Mine operators are accustomed to dealing with variables—shifting weather patterns, fluctuating ore grades and unplanned equipment failures, for instance, are handled on a routine basis throughout the industry and are recognized as a cost of doing business. However, it’s unlikely that any producer is fully cognizant, completely prepared or even moderately comfortable in dealing with all of the variables that can arise when implementing Corporate Social Responsibility (CSR) and Sustainable Development (SD) programs.
It’s a realm in which conventional wisdom and logic don’t always rule, and organizations or entities that might typically be expected to be at the forefront of CSR/SD advocacy often aren’t, lesser-known groups and alliances are viewed as being more effective. To illustrate: GlobeScan, a research firm that studies matters of reputation, brand, sustainability, engagement and trends for its corporate clients, recently conducted a survey that, in the words of the company, “…asked expert stakeholders representing business, government, nongovernmental organizations (NGOs) and academia across 82 countries to evaluate the progress that various institutions have made since [the historic Earth Summit meeting in Rio de Janeiro in 1992] and reflect on their expectations for the next 20 years.”
Survey results indicated that responders continue to view national governments as extremely poor performers in this sector, while NGOs were generally regarded as outstanding contributors. According to GlobeScan, “Expectations for governments to lead have decreased, with other actors—the private sector, NGOs, the United Nations—now expected to more evenly share the responsibility.
“Perceptions of performance and expectations for leadership remain deeply misaligned,” according to GlobeScan. “The discrepancy is most pronounced for state actors, who are expected to be at the helm of driving the agenda but whose perceived performance is very poor. In contrast, NGOs are not expected to lead, but their perceived contribution is stellar.” In the survey results, NGO leadership and effectiveness is closely followed by social entrepreneurs, academic institutions and social change movements.
As pointed out in a paper presented at the 2015 SME Annual Meeting*, the “misaligned perceptions” of leadership mentioned in the survey may result because the objectives of local communities, planners, and companies often are not always consistent with the objectives of national and regional planning. Authors A. Delgado-Jimenez and O.J. Restrepo-Baena noted that local objectives may be related to “peace, wellness and balance in the environment;” for planners, objectives may be aligned with the best use of resources throughout a territory; and for companies, goals are influenced by the optimization of benefits from the exploitation of mineral resources, the maximization of income, the minimization of their expenses and interventions to remediate the intrinsic effects of mining.
At the regional and national level, the authors noted, it’s not an easy task to identify targets that are congruent with the objectives of the various local stakeholder groups. In addition, NGO workers told E&MJ that local and regional governments often aren’t capable of dealing promptly and equitably with distribution of grants, payments, revenues and other disbursements that might be part of a mining company’s CSR/SD program commitments—leading to significant frustration for local stakeholders.
In fact, the CSR/SD area can be a source of major frustration for just about all parties involved at one time or another, starting with the mining companies that are pouring millions—or in some cases, billions—of dollars into social, educational and environmental programs around the world.
- Barrick Gold, in its recently released 2014 Responsibility Report, said its economic contributions to host countries and communities totaled $9.7 billion last year, including $6.6 billion in the purchase of local and national goods and services, $1.1 billion in taxes and royalties, and $2 billion in wages and benefits. The company said it also invested more than $54 million in community development initiatives and programs to improve health, education and infrastructure.
- Vale said it invested $1.1 billion in sustainability programs and initiatives during 2014, with 76% of those funds directed toward environmental protection and conservation, and 24% toward social projects.
- Between 2011 and 2013, Rio Tinto spent an average 27% of its annual $306 million in community assistance programs on education, landing it in the list of top 10 companies worldwide for its investments in education, as reported by the Varkey Foundation, a not-for-profit organization established to improve the standards of education for underprivileged children. Rio Tinto was the only mining company in the top 10, which also included Banco Santander, IBM, Microsoft and Toyota.
SCRUTINIZING SUPPLIERS
Mining companies are under tremendous pressure to share the real and perceived wealth resulting from their mineral extraction operations—and nowadays any recipe for achieving commercial success coupled with a fair distribution of this wealth must include ingredients with strong local flavors. Mineral producers lacking a thoughtful approach to inclusion of local businesses and suppliers in contract activities risk losing, or failure to obtain, crucial exploration and operating licenses.
