A lack of internal commitment will increase the potential exposure of social legacy planning to budget contraction

The following is an extract taken from our 'Licence to Legacy in the Extractives Sector' research report. Click here for more information on the report.

4.1. Expectation management and limited cash flow

Projects often find it hard to start social legacy planning for locally-affected communities at the exploration phase, because the potentially impacted community is often not yet defined. Companies are hesitant to raise the expectations of local communities at a stage in the life cycle of a project where profits are not yet being generated, discovery is not guaranteed and future community benefits are undeveloped. Furthermore, because profits are not being generated during the exploration phase, budgets are very limited and focused almost solely on technical activities. Companies often state that they do not have sufficient budgets to invest in community development and community relationship building at that time. In cases where community engagement is initiated at this stage, it is often undertaken by technical specialists such as exploration geologists, rather than by professionalized community relations teams trained in empathetic relationship building and management.

Nevertheless, the exploration stage should be seen as a key foundational stage of social legacy planning. It should be characterized by preliminary yet meaningful, transparent and professionalized communication with local community stakeholders, and the right attitudes and conduct should inform all community engagement. According to the Australian Government’s Mine Closure Handbook, “At this stage of the mining cycle there are no guarantees that the mine will eventuate. In fact, minerals exploration rarely results in the development of a mine.

However, in most cases there will be environmental and social impacts that will need to be addressed including access tracks, drill pads, disposal of wastes and community concerns and expectations. It is often before or during exploration that company’s engagement begins. In some cases, negotiations and the consent of landowners of indigenous groups will be necessary. The quality of community engagement at this early state is very important, as it will influence future relationships” (Australian Government, 2006).

Due to the absence of a defined community, companies are often unwilling to create a strategic approach to social development at this stage, favoring the ad hoc provision of grants over strategic engagement. This precedent-setting behavior has the potential to define the relationship between the company and the community not as a partnership, but rather as “benefactor and recipient,” thus undermining the sustainability of later social development strategies. Many would argue that the conduct of a company at this very early stage has the potential to dictate the success of these strategies throughout the life cycle of the project. A key way to avoid heightening expectations is by building trust through open dialogue with the community from this very early stage, being clear and predictable in all engagements and responses.

4.2. Internal buy-in

One of the key challenges of social legacy planning is generating internal buy-in around its financial value. Many companies believe that social development and local content is the “right thing to do,” but are unable to articulate the financial imperatives around the implementation of sound social legacy planning. This presents a variety of challenges. Firstly, unless the business case for such planning is clearly articulated, it is unlikely that the planning will be initiated early enough to influence key decision-making, such as in project design. Secondly, a lack of internal commitment will increase the potential exposure of social legacy planning (particularly around social investment projects and capacity building) to budget contraction, particularly towards the end of the production phase.

Champions of social legacy planning and social development within an organization need to ensure that their utility is articulated through the financial value they generate, particularly through the reduction of company-community conflict, rather than simply be a reflection of a company’s ethical position. If production starts to contract, social legacy and social development budgets could face cuts unless the financial risk management advantages of social development, such as preventing stoppages, have been clearly articulated as more significant than any savings that could be made through the slashing of program budgets.

According to Anglo American, “Typically there is an under provision for most of the operating life of a mine with a rapid increase in the accepted cost of closure in the last 3-5 years of a facility’s life. However at this late stage of a mine there is also an increasing inability to fund the cash flow required to close a facility adequately. This in turn could lead to a consideration of ways in which costs can be reduced, resulting in a compliance only mind set, and limited consideration of what can be done to promote lasting post closure social and environmental benefits” (Anglo American plc, 2013).

An additional issue related with internal buy-in is the development of social mitigation plans into budgets. Although it is becoming increasingly standard to integrate social impact analysis into EIAs undertaken as part of the permitting process, this doesn’t always translate into the development of social management plans to address identified social impacts, or the allocation of resources to implement these plans.

4.3. Data

One of the key elements of social legacy planning is the collection of baseline data, including demographic data, local workforce skills and capabilities, and the local provision of goods and services. This data informs the development and monitoring of social investment programs, as well as local content, The challenges of social legacy planning A lack of internal commitment will increase the potential exposure of social legacy planning to budget contraction 33 Licence to Legacy: Life Cycle Management and Social Impact in the Extractives Sector employment and capacity building programs. As such, it is absolutely critical for understanding a company’s contribution to broader community and regional sustainable development goals. Companies often face data gaps, particularly in more remote areas, and generally have to supplement existing information with primary data collection. However, in some cases, such as where births are not routinely registered, demographic data simply does not exist.

4.4. Maintaining relationships throughout the life of mine

Another of the key challenges associated with social legacy planning is how to ensure that the social chain of custody over relationships formed with ever-transitioning communities is maintained over the life cycle of a project last anywhere from 10 to 100 years, as this custody could change hands many times. Different people often manage each stage of the life cycle, and teams change as a project transitions from the exploration and feasibility stages to construction, to production and then into decommissioning and closure.

Accordingly, the relationships forged with the community must also be transitioned from outgoing to incoming teams, which can lead to a breakdown in trust and communication. This challenge is also apparent when exploration companies either sell assets or form joint ventures with operational partners. For example, an exploration company may have to discontinue working with a local supplier that fails to meet the particular supply chain standards imposed by a new partner, thereby exacerbating economic boom-bust cycles in the local economy.

4.5. Building the capacity of partners

Social legacy and sustainable community and regional development planning depend on the creation of partnerships between government, the community and civil society, and on developing a region’s capacity to economically and socially sustain itself, rather than relying on a single sector or company. For example, governments in resource-rich states are legally required to invest royalty revenues in social welfare and social development projects to ensure the ongoing sustainability of its affected communities. However, governments often require capacity building and training to ensure that these revenues are managed well and do not fuel corruption.

extractives  social licence  social legacy 

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