LAND GRABBINGIN THE MINING INDUSTRY
THE CASE OF NEWMONT MININGBy Daniela CarosioECPI, Director Institutional Relations
MARCH 2012
2
Copyright © 2012 by ECPI Group S.p.A., ECP International S.A. and ECPI S.r.l. All rights reserved
.
WHICH IS THE PROCESS OF LANDGRABBING IN THE MINING INDUSTRY?
Land grabbing in the mining industry is generally theresult of a development project which involves one ormore mining companies, the Government and thelocal communities.The majority of the new mining locations are in remoteareas in developing countries.In most cases the Central Government lacks financialcapital as well as know-how for big infrastructuralprojects. Therefore it incentivizes foreign directinvestment and new developing activities in histerritory by multinational enterprises.Big mining projects are often managed through thecreation of a New Company with mixed domestic andforeign shareholders. Sometimes it is asked for afinancing by the International Finance Corporation
–
IFC, member of the World Bank Group, the largestglobal development institution focused exclusively onthe private sector. To be eligible for an IFC funding aproject must meet a number of criteria, among whichalso benefit the local community and beenvironmentally and socially sound, satisfying IFCenvironmental and social standards as well as thoseof the host country. In some big projects IFC evenenters in the capital up to 5%.In big projects many players are involved and privateplayers do not hold themselves accountable to localcommunities as long as the host country does notrequire it. This happens in most poor countries or
developing ones that don’t
have strong rule of law withhuman rights enforcement as well as environment andbiodiversity protection regulations.Whereas no such guarantees are provided, the landwhere local communities have been living is grabbedto develop new projects and the people who areaffected are dislocated with minimum or insufficientcompensation.Most of the projects are in far remote areas whereindigenous people are living and where thebiodiversity is rich as well as there are abundantreservoirs of water.
WHAT ARE THE ESG THEMESINVOLVED?E- ENVIRONMENT
The most severe impact is the water pollution andcontamination and the unsound practice of riverinetailings disposal. E.g. in the case of open-pit goldmining, the minerals are encased in rocks and toobtain a paste of pure gold, poisonous chemicalcyanide is added to rocks, as well as zinc and sulfuricacid. The tailings are thrown in the water and in thesoil.There is also a relevant impact in terms ofdeforestation, soil erosion and desertificationendangering local biodiversity.Another serious environmental issue is the climatechange impact both in terms of higher GHG emissionsdue to the energy intensive mining production andrelevant decrease in CO2 absorption capacity as aresult of deforestation, soil erosion and desertification.
S- SOCIETY
The consequences of mining activities on localcommunities are severe and have to do with thehuman right to a sound living, health and safety aswell as the basic human right to access to water(CERES Aqua Gauge).
Highly impacting projects meet the opposition of localcommunities and strong protests as well as violencecan be expected in case of no dialogue with them.Ultimately land grabbing for mining could lead toviolation of basic human rights if native communitiesare massively displaced without free, prior andinformed consultation (FPIC) and compensation or iftheir sources of drinkable water and food arecontaminated or deplenished.
G- GOVERNANCE
The whole Board of a mining company must beresponsible to its stakeholders. There is a seriousgovernance risk in case of no responsibility andaccountability at top management level towards thestakeholder and no attention to community
’s
relationship and engagement. A sound governanceprocess with strong and enforced anti-corruption andanti-fraud provisions is required, in particular forinvestment and operations in countries with lack oftransparency, and corruption risk at Government level,whereas there is no respect of human and indigenousrights, no certainty of propriety rights and weak rule oflaw.
WHAT ARE THE RISKS FOR INVESTORS?
Investors run serious
reputational risks
if they investin a mining company which does not adopt a propercommunity relationship program and has a poor trackrecord or is accused of not respecting human rightsand the environment.In case of investment in companies vulnerable toaccusations of complicity in corrupt behavior,investors run
operational risks
from interruption inthe production up to most material one, i.e. the loss ofthe
‘
license to operate
’
. These are significant businessrisk rendering companies vulnerable to local conflict
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Copyright © 2012 by ECPI Group S.p.A., ECP International S.A. and ECPI S.r.l. All rights reserved
.
and insecurity, and possibly compromising their long-term commercial prospects in these markets.
