Jane: [00:00:00] Hello and a very warm welcome to the LSEG Sustainable Growth podcast, where we talk to leading experts about a wide range of topics covering sustainability, business and finance. I'm your host, Jane Goodland, and this week I talk to Adam Matthews, who is the Chief Responsible Investment Officer at the Church of England Pensions Board, which is responsible for 3.6 billion retirement funds for clergy and church workers in the Church of England. But today, we're talking to Adam about another job that he has, which is the chair of the Global Investor Commission on Mining 2030. It's an investor led initiative with a mission to define a long term vision for responsible mining sector and to develop a consensus about the role of finance in realising this vision. So let's hear more from Adam. Well, hello, Adam. Thank you so much for joining us on the show. I'm really looking forward to this one. And how are you doing today? It's a very cold morning where I am.
Adam: [00:00:56] It's very cold here as well. And it's it's frosty. And there's snow in the hills on the outside of Edinburgh as well.
Jane: [00:01:01] So you're up in Edinburgh? Okay.
Adam: [00:01:04] It's very good to be here. I've been looking forward to this because I do listen to the podcast, so it's very good to be with you Jane.
Jane: [00:01:08] Good, well friend of the show. We always like those. So today we're talking about your role as the chair of the Commission on Mining. So we're going to get into some of the details on that. As opposed to your role at the Church of England Pensions Board. Now, we bumped into each other down in Brazil not long ago. And this is where I kind of got to see some of the work that you've been doing with the commission. And I just thought it was a really worthwhile conversation to have. So I know that you spent time with President Lula down in Brazil, and also the communities affected by the 2019 Brumadinho mine disaster, which caused significant loss of life and environmental harm. I'm really kind of keen just to hear more about, you know, what was that visit about and what did you actually take from it personally?
Adam: [00:01:58] Yeah, well, it was a visit of real extremes. At one one level, we had two hours with President Lula and and also half of his cabinet, his vice president, the foreign minister, the finance minister, amongst others, where we presented the work of the Global Investor Commission and the recommendations we've made and a vision that we've set out to really change and work with the mining sector over the next ten years. But the other extreme was that we spent time with the communities, relatives of those that had been killed in the Brumadinho disaster and that happened some seven years previously. But it was very much the start of the work that we've been doing on mining and to sort of be at one level, presenting the outcomes of the role the investors think they can play to work with industry, to work with stock exchanges and all the other financial actors. To ultimately drive a really responsible mining sector is as a result, unfortunately, of these disasters that have occurred in Brazil, there's been others around the world as well, but in particular these have catalysed a response for investors. So that visit sort of have that extreme, as I say, of presenting our work in response ultimately to those disasters and hearing the stories from the family members and also going and visiting not only the memorial, which is a remarkable, remarkable memorial. I mean, it's deeply moving and at the same time very impactful. And then from there, we also visited the actual disaster site. The memorial overlooks it, and there's still a recovery effort to find the remaining two bodies that have yet to be found from the 272 that were lost when the Brumadinho disaster happened.
Adam: [00:03:39] And we observed the very careful, painstaking work of actually sifting the waste to try and find, unfortunately, its fragments of people. And the forensic process that that goes through. But it's done with enormous care both by staff of Vale but also overseen by the fire brigade and also other organisations and yeah, we witnessed that as well. So as I say, a very sort of significant visit but also one which I think is grounded in the reality of seeing the worst of mining, but at the same time, in a belief that we know it can be done better. And that probably for me, just one of the most powerful things was hearing from community members, people's family members who had lost relatives and spoke to us incredibly movingly. I mean, we're all in tears. The whole group of us were there were it was very emotional experience. But at the same time, they ultimately recognised that this is an industry that they hope one day people can work in and not be killed, and that they could actually see somebody that they know, again, work for the companies involved. And I just found that remarkable to have that kind of belief that you could one day see somebody work in an industry that's ultimately killed one of your relatives. I just found that quite astonishing.
Jane: [00:04:58] I mean, a very powerful thing for investors to go and be involved in, and actually quite an unusual thing for investors to be involved in. So, you know, I think great job and kind of making that happen. I think it's important perhaps that we do just cover kind of what happened in the Brumadinho disaster, just in case people aren't aware. Can you just give us the headlines?
