Vital friends

Importance of engaging with stakeholders

The recent World Gold Council reputation study[1] highlights partnerships and stakeholder engagement as an area where progress has been made, as well as showing that there is room for improvement. Their conclusions reflect how society's expectations of mining and metals companies are exerting a pressure for change, putting big issues on the corporate radar. The European Commission's European Innovation Partnership on Raw Materials is an example of engagement involving Euromines. In our industry we collaborate extensively on such issues. And in early 2014 The World Economic Forum's Global Agenda Council on Responsible Mineral Resources Management has identified seven drivers for change (including stakeholder engagement) that are affecting the sector today, based on ten years of research. Also, 'relationship-building' articles in Mining, People and Environment journal recently cite signals from PDAC 2014 that "participants acknowledged that having a licence to operate is no longer adequate and that securing a social licence to operate is increasingly hard to come by". It goes on to cite how the concept of 'creating shared value' (CSV)[2] is gaining traction in the mining industry.

What do our stakeholders think? 

According to the World Gold Council in 2013, they remain broadly neutral. Mining industries are perceived to have a similar reputation to the chemicals, and oil and gas industries. Gold compares favourably to diamond and coal mining. "The gold industry has come a long way, but more needs to be done." Academic/think tank, USA

But what does engaging with stakeholders have to do with you? Why is it important?

The expectations of stakeholders drive change. The REACH and CLP regulations in Europe are an example, stimulating responsible supply chain management. But beyond compliance, there is value in working with stakeholders. The idea of shared value is well known: that if you look beyond financial value for investors a company can realise other value by integrating wider issues and risks onto the balance sheet. The International Integrated Reporting Council (IIRC) articulates this, for example, in its use of the 'five capitals model' for promoting a new way of running a business and reporting on it. The Innovest Iceberg balance sheet shows this well too: claiming that 25% of corporate value is measured using financial statements, the rest is 'below the water line'. It is measured using other ways, based on the cost and risks relating to 'stakeholder capital', 'human capital', the environmental impact, and strategic governance.  

The good news is that the 'business case' for engaging with external parties is well known too. Whilst there are challenges, such as convincing the market place or scaling up sustainable practices, there are opportunities too (way too many to mention). Managing 'below the water line' will improve cost, reputation, and innovation to enhance a company's 'licence to operate'. Stepping outside the mining sector for a moment, take Unilever for example: they have a vision to double in size while reducing overall environmental footprint and increasing their positive social impact. Or Kingfisher, with their closed loop innovation which requires the business to 'think differently' in design and manufacturing. They are aiming to have 1000 products with "closed loop credentials" by 2020 (a sensibly-scaled start).

Interaction with external parties, or stakeholders, is one of the key tenets of sustainability in business. In the mining & metals sector, Euromines encourages transparency and engagement. And it is in good company too. The Extractives Industries Transparency Initiative (EITI) and the International Council on Mining & Metals (ICMM) promote it as a core part of managing a modern company in the industry. Indeed ICMM's President & CEO Anthony Hodge addressed the recent GLOBE 2014 transparency event in Canada where engagement found itself central to the proceedings.

Who is the most engaging of them all?

Stakeholder relations are important to the mining business today: it is the bedrock of being a good neighbour. Sounds old fashioned but so many benefits arise from this. For example, during structural change in a company, positive and accountable engagement with employees will pay dividends when facing the challenges. And of course, in the natural resources industries, Free Prior and Informed Consent (FPIC) is a well-known process to inform stakeholders. As the IFC's Global Head of Mining Tom Butler says, "The best political risk mitigation is maximizing benefits and allies. The more winners there are in country from your development, the safer are your asset (Sustainable Mining – Managing Political, Social and Environmental Risk, Mines & Money conference, March 25th 2014).

To mitigate risks relating to stakeholder/community engagement and the social license to operate (SLO), here are examples of what can be done.

  1. Strengthen local relationships and take nothing for granted. Decisions on the issues should not be already made prior to the engagement! The dialogue must have legitimacy. Many companies are setting up focused engagement fora. For example, Ortac Resources Ltd has transformed community relations at its recent Kremnica acquisition in Slovakia through the use of a new Forum Kremnicko for local stakeholders to discuss planned developments. They have gone further too by proposing Šturecland, a proposed green energy-based tourism development funded via the projected gold and silver in the area. The project would create long-term employment.
  2. Agree the rules of engagement. Everyone must understand each party's role. "Buy-in" is essential for success. Every party must have a stake in the process; participants must have a chance to affect decision-making. For example, IAMGOLD's Essakane mine in Burkina Faso uses a comprehensive community consultation approach using meetings and purpose built information offices; the engagement influenced how the mine operates, and since the initial consultations they have made improved the effectiveness and efficiency of the engagement to reach the broader community.
  3. The devil is in the detail – make sure you are confident that the team running your engagement can do it.
  4. Communicate openly and publish your environmental & social impact assessment (ESIA) and your grievance mechanism findings, to help avoid suspicion building up. Use the interconnected communication channels available, such as social media. For example, Newmont uses its Our Voice blog to update stakeholders on site and group level news. Newmont's Ahafo mine recently received the award for "Most Outstanding Community Interaction Mining Company" in West Africa -at the Electra Mining West Africa conference, Mar 5th.
  5. Focus on a key issue at hand, such as water – it is often a proxy for other issues related to building long term trust.
  6. Measure up – look for evidence that stakeholder concerns or ideas are finding their way into strategy discussions. Tracking the costs is one way. For example, Shell estimated that it cost around US$6 million to engage with the communities affected by its US$4.5 billion joint venture in the Philippines a few years ago. By doing so the company prevented delays that would have cost US $50–$72 million, and Shell secured its ability to extract several billion dollars' worth of resources.

Next steps – gearing up

When it comes to getting mining projects off the ground there has been a surge in doing community investment properly as part of achieving project approval. For example, five years ago there were very few engineering, procurement and construction (EPC) companies disclosing their sustainability credentials. Nowadays a quick trawl shows that many of the big ones are heavily involved in such strategies and reporting while others. Amec report on it and run a stakeholder panel for example, Aecom has a sustainability presence on Facebook no less, Atkins has strong online content on being a responsible business while Schlumberger has been busy winning an award in West Africa for its contribution to excellence in education development.

And capacity building is going on all the time. This resonates with us at DNV GL when running stakeholder engagement for companies. We're told by various analysts and stakeholders that companies are getting savvy on community engagement – beyond donating money to looking at the socio economic challenges faced by communities. As Mark Line, Business Development Director, DNV GL - Business Assurance, says "It's fascinating right now hearing how the conversation inside industry is accommodating a fundamentally new way of working, based on wider risks and ethics, such as human rights, alongside the 'traditional' business case for engagement." Of course this counts for even more when a company needs to draw on its reputational capital to manage challenges such as disputes or conflict.

So the bubbling up of stakeholder pressure and the responses in the mining & metals industry – and particularly Euromines on the megatrends – are clearly indicative of changing ways of working. The agenda is complex and those working on it come from broad-based backgrounds. Now is the time to capitalise on what's been achieved in order to continue to realise commercial growth while accounting wider risks.

Alex Nichols

Senior Consultant, UK Sustainability
DNV GL – Business Assurance

E-mail alex.nichols@dnvgl.com
Mobile +44 07772 944043  |  Direct +44 (0)20 71834015

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[1] The Gold Mining Industry: Reputation & Issues - A Survey of Senior Stakeholders & Opinion Formers, Nov 2013; based on 169 interviews with senior stakeholders

[2] Concept originally published by Porter et al in the Harvard Business Review, 2006-2011