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ESG CRITERIA INCREASINGLY SIGNIFICANT AS THE DOMINANT DRIVERS FOR INFRASTRUCTURE INVESTMENTS

Environmental, social (or sustainable) and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments.

The importance of such standards as critical criteria influencing key decisions made by investors in energy infrastructure assets has been apparent for a considerable time. With growing climate change risk awareness among institutional investors, however, ESG issues are assuming an ever more dominant place in the infrastructure investment industry. ESG criteria certainly now drive the monitoring and evaluation processes adopted by asset managers of both listed and unlisted infrastructure assets to a considerable extent. Whether to invest or divest, or whether to maintain or reduce exposure to a particular energy asset class, investors are increasingly evaluating their decisions against industry wide-ESG benchmarks set by regulators, rating agencies and business academics.  

Setting an appropriate and fit for purpose ESG policy is a challenge for all businesses, but especially so while the taxonomy of corporate issues falling within ESG grows ever broader. ESG needs to be aligned with the mission statement of the energy asset owner and so also embedded in its culture and values. However, arguably this is especially difficult for energy infrastructure owners to achieve. For example, the majority of senior executives in the energy industry tend to be male, drawn either from an engineering or financial background and with similar career profiles. There is certainly a marked absence of female senior executives. Even though all the evidence is that boards containing a better gender balance make more sustainable long term decisions and are more effective in managing risks, there are relatively few examples of well-balanced boards in the energy and infrastructure industry. Without appropriate adjustment, this presents an immediate adverse ESG mark.

An energy infrastructure asset may be owned by a publicly listed company or, more commonly, by a private entity (company or partnership). Whatever the ownership structure, the ultimate asset owner is likely to have complex stakeholder relationships to manage, including investors (public (institutional) or private (retail), employees, regulators, suppliers and contract counter-parties.  Managing these relationships, up, down and sideways, takes considerable skill and effort. Moreover, the scrutiny of the asset owner’s ESG performance by rating agencies, investment analysts, financial journalists and others is likely to present it with many communications challenges, both internal and external. Finding the most effective and impactful language to articulate the asset owner’s key ESG messages is unlikely to be easy given the different audiences it needs to satisfy.

Wind farms, solar parks, energy storage facilities, power plants, electricity grids, oil & gas facilities all have differing environmental footprints. The basis on which their individual performance is assessed needs, rightly, to be scrutinised against a range of criteria. ESG provides an increasingly important handrail to guide such assessment. It is certainly more frequently quoted and senior executives are increasingly aware of its significance in their management decisions.

The Prospect Law and Prospect Advisory team has substantial experience of raising investment capital for energy infrastructure assets, where ESG issues have been at the forefront of the decision criteria used by the equity and debt capital providers ultimately committing funding to the asset. Overall ESG is certainly likely to remain a major feature of energy infrastructure transactions in the future.

About the Author

Mark Vickers is an experienced public and private sector complex risk consultant, with a focus on financing projects in energy and infrastructure. Mark was previously a commercial & investment risk advisor at The Crown Estate, focused on new marine energy technology investments in UK waters, such as wave & tidal power, floating wind turbines and offshore transmission grids. With qualifications in law, accounting, finance and risk, Mark has worked in a range of major banks, private equity funds, corporates and professional advisory firms.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental  sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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BUILDING A SOCIAL LICENSE TO OPERATE: HUMAN RIGHTS, SECURITY AND EFFECTIVE GRIEVANCE PROCEDURES

Close adherence to the UN Voluntary Principles on Security and Human Right (VPSHR) enables corporates to build and maintain an effective SLO in complex environments.

The VPHSRs state that risk assessments are vital to the promotion and protection of human rights. These risk assessments must consider the available human rights records of public security forces, paramilitaries, local and national law enforcement, as well as the reputation of private security. Awareness of past abuses and allegations will help corporates to avoid recurrences, as well as to promote accountability in the future.

Corporates should take care to ensure that their contractors and partners are familiar with VPHSRs.

General Principles of Ethical Conduct

  • Regular consultation between corporates, their partners and contractors, and government representatives and local communities, about the impact of security arrangements on those communities, and clear communication between all stakeholders about the need for ethical conduct and respect for human rights by public service providers.
  • The primary role of public security agencies should be to maintain the rule of law, including the safeguarding of human rights, and deterrence of acts which might threaten personnel and facilities.
  • Individuals credibly implicated in human rights abuses must not be allowed to provide security services, and force should only be used when strictly necessary and to an extent proportional to the threat.
  • The rights of the individual should not be violated while exercising the right to exercise freedom of association and peaceful assembly, the right to engage in collective bargaining or other related rights of Barrick employees – as recognised by the Universal Declaration of Human Rights and the ILO Declaration on Fundamental Principles and Rights at Work.
  • Corporates should ensure the holding of structured meetings with public security on a regular basis, to discuss security, human rights and related workplace safety issues. Support should be given to host nation governments to provide human rights training and education for public security, as well as their efforts to strengthen state institutions to ensure accountability and respect for human rights.
  • In respect of recent allegations of human rights abuses, corporates should actively monitor the status of any ongoing investigation and press for proper resolution of these issues, in consultation with the host nation Government and relevant NGOs. The security and safety of sources must be protected and additional or more accurate information that may alter previous allegations must be made available, as appropriate, to concerned parties.

