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Community investment pays dividends, if done right

Mining companies’ success hinges on their ability to maintain their social licence to operate (SLO)—the ongoing acceptance of their business practices by key stakeholders such as employees and residents of local communities where a company has operations. Miners achieve and maintain their SLO over time, by acting in ways that build trust among stakeholders. In some cases, certain elements covered by the SLO are formalised in regulatory or financial contracts as collateral to the mining concession.
Community investment pays dividends, if done right Community investment pays dividends, if done right Community investment pays dividends, if done right Community investment pays dividends, if done right Community investment pays dividends, if done right

Image: Resolute Mining

Dr Heinz Pley, François Lemaitre and Pierre-Louis Christiane*

When stakeholders see that a company is taking care of its employees, the environment and surrounding communities, SLO strengthens.

If a company breaks that trust, or fails to swiftly address problems on these fronts (such as an oil spill or dust emissions affecting nearby residents), SLO can erode. In such cases, a mining company's operations can be severely disrupted by events such as civil unrest. And in the age of social media—when information about a company's perceived missteps can circulate widely and instantaneously—SLO can vanish virtually overnight.  

Wanted: a robust community-investment strategy

Local communities constitute a major factor in SLO, as mining operations and residents increasingly are sharing limited resources such as land, water and electricity. Thus, miners that develop a robust community-investment strategy (CIS) can sweeten the odds of sustaining their SLO. Such strategies comprise projects that positively affect local communities, for instance, by creating new jobs, or by developing local businesses supporting the mining companies' value chain.

Creating an effective CIS isn't just a matter of ‘throwing money' at local communities to help solve their problems or taking a one-size-fits-all approach. The best CIS is tailored to the unique characteristics of the setting where a mining company has operations. Equally vital, it delivers measurable and meaningful advantages for both the local community (and possibly even the entire region or nation) as well as for the company. In this regard, developing a CIS with a true investment perspective is key to arriving at sustainable solutions through profitable business models.

A disciplined approach

Designing an effective CIS requires a disciplined and structured approach. After all, depending on where a mining company has operations, there may be a host of potential CIS projects that merit consideration. How can a company select from among the many possibilities and arrive at the right set of projects? BCG has developed a framework to guide the process (figure 1, below).

Taking a structured approach to CIS helps miners in several ways.

Most important, it enables them to create value for local communities as well as themselves. It also positions them to clearly and consistently communicate their strategy and achievements as good corporate citizens to all stakeholders (local residents, international investors, regulators). For instance, a mining company may establish a reputation for being proactive if it can show how its CIS supports the United Nations' Sustainable Development Goals (SDGs). Equally crucial, a structured approach helps companies proactively meet the local community's long-term needs (such as improving education or creating jobs that endure). This differs markedly from merely reacting in an uncoordinated way to short-term pressures (such as a local farmer's demand for a new tractor).

With this in mind, some important elements and factors should be kept in mind for formulating a robust CIS.

First, the right community-investment strategy can help a mining company achieve a number of important objectives crucial for maintaining its SLO. These objectives can cover an array of topics, including communications; community and government relations; human resources and supply chain management; and safety, health and the environment (figure 2, below).

The choice of strategic objectives to focus on depends on the unique challenges facing a company, as well as the setting in which it is operating. For example, for mine sites based in a country that has a broad need for development, consider defining strategic objectives that support SDGs that are most important to that nation (such as combating poverty, or strengthening infrastructure). What's more, take local needs and preferences into account (for instance, new-job creation, or a reliable power supply).

Once objectives are selected, brainstorm CIS projects that would best help meet the goals. Depending on a company's situation, it may end up with a long list—such as creating profitable agricultural or equipment-maintenance businesses in the local community, providing training and capital investment to support the creation of local businesses, setting up an import business for supplies important to your operations and the local community, and planting trees to rehabilitate mined plateaus.

Define a project-delivery model

A model for implementing CIS projects should help overcome challenges unique to a company's situation. To illustrate, suppose the company's objectives include fostering local economic development by helping residents set up and run new businesses. And let's say that such efforts face challenges including insufficient capital, lack of business know-how or little access to markets.

To overcome these hurdles, the project-delivery model could include elements such as a dedicated project manager, project budgets that specify investment costs as well as working capital requirements, and standardised project reporting. The delivery model might also benefit from having a steering committee comprising key operational partners and experts. These individuals can help with the implementation of each project by forging business partnerships and bringing additional expertise required for managing activities that lie outside the mining company's core business.

Articulate criteria for prioritising projects

A wide array of potential CIS projects that could help meet SLO-related objectives that are most important to a company and situation may have been brainstormed. To narrow down the list and prioritise the most promising among these initiatives, the most important criteria that CIS projects must meet must be identified. For example, perhaps projects have to create enduring forms of value such as long-term employment for local community members, must reduce certain costs, or need to mitigate supply chain risks faced.

Prioritisation criteria related to impact and implementation might also be defined. For example, maybe projects have to be easy to scale within and even beyond the community where a company operates, or must enable the company to reach unserved communities and vulnerable groups. Or perhaps they must be relatively easy to implement, because the stakeholder landscape is relatively simple, or required skills are available.

Once all the criteria that CIS projects must meet have been defined, each project idea should be reviewed to see how well it meets the company's criteria. From there, a list of projects can be reduced to only the most promising ones.

Decide on a project governance model

All CIS projects need a governance model, to ensure that they're implemented as intended and deliver hoped-for value.

But the type of governance model depends on a mining company's situation, such as the projects' funding needs and the kinds of local expertise required for the projects to be successfully implemented.

For example, there are several reasons that a mining company might want to set up a separate foundation to manage its portfolio of CIS projects. Establishing this independent legal entity could help the company maintain a focus on its core business, skilfully manage funds, burnish its reputation, attract funds from international donors for additional projects, and create a platform that other companies and organisations can join.

Suppose, for example, CIS projects involve setting up and operating new local businesses. In this case, enterprises essential for all the links in those local businesses' value chain (suppliers, distributors, processing plants, transportation service providers, lenders) may seize the opportunity to collaborate, with an eye toward achieving a common goal. And that could catalyse the creation of a whole new economy in the region where a company operates.

Achieving and maintaining their SLO is more important than ever for mining companies, given the increased scrutiny that all extractive industries are experiencing.

Investments in local communities' welfare can help companies earn and maintain the trust that's the lifeblood of SLO. But to craft a comprehensive community-investment strategy that delivers enduring value, mining companies must take a disciplined, thoughtful approach.

Those that do so will stand the best chance of not just creating value for the surrounding community but also boosting their own business performance.    

*Dr Heinz Pley (pley.heinz@bcg.com)  is a managing director and partner at BCG; François Lemaitre (lemaitre.francois@bcg.com) is a project leader at BCG; Pierre-Louis Christiane (christiane.pierre-louis@bcg.com) is a consultant at BCG.