Overdue diligence - Adrienne Margolis

Businesses in the extractive industries are raising their game when it comes to human rights, but there’s some way to go yet.

The extractive industries are extremely vulnerable to human rights and environmental risks. John Ruggie, the UN Secretary-General’s Special Representative on Business and Human Rights, revealing that the sector accounts for two thirds of the cases of alleged human rights abuses reported by non-governmental organisations (NGOs). It is becoming ever more important to monitor the impact of activities in the sector as materials that were easy to access have been exploited and projects are increasingly undertaken where people live, or in protected areas. ‘Such projects will be more difficult to manage responsibly and require much higher standards of practice than those exercised in the past in order to avoid social con?icts and human rights abuses, and severe environmental destruction,’ NGO Holly Hill Trust noted in recent evidence to a UK parliamentary enquiry into business and human rights.

Companies in the extractive industries often operate in countries where governance is weak, which increases the need for responsible business behaviour. This led to calls for the Organisation for Economic Co-operation and Development (OECD) to develop further guidance for companies operating in conflict areas or fragile states. The OECD has set up a pilot project aimed at promoting responsible investment through enhanced due diligence. A working group established in December 2009 is concentrating initially on guidance for managing the supply chain of key minerals in conflict zones and fragile states, with a particular focus on the Democratic Republic of Congo (DRC). It will also address problems such as conflict financing, extortion, corruption, human rights, security and transparency. ‘The working group is expected to produce draft guidance on responsible supply chain management in the mineral sector by the second half of 2010,’ Dr Lahra Liberti, Adviser on International Investment Law in the OECD Secretariat, explains.

Fragile states

The aim is to recommend due diligence procedures that are integrated into the business operations of mineral companies operating in conflict zones and fragile states, Liberti explains. ‘Though not binding, the guidance is intended to serve as a resource for companies to anticipate and effectively manage risks in specific situations.’

The OECD provides guidelines for multinational enterprises to National Contact Points, the responsible government offices in each country. ‘National Contact Points will benefit from further efforts to unpack the notion of due diligence,’ Liberti notes. ‘They will also have a greater understanding of the implications of the OECD guidelines for multinational enterprises for the mineral sector.’

The Harvard Kennedy School is also developing guidance for the mining industry, which will be based on research undertaken in Peru and Ghana. The School’s corporate social responsibility initiative (CSRI) held a roundtable in June 2009 to discuss conflict management and corporate culture in the mining industry. Caroline Rees, Director, Governance & Accountability Programme at the CSRI warns in her report on the roundtable that while leading mining companies want to manage conflict with communities better, there is no one-size-fits-all approach. Corporate culture is likely to be affected by senior management, internal communications, staff training, the relative strength of community relations and the influence of the legal division. She also points out that the impact of these factors on how companies handle conflict with external stakeholders is not yet understood.

The CSRI emphasises that tension is inevitable. Grievance mechanisms can only provide part of the answer; broader engagement with communities is also needed. The roundtable identified trust in the process of relationship building as important and noted that disputes could probably be settled at an earlier stage if a company’s legal division was trained in dispute resolution.

The CSRI has worked closely on this project with the Centre for Social Responsibility in Mining at the University of Queensland. In a study of Mining Industry Perspectives on Handling Community Grievances, researchers warned that it would not be enough for companies to introduce new policies. They needed to be developed with local people, be appropriate to the local context and evaluated by everyone involved. Prompted by shareholders, one of the world’s largest gold producers, US-based Newmont Mining Corporation, undertook a review of its relationships with communities affected by its mines. Eight recommendations for managing its community relationships were then drawn up and approved by the board. Regional and local managers are accountable for community relationship building and operating sites are required to identify conflict and manage community concerns, before open conflict arises. The rights of stakeholders to protest must be respected and accessible grievance mechanisms must be in place. Managers were given until the first half of 2010 to implement an action plan.

‘Building trust can help companies detect local concerns at an early stage, rather than leaving them to erupt later in potentially more damaging ways.’

Money matters

Another organisation updating its guidance is the International Finance Corporation (IFC), an arm of the World Bank that helps to finance private sector investment in emerging markets. The IFC launched an 18-month review of its sustainability framework, and a review of its policy on disclosure of information, that will lead to new guidelines in January 2011. The performance standards must be met if a company receives IFC support.

Another source of guidelines for the extractive industries comes from the International Council on Mining and Metals (ICMM), an industry body set up to promote good practice in the sector. ‘The ICMM has set out ten principles of sustainable development,’ Senior Programme Director Aidan Davy explains. Companies have to adhere to the principles, report on their performance, and gain independent third party assurance on their reported performance.

As more international attention focuses on how companies in the extractive industries respond to community grievances, the ICMM stresses that it pays to develop systematic approaches to dealing with such issues. ‘If complaints procedures are well designed, they are likely to bring significant benefits not just for communities, but also over the long term for the companies themselves,’ ICMM guidance says. ‘Building trust can help companies detect local concerns at an early stage, rather than leaving them to erupt later in potentially more damaging ways.’

