This second of a two-part series by Julie Tanner on mining in Peru focuses on the role of responsible investors. The first part is available here
Investors focused on responsible and sustainable investment in the extractive industries are not standing idly by. While some SRI firms exclude extractives from their portfolios or seek only those that meet best-in-class standards, those of us that hold shares utilize a variety of approaches, including engagement, shareholder resolution, annual general meeting attendance, strengthening or proposing legislation, and creating and/or participating in multi-stakeholder initiatives and advisory panels.
For example, in 2007 when a five-year dialogue with Newmont did not sufficiently address shareholder concerns, CBIS led members of the Interfaith Center on Corporate Responsibility in filing a shareholder resolution that asked the company to research and resolve community opposition to its projects. To our surprise, the board agreed to commission law firm Foley Hoag to undertake a study on its behalf of the company’s relationship with local communities near its mining operations. The resulting 2009 report, the Community Relations Review (CRR), based on more than 250 interviews with stakeholders in Nevada, Peru, Ghana and New Zealand, provided Newmont with numerous recommendations on a wide range of environmental and human rights issues. At the time, Newmont also created and sought the views of an Independent Advisory Panel that included CBIS, the Director of Governance and Accountability Program at Harvard University’s Kennedy School and some of its NGO critics, including Oxfam and Earthworks.
When engagements have stalled and/or corporate performance is egregious, AGMs have provided another avenue for investors in mining companies to voice concerns. For example, British mining group Vedanta has been questioned and criticized at several of its recent AGMs for its mining projects in several countries for repeated environmentaland safety lapses and has been the target of divestment by investors, including the Norwegian Government Pension Fund, the Dutch Pension Administrator PGGM, and the Church of England.
In a welcome move, increasingly, extractive companies are opening their doors to SRI investors, inviting tours of contentious operations. In addition to CBIS’s visit which included fellow Interfaith Center on Corporate Responsibility investors Mercy Investments, Sisters of St. Dominic and the Tri-State Coalition, and Missionary Oblates of Mary Immaculate, Royal Dutch Shell hosted an SRI field trip to the Haynesville tight gas field in Louisiana in November 2011, and in October 2012, to Nigeria. BP announced at its London SRI day its intention to host a trip in 2013 to the Gulf of Mexico.
Investors have also encouraged companies to conduct stricter environmental and human rights reviews to better understand conflict and potential opposition. One of the most heralded was the 2010 Human Rights Assessment of Goldcorp’s Marlin Mine in the western highlands of Guatemala, which was proposed by Goldcorp shareholders, including the Public Service Alliance of Canada Staff Pension Fund, The Ethical Funds Company (now Northwest & Ethical Investments), The First Swedish National Pension Fund and The Fourth Swedish National Pension Fund. The assessment prepared by independent contractor On Common Ground Consultants evaluated both human rights impacts as well as human rights compliance. Many companies can benefit from the findings, including the recommendation that companies must step up their efforts to work with host to improve capacity. For example, the Assessment recommends stronger corporate action to work with the government to establish an independent audit/monitoring function to provide reliable and credible information for regulators on issues related to water, including water quality measurements, flows, and a basin wide monitoring of contamination sources.
Investors have also encouraged companies to better understand the emergence of Free, Prior, and Informed Consent (FPIC) as a possible tool to prevent conflict and empower communities. FPIC requires that indigenous communities receive information in advance on and provide their consent to projects that affect them. In 2010, two responsible investors, Bâtirente and Regroupement pour la responsabilité sociale des entreprises, encouraged Talisman Energy to explore the benefits that might be derived by the company if it were able to secure the free, prior and informed consent of indigenous peoples potentially impacted by its global operations. The company commissioned Implementing a Corporate Free, Prior, and Informed Consent Policy: Benefits and Challenges, that looks not only at the advantages of adopting FPIC but also concerns related to conflicting constitutional frameworks or unsupportive governments.
Companies operating in Peru will have an opportunity to implement FPIC policies. In what is considered by many to be a major achievement which could help to address some opposition, the country has a new Law of the Right to Prior Consultation with Indigenous or Tribal Peoples. While it has yet to be implemented and concerns have been raised about the definition of indigenous and the government’s ability to move projects forward if disagreements occur, there is hope that this can strengthen the ability of indigenous peoples to decide the future of projects that will impact them.
