WRI Establishes First Business Case for Community Consent

Multinational corporations and financial institutions that seek local community consent for their operations will have a competitive advantage over those that fail to do so.Multinational corporations and financial institutions that seek local community consent for their operations will have a competitive advantage over those that fail to do so, concludes a report released today by the World Resources Institute and endorsed by a $110 billion coalition of faith-based institutional investors.         Development Without Conflict: The Business Case for Community Consent is the first report to document the precise financial and operational opportunities and risks a company faces when engaging with communities affected by environmentally sensitive development projects. It provides a roadmap for implementing community consent procedures into project and investment strategies. The report’s four case studies of industrial projects in the Philippines, Argentina, Thailand and Peru demonstrate the financial opportunities of achieving community consent including project cost savings, increased access to international capital and positive reputational benefits. Companies that fail to achieve consent face a range of financial implications including project cost-overrun risks, litigation, increased scrutiny and concern from Wall Street stock analysts, and significant reputational harm.         The report has received the endorsement of the Interfaith Center on Corporate Responsibility (ICCR), a 35-year-old international coalition of 275 faith-based institutional investors, which include denominations, religious communities, pension funds, healthcare corporations, foundations and dioceses with combined portfolios worth an estimated $110 billion.                “Companies that look to the principles laid down in the WRI report and learn from the valuable case studies will be better equipped to work with the communities in which they operate,” said Rev. David M. Schilling, program director of ICCR.                The central tenet of free, prior, informed consent (FPIC) is that local indigenous communities have the right to determine how projects that might affect their land or way of life are developed. The principle has been expanded by some companies and financial institutions to all communities impacted by their projects and investments.         “WRI supports companies and financial institutions that mainstream community consent-based policies into their projects and investments. Respecting local community rights makes plain sense from a business perspective and we expect trends towards this practice to increase,” said Jon Sohn, WRI senior associate and a co-author of the report.

• The report comes as recent news events and trends demonstrate the need for increased attention to community consent issues:In April 2007, religious institutional investors, led by Christian Brothers Investment Services, filed a shareholder resolution that required Newmont Mining Corporation (NEM) to produce a report addressing community-based opposition to its operations around the world. In an unprecedented move for a U.S. mining company, Newmont’s board of directors supported the proposal. Newmont’s shareholders overwhelmingly approved the resolution, with 91% of shares voting in favor.
• Tomorrow, May 15, the World Bank’s International Finance Corporation is hosting a meeting of Equator Principle Banks, export credit agencies and other development banks to explore best risk management practices to achieve “broad community support” in projects they support.

        One case study from the Philippines examines the benefits of project development that is mindful of community consent. The project, undertaken by Shell Philippines Exploration (SPEX), and the Philippine National Oil Company (PNOC) to extract natural gas in the Philippines, was completed with extensive consultation and modifications that resulted from community input and ultimately documented consent under Philippine law. Consequentially, the project was rerouted to avoid culturally and environmentally sensitive areas. The result was a finished, profitable project that led to local economic development as well.                 Three other case studies examine circumstances where the lack of community consent led to extremely expensive consequences and lost business opportunities. The projects involved in these case studies are a gold mine in Argentina owned by Meridian Gold, a mid-tier gold producer based in Reno, Nevada; a wastewater treatment facility in Thailand conceived by the Thai government’s Pollution Control Department and backed by the Asian Development Bank; and a gold mine in Peru that is a joint venture led by Newmont Mining Corporation.                Operationalizing FPIC is an evolving concept in development circles, yet several institutions have recently adopted strengthened consultation procedures and are considering ways to achieve “consent” based development outcomes. This report provides best practice principles to achieve that goal. Authors of the report are Steven Herz, Jon Sohn and Anthony LaVina.