Climate change, water scarcity and the global financial crisis are leading to investor demand for increased transparency of water-related risk. Water presents a critical underlying resource (with respect to supply limitations) and/or liability (where peak flow and groundwater management are significant) for many mining companies. Traditionally water management has been considered a site based issue and limited corporate interest and transparency was required for water related challenges. However, the landscape is rapidly changing with investors having an increased concern about how water, and related aspects, are managed by corporations.
The key issues for water management in the current climate relate to risk and opportunity management.
Investor expectations – understanding risk exposure
Regulatory conditions – more stringent operating conditions
Social licence to operate – political and community expectations for mining operations
This article explores the key issues and mining companies’ responses to water management with a focus on leading Australian organisations. The analysis encompasses six leading mining companies. Company selection was based on market position through capitalisation and/or sustainability ranking through GRI (Global Reporting Initiative) and DJSI (Dow Jones Sustainability Index).
Australian water resources and climate change
All mining operations rely on water for operations. Sites which are situated water-scarce environments face operational limitations when water is not available; whilst mining operations in high rainfall regions need to manage excess water to ensure continuous operation. Clearly water management – too little or too much – is a key concern for the mining sector.
Climate change is resulting in higher variability in the seasonal effects of rainfall across the Australian continent, as well as significant variations from year-to-year. Climatic patterns are shifting, resulting in decreased overall rainfall and more variable rainfall patterns – droughts or floods. Currently we are seeing a shift in the Southern Oscillation Index and the return of El-Nino episodes. This will result in decreased rainfall for eastern Australia.
Global financial crisis
The global financial crisis has had a dramatic impact on the world economy. The mining sector has seen a dramatic decrease in global demand for resources. These significant market changes have resulted in companies with excess debt being unable to raise new equity. Financial pressures have resulted in organisational restructuring, a return to focusing on core business, and a re-evaluation of key priorities. Where does water management fit into this suite of business priorities?
A new world order is upon the global economy. Previous financial market operating conditions have failed. We are seeing increased investor awareness of all risk related issues. Financial risks are a primary concern, with investors and regulators expecting a higher degree of disclosure of businesses risks. Disclosure of information and transparent decision making processes are being demanded by regulatory reformers and investors. A clearer view, and more consistent transparency, of businesses’ decisions is required. We are seeing this being applied to all business risks, initially commencing with financial risks, but closely followed by environmental and related risks. Recent moves in this area are the introduction of the National Greenhouse and Energy Reporting Scheme (NGER) which has an energy and greenhouse gas focus; and water being identified as business critical issues.
Community and Australian government responses to water management
Water management has high social capital and is critical to ensure continuous operation. The community grants miners their licence to operate. The well-informed community has a high awareness of water related issues and the Australian community is well aware of the relationship of water to quality of life considerations. Most Australians have experienced water restrictions directly impacting on lifestyles.
The political capital of water is well recognised with the Australian Government, at all levels, responding to the issue of water scarcity and management through the Council of Australian Governments’ (COAG) National Water Initiative (NWI). This $12 billion initiative encompasses water pricing, institutional arrangements, sustainable water resources management and community consultation for both the urban and rural sectors.
Miner’s licence to operate requires community and political support for this high profile and public opinion issue.
Mining business responses to water management
Water management issues are receiving intense political attention, requiring increased disclosure of information to investors and the public. Investors have a high awareness of water related issues, yet limited corporate disclosure of water-related risks is available. JPMorgan (2008) states that “... corporate disclosure of water-related risks is seriously inadequate ....” and identifies the mining sector as high risk. Citibank’s review of water related risks finding that even though the total cost of water to businesses is low, typically between 1-2% of EBIDTA, the risks associated with poor water management are high (Citibank, 2009). Ultimately risks associated with water management are licence to operate issues.
