Ethical Corporation: By Invitation – Resources slump: Why oil and mining must garner social capital

More from the oxymoronic “Ethical Corporati0n”
Resources slump: Why oil and mining must garner social capital

Many oil and mining companies are slashing investments as commodity prices collapse. For their own sake, the socio-political fall out will need to be sensitively managed

By Rob Foulkes and Daniel Litvin Nov 24 08 well-focused sustainable development programmes and other relationship-building activities – which typically cost a small fraction of overall capital expenditure for a project – may be a worthwhile investment. Doing the right stakeholder engagement work is equivalent to buying an option to reopen projects, or at least lower the risk of future backlash.Past turbulenceWhen it comes to their treatment by foreign extractive companies, governments and populations in resource-rich countries tend to have long memories, and in many parts of the world feel that the multinationals have historically paid scant attention to their needs.
The oil and mining nationalisations that swept the developing world in the 1960s and 1970s were in part a response to decades of perceived exploitation, a belief – fair or not – that foreign companies had treated host countries as cash-cows to be milked or discarded as required without sufficient consideration for the human consequences……………………………………….The financial value of trust

In terms of the management of individual projects during investment delays, our research suggests that the way socio-political issues are handled can significantly affect the support a company enjoys from its hosts when conditions improve and it seeks to re-launch.

Allowing relationships with key stakeholders to deteriorate, for example, or failing to pursue valued community projects, can undermine local and national support that may have taken years to build up, and will increase the risk of delays or backlash when prices pick up.

The case of Jabiluka, an Australian uranium project acquired by the mining company North in 1991, illustrates at least an aspect of this. Stalled at that point by a national policy limiting uranium mine development, the project did at least have the formal consent of the local Aboriginal community. Yet by 1996, when a new government revoked the policy, community opposition had intensified. Hundreds of people were arrested during protests over the next two years and the mine became a national controversy.

Perceptions of social and environmental problems around its nearby Ranger mine (whether these were fair or not), and Aboriginal concerns that re-launching Jabiluka would mean more of the same meant that any local support the company had once enjoyed was severely eroded. Rio Tinto, which acquired North in 2000, has since agreed to mothball the project until the local community reaffirms its consent, which some of its leaders insist it will never do………………………….a sensitive but strategically designed approach to stakeholder relations can help extractive companies soften the impact of project delays on the way they are viewed in resource-rich countries. Maintaining sufficient levels of contact with host governments and communities, and responding wherever possible to their needs during periods of project delay (including through continued, even if pared back, sustainability programmes) is a critical element of this……………………companies may do well to pay at least some attention to public and political perceptions of what constitutes a ‘fair deal’ for the host country.