Corruption, CSR and the miners - what is needed to create change?

Canadian mining companies are under pressure to improve their corporate social responsibility (CSR) record in developing countries. But, as consultant Bonnie Lyn de Bartok of MacCormick International Mining Consultancy explains, for this to happen there needs to be more cohesive CSR guidelines, as well as better government and investor oversight.


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High-profile cases such as Choc vs HudBay Minerals - whereby indigenous Guatemalans litigated against Canada-based HudBay over alleged gang rapes and murder carried out by its mine security personnel - have highlighted the importance for mining companies to better manage their corporate social responsibilities towards mine-affected communities when operating in developing countries.

The case against HudBay is just one of many examples where poor CSR from miners has resulted in long-running disputes. Pressure is also accumulating for government agencies to provide better oversight of these companies when operating abroad. In response to this pressure the Canadian government last November revised its CSR guidelines and has appointed a new federal CSR counsellor for the extractive sector. But many say this isn't enough.

Bonnie Lyn de Bartok is CEO of Canada-based MacCormick International Mining Consultancy, which specialises in providing CSR compliance and training to junior and major mining companies and in 2012 published the first-ever socially responsible junior mine companies index. Here, she shares her experience in the field and discusses why companies often fail at CSR due to non-cohesive international guidelines, bad or negligent CSR strategies, and a lack of government and lender oversight.

Heidi Vella-Starr: Are Canadian junior mining companies improving at CSR?

Bonnie Lyn de Bartok: There are always a few bad apples in terms of reputation for Canadian companies. Personally I have witnessed both ends of the spectrum. On one side I have been privy to cowboys cutting every corner possible, using the excuse that by law CSR is not mandated, and, technically, they are right. On the other end of the spectrum you have companies spending budgets which they don't have to do all of the right things by international standards, who then claim no one is checking their work, and they are also right.

My message to a junior miner is: at the end of the day best practise reduces negative risk and provides recourse for action, should it be needed. The act of implementing best practise and CSR in of itself - just the act of it - brokers the relationship required for social licence. It is a risk-mitigating investment.

HVS: The Canadian federal government revised its CSR guidance. What is the most significant change?

BLB: To the dispute resolution service, which is for a company that gets themselves into a situation abroad and can't afford the legal services to get themselves out of it, so they are disadvantaged - especially the smaller miners. For example, if a junior minor ran into difficulty with their local community whereby they were unable to continue to operate, the government is now saying, in that situation, we are not going to help you unless you can prove to us you did everything in your power, according to these frameworks, to avoid getting yourself in this situation in the first place. It's a very clear and very strong message from the government.

My assumption, based on the directness of the new message, would be that others may have been abusing access to the service.

HVS: What should miners do when going into known anti-mining communities?



Corporate Social Responsibility must remain a high priority for mining companies despite the current crisis.


BLB: A mining company going to do business in a jurisdiction like that has to understand their own risk tolerance level. They have to know they are going into an anti-mining region and asses what the financial risk will be to doing business in that environment.

You need to also know your ability to service recourse in the event of an incident. If an issue arises that is not something foreseen - in a community that did not have a history of protest etc. - you need to get to the root of the problem, and it is usually a communication error somewhere. So either you have someone financing NGOs in the region to protest or spark controversy, or you have a history of non-communication between the company and the community that's there.

We worked on a project in West Africa, where the permit was owned by somebody else for ten years who never once communicated with the local community about what was happening, though it was only minimal exploratory work. When the new management team took over and they went to build the mine, they had to clean up ten years of no communication - in which time community members made up their own version of what was happening and what was coming, and they all instilled fear in one another about what this was going to mean for them.

HVS: Whose responsibility is it to carry out a risk assessment?

BLB: It's everybody's responsibility: the lenders, the regulatory body's, the company's and the shareholder's. Everybody is pointing fingers at somebody else, but in reality they all have a role in checking these aspects throughout these stages of investment.

However, I have seen guys go into impossible situations because the grade of gold was high enough they knew everybody would buy it anyway. They have taken the risk and absolutely everything is wrong about it, and nobody checked and it got financed anyway, or they just didn't care and they got the money anyway. That is really frustrating to watch. Nobody is protecting the community and they are further marginalised. In that specific case it was the investors, the lenders, the shareholders and governments on both sides - host and foreign - none of them checked.

The reputation of that one company affects everybody around them who are trying to do it the right way.

HVS: Is this where better government oversight comes in?

BLB: It is the responsibility of both - host and foreign. If you are trading in Toronto there are no checks and balances for social performance on projects; they have frameworks but nobody is auditing them. Unless there is trouble, then they will audit you to say I will see if you can access our services; that is where that sits right now.

HVS: What could the government do to junior mining companies in this respect?

"There are always a few bad apples in terms of reputation for Canadian companies."

BLB: I believe the Canadian Government should redirect some of their foreign development dollars to the juniors. Rather than a $20m infrastructure project in partnership with a major mining company, it would be more relevant and impactful to offset junior mining activity with compliance and regulation for access to development funds. An initiative like this would ensure compliance and transparency and better govern behaviours abroad. For example, $20m going into one project would be so much more significant under junior projects if we are talking about true sustainable development.

