The Rio Tinto Limited (ASX: RIO) debacle at Juukan Gorge and the subsequent management, has cost the jobs of two executives and the CEO. It has also raised the spectre of Rio being forced to relocate its HQ back in Australia where its cash-producing assets are. Personally, I have to ask, did they really think we were going to just put up with it? Nonetheless, it has refocused the mining industry on ESG investing; environment, society and governance.
The case is highlighted the S&P Global report called The Growing Importance of ESG in the Resources Sector. It claims that global investor scrutiny of ESG risks is increasing amid rising awareness of cultural issues. In fact, it was likely investor pressure that led to the resignations, particularly that of Australia's sovereign Future Fund.
Report author Paul Bartholomew said investor activism on ESG issues was increasingly strident. Moreover, S&P expected ESG risks to become more important to mining companies as they implement their projects. Yet, ESG investing has spread far wider than just the mining sector. On the ASX, the Australian Ethical Investment Limited (ASX: AEF) share price is up by 14.2% in year to date trading.
Here are three companies that I believe are solid ESG investments with a strong track record of performance.
Investing in Hydro Energy
Mercury NZ Ltd (ASX: MCY) is a > $6 billion New Zealand company generating power from 100% renewable sources. Predominantly, this is from hydro power. However the company also has solar and wind generation assets. The company's share price has been on the move in the wake of its positive FY20 results.
Over the past month, its share price has risen by 14.52%, managing to end last week on a positive note amid all the wreckage. Mercury goes ex-dividend today, giving it a trailing 12-month dividend yield of 3%.
Another hydro-powered generator is New Zealand's Meridian Energy Ltd (ASX: MEZ). Similar to Mercury, the company uses primarily hydro powered generation with some solar and wind power. In this case the Meridian share price has rise by 9.1% over the past month after a solid FY20 report. The share goes ex-dividend on 29 September and will pay $0.10. At Friday's closing price, this gives the share a trailing 12-month dividend yield, including the interim dividend, of 3.7%.
ESG as a business model
K2FLY Ltd (ASX: K2F) is a company providing services in the ESG sector. Given the current noise around mining, particularly in Western Australia, this company is likely to see even more sales opportunities. The company has seen its share price rise by 12.12% over the past month after a better than expected annual report.
K2Fly provides a range of software and consulting services, however its primary products are software as a service (SaaS) based. For example, the company provides a governance tool to manage reserve reporting in compliance with many share markets globally. In fact, its client list reads like a who's who of mining. Second, and most important given what has just happened, is the company's Infoscope product.
Infoscope is a land management SaaS tool. In December 2019 a new entity, 'The Place of Keeping', took over the roll out of Infoscope to Australian Aboriginal groups. 'The Keeping Place' is a secure platform that enables traditional owners to unlock social and economic opportunities for current and future generations.
Foolish Takeaway
ESG investing can be a very profitable activity. On one hand, companies that provide services in this area are more and more in demand. On the other hand, companies that are environmentally sound, or help to reduce our collective carbon footprint, are seeing a high influx of investor capital.
There is no doubt that the Juukan Gorge incident is going to spark higher levels of activism in shareholder groups and funds.