Private Security Companies

  • Corporates must ensure that private security companies observe correct policies with regard to ethical conduct and human rights, the law and professional standards of the host nation, emerging best practice developed by the industry, civil society and governments and the promotion of the observance of international humanitarian law.
  • In particular, private security contractors must act in a lawful manner, exercising caution and restraint in a manner consistent with international guidelines on the use of force, including the UN Principles on the Use of Force and Firearms by law enforcement officials and the UN Coode of Conduct for Law Enforcement Officials, as well as emerging best practice.
  • Furthermore, private security companies must have policies regarding appropriate conduct and the use of force, which are open to monitoring.
  • Such monitoring should encompass detailed investigations into allegations of abusive or unlawful acts and the availability of disciplinary measures sufficient to prevent and deter, as well as procedures for reporting allegations to relevant local law enforcement authorities when appropriate.
  • All allegations of human rights abuses by private security must be recorded, and credible allegations investigated. Once those allegations have been forwarded to the relevant law enforcement authorities, corporates should actively monitor the status of investigations and press for their proper resolution.

The Importance of Effective Grievance Procedures

An essential component in any plan to build relationships with stakeholders is the existence of a clear set of procedures for handling grievances. Effective grievance procedures provide an indispensable took for communities and companies to address difficulties in a non-confrontational manner.

Confrontation occurs when stakeholders feel they have no mechanism for addressing problems in a peaceful manner. The key principle to be applied when handling grievances is Respect. The manner in which grievances are heard is often as important to the complainant as the outcome.

A respectful grievance procedure will be characterized by six principles:

  • Clarity and transparency – Feedback needs to be available throughout the process.
  • Accessibility – Arrangements for the submission of grievances must be public and available to all.
  • Safety – No complainant should face any danger as a result of making a report.
  • Predictability/timeliness – A grievance procedure needs to be guided by clear timelines and processes, with a clear documented outcome.
  • Compliance – The process identified for handling a grievance must be strictly adhered to.
  • Existence of a recourse mechanism – A committee must be established as a fall back, in the event of disagreements.

About the Author

Mark Jenkins advises clients on Corporate Social Responsibility (CSR), security and risk management issues affecting the viability of on and off-shore energy, mining and infrastructure sector projects in Europe, the Middle East and Africa. Mark’s experience has been focussed on creating reliable community support for projects through the development of a Social License to Operate (SLO) based on effective CSR initiatives. The success of these initiatives has been based on a thorough understanding of local environmental, commercial, and cultural dynamics, especially Islamic ones.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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LOSS OF SOCIAL LICENSE TO OPERATE: THE TOP RISK FACING EXTRACTIVE SECTOR IN 2019/2010

Ernst and Young has assessed the loss of a Social License to Operate (LTO) as the top business risk for the extractive sector in 2019/2020.

This exponential rise has come about because the current approach taken by boards and CEOs is not broad enough. Indeed, the stakeholder landscape is changing and miners need to adapt. Furthermore, there has been a dramatic rise in resource nationalism globally, and the necessity of digital transformation highlights needs for a stronger LTO.

Whilst most sections of the metals and mining industry say the right things with regard to LTO issues, few actually take action. Today, LTOs extend well beyond social and environmental issues, into the realm of issues relating to Shared Value. If mining/metals companies are to remain competitive and keep their stakeholders on side, they need to focus more greatly on how they can Create Shared Value, to the point where this mindset needs to become deeply embedded within a company’s fundamental DNA.

LTO issues cannot be delegated to a department within the business. Rather, LTO concerns must be integrated into a Company’s core decision making process. There is more information about, and bigger platforms for the sharing of that information – just one disaffected shareholder has the ability to destroy a Company’s reputation for good.

Wider society is increasingly participative in multiple issues that directly concern mining/metals operations – social media and the internet rally issues-based stakeholder participation en masse, especially in relation to issues such as sustainability, pollution and workers rights.

Social media has given minority groups, such as indigenous communities, global reach in respect of their issues of concern.

New business models are increasingly focussed on community owned operations, as opposed to more traditional models, whilst host nation governments have higher expectations of shared value outcomes. Essentially, governments want much more than tax and employment opportunities in return for the granting of access to resources. Increased transparency, as a result of more disclosure regimes, means that positive and negative impacts of mining operations are subject to much closer scrutiny than previously. Increasingly, projects are assessed on the basis of the quality and extent of stakeholder engagement. Kenya, for example, has enshrined the principle of public participation into its constitution, under Articles 10, (2) and 69 (d). Further, disaffected stakeholders are pursuing litigation in respect of past damages, and provisioning for such eventualities will become a key issue for companies and regulators.

Click on the links below to read Mark’s previous articles on Shared Value

The Creation of Shared Value – The Need for a Long-Term Perspective

Creating Share Value in Complex Environments:

Part I
Part II
Part III
Part IV

About the Author

Mark Jenkins advises clients on Corporate Social Responsibility (CSR), security and risk management issues affecting the viability of on and off-shore energy, mining and infrastructure sector projects in Europe, the Middle East and Africa. Mark’s experience has been focussed on creating reliable community support for projects through the development of a Social License to Operate (SLO) based on effective CSR initiatives. The success of these initiatives has been based on a thorough understanding of local environmental, commercial, and cultural dynamics, especially Islamic ones.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

For a PDF of this blog click here

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THE CREATION OF SHARED VALUE – THE NEED FOR A LONG-TERM PERSPECTIVE

Capitalism is under siege…diminished trust in business is causing business leaders to set policies that sap economic growth…business is caught in a vicious circle…the purpose of the corporation must be redefined around Creating Shared Value” – Harvard Business Review

What is Shared Value?

