The Mining and Metals Industry Action Group (IAG) of the World Economic Forum, in collaboration with Accenture, has over the last few months explored and identified areas where the industry can collaborate to prepare for a world being reshaped by COVID-19. This blog is fourth in a series of publications that is looking at this work.

The COVID-19 crisis has emphasized the importance of “purpose”—a company’s commitment to having a positive impact on its stakeholders and society. This gives mining and metals companies an opportunity to more thoroughly define and enhance theirs, to create what Accenture and the World Economic Forum call “Accelerated Purpose”—a key component of Stakeholder Capitalism to increasing resilience and driving business performance in an uncertain world.

Beyond “doing the right thing”, an Accelerated Purpose offers a powerful value proposition for mining and metals companies. A strong, clear purpose can help build trust among stakeholders, creating stability and support as companies pivot to meet future challenges. And it can provide a valuable north star that transcends plans and strategies and offers guidance through day-to-day shifts and pressures, and keep stakeholders aligned as the landscape changes.

Accenture and the World Economic Forum point to several areas where the industry can re-think the way it operates in order to enhance purpose including, but not limited to, decarbonization, responsible sourcing, circularity, workforce responsibility, local community impact and sustainable finance.

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In terms of decarbonization, some in the industry have already begun to set targets for reducing greenhouse gas emissions—including eight companies that have committed to net zero emissions by 2050 or sooner.1 Others have less ambitious targets or are working on revising their goals. Mining and metals companies can also consider low-carbon product strategies, and test consumers’ willingness to pay for low carbon metals—an approach taken by the London Metal Exchange, which has set up a low-carbon aluminum trading platform.2

Meanwhile, responsible sourcing is an increasingly important component of an Accelerated Purpose. Industry customers have identified sustainable products and services as the top priority from mining and metals companies in 2020-2022, and sustainable supply chain and manufacturing as the fourth most important.3 With that in mind, mining and metals companies can look for ways to bring more circularity to their business models in order to cut waste and increase recyclability. They should also re-think operations to decrease their environmental footprint in terms of land, water and energy usage, while increasing their social footprint with initiatives that focus on a living wage, labor standards, human rights and increased health and safety.

Increased data-sharing in the supply chain will be critical to responsible sourcing. It is required for everything from material traceability to sustainability reporting and identifying potential risk in areas such as human rights and safety across numerous partner organizations. At the same time, better data-sharing capabilities will enable greater efficiency and resilience in the supply chain.

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A strong, clear purpose can help build trust among stakeholders, creating stability and support as companies pivot to meet future challenges.

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Financing an Accelerated Purpose

Making the changes needed to support decarbonization and responsible sourcing requires investment. While in the past, financial crises hampered focus on environmental, social, and corporate governance (ESG) goals, these have been strengthened and are now considered a top priority with COVID-19. Deutsche Bank estimates that by the end of 2020, close to 50% of global assets under management will incorporate ESG factors, and that figure is likely to reach 95% by 2030.4

Several sources of capital now focus on the transition to low-carbon operations. Green and ESG loans, for example, provide access to dedicated capital pools that are linked to sustainability criteria.5 Other decarbonization-related financial mechanisms include climate bonds or green bonds, which are usually issued by multilateral development banks.

Meanwhile, changing sentiments are opening the door for mining and metals companies to access untapped investor capital. COVID-19 would also likely increase awareness of risks such as climate change and biodiversity losses. In the first four months of 2020, the amount of money invested into funds that practice ESG—US$12.2 billion—was double the amount invested during the same period in 2019.6

At the same time, it seems there is a growing trend for investors to be willing to move away from firms that don’t prioritize ESG. In January 2020, BlackRock announced that its discretionary active investment portfolios will sell out of all companies where more than 25% of sales was from thermal coal—part of an effort to embed climate-related factors into its investment strategy.7 In addition to opening the debate around stranded assets and divestments, it is evident that mining and metals companies that fail to address ESG issues are likely to be affected by investor actions in the years to come.

Companies that tap into these various sources of capital to successfully support an Accelerated Purpose are likely to see significant, tangible benefits. An analysis of ESG and financial performance by Arabesque Group, a financial services firm, found that companies that focused on the triple bottom line (social, environmental and financial factors) had operating margins 4.7 times higher than low ESG performers8 (Figure 1). High ESG performers were already seeing such benefits before COVID-19, and that continued even as the pandemic took hold. As the chart shows, the top 20% of ESG performers in the mining and metals industry consistently outperformed the bottom ESG performers on a market cap-weighted basis during the COVID crisis—an indication of the power of purpose in helping companies ride out disruptions.

Figure 1: Arabesque analysis of top versus bottom ESG performers

An analysis of ESG and financial performance by Arabesque Group found that companies focused on the triple bottom line (environmental, social and financial factors) had operating margins 4.7 times higher than low ESG performers.

 CLICK TO ENLARGE FIGURE 1 

An Accelerated Purpose will be key to recovering from the pandemic. But it will also be key to ongoing success. It offers mining and metals companies a way to stay in step with stakeholder expectations to drive business performance. And perhaps most important, it can provide a focal point for not only working through the disruptions brought about by the pandemic, but also for building a better business environment that is more sustainable, more equitable, and governed more effectively—all of which is vital to increasing resilience and minimizing disruptions in the long run.

Accenture's Mikayla Hart and Sriram Varadarajan contributed towards this piece.

Accenture and World Economic Forum sponsors

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David Burns

Managing Director, Lead – Natural Resources, Accenture

Jörgen Sandström

Head of Mining and Metals Industry – World Economic Forum

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We would also like to thank Sylvain Marpeau-Roussel, Marina Colombo and Renée Van Heusden from the World Economic Forum for all their support and contributions.

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Sources:
1 https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/path-to-net-zero-miners-are-starting-to-decarbonize-as-investor-pressure-mounts-59583837
2 https://www.ft.com/content/e11cdc46-fda3-445d-a323-69e4f9c6012b
3 Accenture 2020 Supply Chain Research Survey
4 Source: DB Global Markets Research “Konzept: Big data shakes up ESG investing. October 2018”
5 https://www.mining-journal.com/project-finance/opinion/1380588/esg-loans-new-source-of-mining-finance
6 https://www.wsj.com/articles/esg-investing-shines-in-market-turmoil-with-help-from-big-tech-11589275801?mod=searchresults&page=1&pos=2
7 https://www.bloomberg.com/news/articles/2020-01-14/blackrock-s-tough-on-coal-plan-skirts-around-the-biggest-miners
8 https://www.arabesque.com/s-ray/

Lucyann Murray

Manager – Natural Resources


Kathryn Jacobs

Senior Manager – Natural Resources


Janet Taylor

Consultant – Natural Resources


Amy Callahan

Managing Director – Lead, North America Chemicals & Natural Resources

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