BEST PRACTICE CODES ANDREGULATION IN THE MINING INDUSTRY
Specifically in consideration of the governance risks ofinvesting in the mining sector,
stakeholder’s
industryinitiative such as
The Extractive IndustriesTransparency Initiative
(http://eiti.org)has now
become a standard, improving transparency andaccountability in the majority of mineral and metalsrich countries.The
which regulates the U.S. financialmarket, has two provisions on disclosure intended topromote transparency and governance in naturalresources in countries outside the United States.
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Companies operating in areas of political instability,violence, bribery and corruption face business risksthat can significantly affect their commercial prospectsand returns to investors. Companies in the extractivesindustries
–
oil, gas and mining
–
are increasinglysubject to these risks as they move to source moreproduction from assets in countries with higher riskprofiles.
HOW CAN RESPONSIBLE INVESTORSMITIGATE THE RISK OF THEIRINVESTMENT IN THE MINING SECTOR?
It is very important that investors engage on
promoting transparency
and
communityrelationship
in mining projects in developingcountries. A double check should always be done alsoat country level: if the Government is not transparenthigh risks of corruption in the market are to beexpected.A relevant engagement initiative by responsibleinvestors has been the support of the
EITI
initiative.Over 80 investment institutions, which collectivelymanage over US$ 16 trillion of assets, have signed
the Investor Statement on Transparency in theExtractive Sector
. Institutional investors withexposure to extractives companies have an interest in
1
Section 1504 mandates oil, gas and mining companies, registeredwith the Securities and Exchange Commission (SEC), to publiclydisclose the tax and revenue payments made to any government;Section 1502 requires that companies using minerals from theDemocratic Republic of Congo provide disclosure that thepayments did not fund armed groups in that conflict country, oradjoining countries, under what conditions those minerals weremined, and measures taken to exercise due diligence on thesources of minerals and their chain of custody.
encouraging the implementation of the EITI as a meanto contribute to improvements in governance andtransparency.Also the high social and environmental risks of landgrabbing in the mining sector particularly in developingcountries are to be carefully considered by investors.The major obstacle is to guarantee communities the
Free Prior and Informed Consent
(FPIC) whichmeans aligning the interests of the shareholders andthe stakeholders (specifically the affectedcommunities). This is a necessary condition forextractive projects to be successful in contributing tosustainable development.Since 2006
members, among which CBIS,Calvert, Wespath, etc. managing several billion ofUS$ in assets have been engaging in dialogue withNewmont Mining and filing resolution on theintroduction of the FPIC, with the goal of preventingsome severe reputational and operational risks of theirinvestment. These dialogues are meant to improve thesustainability, transparency and accountability ofinvestments in mining to which the investors commit,inviting also other investors to follow their lead.
THE CASE OF NEWMONT MININGECPI ESG RATING
Since 2007 ECPI has rated
Newmont Mining
as
ineligible
(F) because of serious environmental andsocial concerns.In the last decade community protests occurred in theNewmont Mining sites in Indonesia, Ghana and Perubecause of severe environmental pollutions caused bythe mine tailings and waste disposal contaminatingcommunity water sources and as well as poor healthand safety labor conditions.These severe impacts have prompted violent
communities’ demonstrations and complain
againstland grabbing and poor compensation for thedamages caused by the mine operations.In the recent 2012 review of the US mining company,ECPI confirmed the rating F for its still relevant highsocial and governance concerns, but with an higherscore because of improved standards inenvironmental management.According to ECPI Environmental analysis thecompany has a fair environmental performance. It hasa wide and ambitious environmental strategy.
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ICCR includes 275 faith-based institutional investors, includingnational denominations, religious communities, pension funds,foundations, hospital corporations, economic development funds,asset management companies, colleges, and unions. Each yearICCR-member religious institutional investors sponsor over 200shareholder resolutions on major social and environmental issues.ECPI has been a member of ICCR since 2002.
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