Shared value refers to the policies and operating practices that enhance the competitiveness of a company, while simultaneously advancing the economic and social conditions of the community in which the company operates. The creation of Shared Value focuses on the identification and expansion of connections between societal and economic progress. Its premise is that economic and societal progress must be addressed using value principles, and that value is defined as benefits relative to costs, not just benefits alone.

The business and social sector (government and NGOs) have tended not to think in terms of the creation of value, instead being focused on profit alone (business) and benefits achieved (NGOs/Governments). In the new paradigm advocated here, there will be increased cooperation between business, NGOs and government.

The Traditional Approach

Over the years companies have optimised short term financial performance while ignoring broader influences that determine their longer term success. These can include the well being of their customers, the depletion of natural resources, the viability of key suppliers and the economic success of the communities in which they produce and sell.

Governments and civil society have often exacerbated the problem by attempting to address social problems at the expense of business. As a result, the presumed trade-off between economic efficiency and social progress has been institutionalised. Many companies are aware of the problem, but are locked in a CSR mindset, with social issues at the periphery and not the core.

The Solution

The Solution lies in the principle of shared value, namely the creation of economic value in a way that also creates value for society, by addressing needs and challenges. Business must reconnect company success with social progress, as Shared Value is not social responsibility or even sustainability. Rather, it is the best way to achieve economic success.

Shared Value requires leadership that possesses a deep understanding of society’s needs, a greater understanding of the true bases of company productivity and the ability to collaborate across non-profit/profit boundaries. The purpose of the corporation must redefined to address the creation of shared value, not just profit per se, as the concept of Shared Value recognises that societal needs define markets.

Shared Value is not about personal values, nor is it about redistribution. Rather, it is about the expansion of the total pool of economic and social value. Shared Value focuses on improving production techniques and strengthening the local cluster of supporting suppliers and other institutions, in order to increase local business efficiency, yields, product quality and sustainability These all lead to bigger revenue and profits that benefit both local businesses and the companies that buy from them. For example, studies of cocoa farmers have suggested Fair Trade can improve profits for farmers by 10-20%, whereas SV initiatives can increase it by over 300%.

Creating Societal Value

A business needs a successful community, not only to create demand for its products but also to provide critical public assets and a supportive environment. At the same time, a community needs successful businesses to provide jobs and wealth creation opportunities for its citizens. There are three ways in which societal value can be created in order to develop economic value.

re-conception of products and markets – the starting point for SV is to identify all the societal needs, benefits and harms that could be embodied in a company’s products;

redefinition of productivity in the value chain – striking improvements in energy utilisation through better technology all create SV; heightened environmental awareness and advances in technology mean new approaches in areas such as use of water, raw materials and packaging; increasingly companies realise that suppliers must be nurtured by increasing access to inputs, sharing technology and providing financing – when companies buy local heir suppliers get stronger, increase their profits and hire more people on better wages – that’s shared value; distribution of financial services, eg Microfinance; employee productivity is improved by better pay, wellness, training and career advancement as well as reducing days lost through illness; local communities are increasingly important due to rising costs of carbon emissions and energy and and also the costs of a highly dispersed production system.

building supportive industry clusters at the company’s locations – the success of every company is affected by local communities and infrastructure. Without a supporting cluster productivity suffers – deficiencies in a cluster create internal costs for the company. As companies become disconnected from communities so their influence declines and costs grow. Initiatives that address cluster weaknesses that constrain companies will be much more effective than community focused CSR programmes which have limited impact because they take on too many areas without focusing on value.

Summary

Corporate Social Responsibility

    • Values – doing good;
    • Citizenship, philanthropy, sustainability;
    • Discretionary or in response to external pressure;
    • Separate from profit maximisation;
    • Agenda is determined by external reporting and personal preferences;
  • Impact limited by corporate footprint and CSR budget.

Example: Fair Trade Processing

Creation of Shared Value

  • Values – economic and societal benefits relative to cost;
  • Joint company and community value creation;
  • Integral to competing;
  • Integral to profit maximisation;
  • Agenda is company specific and internally generated;
  • Realigns the entire company budget

Example: Transforming procurement to increase quality and yield.

About the Author

Mark Jenkins advises clients on Corporate Social Responsibility (CSR), security and risk management issues affecting the viability of on and off-shore energy, mining and infrastructure sector projects in Europe, the Middle East and Africa. Mark’s experience has been focussed on creating reliable community support for projects through the development of a Social License to Operate (SLO) based on effective CSR initiatives. The success of these initiatives has been based on a thorough understanding of local environmental, commercial, and cultural dynamics, especially Islamic ones.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental  sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

Click on the links below to read Mark’s previous articles on Shared Value

Part 1- August 21st 2018
Part 2 – 7th September 2018

For a PDF of this blog click here

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CREATING SHARED VALUE IN COMPLEX ENVIRONMENTS: PART IV

Part IV of this series will cover a company’s approach to the acquisition of land and negotiations about land compensation, as well as company contracting policies and the impact of these on company-community relations. There will also be an overview of the need to incorporate long term economic development strategies into community projects, and the need to use local contractors where possible.

Acquisition of Land

A company’s approach to the acquisition of land often becomes one of the earliest major issues to strain company-community relations. Rural people often value land for its cultural, and historic interest as much as for its commercial value. Land in this context is identity.

