Trend 4: ESG: Working to overcome the social trust deficit

Linking social investments to sustainable outcomes

High-profile disasters have tainted mining’s image. Regaining social trust requires a collective effort. Miners should seek to create long-term socioeconomic benefits in communities. Sustainability is the new goal.

Trend 4: ESG: Working to overcome the social trust deficit

by

Andrew Lane
Patricia Muricy

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COVID-19 has spurred a shift in balance between government and business. As mining companies are often called upon to play the role of government in remote regions, an opportunity exists to create value beyond compliance by partnering more instrumentally with host governments and communities.¹ It’s important to determine which investments are capable of creating long-term social impact by accurately measuring the socioeconomic returns of programs, projects, and policy interventions.

Environmental, social, and governance (ESG) mandates have long played a critical role in the mining sector, and nowhere is this truer than in the realm of community relations. For decades companies have tried to bring the “social” pillar of the ESG trio to life through significant investments in corporate social responsibility (CSR) initiatives. Yet some mining companies still struggle to earn community trust.

ESG mandates have long played a critical role in the mining sector, and nowhere is this truer than in the realm of community relations.

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According to a recent report by the World Economic Forum,² mining companies have acknowledged, for the second year running, that their single biggest risk is the trust deficit with local communities. A large part of the challenge is that the industry is frequently judged by its lowest common denominator.

There is no denying the impact of recent tragic high-profile disasters in different parts of the world. Rather than being perceived as company-specific events, these missteps can taint the entire sector.

That may not be the case in other sectors. If an automotive company misrepresents its emissions targets, or an airline suffers a major accident, consumers typically would not shun a whole industry. The mining industry, however, is often judged as a collective—so overcoming the trust deficit could be a collective responsibility.

Driving deep-rooted change

Despite the assistance the mining industry is providing to bolster the government response to COVID-19, it seems these steps could be insufficient to drive deep-rooted change and overcome the trust deficit. As the balance between governments and businesses continues to evolve, the industry’s approach to community investments will likely need to become increasingly sophisticated. This likely means investing in initiatives that deliver long-term sustainable outcomes.

“Given the fundamental role mining companies play in countless communities around the world, it’s time for them to make evidence-based decisions about which investments and programs are capable of imparting true social impact,” says Andrew Lane, Energy, Resources & Industrials leader, Deloitte Africa.

This would require a shift from traditional stakeholder engagement to stakeholder collaboration. To move beyond mere compliance, companies should work with all stakeholders to define the concept of “value.” While this is often described in financial, tax, or royalty terms, these metrics don’t always resonate with all stakeholders. A more effective approach may involve the modeling of three sources of return: return to shareholders, return to country, and return to citizens (figure 1).

Innovation and analytics could be instrumental to accurately measuring socioeconomic returns. To properly assess the impact of community programs, projects, and policy interventions, companies need the analytical capacity to capture, store, and validate a wide range of performance data. For many years nonprofit organizations have been using sophisticated monitoring and evaluation techniques to gather data and explain their impact to philanthropists. The mining industry could learn from these organizations, so that through a rich dialogue, use of analytics, and impact measurement techniques, companies, community leaders, and policymakers can make more informed investment decisions.

The results gap

Before companies can begin to shift this balance, they should engage in open dialogue with communities to understand what their needs are. However, to date, the traditional community approaches of some mining companies have often failed to deliver. There are likely several reasons for this.

First, although many companies have set up large philanthropic funds to deliver on a huge range of community projects, their funding approaches often lack a strategic focus or an organized framework. As a result, companies frequently respond to local stakeholder requests for financing in a haphazard manner, allocating resources for short-term programs (such as supporting a local sports team) rather than projects capable of creating lasting benefits.

Second, while miners typically comply with their local content requirements, many of the jobs offered to local workers and suppliers remain low-level functions. For instance, rather than training locals in high-value skills—such as safety support, operations management, or civil construction services—they hire locals to deliver food supplies, provide cleaning services, install heating, ventilation, and air conditioning (HVAC) equipment, or assist with accounting. At the end of the day, this leaves the community with few added skill sets.

Third, some mining companies do not consistently focus on creating a sustainable legacy. This often sees them confining their training to mine-specific tasks instead of providing locals with transferable skills that will remain relevant within the community after the mining cycle is complete. In a farming community, this could include investments directed at improving crops, enhancing agricultural research, or providing locals with wider market access for their produce. In an indigenous community, it may mean extending access to health and education, promoting local culture, or helping communities preserve their land. The key is to use a long-term lens when allocating investment funds.

Fourth, even when companies do make larger infrastructure investments—by building a hospital perhaps, or a power plant—some don’t consider what will happen to these facilities following project completion. Without ongoing investment and access to critical talent (such as medical doctors or engineers), communities often can’t maintain this infrastructure and it falls into disrepair.

“All of this contributes to the public perception that mining companies are prospering at the expense of society by failing to deliver long-term socioeconomic outcomes,” says Andrew Sedov, Mining & Metals leader, Deloitte Russia. “These deep-seated and largely negative views create a tumultuous stakeholder relations landscape. In worst-case scenarios, they also spill over into community protests, anti-mining advertising campaigns, abrupt tax increases, and dramatic changes in regulatory regimes.”

Before companies can begin to shift this balance, they should engage in open dialogue with communities to understand what their needs are.

Mining companies stepping up

While in recent years efforts to tie investment to community impacts have seen the tide shifting, COVID-19 has made it clear that there is still some way to go.

