Shareholder engagement in the extractive sector

Abstract

The extractive industry sector has become one of the most prominent areas for shareholder engagement. Given its environmental and social impacts, and global nature, this sector's operations are particularly prone to financially material reputational risks. Large-scale investors and financial analysts concerned with reputational risk as a consequence of insufficient environmental, social and governance (ESG) standards in companies are increasingly turning to shareholder engagement as the preferred and most direct method of implementing, monitoring and advising companies. This article argues that shareholders have some impact on ESG issues with companies in the extractive sector. Their influence stems from the legitimacy they bring to the engagement process, with a high degree of knowledge in the sector and a pragmatic approach that recognizes the incremental pace of change in extractive companies. In this article we build on the work of both Mitchell and others, and Gifford on stakeholder saliency, in order to assess the results of engagement at the level of the firm, with particular reference to the extractive sector. Previous work has focused on the saliency of such engagement at the stakeholder level, with the investor as the unit of analysis. We investigate the impacts and perceptions of shareholder engagement in the extractive sector examining engagements NEI Investments with Canadian mining giant Barrick Gold from 2005 to 2009. We further quantify the results of the engagement using data from a third-party rating agency.

Keywords:

• extractive sector
• corporate engagement
• shareholder engagement
• ESG standards
• stakeholder theory

Notes

This has occurred in the case of Duke Energy, Cinergy and Texaco to enter into global-warming discussions. Goldcorp has commissioned a human rights impact assessment on its Marlin Mine operation following shareholder engagement. Shareholder resolutions were withdrawn when Alcoa and Hasbro agreed to discussion on using the Global Reporting Initiative (GRI), the global environmental reporting standard.