Negotiations about land compensation often need to focus on the meaning of land, rather than just a negotiation about its commercial price. Companies must acknowledge the implications of cultural attachment to land, and recognize that discussions about compensation will have a long term impact.

Compensation packages should not just be financial. In particular, efforts which help farmers increase their yield can work, especially if they also receive support when constructing a business plan. Compensation rates have to be consistent, and this might mean not paying anyone until everyone has agreed. Compensation payments must be made promptly, and assistance given with the management of any money handed over.

An inclusive approach is needed, with individual compensation packages taking a back seat to community based ones. Resettlement programmes require particularly high levels of assistance, including the reestablishment of networks. Transparency in all matters relating to compensation programmes is essential.

Contractor Behaviour

The vast majority of community challenges are caused by contractor behaviour. Local contractors tend to lose out to larger, international or urban based contractors. The staff of these outside contractors, rather than company staff, can be the first representatives of the company to engage with communities.

A company’s contracting policies can have a much larger and more lasting impact on the quality of company-community relations than most managers realize. The challenge is to use local contractors as much as possible, and there are various methods that can help achieve this.

  • Integrating local contractors into project design should begin from a project’s pre-feasibility stage;
  • the removal of bureaucratic and administrative obstacles
  • the providing of seed capital to Entrepreneurs;
  • Sustainability should be built into local content strategy;
  • Local content may be integrated into corporate management systems;

Effective contracting policies will result in fewer complaints about contractor behaviour, communities crediting the company with the provision of opportunities to local contractors, the

company receiving requests from local contractors for pre-qualification training, local contractors understanding why they did not obtain a contract, fewer force majure claims and local contractors reporting an increased ability to gain outside contracts.

Community Consultation and Negotiation

Three elements are essential to positive engagement:

  • Relationship;
  • Procedure;
  • Content

Relationship – The relationship needs to be respectful, and transparent.

Procedure – There needs to be clarity and agreement about the procedures of engagement.

Addressing all three elements will allow companies and communities to move towards common goals.

Respect and trust are high priorities for communities and created by effective community consultation. Indicators of effective community consultation may include the following:

  • people reporting that they feel listened to, and that the company takes their concerns seriously;
  • people reporting that the consultation process is respectful, participatory and inclusive;
  • minority groups reporting that their interests are represented;
  • both company and community say the other is their partner, not an opponent;
  • a lack of sabotage/strike action due to community unrest

Community Projects/Development 

As a basic guiding principle, community development should seek to build a portfolio of strategic programmes with long term economic development strategies, rather than making one-off, reactive investments. Delivery of strategic effect will be vital in terms of acquiring an effective Social License to Operate, as well as ensuring community support in the locality of mining operations.

There is no correlation between spending on community projects and the health of company community relations.  Getting community projects right requires, first of all, acceptance of the complex mix of economic and political factors involved in true sustainable development.

Clear objectives must be determined for community projects, with a strategy devised that links such objectives to the business case. Projects must form part of a business process that ensures programmes are aligned with corporate objectives – the Creation of Shared Value as directed by corporate HQ.

Unless projects are integrated into this strategy, there is a danger that they fragment and lose momentum, due to pressure from other stakeholders. Clarity on goals and strategies provides clarity about what communities can and cannot expect.

About the Author

Mark Jenkins advises clients on Corporate Social Responsibility (CSR), security and risk management issues affecting the viability of on and off-shore energy, mining and infrastructure sector projects in Europe, the Middle East and Africa. Mark’s experience has been focussed on creating reliable community support for projects through the development of a Social License to Operate (SLO) based on effective CSR initiatives. The success of these initiatives has been based on a thorough understanding of local environmental, commercial, and cultural dynamics, especially Islamic ones.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

Click here to read Part I of this series

Click here to read Part II of this series

Click here to read Part III of this series

For a PDF of this blog click here

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CREATING SHARED VALUE IN COMPLEX ENVIRONMENTS: PART III

Part III of this series will cover corporate engagement with NGOs and the need for formal engagement at the outset, between NGOs and corporates on various CSR initiatives. There will also be an overview of the indications of a positive NGO-Corporate relationship, as well as discussion of the need to integrate a grievance procedure when consulting local communities.

NGO-Corporate Engagement

NGOs, in general, are operating at more levels, and becoming better organized and increasingly connected internationally. Corporate engagement with an NGO is often poorly thought out, and more concerned with public relations and corporate image than with engaging to correct mistakes.

Companies must recognize that NGOs often raise issues that need to be addressed, and that local communities will work with people who are most likely to solve problems. In a sense companies and NGOs are in competition with each other for the favour of local communities. This reality can give companies a great deal of control over how effective outside critics can become.

A mechanism needs to be developed for listening to the local voices that NGOs claim to represent, and there needs to be a focus on the objectives that companies and advocacy groups share.

Not all NGOs are anti-corporate. Some are keen to work with companies on issues relating to transparency, human rights, environmental preservation, development and humanitarian action. It is good to involve NGOs before a company finds itself subjected to campaigns. When a company highlights its positive efforts only after a campaign has already been launched against it, it loses credibility and allows critics to easily dismiss those efforts as a cover up. Formal structures need to be in place for engagement between NGOs and companies, so that those NGOs do not feel the only avenue through which they can affect company behaviour is via lawsuits or the media.

