• Can Corporate Social Responsibility Sustain Development?

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    CSR projects might be successful at improving living conditions of local people. However, building and sustaining economic development goes far beyond CSR possibilities and overreliance on CSR may undermine governance institutions.

    What is CSR?

    Corporate Social Responsibility (CSR) refers to voluntary actions undertaken by mining companies to either improve the living conditions (economic, social, environmental) of local communities or to reduce the negative effects of mining projects. By definition, voluntary actions are those that go beyond legal obligations, contracts, and license agreements although evolving legal requirements are leading towards increased regulation of CSR worldwide.

    Although CSR programs have sometimes been viewed as part of a company’s public relations strategy, they are now increasingly recognized as a serious effort to deliver sustainable benefits and to improve the well-being of people and communities in which miners operate.[1-3]

    Positive impacts of CSR

    Although the impacts of large-scale mining companies’ CSR programs is difficult to assess at the global or national level, the benefits from these projects can be of great local significance. For example, in Ghana, community health facilitators who were trained with the support of Gold Fields Ltd. provided health services to 8,276 people from 2006 to 2008, and referred an additional 12,342 people to hospital during the same period.[4] Also in Ghana, 692 hectares of oil palm have been planted with the support of Golden Star Resources, and this has become a major source of income for local people.[5] In Bolivia, rural communities close to Glencore International’s Puquio Norte mine obtained electricity when the company constructed a pipeline with extra capacity.[6] Finally, in Venezuela, a community health center was run with the support of Placer Dome Inc.[2]

    Benefits of CSR can vary significantly from one project to another depending on the design, local suitability, and community support. CSR projects are most likely to be successful when the specific needs and comparative advantages of local communities have been considered in their design. Project success is also location specific; a project that is successful in one community can be a failure in another because of different needs and community characteristics. For example, a palm oil project is more likely to be successful when local farmers already grow palms and there is a local market for palm oil [5]; a mine-work training program is more likely to enjoy long-term success when a series of mines is being developed; and an infrastructure project (such as pipelines for electricity, or roads, schools, and health centers) can be the most important contribution of CSR programs in remote areas.[6] Successful projects may also result from a series of failures in a process of trial and error.[5] For these reasons, successful projects are usually designed in participation with beneficiaries, who then feel connected to these projects and believe that the projects address their most important needs.[2, 5, 6]

    Sustainable Mining: Limitations of CSR

    Even where CSR is successful it can have shortcomings that limit the success and sustainability of local development. The selection and inclusion of stakeholders in project planning and engagement can be a challenge in developing nations where marginalization, local power differences, and language or cultural barriers exist.[7] Other potential challenges include the potential for CSR projects to be seen as patronizing towards local communities or undermining local governance and decision-making.[8]

    CSR programs relating to sustainable mining can also be hard to implement. Even well designed projects may not be successful. For example, challenges with the Gold Fields oil palm project included project staff turnover, loss of participant interest, limited capacity within the group, and an ongoing dependency on the mining company rather than community ownership.[4] In addition, a recent study conducted in Ghana found that “a number of the projects undertaken by the mining companies as part of CSR were either not functioning or inadequate given the population of the community”.[9]

    Sustainability of CSR Projects

    Concerns also exist about the long-term viability of CSR projects. According to Harvard Academics Michael Porter and Mark Kramer, CSR projects usually respond to public relations, media, and philanthropic concerns that are disconnected from the companies’ strategies and this makes the projects unable to produce a meaningful social impact or to strengthen the firms’ long-term competitiveness.[10, p.4] For this reason, the World Bank recommends that mining companies undertaking CSR projects consider them as part of a regional or local development plan that addresses economic, social, and environmental issues not only during the mine operation but also after its closure.[6] The World Bank also advises that such a development plan be available as early as possible.

