ESG risks and geopolitics ranked top risks for mining companies – survey

By Creamer Media, miningweekly.com

September 29, 2022

Global mining and metals executives rank environment, social and governance (ESG), geopolitics and climate change as the top three risks facing their business over the next 12 months, a survey by consultancy EY has found.

“We have witnessed huge upheaval and change over the last year, namely due to the war in Ukraine, climate events, new governments in mining regions and shifting relationships in others — all coming together to drive substantial impact on the sector," says EY Americas Mining and Metals leader Theo Yameogo.

Commenting on the EY ‘Top-ten business risks and opportunities for mining and metals in 2023’ report, he says that these external factors, combined with inflation, will shift the sector’s risk and opportunities, as pressure from stakeholders and capital markets hold leaders accountable on multiple fronts.

While mining and metals companies are integrating ESG factors into corporate strategies, decision-making and reporting, survey respondents continue to rank ESG issues as the number-one risk to their business.

Respondents list water stewardship (76%), decarbonisation (55%) and green production as the top issues they expect will face the most scrutiny from investors.

"Net zero is still a focus, but mining and metals companies are also mitigating broader transition and physical risks," shares Yameogo. "Companies must play a role in enabling a just transition — achieving decarbonization targets while considering the long-term impact of mine closures on workers and communities."

Respondents ranked geopolitics as the second business risk – up from fourth last year. Resource nationalisation is seen as the top geopolitical factor (72%) likely to impact on operations, as governments seek to fill revenue gaps after spending throughout the pandemic and capitalise on higher commodity prices through new or increased mining royalties.

"Global uncertainty is putting pressure on companies to quickly assess the impact of different alliances, trade flows, governments and taxes on business decisions," says Yameogo. "It's also forcing companies to define where intersects exist. As the interplay between ESG and geopolitics increases, so too does the amount of regulation needed to comply with. This evolving landscape requires mining and metals companies to pay close attention to how tax and regulatory changes across jurisdictions will impact operations."

Climate change is seen as the third top risk. EY says that mining companies have become progressively better at managing climate change, but there are still opportunities to improve. For example, not enough miners are taking action to minimise the physical risks of climate change, such as wildfires and flooding, which may threaten operations.

Further, EY reports that supply chain disruption is emerging on the radar. Various external and societal factors such as the impact of Covid-19, the war in Ukraine and rising energy prices have magnified the challenges that have been looming for some time. In response, respondents say they are seeking to improve end-to-end supply chain visibility, leverage technology to improve operations and performance, and be more strategic when analyzing new technologies and supplier portfolios.

"Major disruption and rapidly changing expectations, together, may impact the ability for mining and metals companies to build sustainable value," Yameogo adds.

"Risk mitigation and maximising opportunity requires companies to make significant changes to their business through a proactive, diversified approach that's integrated into strategy and broader planning."