EY: Miners Prioritise ESG, but Face Capital Risks
Environmental, social and governance (ESG) issues have topped the risk register for mining executives for the third consecutive year, according to the EY Top 10 business risks and opportunities for mining and metals in 2024 report.
With a global survey encompassing more than 150 participants, this marks the third consecutive year in which it has secured the top position on the risk register.
ESG concerns are now under the intense scrutiny of all stakeholders, particularly investors. This scrutiny presents challenges when it comes to prioritisation.
For mining companies, adhering to policies alone is no longer sufficient to garner investor confidence and community acceptance. A shift toward achieving net positive outcomes can prove instrumental in this regard, although establishing a baseline for measurement remains a formidable challenge.
According to Paul Mitchell, EY's Global Mining & Metals Leader, many mining companies are wholeheartedly committed to making a net positive impact. Those who successfully navigate this path stand to reap substantial rewards, including enhanced access to capital, a more robust talent pipeline, and a reinforced social license to operate.
In a noteworthy shift, capital has surged to the second position in the ranking, up from eighth place in 2022. This change reflects the mining sector's fierce competition for investments and incentives, especially aimed at expediting the exploration and development of minerals and metals that are pivotal to the energy transition.
The sector has transitioned from a short-term profit focus to a long-term perspective on value creation, influenced by the understanding that extended investment horizons are essential for achieving 2050 net-zero objectives.
Nonetheless, the sector faces a significant capital shortfall to mitigate the impending shortages of minerals required for the energy transition. In 2023, the capital raised through debt and equity has remained relatively stable, but a majority of it is being allocated to high-growth commodities such as copper, nickel, and lithium.
Notably, investments in mining companies are coming from players within the energy ecosystem, including automotive and battery manufacturers. The influence of incentives such as the US Inflation Reduction Act (IRA) is expected to amplify this trend.
Mitchell emphasises, "The race to support the energy transition is accelerating, with the surge in demand for critical minerals underscoring the mining sector's pivotal role. The convergence of sectors, such as automotive and battery manufacturing with mining, signals a transformative phase where collaborative efforts will be the linchpin of sustainable progress."
The spectre of cybersecurity has reemerged in the ranking for the first time since 2020 as mining companies grapple with escalating cyber threats. These threats have become more complex, spanning both information technology (IT) and operational technology (OT).
The survey underscores growing concerns among miners regarding intellectual property as they shift their perspective from viewing cyber threats as solely technological issues to recognising them as significant business risks.
Only 40% of Mining and Metals Boards express confidence in their understanding of the most pressing cyber threats confronting their organisations, according to the EY Global Board Risk Survey 2023. Clearly, the issue of cybersecurity demands increased attention.
Amidst the multifaceted challenges faced by mining companies, one aspect is clear—transparency is paramount for building trust. Miners must articulate the non-financial value they provide to communities and investors, going beyond mere compliance with regulatory expectations.
Mitchell concludes, "This year's ranking highlights the complex operating environment miners face. The risks are numerous, but history demonstrates the sector's resilience and ingenuity in transforming these challenges into opportunities. Over the next 12 months, we anticipate a surge in transparency, innovation, collaboration, and adaptability as mining and metals companies embrace the positive aspects of change."
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