    There are questions as to the appropriateness of mining firms engaging in CSR.[7] According to Milton Friedman (1962), the social responsibility of companies should be to increase profits and therefore CSR is misguided.[in 7 p.505] However, there are also many business reasons that explain why mining firms may engage in CSR. Milton Friedman also explained that it can be in the long-run best interest for companies to provide amenities or improve governments, as it may be easier to attract workers, decrease wage bills, or lessen losses from sabotage and pilfering.[in 11, p.53] From the business perspective, “any investment in social demands that would produce an increase of the shareholder value should be made”.[11, p.53] Moreover, if the costs of CSR projects are lower than the costs of dealing with social instability, then CSR projects should be implemented. As Humphreys puts it, “[CSR] success, in this context, is measured in terms of what doesn’t happen rather than what does; the absence of local tensions, of time spent in dispute or litigation, and of not having to absorb the costs of regulatory impositions which were unplanned and unbudgeted.”[12, p.129] From a business perspective, CSR projects are justified by the increased risks of disputes with local communities and the costs associated with social conflicts if such projects are not implemented. However, mine shareholders may question why a CSR program is investing in improving a community’s access to social services, such as education and health--areas that are traditionally regarded as the responsibility of the state. Nonetheless, more research is needed before a more informed conclusion can be drawn about whether a CSR program is having a positive or negative effect on a project’s financial performance.

    CSR and Governance Concerns

    The ability of CSR to sustain development is also limited by the quality of government and its institutions. Paradoxically, CSR has the potential to undermine the role of governments. In developing countries, governments often find it difficult to provide basic social services such as health care, education, the construction of roads, and the supply of energy.[13, pp.86-88] Poor service provision can lead local communities to demand that mining companies provide needed services, and in effect become a substitute for government. This reliance on CSR may undermine and distort the capacity of governments to provide social services, since citizens may stop demanding service provision and accountability from their governments, thus decreasing the incentives for improved government efficiency and service provision.  The mining industry must therefore balance the risks of becoming too involved and taking the place of government against the risks of not being involved enough with the community and facing opposition. [20]

    Finally, economic research highlights the important role of sound government and good institutions in driving economic growth. In particular, higher levels of economic freedom are necessary for countries to benefit from natural resources and to avoid a potential resource curse. Economic growth and sustainable development is only possible in environments that encourage free markets, voluntary transactions, risk taking, and engaging in productive activities.[14, p.11] These are the foundations of development that CSR projects cannot replace.


    Case Study: Yanacocha Mine Protests

    Yanacocha Mine is located in Cajamarca (Peru). Newmont Mining Corp. opened the mine in 1992 and it soon became one of the largest gold mines in the world. From 1994 to 2007 Yanacocha Mine produced 1,857 tons of gold and US$88,465,000 of government tax revenues per year.[15 p. 12] Half of these taxes remained with the regional government of Cajamarca and the district governments of surrounding areas. Despite this influx of tax revenue, governments at all levels (national, regional, and district) failed to provide the social services expected by the local communities.

    Benefits for the local people go beyond the employment of 13% of the formal labor force in the Cajamarca region.[15, p.16] CSR projects included the construction of 635km of rural roads benefiting 133 communities, as well as funding connections to potable water systems for 6,294 households and latrines or other waste disposal systems for 1,527 households.[15, pp.29-30] From 1993 to 2007 electrified households in rural areas rose from 3% to 39% , in part due to the mining company’s efforts.[15, p.30] However, according to Apoyo Consultoría, many locals interviewed placed little value on these projects and considered support from the mine insufficient, mainly due to concerns over reduced water availability.

    In October 2011, protestors burned 8 trucks and a major road was blocked.[16] According to Roberto del Aguila, Communications Manager of Yanacocha mine, the mayor of La Enañada district promoted a series of protests against Yanacocha Mine with the purpose of obtaining S/. 200 million (approximately US$ 74 million) from it to carry out the promises he made during the electoral campaign.[16] As a result, Yanacocha Mine suspended its operations for four days[17] at a cost of approximately US$2 million per day.[18]

    According to Economist Claudio Herzka, in Peru there is confusion regarding the role of the mines and the role of governments.[19] Some mayors and governors are demanding that mining companies increase their CSR activities and provide the social services that governments should be providing, but often do not have the capacity to do so.


