Research

Natural Resources Risk Index 2016: A view from the boardroom

50 risks, split into five megatrends, ranked by 350 senior executives

July 5, 2016


The Natural Resources Risk Index analyses the severity of impact and ease of management of the top 50 risks facing the natural resources industry. Grouped into five megatrends, we examine how these are impacting the sector currently and how this will change in the future.

The research is based on quantitative and qualitative interviews with some of the world’s leading natural resources companies, revealing the key risks that will shape the industry over the next ten years. The research dives deeper into each individual sector (Oil, Gas and Chemicals, Metals and Mining, and Power and Utilities) and drills down to a regional level, examining 11 geographies individually.

Results

The megatrends of geopolitical instability and regulatory change, coupled with digitalization and new technologies, have created new risks for the natural resources industry to understand, navigate and mitigate. A changing industry landscape provides opportunities for companies willing to embrace a degree of risk. Below are some of the key themes to emerge from the research:

  • The increasing spotlight on regulation – Companies need to proactively engage with government to shape the regulatory agenda.
  • The growth of cyber-risk - Cyber-risk in all it varieties is now a boardroom issue for the industry. Continual reviewing of risk profile will aid developing resilience.
  • The importance of big data - Companies need to embrace data-driven analytics to drive more effective decision-making in a faster, more connected world.
  • Technological innovation - It is vital that risk management mitigation strategies are regularly evaluated to ensure they remain relevant and effective.
  • The right risk management team - Risk functions must have the right breadth and depth of skills to help their organizations manage new risks and build flexibility.
  • The increasing interconnectivity between people and risk - It’s critical that human resources and risk functions have a coordinated strategy to address issues.
  • Human capital optimization - From a training and leadership perspective, companies need to keep investing in career and people development, with a long-term view.
  • Reputational risk - When the market rebounds, prompting increased demand for talent, those companies that have damaged their reputations by poorly managed downsizing will struggle to find the right people and will ultimately face higher compensation costs to attract talent.

The megatrends:

Geopolitical instability and regulatory change

Ongoing political instability in regions rich in natural resources and increased global regulation rank top for executives, who say regulation is of greater concern than political volatility. Of greatest concern: reclamation obligations, particularly threats to self-insured status; complexity of regulation, cost of compliance and uncertainty over environmental policy.

Digitalization and new technologies

Technology has transformed the industry, improving safety and efficiency, with the potential for emerging technologies to enhance operations. But it has also introduced cyber-threats and greater competition for top talent. Also new entrants, some more agile than traditional players, make the need to innovate and embrace technology critical.

Complex operating models in a global business landscape

The move into fast-paced emerging markets, coupled with the pressure to use new technologies to open up previously inaccessible resources, adds another layer of risk. These are further heightened by the risk of “Black Swan” events: unpredictable events that cannot be planned for such as pandemic outbreaks or hurricanes, earthquakes and other extreme weather events that have been on the rise over the past decade.

Business model and strategy challenges

The need to create new business models, access to capital and low commodity prices are of concern, but topping the list of business model and strategy challenges were currency and interest rate fluctuations, the impact of environmental regulation and the volatility of commodity prices.

Workforce management and talent optimization

Many companies face the challenge of doing more with less as a shortage of industry-specific skills, lack of international mobility, global competition for talent, the requirement for new skill sets and a volatile industry combine to make talent attraction and retention a key risk.

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