Environmental risk has topped the list of mining risks in 2022
In the 12-year history of our global mining risks and opportunities research, 2022 marks quite a moment. Every year, commodities risk has been at the top of the industry’s risk radar. But now, that has been displaced. So, what has overtaken it?
In three letters: E-S-G.
Climate related risks – environmental risks and regulations – have become the new number one concern, and another ESG-related risk – social license to operate – is in third position. Meanwhile, pandemic related concerns have completely vanished from the top ten in the space of a year.
For an industry that inherently operates with an eye on the long-term such rapid changes are striking at first glance. However, dig a little deeper and it becomes clear they are reflective of a broad and ongoing trend which extends beyond mining and into the Australian economy as a whole.
Our survey found 84 percent agreed that future success would depend on factors beyond pure financial outcomes, demonstrating the vast majority of executives have taken on board the importance of addressing climate change and the ESG agenda. Moreover, almost three-quarters expect that ESG will cause a major disruption to the industry in coming years.
Social license has moved from something which was nice to have to a necessity for businesses. In the social media age, incidents can spread quickly and cause severe reputational damage. Once lost, regaining social license is a difficult challenge, so we anticipate that developing strong community links and taking time to comprehensively address concerns will be key.
That said, one concern highlighted in the results was that 55 percent of executives disagreed, or strongly disagreed, that investor expectations and measures are clearly understood and consistent across the market with regard to ESG. Last year this measure stood at 40 percent suggesting that reporting standards must become a key focus going forward for the joint benefit of companies and investors alike.
Despite this, industry confidence remains strong at present with 62 percent of respondents saying they were confident of their growth prospects over the next 12 months. Demand for minerals remains high globally, and minerals crucial for energy transition such as lithium, cobalt and graphite could experience huge surges as outlined in KPMG’s Resourcing the energy transition report.
Strong commodity prices are likely to persist for some time yet, particularly in the face of global economic uncertainty and high inflationary pressures. However, that uncertainty is still causing a degree of concern with political instability and global trade conflict placing high up in the top ten. This also likely explains the emergence of supply chain risk, a new top ten entrant, as businesses tackle increasingly complex logistics challenges caused by turmoil overseas.
It is unsurprising then that nearly two-thirds (62 percent) of those surveyed felt that companies needed to embrace new business models such as strategic partnerships, private equity and public-private partnerships. There is a growing feeling that public companies are finding it increasingly difficult to find success with traditional business models.
At the same time, M&A activity is expected to increase. It is now seen as the second most important strategy for achieving growth targets by 37 percent of businesses, behind organic growth on 57 percent. This is likely to remain the case in coming years, although if valuations remain high companies may instead choose to focus on existing sites instead.
The final significant result has particular relevance here in Australia. Talent shortage has re-entered the top ten risks, with a focus on increasing the diversity of hires front and centre in the minds of executives. The current workforce is an ageing one, but attracting new talent is challenging due to its increasing intersection with ESG issues. Pursuing successful ESG initiatives and projects aimed at decarbonising the sector, as well as sustained positive community engagement, are likely to be key steps in helping the industry attract and retain new talent.
From my observations, the opportunities for the industry are outstanding. The importance of the sector for the world’s future has been gaining more and more prominence and I believe it finds itself in such a strong position to deliver. In my view, transparency and high-quality engagement will be critical. For those who get it right, I believe the rewards will be significant!