CSR in the Extractive Industries

1. CSR in the Extractive Industries Southern Africa Governance & Transparency in Extractive Industries Dialogue 27 to 28 May 2010 David van Wyk: Bench Marks NWU CSR Centre

2. THE IMPORTANCE OF MINING TO SADC OR THE IMPORTANCE OF SADC TO MINING As compared to total world production, the SADC region contributes about 72% of platinum-group metals (PGM), 55% of diamonds, 46% of vanadium, 40% of chromite, 26% of gold, 15% of manganese and 8% of copper. According to Donwald Pressly a Citigroup report compiled by mining analyst Craig Sainsbury South Africa is the world’s richest country in terms of its mineral reserves. It has about US$2,5 trillion worth of platinum reserves alone. South African economic development is being hampered by its mineral wealth. According to Saliem Fakir of the WWF, South Africa is suffering from Dutch disease (Presly, D. (3 May 2010) Business Report, Johannesburg, p.20). Its dependence on Platinum as a dominant export commodity is bringing in dollars, which is strengthening the Rand, negatively affecting the export of other products (including manufactured goods), thus obstructing economic diversification. Despite its immense mineral wealth South Africa has the worst poverty gap in the world, the highest HIV infection rate and many communities in close proximity to mines live in “informal settlements.”

3. Some realities: Gini Coefficient an indicator of the poverty gap.

4. Contents • Meaning of  corporate social responsibilities • What areas does it cover • The various interpretations CSR • How companies and governments come to agree on CSR • CSR vs Taxes: Is CSR included in tax or not. Is CSR voluntary? • Examples of CSR in the SADC region looking at similarities and differences • Monitoring of CSR: challenges • The role of communities in CSR • The new emerging (progressive) ideas about CSR 

5. THE MEANING OF CSR • Is it philanthropy and charity? Is it social and humanitarian work or protecting the environment? Is it undertaking public service tasks which normally government should be doing? Or is it all of these? I believe that the CSR of a company should be undertaking all actions as would maximise the probability of its long-term survival and sustained growth. (R C Bhargava , chairman, Maruti Suzuki India Ltd. http://www.marutisuzuki.com/The-real-meaning-of-CSR.aspx) • CSR is about how companies manage the business processes to produce an overall positive impact on society. http://www.mallenbaker.net/csr/definition.php • "Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large“ (Lord Holme and Richard Watts, "Making Good Business Sense,“ The World Business Council for Sustainable Development) • Definitions as different as"CSR is about capacity building for sustainable livelihoods. It respects cultural differences and finds the business opportunities in building the skills of employees, the community and the government" from Ghana, through to"CSR is about business giving back to society" from the Phillipines (The World Business Council for Sustainable Development).

7. AREAS COVERED BY CSR • The Workplace • Wages • Health and Safety • Gender Issues • Race Issues • The Community • Land Issues • Community Participation • Opportunity Benefits • Opportunity Costs • Impact on Governance • Taxes and Royalties • The Environment • Air Quality • Water Quality (Surface water; Ground Water) • Ecosystems • Land

8. DIFFERENT INTERPRETATIONS OF CSR • Traditionally in the United States, CSR has been defined in terms of a philanthropic model. Companies make profits, unhindered except by fulfilling their duty to pay taxes. Then they donate a certain share of the profits to charitable causes. It is seen as tainting the act for the company to receive any benefit from the giving. • The European model is much more focused on operating the core business in a socially responsible way, complemented by investment in communities for solid business case reasons.  In this model: - Social responsibility becomes an integral part of the wealth creation process - which if managed properly should enhance the competitiveness of business and maximise the value of wealth creation to society - When times get hard, there is the incentive to practice CSR more and better - if it is a philanthropic exercise which is peripheral to the main business, it will always be the first thing to go when push comes to shove

9. DIFFERENT INTERPRETATIONS OF CSR • the CSR definition used by Business for Social Responsibility is: "Operating a business in a manner that meets or exceeds the ethical, legal, commercial and public expectations that society has of business • the European Commission definition: "A concept whereby companies decide voluntarily to contribute to a better society and a cleaner environment. A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis". • Definition now focuses on the impact of how a company manages its core business. Some go further than others in prescribing how far companies go beyond managing their own impact into the terrain of acting specifically outside of that focus to make a contribution to the achievement of broader societal goals. It is a key difference, when many business leaders feel that their companies are ill equipped to pursue broader societal goals, and activists argue that companies have no democratic legitimacy to take such roles.

