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Business risks facing mining and metals 2011 - 2012 - 4. Maintaining a social licence to operate - EY - Global

Business risks facing mining and metals 2011 - 2012

4. Maintaining a social licence to operate

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“Compliance with occupational health and safety regulations not only means less mortalities, but from a commercial point of view it also means reduced downtime, a motivated workforce and a full complement of staff.”Mathew Nelson, Partner, CCASS, EY

Summary: Sustainable development has been a big issue for mining and metals companies since the 1980s and it entails three fundamental components: environmental protection, economic growth and social equity. As part of this move to more sustainable development, companies are increasingly being asked to gain a ‘social licence to operate’, agreeing to operate as part of the local society such that mining and metals investment is welcomed by the host community.

In our 2010 report, the issue of maintaining a social licence to operate rated number 5 and it has become a more significant risk in the 2011-2012 top 10 list. There are a number of issues that can affect a company’s social licence to operate and here are just a few examples:

  • Environmental performance — Difficulties can arise in relation to the environmental impacts of new and existing mining and metals operations. Issues such as the impact on bio-diversity, water extraction, water pollution, air emissions, soil contamination and waste management are often a point of concern for local communities and regulators.

    For the mining and metals sector, the greatest analogies challenge to this is the failure of tailings dams. Seventy-five percent of the major environmental incidents at mines since 1975 have related to tailings dam failures. Between 1970 and 1999, there have been approximately two to five ‘major’ tailings dam failure incidents per year and this rate has not changed.
  • Cumulative tailings dam failures

    Cumulative tailings dam failures

    Source: Wise Uranium Project

  • Risk to reputation caused by safety incidents — Failure to ensure that safety incidents do not occur can have a negative impact on company reputation. For instance, Massey Energy is currently facing accusations by mine worker unions that it traded safety for profit. This was in light of the accident at its coal mine in April 2010 which resulted in the death of 29 workers.
  • Land disputes — Obtaining a social licence to operate can sometimes be difficult when land disputes arise between mining and metals companies and local communities. Such disputes can delay or even prevent projects from proceeding.
Steps mining and metals companies can take to respond to this risk:
  • Incorporating risks to the social license to operate into the enterprise risk management framework with clear mitigation strategies
  • Embedding these mitigation strategies in all critical business processes to ensure that an integral approach is adopted
  • Encouraging and engaging in community/ employee debate over sustainability priorities

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