Reporting of water related risks by the financial sector is increasing. In the past, water related issues have been delegated to the sustainability report; we are seeing increased interest from the financial sector in the reporting of water consumption, this is coupled with calls for a more consistent approach to reporting this consumption.
Performance of some mining companies
We selected a reduced list of leading mining companies as representative of the mining industry’s current response to water management. Our analysis selected six leading mining companies as acknowledged by their position on sustainability indexes, primarily the Global Reporting Index (GRI) and their performance relative to the International Council on Mining and Metals (ICMM) sustainable development principles. All companies report according to GRI and are committed to ICMM sustainable development principles. These frameworks provide an insight into the industry’s commitment to sustainable development and form the founding principles that shape the overarching structure of company responses. Our analysis included only publicly available information providing an indication of the type of water information which is accessible to investors and the public. Key results are summarised in the table below.
Table 1. Publicly available corporate strategies for selected mining companies
Our analysis reveals there is limited corporate transparency of water related risks. Only two of the organisations reviewed published corporate water strategies. Limited understanding of water across social, environmental and economic domains is expressed publicly with explicit relationships to business objectives outlined.
Traditionally water management has been viewed as a site issue. Site water management plans are more prevalent (4 companies), yet possess a tactical and operations focus rather than strategic. Site water management plans have been developed and implemented to manage local water conditions. Investor, community and political expectations extend beyond the site boundaries. Mining companies need to consider their broader water management impacts and the impact on their licence to operate.
What companies should be doing…
Our conclusion is that investors require clear transparency support informed decision taking with a specific reference to water related risk. Understanding the true value of water and its relationship to mining companies is imperative for informed business decisions.
Strategically positioning the business
Investor and regulator drivers are demanding increased transparency. This requires a greater understanding of the corporate drivers for water management. Elevating water management to a strategic issue requires a corporate approach. Understanding the involvement of all stakeholders and their relations to business is critical.
Figure 1. Strategically positioning water management within your organisation
Sustainable development reporting mechanisms driving change
Increased investor expectation is driving greater transparency in corporate decision making and reporting. GRI and the Mineral Councils of Australia provide strategic and reporting frameworks for the industry.
The GRI reporting framework represents a comprehensive framework for measuring and reporting on economic, environmental, and social sustainability at an organisational level. The Mining & Metals Sector Supplement (Pilot Version 1.0) consists of exploration, feasibility, construction, mining and metal processing (including metal fabrication and recycling), and closure. Four sub-categories are outlined for water management as detailed in Table 2. Indicators focus on water use and the relationship to significant water related ecosystems.
Table 2. Table 2 Key Water Indicators in GRI Mining and Metals Sector Supplement Version 1.0
The strategic water management in the minerals industry framework jointly produced by the Ministerial Council on Mineral and Petroleum Resources (MCMPR) and the Minerals Council of Australia (MCA) (2006) outlines a strategic approach to water management at mining and processing sites. The framework provides guidance for strategically positioning mining operations with transparent risk management for all stakeholders. The framework provides an excellent overview of key issues for consideration in the development of your corporate water strategy. Adaptation and tailoring of the framework is required for your specific business strategy and needs.
Where to next?
The global financial crisis provides an opportunity to strategically position companies in preparation for the economic recovery. In order to strategically position your organisation as a leader in water management, key initiatives to undertake are:
understand and improve your corporate in relation to water management
ensure that you have adequate risk mitigation plans for water related issues
publicly communicate water related risks to investors and the community
realise business opportunities through operational water efficiency
Proactively engaging in these issues provides a clear market advantage for the new world order.
Citibank (2009) Water Challenges for ASX100 Companies
GRI (2005) The Mining & Metals Sector Supplement (Pilot Version 1.0)
JPMorgan (2008) Watching Water – A guide to evaluating corporate risks in a thirsty world.
Ministerial Council on Mineral and Petroleum Resources (MCMPR) and the Minerals Council of Australia (MCA) (2006) The strategic water management in the minerals industry - a framework