10. How companies and governments come to agree on CSR? • For CSR to work Government must have clear policies regarding: • labour policies • tax and royalty policies • environmental policies • economic development policies • policies regulating the involvement of civil servants and political leaders in business • freedom of information • freedom to research and investigate • conflict between Washington Consensus Agreements and national legislation and regulation.

11. How companies and governments come to agree on CSR? • Government often bends over backwards to attract foreign investment – to create a climate conducive to such investment. They wrongly believe that weakening labour legislation, environmental legislation and tax and royalty policy will attract investment. • Some companies, including many in the extractive industries argue for self-regulation and often seek out countries where there is a weak policy and legislative environment regarding extractive industries.

12. CSR vs Taxes: Is CSR included in tax or not. Is CSR voluntary? • Taxes increase the funds available to the state for national, provincial and local development • Taxes are also a form of payment for the extraction of resources such as minerals, in countries like Botswana and South Africa the mineral resources belong to the nation and part of the proceeds from mining them (through taxes) is used for national development • However, taxes do not address local impact on communities most directly affected by company activities • Taxes also do not cover “the polluter pays principle.” • Taxes do not take into consideration the opportunity costs of mining • CSR is no longer a philanthropic luxury, it is now a matter of social licence to operate, and given the global financial

13. However, Mining Companies prefer to invest in countries with “favourable investment climates, thus at a 2006 Mining Investment Conference held in Zambia, Zambia, Tanzania and Malawi were preferred investment destinations because: “these countries have vibrant mining sectors with liberal mining legislation and codes, which is conducive to international investment.” Even Zimbabwe fared better at this conference than South Africa because of the latter’s more advanced and therefore stricter legislation concerning the environment, labour and mining rights (Davenport, J. (2006) European Union partners SADC in offering 101 mining opportunities in Southern Africa http://www.engineeringnews.co.za/article/european-union-partners-sadc-in-offering-101-mining-opportunities-in-southern-africa-2006-11-17. If SADC is to avoid an environmental disaster involving its water, air and land, as well as the wellbeing of its population, and a threat to food security it will have to create uniform mining codes and legislation to regulate the mining sector and extractive industries so as to avoid mining companies turning countries with weak legislation into pollution dumps

14. Examples of CSR in the regions looking at similarities and differences • Botswana is along with South Africa and Zambia among the most mineral dependent countries in the world. • Botswana has a mono economy based on a single commodity – diamonds. • Botswana owns 50% of Debswana, the other 50% being owned by De Beers – this has both benefits and disadvantages. • South Africa has embarked on a strong BEE ownership policy, rather than government ownership – this also has advantages and disadvantages. • Zimbabwe indigenization. • The South African mining sector has a voluntary self regulatory framework within which it operates – the Mining Charter which represents a compact between mining, government and labour –which has been in effect with mixed success for some years now and is currently under review. • South Africa has strong mining and environmental legislation in place including the Minerals and Petroleum Resources Development Act (MPRDA) which has had both positive and negative impacts wrt communities, land and the environment. • Weak legislation in Angola, DRC, Mozambique, Malawi, Tanzania, Uganda, Kenya. • There is need for SADC uniformity with regard to policies in the extractive Industries.

15. Monitoring of CSR: challenges • Government • Legislative • Conflicts of interest – threats to democracy • Role definitions • Capacity issues • Information policy • Communities • Knowledge and power • Wealth and poverty • Consultation and consent • Benefits vs costs • Participation • Environment • Hidden versus observable impacts: geology, water, air. • Monitoring • Mine closure • Mining Companies • Disclosure • Reporting

16. The role of communities in CSR • Knowledge and Power • Ownership • Respect • Participation • Consultation vs Negotiation • Ownership issues: Minerals and Land • Monitoring • Complexity • Constructive and obstructive role of NGOs

17. The new emerging (progressive) ideas about CSR  • CSR and the global financial crisis – make directors of companies legally liable for failures • CSR Globalisation, the Nation State and Communities (politics is local, business is global) • The shock and awe of global institutions, agreements etc. of top down interventions and problems of verification – EITI, ISO etc compliance • Self-regulation, Government Regulation or Social Regulation? • Where civil society is weak CSR will be weak. • Where government is weak CSR will be weak. • Where labour is weak CSR will be weak. • Where communities are weak CSR will be weak.

