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Freeport McMoRan (NYSE:FCX) passed ModernGraham’s Defensive Investor requirements, so now I am interested to know more about FCX’s management of its company and operations, its people, community relations, and corporate governance. A growing number of investors are examining a public company’s ESG performance data to make to more informed investment and business decisions. This growth complements Ocean Tomo’s finding in their Intangible Asset Market Value Study that there is a "value gap" between physical and financial accountable assets reflected on the S&P 500’s balance sheet, which comprises less than 20% of the true value of the average firm. This “value gap” is a complete inverse compared to how the S&P 500 was valued in 1975, when more than 80% of a company’s business value represented tangible assets. Ocean Tomo found that a significant portion of the value gap is related to patents and innovation.

ESG performance disclosures valued by the capital markets act are increasingly viewed as proxies that help address the “value gap” - by highlighting risks and opportunities related to important environmental, social and governance issues that affect company and industry sector performance. ESG metrics help stakeholders understand risks and opportunities related to a company’s environmental footprint, its social responsibility towards people (employees, customers, local communities), and internal governance.

Analysis of FCX’s 2012 ESG performance. The chart below compares FCX’s 2012 ESG disclosures in eight (8) categories to the industry sector average (based on 51 securities), and the three top industrial group peers. According to data downloaded from Bloomberg Professional’s equity service platform (read more below), FCX is the leading ESG discloser for 2012 for its industry group with an ESG score of 59, which is significantly above the industry average ESG score of 29. The second column of Table 1 provides the company’s aggregate ESG Disclosure Score (ESG score) that ranges between 0 (no disclosure) and 100 (full disclosure). “NA” in any column means the information is not available.

Table 1: A Snapshot of Freeport McMoRan’s 2012 Environmental Performance

COMPANY NAME

ESG DISC SCORE:Y

GHG EMISSIONS:Y

ENERGY CONSUMP: Y

TOT WTR USE:Y

TOTAL WASTE:Y

COMMUN SPEND:Y

WTR INTENS/SLS:Y

GHG INTENS/SLS:Y

Average (51 securities)

27

2,592

16

330,818

149

$ 17,709,098

33,615

470

FREEPORT-MCMORAN (FCX)

59

9,600

25

665,000

725

$173,000,000

36,924

533

INDUSTRIAS PENOLES (PE&OLES)

54

2,370

4

37,240

6

$ 9,974,041

5,036

321

HUDBAY MINERALS (NYSE:HBM)

52

76

1

11,054

NA

$ 1,900,441

15,723

108

TECK RESOURCES

50

3,183

13

330,341

822

$23,208,388

31,916

307

Data Source for Table 1: Bloomberg Professional Finance and ESG Platform May 2014

Table 2 below shows FCX’s ESG Disclosure trend over the past eight years, which has significantly increased, indicating the company’s movement towards a culture of accountability and transparency with stakeholders.

Table 2: FCX’s Composite ESG Disclosure Score For the Years 2005 -2012

2005

2006

2007

2008

2009

2010

2011

2012

19

19

38

46

44

52

58

59

Data Source for Table 2: Bloomberg Professional Finance and ESG Platform May 2014

In other words, the ESG data shows that FCX has made a serious effort to disclose ESG performance data of value to the capital markets. Of particular interest to the capital markets is the environmental footprint of this industry group.

Columns 3, 4, 5 and 6 of Table 1 show that FCX’s Total GHG, Total Energy, Total Water, Total Waste usage numbers are more than twice the industry average. FCX is, in fact, a much larger competitor from the perspective of market capitalization, employees and total revenues. So we look to FCX’s 2012 GHG and Water intensity metrics as a percentage of sales compared to the industry average and three top peers. This perspective removes from the equation differences in company size between top peers. The benchmark shows that FCX’s GHG and Water intensity are higher, or “more intense,” when compared to the industry average and three top peers. The higher intensity metrics may be due to FCX’s different product mix, operational inefficiencies, or human error in individual companies' intensity computations. Bottom line, FCX’s intensity metrics raise questions about operational efficiency.

Given the recent WSJ story about copper mining, FCX, and the rising costs of copper due to water scarcity issues, FCX’s intensity metrics will remain relevant for the company’s sustainability strategy. More ESG analysis of FCX’s ESG metrics is available through Bloomberg, but this level of analysis is beyond the scope of this blog.

Finally, the Sustainability Accounting Standards Board (SASB) is currently developing industry-by-industry voluntary ESG accounting standards for publicly traded insurance companies to report on material sustainability issues to the SEC. The SASB standard for the mining industry group is due for release to the public in its final form on June 25, 2014, and can be downloaded here when it is available.

Lesson: Public companies (and the private companies who do business with them) need to recognize that best practices for sustainability disclosures include standard ESG aggregate data like what is presented above. When companies in an industrial sector first disclose sustainability performance, aggregate ESG scores reflect the level of disclosure. Once ESG disclosures are mature for an industry sector, intensity and productivity metrics can be calculated as proxies for operational and management efficiency. Companies that do not disclose ESG data at all risk being eliminated in a competitive situation because of the appearance of risk and lack of transparency and accountability. For a more detailed explanation of ESG data as a game-changer, read this white paper.

Where does this data come from? Since 2009, Bloomberg’s Professional equity platform has provided corporate financial and ESG performance data to the capital markets. Corporate ESG data is typically released through annual corporate sustainability reports. Bloomberg Finance dashboards now contain public corporate financial and ESG performance data, and this information is available to subscribers via nearly 400,000 Bloomberg terminals installed in investment and financial institutions throughout the world, including Fortune 500 CFO offices, academic settings, and public libraries. Anyone with access to these terminals has access to the information.

Disclosure: The author does not currently hold a position in FCX and has no intention of changing that position within the next 72 hours.

Source: Freeport McMoRan: A Focus On Environmental Metrics