An example of one of these public / private projects is the Department of Foreign Affairs, Trade and Development's $17, 400, 000 contribution over a six-year partnership with Barrick Gold and Societe de Cooperation pour le Development International supported entrepreneurship and agro-forestry in Peru's Ancash and La Libertad regions.

HVS: There is often weakness of oversight or a lack of knowledge within host governments. How do you work with them to try to address this?

BLB: We advise host country governments but we can't name them yet. We are now creating a benchmark for them to start evaluating projects within the country because they are equally challenged, with foreign companies coming in and knowing all the ins and outs of mining and taking advantage of under-developed systems in the administration. It is not all of them; it is some of them.

Host governments need to know how to monitor or evaluate this kind of behaviour, and how to benchmark one project to another for success rates, and how to help companies in jurisdictions that have a legacy of anti-mining sentiment. There is no leadership from host governments on what is expected. In Peru, for example, mining and oil and gas projects are ad-hoc developing social strategy - doing what they want - some of them are following World Bank guidelines, some are following Equator Principles, some are building creative social programmes. There is no guidance or framework to work towards regarding what is expected of them in regard to social performance on their projects.

HVS: Are these varying frameworks creating an unnecessary hurdle?

BLB: Like mining companies, the governments are also overwhelmed by the host of choice of frameworks. For example, if I politically associate myself with the World Bank, does that mean I can't get on the OECD guidelines benchmark? It all becomes complex. There are several global frameworks - we cover twelve of them - but with reporting jurisdictions, there are more political affiliations with the frameworks, though ultimately they are saying the same thing.

For example, OECD guidelines are more popular in Europe and for European listings, whereas World Bank seems to be the framework of choice in Africa, and Equator Principles dominate South America. That is by choice of the lenders and the governments, based on the history and presence of those frameworks. In Canada we have MAC's TSM and PDAC's E3 Plus frameworks, but they aren't relevant in South America. So if you have a company listed on the Toronto Stock Exchange that is multi-jurisdictional, the company now becomes required to report TSM in Canada but OECD in Europe, but also the Equator Principle in South America, for example. That is completely overwhelming when they are all saying the same thing.

HVS: What challenges does corruption in developing countries create for junior miners?

BLB: Corruption is a challenge for everyone everywhere, not just junior miners. I think company shareholders and lenders all need to make a conscious decision before establishing a project anywhere where there is a history of corruption. I think they need to know their risk tolerance.



Haiti is believed to have enough gold to lift the earth-quake hit country out of poverty.


I think the most common corruption occurrence for junior minors is in the form of kickbacks. This is where their own employees, contractors and even local government employees are controlling services rendered to the company, taking a share for themselves when they are in a position to influence who the company utilise locally. That would be the most common thing in the junior mining space.

HVS: How can this be curbed?

BLB: The only way to curb that - this is where we would play a little bit of a role setting up the management system - is to have non-partisan third party checks and balances on payments, whistleblower policies and training on all of this - a lot of people write good policy but nobody knows they exist - and very strict engagement contracts with all lenders and employees and governments. There has to be protocol of what to do in the event of corruption; they really have to make an example out of some behaviours to set a tone for the rest.

We stumble on it all the time on our risk assessments. What we do is present our risk assessment to the company and say, 'OK, here are all the things you are exposed to currently, here are our suggestions on how you need to handle them or the mechanisms you need to put into place to shut this activity down or expose it or how to handle it.' At the end of the day it is up to the client to make a decision based on the assessment.

HVS: How often do clients take on board your suggestions?

BLB: We literally walked off one project; it was the first time as a company we found our own moral line.

I did talk to a few people about it and I didn't get the answers I was looking for. For them to get caught, for example, their shareholders would have to know about it and decide to sue the owners for participating, or a host government would have to play a role, or a foreign government - but no one is checking.

More often than not, companies just don't know what to do with it. Unless it is something substantial, where they have to overhaul the business and call in bribery lawyers and it gets really hairy, that is where I pass it off.

HVS: Do you think we will see an overall improvement in CSR conduct and corruption in the future?

BLB: It's complex because they aren't all on the same page about what the expectation is and it is not law. Until all of those things become one international standard of expectation on these issues - I don't think we are too far away from that, based on public demand.

If you look at the numbers behind impact investing and what is pushing it, it is a $34 trillion market; 20 % of global capital markets by public demand are demanding responsibility from environmental social accountability for companies to be able to be listed anywhere. It's great and will absolutely dominate everything, and that is what will create the international standard.

My challenge is if you look deep into the indicators, which currently constitute environmental social governance, the indicators are not relevant to the issues. The process which people go through to validate these indicators is also broken - it's all done on the desktop; there are no field audits. I have even been witness to the lenders on one project coming in-country to look at the financial evaluation of the assets - liability, socio-politics etc. - but when they came to the country, the mining company actually took them to a different area and the analyst had no clue at what they were looking at. This is a desktop financial analyst from a major city who has no field experience in social. They wouldn't have a clue.

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