Effective CSR strategies becoming increasingly critical to project success

19th March 2015

By: Henry Lazenby

Creamer Media Deputy Editor: North America


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TORONTO ( – With the extractive industry these days being forced to look for viable projects in more far-flung regions, it often entails coming into contact with communities that have, in a sense, been forgotten or neglected by their own governments, potentially adding to project risk.

But socioeconomic development consultancy firm O Trade founder and director Monica Ospina tells Mining Weekly Online that, as part of the private sector’s responsibility to run good businesses, the private extractive sector often became the front lines of community engagement, which, through corporate social responsibility (CSR) programmes, could open the door for communities to become companies’ biggest allies.

“When communities feel abandoned by their governments, they often think that whoever comes first to them will be responsible for their development, which is unfortunately not true. One of the hallmarks of a good CSR strategy is that the community understands clearly that the mine will eventually close and the company will move away, and that it is ultimately the government’s responsibility to facilitate economic development,” she said.

Ospina added that it was a government’s explicit mandate to put strong legal frameworks in place to create economic stability and facilitate foreign investment. However, whenever critical social needs had been identified, it was best advisable for mining companies to form alliances to assist government in fulfilling its obligations. This included taking over and maintaining certain infrastructure that the private firm had provided, after it had moved on.

She further noted that the extractive industry was, as a whole, increasingly realising that it had the strategic opportunity to either be an agent for "development" or for "disaster". CSR initiatives were gradually becoming more important, because mining companies – from the junior explorers to the major producers – progressively understood that they had a genuine and real impact on the communities in which they operate.

“Their main motivation is not to be philanthropic or being driven by guilt, but to control the situation and devise an effective CSR plan that would have the most impact on the community, and which would secure social licence for the project, including the community’s collaboration from start to finish,” she said.

The consultant stressed that it was a myth that one had to be a wealthy, big company to run a successful CSR campaign. “It is about how effectively one implements a given plan. I have seen large companies waste millions of dollars on CSR without accomplishing anything, while others had made significant impacts on communities with the smallest of budgets.

“When a company realises the impact that its presence in a community has and recognises the fact that it would have to form a strong relationship with the community, I have found that communities are then often very eager to collaborate with the company, which is the key to any successful CSR programme,” Ospina said.

Throwing money at social problems would not solve them either. She said companies were mistaken if they thought they could buy communities’ happiness. She used the analogy of a child, asking whether a girl would be happier with ten dolls, when in fact, all she was asking for was to spend an afternoon with the parent.

If companies did not control their CSR approach correctly, they stood to be held hostage by communities, as they would eventually be seen as a “cash machine,” throwing money at problems. For this reason, Ospina pointed out, many companies had become fearful of CSR initiatives, owing to it being perceived as a black hole in their budgets.

“It is one thing to be a controller and another to have control. This means starting the dialogue with communities early, acknowledging that you are impacting the community and talking about the mitigation measures,” she said, adding that companies often did not establish the appropriate framework within which CSR initiatives would take place, before starting their efforts.

Regardless of the state of development in which a company found its new host community, it was imperative to first establish certain critical services to successfully operate, including security, transportation infrastructure, electricity supplies, water and environmental considerations.

While each of these aspects would uniquely impact the community, Ospina believed the private sector could not be held liable for the economic development of a whole region or even that of a country.

“The very first thing to do when considering a CSR strategy is to establish the company’s area of influence. This helps to define the scope, impact and, importantly, the limits of such a strategy,” she advised.

Areas of influence vary. Sometimes companies confused its area of social impact with environmental impact, which was completely different. While the ecological impacts of an operation usually concerned the immediate surrounding site of operations, the operation would also impact the ecology of the nearest human settlement 20 km down the road, Ospina explained.

She said that, if most of the workforce lived in that settlement, the new nearby mine would create an inflationary economy in the town. While there would be an impact on services such as water, garbage, sewage and electricity, the prices of goods and housing might also rise as a result of the improved economic welfare.

“One cannot ignore that. The best CSR plans understand this impact. ‘How much is enough?’ is the most difficult question for the industry to answer,” Ospina emphasised.

Another significant aspect of a successful CSR campaign was to put in place an effective grievance mechanism to act as the channel through which communication between employees and communities directly impacted by the project could take place. Grievances went beyond communication, and could act as solutions for risk mitigation and conflict avoidance.

CSR engagement could be achieved through companies implementing stakeholder engagement programmes to reach the community and ideally, have personal interaction, through community gatherings or one-on-one interviews.

“If you don’t have an avenue that allows people to express their frustrations – big and small – with you directly, you will have third parties moving in to do that job for the communities. This creates the risk of damaging the company’s reputation and, in extreme cases, can even place the project in jeopardy,” Ospina said.

Further, she noted that increasingly rigid transparency regulations the world over were equipping mining companies to better explain to their host communities just how much money was being paid to the respective governments in the form of royalties, taxes and permitting fees.

Ospina said it was critically important for companies to be able to demonstrate that, despite taking a lot of a community’s natural resources, they were leaving a lot of wealth in return.

“Communities are often left feeling that they do not benefit from the wealth being extracted and the improved transparency guidelines have forced governments to be more accountable to its people. They are increasingly being forced to demonstrate what they have done with every single payment made by a specific company,” Ospina said.

This could have a significant impact on local politics and influence locals’ voting, she noted.

However, while more than 100 companies had signed up to disclose their government payments, foreign governments had been reluctant to disclose their payments received, with only about 13 presently disclosing payments.

Edited by Creamer Media Reporter


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