Sustainability Challenges: When Good Intentions Backfire
Sometimes
business goals and community ideals just don’t fit. How far should
you go to be sustainable and meet your company‘s corporate social
responsibilities?
Gold
mining, with harsh chemicals, copious waste and a history of
destroying ecosystems, is arguably one of the world’s dirtiest
industries. But the Barrick Gold Corporation - launched in 1983 as a
socially-aware alternative to the apartheid-backed South Africa gold
miners - sought to prove there were better ways to mine the precious
metal.
With
the publicly stated aim to “become the world’s best gold mining
company” by operating in a “safe, profitable and responsible
manner”, company founder and chairman, the charismatic Peter
Munk believed Barrick’s success would rely on it getting a social
license to operate.
It
was a precept which helped build the Canadian miner into the world’s
biggest gold producer, but ultimately forced the shut-down of its
most ambitious project yet – the $8.5 billion Pascua Lama
development.
Challenging
environments
During
its early expansion Barrack Gold operated in some arduous
environments where corruption, violence and poverty were endemic.
But the Pascua Lama project posed unprecedented challenges.
Situated
5000m above sea level on the towering Andes mountain range straddling
the Chile-Argentine border, the company faced problems with altitude
sickness and determined opposition: from local stakeholders worried
about the depletion and contamination of their water supply, and
international environmentalists concerned by the potential damage to
ancient glaciers.
Despite
their initial welcome by the Chilean and Argentine governments and $5
billion spent on the project’s construction and programmes to
address environmental concerns and community demands, strong and
organised opposition to the project snowballed. On top of this
the development was plagued by permitting issues and cost over-runs.
When the price of gold plummeted in 2012, bringing the project’s
feasibility into question, Munk, found himself at the centre of “a
perfect storm”.
As
the tempest swirled around them, Munk and Barrick’s managers vowed
to stick to the company’s philosophy that doing the ‘right thing’
is good business.
“It’s
not enough to have money, it’s not enough to have reserves, it’s
not enough to have great mining people,” he insisted during an
address to shareholders in 2012. “Today, the single most critical
factor in growing a mining company is a social consensus – a
license to mine.”
Just
how much societal acceptance is needed to attain this consensus, and
what constitutes the ‘right thing’ were considered in my study
Barrick
Gold Corporation: A Perfect Storm in Pascua Lama,
written with case writer Erin McCormick.
Barrick
had always had a policy of giving back to the communities where it
operated. Across the Americas, Africa, Australia and PNG it invested
in hospitals, medicine, water projects and education. It set up a
Corporate Responsibility Advisory Board, organised human rights
compliance programmes and was consistently ranked by NASDAQ, Dow
Jones and the Corporate Knights Global 100 as one of North America’s,
and the world’s, best companies in terms of sustainability and
corporate responsibility.
Gaining
community acceptance
The
communities in the valleys below the Pascua Lama ore body have some
of Chile’s and Argentina’s highest poverty and unemployment rates
and rely on runoff from snowfall in the Andes for almost all their
water supply.
As
part of the company’s commitment to the region Barrick conducted
information campaigns and poured resources into assisting Chile’s
Huasco population. It held nearly 1,000 community meetings and dozens
of open houses to respond to local concerns and met more than 400
conditions set out by the Chilean region’s environmental
commission. The company spearheaded health and education projects,
built houses for victims of Chile’s devastating 2010 earthquake and
formed a partnership with the Chilean government to create a fund to
bring $60 million in water improvements over the life of the mine.
Perhaps
Barrick’s biggest mistake was in believing that by getting the
backing of the government it was getting the support of the local
communities. It could not have been more wrong.
While
one residents’ association representing 6,600 Huascan families
wrote to the government supporting the mine’s development, other
community groups continued to protest against the large amount of
rock crushing and chemicals to be used. Some complained of being
completely disenfranchised and a group of the indigenous Diaguita
people accused government leaders and company officials of ignoring
local concerns in their haste to get the money flowing from the gold
mine. Opponents to the water fund labelled it ‘hush money’ used
to appease some of the project’s most vehement adversaries.
An
email petition purporting to be written by valley farmers circled the
globe claiming the project would destroy glaciers and contaminate
rivers while “every last gramme of gold would go abroad”. Barrick
was accused of buying off community members with costly social
benefits and using its influence to get supporters elected in local
mayoral contests.
Even
Daviken Studnicki-Gizbert, a professor of history at McGill
University and coordinator of the McGill research group investigating
Canadian Mining in Latin America, suggested Barrick’s approach to
CSR was more akin to public relations than genuine community
involvement.
The
need to draw the line
As
the opposition to the project grew, Munk insisted on the need to draw
a line between genuine stakeholders and those opposed to all
industry.
“While
we love NGOs, we equally have to stand up to those who are just on
principle against any type of development,” he told a shareholders
meeting in 2012.
The
following year Munk was back before shareholders again explaining
that now it wasn’t just Pascua Lama under threat but the entire
global gold mining industry. Gold prices, pumped to an all-time high
by the economic crisis, had plunged by a third, while costs were
rising as the global population pushed for tighter environmental
regulations and host nations demanded greater royalties.
In
April 2013 a Chilean Court, responding to a lawsuit brought by the
Diaguita communities, ordered a halt to construction on the site
while environmental issues were addressed. Later that year after a
$300 million ramp-down the project was placed under care and
maintenance. Under pressure from Barrick shareholders, who were
raising questions as to the miner’s corporate governance, Munk
stepped down as chairman in April 2014, leaving the board and the
company he had created three decades earlier.
As
Barrick Gold’s experience reveals, failure to meet sustainability
challenges can be hugely costly and even experienced operators can
get it wrong. While, with hindsight, one might rate Barrick
Gold’s chances of success with the Pascua Lama project as quite low
today, the story does show the importance of effective stakeholder
engagement—authentic engagement with all relevant stakeholders can
be key.
N. Craig Smith, INSEAD Chaired Professor of Ethics and Social Responsibility
Read
more at
http://knowledge.insead.edu/corporate-governance/sustainability-challenges-when-good-intentions-backfire-3662#w4zmfzS2ds6DIXAv.99
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