Climate change top of miners’ minds: KPMG

Climate change has arrived as the new number one risk to be reckoned with as Australian mining companies begin to recognise the role it will play in their operations, resource selection, and project timelines.

In KPMG’s Australian Mining Risk Forecast – based on the self-reported material risks of mining companies in the ASX 300 – in 2023 ASX-listed companies indicated the other top risks of concern now are community relations; commodity price risk; health, safety, and security; and environment.

Financial and operational risks, and access to resource are also in the top 10.

KPMG’s analysis reveals this is a shift in the risks perceived by the mining industry as most relevant compared to previous years, reflecting the dynamic global and local environment.

This year climate change and other ESG concerns, together with how they may affect commodity prices are at the forefront of mining executives’ minds. 

According to the report, the election of a new government in 2022 saw a significant shift in Australia’s climate policy and regulatory landscape. This then added a number of challenges for the sector to grapple with.

A net zero target date of 2050 is now enshrined in law and an array of supporting legislation, targets, regulations, and initiatives has been introduced. KPMG says this represents a rapid acceleration in the country’s stance with supply chains, regulators and industry needing to step up to match pace.

“The mining industry is in many respects ahead of the curve, having already recognised that its social licence to operate is connected to its impacts, not only on the environment but also on communities. The new laws provide clarity that was previously absent and enables the industry to take the opportunity to lead the way in decarbonisation.”

KPMG’s report notes while resources companies want to demonstrate ambition in setting climate-related goals, in many instances the technology and strategies required are still being worked through.

The report says one of the biggest opportunities available to the industry over the next year is to focus on developing comprehensive strategies and implementing technology and systems to facilitate authentic representation of decarbonisation commitments.

A recent KPMG survey of global metals and mining companies found roughly 40% of mining executives described plans to do this by accelerating investment to transform the industry in ways that help the global economy meet its ESG goals. However, only 30% said they had integrated ESG goals into enterprise strategy.

KPMG’s report says while ‘climate change’ related risk appears across all levels of the ASX analysed, “it is interesting that ‘environmental risks (including new regulations)’ does not appear in the top 10 for companies within the ASX 100 and yet it is the #1 risk for companies in the ASX 200+.”

This may represent the maturity of systems and processes of the larger, and potentially more mature, companies in that segment of the ASX.

KPMG adds, there is therefore an opportunity for the ASX 200+ to work to enhance systems and processes over the next year to reduce uncertainty in this growing area of focus.

Risks related to the COVID-19 crisis and the need to find talent – as a result of border closures – pushed ‘community relations and social licence to operate’ down to fourth place in last year’s report, but as the pandemic recedes it returns to the 2021 survey’s #2 position this year.

“In the current environment, community relations and social licence to operate remains as one of the key risks for extractive operations,” Mel Sutton, KPMG Banarra’s Director of Human Rights and Social Impact, explains.

KPMG’s report says commodity price risks are always a key consideration for the sector, and while climate change has pushed it out of top place – where it has been for 3 years – commodity price uncertainty remains front of mind.

“Australia’s great generational commodity pivot has begun and, along with the rise of critical minerals against the backdrop of decarbonisation and energy transition, the future looks as bright as ever,” says Vic Jansen, Director KPMG Treasury Services.

An interesting point, KPMG says in the report, is while ‘commodity price risk’ concern dominates, there’s little evidence of a substantial increase in commodity hedging activities among mining companies over this timeframe.

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Written By Adam Orlando Editor-in-Chief Adam Orlando has more than 20 years’ experience in the media having held senior roles at various publications, including as Asia-Pacific Sector Head (Mining) at global newswire Acuris (formerly Mergermarket). Orlando has worked in newsrooms around the world including Hong Kong, Singapore, London, and Sydney.