Where the failure of states to protect human rights is an issue, companies often argue that they end up taking the blame. ‘Almost all cases are in a grey zone that involves harm done by the state. There needs to be sufficient evidence that the companies have contributed to the situation,’ Aidan Davy, Senior Programme Director at the ICMM, suggests.

Some guidelines are aimed at companies but others, such as the Kimberley Process for the diamond sector, require government intervention. The Kimberley Process was set up to stem the flow of diamonds used by rebel movements to help finance conflicts. It involves a technical certification scheme that requires governments to pass specific legislation and requires shipments of diamonds to be certified as ‘conflict free’. NGOs monitoring the Kimberley Process report that it has been successful in reducing the trade in conflict diamonds but they add that constant oversight is needed, to ensure that governments and companies are meeting their commitments.

Diamond life

Prompted by the Kimberley Process, leading diamond mining company De Beers has set up the Diamond Development Initiative (DDI), bringing together NGOs, the World Bank and the British Government, to encourage ethical production and distribution of valuable natural resources. De Beers itself has a principles assurance programme for its companies, and uses third parties to verify its environmental and CSR reporting. In 1998, De Beers set up a fund for social investment in South Africa, and it has been particularly active in supporting HIV/AIDS projects.

Not all companies in the extractive industries are transparent about their activities or willing to assess the impact of their activities on communities and the environment. Many NGOs argue that for decades, companies have signed up to voluntary initiatives and published detailed CSR programmes. But it is still difficult to find information on how they are actually behaving.

The disclosure of information on how corporate operations will affect people is a key aspect of respect for human rights, according to Amnesty International. In a recent report on the impact of oil extraction in the Niger Delta, it noted that some corporate information can legitimately be considered confidential but ‘companies frequently take the approach that they will not disclose data unless required to by law’.

‘Mining companies would think there is no discrepancy between what they say they do and what happens in practice,’ says Richard Solly of the NGO London Mining Network. But he adds that they are sensitive because of the amount of criticism they have received. He agrees that many NGOs believe that voluntary initiatives and corporate codes of conduct are insuffi cient. ‘In my view the individuals involved are not bad people or acting in bad faith. Companies are there to make a profit and to maximise profit. They see that as their primary duty. This is why we need legislation to give this teeth.’

There is some legislation on the statute books. In Canada, for example, mining companies are legally required to negotiate with indigenous populations. The law will not allow projects to go ahead unless legitimate concerns have been addressed. However, the consent of the community is not needed for a project to go ahead.

There has also been a heavy reliance on voluntary measures in Canada, and a growing sense that this has not worked. This has prompted a private members bill, which proposes stronger government powers to investigate complaints against Canadian companies in the extractive sector, operating in foreign countries.

Canada’s mining industry argues that the legislation would put them at a competitive disadvantage. However, ‘some in industry said they would actually prefer regulation because it would mean they know where they stand,’ says a spokesman for Canadian NGO Miningwatch. But he adds that the bill’s future is uncertain, because of the possibility of the country’s minority government calling a general election before the proposals have been fully debated.

Although many NGOs maintain that a stronger legal framework is needed to ensure companies provide balanced information on their activities, not everyone agrees that the legal route is the most effective. ‘Many of the issues are political and cultural so it’s difficult to see how the law can take them further,’ according to John Southalan, Rio Tinto Research Fellow at the Centre for Energy, Petroleum & Mineral Law and Policy, University of Dundee. However, he believes that progress is being made. Because companies in the extractive sector are concerned about their social licence to operate, indigenous rights are gaining more prominence. ‘The companies are there for the long term and they do not want problems down the line,’ he says.

Rio Tinto case studies

In 1979, the richest diamond deposit in the world was discovered at Argyle, in Western Australia. Extracting the diamonds involved moving a mountain of huge significance to local Aborigine groups but not appreciated by the incomers. When Rio Tinto began operations in 1983, an agreement was made with traditional groups, but was subsequently considered inadequate.

Negotiations on a new agreement between the mine and the indigenous community began in 2001 and the ‘participation agreement’ of 2005 has remained a benchmark in the industry. ‘Sound relationships are important,’ Simon Nish, Rio Tinto’s Principal Advisor on community agreements in Australia explains. ‘The new agreement took four years to negotiate, because it was about building trust.’

The relationship building took time, because of 20 years of legacy issues.

However, ‘simply apologising does not work with Aboriginal people,’ Nish says. The local communities wanted Argyle to understand the pain that has been caused by mining. ‘The Aboriginal people wanted clarity about future relationships, but we had to first get through the past, to be able to jointly map out the future,’ he recalls. ‘Towards the end of this process Argyle made a formal, written apology for the past, which was an important milestone in the relationship.’

One of the strengths of the participation agreement is the recognition of local land governance, traditional cultural norms, and the desire for the Aboriginal community to determine its own development. Aboriginal people receive a dividend from the profits, the funds are managed and distributed by a traditional owner-controlled trust and invested for the long term, beyond the life of the mine. The money is also used to support traditional law and culture, and for the community to initiate education and health projects. Traditional owners are involved in decisions about land management, environmental management, cultural heritage protection and cross-cultural training for the mine’s staff.

