Geopolitics, social responsibility rise in the risk ranks for mining globally

BY MARLENY ARNOLDI, CREAMER MEDIA ONLINE

September 30, 2020

Mining executives across the world have ranked licence to operate, high-impact risks, and productivity and rising costs as the top three risks facing their business over the next year.

Multinational professional services firm EY's 'Top 10 Business Risks and Opportunities – 2021' survey for the mining and metals industry has found that these risks and their reshuffled rank compared with last year reflect how the pressure of Covid-19 has disrupted commodity demand and prices, bringing about different priorities.

Most of the 250 global mining executives surveyed say that licence to operate, disruption, environment and geopolitical risks are all becoming more prominent as social responsibility and broader stakeholder demands intensified during the pandemic.

The survey highlights the way in which the pandemic has heightened stakeholder expectations around safety, environmental management and corporate responsibility, which drives the need to address external perceptions of the industry, as investors look to understand value beyond financials.

The top risk for 2021 is licence to operate, which remains unchanged from the 2020 ranking, followed by high-impact risks, which is up from fifth position in the prior year.

Third ranks productivity and rising costs, which is up from tenth position, followed by decarbonisation and green agenda, remaining at number four.

Geopolitical risk is new on this survey’s agenda at number five, followed by capital agenda remaining unchanged at number six and workforce moving from number two last year to number seven this year.

Volatility as a risk gained entry onto the list for 2021 at number eight, while digital and data risks moved from the third-most prevalent risk last year to ninth.

Lastly, innovation ranked tenth for 2021, compared with ninth in the prior survey.

EY explains that geopolitical issues have become a top of mind concern for mining and metals leaders as the shifting balance of power between the world’s largest economies is changing industry dynamics.

The survey finds concern among respondents about how a rise in domestic protectionism – in the wake of Covid-19 – could affect miners’ ability to operate in key markets.

EY global mining and metals leader Paul Mitchell notes that mining is a global industry and requires a global mindset to excel; however, the firm has seen some governments move to impose tariffs or implement export bans in some cases, to protect domestic producers.

About 56% of the survey respondents expect to see royalties and taxes increase as governments seek to raise revenue in response to the pandemic and its aftermath, EY reports.

Meanwhile, Mitchell says this year’s survey saw previously prominent issues, including the future of the workforce and digital and data optimisation – fall in the risk ranking, which indicates that miners are now more confident in managing these risks.

He further points out that the innovation agenda’s scope has been broadened as a result of a rapid pivot response to Covid-19 that the industry has had to adopt .

“The industry response to Covid-19 is acting as a catalyst to apply more creative, agile solutions to long-standing challenges around health and safety, the cost of energy and engagement with local communities.

“There is a huge opportunity to remove complexity, overcome historical obstacles to change and accelerate a transformation agenda that will create long-term value for individual companies, the entire industry and communities.

“Now companies have the opportunity to reflect on changes and focus on retaining the capabilities that enable agility and preparedness for future events.”

COMPETING FOR CAPITAL

For many, these risks are considered business as usual, and for others they represent a key opportunity.

Moreover, leading companies’ plans to decarbonise their operations may be delayed owing to the ability to access capital in an increasingly tight market.

EY explains that increased stakeholder scrutiny of corporate behaviour seen during Covid-19 is likely to continue after the pandemic, with significant implications for how mining and metals companies manage issues around environment, social and governance (ESG) aspects.

Mitchell states that 67% of respondents believe that insights from a company’s task force on climate-related financial disclosures will play a significant role in their allocation of capital.

Companies that strengthen their focus on ESG now can gain a competitive edge in the fight for capital, while transforming the industry for the better, EY notes.