Geopolitics is about how businesses sit within the economy, government policy and geography. Within the mining industry we’ve seen these intersections play out over four different industrial revolutions, with different commodities and technologies underpinning global development and growth, together with the geographic shifting of value chains as new resources vital to consumer demand have been uncovered.
At the most fundamental level, the location of resources has been the most obvious geopolitical driver, with echoes of the rise and fall of empires continuing to impact trade partnerships, national security and development pathways. Three centuries ago, the technologies used by humanity required half a dozen metals; today we use more than 50. Furthermore, the transition to a low carbon economy will require an increase in the consumption and diversity of materials needed as well as technology that hasn’t been invented yet1. As a result, the sector is at the forefront of new challenges and risks that, if not managed correctly, can threaten the very viability and long-term profitability of sites and unveil new business models. But how do these risks manifest themselves and how can they be mitigated? Whatever the size of your organisation, geopolitical circumstances demand a high degree of engagement and understanding. Today, the lenses through which geopolitical risk can be viewed apply to almost every business sector, and the mining industry is no exception. Risk professionals need to be able to identify and understand geopolitical risks, their drivers and the connections between them – of which there is no shortage – so they can mitigate the risks and seize new opportunities.
Geopolitics high on boardroom agendas Over the last 12 months, we’ve seen the ripples of natural, man-made and political upheaval spread far and wide; meanwhile environmental, technological and political changes continue to highlight any number of new uncertainties as global trends set new domino chains in motion.
Disruptions are emerging from more areas than aging infrastructure and extreme working environments2. At a societal level, the outbreaks of unrest in Peru, Ecuador and Chile3 challenged the industry, and the global momentum building around inequality has made it clear that political risk events can arise suddenly in regions traditionally seen as risk-free. The unfolding COVID-19 outbreak has also highlighted the fragility of the global system to interconnected events, with business interruption happening at a scale few would have dared to imagine. As well as causing operational challenges for the mining sector, investors have been increasingly asking questions around how these risks are being identified and managed. 40% of respondents in the 2019 Willis Towers Watson Political Risk Survey felt that they were facing more pressure from investors regarding political risk management.4 ESG shock, populism/nationalism, US-China strategic competition and Middle East regional instability were the four most mentioned emerging issues in the survey. When uncertainty is your only certainty, it is easy to see why investors want to know if companies are on the case and are curious about a wide range of areas as well as why systems perspectives and the connectivity of risks are also creeping into regulatory requirements. Provision 28 of the UK Corporate Governance Code 2018 requires boards to undertake a “robust assessment” of their organisation’s principal risks, including risks that result in events that may threaten the organisation’s business model, future performance, solvency and reputation. Stakeholders want to know you understand the wider risk landscape, and COVID-19 is likely to trigger further interest as the attempt to gauge resilience. If you had pandemics on your risk register, was there a scenario comparable to the impacts we’ve seen? Did it include the escalating tensions between nation states and the competition and shocks to global supply chains? Foreseeing trends is often a matter of perspective and sometimes it helps to take a step back and look at challenges with fresh eyes. It is time to dig out the risk list and put it under the microscope in this new world of the art of the possible.
COVID-19
At a macro level, a debt crisis among emerging markets is growing as developing countries face a wave of government bankruptcies, due to the global economy going into shutdown5. Alongside this, countries around the world are at different stages in their COVID-19 cycle, which is hampering prospects for export-dependent economies and jeopardizing the prospects for income convergence between developing and advanced economies. As COVID-19 continues to spread around the world, we’re seeing countries unable to pay and businesses that deal with public entities or governments directly facing political risk losses as a result. In many cases these losses will be more than the value of a contract and upfront investments could also be at risk if companies do not manage the challenges and opportunities.
At a local level, COVID-19 has stressed day-to-day challenges for the sector. Ongoing issues such as attritional losses, aging infrastructure, rising business interruption losses,and concerns around talent retention and attraction have gained new dimensions. While economic downturns often result in a decrease in infrastructure projects and upgrades, Boards should be considering this pause point in business operations and look at the ongoing issues and the strategic direction to re-plan for organizational resilience. Use the opportunity afforded by this disruption to make progress toward the longer-term upskilling and reskilling agenda. When some form of normality is restored, governments and organizations will be judged according to how well they managed under pressure.