Adam: [00:05:19] Yeah. Well, to be honest, actually, whilst we're in Brazil, it was also the 10th anniversary of the Mariana disaster, which had happened as I said ten years ago. And that was a disaster where a tailings dam. Which of these constructions that hold the waste from mining. So what you mine underground often is a small element of what's taken out, and it's crushed down into sort of relatively fine particulates that are then stored and they're stored in facilities called tailings dams. And how you construct them and manage them is really important. And these structures have got to last in perpetuity. And some of these are absolutely enormous.
Jane: [00:05:59] And they're wet, right? It's mixed with water.
Adam: [00:06:02] The waste is not. But you've got to manage the water through because they are structures that will sit behind a, it will be stacked up. And basically you have to manage water through them. And so there's different designs. But how you manage the water is absolutely critical to the stability. And what you can have is something called liquefaction, where in effect this this sort of material wastes almost becomes like a liquid and starts to destroy the structure of the facility. And unfortunately, that happened in Mariana ten years ago, killed 19 people and caused Brazil's biggest environmental disaster. I mean, it stretched a phenomenal distance into the ocean and destroyed whole river systems. There was indigenous communities that were reliant on those rivers for their identity, for their food. And all of that was destroyed. And then three years later, you then had the Brumadinho disaster, which was just another level of human impact. It didn't have quite the same environmental, but it nonetheless did have environmental impact. But it killed 272 people. And that was I mean, there's a there's videos online of that disaster where in effect, a hillside just collapsed and then rolled down the valley.
Adam: [00:07:14] The workers were having lunch in the canteen that was in front of the dam. And it was just yeah, it was horrific destruction. And one of the saddest things when we were there with the family members, one of them was explaining her sister was a worker for Valley. She was very proud worker for the company Valley that who were overseeing this facility. And she was explaining that she had to understand what the word fragment is because actually most of the bodies were fragments, and the families were being called up to be informed that a part of their relative was found. The communities had to fight to get them ultimately recognised that not having the whole body or 6% on a Brazilian law of the body meant that they could be declared dead and not just missing. And the law was changed ultimately, but it took time. And so, again, hearing these stories of the sort of not just the loss, but all the subsequent battles the communities have had is been quite. Yeah, it was quite, quite something.
Jane: [00:08:21] Absolutely. I can see why you would want to do something. And in 2023 you did. You were kind of involved in setting the commission up, which is like we say, this collaborative initiative. I mean, it's now got 120 at least financial institutions backing it, representing 18 trillion USD under management and advice. I believe I'm keen to kind of know you've talked about the vision specifically, what are we trying to achieve here in terms of the commission? What does success look like? And you talked earlier about kind of a ten year life cycle. So tell me, what are the objectives?
Adam: [00:09:01] I'll just take a step back briefly, because obviously the post the response was looking very particular at the issue of tailings dams waste. What's the global standard? And investors at that point really decided that we needed to be very different actors. We had a relationship with those companies. We were the owners. And therefore you share in responsibility. And so as a result of that disaster, we established a process to really seek disclosures from companies wherever they're listed, that they have these expectations for investors that they must disclose. Then we worked with industry very constructively and also with civil society to define a global standard on that issue. And then we've established an international independent institute that will oversee companies conforming to that standard, so that there is a way of evidencing and assuring that the companies are really doing what they say they're doing, and that's independently verified. And that's one of the real asks from a community. They want that transparency. They want that assurance. And as an investor, I want that too, because I want to know that companies that we're investing in, wherever they're operating, they're clearly demonstrating, they're adhering to that standard. So that was the response to that disaster. Now in that process, we saw a way that we could work differently. And this is just what that was just one issue impacting the mining sector. And so really when sort of five years into that response and it was an event at the London Stock Exchange, actually, you very kindly hosted and you spoke at it where we sort of reflected where we'd got to after five years.
