In a report published on the 29th of May 2007, alternative investor F&C outlined the risks to mining companies from failure to apply environmental, social and governance (ESG) practices to their independently-managed operations.
According to Karina Litvack, Head of the Governance and Sustainable Investment team at F&C, although most major mining companies have recognized that effective management of these risks is crucial to the long-term success of their business, they have not consistently applied the same policies to their joint-ventures and other partial investments.
"Over the last few years, we have become aware of the gap between what mining companies do in-house in terms of ESG best practices and what they do, or don't do, in to their so-called 'independently managed operations'. Whilst many of these companies have led the way when it comes to their in-house operations, the same cannot be said of the independently-managed operators with which they are increasingly involved.
The report highlights how rising demand for ever-scarcer resources is driving mining companies to turn to exploration projects that are increasingly located in high-risk areas, such as the former Soviet Union, Latin America and Africa.
It is the inherently risky nature of these locations that often prompts the majors to outsource these projects to smaller or more nimble partners. Later on, if and when the assets prove very profitable, the majors will often buy out their junior partners.
F&C is a European investment group whose hedge fund holding company, F&C Asset Management's shares are quoted on the London Stock Exchange. The fund has €151.4 billion ($299 billion) under management (as at 31 March 2007), and offices throughout Europe.