Companies may be viewed through the lens of social and moral responsibility; as such, how policies in areas such as employment, pay, pricing and supply are established and communicated may define how perceptions are shaped in the future6. False media should be anticipated; this will require extra mitigation and attention during such information-rich scenarios. Not managing these risks as the situation continues to unfold could impact the Social License to Operate in the future. It has never been more important to consider new ways in which geopolitical risks can be managed more effectively than by simple insurance purchase. The coming 12 months are going to require a holistic view of risk in an already charged landscape.
In the last Willis Towers Watson Mining Market Review7, we introduced you to "the six lenses" used to explore these nuances and build an integrated view of risk. In an increasingly connected world, many of the geopolitical drivers of risk are interrelated, and effects often cascade beyond local geographies or individual industry sectors.
Interconnected drivers and risks can be difficult to unpick, but this is where thinking about the geopolitics perspective is useful because it gives context to the ‘who, what, where, when and whys’, and leads to asking the right questions. Think of these lenses as focusing dials on a microscope. There isn’t one answer to viewing geopolitical risk under the lens – every company’s exposure is different, and the real value is in uncovering different perspectives to ask useful questions. Do you want to zoom out for the global macro view or zoom in to a local issue? If you don’t have the expertise in-house to understand them, who do you need to talk to? The lenses cover a broad range of risks – from cyber-attacks to the impact of sanctions – and recognise interconnecting global trends such as shifting public sentiment, population dynamics and technological innovation. While COVID-19 continues to grab the headlines, it’s important to remember that all the other risks don’t go away and that you could find yourself dealing with multiple events at the same time.
Six lenses – an integrated approach to geopolitical drivers of risk The six lenses that we deploy to examine geopolitical risk fall into the following categories:
Organisations need to identify and understand their geopolitical risks and the connections between them – in order to mitigate the risks and seize new opportunities, so:
As our contribution to this Review, we wanted to set out three possibilities that bring these lenses to life, and which can be used to construct bespoke scenarios for clients. This is the approach we have taken across all our Natural Resources Reviews this year, and we would recommend looking at the reports to understand the sector specific issues and consider how these may create secondary impacts for you further up the value chain.
In addition to the physical, transition and liability risks outline earlier in the Review, ESG is important not just for your investors but for your future workforce. Blackrock’s Larry Fink stated that millennials are expressing new expectations of the companies they work for, buy from, and invest in:
“In the years to come, the sentiments of these generations will drive not only their decisions as employees but also as investors, with the world undergoing the largest transfer of wealth in history: $24 trillion from baby boomers to millennials”. “As wealth shifts and investing preferences change, ESG issues will be increasingly material to corporate valuations”.
Source: Blackrock – Larry Fink letter 20198
As the landscape continues to shift, the demands on firms in the wider economy to respond to ESG measures will only increase.9 In a world of potentially 9 billion people by 2030 – including 3 billion new middle-class consumers10 – the challenges of expanding resource supply to meet future demand are unprecedented but will still need to be considered through this viewpoint.
You can’t manage what you don’t measure Mining underpins the transition to a low carbon economy, with materials such as lithium, cobalt and rare earth elements required for end products such as photovoltaic cells through to new smartphones. Evaluating new and existing projects against this framework will be essential to respond to the changing landscape and to manage risks from a systems perspective. This is where research can play an important role. Alongside the physical sciences, economic modelling and social science are providing new insights and access to scenarios to represent the possible futures11. It is also something that industry groups such as the International Council on Mining & Metals (ICMM) have been exploring with their members, with several already reporting against the Taskforce for Climate Financial Disclosure (TCFD) framework that articulates their thinking and actions to these increasingly interested stakeholders12. Modelling environmental effects on your business model and having access to experts who can translate those effects into business insights has never been more important, and this is reflected in the broad people, capital and risk expertise that makes up our Climate QuantifiedTM proposition. Quantifying how possible futures will affect companies can allow them to make choices based on their risk appetite, capability and aspirations, and to use existing expertise to create new revenue streams. Pivoting expertise Back in 2017, The Economist published a story entitled, "The world's most valuable resource is no longer oil, but data"13. This is where the mining sector should be thinking about the decades of information and expertise that they have built up regarding supply chain dynamics around resource provenance and human rights, as well as what can be done with that in the face of rising interest in ESG issues. This could range from monitoring dams with SmallSat-enabled IoT sensors to creating a digital twin of a mine site to simulate COVID-19 mitigation efforts14. Combined with growing digitalisation and work to set standards, there is deep expertise in the sector that can be pivoted to support these new challenges, and any investments in new technology or systems should ensure they are capturing holistic benefits.
