Especially compelling evidence that resource-intensive industries are leading the charge toward sustainability emerges from this year’s study. More than 80 percent of companies in the mining sector reported that concerns about sustainability were changing their business model, and 55 percent of those in the O&G sector agreed (compared with an average of 40 percent for companies in all industries, including mining and O&G). Similarly, 89 percent of mining industry respondents saw sustainability as necessary to competitiveness, compared with an average of 67 percent of companies overall. Almost all companies in the mining sector (96 percent) and 81 percent of O&G companies said that sustainability was a permanent topic on their organization’s management agenda (compared with 70 percent on average for companies overall).
Most striking were the responses when our study participants were asked to identify the sustainability considerations that have led to changes in their business model. While the number one reason for these changes was “legislative/political pressure,” a close second was “maintaining a license to operate,” with 71 percent of mining companies and 52 percent of O&G companies saying that this was a key sustainability consideration (compared with an average of just 16 percent for companies overall). (See Exhibit 2.) As Tom Albanese, CEO of Rio Tinto, told us in an earlier study, “For us, this is a key part of the business driver behind sustainable development.” For Klaus Kleinfeld, CEO of Alcoa, integrating sustainability as a core value is a critical part of “earning our license to operate.”
And these companies are putting their money where their mouth is. In the O&G sector, 72 percent of respondents said they had increased their management and investment commitments to sustainability over the past year. A larger proportion of mining companies (86 percent) said they had done the same (compared with an average of 68 percent of companies overall).
Several factors have prompted mining and O&G companies to recognize the importance of gaining a license to operate.
First and foremost, their social and environmental footprint is simply far larger than that of businesses in other industries. Covering vast areas, their operations leave profound environmental marks on the surrounding terrain, generating waste and byproducts, many of which are toxic. Furthermore, their presence affects communities, both existing ones and those that grow up around local mines. During their lifetime, mines become social and economic engines. Whole towns often become completely dependent on them, so companies must ensure that these communities can thrive after extractive operations have ceased.
Second, companies in extractive industries often operate in the face of severe structural, economic, and political challenges. Failure of inefficient, underfunded, or corrupt governments to provide essential services or environmental protections tends to leave the corporate sector filling the gaps. Exacerbating the difficulty for mining and O&G companies, governments often require them to supply infrastructure and services normally provided by the public sector in exchange for access to natural resources. However, providing health care or education services to local communities is not a core competency of these companies, so they must establish partnerships with nongovernmental organizations (NGOs) to meet these needs. And if they build or fund schools and hospitals in the immediate area of their operations, hostility can develop in neighboring areas that lack access to those facilities. Companies therefore need to define the extent of their responsibility.
Security is an additional concern. Given their vast operations, mining and O&G companies often become proxies for national governments and, as such, are vulnerable to attack from political opponents. Disgruntled communities can disrupt commercial operations—for example, by blocking rail access, causing losses of millions of dollars for the company concerned. Yet providing security around mines or pipelines in unstable parts of the world has proved controversial, with some companies being accused of using brutal military forces.
For companies in these industries, issues such as human rights abuses, economic exclusion, and environmental degradation are not distant concepts—they are at the heart of day-to-day operations. Sustainability investments—whether to provide essential services or to foster economic inclusion—have therefore become part of risk management, with the goal of engaging communities in a company’s operations rather than alienating them. When we asked our study participants about the benefits of addressing sustainability, 39 percent of mining companies and 17 percent of O&G companies selected “reduce risk” (compared with just 10 percent of companies overall).