Managing Director & Senior Partner
BCG Looks at Three Ways to Manage Sustainability for the Long Term
How much do mining and metals companies have to worry about sustainability? The short answer: a lot.
The sustainability imperative is very real for their industries—and will only intensify—according to Mining & Metals in a Sustainable World 2050, a report prepared by the World Economic Forum in collaboration with The Boston Consulting Group.
The forces behind the sustainability imperative are irrefutable. Population growth and consumption keep rising, as natural-resource supplies shrink. Policies and legislation to address climate change are proliferating, with the 2015 world climate conference in Paris the latest such indicator.
Social activists are stepping up their calls for more environmentally and socially responsible business practices. And financial services companies are rethinking where they want to invest. One recent example: German insurance giant Allianz decided to cut its investments in companies that derive much of their revenue or energy from coal.
Those forces are certainly prompting many mining and metals companies to launch short-term actions such as energy conservation programs.
However, those kinds of moves won’t suffice in the long run. The forces described will only gather momentum in the decades to come. And they will have an impact up and down the value chain.
For instance, a stronger than expected shift to lightweight electric vehicles will not only create more demand for bauxite mining, aluminum production, and mining and production of copper for wiring but will also hurt demand for steel.
To maintain demand for their offerings, mining and metals companies must formulate long-term strategies rather than rely solely on short-term responses. Here are what we see as three particularly promising directions:
Rethink your business and operating models. Companies may need to adjust their commodity portfolios to keep them competitive in a world focused on sustainability. For mining companies, this may mean a shift away from pressured commodities such as coal, given that demand for such products will likely decrease.
Metals companies, for their part, may benefit from collaborating with end-use industries by jointly improving the reverse supply chain—for example, taking back scrap metal from production, as is being done in the automotive industry. They may also move upstream in the value chain and consider entering the recycling business, developing infrastructure and new market offerings.
Rethinking business and operating models helped a multinational materials technology company set the stage for sustained growth. The company had focused on metal smelting, a polluting activity.
It divested most of its mining assets and acquired capabilities and technologies essential for primary-metals recycling. It also began producing new kinds of products, such as automotive parts. Today, it operates at the frontiers of the clean-tech economy and has reduced its impact on air and water quality by close to 50%.
Invest in new technologies. Technology patent applications by mining companies are on the rise as industry players look for ways to surmount the sustainability challenge.
Examples include technologies that boost the efficiency of recycling techniques, optimize waste treatment, and improve low-grade processing capabilities. Such technologies can help companies reduce their need for enabling resources and allow them to develop products for which demand is on the rise.
In one case, a company that operates its own smelter and refinery developed an e-waste recycling process that maximizes metal recovery from consumer electronics products.
Such e-waste is a reliable and rapidly increasing source of metals and, thus, will help keep the company’s operations sustainable over the long term. What’s more, using e-waste as a source of scrap enables the company to save energy that it would otherwise have had to use for new extractions.
Forge new partnerships. Industry players will need to become part of the dialogue about future rules and regulations regarding environmentally and socially responsible business practices. To do so, they can build relationships with local, regional, and national regulatory bodies—for instance, by bundling efforts in a specific region and engaging in close dialogue early in the investment process.
By strengthening such relationships, they can have a voice in shaping sustainability-related laws so that community, development, and business needs are all reflected in the consequent legal frameworks.
And since mining plays a vital role in driving economic growth and employment in emerging economies, companies that want to retain the right to explore and operate in such locations will need to win the trust of surrounding communities.
New ownership models—such as shareholder structures involving local communities instead of direct royalty payments—can be powerful trust-building tools and often lead to more aligned goals.
What’s more, because many developing economies often lack the established policies and investment vehicles needed to drive sustainable growth, mining companies can work with local governments to help these economies design systems that leapfrog more wasteful operations currently seen in many advanced economies.
This could deepen local communities’ trust in areas where companies seek to explore and operate.
The reason? Such approaches will support the growth and employment that emerging economies value, while facilitating compliance with proliferating legislation in areas such as scrap usage, recycling, and waste.
Understanding how the sustainability imperative will affect the industry over time should be a top priority. It is anything but a short-term concern, and it will only become more of factor in those players’ strategies—something that transcends the industries’ current preoccupation with market and price conditions. Mining is inherently a long-term business, and it needs a long-term perspective.
There’s no time to waste: business leaders must start strategizing, assessing how demand may shift and then reconfiguring key elements of their business to adapt to change.
If sustainability is not on the agenda of the next executive meeting, it should be.
This article was first published in Mining Journal on February 5, 2016.