Adam: [00:10:33] But actually there's many more issues that challenge the mining sector. But society can't afford to not have a mining sector. We need what mining produces everything, the technology we're using here today to record this and transmit this is dependent on minerals, on what's mined. Likewise, the whole global climate transition is dependent on whether we have more copper, whether we can produce batteries, whether we've got the materials to make the windmills or the solar panels. And in addition to just the everyday societal use of whether we're building houses, roads, whatever, or agriculture, which is dependent on the phosphates, etc.. So mining is integral to our everyday life, and yet it's a sector that's challenged. Parts of it have got to expand pretty rapidly to meet global demand, particularly for the transition. And so therefore we've got this challenge. It could be a model of mining where you have these kind of disasters, or it can be a model of mining where we really ensure that we as finance are working with it and incentivising and rewarding those companies that are ultimately performing to the highest standards, and that we're clearing what those standards are. We're clearing the expectations. And we're also working with governments to ensure that the regulations are in place to equally be driving that sort of continuous improvement.
Adam: [00:11:48] And on that basis, it enables investors to ultimately invest more into the mining sector. And part of the challenge we've got is that at the moment, the sector is often one that many investors exclude, and it's a sector that you will have filters in lots of investment products that actually reduce your exposure to mining. And so we wanted to sort of confront that. And, as well as that, confront the fact that short term pressure is one of the ways that we really negatively impact the mining sector. It's a sector that has to make investment decisions over decades. And I mean, we're a pension fund that's going to be paying pensions in 2100. So we've got a multi-decade time horizon in terms of our duties and our financial responsibilities. Mining is like that when you're investing in mines. Often these are multi-decade operations, and yet you're pressurising it to perform on a quarterly basis. Every three months, they're looking at their returns and whether they're maximising the sort of the shareholder benefits in the year. And so there's a real disconnect with the fundamentals of that business, and also the interests and needs of society and the pressure that finance is putting into it. So the commission has commission's been an attempt to really sort of take that step back, look at what we need to do, and then set out a vision so it can be different.
Jane: [00:13:04] So it strikes me very much that it's a very system wide view, which is an evolution from the development of a specific standard around a specific issue. I think that's super interesting. And we can get into different parts of that system wide change later in the conversation. I guess what I'm interested in is something you alluded to as you were just talking there, which is around the role of the mining sector. So we know that in the past, environmental and social impacts of the mining sector, they're pretty well understood. But I'm curious to know, in the context of either our geopolitical situation or the result of climate transition, are there sort of new challenges arising that perhaps the sector is less familiar with and investors are less familiar with kind of grappling with, as we as we are now, find ourselves in a new situation, right? Geopolitically, and also from a kind of climate transition perspective.
Adam: [00:14:02] Yes. There are. And I mean, there's also, as I say, often investors engage with the mining sector because something's gone wrong and it's unfair to tarnish the industry as one that's just full of issues. There's enormously good practice in it. So I meet very committed chief executives. I meet people that are I go down mines, I meet incredible individuals in mine teams and teams. So and there's people really driving good health and safety, good mining relations with local communities. So, there is a real clarity as to what good is in this sector. The problem is that the whole sector's impacted by those incidents when it goes wrong. So and you can't avoid it. Whether you're the best operating company in the world, you are impacted by those elements of a disaster, whether it's in another country or another company, it impacts that whole perspective on the industry. And so in that global context that you're describing there, Jane, we've got to see significant increase in production. And a large part of that is in parts of the world where you've not necessarily got the strong governance structures, you've got more likelihood of corruption, and equally, you've got the potential of causing greater instability in local communities and conflict. And so one of the areas that the commissions particularly looked at is that relationship with conflict. A lot of the minerals are in parts of the world where, as I say, you've got potentially sort of weaker government structures, and so you've got competing interests, and yet you've got this opportunity of something in the ground that could be of economic benefit to a community. They're flourishing and that economy flourishing. Or it could be the catalyst for different parties seeking to sort of, in effect, benefit from that.
