PDAC: How payment transparency helps gain a social licence to operate

Corporate social responsibility is front-and-centre at this year's Prospectors and Developers of Canada meeting. One not to be missed session about the ideas that will shape the future of CSR will be held Monday, March 2 from 3:30 to 5:00 pm in...

Corporate social responsibility is front-and-centre at this year's Prospectors and Developers of Canada meeting. One not to be missed session about the ideas that will shape the future of CSR will be held Monday, March 2 from 3:30 to 5:00 pm in Room 717 of the Metro Toronto Convention Centre.

CMJ had an opportunity to talk with one of the presenters, O Trade founder Monica Ospina, about the importance of transparency in payment and its role in obtaining a social licence to operate.

CMJ: What does "transparency in payments" mean for the extractive industry?

MO: It means the open disclosure of all payments made to the government by the extractive industry on a project-by-project basis. The purpose is to inform people about payments of royalties and taxes by the industry and about the amounts received by their government.

A shift towards transparency in payments would also accompany legislative changes concerning the distribution of royalties. Specifically, governments would make clear how royalties and taxes could be distributed at the federal or national, regional and municipality levels. Such practices can be seen, for example, in Mexico, Colombia and Peru, where legislation has reshaped the way income is distributed and how democracy works at the grassroots level.

CMJ: How will payment transparency aid in eliminating corruption?

MO: For many years, secrecy around government revenue from royalties and taxes paid by the industry has allowed irresponsible leaders to take money to attend to their personal interests rather than plan and act to the benefit of their people. This is one of the reasons why many countries exploiting their natural resources remain in poverty.

In some cases, natural resources are known to factor strongly in a country’s exports and are held close to its people’s identity. Comments along the lines of, “Foreigners come and take our resources, leaving us empty handed and still impoverished,” are common. This portrays the industry as a taker and not a giver – an industry involved in backdoor deals, characterized by corruption. Of course, on the contrary, we can see today that the extractive industry is the one leading the initiative of transparency in payments, as well as, in many cases, is acting more as a giver and a reliable partner for social development.

CMJ: How can transparency of payment be made to work in war-torn countries or those ruled by dictators?

MO: With widespread corruption, it is very difficult for communities to put pressure on either their government or the private sector. To operate transparency of payments demands a state in which people are free to act in democracy, in order to be able to demand answers about payments done by foreign investors such as mining companies. For foreign investment as a path to development and operating in a political complicated environment, has the power to suggest to governments the disclosure of payments, and in a bigger scale the same private sector could advocate for support at the international level. The World Bank has led initiatives to support and promote transparency such as EITI (Extractive Industry Transparency Initiative), Equator Principles, and Stolen Assets Recovery among others.

All of the above is to say that transparency in payments is a call to professionalize community relations and be strategic in the approach to obtaining and maintaining the social license to operate.

Once transparency in payments becomes a regular practice ingrained in the industry’s organizational culture, people will be empowered to raise questions like, “Where has the money gone?” or, when election time comes, “What are your plans for the money received?”

CMJ: Transparency then becomes a tool with which local communities can be empowered. How will this empowerment benefit industry?

MO: Today’s trend towards transparency is opening a window of opportunity to profit from the benefits of democracy, under which people choose the candidate who represents them. Voters’ choice will be able to centre more on “hiring a talented manager” (that is, someone that won’t mismanage the fruits of their labour) than simply “electing a charismatic politician”.

Once communities build a tradition of selecting their leaders as managers to be evaluated based on results, their governments will form knowing they have a responsibility to create profits. Public officials or local leaders will see that it is in their best interest that the taxes and royalties paid by the industry get put towards improving social infrastructure, and communities will see that it is the industry contributing to development.

CMJ: If transparency in payments became the norm, how would it affect the industry's approach to community relations?

MO: Prior to transparent reporting, companies put great effort – and budgets – into building hierarchical relations at the local level, mostly with local politicians of great influence at the centre of the government. Secrecy and confidentiality was common, and very few knew the nature of the deals, the amount of money involved or if personal benefits were secured, allowing for corrupt practices. Once companies were confident about having high level support to facilitate securing permits and transactions, what was the point of investing in social development? Keeping good relations with locals through supporting charities or making small contribution to local festivities played out, but only to passive, fruitless ends.

Today, we see a very different scenario when communities decide whether or not to grant the social license to operate, especially when communities know the amount of money allocated to their municipality.

In addition, the change in demographics plays a key role in understanding why transparency as a trend is gaining ground all around the globe. Younger generations are greater in number and have more access to information than the generations that came before them. Not only this, but the new generations are more educated that previous ones and economic issues like unemployment are on top of their agenda.

Companies will be expected to act transparently. Programs to support community relations will have to be professional in their approach to build a long term solution that contributes to social risk mitigation and ensures project stability. Companies looking to gain the support of communities will need to be ready to integrate communities as part of their value chain, say, by taking on local suppliers or service providers. That is to say that community inclusive capacity building and the strengthening of local economies is the principal road to successful relations. 

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