Community Development


5. The role of the company in community development 

Companies increasingly understand that communities expect the company to support community programmes, development agreements, funds, and/or other development initiatives. These expectations exist for large, medium, and small companies alike, with each company facing the need to be transparent about how its available level of revenue, phase of production, and market fluctuations may impact funds for development efforts.

A small gravel company could not possibly offer the same level of economic support as a large copper-gold mining operation, but communities may view both as “mining companies,” and have similar expectations of each. On the other hand, gravel companies may experience a more consistent market price and demand.  Transparency and open communication between companies and communities are key to forming realistic expectations, and to building trust in what a company can reasonably and consistently deliver over the life of a project.

Open communication between companies and communities can also help address the difficult question of what the social responsibilities of a company are, and where these responsibilities begin and end. These issues are further discussed below.

Company-operated corporate social responsibility programs

Corporate social responsibiity is defined broadly as “business practices involving initiatives that benefit society”. Many companies have dedicated their support to various international, regional, or local efforts to promote community development. Numerous companies, for example, have recently signed on to support the United Nations Sustainable Development Goals (SDGs). According to a PwC survey, 71% of businesses say they are already planning how to engage with the SDGs, and 41% say they will embed SDGs into strategy and the way they do business by 2020.

Why would a company take on commitments to support the SDGs or to support a specific local community near company operations? Companies often respond that this is their “responsibility.” Companies know that social responsibility programmes will boost their reputation on local, national, and international levels. But such programmes also help prevent and mitigate social risks, which can be very costly to the company.

 The Munden Project (see http://www.tmpsystems.net) analysed 108 cases of conflict around mining sites from 29 different countries and found the most common cause of conflict is unhappiness of local communities, particularly over environmental degradation. The project concluded that 76% of conflicts resulted in property and equipment damage or loss, interruptions of five days or more, or fines exceeding US $500,000.

A further study, entitled “Costs Of Company-Community Conflict In The Extractive Sector,” by the University of Queensland’s Centre for Social Responsibility in Mining found that social conflicts cost mining companies up to $10,000 per day during initial exploration, up to $50,000 per day during advanced exploration, and up to $20 million per week during operations.

Both studies are available in the topic library and are valuable resources on this topic. 

Companies may begin a corporate social responsibility initiative simply because it is “the right thing to do.” But without long-term company commitment, initiatives may dissolve when there is a change in company management or with variations from one fiscal year to the next.

Companies want to avoid becoming pseudo-governments where they operate – this may not only cause issues between company and government, but may also exacerbate the economic and social issues when a company’s mining or other natural resource project ends, and operations close. A company can act as a catalyst for economic and social development opportunities, working closely with NGO partners, service providers, agencies, as well as with local, regional, and national governments to ensure that corporate social responsibility initiatives are integrated into regional and local development plans.

Any company-led programme should involve two-way communication with communities and community engagement to ensure that it really does accurately identify and respond to the needs of target communities. Examples of failing to know and engage local communities are all too common.

One example is of a mining company that gave out mosquito nets to a community as part of its global malaria prevention program. But there were no known cases of malaria in that region. The resources would have been better spent on other issues. The company had good intentions but had not made enough efforts to understand the community.

Corporate social responsibility projects have included efforts to increase access to clean water, to fund scholarship programmes, establish partnerships for community health education, gender rights education, microloan programmes, training programmes, and others. Some critics refer to such programmes as “greenwashing,” developed only to benefit the company. Others find corporate social responsibility initiatives to be beneficial, but only in the short term. Each programme has strengths and weaknesses. Stakeholders have learned that a negotiated company-community agreement may have more short and long-term benefits.

Corporate social responsibility programmes are designed and run by companies, who are free to modify or end them when they wish. Both companies and communities have sought more durable structures with mutual rights and obligations. This has led to a growth in use of Community Development Agreements (CDAs), the subject of the next section.

Community Development Agreements (CDAs)

CDAs are agreements between companies and communities that help manage the impacts and benefits of resource development projects, and establish the parties’ rights and responsibilities. Ideally, CDAs are developed through a multi-year process that includes relationship building between the company and community, capacity building to ensure that both parties are well-informed and prepared to negotiate, and actual negotiations between the company and community.  The resulting agreements, when developed and honoured in a participatory and transparent manner, can respond to the unique needs of the community; improve relationships among companies, communities, civil society, and other stakeholders; and promote sustainable and mutual benefits.

A company may have multiple agreements with a community covering one or multiple topics. While early agreements focused on sharing financial benefits, modern agreements are much more complex, and tend to focus on both short and long-term benefits.

 

Trends in Use of CDAs

A growing number of countries are requiring companies to conclude CDAs. In some countries, they are required by law, including:

Elsewhere, the use of CDAs is voluntary, but companies are experiencing a growing and often pressing demand from communities for such agreements. Community expectations may lead companies to conclude agreements even where there no legislation requires it. For example, in Australia “Impact Benefit Agreements (IBAs)” are concluded to manage the impacts and benefits of mining. In Ghana, CDAs are widely expected and commonly used. For example, Newmont concluded multiple agreements with communities impacted by the Ahafo Mine, covering topics ranging from local employment to leadership and social responsibility. Agreements are also utilised in Greenland, Laos, and in the United States.

