TABLE OF CONTENTS Jun 2012 - 0 comments

Extracting a risk from mining

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By: Marketa Evans and Gary MacDonald
2012-06-01

The Canadian mining industry is dealing with new, high-risk operating challenges abroad. Corporate Social Responsibility (CSR) is a key business tool in this new operating environment; well applied, it gives local communities a stronger voice in mining projects in their area while offering companies a greater degree of certainty. Good CSR sets the ground for fair, respectful and lasting relationships for everyone.

Over the past eight years, Canadian mining companies have invested $100 billion in projects in Latin America and Africa: that’s where the resources are. But these investment opportunities are challenging: according to Maplecroft, a global risk consultancy, companies face "extreme" or "high" risk of complicity in human-rights abuses throughout almost half the world. The mining sector — whose end products are found in every aspect of our daily lives — is vulnerable because simple compliance with the law is no longer enough. To deal with low levels of public trust and the need for secure access to land, miners have to work harder to foster stakeholder trust and to build robust engagement and relationships.

Yet CSR is often misunderstood. It is not about philanthropy or "doing the right thing" or random acts of kindness; it is about fully understanding and systematically mitigating social risks. Poorly managed social risks result in destruction of shareholder value and negative impacts on communities and human rights.

Mining often generates great fear of such impacts. Detractors point to the negative effects that communities often suffer because of extractive projects. Less often, we hear about the gains in jobs, health, education and livelihood that communities and host countries can achieve when projects are run to high social performance standards. Certainly, the government revenue and investment flows are difficult to replace. For example, according to the Revenue Watch Institute, mining accounts for more than 50 per cent of Peru’s export revenue.

When social management is done poorly, everyone loses — communities lose out on real opportunities to improve their conditions and companies experience project delays, reputational damage and investor skittishness.

A recent study by Harvard University and the University of Queensland spells this out: social conflict in mining is costly, and the costs are borne by all sides.

Nearly three years ago, the Canadian government established a new CSR strategy that draws on the International Finance Corporation (IFC) standards for social and environmental performance and sets out voluntary performance guidelines for Canadian mining and energy companies abroad. These standards go beyond what host country laws may require, covering issues ranging from management of private security forces to biodiversity to labour conditions. They help companies identify emerging social risks and proactively manage and mitigate effects.

Leading Canadian mining companies are already responding to the challenge, putting in place social management systems. Now it’s time for more companies to do the same – particularly in the current market, where companies face increased pressure to get projects into operation. When demand intensifies, companies may have less time to implement the essential, long-term policies and programs that are the foundation of good social management.

In the past, many companies increased spending on poorly considered "feel-good" projects when prices were high, and then cut them when prices dropped. So it is no surprise that global best practice — including recent revisions to the IFC standards — puts more emphasis on social management. Growing global understanding of social-management systems — made up of assessments, policies, management oversight and deployment of teams with appropriate budgets and training — reflects a deeper understanding of CSR as a basic operating obligation for all extractive companies, regardless of size or global location. CSR is scalable, just as other risk-management systems are.

We see Canadian mining companies starting to put the same emphasis on social-management systems as they do on safety or environment or other core management roles and responsibilities. It is time to hasten the move away from feel-good or firefighting and into active relationship management and community engagement, an approach that will more effectively manage social risks and lay a solid foundation for mutual benefits and success. Today’s strong mineral and metal prices provide an excellent opportunity to build better social relationships for the long run.

*Reprinted with permission of the Vancouver Sun.


Marketa Evans is the Government of Canada’s Extractive Sector CSR Counsellor. The CSR Counsellor is a special advisor to the Minister of International Trade. The Counsellor has no policy-making role and does not represent Government of Canada policy positions.

Gary MacDonald is a principal of Monkey Forest Consulting Ltd., a leading social-development consulting firm that works with enterprises worldwide to align company business objectives with community values and prepare communities for complex change.

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Marketa Evans.
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