At a local level, establishing new sites can result in land use conflict and trigger localised political risk15, while current sites can also serve as focal points for local and international issues16. Both instances can cause reputational harm, investor uncertainty and local security issues; furthermore, increasing digital surfaces and accessibility can also widen the field of play to activists. It is therefore vital that the state of community opinion, politics and the security situation are monitored and responded to, and that political and security risk management are integrated into company culture.
Threat assessments Experience indicates that the benefits of conflict analysis are greater when the approaches are integrated throughout the project cycle as opposed to being introduced only when conflict surfaces mid-flow. Predicting the occurrence and nature of political and social disruptions may seem impossible, but threat assessments can make use of recent examples such as the attack in Burkina Faso in November 201917, to add context to ‘actor mapping’18.
How closely do your security specialists collaborate with your environmental specialists, community outreach, communications staff and general management? Is your Chief Information Security Officer (CISO) involved? Could they list the dividers and connectors in their project area and how their project increases or decreases them? While this kind of analysis won’t give you all the answers, red teaming19 and scenario building with these questions in mind can give you input on the ‘who, how and where’.
Continuous situational analysis The scope of threats may be broad, and for this reason consultants may be commissioned to assist in analysis and planning. Typical areas of activity driven by continuous situational analysis may involve planning for medical emergencies, planning for political and natural disasters including evacuation, physical security at installations and a terrorist threat assessment of upstream and strategic installations. Other measures may include business diplomacy, lobbying, community liaison and the building of a dynamic network of local and regional influence and insight20. COVID-19 has the potential to ignite an already charged landscape and potential aftershocks could include food and water security, overwhelmed public health systems and weakened national institutions21. Local engagement and information will be essential to monitor and managing the evolving situation.
Addressing ESG risk As highlighted in the first scenario, we also expect institutional investors to increasingly demand that ESG risk is addressed before investing in projects in many parts of the world, and to be more active with calls for a sustainable reset22. This therefore needs to be part of the planning process and outputs used to inform employee risk assessments. Having an onsite engagement plan with local stakeholders and an assessment of regional interests will be essential to understand land use dynamics, and tools such as virtual reality can be used to showcase your asset today and what it could be in the future23. This also brings an exciting opportunity dynamic to pivot to site lifecycles and to look at the potential adaptation options that could make existing sites more attractive in the short term by increasing energy efficiency, reducing emissions and considering site lifespans and long-term management. Investment in research and development for new technologies is one option that could serve to adapt and transform infrastructure to increase the lifespan of sites through additions such as the electrification of vehicles or investment in precision technologies.
With inherently global economies becoming progressively dependent on digitalisation and technology, it is essential to understand the strengths and weaknesses of these capabilities. While legacy systems have kept the industry ‘air gapped’ from threats, the drive to embrace the Industrial Internet of Things (IIoT) for efficiency, sustainability and risk management is going to require CISOs to be proactive to embed a culture of cyber awareness. In one industry survey, 72% of respondents reported that they detected their most significant breach of the past 12 months within a month, with the remaining 28% saying it took longer to uncover24.
C-Suites should wake up to new policy landscape Geopolitics drivers associated with digitalisation and cyber vulnerabilities are deep and varied, which is one of the reasons why cyber risks continue to be at the top of board agendas, and why there isn’t a one size fits all answer. It also may not even be about you. At the national level, geopolitics can leave companies facing unintended consequences as bystanders in new trade wars; this is where escalating tensions from COVID-19 should be considered. In July we saw the UK's digital secretary announce that the country's telecoms networks would not be allowed to buy new Huawei 5G kit from 31 December 2020, and all such equipment should be stripped out of mobile networks by 202725. If an embargo were to hit the mining sector, do you understand what the impact would be? As the sector looks to digitalisation to gain the benefits, understanding the capabilities of the potential players on the board is going to be critical.
Cyber-attacks At a company level, while most of the intrusions detected by mining companies seem to have been basic reconnaissance operations or intellectual property theft, malicious actors are getting into systems through unpatched vulnerabilities so the potential for chaos is huge. For example, one of our geopolitical risk partners, Elisabeth Braw from RUSI’s Modern Deterrence programme, flagged up Refined Kitten (also known as APT33, Holmium or Elfin26). While the name might evoke the image of a cuddly pet, Refined Kitten is a hacker team that Microsoft believe to be backed by Iran, that can do things that virtually no other known hacker group can do, namely infiltrate the control systems of critical national infrastructure, including electric utilities, manufacturing and oil refineries27.
