EY survey finds losing 'licence to operate' is the biggest risk to the industry in 2019
According to EY’s 11th annual survey of 250 executives, mining companies believe the biggest risk their businesses face over the next two years is the threat of losing their licence to operate (LTO).
More than half (54%) of those questioned identified LTO as the top risk to business, highlighting an important shift in the industry from profit to social responsibility for the first time in the survey’s history. Last year’s survey results ranked LTO as the seventh biggest risk, with digital effectiveness leading the top ten.
The report found a number of reasons for LTO’s pole position in the survey. Escalating risk is on the agenda at board level due to the changing stakeholder landscape which is forcing miners to adapt against a backdrop of advancing nationalism on the global stage. Meanwhile, the necessary push towards digital transformation underlines the need for a stronger LTO.
With the sector making efforts to redefine its image as a sustainable and responsible source of the world’s minerals, EY’s global mining and metal advisory leader Paul Mitchell said: “Licence to operate has evolved beyond the narrow focus of societal and environmental issues. There are now increasing expectations of shared value outcomes from mining projects. Any misstep can impact the ability to access capital or even result in a total loss of licence.”
EY maintain mining and metals companies need to transform their business models to remain competitive and welcome all their stakeholders along on that journey. To achieve a positive outcome a new approach is required – like safety, LTO needs to quickly become part of a mining company’s DNA.
EY’s report stated: “We believe our sector is facing an era of disruption like nothing it has ever experienced before - both from within and outside.
“The themes of license to operate and disruption run through this year’s risks as mining and metals companies have to deal with many new and variable factors, including societal expectations, digital transformation, and unique challenges to portfolio and capital investment decisions.
What can organizations do to protect themselves against the challenges of keeping their license to operate, improving productivity and nationalism? They have to use capital and collaboration to their advantage as they transform and protect themselves from disruption.”
EY warned the survey shows that a narrow LTO focus can put out you out of business. It highlights that a series of critical changes which need to be strategically managed are redefining stakeholder’s expectations:
- An increase in societal participation (beyond local communities)
- The rise of minority voices
- The advancement in technology
- A shift of ownership
- An increase in the expectation of shared value outcomes
- The mushrooming of disclosure regimes
- The founding of governance on an accountability framework
- A rise in litigation