19 Sep 2019 | By Ned Naylor-Leyland

Responsible investment charter – Merian Gold & Silver Fund

Our investment process seeks to identify well-managed companies engaged in activities related to the production of gold and silver.

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This charter sets out what we believe to be some of the key attributes of a well-run mining company. When these factors are poorly managed, they substantially increase business risk. Conversely, when well managed we believe these factors increase the likelihood of a company creating long-term sustainable value for its owners and a positive impact on society.


As a fundamental concept we expect companies to adhere to the principles of the UN Global Compact. We view these as minimum standards of responsible corporate behaviour.


We place significant emphasis on good corporate governance as an indicator of how likely it is that a company will be run in the interests of all shareholders. If we can be comfortable with a company’s governance arrangements, we should be able to have more confidence that it will be well managed.

We recognise that our investible universe includes companies of various sizes and stages of development. We are willing to be pragmatic as to how our general expectations of governance apply, particularly with respect to smaller companies. However, as these companies grow in size over time we are keen to ensure that their approach remains suitable, and so will look to understand how their governance and strategy will evolve. Key areas that we look at include board composition, skills and independence, whether executive incentives are properly aligned to supporting and promoting long-term performance, and the extent to which boards have oversight of and responsibility for the key sustainability issues facing the company.

The separation of ownership and control is often cited as a primary reason for not investing in a number of regions globally. Nevertheless, we recognise that, even within our restricted universe, companies may need to manage interactions with community-led organisations. While we understand that these organisations cannot be ignored, we expect our investee companies to operate and be governed in a transparent way in order to help us understand those who control the business and whether or not our interests are aligned.


Mining companies are particularly exposed to environmental issues, due to earth moving and heavy machinery use during operations, as well as the chemical reagents and water required for processing activities. If managed poorly, these activities and their resulting environmental impacts can become material financial risks to the company.

We carefully consider a company’s performance across key issues including water consumption and discharge, tailings (mineral waste) management, and site remediation.

We expect companies to strive for best practice, going beyond local environmental permit requirements, in order to ensure the highest level of risk management. We also look for company-wide risk frameworks such as an Environmental Management System, certified to ISO14001.


The mining industry is a high health risk occupation. Accordingly, we expect companies to provide a working environment that is conducive to safety and health, and to target “Zero Harm”. This target requires a relentless focus on managing both fatality and accident prevention, and the understanding from senior management that whatever happens on their watch is a reflection on their leadership.

Employee and community relations are critical to corporate success. Poor labour relations and local social impacts can spill over into strikes, mine blockades, damage to assets and interruption to earnings. Mobilising large workforces within remote regions can present significant challenges to the successful management of labour relations. We aim to invest in companies that respect and prioritise labour and community relations.

The governance of mineral resources is viewed with increasing importance by nations who rely on their extraction as a significant percentage of national income. As a result, companies that focus on maximising short-term shareholder profits over a longer-term approach of maximising the mine life may be viewed as exploitative. In severe cases, this could result in punitive taxation or even confiscation of the asset to the detriment of shareholders. We expect companies to carefully consider the benefits and risks of short-term decision-making, particularly as a more balanced strategy may lead to greater harmony with stakeholders and reduced risks to shareholders.


A key aspect of a mining company’s viability relates to its social licence to operate. The industry’s reliance and impact on both local communities and governments requires it to manage these relationships carefully and in a responsible manner. A breakdown in these relationships can lead to mine closures, loss of mining permits, and expropriation of assets. We expect companies to maintain a constructive relationship with local governments and regulators, and to leave a positive impact on the societies in the areas in which they operate.

The sector can be particularly exposed to bribery, which creates challenges to doing business in a sustainable manner. It also carries the threat of large fines resulting from local and international corruption laws. In line with the Global Compact, we expect companies not to engage in any form of bribery and corruption. We also expect companies to manage their tax affairs in a way that reflects the economic realities of the business, and not to use transfer pricing and other devices that amount to unethical tax avoidance.

Companies may operate in jurisdictions such as Canada and Australia where traditional owners have underlying claims to land. In these cases we expect Impact Benefit Agreements, Social Economic Participation Agreements, and Indigenous Land Use Agreements to be structured towards financial participation, so that local communities and indigenous people benefit from the success of the mine. We see greater stability and reduced risk over the long term if financial interests are aligned between the mining company, the government, and the local and indigenous people.


In order to understand a company’s approach and performance against these topics, a level of disclosure from the company that is commensurate with providing sufficient insights is needed. While we recognise that smaller companies will have limited resources, we also highlight the significant benefits available to them in the capital markets from managing and mitigating key operational risks. For larger companies, we expect more sophisticated disclosure of the nature of these key risks, management practices and performance against KPIs. Where we are unable to understand a company’s approach due to lack of disclosure, we will look to engage with management and the board to clarify any concerns and suggest improvements where necessary.

If through disclosure and engagement we are not able to gain comfort that these risks are being sufficiently managed, and in particular where we do not believe these risks to be adequately reflected in the market’s valuation of the business, we might choose to reduce our position or sell our holding entirely.