Covering oil and gas, mining, chemicals, energy production and renewables, the global push to reduce greenhouse gas (GHG) emissions and slow climate change inevitably brings the natural resources sector into the heart of ongoing climate discussions.
At stake is how do we transition to a cleaner (net zero) economic model but do so in an orderly way that means the lights won’t go out and our existing way of life isn’t brought to a grinding halt?
From that fundamental question, what do we see as the current principal risks (and opportunities) for organizations operating within the natural resources sector? We’d highlight three.
Changing public perceptions and government policies around climate change mean insurers are of course acutely aware of the ESG (environmental, social, governance) pressures on them to adapt not only their own businesses but also be mindful of the sort of business they are underwriting. The result is a significant drop in appetite and available capacity for many types of natural resources insurance coverage, tightening of wordings and exclusions – and upward pressure on rates. Several underwriters of the upstream energy business have withdrawn from the market.
A very real risk then for natural resources organizations is whether they can access appropriate insurance coverage at a reasonable price. In response, we believe businesses are likely to need to revisit risk retention and transfer strategies and to tap into more creative solutions for placing insurable risks, such as the broader use of analytics to enhance risk understanding and the wider involvement of reinsurers in the risk transfer mix.
Another part of the broader risk solution for natural resources organizations is technology. Technology is, and will continue to be, a major factor in how natural resources businesses adapt to climate transition. From an individual organization’s perspective, it could be a positive or a disruptive factor, bringing with it a potential whole new subset of risks in areas such as intellectual property protection, operations and people (see below).
A key determinant of the extent to which technology is an organizational risk or opportunity will be understanding and attempting to keep ahead of the natural resources, energy harvesting and energy use needs and trends of a society and economy in transition. Consider, for example, technology applications that support cleaner production methods, electrical battery advances, carbon capture or development of renewables capacity. Disruptor or disrupted? Which will you choose?
Picking up on our people reference above, the way that people work in the natural resources industry and some of the things you need them to do are changing. That can of course be said about many business sectors.
An ongoing issue particularly for the natural resources sector since the pandemic has been a shortage of the right people. This alone creates potential business risk, as do new and evolving demands for training, retention and recruitment as climate transition in particular initiates further business change.
When you consider potential knock-on implications and risks in areas such as safety (workers’ compensation), third-party liability and even property, the likely benefits and opportunities of going beyond meeting employees basic health and benefit needs to attract and retain a high-quality workforce become even more evident.
These are challenging times for the natural resources industry. Driven by a global need and demand for climate transition, the risks are apparent but, with them – and not to be overlooked – are most definitely opportunities to fashion risk/reward awareness, technology and people strategies that should enable your organization to adapt and thrive.
Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.
