Extractive Industries Issue

Extractive Industries Issue

Director, Cross-Cutting Advisory Solutions Department,
IFC

Director, Infrastructure and Natural Resources,
IFC

Extractive industries supply more than 80% of the world’s energy needs. They provide raw materials for everything from food products to medical equipment, to sunscreens, to smart phones. They also have great transformative potential: a further 540 million people could be lifted out of poverty if oil, gas, and mineral reserves are developed effectively.

Yet the challenges to delivering on the industry’s great promise are tremendous. Technical risks are growing significantly as exploration for deposits moves deeper and higher. Non-technical risks are equally daunting. Companies must manage what are often large-scale, long-lasting changes to communities and ecosystems. Meanwhile, in places where conflict and corruption prevail, governments must find ways to effectively deploy the wealth created by the activities of oil, gas, and mining companies.

New forces raise the bar for extractive company success. Market conditions are weakening as the prices of commodities and oil fall sharply, something that affects smaller companies in particular. Meanwhile, public expectations are rising for the industry to play a strong development role and to generate societal benefits. Companies are also under increasing pressure—from both investors and campaigners—to help the world move to a low-carbon economy.

How are oil, gas, and mining companies responding to these forces? That is the central question we explore in this edition of the magazine. We hear how major companies such as Anglo American and Rio Tinto are reshaping their strategies (and, indeed, mindsets) to move in a much more inclusive direction, seeking to benefit from a multitude of new partnerships, even with industry critics.

In meeting societal expectations, being open and proactive in engaging with local communities is critical, as the experience of Aureus in Liberia has demonstrated. Targeted support to women also helps, as ExxonMobil’s work in Papua New Guinea shows. In Sierra Leone, Sierra Rutile’s effective response to the deadly Ebola outbreak has highlighted the benefits of acting quickly and collaboratively in a crisis.

When it comes to environmental leadership, readers can learn much from the experience of companies such as Peru LNG, which is promoting ecosystem preservation and restoration, or from Total as it becomes a leading player in solar power. New insights are also emerging from the International Council of Mining and Metals’ approach to water stewardship, and the World Economic Forum’s work to promote sustainable mining.

Transparent governance is also fundamental for extractive industries, particularly to maximize opportunities to develop critical infrastructure. As the article on Guinea shows, changing the course of the economy will depend on good governance and strengthening local capability. In Peru, progressive governance—and sensitive approaches by companies such as Newmont—also remains central to the country’s efforts to achieve robust and inclusive growth.

Without trying to be exhaustive, the stories presented here offer concrete examples of how extractive companies can address what, in many senses, are existential pressures. The cutting-edge solutions and perspectives shared here are also useful for companies in other sectors looking to succeed in addressing complex social, environmental, and governance challenges while securing financial sustainability.

IFC and Extractives:
IFC has invested in extractives sector projects for over 50 years. As of June 2014, our active investment portfolio in extractives totaled $2.6 billion. We also work with clients to further enhance the development impact of our projects through advisory programs on community investment, local sourcing, public private partnerhips, revenue management, water stewardship, communications, and stakeholder engagement.

Facts and Figures

82% of primary energy supply came from oil, gas, and coal in 2012.
82%

of primary energy supply came from oil, gas, and coal in 2012.

Source: International Energy Agency—Key Energy World Statistics 2014

36* increase in energy demand is expected by 2035.
A 36%

increase in energy demand is expected by 2035.

Source: EY report on ‘Business risks facing mining and metals 2014–2015’

An average smartphone contains 40 different minerals

Source: Fairphone.com

Africa’s GDP included $382 billion in oil, gas, and mineral exports in 2011.

Source: Environment and Mining Journal

$17 trillion

of investment in natural resources will be needed by 2030 to meet demand—more than twice the rate of past investment.

Source: McKinsey Global Institute report ‘Reverse the curse’

A further 540 million

people could be lifted out ofpoverty by the effective development of natural resources.

Source: McKinsey Global Institute report ‘Reverse the curse’

OVER 50% of large mining and metals projects report schedule delays and/ or cost overruns.
Over 50%

of large mining and metals projects report schedule delays and/or cost overruns

Source: EY report ‘Business risks facing mining and metals 2014–2015’

$20 million

is the estimated weekly cost of company-community conflicts.

Source: Franks et al., ‘Conflict Translates Environment and Social Risk into Business Costs’

A 42% drop in CO2 emissions is needed by 2035 to ensure global temperatures rise less than 2°C.
A 42% drop

in CO2 emissions is needed by 2035 to ensure global temperatures rise less than 2°C.

Source: International Energy Agency—Key Energy World Statistics 2014

OVER 50% of large mining and metals projects report schedule delays and/ or cost overruns.
Less than 20%

of countries relying on oil, gas, and minerals have satisfactory standards of transparency and accountability.

Source: Natural Resource Governance Institute, ‘Resource Governance Index 2013’

RISK RADAR FOR MINING AND METALS

 

K RADAR FOR MINING AND METALS