Overview of the quarter

From an ESG perspective, some industries are considered ‘dirty’. Take mining, for example. Whilst it delivers the metals and minerals that provide society with a higher quality of life, it can be bad for the environment and dangerous for workers. Producing one ounce of gold may require blasting or drilling through several tons of rock, often far underground. And, because of where the resources happen to lie, many companies operate in remote areas, with inadequate facilities or lax regulations.

So, as investors, what do you do? One approach is to avoid mining companies altogether. That way, you may remove a source of ESG risk from your portfolio. But you may also remove a source of diversifying returns.

At Ruffer, we take a more pragmatic approach, seeing it as an opportunity to find players in the mining industry which offer what we think is likely to be an optimal risk-adjusted return. We may also engage with them – over the holding period or even beyond – to gain a fuller understanding or encourage better ESG practices, from operational safety and human rights to decarbonisation and board independence.

We see this approach as better for both ESG and investment outcomes, particularly over the long term. We see exposure to gold (and other precious metals) as important for portfolio balance, particularly at a time of higher, more volatile inflation and increased geopolitical risk. This quarter, we started engaging with two gold mining companies, covering a wide range of issues. We expect these engagements to be ongoing and, given our investment expertise in this area of the market, we hope to add real value over time for the companies and our clients.

Another industry with environmental and social challenges is aviation. Here, too, we are starting out on what is likely to be a long engagement journey. Until now, the industry has focused on lowering its CO2 emissions. This quarter, we co-signed a letter calling on airlines to expand their efforts to include the reduction of non-CO2 emissions, including contrails (remember how clear the skies were during the covid lockdowns?) and emissions of nitrogen oxides.

All in all, it’s been an active three months on the responsible investment front, with plenty of individual and collaborative engagements and a busy voting season, as the following pages reveal.