The Nickel Report

In a recent post, we discussed the various risks, trending issues, and emerging concerns arising from environmental, social, and corporate governance factors (“ESG”). As noted previously, neglecting ESG considerations can result in a number of risks to a company, including risks associated with the reputational, financial, and legal impacts of handling ESG issues poorly. We also observed how managing ESG issues well can enhance corporate value and performance, and create competitive advantages for companies. Given these emerging risks and opportunities, it is perhaps unsurprising that ESG has begun to play a larger role in the M&A context in recent years.

In a recent post (“Environmental, Social and Corporate Governance: What are the Risks, Really?”), we discussed the various risks, trending issues, and emerging concerns arising from environmental, social, and corporate governance (“ESG”). One key takeaway is that ESG-related activity at the federal government is just getting started and that agencies have already begun devoting substantial resources to ESG issues, like the U.S. Securities and Exchange Commission’s recently-announced Climate and ESG task force to “develop initiatives to proactively identify ESG-related misconduct.”

As noted previously in the October 2020 edition of Baseload, the capital markets have seen explosive growth in the issuance of ESG debt in recent years. The advantages to utilities have been generally twofold: (1) provide access to a larger investor base than would otherwise be available (i.e. those investors with ESG-focused criteria) and (2) provide evidence of good corporate citizenship regarding certain of the issuer’s projects.

Environmental, social and corporate governance (ESG) – like climate change and environmental justice – has been a hot topic of discussion in the early days of the Biden administration. Illustrating the interconnectedness of the trending issues, climate change and environmental justice are pillars of ESG.

Hunton Andrews Kurth lawyers Aaron Flynn and David McSweeney discuss corporate management of external stakeholder interests in environmental social and governance issues, including climate change concerns and associated legal risks that can become presented.

An independent panel of academics, engineers and other experts, in November 2019, released a draft set of international standards for tailings storage facilities (TSF). During mining operations, ore is reduced into sand-sized particles and mixed with water before the valuable minerals are removed and the remaining milled rock slurry—called tailings—flows to the TSF, an engineered impoundment. It is estimated there are over 3,500 TSFs globally.

The driver for these draft international standards is two recent catastrophic failures of TSFs in Brazil. In January, a TSF owned and operated by Vale in the state of Minas Gerais, near Brumadinho, collapsed, sending a tidal wave of mid and other debris downstream that killed over 250 people. Another TSF owned and operated by Samarco failed in Minas Gerais at Mariana in November 2015, killing 19 people and spreading pollutants over 400 miles of surface waters, eventually reaching the Atlantic Ocean.

In his annual letter to CEOs, Larry Fink, CEO of BlackRock expressed his belief that climate change and sustainability were important considerations in investment risk assessments. Investment based on these concepts is often captured under Environmental, Social and Governance Criteria, commonly called ESG. In his letter, Mr. Fink emphasized that he believes “we are on the edge of a fundamental reshaping of finance.”

BlackRock’s letter builds on the ever-advancing trend in corporate institutional investing over the past decade regarding the examination of corporate valuation and investment risk within the context of ESG issues, otherwise referred to as sustainable investing.