As the Goldcorp Human Rights Assessment summarized, “Mining companies need to be more knowledgeable about specialized techniques or effective strategies to manage conflict. Without tools to assess and address conflict more effectively, personnel may not be able to reframe and potentially transform the situation.” To address this challenge, a host of actions are underway that can assist companies in identifying and addressing human rights risks, including the launch of The Danish Institute for Human Rights’ (DIHR) “Human Rights and Business Country Portal” project, a free website that will feature in-depth research on human rights conditions in specific countries. Announced in October 2012, the project includes a two-year partnership whereby DIHR will develop customized country risk assessments for and provide advice to Barrick on human rights challenges associated with the higher risk countries in which the company operates (As previously mentioned, Barrick operates in Peru). The DIHR will also engage with stakeholders in select countries where Barrick operates to exchange information and facilitate multi-stakeholder dialogue.Multi-stakeholder initiatives continue to gain traction. This year Peru became the first country to be compliant in Latin America with the global standard of the Extractive Industry Transparency Initiative (EITI), a process by which government revenues – such as tax and royalties – generated by extractive industries are published in independently verified reports. Seventy of the world’s largest oil, gas and mining companies are EITI Supporting Companies, 80 institutional investors, who collectively manage assets in excess of US$16 trillion, are supporters, and as of November 2012, 37 implementing countries, of which 16 are EITI compliant. According to the latest Peruvian EITI Report, the government received over US$ 5 billion in 2010, 60 percent of which came from the mining sector. While most stakeholders applaud new efforts aimed at increasing transparency, there is also a call for greater information on how the resources are distributed and used.
To stem the use of lethal force, NGOs, investors and some companies, are pushing Peru to join the Voluntary Principles on Security and Human Rights, a multi-stakeholder initiative involving governments, companies, and nongovernmental organizations that promotes public and private security providers to ensure fundamental freedoms and human rights are respected in the protection of company facilities and premises. We raised the issue with Peru’s Minister of Mines and with the Ministry of the Environment on our recent trip but there was no indication of intention to join the 20 major companies operating in the extractive and energy sectors, the non-governmental organizations, and the participation governments of the United States, the United Kingdom, Norway, the Netherlands, Canada, Colombia, and Switzerland. In November 2012, Newmont hosted a seminar on the Principles attended by local authorities, representatives of the Ministry of the Interior, Armed Forces, NGOs, rural rounds, private companies and representatives of Newmont and Yanacocha, among others. In 2009 Newmont began hosting the event, the first of its kind held in the country.
Industry associations can also play a more active role. For now, it does not appear that members of International Council on Mining and Metals (ICMM) have yet formed members a Peru Working Group although there is no doubt that there are learnings to share and ways that the mining and metals companies and national and regional mining associations members can work together in a more formal basis on efforts that are in their best interest, including encouraging the government to join the Voluntary Principles. Equator Principle banks must also become more involved and engage with clients when fatalities are involved and ensure that there
is sufficient oversight of environmental and social risk, even when mines are not developed / constructed through the use of project finance.
Peru – The Current Flashpoint
While many responsible investors will continue to work with mining companies to attempt to lessen their impacts, it will be up to the companies to make enough substantive changes to stem the tide of violence and to form mutually beneficial alliances with the communities that host their projects.
While Peru is currently the flashpoint for conflicts surrounding extractive industries, the country is not alone. If the current unrest continues, we may see a mining divestment campaign launched along the lines of Bill McKibbin’s 350.org which is calling on responsible investors to divest fossil-fuel stock.The fatalities and social unrest in Peru forces all of us re-examine our investments in extractive and natural resource projects and re-double our efforts with companies to respect the human rights of vulnerable communities and reduce the risks of conflict. As investors, we must continue to be active owners and use our leverage as shareholders, develop stronger engagements with companies, stay connected on the ground with NGO colleagues, participate in multi-stakeholder initiatives, and encourage government agencies to strengthen initiatives aimed at transparency and security and human rights.
To do nothing and hope the problem will go away is not an option.
Julie Tanner is Assistant Director of Socially Responsible Investing at Christian Brothers Investment Services.