Adam: [00:15:43] And, of course, of a conflict. And so we've been particularly looking at different conflicts where minerals are often a driver or one of the sort of causes of that conflict or a sustainer of that conflict, and really looking at the ways that finance can also play a constructive role in working with industry to acknowledge, look, that's a reality. It doesn't have to be like that. What would it take for the financial and corporate actors to potentially incentivise alternates to that trajectory of conflict? And so we've set out a series of ways, whether that's at the local mine site or whether that's in terms of an actual conflict, how you can work with governments and this global supply chain to incentivise a path that doesn't lead to conflict. And so there's a series of recommendations we particularly put around that. And this is going to be really important because, as I say, parts of the world where a lot of the minerals are based are more unstable parts of the world or more sort of governmentally challenged, and we're going to need to work very practically. And I would far rather see the best practice companies that have got the best standards being supported to work in those parts of the world. It's going to be challenging, but it's going to need their shareholders to really give them the confidence that they're with them. They recognise this is a long play and governments have listing authorities. So if you're a listed company in London, you're going to need the support of the government of that host listing authority, as well as the partnership with those governments to help reduce some of the risks sort of extracting in those parts of the world.
Jane: [00:17:21] I was going to actually ask about the governmental element, actually, because as investors, obviously the natural counterparty there is the corporate, right? But it strikes me that governments and this kind of whole race for resources is absolutely a government agenda as well. And we're seeing around the world this kind of race for resources. And in this context, we're talking about the things which are underground often. Are you engaging with governments around the world as well?
Adam: [00:17:49] Absolutely. And I mean, as the conversation started, I mean, we also had the opportunity to meet with President Lula in Brazil. And it wasn't just a short meeting. It was a two hour meeting where we got to present for half an hour the recommendations of the commission. A number of those are specifically around the kind of governmental actions that we as investors would need to ideally see to give us the ability to be much more invested in this sector, to sort of generate the kind of returns and the long term value creation that we want to sort of see happen as particularly as a pension fund. But for that to really work, it's going to require a partnership, not just with investors and industry, but with government. And so talking with, with President Lula was really about, well, what are those steps that we need to see in terms of defining what good regulation is? One of the proposals in the Commission is for an international minerals agency that can be providing that independent insight in terms of global demand, global supply, but also defining what good regulation is and supporting translating that good practice across the world. So it's not just in a few countries, but it's actually becomes normalised in terms of how that regulation is implemented as well as defined. And at the same time, looking at the ways that governments could play much more of a role alongside finance in addressing illicit minerals.
Adam: [00:19:11] There's a lot of illicit minerals flowing into global supply chains. How can we address that again? We've set out a series of measures that we'd like to see under an independent international minerals agency to address that. And so I think that there's a real partnership here. And that's why I was so encouraged coming out of that meeting where clearly President Lula saw that, and he sees it as an opportunity for growth and jobs in a country like Brazil in Latin America. But he also sees that on the global scale. And I know he's talking with his South African counterpart today very much around this being an agenda, where to drive a rules based mining industry that provides minerals that doesn't negatively impact the environment economically, benefits it's countries where their mind not just in where they're used. And it enables the global supply chains to have the confidence that those minerals are going to be provided to meet that increase in demand. So that's the sort of the puzzle that we're putting together. And it really is a partnership finance, government, industry. But also it's got to be grounded in that reality of those communities that are impacted so that we know that we don't do that again, and that we're consulting when we're going into new territories, that we're getting consent from local indigenous people for those mines, because if we don't, you'll have that increased conflict that I talked about.
Jane: [00:20:31] I mean, I think it's really clear from listening to you that what started this conversation is about kind of a human tragedy, actually. Really, this is super important for sustainable economic growth, right? So and that's that's obviously being recognised by governments whose future economy is very intertwined with the mining sector. So I'm keen to kind of move to some of some of the specific recommendations from the commission. Now, I know you've you've recently published the ten year vision, which in this world actually, that we find ourselves in at the moment feels like a very, very long kind of crystal ball that you're stretching over. So good for you. I'm keen to look at some of the recommendations, which are in fact out for public consultation at the moment. So let's break this down a little bit because there's a lot in there. First of all, I'm keen to understand what changes are being proposed for the mining sector itself and its value chain. And then perhaps we can go on to kind of the investor lens, but let's focus on the mining sector and the value chain first and foremost.