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    References

    1Kemp, D., R. Boele, and D. Brereton, Community Relations Management Systems in the Mineral Industry: Combining Conventional and Stakeholder-driven Approaches. International Journal of Sustainable Development, 2006. 9(4): p. 390-403.

    2Hamann, R., Mining companies role in sustainable development: the ‘why’ and ‘how’ of corporate social responsibility from a business perspective. Development Southern Africa, 2003. 20(2): p. 237-254.

    3Hamann, R. and P. Kapelus, Corporate Social Responsibility in Mining in Southern Africa: Fair Accountability or Just Greenwash? Development, 2004. 47(3): p. 85-92.

    4Yankson, P., Gold mining and corporate social responsibility in the Wassa West district, Ghana. Development in Practice, 2010. 20(3): p. 354-366.

    5Dashwood, H.S. and B.B. Puplampu, Corporate Social Responsibility and Canadian Mining Companies in the Developing World: The Role of Organizational Leadership and Learning. Canadian Journal of Development Studies, 2010. 30(1-2): p. 175-196.

    6World Bank and International Finance Corporation, Large Mines and Local Communities: Forging Partnerships, Building Sustainability, 2002, International Finance Corporation.

    7Jenkins, R., Globalization, Corporate Social Responsibility and poverty. International Affairs, 2005. 81(3): p. 525-540.

    8Frick, C., Direct Foreign Investment and the Environment: African Mining Sector, in Conference on Foreign Direct Investment and the Environment: Lessons to be Learned from the Mining Sector, OECD Global Forum on International Investment, Editor 2002, OECD: Paris.

    9Armah, F., et al., Assessment of Legal Framework for Corporate Environmental Behaviour and Perceptions of Residents in Mining Communities in Ghana. Journal of Environmental Planning and Management, 2011. 54(2): p. 193-209.

    10Porter, M. and M. Kramer, Strategy and Society: the Link Between Competitive Advantage and Corporate Social Responsibility. Harvard Business Review, 2006. December.

    11Garriga, E. and D. Mele, Corporate Social Responsibility Theories: Mapping the Territory. Journal of Business Ethics, 2004. 53: p. 51-71.

    12Humphreys, D., A business perspective on community relations in mining. Resources Policy, 2000. 26(2000): p. 127 – 131.

    13Kaufmann, D., A. Kraay, and M. Mastruzzi, Governance Matters VIII: Aggregate and Individual Governance Indicators 1996–2008, in Policy Research Working Paper 49782009, The World Bank.

    14Béland, L.-P. and R. Tiagi, Economic Freedom and the “Resource Curse” An Empirical Analysis, in Studies in Mining Policy, F. McMahon, Editor 2009, Frasert Institute.

    15Apoyo Consultoria, Study of the Yanacocha Mine's Economic Impacts: Final Report, 2009, Prepared for the International Financial Corporation.

    16Peru21. Queman equipos de minera Yanacocha. 2011 October 16, 2011 [cited 2011 November 21]; Available from: http://peru21.pe/noticia/1318632/queman-equipos-yanacocha-protesta.

    17The Economist. Protests in Peru: Honeymoon over. 2011 November 19, 2011; Available from: http://www.economist.com/node/21538788.

    18Peru21. Yanacocha pierde US$2 mllns. diarios 2011 October 19, 2011 [cited 2011 November 21]; Available from: http://peru21.pe/noticia/1320121/yanacocha-perdidas-diarias-us2-mllns.

    19Herzka, C. El sector público o el privado. Peru21 2011 October 7, 2011 [cited 2011 November 22]

    20Natural Resources Canada, Canada. The Social Dimension of Sustainable Development and the Mining Industry. 2011 October 14, 2001 [cited 2013 November 29]; Available from: http://www.nrcan.gc.ca/minerals-metals/policy/sustainable-development/social-dimension/3690

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