Gerald Group – Impact investing

True to its core business for the past 60 years, Gerald Group is an established global trader of metals, a commodity that is becoming irreplaceable in a future of clean technology. The metals and mining industry has been around for half a million years, long before the oil and gas industry.

Mining has always been intimately intertwined with human history. From early tools to currencies and spacecraft travelling beyond the solar system, the industry’s products have underpinned human civilisation and progress throughout history. Faced with a future where mass adoption of renewable power and electrification is the way forward, metals and mining will continue to play a crucial role in our world.

It is unfortunate that for products so critical to a clean future, their extraction and production processes can be the most damaging socially and environmentally. The mining industry in general has been slow to adapt to the environmental, social and corporate governance (“ESG”)* challenge. 

“The industry has done a terrible job,” said Mr. Frederic Lotti, Global Head of Investments at Gerald Group, in a presentation at the recent Mining Indaba Conference in Cape Town. “Our industry is among the most experienced in the ESG field and should be at the forefront of shaping the ESG discussion, but it’s not. And because of this lack of leadership, others have taken control of this debate and the industry’s reputation has considerably suffered”.

Gerald’s portfolio combines strategic stakes and former distressed assets, defining the Group’s investment process, and leading Mr. Lotti to think a lot about the Group’s approach to investments in the mining space. “As metal off-taker, lender or minority stakeholder, we try to use our influence to help transition. We have seen from close how projects go into distressed situations and in some cases we were forced to step in, but we have ultimately always been successful in turning around assets. Apart from sourcing responsibly, in the process and out of necessity, we’ve developed some very important operating principles of which the most salient ones are to always work for the long term and to make a positive and sustainable impact wherever we operate.” 

Gerald takes the long-term view and structures its operations to be as resilient as possible. “That means the Group works with a relentless focus on margin, speed of execution and with an entrepreneurial mindset, where we start with a blank page and a small team working in a very pragmatic on the ground approach,” Lotti says. 

To Gerald, training the workforce for mobility and achieving gender equality are more than just ESG issues, they are also business issues.

“Engagement of stakeholders, collaboration and mutual respect strengthen all parties creating more value for each,” said Mr. Lotti. “We were trying to recruit women to drive our transport trucks because they are less aggressive drivers than men and more cautious with equipment, but we could not find candidates. I believe the shortage of skilled women is a true economic cost to the mining business. 

“Throughout our experience in dealing with distressed situations, we have truly learned that having strong ESG practices is essential. In fact, there is a lot of research and evidence supporting findings that businesses with good ESG metrics benefit from higher investment return and lower downside risk. The resulting business is stronger, more resilient, incurs less regulatory interferences and inevitably focuses on sustainability. At Gerald, we maintain a large focus on climate change and the decarbonisation process, women in the workforce, education and farming.” 

Some large financial institutions have explicitly stated that they will reallocate capital away from businesses that do not “firmly integrate climate change and sustainability” in their strategy. Carbon heavy companies will trade at a discount to more carbon efficient ones, making fund raising difficult if not impossible for those who do not adapt. “It is important to realise that if the mining industry doesn’t act now, not only will its reputation suffer but valuations will deteriorate, making it harder to raise capital. As an industry, we really need to reframe how we approach our projects,” said Mr. Lotti.  

“It’s so much more than just mining. Our investments are making the future possible by providing the critical ingredients necessary for a cleaner planet to all, while transforming and improving the lives of local communities forever. When done well, it’s impact investing. Our industry needs to change and this time with true purpose and intentionality, and transition to that low carbon future,” Mr. Lotti concluded.

* Note: ESG is used to describe the incorporation of environmental, social, and governance factors in investing responsibly over the long term. ESG factors could include: energy consumption, greenhouse gas emissions, climate change, resource scarcity, water use, waste management, health and safety, employee productivity, diversity and inclusion, supply chain risk management, human rights, and effective board oversight, and when relevant, may have a material impact on the financial performance of an investment. 

Gerald Group promotes the advancement of women in the workforce. Women represent 50% of the Group’s Executive Board of Directors. 

SOREMI, a Copper-Zinc mine and SXEW plant in the Republic of Congo-Brazzaville where Gerald is a strategic shareholder, sources a large majority of fresh food supply from its own built agricultural and livestock farm