Climate change and environmental, social and governance (ESG) will transform the energy industry risk landscape, said global advisory, broking and solutions company Willis Towers Watson at the launch of its yearly Mining Risk Review on September 17.
It noted that this transformation was taking place against the backdrop of the impact of both the Covid-19 pandemic and a rapidly hardening global insurance marketplace.
ESG forms the key theme of the report, where it is highlighted that the transition to a low-carbon economy requires a fundamental reappraisal of mining company climate risk.
The review shows that achieving a satisfactory ESG rating will be critical in enabling mining companies to attract and maintain the support of key stakeholders in the future.
Other key highlights of the report from an insurance market perspective included that, in terms of capacity, theoretical capacity levels remain broadly similar to last year, although line sizes continue to become increasingly restricted.
While in previous years, Willis Towers Watson have reported major insurers withdrawing from coal mining risks, it seems that lobbyist pressure has now moved on to insurers’ involvement in other industries, with only one global insurer having pulled out of coal this year, the company noted.
Moreover, in terms of losses, the report notes that it is still too early to provide full details of the significant impact that Covid-19 will have on the liability and directors and officers (D&O) sectors.
However, following a series of disastrous losses in 2018 and 2019, the property loss record for mining seems to be improving, unlike other sectors, the company noted.
The report also highlights that for property businesses, rating increases are still modest in comparison to other heavy industries, but retention levels, terms and conditions and sub-limits are all now being significantly affected by the hardening process.
However, for the liability and D&O sectors, rating increases are now much more pronounced.
The report also indicates that, in terms of underwriting data, the new levels of data required by insurers in terms of underwriting information are proving challenging to buyers; in particular, insurers’ scrutiny of their schedule of values and a growing tendency to impose price caps on both property and business interruption amounts.
“In these unprecedented times, the mining industry finds itself beset by challenges from all sides, as Covid-19 tightens its stranglehold on the global economy and insurance market conditions harden.
"However, it is the issue of climate risk and ESG that will have a more significant impact on the future shape of the industry. Mining companies must incorporate ESG, above all climate change, into their risk mitigation strategies in order to survive in the future,” said Willis Towers Watson Global natural resources head Graham Knight.
Willis Towers Watson South Africa natural resources practice leader Adrian Read added a South African perspective.
“Mining companies in South Africa have a unique set of interacting priorities – on the one hand the global insurance market pressures and demands from international shareholders play a significant role.
"On the other hand, there needs to be the recognition that mining companies in South Africa play a key role in the energy and resources needs of the developing economy,” he said.
As an example, in South Africa, the move away from energy coal may need to proceed at a different pace than elsewhere, he added.