Ratings agency Moody’s warns miners loss of social license could lead to loss of credit ratings
Credit ratings could be downgraded if miners fail to maintain good relationships with traditional owners.
Ratings agency Moody’s investors Service has warned major Australian resources companies their credit ratings could be downgraded if they fail to maintain good relationships with traditional owners where they operate, saying miner’s social license to operate is an increasingly important part of credit assessments.
In a new report released on Tuesday, Moody’s senior vice president Matthew Moore said the ratings agency was keeping a close watch on the relationship between resources companies, traditional owners and community groups for signs of fracturing relationships, even when miners believed they were operating strictly within the law.
“The lack of a social license to operate from affected Indigenous communities can prevent projects from going ahead or lead to immediate operation suspensions, and have far-reaching impacts that lead to future disruptions and monetary or reputational damage,” he said.
“Compliance with the law neither guarantees an enduring social license to operate, nor does it prevent credit-negative events from occurring.”
Moody’s warned in the report that a failure to manage the risks associated with disturbing heritage sites, or culturally important areas, could “create substantial and long-lasting negative credit implications for miners and projects”.
The Moody’s report notes the enormous damage done to Rio Tinto’s international reputation as a result of the Juukan Gorge disaster as an example of the consequences of failure to maintain its social license to operate.
But the ratings agency also singled out ongoing battles between Bravus Mining and Resources (formerly Adani Mining) and some traditional owner groups around the company’s controversial Carmichael thermal coal mine in Queensland as an example of the damage that could be caused if companies don’t maintain good relationships with all Indigenous communities affected by a mine.
“While in this case Bravus was ultimately given exclusive possession to the land and granted approvals for its mine, the inability to maintain social license to operate with some members of the local Indigenous community adds another layer of risk to a project that was already facing challenges in maintaining social license to operate with the broader community because of environment concerns,” the report says.
“This may also add further complexity to a project where some participants from the investment community have signalled an unwillingness to provide funding.”
And Moody’s warned that, while most reputational damage – and investor and community backlash – was caused to miners only when an issue attracted public attention, it factored in their previous history and relationships with Indigenous communities when considering credit risks.
“The impact on credit from an organisation‘s inability to obtain and maintain social license from Indigenous communities is difficult to assess prior to a claim or action from an affected community taking place. As a result, we often treat failure to obtain or maintain social license to operate from Indigenous communities as an event risk in our credit analysis,” the report says.
“To assess the likelihood of a credit-negative event occurring, we often look to a company‘s or project sponsor’s past actions and current policies as an indication of the potential for an event to occur.”
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