Five ways mining and metals companies can improve security and tackle geopolitical uncertainty
Three years ago, who anticipated the global refugee crisis, the rise of ISIS, or Brexit? Not surprisingly geopolitical uncertainty ranks among the top concerns in the last two editions of the World Economic Forum’s Global Risks Report and related reports by Deloitte . The mining and metals sector is especially exposed to shifts in the geopolitical and international security landscape, given that it operates in some of the world’s most complex, contentious and fragile areas. According to a recent AON report , the extractive industry overall was the third most affected by terrorism and political violence in 2015, suffering 87 attacks.
Many companies in the sector consequently appreciate the need to understand the driving forces underlying transformations in the geopolitical landscape. These include the dangerous combination of weak states creating vacuums – from South Sudan to parts of South America – while strong states engage in strategic competition, as manifesting, for example, in tensions in the South China Sea. The geoeconomic significance of the extractives industry is well know. Chinese investments and demand for example has long fuelled the growth in the resources and extractives sector, especially steelmaking materials like metallurgical coal, iron ore and rare earth elements . With Chinese demand and production dwindling combined with the shift away from a construction to a more consumption based economy the fall out for global commodity prices has been significant.
Another driver is the long-term impact of recent technological advances. With the average smartphone for example requiring about 40 minerals from across the world, the technology sector relies on mining and is vulnerable to disruptions in extraction or delivery, geoeconomic turmoil or price tampering. Similar examples can be given from almost all the other industries relying upon a steady flow and access to so-called “technology metals”. These are key to the miniaturization of electronics, sustainable energy and medical technology innovations and a key element in key telecommunications and defense systems, owing to their unique properties.
Like any other industry, the sector is also becoming more connected and automated, with risks of malicious tinkering or hacking: what could happen, for example, if hackers remotely gained control of the unmanned trains or robotic drills that are starting to become more common in mines? According to a recent report by Trends Micro, “cyber“ attacks against the mining industry receives less coverage but the fallout of such attacks is significant.
Less widely appreciated is the potential for companies in the sector also to play a greater part in providing long-term leadership to tackle the resulting uncertainties. The World Economic Forum`s Responsible Mineral Development Initiative stated that “the transformational potential of the mineral sector to create value is not being realised”. The question is how? Drawing on the World Economic Forum’s new white paper, Navigating the Geopolitical Landscape: A Mining and Metals Sector Perspective , here are five ways in which companies can improve their own risk profiles while contributing to improving the security landscape.
1. Building multistakeholder relationships. Many mining companies have found that creating partnerships – with entities including government, civil society, communities, faith organizations, business associations and other entities – helps to manage risks, by building trust that can be drawn on in crisis situations and optimised to tackle uncertainties and improve outcomes for all sides of the equation.
A relatively uncontroversial entry point for dialogue and building greater preparedness and resilience can be addressing the need to understand drivers of change in the geopolitical and international security landscape. Some mining companies already leverage foresight or landscaping tools, such as scenarios planning, as part of their risk assessment processes.
The mining and metals sector has developed a significant amount of know-how and awareness of geopolitical and international security risk that can be useful to other stakeholders – while the perspectives of other stakeholders can also help internal company preparedness. Conducting joint industry-adapted “red-team” exercises with other stakeholders can therefore create value on all sides, both by building relationships and sharing insights.
2. Creating and demonstrating value to communities. Social cohesion is among the most important contributors to international security, and how metals and mining companies engage with communities where they operate can play an important role in creating or undermining it.
Contributions of mining activity to sustainable development can include tax revenues, building skills, constructing infrastructure, providing services, and hiring and procuring locally. Clearly demonstrating how the company helps to solve a community’s challenges helps it to earn respect, reducing the risk of local flashpoints that can both interrupt operations and potentially spill over to a broader scale.
3. Going beyond compliance on transparency. Some companies report positive experiences from going beyond a compliance-oriented approach and voluntarily holding themselves to higher standards on anti-corruption and transparency measures. Given that another important driver of international security is the strength of institutions, the benefits of such an approach are not limited to companies – they also help to make the security landscape more stable.
4. Sharing information with peers. For reputational and operational reasons, sharing information with peers can be challenging. However, there are circumstances in which making the effort to set up the necessary mechanisms can benefit companies and security alike.
One example is dealing with organized crime – a growing problem for mines, particularly in Latin America. There are successful examples of mining companies sharing information and taking collective action to align policies and practices.
Another is cyber security, where the resilience of the overall system is enhanced when companies are willing to pool information about how they have been attacked, enabling others to avoid falling victim to the same techniques. This requires companies to recognize that maximising the security of the sector as a whole is a higher priority than competitive advantage – not an easy task, but other sectors such as airlines in North America and financial services in the Netherlands demonstrated that it can be done.
5. Enhancing internal structures . Mining companies have developed a variety of internal mechanisms – some more effective than others – to ensure that on-the-ground assessments of risks feed up to headquarters, where they are integrated into an overall risk assessment which is disseminated throughout the company.
Establishing board-level functions to monitor and advise on geopolitical risks is a recommended strategy, as elevating analysis and decision making to the highest levels supports more effective responses, implementation of policies, tactical agility and broader understanding of issues.
We believe that with a stronger understanding of the issues and their own evolving role in the geopolitical and global security landscape, the mining and metals sector can engage more deeply in dialogue and serve as an even more constructive partner in addressing global security challenges. There are untapped opportunities to address gaps in established approaches and collaboration efforts among and between industry sectors that could benefit the resilience and preparedness of the business value chain, and the security landscape as a whole.
The report, Navigating the Geopolitical Landscape: A Mining and Metals Sector Perspective, is available here .
SOURCE: World Economic Forum