Dr Daniel Franks, Centre for Social Responsibility in Mining, University of Queensland Rachel Davis, Shift & Corporate Social Responsibility

Transcription

1 Dr Daniel Franks, Centre for Social Responsibility in Mining, University of Queensland Rachel Davis, Shift & Corporate Social Responsibility Initiative, Harvard Kennedy School 1

2 If the costs of conflict experienced by companies in the extractive industry were adequately understood would relationships between companies and local communities receive greater priority and attention? 2

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4 METHOD Collaboration between Harvard Kennedy School CSR Initiative, Shift and the Centre for Social Responsibility in Mining 45 in-depth, confidential interviews with financial and sustainability professionals (extractive companies energy and mining, industry bodies, corporate law firms, insurers and research institutes) Detailed case analysis to identify & develop a typology of potential costs that can arise for extractive companies. Application of the typology to 50 cases of company-community conflict in the mining sector. 4

5 DEFINITIONS costs = negative impacts on a company s tangible and intangible assets from failing to avoid, mitigate or resolve conflict with local communities at an early stage, as well as the potential value foregone. conflict = a continuum, from low-level tension to escalated situations involving a complete relationship break-down or violence. 5

6 TYPES OF COSTS 6

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11 MINING & CHANGE SOCIAL AND CULTURAL CHANGE ECONOMIC CHANGE SOCIO- ENVIRONMENTAL CHANGE THE PROCESS OF CHANGE human rights population and demographics culture and customs community identity crime and social order community health and safety social infrastructure and services local economy and other industries housing sustainable livelihoods employment inflation/deflation access/competition for resources ecosystem change pollution (air, water, noise, vibration, traffic) disturbance/amenity cultural heritage consultation & communication consent participation governance and agreements redress and dispute resolution (Franks, 2011) 11

12 ISSUES IN DISPUTE 12

13 OPERATING STAGE 13

14 MANIFESTATIONS OF CONFLICT 14

15 COSTS TO COMMUNITIES: FATALITIES 84 Reported Fatalities (1/10/11 30/9/12) 15

16 WHAT ARE THE MOST FREQUENT COSTS? Most frequent costs: lost productivity due to delay. A major, world-class mining project with capital expenditure of between US$3-5 billion will suffer roughly US$20 million per week of delayed production in (NPV) terms. For exploration around US$10,000 will be lost every day of standby for early reconnaissance and up to US$50,000 for advanced exploration (geophysics and drilling programs). 16

17 WHAT ARE THE GREATEST COSTS? Greatest costs: opportunity costs arising from the inability to pursue future projects, expansion or sale. Not easily measurable but frequently in the billions.» there are more cases than you think Esquel (2003) $US379m asset write down on $US1.33b reserves Tambogrande (2003) $US59.3m asset write down on $US253 reserves Conga (2011) suspended during construction majority owner (51.35%) spent US$1.455 billion in previous 2 years, minority partner (43.65%) US$498 million. Deposit contains million ounces of gold and 4 6 billion pounds of copper. 17

18 WHAT ARE THE MOST OFTEN OVERLOOKED COSTS? Most often overlooked: additional staff time to manage conflict. For one company, working assumption is that 5% of an asset manager s time should be spent managing social risk; yet for one of their subsidiaries in an African country it is in fact 10-15%, and in one Asia-Pacific country it is as high as 35-50%. In other cases, senior management were estimating that assets worth 10% of company s income demanded more than 80% of senior management time, including in one case, the Chief Executive Officer s. 18

19 COMPANIES ARE STARTING TO PRICE COSTS IN One company modeled non-technical risk and calculated more than $6 billion over a two-year period, representing a double-digit percentage of its annual profits. Credit Suisse identified AUS$21.4 billion in negative share-price valuation impact on Australian stock exchange. The sectors with the greatest value at risk were mining and hydrocarbon (AUS$8.4 billion; and an average of 2.2% impact on the target share price). 19

20 IS QUANTIFICATION A USEFUL LANGUAGE? Reach two different groups within the company: senior management and financial team. Communicate the value of SD and CR functions. Differentiate efforts to aggregate costs, internalise the lessons of the past and make a business case that is linked to values and ethics, from cost/benefit approach to day-to-day management. Some companies already integrate CR into decision-making; others do not consider these issues sufficiently (according to those inside the company); and some see them as optional add ons. 20

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