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Part 1: Introduction
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Part 1
Introduction
N
atural resources and raw materials have grown in importance for many
businesses and governments in recent years and now constitute a key
area for concern. Unease has risen as companies suffered from commodity
price increases and volatility, combined with consumers increasing interest
in sustainability. Although the global economic downturn has had an
impact on both demand and prices, and many analysts are arguing that the
a decades-long, above-trend movement in a wide range of base material
prices known as a supercycle is at an end, long term trends indicate a likely
continued strengthening of demand of natural resources and an increase
in supply risks. As emerging markets continue to achieve strong rates of
growth, albeit at lower rates than in previous years, demand pressures are
likely to endure, meaning in the future prices of valuable natural resources
may well remain at elevated levels.
The rise and rise of sustainability is also having a transformative effect on
issues around natural resources. Today, green concerns have an impact on
the purchasing decisions of almost all consumers from the casual green
who purchase private label green products and place sustainability behind
convenience or price or quality to deep green consumers who demand
that every aspect of a product is unquestionably green. Regulatory and
consumer demands for sustainable goods and services will continue to
intensify pressures on business no matter which way prices go. A highly
developed Corporate Social Responsibility policy is a necessity today
and ticking one or two boxes is no longer enough - sustainability must be
embedded into every aspect of the supply chain from suppliers through to
transport and disposal.
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On the supply side, risks are here to stay including increased costs due to the
accessibility of resources, which can make supply lag behind demand. The
impact of climate change and weather-related disasters impacts physical
supplies and the ever-present risks around the geographical concentration
of some materials.
As a result of these converging trends the imperative to change patterns of
production and consumption will only grow and companies ahead of the
curve, educating and leading consumers, will benefit. No wonder business
leaders increasingly view the sustainable procurement and use of natural
resources as both a key risk and an opportunity for their business.
This White Paper aims to analyse the key drivers impacting demand for
natural resources, taking into account economic, demographic and income
growth as well as environmental concerns and the rise of sustainability.
The risks posed to business will then be explored including operational,
reputational, regulatory and market risks posed by the physical, geopolitical
and economic threats affecting supply. We then go on to explore the
major branches of natural resources including energy, water, food, metals
and minerals. Issues around natural resources and sustainability present
opportunities for business as well as risks, and these opportunities, including
resource efficiency, recycling, substitution, new avenues for growth and the
emergence of new business models are discussed at length.
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Part 2
Demand Drivers
In the long term, a variety of demand factors are impacting the supply of natural resources:
1.
Economic Growth
In the past, the global economic growth model was based on the
depletion of natural resources. The growth of emerging markets
has helped push global GDP to US$71.6 trillion in 2012. Emerging
markets are expected to account for 65.0% of global economic
growth to 2020. These economies remain more energy intensive
than their developed counterparts, which acts to push energy
consumption even higher. In 2009, China overtook the USA to
become the worlds largest consumer of energy yet per capita
terms consumption remains low, indicating that energy demand
in China still has some way to go. Meanwhile, India dropped in
global rankings but experienced the second fastest growth behind
Peru in global energy consumption between 2007 and 2012
growth of 39.6% compared to a -5.4% fall for developed countries.
2.
3.
Demographic Growth
The global population is growing and will reach 8.3 billion by
2030, a 20% increase from 2010. This population expansion is
being driven by the young and growing populations of developing
countries and they will account for 90% of this growth. Growing
urbanisation is a related trend boosting demand for raw materials
in terms of increasing needs due to construction, transport and
infrastructure. In 2007, the world's urban population overtook the
rural one for the first time and by 2030 there will be 5.1 billion
urban inhabitants an increase of 43.7% or 1.5 billion people
from 2010. During this period, the urban population is expected
to grow at a rate almost twice that of the total global population
and this contrasts with a small decline in rural population.
4.
Environmental Concerns
The drive for a low carbon economy has paradoxically increased
demand for materials such as rare earths, a set of 17 chemical
elements which exhibit a range of electrical, magnetic, catalytic
and optical properties. They are used in many high-tech products
such as smart phones and by the automotive industry in electric
and hybrid motors and in clean energy such as wind turbines and
solar panels and minor metals used in green technologies - wind
turbines, hybrid and electric vehicles, solar panels, low-energy
light bulbs and energy efficient electronics. Similarly, the increased
pressure to replace the use of toxic materials such as lead in
batteries with lithium drives demand for specific niche materials.
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Part 2
Demand Drivers
Clearly this growing demand and competition for natural resources is already causing supply constraints and price volatility, and it is likely to remain at
the forefront of business issues in the future. This, coupled with consumer and government demands for sustainability, makes resource management a
priority for all companies.