Global supplier information company Achilles recently issued a white paper about the challenges multinationals face in complying with local content development rules, based on an independent survey of mining professionals across the globe.
Amid falls in commodity prices, multi-nationals are increasingly shifting their focus toward opportunities in new and emerging markets as a source of revenue. Yet in a market survey, less than half of large buying organizations in the mining industry said they would be making an extra effort this year to use local suppliers in contracts. That, said Achilles, could put them at risk of violating new local content development rules unless they take steps to upgrade their approach to procurement and managing information about suppliers.
Governments around the world have introduced local content development policies that require mining companies to “give back” to communities via employing and training local people or investing in infrastructure. The changes have put greater onus on operators to gather accurate data on their supplier base because they must prove they are using a specified percentage of local labor on contracts. Yet despite the growing need for data and information about the supply chain, 45% of the survey respondents admitted that they are not confident that their data on suppliers of all sizes is accurate.
Achilles said the market survey was carried out by independent research consultancy IFF, which conducted telephone interviews with 300 procurement professionals from large businesses across the U.K., USA, Brazil, Spain and Nordic countries. This included 64 large firms in mining, oil and gas. It was commissioned by Achilles, which claims to work on behalf of more than 40 multinational mining firms to manage information about more than 6,000 suppliers, ensuring they meet critical standards in compliance and CSR before they are considered for work. Achilles manages Regic, a supplier information community for Latin America and South Europe. It also runs the Oyu Tolgoi SQMS, used by major buying organizations in Hong Kong to manage supplier information, foster local content, and deliver ethical and transparent procurement processes.
Gareth Palmer, Achilles’ regional director for the Middle East and Africa, said, “In our experience, the easiest way for mining companies to comply with local content development rules is to form communities, working collaboratively to collect non-confidential prequalification information from suppliers in all geographies. This enables them to access a pool of credible and reputable suppliers, while adhering to local content requirements, wherever in the world they are operating.”
PROMOTING PROSPERITY
E&MJ spoke with high-level program managers at TechnoServe, a Washington, D.C.-based global NGO that has worked closely with Anglo American, BHP Billiton, Barrick, Newmont, and other mining companies with interests in Latin America and Africa to “promote shared prosperity” by designing and implementing sustainable local economic development programs.
TechnoServe’s strategy recognizes that traditional approaches to CSR for extractive companies have included programs that address issues such as workforce preparedness, or assisting small- and medium-sized enterprises (SMEs) improve capacity to meet requirements of particular buyers. These programs have typically been discrete—they target enterprises with different characteristics and capacity, and the programs have been operated separately to reflect this dynamic. They were also perceived to be targeting different challenges: how to stimulate growth through entrepreneurship, how to solve the problem of youth unemployment, and how to ensure SMEs are able to access markets and grow.
However, through its extensive work with extractive companies, TechnoServe said it has found that this siloed approach can create a problem: Good local procurement practices generally benefit a small minority in the community, and can raise unrealistic expectations for other programs, leading to disenchantment.
Jonathan Barnow is a director of corporate partnerships for TechnoServe. He’s based in London and primarily works with Anglo American on a headquarters level to coordinate TechnoServe’s activities for the company. He explained that TechnoServe’s efforts for Anglo American and its other mining clients are aimed at not just solving individual economic-inclusion problems that crop up during CSR/SD program implementation, but at formulating a holistic model that addresses specific local conditions and development needs, strong community stakeholder engagement and the identification of opportunities for economies of scale.
A basic element of TechnoServe’s approach is overcoming the three classic “market failures” that often stand in the way of socioeconomic development: lack of knowledge, skills and finance. Their longer-term objective is to develop a wider-scale, integrated program formula that could be applied across the extractive-industries sector.
An integrated approach can be more effective, Barrow explained, because it is more capable of fielding applications from all members of a community and can direct applicants to the appropriate solution, whether it is training to develop an enterprise, support to make them stronger candidates for employment, or obtaining guidance to become a supplier to the mining company.
