco Lambertini, wrote in the Living Planet report that "We are the first generation that has a clear picture of the value of nature and the grave situation we are facing" and warned "We may also be the last generation that can do something about it." There have been some positive developments in the past few years, including the launch in 2015 of the UN's Sustainable Development Goals, and the European Union's High-Level Expert Group on Sustainable Finance.

Extracted metals and minerals can not, of course, be renewed, and mining is hardly mentioned in the Living Planet report, which is targeted mainly at consumption. Nevertheless, the industry has a role to play, particularly in its usage of land, site restoration and in its own consumption of fuels and materials.

Go to the profile of Chris Hinde

Chris Hinde

Chief Commentator, Mining Beacon

Previously editorial director of Mining Journal, and more recently head of S&P Global Market Intelligence's metals and mining team, Chris is now Mining Beacon's editor-in-chief and lead commentator. He posts two blogs every week, one on Monday reviewing market conditions over the prior week, and a second on Thursday looking at issues on the global mining scene. There is also a quarterly blog on business opportunities in the sector.

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