NGOs should be invited to help set company standards and audit company policies, practices and impacts. Such a policy can act as insurance for a company against future lawsuits. Where there are disputed facts companies and the relevant NGO should work towards agreement. NGOs are very good at identifying and voicing problems, but less good at identifying solutions. One useful tactic is to get NGOs to specify appropriate benchmarks of improvement.

Signs of a Positive Relationship

Finally, NGOs do not always represent the view of the communities they claim to represent. Sometimes it is worth calling their bluff! Indicators of positive relationships between a company and NGOs will include:

  • Community members, not NGOs, voicing community perceptions in media outlets;
  • A company being invited by NGOs to attend meetings;
  • NGOs accepting invitations from companies to attend meetings;
  • Credible NGOs asking to work with company;
  • NGOs publicly acknowledging that company is trying to address issues of concern;
  • NGOs start to use company’s best practices as examples in their discussions with other companies.

Establishing Effective Grievance Procedures

The establishment of a transparent and predictable grievance procedure is an important part of an effective community consultation process. An effective grievance procedure provides an indispensable tool for communities and companies to address difficulties in a non-confrontational manner. When stakeholders feel they have no mechanism for addressing problems in a peaceful manner, they turn to confrontation.

The key principle to designing a grievance procedure is respect for those submitting grievances. The process of handling a grievance is equally, if not more, important to the complainant than the outcome.

Grievance Procedures:

There are six characteristics of a respectful grievance procedure:

  • The process must be clear and transparent – a Company should provide feedback to the person who has submitted the grievance at each stage of the procedure;
  • The procedure must be accessible – the place where people can submit a grievance needs to be public and available to anyone in the community. Forms and processes need to be simple and clear;
  • Submitting a grievance must be safe and be seen to be safe – no one should face any danger or penalty for submitting a grievance, and the company must respect requests for anonymity;
  • The processes should be predictable and include a timetable – people should know when and how the community will respond to them and how they can inquire about the status of a grievance. Complainants should sign an outcome form both to acknowledge receipt and to confirm the grievance was handled in a respectful manner;
  • The procedure and the outcomes should be consistent;
  • The procedure should include a recourse mechanism – a company can establish committees or arbiters to ensure fair outcomes when there are disagreements.

Hiring

Issues surrounding jobs can become major sources of tension, and contribute to the loss of a Social License to Operate. In order to prevent hiring policies becoming an issue, short -term employment opportunities for local people should be maximised. Most communities know that very few of them can meet the standards for managerial/skilled positions.

At the same time Companies should show a willingness to invest in long term local employment opportunities. This can be achieved by supporting the education system, committing to local hiring targets and helping local people get officially certified for skills they already possess.

Hiring policies also need to address distributional impacts, and ensure that retrenchment processes are perceived as respectful and fair. Transparency in all hiring related matters is vital.

Part IV

Part IV will cover a company’s approach to the acquisition of land and negotiations about land compensation, as well as contracting policies, the impact of these on company-community relations, and the need to use local contractors where possible. There will also be an overview of the need to incorporate long term economic development strategies into community projects.

About the Author

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

Mark Jenkins advises clients on Corporate Social Responsibility (CSR), security and risk management issues affecting the viability of on and off-shore energy, mining and infrastructure sector projects in Europe, the Middle East and Africa. Mark’s experience has been focussed on creating reliable community support for projects through the development of a Social License to Operate (SLO) based on effective CSR initiatives. The success of these initiatives has been based on a thorough understanding of local environmental, commercial, and cultural dynamics, especially Islamic ones.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query, please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

Click here to read Part I of this series

Click here to read Part II of this series

For a PDF of this blog click here

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CREATING SHARED VALUE IN COMPLEX ENVIRONMENTS: PART II

Part II of this series will focus on a company’s internal structures and external relations department, and the impact these can have on a company’s relations with its community stakeholders. There will also be discussion of the promotion and protection of human rights in the context of a social license to operate.

Internal Management Issues and the Acquisition of a Social License to Operate

Attempts to acquire a SLO will succeed to the extent that its core purpose is conducive to the acquisition of a SLO. Initiatives which create Shared Value among relevant stakeholders will succeed to the extent that they are fully integrated into core commercial decision-making policies, designed to deliver sustainable, long term success.

Commercial decisions that resolve societal problems are fundamental to the achievement of an effective SLO.

There is clear evidence that the manner in which the internal departments of a company are structured, and relate to each other, has a direct impact on the success of a company’s relations with its community stakeholders. The way a company conducts its day to day core activities is more important than its community relations programmes in determining how the company is perceived by local stakeholders.

Fundamentally, it is the behaviour of the Company as a whole, not just its external relations department, that drives people’s perceptions of the Company.

It is essential that policies conducive to the acquisition of a SLO are integrated into the decision-making cycles of all departments. For example, the HR Department determines who gets hired, the Contracts Department sets policies that can favour local contractors and suppliers, or make it difficult for local businesses to benefit from the corporate presence. The Accounting Department can facilitate administrative procedures and ensure speedy payment of compensation, or set complicated and delaying administrative requirements.

All the best efforts of an external affairs department can have little impact if the hiring procedures of a company are seen as unfair, security policies are seen to be oppressive or local contractors are not paid on time.

External Engagement – A Concern for All Departments

Safety issues are regarded as the responsibility of everyone on the workforce, regardless of their particular role. Similarly, external relations should be regarded as a responsibility of all, rather than just the External Affairs Department – which should coordinate rather than implement.

