Licence to operate remains top risk for mining companies

For the third straight year, licence to operate is the top risk facing the mining sector, according to a report from EY.

Sixty-three per cent of mining and metals executives surveyed by EY said licence to operate was the biggest risk to their companies. As a result, environmental, social and governance (ESG) risks are now “at the forefront of industry executives’ agendas,” EY reported.

Mining executives said the ESG issues investors are most concerned about are local community impact (73%), followed by water management (45%), decarbonization (42%), green production (34%) and scope three emissions (18%).

EY predicted that, going forward, mining companies will have to consider their impact on Indigenous communities and the possibility of a return to resource nationalism — which would come with restrictions on “who miners sell to and for what purpose.”

“Miners will need to work with governments and sector associations to help shape the messaging of the societal contribution and value derived from the mining sector,” EY stated in the report. “There is a real need to rebrand, and with investors looking to understand value beyond the financials, this is key to obtain capital and other sources of funding.”

A related risk — and the fourth on EY’s top 10 list of risks to the mining sector — is decarbonization and the green agenda.

“Miners that seize the opportunity to focus on sustainability can win the fight for capital,” according to the report, which noted that reducing greenhouse gas emissions “remains the biggest environmental issue for mining and metals companies.”

New to this year’s list of risks was geopolitics, which ranked fifth. Sector dynamics are changing, EY noted, as a result of a shifting geopolitical landscape that is driving a trend toward “economic protectionism, including tariffs and export bans.”

Also new to this year’s list was volatility, which ranked eighth in mining executives’ top 10 risks. EY reported that “fluctuations in both supply and demand are expected to drive increased volatility and larger swings in commodity prices.”

EY surveyed more than 250 mining and metals executives between June 29 and Aug. 31, 2020, to determine the top 10 risks facing the sector. For the full list, see EY’s Top 10 business risks and opportunities for mining and metals in 2021.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.