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Sharemarket penalises mining firms abusing human rights
The sharemarket has been a powerful tool in holding to account mining companies engaged in human rights violations, but informational campaigns by civil society groups and the media are the real awareness drivers.
Sharemarket penalises mining firms abusing human rights
The sharemarket has been a powerful tool in holding to account mining companies engaged in human rights violations, but informational campaigns by civil society groups and the media are the real awareness drivers.
According to new international research by Monash University and Oxford University, the assassination of environmental activists linked to mining activities have delivered average sharemarket losses to associated mining companies of over $130 million in the 10 days following the event.
In the world-first study on how global sharemarkets react to high-profile human right abuses in the mining industry, researches found that negative media coverage and attention from human rights groups contributes to these sudden financial declines and divestment by investors.
“Since 2002, more global environmental activists have been killed than Australian or UK soldiers in war zones. These abuses, and those involved, are the focus of global publicity campaigns by human rights groups and the media,” associate professor Paul Raschky from the Monash Business School and SoDA Labs said.
“Multinational companies are sometimes connected with human rights violations at the global periphery. In the absence of legal frameworks that govern corporate misbehaviour abroad, global civil society, including activists, human rights groups and the media, are often the only institution to hold large multinational corporations accountable for their misbehaviour,” Mr Raschky explained.
Oftentimes, he revealed, these tragedies get swept under the rug by governments and media outlets due to competing interests and financial investments.
“Our research shows that extreme actions taken by multinationals against civil society have long-term financial and social repercussions,” he added.
Using hundreds of data samples, researchers found no evidence of abnormal returns for companies on the days leading up to assassination attempts.
On the day of an assassination, researchers observed little market reaction, followed the next day by a (borderline) significant effect of around -0.7 percentage points. This initial reaction was followed by a stable decline the next four days and a steep – and robustly significant – decline from day five through day 10 after the event.
“These results indicate two key findings. First, our event study results are not merely picking up a downward pre-trend in the asset prices for those companies associated with violence. Second, the factual or expected disclosure of a company’s role in the assassination event seems to be at the root of the estimated effect,” Mr Raschky’s research partner, David Kreitmeir, a PhD student in the Monash Business School, said.
“The negative impact on publicly traded firms is economically significant. We estimate the median 10-day cumulative loss in market capitalisation is more than $130 million (US$100 million). And these financial impacts accumulate through time.”
Moreover, the researchers also found that institutional investors that follow event-based trading strategies, such as hedge funds, withdraw funds from mining companies following assassinations – sometimes by as much as 16.5 per cent.
According to their data, since 1998, close to 500 people have died because of 354 killing events associated with vocal opposition against mining projects. More than one-quarter of fatalities have occurred in the Philippines, while Peru, India, Guatemala and Colombia are also dangerous countries for environmental activists.
Collecting and coding more than 20 years of data on assassination events, the team used ‘Event Study Methodology’ to examine how publicity of these events impacts the asset prices of firms associated with abuse.
“Our findings show that informational campaigns by civil society have, in fact, an impact on multinational corporations and being linked to human rights abuses can significantly influence an associated company’s stock market value,” associate professor Nathaniel Lane from the University of Oxford concluded.
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