Adam: [00:21:33] Yep. So one of the things that we did was survey industry. And we said, what is it you want to see from investors? What are the challenges that you have as a mining company today that you would like to see addressed by us? And some of the responses? Well, to be honest, there was really clear messages back from industry. One was the fact that there's been a proliferation of expectations from investors. There isn't clarity as to these are the core expectations that we have of industry so that they could all work towards the same goal. But there's actually a challenge at the moment where investors sort of generate a different set of asks that there isn't consolidation of that. So the first one is quite clear. Consolidate your expectations. So we've done that. We've set out very clearly a set of expectations for the mining industry and what we as investors can now align behind. And that's going to require some discipline on our part to stop proliferating ask, stop proliferating initiatives. We align around these expectations. We create the tools to ensure that we can actually track the company performance. And we start to take away those filters that negatively underweights the mining sector. And we intentionally back those companies that are moving and progressing in their performance. So that was one of the real clear ones. The other one was the short termism point that I've already made, that it is difficult if you're wanting to make those investments to develop a mine in the best way, in the most sustainable way. A lot of those decisions are right up front. So in actually deciding we're going to expand this mine or build a new mine.
Adam: [00:23:03] Those formative decisions will determine a whole heap of the issues that you're going to have to manage later down the line. And if you don't make those investments upfront, it's a damn sight harder and you end up paying. Our society ends up paying down the line. And so for a company to do that well and to the best standards requires that upfront investment. And yet we incentivise and we look at this sector through a really short term prism. And that challenges them to make the best decisions at that point. So again, can you as an investor community, really start to align behind that longer term expectation, incentivise us on that longer term trajectory, find ways that we're not just being judged in quarterly returns. And so again, that's one of the messages that we really took away from this as well. And I think it's also as well as having that sort of expectations, having that long term perspective, Being willing to start to invest in this sector for the long term and actually create new investment vehicles and walk with the sector in the kind of journey it needs to go on to be able to meet that demand. So I think for me, those are probably the sort of the three direct ones that we've focussed on the industry and we're creating tools that can track those companies that are going to make continuous improvement over the sort of that ten year time horizon. And we have set an expectation that every mine site by 2035 should be operating to those performance standards that are transparent, independently audited and assured, and that there's the infrastructure to support that.
Jane: [00:24:31] So for the mine operators themselves and the mining companies, are there clear sort of performance standards, because you've talked a bit about kind of what they want from the investment sector, but what does the investment sector want from them in terms of performance?
Adam: [00:24:44] There's actually an effort underway to consolidate a number of the different standards. So on the industry side, there's also been a proliferation of sort of different standards, etc. and so, as with tailings, we've been able to define a single standard, and investors have really rolled in behind that and demonstrated that when we do do that, actually the vast majority of the market starts to move of companies starts to align to that, and we've been able to get 68% by market capitalisation, are now aligned to the tailings standard and working towards implementing it. So you've created a norm there. And again, we've got to have that investor expectation of industry. That is right. These are the standards we expect. There's a consolidation effort underway. That really is going to really condense the standards into a sort of clear set there. And there's also something called Irma, which is another independent standard. I think it's for companies to decide which one is most appropriate for their area of operation, but investors to have the expectation that they're picking one of those and they're driving to be the best and the highest in their performance of those at the mine site, as much as in their good governance at the corporate level.
Adam: [00:25:51] And so for us, having that investor expectation of that is really clear and setting that as a ten year time horizon, because we recognise it takes time to get up. This is not easy and this is about whether you manage your water well, your community relations, whether you've got good health and safety, whether you're sort of looking at the biodiversity impacts, waste management. It's a broad set of areas that you need to have really good practice and procedures implemented at that local level, and having that clear expectation within ten years. All companies, if you're raising capital, if you're looking to the insurance markets, the banking sector, that there's that expectation that aligns across finance, that you need to be working up your path towards the highest performance standards. And we've got tools that track that, connect that to debt instrument, connect that to indexes. And actually companies are incentivised and rewarded as they get up that path.
Jane: [00:26:45] I want to finish up with something you mentioned earlier, which is about portfolio management basically, and how perhaps responsible investors have potentially the approaches around underweighting and excluding the mining sector from portfolios with ESG criteria or responsible investment criteria. How is that kind of not helped what we're talking about here?
