Global mining executives rank environment, social and governance (ESG), decarbonisation and licence to operate (LTO) as the top three risks and opportunities facing their businesses over the next 12 months, according to the latest EY 'Top 10 Business Risks and Opportunities for Mining and Metals in 2022' report.
The yearly study surveyed more than 200 global mining executives and shortlists the most significant risks shaping the industry.
“While many conversations in the market are currently focused around the energy transition and the road to decarbonisation, our survey respondents saw environmental and social issues as the number one risk.
"While this was initially surprising, we believe it is indicative of miners and stakeholders broadening their perspectives. Miners need to be able to demonstrate their contribution to a sustainable future if they are to access the rapidly growing pool of capital available for strong ESG performers,” says EY Africa energy and natural resources leader Wickus Botha.
Decarbonisation, as the second-biggest factor, has become a major disrupter in the sector, dominating many discussions and presenting both risks and opportunities.
“Our survey respondents have elevated this risk to second place for 2022, up from fourth last year. Decarbonisation needs to integrate into a company’s overarching strategy, rather than be addressed as a separate or distinct path, delegated to a discrete team,“ notes Botha.
LTO has lost the top spot, which it held for the past three years, but it is still seen as a top three risk. Miners that can demonstrate their societal value will strengthen relationships with stakeholders and be rewarded in the marketplace with lower costs of capital, better human capital engagement and, in the long run, improved market value.
“Interestingly, two new risks emerged this year – uncertain demand due to energy transition and post-Covid-19 markets at number six, and, at number nine, new business models that need to be considered to capture value amid volatility,” Botha adds.
He says that, while there were fears that the Covid-19 pandemic might slow global progress on sustainability measures, the opposite proved true.
“As stakeholders continue to hold miners accountable for environmental and social practices, purpose, long-term value and sustainability are no longer add-ons to business as usual – they are themselves business as usual. In such an uncertain and shifting environment, we are likely to see greater use of data science, scenario planning and data modelling to guide more intelligent decisions and create differentiation.”
The study also examined the push to develop and deploy new technology for a broader purpose, to further improve on-site health and safety, help miners respond to the challenge of transitioning to net zero and developing “greener” products, as well as an accelerated focus on ESG measures from capital markets.
The study highlighted that responding companies focused on operations during the Covid-19 pandemic but are planning to increase their investment in digital transformation and innovation to help them to diversify and differentiate.
SOCIAL & ENVIRONMENTAL
According to the study, the Covid-19 pandemic has focused particular attention on social inequalities, placing pressure on companies to go beyond their regulatory obligations and take responsibility for driving social equality in the regions in which they operate.
Biodiversity has yet to receive the same attention as other ESG topics, but momentum is building. With future mines set to be carbon neutral and sustainable, the majority of the sector’s environmental risk and liability will lie in closed legacy assets. Progressive closure planning can assist with these challenges.
“Miners that do more to help ensure the long-term, sustainable economic and social growth of the regions in which they operate can leave a positive legacy beyond the life of the mine,” Botha indicates.
Over the past year, miners and investors have accelerated conversations and actions around decarbonisation to address both the risks and opportunities it presents.
“Decarbonisation is a major industry disruptor and as such needs to be treated like any other strategic risk; dealt with at a board and executive level, and managed as part of the overarching business strategy, not addressed as a separate climate strategy delegated to a discrete team.
"Sharing a roadmap to net zero and successes along the way will be key to gaining investor confidence and, potentially, competitive advantage,” Botha notes.
Despite conceding the top spot in the rankings, LTO remains an evolving and complex issue for mining and metals companies.
The study indicated that shareholder expectations are changing fast, impacted by numerous challenges including the mining industry’s contribution to communities, economies, protection of heritage sites and engagement with indigenous peoples, as well as the industry’s role in prioritising ethical supply chains, with diversity and inclusion also in the spotlight.
“Focus on long-term value will be critical if miners are to develop a sustainable licence to operate strategy and reshape themselves for the future. The days of working solely to deliver quarterly results are over. The impetus instead needs to be on stakeholder value in its broadest sense; the value that they bring to customers, people and society, in addition to their own bottom line,” Botha says.