Growth of Global Population and GDP and Consumer Expenditure in Emerging Markets: 1990-2020
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Part 3
Business Risks
Because the supply, demand and price of natural resources are at the
core of business, risks around resources and materials pose a threat for all
companies in all sectors. This is confirmed by the World Economic Forums
Global Risks 2013 report which identifies natural resources near the top of
the agenda.
Consumer goods companies find it increasingly difficult to pass on a rise
The Top Ten Global Risks over Next Ten Years in Terms of Impact
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Part 3
Business Risks
Risk to supplies of raw materials break down into 3 main groups: physical,
geopolitical and economic.
Physical risks
Operational Risks
Companies may struggle to secure supplies of key inputs and this could
disrupt production. In addition, flow on effects from natural disasters or
climate change can resonate around the world and effect supplies of raw
materials. Difficulties around managing high or volatile commodity prices
also falls into this category.
Geopolitical risks
Economic risks
Physical and geopolitical risks feed into economic risks such as rising
prices and price volatility. Prices of many materials saw huge increases in
the past decade. Many have since moderated or fallen due in large part to
the global slowdown, but in the medium to long term we can expect prices
to remain high and volatile because of the demand drivers and physical
and geopolitical risks.
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Reputational Risks
The public perception of a brand or a company as a whole can be damaged
if the business is exposed as using unsustainable sources of materials
or damaging ecosystems or habitats for instance by consuming large
amounts of water in a water-stressed locale.
Regulatory Risks
Governments may act to legislate to protect supplies of critical materials.
For instance, EU directives on recycling such as the Waste Electrical and
Electronic Equipment Directive which sets collection, recycling and
recovery targets for all types of electrical goods.
Market Risks
Include changes in consumer trends and demands. Consumers may switch
to a competitors more efficient products, or more sustainable products and
services as a result of increasing awareness and interest in environmental
matters. For instance, consumer demands for sustainable sources of palm
oil have forced many food and drink manufacturers to switch to sustainable
sources or alternatives to palm oil.
These business risks combine to create the new normal for companies,
who must act to secure their supplies of key natural resources whilst also
accommodating the increased demand for sustainable practices.
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Part 4
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Part 4
and services through increased costs for lighting, heating and transport for
example. Yet in a time of economic hardship for many, companies find it
difficult to pass on the increases to end-consumers. Oil prices peaked in
2008, before falling back due to the collapse in demand caused by the
global economic crisis. Since then they have remained high and volatile.
Operational (e.g. heating) and input costs (e.g. materials) are all affected
by unpredictable energy prices. Consumers meanwhile are increasingly
keen on energy-efficient appliances in order to keep their own costs under
control.
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Part 4
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Part 4
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Part 4
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Part 4
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Part 4
From these examples, the new normal for natural resources is clear: demand
pressures and supply risks are leading to volatile prices and concerns over
security of supply. The increased consumer interest in sustainability adds
to these pressures.
Source: US Department of
Energy/Technology Metals
Research
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Part 5
Suppliers
Partners
Customers
Neighbours
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Part 6
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Part 6
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Recycling of these inputs and many others, for instance ICSG estimated
more than 30% of global copper consumption came from recycled copper,
are crucial for the continued security of supplies. Recovery of raw materials
can be, and in some cases already is, a crucial source of supply. The Sony
Groups GO Recycling program is a closed-loop recycling scheme with
an emphasis on using waste as a substitute for the raw materials required
for production in order to reduce the overall amount of virgin materials
consumed, the amount of waste sent to landfill each year, or sent to be
recycled to be used by other companies. In 2011, Sony also developed
SoRPlas (Sony Recycled Plastic), which contains more than 99% recycled
materials and is made with plastic waste generated both within and outside
Sony sites.
In the future there will be increased emphasis on the end-of-life recycling
with exciting opportunities for companies who are able to target consumers
directly with take back services. An example of a firm reaching out direct
to consumers today is Mazuma Mobile a UK-based online mobile phone
reuse and recycling service launched in 2007. Mazuma Mobile buys
secondhand handsets direct from consumers, refurbishes them and sells
them on to suppliers in emerging markets such as China, Africa, Pakistan
and India. Not only do they sell them to suppliers in emerging markets but
also to insurance companies and phone retailers in the UK.
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Part 6
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Part 6
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Part 7
The simplest way for businesses to manage the risk is to make the most
efficient use of their critical resources.
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Part 7
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Part 8
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