Why the mining industry should deliver a social contract

The “E” of ESG — environment — tends to get the lion’s share of attention in the mining sector.

This has probably been warranted by the increasingly prescriptive nature of environmental regulations and performance standards, especially with respect to issues like mine tailings management and water stewardship. It is also a more tangible construct, easier to study, assess, and address.

But in the post-pandemic world, we are witnessing growing societal rifts and transformation. Civil society’s relationship with business has shifted and advocacy groups are increasingly focused on the social risks and impacts created by the mining industry. 

The list of mines with social challenges continues to lengthen and now includes Cobre Panama in Central America, Barroso in Portugal, Parsa Kente in India, Jadar in Serbia, Escobal in Guatemala, Gibraltar in Canada, Thacker Pass in the United States; Tia Maria, Las Bambas and Conga in Peru; Kallak in Sweden, Amulsar in Armenia, Kirazli in Turkey, North Mara in Tanzania, and Kumtor in Kyrgyzstan.

For our industry to build and maintain societal respect and trust (a subject well worth disaggregating and exploring another time), the “S” in ESG is going to need far greater attention. Ultimately, it must be about mining’s utility to humanity and putting people first.

Social risks and impacts in mining tend to be an intricate tangle of interrelated intangible positives and negatives. These are typically subjective, and often further complicated by legacy issues, linguistic complexities, intergenerational responsibilities, socio-economic imbalances, cross-cultural barriers, and ultimately the adaptive capacity of host communities around mines.

These factors are poorly understood by many mining professionals, whose comfort zone is typically data-driven and formulaic. Meanwhile, social performance professionals who understand and have the necessary skills to make a difference have remained outsiders, are neither recognized nor valued, and seldom considered a critical part of mining operations.

Environment focus

Social issues also continue to receive less attention than environmental issues from investors. This may be because climate change and decarbonization continue to dominate public discourse. A 2022 Harvard study showed that investors allocate around 47% of their focus to the environmental component of ESG, versus only 25% to social.

Moreover, the focus on the environmental element has grown slightly over the past year, while allocations to the social segment appear to have remained unchanged. Interestingly, the same study found that 41% of investors believe that social issues are being overlooked in favour of environmental issues.

Investors in the mining sector really do have a crucial role to play. They should start by reconsidering their due diligence and investment stewardship approaches to ensure they are truly acting as responsibly as they claim, integrating social factors into their decisions.

Yet, the reality is that mining companies face a growing — and increasingly public — number of social incidents involving human rights abuse allegations, conflict with artisanal miners, mistreatment of Indigenous peoples, the destruction of cultural heritage, and issues related to workplace sexism, racism, and harassment.

Such recent events have demonstrated that a lack of strong board and executive governance relating to social performance, coupled with reactive, transactional, or arrogant behaviours, can lead to a multitude of negative outcomes. These include operational disruptions, reputational damage, and material financial impacts for miners and investors.

And from experience, I can vouch that there is no off-the-shelf curative toolkit to help miners facing such incidents to successfully backtrack and retrofit robust social performance.

Community risk

At the local level, these outcomes can be devastating. They undermine traditional values, social dynamics and cohesion, and overall community resilience. Broader consequences include significant commercial and reputational downsides for miners, governments, communities, and investors alike.

In the industry’s defence, there has been more progress than many realize, in part because as scrutiny increases, miners have become more attuned and responsive to the growing global imperative to help create and protect community resilience. While they are not always given the credit they deserve, explorers and miners have been focused on monitoring negative social impacts and doing “less harm” for quite some time.

On the other hand, for the most part, they have yet to focus on creating long-term social value and delivering on an equitable “social contract.”

Increasing global political unrest and conflicts, climate-related disasters, global food shortages, rising inflation, living and energy costs, supply chain disruptions, and the lingering impacts of COVID-19 are all exacerbating the tensions between miners and local and Indigenous communities.

Inequalities are growing, and social value is not being created or in the worst cases, is eroding. Miners and their investors who fail to take social performance seriously will face increasing problems and alienation.