Uncertainty around COVID-19 may provide a doorway in for any malicious actor28. Most cyber-attacks start with a phishing email29, and aren’t always directly aimed at your business. As was subsequently determined, NotPetya had been created by a hacker group working for Russian military intelligence, and initially targeted Ukrainian government agencies and businesses30. Even though Maersk – one company impacted – was not the primary target, it was “collateral damage,” as its chairman, Jim Hagemann Snabe, later explained31.
Time to get the story books out While people risk is often thought about in terms of shadowy outsiders looking to cause harm, it is important to remember the risks that can arise from within the business from your own people’s actions – intentional or not. Do you have a security awareness programme to measure the effectiveness of your internal training? Have you run an internal phishing exercise to test readiness, and what templates and hooks are you offering your employees?32 Being aware of the art of the possible has never been more important for risk managers to ensure scenario planning and business continuity exercises are relevant. Cross sector working groups and access to state-of-the art science can play a role in understanding the art of the possible, and our team is tapping in to this knowledge and bringing it closer to our clients through initiatives such as the Willis Research Network or RUSI’s Modern Deterrence programme33 that brings cutting-edge defence and security research to its members.
Given the speed, regularity and relative surprise of such events, and the unforeseen decisions, it may be time to reconsider how well businesses really are prepared for the impact of geopolitical events. In one of our recent articles, General Sir Richard Shirreff (former Deputy Head NATO) set out how the military approach to risk management might help the boardroom34, and this should be a question that all mature companies ask themselves.
Taking an integrated approach to geopolitical risks The use of adverse scenarios allows businesses to consider whether the right assumptions are being made, the appropriate questions are being asked and whether the key issues are being sufficiently examined. Different functions within businesses need to look at these connected risks/opportunities collectively and manage them using an integrated approach. Such matters are overlooked at one’s peril, leading to heightened risk and missed opportunity. Willis Towers Watson’s Geopolitical Risk experts examine risk drivers and their associated risks through the six key lenses set out in this article; Cyber, Climate/Environmental, People, Reputational, Business Resilience and Investment/Return. These interconnected lenses encourage the identification of integrated solutions that can be tailored and address insurable and non-insurable risks seamlessly. This structured approach provides an effective framework to assess, quantify and mitigate geopolitical risks in an integrated fashion and might include red teaming initiatives to challenge or test the adopted plans and thinking, geopolitical risk workshops, new country risk assessments, tailored scenario development and risk register stress testing.
Exploring positive futures It is also important to consider the opportunities and ensure that scenarios explore positive futures. Companies should learn from the innovation journeys of other sectors to think outside the box to create new value in future stranded assets36. As a result of this kind of thinking, innovative companies are investing in new technologies, diversifying their models and, in some cases, working with local governments to transform sites into new uses that take advantage of transport links, proximity to transmission lines. They are then using their detailed site knowledge to create renewable energy sites37, gas capture38, battery storage locations39, vertical farms, housing and tourism, which in turn can reduce regional inequality that can develop into social unrest40.
Next steps As you read the Review, think about the trends and drivers and ask yourself: are these issues on our list as risks or opportunities, and do we have a plan? If the scenarios in this article don’t create a problem in your value-chain, what would and is the business resilient enough to meet it? Scenarios can be developed that deliberately challenge adopted strategy, plans and practices. For example, if considering political risks, solutions such as VAPOR41 allow global companies to assess the financial impact of political risk exposure that can feed into your company’s business continuity planning. However, if for example your company needs to examine its supply chain dynamics to understand the impact of the Chilean Water Directive on lithium production42, the Willis Research Network, with its strong links to the scientific community, can help find the relevant experts.