David Williams, TechnoServe’s country director for Brazil, said his organization typically sees a common sequence of events when a mining company starts up its operation: “There is an intense level of interest from members of the local community in finding ways to get involved either as a supplier or through employment. But it quickly becomes clear that only a small number of businesses will be qualified, or have an opportunity, to become suppliers. Similarly, many locals will become disappointed and frustrated when they realize that the mine can only hire a relatively small number of locals—or that they simply don’t have the skills needed to become an employee.”
“We work on ‘opening the eyes’ of the local business community to not just those opportunities for direct business with the mine, but also to the opportunities that might indirectly arise from the injection of mining activity into the local economy,” he added.
One of the key principals guiding Anglo American’s CSR/SD efforts is to identify ways to leverage its core business to provide greater impact for its social-economic development (SED) investments, according to Anglo’s Christian Spano, the company’s global lead for SED. Speaking at the Responsible Extractives Summit held June 24, 2014, in London, Spano explained that there are a number of potential routes for delivering developmental benefits from mining (see accompanying figure). In Anglo American’s strategy, SED objectives include:
- Local Procurement–Leveraging the company’s $16.1 billion supply chain.
- Local Training and Recruitment – Ensuring that host communities have the best possible chance of securing the increasingly skilled jobs at its operations.
- Sharing Skills/Employee Volunteering – Recognizing that the skills of its employees, from artisans through to professionals, can help host countries and communities in addressing key challenges.
- Governmental Capacity Development – Focusing in particular on how local municipalities can use tax revenues to provide effective public services.
- Enterprise Development – Offering equity and loans on a commercial basis to support local entrepreneurs, both within and outside Anglo’s supply chain.
- Synergies From Mine Infrastructure – Designing projects so that mine infrastructure (water, power, health) can be shared use to spread costs and broaden benefits delivered.
- Social Investment – Increasingly targeting those actions not achievable through value chain-focused approaches.
There can be a number of options for socioeconomic development in a mining-impacted community apart fom the conventional targets of employment and procurement. (Source: C. Spano, Anglo American plc, 2014)
As an example, Anglo American, in collaboration with TechnoServe, implemented the Emerge business development program in Chile, aimed at accelerating development of micro and SME businesses in the areas surrounding the company’s mining operations. The key program activity is providing a blend of business-focused mentoring and advisory support over an 18-month period, with top performers receiving a certificate from Universidad de Chile. The program differs from conventional efforts, according to TechnoServe, because its intent is to install and increase managerial capacity among the participants, rather than just providing funding for diffuse targets.
Results, according to the NGO and Anglo American, have been good: 340 entrepreneurs were accelerated in 2014 to reach a total of 700 since 2011, and 340 more were anticipated in 2015. This resulted in SME sales increases of 50%-100% and a boost of up to 50% more in salaries and purchases from other SME suppliers.
TechnoServe is currently conducting two programs in Brazil on behalf of Anglo American. The first, named Crescer, was set up in the area surrounding the Minas-Rio mine in Minas Gerais State, delivering business advisory services to more than 215 rural and urban enterprises. TechnoServe reported that within 12 months, the Minas-Rio program experienced 2.5 times its anticipated participation. The program has also mobilized $300,000 in long-term finance from Brazilian banks for participant businesses, and facilitated local supply contracts. The second program, Avançar, is in partnership with Anglo American’s niobium and phosphates operations in the municipalities of Catalão and Ouvidor in Goiás State. This program targets more than 200 participants from three different groups within the community: local businesses supplying to Anglo American, other diverse rural and urban enterprises, and young adults looking to improve their careers or start a business.
Christian Spano believes the company’s current CSR/SD strategy should become a competitive advantage for Anglo American—a mechanism through which national governments, local authorities and potential business partners see Anglo American as a competitive extractive company that maximizes socioeconomic development. This strategy, he explained in a recent blog post, will “allow us to reach our goal of doubling our margins by the year 2020 without compromising our target return on capital of 15%, and continue to be recognized as the best partner to enhance the socioeconomic development of regions and countries.”