It can be easy to talk about social performance and “propose” what to do from afar in the comfort of a corporate office. However, it is an appreciation of the realities of boots-on-the-ground implementation that separates the budding number of ESG theorists from the few seasoned practitioners: the mine–community interface is where the real social performance happens.

Social licence

Today miners face higher stakeholder expectations, growing risks of local community dependency, and a lack of public trust. But if they can adopt a more “human-centric” focus and manage their operations in ways that contribute to an overall societal net positive for host communities, they have a better chance of keeping their social licence to operate while also increasing social value.

Authentic social performance must be focused at the site level, encompassing a wide range of issues: human rights, grievance resolution, land access and use, involuntary displacement, gender empowerment, social health and welfare, community safety and security, strategic social investment, and labour practices and rights.

Social performance practices in the mining sector are steadily progressing, compared to even the recent past, when these had more to do with piecemeal corporate social responsibility (CSR) investments and feel-good public-relations checklists than day-to-day operational practice.

Thankfully, most in our industry have moved beyond band-aid CSR approaches. But there is much further to go. It is irrefutable that mining disrupts communities, yet many miners and investors tend to focus on inbound risks to their operations (securing business continuity) from the community rather than risks to the community from their activities and operations.

Few miners genuinely try to identify and understand community aspirations, concerns and also “outrage,” which is the intuitive (and emotional) reaction to such risks that in turn fuels community perceptions. This myopic one-way approach masks the root causes of company-community distrust and conflict.

It is evident that this inability to fully recognize, respond, and provide non-patronizing remedies to such community outrage continues, and exacerbates the issue around the world, especially in areas with a colonial legacy and Indigenous or other land-connected groups.

Defensive approach

Competent and responsible mining companies at all levels are making efforts to understand and creatively address the macro and micro socio-economic risks and impacts involved, yet many still struggle to succeed in social performance. This often worsens as companies inadvertently adopt an inappropriate decide-announce-defend approach to dealing with community engagement.

In my experience, the problem is not a lack of good intentions. More commonly, it is an unwillingness to let go of control combined with too few experienced social professionals who can execute, and a lack of internal structure to facilitate communication between community members, on-site personnel, corporate offices and ultimately, the board and shareholders.

In an era when social media can turn a remote local conflict into an immediate global event, many of the past approaches to social performance will simply not suffice. And while the criteria may be complicated, in the end, getting the “S” right boils down to treating local communities with the respect and consideration we would want for our own communities, wherever we live — putting people first.

It is important to note that social performance solutions do not have to be overly complicated, but they do need to be fully aligned with the company’s objectives and attuned to the socio-cultural context. As a start, this means bringing corporate policies to life and closing the gap between intent and action. It entails doing a more thorough job of properly identifying and mitigating social risks and impacts while capitalizing on opportunities.

Beyond that, a wider set of stakeholder concerns and expectations must also be identified, and managed, and socio-economic benefits distributed more equitably. Codification of social performance management practices is maturing and there are a number of evolving international standards that, coupled with country-level mechanisms, reflect current “good practice.”

Board comittment

There may never be a perfect solution to such complex issues. However, with a comprehensive understanding of local impacts and issues, effective lines of feedback and open communication, an experienced management team as well as a knowledgeable board and shareholders who are committed to adding social value, it is possible to find compromises all sides can live with.

It can be done, but if the effort is half-hearted, it will likely be disastrous – limiting the ability to avoid conflict, obtain permits, raise capital, and ultimately protect assets from impairments.

If the sector can get behind the concept of a robust “social contract” for mining, it would be hugely positive for everyone. Miners would be better equipped to meet regulatory and ESG performance standard requirements and secure and maintain their much sought-after social licence to operate. Investors would gain greater comfort during their due diligence processes and be more confident about the long-term viability of their investments.

By actively partnering alongside responsible investors, governments, international development partners, host communities, and NGOs, our industry can deliver extensive, lasting socio-economic developmental benefits that contribute to community resilience. Looking to humanity’s future, if we want to decarbonize, mining is not a choice. How we mine is.

— Kevin PCJ D’Souza is a mining ESG executive and advisor with more than 30 years of experience in the industry. He’s worked in more than 50 countries.