Environmental risks top concern for global miners

• ESG issues named as two of the top three global  mining risks
• Focus on commodity price risk, supply chain volatility and global trade conflict as pandemic risk recedes

For the first time in 12 years, KPMG’s Global Mining Outlook 2022 survey shows a new risk in first place. Environmental risks has topped the list, over commodity price risk in second place.

“This result is a significant milestone for the mining sector with environmental risks and regulations overtaking commodity price risk,” said Trevor Hart, KPMG Global Mining Leader. “Two of the top three risks are in the ESG space. The result underscores the importance of the environmental, social and governance (ESG) agenda to the mining industry, both across the world and in Australia.”

Mr Hart emphasised that the third top risk - community relations and social license to operate - is also related to ESG.  “Mining is typically a long-term industry yet in a very short space of time, the ‘E’ in ESG has jumped to the top of the risk top ten and with it, the ‘S’ and the ‘G’ are also on the minds of executives and boards of the world’s leading miners.”

Mr Hart said that this reflected the reframing of priorities in mining to account for climate change, decarbonisation and ESG issues – a trend seen more broadly across international business.  He noted that political instability/nationalisation was named as the number four risk but that given the survey was completed prior to the events in Ukraine he expected this would likely be rated even higher today.

“Geopolitical tensions have seen increased volatility in markets worldwide,” he said. “Just as the mining sector has broad concerns around ESG risks, miners also have an eye on commodity price risk, and this remains an ongoing focus as the second highest risk in our survey. We are in a period of commodity price volatility and changing demand both in response to Ukraine tensions but also to the broader impacts of climate change. In the last year in particular, mainstream commodities such as nickel and copper have been in the spotlight but also critical battery minerals such as lithium have become an important part of the price risk story for miners.”

KPMG’s Global Mining Risk Report highlights the impact of ESG risk for mining executives.

• ESG as a Disruptor – Nearly three-quarters (72 percent) agree or strongly agree that ESG will be a cause of major disruption in the industry over the coming three years
• ESG as a Business Model driver – Over eight in 10 executives (84 percent) agree or strongly agree that success in the long run will become increasingly dependent on defining success in broader than just financial terms, requiring the need to look more holistically at stakeholder returns including governments, communities, and employees.

Nick Harridge, National Mining Leader, KPMG Australia said whilst ESG was a top three risk, it would also deliver significant mining sector opportunity: “In Australia as well as globally, we are seeing social and investor expectations towards ESG pushing miners to invest in innovative ways and to adapt at a faster pace. We expect the opportunity to commercialise new technologies will continue to fuel more innovation and investment, further increasing the pace of change. This is both a challenging and an exciting time for the mining industry.”

1. Environmental risks, including new regulations
2. Commodity price risk
3. Community relations and social license to operate
4. Political instability/nationalisation
5. Global trade conflict
6. Ability to access and replace reserves
7. Permitting risk
8. Supply chain risks
9. *NEW* Talent crisis.
10. Regulatory and compliance changes/burden

Trevor Hart also called out supply chain issues, political instability, nationalisation, and the global trade conflict threat as other ‘front-line factors’ in mining risk this year.  Yet he emphasised that the opportunities for both global and Australian mining were excellent.

“The world is increasingly recognising the importance of the mining sector as a key element in securing the future. Given the global COVID-19 pandemic impacts have receded, it is notable that the top risks facing the mining industry generally come from outside rather than within.”

He pointed to ‘bread and butter’ industry risks such as commodity prices, permitting risks and access to reserves as still being key issues but said that it was the risks arising from externalities such as environmental regulations and geopolitical factors that were taking up executive thinking time.  In other analysis of the top ten risks, supply chain issues – the eighth top risk – have been driving a rise in the cost of materials and supplies.

Trevor Hart said: “We see economies globally are beginning to wrestle with inflationary pressures. Energy costs for businesses are rocketing and there is also upward pressure on wages. Over half (54 percent) of executives agree that some consolidation is needed in the industry to manage costs – rising inflation will only add to this.”

There is another notable new entrant – the challenge of attracting and retaining talent came in at number nine of the top ten global mining risks.  Mr Harridge said that sourcing the right people was becoming an increasingly live issue for the industry. 

“On an industry-wide basis, the talent crisis is a top ten issue, while when asked about risks for their own specific organisation executives rank attracting and retaining talent at number seven,” said Mr Harridge. He pointed to KPMG’s report Climate Change and the People Factor which found that technical skills to manage climate change and carbon markets expertise are in the most demand in the energy & natural resources sector. 

Nick Harridge said there was a broader view that both in Australia and globally, the mining industry needs a new wave of talent to fulfil a range of specialised and/or technology-centric roles including data analysts, computer scientists, environmental scientists, heritage experts, water management specialists, and more. “Big mining companies are investing in their people programs and many have attractive mobility schemes that enable talented individuals to travel and work across Australia and around the world. We see this as a trend that will continue but we need a robust pipeline to deliver specialised roles into mining as business models reshape.”

Mr Harridge said that was also reflected in Australian and global Boardrooms with increasing demand for more diverse skill sets. “There is an imperative right now for mining companies to consider the broader set of opportunities and challenges facing their companies including ensuring they have the right skills for ESG disruption and business change.”

KPMG’s Global Mining Outlook 2022 provides deep insights into the current views of 301 mining executives from around the world. The latest research is part of KPMG’s Global Mining Risk series, which offers a unique perspective into the evolving risks facing global mining organisations and the mining industry. In addition to this survey, which took place in January and February 2022, we also conducted qualitative interviews in March 2022. The January/February 2022 survey included leaders from 23 key markets (Argentina, Australia, Bolivia, Brazil, Canada, Chile, China, Colombia, Greece, Hong Kong (SAR), China, India, Japan, Luxemburg, Mexico, Norway, Panama, Peru, Portugal, Russia, South Africa, Sweden, the UK and the US) and three key mining sectors (producing mining companies, mining service providers, and exploration and development stage miners).

Marjorie Johnston
+61 407 329 430                                            
mjohnston4@kpmg.com.au