When an external relations department is the sole location for community relations experts, this often means that their expertise is required to resolve community problems only after they have already occurred.

It is essential to ensure that ways are found whereby external relations can be transformed from a fire-fighting role, to one of internal service provision. It is also important that ways are found to broaden the ownership for external relations within the organization:

Communities should be approached as partners, rather than as potential risks to be mitigated;

  • Every member of the company should receive training in community affairs skills;
  • Representatives from all departments should be invited to participate in community meetings;
  • The quality of the company’s relationship with local stakeholders should be incorporated into performance reviews for all staff – the number of community related incidents might be linked to the determination of bonuses, or to provide company wide awards for staff of departments that are judged to have made a positive contribution to company-community relations;
  • Ways should be identified to develop in-house capacity in conflict-resolution skills.

Guidelines for the building of a SLO in complex environments

Human Rights (VPSHR)

VPHSRs state that risk assessments are vital to the promotion and protection of human rights. These risk assessments must consider the available human rights records of public security forces, paramilitaries, local and national law enforcement as well as the reputation of private security. Awareness of past abuses and allegations will help companies avoid recurrences as well as promote accountability going forward.

Companies must take care to ensure that their partners are consistent with the protection and promotion of human rights. The following measures will help ensure this:

  • Regular consultation between stakeholders about the impact of security arrangements on those communities, and clear communication between all stakeholders about the need for ethical conduct and respect for human rights by public service providers;
  • The primary role of public security agencies should be to maintain the rule of law, including the safeguarding of human rights, and deterrence of acts which might threaten personnel and facilities;
  • Individuals credibly implicated in human rights abuses must not be allowed to provide security services, and force should only be used when strictly necessary and to an extent proportional to the threat, and the rights of the individual should not be violated while exercising the right to exercise freedom of association and peaceful assembly, the right to engage in collective bargaining or other related rights of employees– as recognised by the Universal Declaration of Human Rights and the ILO Declaration on Fundamental Principles and Rights at Work;
  • Companies should ensure the holding of structured meetings with public security on a regular basis to discuss security, human rights and related work-place safety issues. Support should be given to the host nation governments to provide human rights training and education for public security, as well as in their efforts to strengthen state institutions to ensure accountability and respect for human rights;
  • In respect of allegations of human rights abuses there should be active monitoring of the status of any on-going investigation, and pressure for proper resolution of these issues, in consultation with host nation government and relevant NGOs. The security and safety of sources must be protected and additional or more accurate information that may alter previous allegations must be made available as appropriate to concerned parties;
  • Companies must ensure that private security companies observe company policies in regard to ethical conduct and human rights, the law and professional standards of host nations, emerging best practice developed by the industry, civil society and governments and the promotion of the observance of international humanitarian law. In particular private security contractors must act in a lawful manner, exercising caution and restraint in a manner consistent with international guidelines on the use of force, including the UN Principles on the Use of Force and Firearms by law enforcement officials and the UN Coode of Conduct for Law Enforcement Officials as well as emerging best practice.
  • Furthermore, private security companies must have policies regarding appropriate conduct and the use of force, which are capable of being monitored. Such monitoring should encompass detailed investigations into allegations of abusive or unlawful acts, the availability of disciplinary measures sufficient to prevent and deter, and procedures for reporting allegations to relevant local law enforcement authorities when appropriate. All allegations of human rights abuses by private security must be recorded, and credible allegations investigated. Once those allegations have been forwarded to the relevant law enforcement authorities, companies should actively monitor the status of investigations and press for their proper resolution.

Part 3 of this series will cover corporate engagement with NGOs and the need for formal engagement, at the outset, between NGOs and corporates on various CSR initiatives. There will also be an overview of the indications of a positive NGO-Corporate relationship, as well as discussion of the need to integrate a grievance procedure when consulting local communities.

Prospect Law Ltd, 7th September 2018

About the Author:

Mark Jenkins advises clients on Corporate Social Responsibility (CSR), security and risk management issues affecting the viability of on and off-shore energy, mining and infrastructure sector projects in Europe, the Middle East and Africa. Mark’s experience has been focussed on creating reliable community support for projects through the development of a Social License to Operate (SLO) based on effective CSR initiatives. The success of these initiatives has been based on a thorough understanding of local environmental, commercial, and cultural dynamics, especially Islamic ones.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

This article is not intended to constitute legal or other professional advice and it should not be relied on in any way.

For more information or assistance with a particular query please in the first instance contact Adam Mikula on 020 7947 5354 or by email on adm@prospectlaw.co.uk.

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CREATING SHARED VALUE IN COMPLEX ENVIRONMENTS: PART I

Part I of this series will focus on the three categories for understanding and analysing company-community relations – Benefits Distribution, Accountability for Impacts and Appropriate Behaviour. There will be analysis of how these categories combine in the building of the kind of relationships necessary for the building of an effective Social License to Operate (SLO).

I am often asked to share thoughts on how corporates can Create Shared Value in complex environments, thereby reducing the significant risk posed to their operations by loss of a Social License to Operate.

Company – Community Relations

A schematic representation of how the three relationships work is below:

 

 

 

 

 

 

Accountability for Impacts

An effective SLO plan will acknowledge the positive and the negative side effects of mining operations on local, and national communities. When a community sees that a company is concerned by, and accepts responsibility for the unintended and long term side effects of its operations, then they will interpret this as a sign that the company cares about them and their lives.