18. The Impact or Lack thereof of CSR The Numbers: Botswana life expectancy at birth, 1990: 64 yearsBotswana life expectancy at birth, 2004: 35 years “Most Stable Democracy in Africa” “Debswana: Best HIV/Aids corporate program in Africa” The unintended consequences of poorly thought out CSR programme.

19. What do these figures mean Sixteen years ago, the life expectancy of a Botswana child was 64. The figure was typical for middle-income countries, and one of the longest in Africa. In 2004, a half-generation later, the AIDS epidemic has cut Botswana life expectancy to 35. This is the lowest figure in the world (based on World Bank figures for 208 countries and territories) and barely half the 59-year average for low-income countries. Similar figures appear throughout southern Africa -- The World Bank tables show life expectancy in Lesotho falling from 57 to 36 since 1990; in South Africa from 62 to 45, in Namibia from 62 to 47, in Swaziland from 57 to 42, and in Zimbabwe from 59 to 37.

20. We should aim to Maximise the contribution of the mining and minerals sector to sustainable development at the local, district, provincial, national, regional and global levels. While we must admit that mining itself is not sustainable – we must utilise the wealth and revenue generated by mining to move beyond mining.

21. WHERE TO START

22. Maybe we should insist on both local and global verification system

23. Critical Questions

24. “Stakeholders” potential “Compliance Pressure Points”

25. Civil Society Community Engaging with Corporations • We report to the community and not to the corporation. • 2. We insist that the Community speaks for itself and that we act in an advisory capacity to the community. • 3. We insist on proper community presentation at all times, with meetings properly recorded with structured agendas and action lists resulting from minutes with defined time frames. With Corporation reps at meetings remaining consistent and having decision making powers. Meetings must occur at a time and venue suitable to the community at all times. • 4. That the community be respected as the owners of the land. • 5. That the impact of mining in all its complexities, including its costs to the community, its culture, its pre-mining economy, its spatial arrangements, its graves, its rights to safe and secure environment, its rights to water and food security all be respected, and that the full cost implications for the community of mining be laid bare, and redress of this be taken into consideration when the CSR programme is implemented.

26. Civil Society Community Engaging with Corporations 6. That no undertakings be made to the community that cannot be delivered on wrt employment, housing, education, health, etc. 7. That both opportunity costs and benefits be clearly spelt out for all the various stages of the mining process. 8. That the community be empowered not only as the preferred BBBEE partner but that this empowerment recognises that access to their land is what gives the corporation access to the mineral and that this BBBEE not be hedged against dividends but be considered as payment for access to the mineral, so that the community is not indebted to Anglo for the rest of its existence as "repayment" for shares. 9. That the community gets first consideration with regard to preferential procurement and that the corporation sets up and trains community SMMEs to supply goods and services such security, catering, environmental monitoring, construction of houses and other smaller structures, transport services etc.

27. Civil Society Community Engaging with Corporations 10. That Anglo agrees to take responsibility for any negative health impacts of its mining operations on members of he community. 11. Once we have established what it is that the community wants we will develop a detailed and costed project implementation plan that will empower the community with project implementation and project sustainability skills. We will remain with the community throughout and not walk away at any stage. There will be no sub-contracting to the corporation’s favourite sub-contractors in these matters.

28. Sources: • Baker, M. What is CSR? http://www.mallenbaker.net/csr/definition.php • Bhargava, R. C. chairman, Maruti Suzuki India Ltd. http://www.marutisuzuki.com/The-real-meaning-of-CSR.aspx • Danielson (2002) Mining, Minerals and Sustainable Development: International Institute for Environment and Development & www.iied.org/mmsd. • Holme, L. And Watts, R. "Making Good Business Sense,“ The World Business Council for Sustainable Development • Presly, D. (3 May 2010) Business Report, Johannesburg, p.20 • Skyways (May 2010) Capitalism in Question? Airlink, South Africa. • Van Wyk, D. Desktop Report on Mining in Malawi. Johannesburg: Bench Marks Foundation www.bench-marks.com or www.bench-marks.org.za • Van Wyk, D. Policy Gap 5. Botswana, De Beers and the Control of a Country. Johannesburg: Bench Marks Foundation www.bench-marks.com or www.bench-marks.org.za

29. THANK YOU