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Delivering Shared Prosperity

Extractive companies face a wide range of leadership challenges. In a time of increased geopolitical uncertainty and commodity-price volatility, these companies need to deliver stronger cost controls, greater operational efficiencies and productivity, and disciplined capital allocation. They must also tackle growing resource nationalism, threats to natural ecosystems, higher community expectations, more sophisticated activist campaigns, and increasingly vocal investors. These challenges must often be addressed while operating in places where governance frameworks are weak and the delivery of public services is inadequate.

To address these complex and at times conflicting pressures, leading companies are taking three key steps:

1.  Ensuring sustainability excellence in core operations 

In the face of high political and market uncertainty, senior executives are focused on controlling what they can control within their own business operations and value chains. For the leading companies, this includes an ongoing commitment to strengthening their risk management processes and creating shared value through the achievement of better sustainability performance.

Over the past decade,  most major extractive companies have implemented comprehensive policies, standards, and management systems to handle safety, environmental, social, and governance risks. These company-level efforts have been complemented by global frameworks such as IFC’s Performance Standards, the UN Guiding Principles on Business and Human Rights, ICMM’s Sustainable Development Framework, and issue specific industry-led guidelines, which have created common platforms for impact assessment, implementation, and accountability.

Others have created local or national foundations with a primary focus on enterprise development, agriculture, and vocational skills, such as Chevron’s Niger Delta Partnership Initiative in Nigeria, Newmont’s Ahafo Foundation in Ghana, and Rio Tinto’s Rossing Foundation in Namibia. Several companies have made women’s economic empowerment a key part of their employment and enterprise development goals, including Anglo American, Rio Tinto, Newmont, ExxonMobil, and Odebrecht.

Despite this progress, even leading companies find it hard to translate corporate-level commitments into operations on the ground. Challenges include lack of alignment between internal commercial incentives and sustainability performance, inadequate focus on corporate culture and behavior change, and insufficient investment in hiring or developing the right skills and capabilities.

A key solution is requiring all senior executives and heads of projects and operating units to be accountable for their performance on safety, people, sustainability, and external relations, in addition to their functional or operational responsibilities. Corporate culture and behavior can be hard to shift, but cross-functional working groups, communities of practice, leadership training programs, and mentoring and champion roles can be valuable. Rio Tinto, for example, has established a Stakeholder University in partnership with Georgetown University for its managers, and many companies have created internal train-the-trainer programs and networks of safety champions.

2.  Building partnerships to address systemic challenges

No matter how rigorously a company manages its own business operations, many challenges are systemic. They can only be tackled through partnerships and by strengthening the capacity of external institutions.

Cooperation is most crucial in improving the transparency, integrity, and quality of resource revenue management. The taxes and royalties paid by oil, gas, and mining projects dwarf what they can spend on local content and community investment programs. In that context, fiscal contributions need to be:
•  Paid and received transparently;
•  Well-managed from a macroeconomic perspective; and
•   Spent so as to enhance national development goals and benefit all citizens, including but not only those in resource-rich areas.

Yet this requires strong governance and public sector capacity, which is often missing. Multi-stakeholder initiatives such as the Extractives Industries Transparency Initiative (EITI) can provide useful platforms for strengthening shared responsibility and capacity. There is a particular need for joint efforts to improve regional and municipal government capacity to manage revenues effectively, and models such as IFC’s public sector capacity building program in Peru are worth strengthening and replicating elsewhere. Another helpful step is to establish independent oversight or advisory groups consisting of donors, extractive companies, other business leaders, and civic leaders who can work with governments to ensure resource revenues are allocated to key development priorities.

Cross-sector partnerships also offer great potential with respect to shared infrastructure, which often requires multi-billion dollar investments. Opportunities exist to explore ways that project-related infrastructure could benefit other sectors, such as agriculture, tourism, and manufacturing, and to identify potential donors and co-investors needed to make this happen. Companies operating in contexts as diverse as the Simandou project in Guinea and the Papua New Guinea LNG project are taking a more proactive leadership role in developing or strengthening shared infrastructure with their host governments and other partners.

There are also opportunities for cross-sector partnerships to preserve environmental ecosystems—in particular joint programs for watershed management, regional biodiversity, and technology innovation. Examples include the work of the 2030 Water Resources Group and Canada’s Oil Sands Innovation Alliance.

3.  Engaging transparently and effectively with stakeholders

Most critically, promoting shared prosperity means oil, gas, and mining companies must build trust and credibility with key stakeholders. Creating transparency on fiscal payments is one of the most important steps that a company can take. Rio Tinto and Tullow Oil have been pioneers in reporting voluntarily on their tax payments.

Leading companies are placing greater emphasis on becoming more transparent and accountable in their community engagement. A few companies are negotiating formal community agreements, such as Chevron’s Global Memoranda of Understanding with communities in the Niger Delta, Newmont’s community agreements in Ghana and Suriname, and Rio Tinto’s agreements with local communities in Mongolia. A growing number of companies are also establishing community grievance mechanisms and supporting local governance institutions and independent conflict resolution structures.

Some oil, gas, and mining companies have established third party or independent advisory groups to strengthen the quality of their stakeholder relationships and the transparency and integrity of their reporting. Some of these are at the corporate level, such as ExxonMobil’s External Citizenship Advisory Panel, Shell’s Sustainability External Review Committee, BHP Billiton’s Forum on Corporate Responsibility, and Barrick’s Corporate Social Responsibility Advisory Board. Others are at a country-level or even project-level, with latter examples including independent monitoring mechanisms established during the construction of the Baku-Tibilisi-Ceyhan pipeline and Peru LNG projects. While these are often challenging to manage, they can offer an additional level of oversight and insight to help improve project performance and credibility.

Learning from past mistakes, impressive progress has been made in understanding the shared risks and benefits of large-scale oil, gas, and mining projects. Useful frameworks for creating shared prosperity have been developed by a variety of multi-stakeholder initiatives, consultants, and industry-led bodies.  Yet they require full commitment and healthy critique from all sides—companies, governments, donor agencies, and nongovernmental organizations—to ensure effective, sustained implementation.