Adam: [00:27:10] Well, look, I come from a pension fund that I mean, look, we had our investment committee yesterday. We reviewed the outcomes of the commission's recommendations. And what does it mean for us as a pension fund? And we have a number of filters on different investments that we make, whether it's through an index or whether it's through direct investments that actually penalises mining. And so this commission set of recommendations gives us a basis to really clearly understand what we now can be expecting, and a basis for us to remove a number of those filters, to start to work with other investors, to create those positive incentives, to really sort of work with the industry and support those companies and differentiate with those that are genuinely moving towards the best practice. But we've also been involved in creating a lot of these, a number of the sort of exclusions, particularly in the thermal coal space as a result of climate change policies. And I suppose one of the lessons I've particularly learned and we reflected on and many of these things, and I would caveat that over time, I think when we first introduced those filters of like whether you had thermal coal in your portfolio, I think it was absolutely the right thing to do, because we needed to send a clear signal that this was no longer something we felt was appropriate to be sort of invested in, that it was going to be something that we felt was aligned with our financial long term interests, because ultimately we needed to transition. But at the same time, the problem is that that also then had unintended consequences of incentivising companies to start rolling out their thermal coal assets and whilst a responsible, larger operator potentially could manage those thermal coal assets to closure over a certain time period, and you could have worked with the company on that.
Adam: [00:28:59] A number of companies spun those assets out to operators that wouldn't necessarily operate to the same performance standards, so they would extend the life of those mines. So actually you ended up seeing more being produced from that asset that potentially would have been brought to closure sooner, and you weren't necessarily going to have the same level of closure in terms of the standards and the way that the mine was closed and the legacy issues that ensue. You weren't going to have the same sort of standards applied at that point. So for us, there was some learning and an element of humility, I hope, in the investor community, recognising that whilst at the time sending that market signal in really sort of trying to suggest to industry that we needed to move away from thermal coal, that this was something that needed to be managed in decline. Actually, the bluntness of that instrument at the time, it served its purpose, but we needed to calibrate it, and we didn't. And we needed to move into a position where we could have been having more proactive dialogue with the industry about, look, actually what you're doing through that negative, that sort of exclusion. Well, it's incentivising me just to try and pass all this out of our corporate structure, because that means I meet your screen requirement and that asset is now being managed by someone else, etc.
Adam: [00:30:12] and it's just like, I wish we had those conversations. And I sort of feel the Commission's created a vehicle where there is now a basis for having a much more thoughtful dialogue with the industry around some of these issues, where there are those unintended consequences so that we can actually manage and sort of calibrate as you're going along, rather than just sort of seeing these kind of reactions and then realising that that's not actually the kind of thing you really wanting to see. So, it's I recognise what I've described, slightly complex, but I do think there's been learning in the commission around the need for industry to work very closely with investors around these challenging issues and finding the right paths forward. And ultimately this is an agenda around how can we invest for the long term for long term value creation, which is part of our duty as a pension fund in this sector, because at the moment, it's often a very small percentage of a portfolio or an investment portfolio. And I actually want to see that increase, because I think this is pivotal to so much of what we depend on in society. And I think this sector is a job creator. It's a driver of economic growth. And I really think the opportunity is for us as investors to walk with the industry and government to be able to deliver a rules based mining sector that really does the positives that we know it can do.
Jane: [00:31:27] Excellent. Well, Adam, I don't think there's anything more to say. Frankly, that wrap up was a phenomenal kind of case for what the commission is doing. So it just leaves me to say a massive thank you for coming and sharing your story and telling us about the amazing work of the Commission. So I would encourage people to check out the website, which hopefully Adam knows off by heart, which is what Adam?
Adam: [00:31:51] Mining2030.org.
Jane: [00:31:53] It's super simple. Excellent mining2030.org. Check out the consultation, which is open now. You can read about all the recommendations that the commission is proposing for the mining sector, the value chain and also the investor community. So Adam, thank you so much. Hope to see you again. Perhaps you can come back. Let's not say in ten years. Maybe you know when the mission, when the vision is done. Hopefully much sooner than that. But thanks again. And see you soon.
Adam: [00:32:19] Thank you.
Jane: [00:32:21] Well, I hope you enjoyed that episode with Adam. And if you did, then please don't forget to follow us and rate us on Spotify, Apple Podcasts, or any other platform you use. If you've got questions, comments, or someone you'd like us to talk to, then do get in touch by email at
[email protected]. That's all from me, but watch out for the next episode very soon.