Lucy Stanbrough is Emerging Risks research manager for the Willis Research Network at Willis Towers Watson in London. Lucy.Stanbrough@willistowerswatson.com
1 https://theconversation.com/critical-minerals-are-vital-for-renewable-energy-we-must-learn-to-mine-them-responsibly-131547 2 https://www.miningreview.com/health-and-safety/expert-advice-on-how-to-avoid-safety-risks-in-aging-infrastructure/ 3 https://www.washingtonpost.com/world/the_americas/a-government-chased-from-its-capital-a-president-forced-into-exile-a-storm-of-protest-rages-in-south-america/2019/11/14/897f85ba-0651-11ea-9118-25d6bd37dfb1_story.html 4 2019 Political risk survey report https://www.willistowerswatson.com/en-GB/Insights/2019/12/2019-political-risk-survey-report 5 https://blogs.imf.org/2020/06/24/reopening-from-the-great-lockdown-uneven-and-uncertain-recovery/ 6 https://www.willistowerswatson.com/-/media/WTW/Insights/2020/04/the-long-term-implications-of-covid-19-on-business-risk.pdf 7 https://www.towerswatson.com/assets/pdf/power-renewable-energy-market-review-2019.pdf 8 https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter
9 https://www.airmic.com/system/files/technical-documents/Airmic-Survey-Report-top-risks-and-megatrends-2020_0.pdf 10 https://www.icmm.com/website/publications/pdfs/responsible-sourcing/icmm-circular-economy-1-.pdf 11 https://www.willistowerswatson.com/en-GB/Insights/2019/12/a-changing-climate-of-risk-and-opportunity 12 https://theintelligentminer.com/2020/01/30/investing-in-a-greener-future-for-the-mining-industry/ 13 https://www.economist.com/leaders/2017/05/06/the-worlds-most-valuable-resource-is-no-longer-oil-but-data 14 https://www.miningindaba.com/Articles/unlocking-the-future-of-mining-through-digita 15 https://doi.org/10.1016/j.erss.2015.06.008 16 https://www.canada.ca/en/environment-climate-change/services/climate-change/task-force-just-transition.html 17 https://www.reuters.com/article/us-semafo-attack-security-analysis/attack-on-canadian-mining-firm-in-burkina-faso-threatens-golds-final-frontier-idUSKBN1XH2I0
18 See p.34 http://www.actuarialpost.co.uk/downloads/cat_1/Willis%20Towers%20Watson%20EMR%202016.pdf and p.28 https://www.willistowerswatson.com/-/media/WTW/Insights/2017/09/mining-review2017.pdf for examples from the Energy and Mining markets 19 A red team is a group that helps organizations to improve themselves by providing opposition to the point of view of the organization that they are helping. They are often effective in helping organizations overcome cultural bias and broaden their problem solving capabilities. 20 http://www.actuarialpost.co.uk/downloads/cat_1/Willis%20Towers%20Watson%20EMR%202016.pdf 21 https://blogs.imf.org/2020/06/24/reopening-from-the-great-lockdown-uneven-and-uncertain-recovery/ 22 https://www.weforum.org/great-reset/ 23 https://startupsmagazine.co.uk/article-vr-startup-sitting-gold-mine 24 https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/advisory/ey-global-information-security-survey-2020.pdf 25 https://www.bbc.co.uk/news/technology-53412678 26 https://www.wired.com/story/iran-apt33-industrial-control-systems/
27 https://www.willistowerswatson.com/en-GB/Insights/2019/12/what-you-should-know-about-the-changing-cyber-risk 28 https://www.willistowerswatson.com/en-HK/Insights/2020/04/keeping-vigilant-against-increasing-cyber-risk-during-Covid-19-crisis 29 https://cofense.com/enterprise-phishing-susceptibility-report/ 30 https://www.wired.com/story/notpetya-cyberattack-ukraine-russia-code-crashed-the-world/ 31 https://www.youtube.com/watch?v=VaqIYlYmDbA 32 https://www.willistowerswatson.com/en-GB/Insights/2019/03/social-engineering-avoiding-the-hackers-harpoon-and-phishing-net 33 https://rusi.org/rusi-reports/modern-deterrence-first-year 34 https://www.willistowerswatson.com/en-GB/Insights/2019/12/geopolitical-risk-and-how-experience-of-the-battlefield-might-help-the-boardroom 35 The summer reader’s guide to scenario planning https://www.willistowerswatson.com/en-GB/Insights/2019/08/the-summer-readers-guide-to-scenario-planning 36 https://theconversation.com/coal-mines-can-be-closed-without-destroying-livelihoods-heres-how-124336
37 https://coloradosun.com/2019/05/29/guzman-tri-state-coal-plant-offer/ 38 https://www.bgs.ac.uk/downloads/start.cfm?id=1370 39 https://pureportal.strath.ac.uk/files/19668385/RevManuscript_1_.pdf 40 https://pureportal.strath.ac.uk/files/19668385/RevManuscript_1_.pdf 41 https://www.willistowerswatson.com/en-GB/Solutions/services/vapor 42 https://eandt.theiet.org/content/articles/2019/08/lithium-firms-are-depleting-vital-water-supplies-in-chile-according-to-et-analysis/