Acceptance of responsibility for any negative effects of commercial operations, such as the Curse of Resources/Dutch disease, is a good example of such acknowledgement. Crucial to the acceptance of accountability for impacts is the need to discuss a long term vision with communities, listen to their concerns about possible negative impacts and provide long term contracts and training plans.

Fair Benefit Distribution

The right approach to benefits distribution is based on the principle of fairness.

Fairness refers to how people in communities perceive the distribution of benefits and their share of these benefits. Unsurprisingly, the key is to ensure that deserving people get what they deserve, and those who do not deserve rewards do not get them. Furthermore, many communities assign value to immaterial and intangible things such as historical and traditional hierarchies, social relations and spiritual qualities. SLO strategies must ensure that people feel they receive non monetary benefits – as well as payments – as a result of a company’s presence. If communities believe the company is fair, it will be reassured. This will reduce needless competition and fear, as well as reinforcing the long term view over short term gains. Transparency is a key component of fairness. A divider and connector analysis will guide ways in which a SLO plan can emphasize and reinforce common and collective interests, among communities.

Appropriate Behaviour

How a company behaves towards communities sends messages about respect and disrespect, trust and mistrust and whether or not it cares, or does not care about them. The behaviour of a company, including its contracted agencies, has a direct impact on how communities view the company. More messages are communicated to local communities by company behaviour than by words or publications. Getting it right involves the showing of respect, trust and care for the communities affected by a company’s operations – respect, trust and care sets the tone for company community relationships, and mitigates risk.

There are many ways in which a company can display these qualities, including:

  • good social interaction;
  • identification and mapping of culturally important sites;
  • open engagement;
  • minimization of overt displays of security;
  • following through on commitments;
  • responsiveness to community inquiries;
  • acceptance of corporate accountability to local communities.

Creation of Shared Value (CSV)

John Browne, a former CEO of BP, has emphasized the risk posed to corporates by having the wrong relationship with society, of neglecting those aspects of their activity that go beyond narrowly legal requirements. For Browne, activities that make a social contribution should be construed as being part of a company’s central purpose.

Browne argues that companies should engage with society in a radical, rather than a grudging and episodic manner. He says that the “definition of purpose” is changing for many organisations, with an increasing acceptance that shareholder value should be seen as an outcome, rather than the goal of commercial activity. Browne says that the integration of Corporate Social Responsibility (CSR) and sustainability into core business activity is tough, but that there is a clear business imperative for the extractive industry to improve its relations with host communities. Across the world extractive communities lose billions of dollars each year as a result of community strife. In particular Browne advocates:

  • Building a portfolio of strategic programmes with long term economic development strategies, rather than making one-off, reactive investments;
  • Creating processes which integrate social investment staff into core business decision making;
  • For a switch from incentivizing on-time, low cost delivery to incorporating social performance into compensation packages;
  • Measuring investments in communities by dollars spent to measuring investments in communities by societal and business outcomes;
  • Building relationships with governments/NGOs and community leaders to help solve societal problems.

Part II of this series will focus on a company’s internal structures and external relations department, and the impact these can have on a company’s relations with its community stakeholders. There will also be discussion of the promotion and protection of human rights in the context of a social license to operate.

Prospect Law Ltd, 21st August 2018

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SYSTEMS THINKING, CORPORATE SOCIAL RESPONSIBILITY (CSR) AND CREATING SHARED VALUE (CSV) FOR THE ENERGY INDUSTRY IN THE TWENTY FIRST CENTURY: PART IV

CSR, CSV and their Influence on Corporate Decision Making

In my fourth article I consider ways in which CSR/CSV dynamics can affect corporate decision making in the energy sector, looking in particular at the example of Eni and how it has approached the matter of climate change.

Papua New Guinea is experiencing one of the largest capital investments in its history through the Papua New Guinea Liquified Natural Gas Project. The country must put in place the necessary governance and accountability mechanisms to ensure that the benefits of this investment are captured and fairly distributed among the nation’s stakeholders. At the same time, business needs a working regulatory framework in place.

In addition to making substantial direct investments in local human capital, workforce skills and enterprise development, it is important for the projects success to work with government to strengthen the enabling business environment, improve infrastructure and build capacity on revenue transparency, revenue management and broader development planning and implementation. This is an example of the kind of project that extractives companies are currently involved in across the world. Their project timelines extend over decades, and rely on the communities and countries in which they operate for success.

The sector often operates in isolated, remote areas that lack effective local and national governments and offer few public services. The societal and business imperatives to create shared value are undeniable.

The issue of climate change is of increasing importance for extractives companies, when considering ways in which they can create shared value with society. Otherwise they face the very real possibility of losing their Social License to Operate, as well as revenue as climate change starts to impact on the world. Eni is an example of an energy company which has faced up to the reality of climate change, and the conclusions of the Paris Conference, in order to preserve its viability as a business.

Eni has responded to the climate change challenge with the development of its model for the sustainable development of energy resources, and the company’s new mission: a model able to combine financial solidity and social and environmental sustainability in order to face the dual challenge of maximizing the rising demand for energy and fighting climate change.

This model has focused on cooperation with the countries in which it operates, minimizing risks and the impact of its activities, as well as defining a clear road map towards a low carbon future. Eni has acknowledged the need to limit temperature increases below 2 degrees centigrade, outlining a strategy based on a carbon footprint reduction, low carbon portfolio and a commitment on renewables – while at the same time maximizing access to energy. Development projects for residents in areas of its upstream activity are crucial to the company’s strategy, including economic diversification, health care, access to water, education and infrastructure development.

