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 the fifth in a series of publications that is looking at this work.
The COVID-19 crisis has opened the industry’s eyes to new ways of operating, with companies adjusting work schedules and supply chains and, especially, shifting to remote work. These efforts have been critical, and many see them as being the new normal for the industry. However, they are just a first step in what the industry needs to do to build resilience for the long term.
The recent efforts of the World Economic Forum point to several key areas where companies can pursue deeper, lasting change. These include rethinking work and the workforce; connecting and extending the value chain; and defining and fostering a clear sense of purpose. This work provides a valuable starting point that each company can build on to create its own roadmap for resilience and pivoting its business for the future.
In looking ahead, mining and metals companies should recognize several realities that are likely to be part of the post-COVID world:
A broadening pool of stakeholders
Shareholders will continue to be a key constituency, but other groups are bringing more influence to bear on the industry. For example, companies will have to adapt to governments’ evolving trade policies; fiscal stimuli and incentives; and decarbonization requirements. They will also need to be aware of changing consumer sentiment.
Historically, the mining and metals industry has not been especially close to end consumers, but their views will be important for two reasons: First, consumer sentiment is a kind of leading indicator for future preferences for products, and it is likely to work its way upstream to include the materials that go into those products. Second, this increased attention from consumers creates an opportunity for the industry to build its brand among end consumers, and access consumer data to improve its ability to predict demand.
Overall, metals and mining companies should think more carefully about the experience they provide to the full range of stakeholders—including not only shareholders and consumers, but employees, communities, indigenous groups and environmentalists. Changing the overall experience for the full range of stakeholders will enable resilience as companies adapt to a changing future, one where materials as we know them may no longer exist and full carbon neutrality along the supply chain is a requirement, not a suggestion.
Rising shift of cash flow towards purpose and more responsible business
Investors’ attitudes are changing. They are tempering their traditional focus on financial results with a “profits-plus” view that also considers factors such as sustainability, social responsibility and transparency. That change in sentiment can also be seen in some financial services firms’ actions, such as UBS’s emphasis on sustainable investing.1 We’ve also seen that shareholders who are unhappy with a company’s Environment, Safety and Governance (ESG) record are increasingly likely to call for executive changes and resignations even when the share price is rising. In general, there is a growing wave here that mining and metals companies need to understand and manage.
That trend is made more complex by the fact that even though companies need to pivot to address these issues, some institutional investors, such as pension funds, are reluctant to go along. Those investors are looking above all for predictable returns, and they often have little taste for strategies that call for significant investments focused on changing the business and its focus.
In addition, sustainability and social responsibility are both increasingly important to end consumers, and COVID-19 may well have heightened their sense that collective action is key to dealing with large-scale challenges—a view that could translate into higher expectations for companies in terms of ESG. As they try to build resilience, mining and metals will have to balance these types of tensions or else they will cease to exist at status quo. Reputational risk is on the line, which in turn will threaten organizational structure, demand, funding, and operations. We’ve seen the consequences of inaction and imbalance as the Rio Tinto executives stepped down after the unplanned destruction of the Juukan caves.2
Increased importance of digital technology
Even before the pandemic, digital leaders had 2-3X better performance, compared to companies that have not embraced digital.3 The crisis has only highlighted that gap, as mining and metals companies with digital capabilities were able to shift quickly to remote operations, while others had to essentially shut down operations. And going forward, that gap can be expected to widen.
Companies need to create the platforms and technology backbones that will allow them to be more automated, data-driven, efficient, sustainable and flexible. Here, a focus on using automation and AI to increase supply chain resilience will be especially critical. In addition, mining and metals companies still have a long way to go in breaking down silos in order to optimize operations across the organization—and digital technology can be a key enabler in that effort. Many companies may have gotten lucky this time around due to the industry progressing at about the same pace, but if they don’t pivot to digital technologies that allow for flexible work and operations while others do, they will certainly not be so lucky next time.
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As the World Economic Forum has pointed out, the concept of “purpose” will be critically important in the coming years. Purpose drives performance by empowering and energizing employees, enabling consumer and customer impact, and unlocking access to untapped investor potential. The concept of “purpose” will be key to prioritizing initiatives to focus on the right things and building trust in digital technology. In a previous engagement with the World Economic Forum, Accenture estimated 2.8% of revenue growth at risk in the absence of trust.4 Lastly, an important enabler of trust is transparency. Without transparency and reporting, companies will not be held accountable for their actions. During a global pandemic, where every move matters, individual and company accountability is more important than ever.
Mining and metals companies need to move now on defining a purpose for themselves and setting out on their digital technology roadmap. Mining and metals companies can begin by defining a purpose and determining what it really means to the company and its stakeholders. A purpose, or a north star, allows companies to stay the course while adapting to situations. And then they will need to put it into action—but it is not something that can simply be given to the head of sustainability or corporate social responsibility. A company’s purpose will need to be embedded into the day-to-day business—from planning and production to maintenance and service, and even the AI systems that will be helping to run the business.
With ongoing volatility in everything from demand and shareholder preference to climate and geopolitics, the need for resilience is growing rapidly. Companies that have started to pivot to being more digital, sustainable, flexible and purpose-driven have a head start. Others have perhaps two years to begin at least heading down that path. And ultimately, those that fail to make that pivot are likely to find themselves falling behind and becoming increasingly vulnerable to disruption. Resilience is no longer an option, but a necessity as we move into a future where climate change will propagate instability and disruption.
We would like to thank Lucyann Murray, Kathryn Jacobs and Janet Taylor for all their support and contributions as part of the Industry Action Group.
1 UBS Announcement Sept 2020 https://www.ubs.com/global/en/media/display-page-ndp/en-20200910-gwm-si.html
2 Rio Tinto Announcement 11 Sept 2020 https://www.riotinto.com/en/news/releases/2020/Rio-Tinto-Executive-Committee-changes
3 Accenture’s Future Systems Research Reveals Companies that Excel at Scaling Technology Innovation Generate Double the Revenue Growth 02 October 2019 https://newsroom.accenture.com/news/accentures-future-systems-research-reveals-companies-that-excel-at-scaling-technology-innovation-generate-double-the-revenue-growth.htm
4 Trust in digital has eroded. Leaders must rebuild 22 Jan 2019 it https://www.weforum.org/agenda/2019/01/trust-in-digital-has-eroded-leaders-must-rebuild-it/