The agreement has strengthened Rio Tinto’s social licence to operate. The company realised that to continue production it would have to extend operations to include mining underground, adding 15 years or more to the life of the mine. Traditional owners were consulted and agreed to extend operations, because of the benefits to their communities. One benefit has been employment, with Argyle Diamonds setting a target for 40 per cent of the employees coming from the local indigenous community. Local indigenous employment is currently around 25 per cent of the mine workforce.

Principled pragmatism

‘We would not describe the Argyle agreement in terms of corporate social responsibility,’ Nish says. ‘It is business-driven. The question that drives our agreement-making is this: what kind of relationship with the host community is most likely to engender longterm support for our operations? over time, community agreements with Aboriginal Australians have proved their value and it’s clear that for the long term, they help provide us with a social licence to operate.’

However, while receiving praise for the Argyle participation agreement, the company has often faced protests and criticism for its impact on the environment and indigenous populations.

For example, residents of Bougainville Island in Papua New Guinea filed a suit under the Alien Tort Claims Act in the US federal court in 2000. They allege that the company was complicit in war crimes and crimes against humanity committed by the army; that environmental impacts from rio Tinto’s Panguna mine on Bougainville harmed their health in violation of international law; and that Rio Tinto engaged in racial discrimination against its black workers at Panguna.

‘Rio Tinto completely rejects the allegations of wrongdoing made in the Bougainville complaint and will continue to vigorously defend the matter,’ the company says. ‘ Rio Tinto took no part in the alleged war crimes or human rights abuses by the Papua New Guinea military. The alleged incidents occurred after operations at the mine were suspended and the staff left Bougainville.’

Rio Tinto has argued that the plaintiffs need to exhaust all Papua New Guinea court remedies, but the residents have been arguing that their case can be pursued in the US courts. ‘We have consistently maintained that the courts in Papua New Guinea should hear the claims because the case has no connection to the US. In December 2008, the Ninth Circuit Court of Appeals recognized that the claims lack any significant nexus to the US,’ Rio Tinto says.

In July 2009, a California District Court judge decided that three out of ten claims could be pursued in the US – alleged war crimes, crimes against humanity, and state-sponsored racial discrimination. ‘The judge’s ruling is one of many steps involved in determining if any of the claims should be heard in the US,’ Rio Tinto responded.‘ Although the judge has allowed three of the allegations to be heard, it is important to remember that no court has decided that any of the claims are true.’

The Niger Delta

The controversy that has surrounded oil extraction in the Niger Delta illustrates the difficulties in establishing who is responsible for the social and environmental impact on local communities. Nigerian law requires companies to adopt good practice and take steps to both prevent and to clean up pollution. A recent report ‘Petroleum, pollution and poverty in the Niger Delta’ by Amnesty International argues that several companies working in the region underlined their policies to ensure that they do not harm the environment or the people in the region. ‘Clearly, these policies and systems do not work,’ the report said. The government has failed to enforce laws and regulation, it argued, while ‘in the case of corporate policies on social responsibility, ethics and protection of the environment and human rights, these are either inadequate or inadequately implemented’.

The Shell Petroleum Development Company (SPDC) operates a joint venture in the area. Over the years, oil spills and flaring have resulted in environmental pollution. In 2005, SPDC carried out an asset integrity review that identified 1,500 sites that needed action. Two years later, Basil Omiyi, County Chair for Shell companies in Nigeria, admitted a ‘substantial backlog’ in work to reduce spills and flaring, which he said was caused by underfunding by partners for many years and by lack of safe access to facilities.

Amnesty’s report concluded that SPDC had ‘harmed human rights through failure to prevent and mitigate pollution’. SPDC has refuted the findings.

‘Although Shell shares Amnesty lnternational’s concerns for the people of the Delta, its report does not present a balanced account of the root causes of the Niger Delta’s humanitarian issues – poverty, corruption, crime, militancy and violence,’ a spokesman for Royal Dutch Shell says. ‘The report makes a number of unsupported allegations and draws superficial conclusions with little underlying analysis,’ he adds. According to Shell, the majority of oil spills are ‘the direct result of vandalism and/or criminal activity. The rest of the spills are due to operational failures and SPDC is working hard to stop these happening. Whatever the cause, SPDC is committed to stopping spills and cleaning them up in accordance with extensive national legislation.’

NGOs, meanwhile, seek improvements in legal mechanisms. ‘We need a better legal framework and better implementation and enforcement in countries like Nigeria,’ says Geert Ritsema, International Affairs Coordinator for Friends of the Earth Netherlands.

The IBA’s Mining Law Committee is developing a Model Mining Development Agreement. For more details go to: tinyurl.com/ibamining

To view the IBA’s exclusive interview with John Ruggie go to: www.ibanet.org

Bases WIKI: dispute resolution community http://baseswiki.org

OECD pilot project in the mining sector: www.oecd.org/daf/investment/mining

Human rights in the metals and mining industry: ICMM guide www.icmm.com


Adrienne Margolis is a freelance writer. She can be contacted at adrienne.margolis@googlemail.com

Back to top