Deloitte Says Closing the Trust Deficity Key for Miners This Year
By Marleny Arnoldi
February 2, 2021 - Consultancy Deloitte has identified the “trust deficit” between the mining industry and its wider set of stakeholders as the central narrative that emerged in its 'Tracking the Trends 2021' report.
Deloitte says the industry is, in many ways, at an important juncture, with it holding the key to a lower-carbon future through many of the minerals it mines, yet being a capital-starved industry.
The consultancy continues that, while mining companies have played a significant role through the Covid-19 crisis by acquiring personal protective equipment, leveraging their healthcare infrastructure and keeping workers safe, many governments continue to look to the industry for additional taxes and royalty payments.
In many ways, "these dichotomies still exist because of a deficit in trust", the consultancy notes.
Deloitte shares its perspective on what mining companies should consider to increase or rebuild trust among their extended ecosystem of stakeholders, from their investors and employees to the communities and societies in which they operate.
“As miners navigate the new normal, resiliency is imperative, so it is not surprising that we kick off this year’s trends with four divergent scenarios of how things might play out over the next three to five years.
"Covid-19 has accelerated many trends, but the world remains uncertain, and these scenarios could be helpful as firms navigate different stakeholder needs to close the trust deficit,” Deloitte says.
From an investor perspective, this means winning back confidence by finding new ways to deliver consistent shareholder returns – particularly as transactional activity picks up – and closing the supply chain gaps that the pandemic has brought to the fore.
Many miners are also taking this opportunity to recalibrate for the future by shifting toward integrated operations to drive more predictable returns.
To rebuild trust across their talent network, many companies are redefining leadership, adapting the workplace culture, and recommitting to the goal of zero harm.
They are also revisiting their commitments to local communities and to society at large, by enhancing their environmental, social and governance (ESG) performance.
This has seen them working to get serious about decarbonisation and turn their corporate governance frameworks into a competitive advantage – initiatives that can drive value for their broader stakeholder groups as well.
Deloitte states that most mining companies are working to link their social investments to sustainable outcomes and playing an active role in the world’s transition to a clean energy future.
Amid prevailing uncertainty, it is impossible to predict the results these efforts will yield. However, success in the future will likely be judged on factors far beyond financial performance.
“Covid-19 has taught us about the things people value most—safety, community, social impact and the environment. Mining companies struggling to overcome a deficit in trust should take these lessons to heart,” the consultancy says.
While Covid-19 has had a range of impacts on mining companies, varying by commodity and geography, the one thing the past year has taught leaders is the value of building resilient organisations to navigate uncertain futures, says Deloitte.
To build a resilient organisation, mining companies should embrace scenario planning as part of their strategic planning processes. Doing this effectively can position miners to better anticipate a range of global disruptors that could affect their organisations.
Deloitte recommends that executive teams spend time to determine how a company’s strategy or plan caters to various future scenarios and understand what would need to be done differently, should a different scenario come to pass.
The consultancy adds that monitoring the geopolitical and economic environment for early warning signs could be essential.
In terms of mining companies seeking merger and acquisition financing, Deloitte says miners should work to win back the trust they lost during the peak of the last cycle when numerous deals destroyed value rather than created it.
“Companies may need to find new ways to deliver consistent shareholder returns, including enhancing ESG performance and improve their operational and capital discipline.”
Driven by external pressure to reduce greenhouse-gas emissions and a strengthening business case for diesel replacement and electrification, many mining companies have been making strides toward decarbonisation.
In Chile, for example, BHP, Anglo American and Antofagasta Minerals have all announced plans to power local operations from entirely renewable resources.
For its part, Vale has committed to achieving 100% self-production from renewable sources by 2025 in Brazil, and by 2030 globally.
With renewable energy approaching price parity, at least for some renewables, the cost of taking action is also decreasing.
While the costs of transitioning to renewables must also be taken into account, operationally it is now much cheaper to replace fossil fuels with renewables and, in many cases, attain significant economic benefits, says Deloitte.
However, pension funds, institutional investors and the ESG investment community are increasingly demanding more specifics about how companies plan to move from strategy to execution and providing these specifics has become paramount.
The consultancy suggests that companies first seek to understand the impacts of climate change on both societies and their operations, for example by using predictive analysis.
Mining companies can also leverage scientific information from leading bodies and methodologies to begin comparing forecast emission reductions associated with their proposed abatement projects.
Thereafter, companies should make operational adjustments to support their decarbonisation agendas, including acquiring new technology to drive energy savings and improve sustainability reporting.
Other suggestions by Deloitte include mining companies mitigating supply chain risks, which has come to the fore as a top trend this year, as well as mining companies needing to embrace decentralised work and moving beyond production targets to rather identifying and pursuing value generators for a mine.