The disproportionate impact of the pandemic on some indigenous communities has demonstrated that many of these populations continue to live in poverty with limited health care resources. Difficulties educating communities about the pandemic’s spread, sharing safety protocols, and supporting tele-medicine solutions have also exposed weaknesses in local communication infrastructures and internet access.

To close the gaps, mining companies are increasingly being called upon to play the role of government, particularly in remote regions where governments are undercapacitated and struggling to provide services.³The COVID-19 crisis has exacerbated the problem. This presents companies with an opportunity to create value beyond compliance by partnering with governments and host communities.

Mining companies have taken this idea to heart. In addition to bringing in doctors, keeping critical workers safe, and assisting with information dissemination and pandemic education, they have helped to operate virus screening and testing sites, put their vehicles to use as ambulances, and made their facilities available for quarantining purposes.

An analysis by Mining Technology identified numerous ways in which the mining industry has stepped up to the plate:⁴

Rio Tinto allocated US$60 million to global COVID-19 relief to assist with the supply of masks, personal protective equipment (PPE), ventilators, and temporary medical units.
BHP established a AU$50 million (approximately US$36.3 million) fund to bring critical health services to communities across Australia, and made further investments to assist health authorities in Chile.
Newmont set up a US$20 million fund to bolster community health, food security, and local economic resilience.
De Beers made a US$2.5 million donation to support governments and local communities in both Botswana and Namibia to help supply medical equipment, provide vulnerable populations with food and water, and increase awareness about the pandemic.
In Zambia, Barrick Gold donated more than US$ 500,000 to help source medical equipment across the country.
Vale bought five million rapid testing kits for Brazil’s government, provided medical workers with PPE, and announced a stimulus program to shore up local suppliers.
In South Africa, AngloGold Ashanti made two of its hospitals available to provincial governments to support the treatment and isolation of patients diagnosed with COVID-19, and collaborated with a local not-for-profit organization to distribute essential items such as groceries to vulnerable people across the region.
Gold Fields provided Ghana’s government with a financial aid package to help purchase PPE and mount an effective pandemic response.
ArcelorMittal Liberia provided medical supplies to local health ministries.
The Mining Association of Canada collaborated with 18 other associations to donate C$36,000 (approximately US$ 27,364) to local food banks.

These strategies and tools can highlight mining companies’ efforts related to social good. These approaches can help companies build true value beyond compliance—enhancing their ability to attract capital and talent, strengthen their brand image, and overcome the trust deficit.

Providing shared value by creating social impact

Extend existing capacity. One way mining companies can begin to focus their community investments is by considering how to put their existing infrastructure to greater use. Companies that have built railroads or local ports, for instance, could enable regional farmers to export their crops by giving them access to these transportation facilities. Companies that have installed high-speed fiber optic networks in a region could potentially support local service providers, such as hospitals, by leveraging these networks to provide medical training, or access to specialists, or tele-medicine services. These are relatively low-cost ways to create value.
Enhance localized procurement. As governments become more stringent about the industry’s local content contributions, miners may need to adopt integrated approaches that embrace regional clusters and foster industry collaboration among multiple right holders, regulators, original equipment manufacturers (OEMs), and local business forums. At the same time miners should consider involving local suppliers in more strategic and specialized capacities with the goal of developing a qualified, competitive local supplier ecosystem.
Collaborate regionally. Individual companies can’t deal with the challenges of unemployment, inequality, and poverty in local communities. To address these endemic issues companies should incorporate their activities into broader local development plans to reflect the real needs of local communities. For instance, rather than making individual efforts to engage stakeholders, companies can conduct joint stakeholder needs’ analyses. Similarly, companies can implement programs together through an ‘impact delivery unit’. Miners can also move from funding their own portfolios to pooled funding. Likewise, centralized or joint decision-making can take the place of company-level governance. To generate long-term benefits, miners should measure impacts through an integrated framework rather than having each company adopt its own methodology.
Re-establish trust. COVID-19 presents an opportunity for mining companies to reshape their image in local communities. Miners are already taking steps to build trust by working to limit the spread of the virus into host communities, but there are many other steps they could take. For instance, companies can: enhance emotional trust by helping local workers manage the stress associated with COVID-19; enhance digital trust by continuing to invest in automation technologies to improve safety and streamline communications with local communities; and strengthen financial trust by investing in critical infrastructure, prepaying taxes, using their supply chain infrastructure to bring in PPE, and intensifying their commitment to local supply chains in a bid to bring direct value to local communities.
Engage diverse stakeholder groups to manage social risk. To go beyond “tick box” compliance, mining companies should consider proactively managing social risk by evolving their stakeholder engagement strategies on three levels. On a strategic level, they should gain in-depth analytical intelligence about the needs, motivations, and influencing factors relevant to each stakeholder group. At the tactical level, stakeholder interaction should address nuances across the stakeholder landscape and communicate company performance relative to stakeholder needs. At the operational level, cross-collaboration between business functions is important to appropriately address stakeholder requirements.
Monitor the regulatory environment. As mines become more autonomous and increased automation reduces employment, fewer people may see their personal welfare tied to the welfare of primary industries. Governments often address this disconnect between community and mining company needs by unilaterally changing their regulatory regimes. Rather than simply waiting for new regulations to come out, mining companies should consider proactive steps to influence local regulators. To strengthen their argument, companies should aim to develop a consolidated view of their community inputs—one that sees stakeholder relations, community development, safety, health, and environmental contributions as multiple dimensions of a single challenge: sustainability.