SIAS Global’s Role in The Future of Responsible Investing
By Garrett White • 12/15/2020
There is mounting pressure on investment managers to ensure that their portfolios meet a variety of Responsible Investing (RI) principles.
Increasingly, clients want assurances that their capital is being invested in entities and industries adhering to socially and environmentally conscious standards. Intimately linked to the concept of RI are the three domains of Environmental, Social, and Corporate Governance (ESG)—these three central factors are used to measure and rank the sustainability and societal impact of an investment in a company or business. RI began as a niche investment area, serving the needs of those who wished to invest but wanted to do so within ethically defined parameters. In recent years it has become a much larger proportion of the investment market. At SIAS Global, we understand the challenge that investment managers face to maintain acceptable risk and profitability while also meeting the objectives of their clients’ interest in pursuing responsible investing.
As pressure mounts by activists and socially conscious investors alike, the standards for RI will likely become more stringent. A challenging, but important, part of portfolios are investments in the extractive industries. Today’s green portfolio might meet current ESG standards, but what happens if a clean site develops solid-waste and water problems costing millions to reclaim over years? Imagine if a mining company in your portfolio is operating multiple financially risky and potentially toxic sites. Therefore, these sites require continuous monitoring, draining an investment manger’s resources. For a fraction of the cost, SIAS Global has developed a robust data collection and processing team that can perform this type of monitoring on a routine basis.
The situation becomes even more complicated with the requirement of surety bonds. A process likely unfamiliar to many investment managers, most activities among the extractive industries require financial assurance that guarantees final reclamation and restoration of disturbed land. If an operation files bankruptcy or is in financial stress, the surety may have to step in and perform or fund the required reclamation. Quite often, the surety holds collateral in the form of cash or bank issued letters of credit. In some instances, letters of credit are posted directly with regulators in lieu of surety bonds. These factors must be considered when evaluating an investment decision or when performing a financial stress test of a portfolio.
SIAS Global helps investors make better evaluations with regards to portfolio management and more informed decisions on when to divest and in what to invest. Our CEO and founder, Dr. Russell Schimmer, has degrees (Ph.D. and J.D.) in environmental science and environmental law. This unique background served as a catalyst for what today is SIAS Global. Our diverse team of practitioners has expertise ranging from the geospatial sciences to geology and mining, anthropology, law, surety, and finance. We have developed an innovative remote sensing and geographic information system (GIS) for monitoring extractive sites around the world in the context of due diligent oversight and financial exposure. We also have established relationships with Federal and State regulatory agencies, particularly in the United States, from whom we collect data on a routine basis. Regulatory data, such as permits, bonds, and violations, are invaluable to any analysis and bring substantive context to evaluating single or multiple sites in a portfolio.
Investors may have a good idea about the types of commodities in their portfolio, but the pertinent question is the immediate and evolving economics and compliance status of these assets. Not only can SIAS Global produce reports on individual sites using remote sensing and high-resolution satellite imagery and other pertinent data to evaluate social and environmental risks or impacts, SIAS also produces full reports on the various sites that an extractive company owns or operates, providing investors and their clients with a more comprehensive picture of the soundness of their investments and whether they are adhering to their RI objectives. It is difficult for investors to build a portfolio that truly meets ESG standards at point of investment and monitor whether those standards are maintained over time while still being profitable and secure. However, with a much more robust picture, decision makers have increased confidence in the quality of their assets and underwriting while also assuring clients that they have done their due diligence on the sites within the portfolio. Adding an external auditor like SIAS Global to the process builds credibility that the portfolio is both responsible and profitable. This saves time for analysts and secures better investment decisions for stakeholders.