The old model of CSR is dead. It has been replaced by the idea of the Creation of Shared Value – an idea to drive the very core purpose of companies. The increasing fragility of the nation state is a leitmotif of the twenty first century, as decentralization, devolution, globalization, political deadlock and austerity all combine to reduce the power of national governments to significantly impose their will on development. The opportunities for companies to increase profitability by adopting business models based on the concept of CSV are enormous.

In this blog I have considered the relevance of CSV to governance and accountability issues, and how Eni has responded to the challenges posed to the energy sector in terms of how it creates shared value.

By Mark Jenkins

Prospect Law and Prospect Advisory provide a unique combination of legal and technical advisory services for clients involved in energy, infrastructure and natural resource projects in the UK and internationally.

This article is not intended to constitute legal advice and Prospect Law and Prospect Advisory accepts no responsibility for loss or damage incurred as a result of reliance on its content. Specific legal advice should be taken in relation to any issues or concerns of readers which are raised by this article.

This article remains the copyright property of Prospect Law and Prospect Advisory and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact us on 020 7947 5354 or by email on: info@prospectlaw.co.uk.

For a PDF of this blog click here

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SYSTEMS THINKING, CORPORATE SOCIAL RESPONSIBILITY (CSR) AND CREATING SHARED VALUE (CSV) FOR THE ENERGY INDUSTRY IN THE TWENTY FIRST CENTURY: PART III

The Relationship between CSR and CSV, and Ways in which these can add value to Corporate Decision Making

In this third article I look at the relationship between CSR and CSV, and consider ways in which CSV can add value to corporate decision making by energy companies. In my previous article I considered ways in which energy companies can create shared value, move from quantitative to qualitative growth and reorder their relationship with the environment to one based on regenerative activity, rather than the maximisation of profits.

Corporate Shared Value approaches acknowledge trade-offs between short-term profitability and social or environmental goals, focusing on the opportunities for competitive advantage from building social value propositions into corporate strategy.

CSV approaches differ from CSR ones in that, while they share the same basis of doing well by doing good, CSR is about responsibility and CSV is about creating value. CSV creates income by being a better capitalist, rather than being a good corporate citizen.

Professor Michael Porter has said:

“Extractives companies are major sources of income and economic growth. Oil and gas and mining operators, suppliers and related supporting industries represent an estimated five per cent of global gross domestic product. Three of the world’s ten largest companies are extractives companies. Although companies in this sector have a decidedly mixed record on social and environmental issues, they have helped create more vibrant economic development, new businesses, new jobs and opportunities for professional growth, reductions in the disease burden and more effective government. Close to four million people are employed by mining companies alone. ”

Reserves are often found in remote areas with limited economic activity and major societal needs. Operations require massive inflows of capital that often dwarf local economies. Companies and suppliers inevitably have multiple points of interaction with local communities, and yet the huge economic output of the extractives sectors has not always translated into improved social and environmental outcomes for the countries and communities where these companies operate. Nigeria is emblematic of this missed opportunity. Despite the presence of major oil companies in Nigeria since the early 20th century, the country still ranks among the bottom 20 per cent of countries in the HDI and its GDO per capita was 180th in the world in 2013.

Billions of dollars are being lost by extractives companies as a result of community strife, despite extensive community relations programmes.

“The norm is to respond to conflicts by focusing on the visible causes of tension – protects, permit delays, negative media coverage, and demands from local influences – so called on technical risk. Companies spend hundreds of millions on social investment projects even though research shows little correlation between the amount of money spent and the success of company-community relations. Investments based on community wish lists and attempts to placate the loudest voices in a community have led to ever shifting community requests, unilateral projects that have little impact, prioritizing image over outcomes, and missed opportunities for business and community alignment. Companies track dollars disbursed rather than societal outcomes.”

Aligning the business interests of extractives companies with community needs and priorities is the only real solution for companies and communities alike.

Extractives companies need to approach communities in a manner based on shared value. Shared value cannot substitute for shoddy operational performance, environmental damage or poor ethics. However, it offers a shift in purpose for these companies in the places where the resources are extracted.

In this way new businesses are produced, together with more vibrant economic development, new opportunities for professional growth, reductions in the disease burden and more effective government to facilitate the long term development of the community in which the company operates.

Shared value is the next competitive advantage. Competition in extractives will increasingly be determined by the ability to integrate economic and social factors.

In this blog I have looked at ways in which corporates are increasingly formulating their strategy in terms of the creation of shared value, rather than corporate social responsibility. I have also examined the relevance of CSV to business development strategies for the energy sector, especially in terms of mitigating the effects of community strife. In my next article I will consider ways in which CSR/CSV dynamics can affect corporate decision making in the energy sector, looking in particular at the example of Eni and how this company has approached the challenges of climate change.

By Mark Jenkins

Prospect Law and Prospect Advisory provide a unique combination of legal and technical advisory services for clients involved in energy, infrastructure and natural resource projects in the UK and internationally.

This article is not intended to constitute legal advice and Prospect Law and Prospect Advisory accepts no responsibility for loss or damage incurred as a result of reliance on its content. Specific legal advice should be taken in relation to any issues or concerns of readers which are raised by this article.

This article remains the copyright property of Prospect Law and Prospect Advisory and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact us on 020 7947 5354 or by email on: info@prospectlaw.co.uk.

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