For more information about CDAs and to access publicly available CDAs, go to:

Company foundations

Companies may elect to establish, a foundation, trust, or fund as a means for sharing benefits with communities. These sometimes are required. In some countries, government collects payments from companies and places them in a fund for current and future generations. In other countries, or in addition to government requirements, a company may agree with communities or local government to establish a foundation to manage financial benefits, ideally to benefit both current and future generations.

Two examples of Foundations conclude this section: 

The Provincial Council for the Administration of Mining Funds in Sánchez Ramírez, Dominican Republic

Sánchez Ramírez is a region of the Dominican Republic whose economy is based primarily on a major gold mine. Revenue from the mine began to flow in the 1970s, and was originally managed by municipal governments. However, in response to community demands for greater participation in decision-making and growing benefits from the mine, in 1979 Sánchez Ramírez established a Board charged with managing the funds to meet the objectives of social and economic development of the region.

The funds were used to create public markets and schools, and improving infrastructure such as sewers and health care facilities. The largest investment was creation of a university focused on technical skills-building programs.

In 1991, gold and silver prices fell. The mine stopped producing and was ultimately abandoned. The Board stopped receiving funds, but continued to use a reserve of existing funds to strengthen the university and continue other activities.

In 2000, the Dominican Republic enacted a law requiring that municipalities in which non-renewable natural resources are exploited receive 5% of net profits. When the mine came under new ownership and began to produce again, profits to Sánchez Ramírez under the new law were unprecedented. Concerns of corruption emerged. In 2005 the Board was re-established under a new law aimed at transparent management of funds.

The 2005 law established the current “Provincial Council for the Administration of Mining Funds in Sánchez Ramírez,” abbreviated as “FOMISAR” in Spanish. The mission of FOMISAR is to promote sustainable development of Sánchez Ramírez through identification and implementation of projects, promoting the key values of integration, transparency, equity, participation and commitment.

FOMISAR is a broad multi-sector network including the Lion’s Club, Chamber of Commerce, Rotary Club, ecological and trade associations, representatives of the university, representatives of religious congregations, the city councils of each municipality, the Governor of Sánchez Ramírez, representatives of the mining company, and others. The General Assembly of the Council holds regular public meetings each December to discuss budgets, operations, progress on a five-year plan, and renewing the Board membership, which reflects FOMISAR’s multi-sector network, including government, community organizations, and company representatives.

FOMISAR’s short and long-term work plans are based on consultation with diverse stakeholders across the region, sub-regional assemblies and regional seminars, all with the objective of better understanding the needs and aspirations of the people now and in a post-mining economy. The major themes of the long-term plan are governance; social inclusion; economy and employment; and land use and environment. Education, through public schools and the highly successful technical university, promotion of small business and “micro-enterprise,” improvements to infrastructure and development of aquifers, improvements in health care, culture, and sports are major activities.

FOMISAR regularly provides leadership and capacity building programs for its Board and general assembly, and continually works to build public and private alliances. Only a portion of the funds may be used for current programs, with a portion reserved for continuing activity during periods when the mine is not producing and for future generations after the mine has closed.

The Gobi Oyu Development Support Fund (DSF) in Mongolia

The DSF was established in 2015 through a Cooperation Agreement agreed by three parties: (1) Oyu Tolgoi, LLC (OT), a well-known copper-gold mine in the Ömnögovi Province of Mongolia; (2) the government of Ömnögovi Province; and (3) the communities of Khanbogd, Manlai, Bayan-Ovoo and Dalanzadgad. The primary objectives of the Cooperation Agreement are to establish a basis for a transparent and respectful relationship among the parties, and to promote sustainable socio-economic development of the Ömnögovi Province. The DSF is an Independent Legal Entity under the Law of Mongolia on Non-Governmental Organisations. OT contributes USD $5 million to the fund each year under the Cooperation Agreement.

DSF accepts proposals for projects that target health, education, training, employment, and support for local business expansion, environment, and preservation of cultural heritage. Applicants must show a clear governance structure, budget, and timeline for a project within these thematic areas to be implemented within the Ömnögovi Province.

The proposal review process includes three tiers. The Executive Director conducts an initial review of proposals to ensure that they are complete and meet the Fund’s primary criteria. Proposals are then directed to a Relationship Committee. The Relationship Committee conducts further review of the proposals, consulting with experts when necessary, to determine project viability, and prioritises the proposals based on type, timing, potential impacts, community needs, and other appropriate factors. The Relationship Committee seeks to make decisions unanimously. Finally, prioritised proposals go to the DSF Board, which considers the Relationship Committee’s recommendations and makes final decisions.

In 2015, Gobi Oyu DSF funded construction of two kindergartens in Dalanzadgad. The kindergartens opened in April 2016, the first anniversary of signing the Cooperation Agreement.

DSF received 47 proposals in 2016 and has agreed to finance four social infrastructure projects and nine sustainable development programs. These include, among others, a health care centre, an animal health service centre, a greenhouse/nursery, a forestry program, a cave protection programme, and a museum.

Success of the Fund relies in part on ongoing outreach to communities in the Ömnögovi Province to publicise the availability of funds and explain the application process. The Fund also monitors management of awarded grants, to ensure funds are well managed, and used to achieve tangible and sustainable results. OT has agreed to fund the DSF for 30 years.