Social Performance:

From Risk Mitigation to Shared Value

Brisbane Mining Club August 2019

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Once upon a time…

Social Impacts and Risk

Dynamic vs Static Risk

What is Shared Value?

Barriers to Shared Value

- Divergent world views

- Mistrust

Moving from CSR to Shared Value

A couple of Case Studies

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The Influence and

Impacts we have

as a Business on communities

= Social Risks

Understanding Social Impacts and Social Risk - Conceptual Framework

Our

CommunitiesUpside Risks / Impacts

Downside Risks / Impacts

The Response we get as a

Consequence= Business Risks

Improved health services

Better education and training

Incomes, employment and BD

Infrastructure

Support and Enhance

Prevent and Mitigate

Environmental Impacts

Cultural Heritage Impacts

Social and cultural breakdown

Anti-social behaviours

Influx and forced resettlementSocial Risk to the business – Manage, Prevent and Mitigate

Social Impact Monitoring

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Development status and social risk context

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Developed Country (e.g. Australia) Many Developing Countries

Stronger State Governance Weaker State Governance and power

Rule of Law Weaker/incompetent/corrupt judiciary

Stronger Government Services Limited Government Services

Capable Public Security Heavy-handed, limited Rights concerns

More Developed Infrastructure Limited infrastructure

Educated community/workforce Uneducated community/workforce

State funded Social Safety Nets No formal Government social safety nets

Static vs dynamic risks

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Technical risks – Static risks

• These are mostly static risks – known source and

outcomes

• Managed through controls and preventative maintenance

But Social business risks are dynamic

• Risks are exacerbated or mitigated by company actions

• Weak environmental performance

• Poorly managed or unresolved grievances

• Rising social and economic inequalities

• The source and consequence of risks are unpredictable

from one day to the next

• People tolerate cumulative impacts up to a certain point –

usually an undefinable point

Cumulative Incremental impacts

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A minor incident or small

incremental impact can

provoke a disproportionate

response – built upon

many small cumulative

impacts or a series of

unresolved grievances …

… the proverbial straw

that breaks the camel’s

back

The Influence and

Impacts a mine has on

communities

= Social Risks

A typical Social Scientists view of Social Risk

Our

Communities

Downside Risks / Impacts

Prevent and Mitigate

Environmental Impacts

Cultural Heritage Impacts

Social and cultural breakdown

Anti-social behaviours

Influx and forced resettlement

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The Influence and

Impacts we have

as a Business on communities

= Social Risks

A typical Mining Executives view of Social Risk Business Risk

Our

Communities

Upside Risks / Impacts

Downside Risks / Impacts

The Response we get as a

Consequence

Business Risk

Improved health services

Better education and training

Incomes, employment and BD

Infrastructure

Support and Enhance

Prevent and Mitigate

Environmental Impacts

Cultural Heritage Impacts

Social and cultural breakdown

Anti-social behaviours

Influx and forced resettlementSocial Risk to the business – Manage, Prevent and Mitigate

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The domain of Social Performance

A typical Mining Executives view of Social Risk Business Risk

Our

Communities

Upside Risks / Impacts

Downside Risks / Impacts

The Response we get as a

Consequence

Business Risk

Improved health services

Better education and training

Incomes, employment and BD

Infrastructure

Support and Enhance

Prevent and Mitigate

Environmental Impacts

Cultural Heritage Impacts

Social and cultural breakdown

Anti-social behaviours

Influx and forced resettlementSocial Risk to the business – Manage, Prevent and Mitigate

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The domain of Social PerformanceA cynical view perhaps?: Managing social risk

OK community relations team – go out there and

give them some good stuff so they tolerate the bad

stuff and let us get on with digging up rocks!!

A typical Mining Executives view of Social Risk Business Risk

Our

Communities

Upside Risks / Impacts

Downside Risks / Impacts

The Response we get as a

Consequence

Business Risk

Improved health services

Better education and training

Incomes, employment and BD

Infrastructure

Support and Enhance

Prevent and Mitigate

Environmental Impacts

Cultural Heritage Impacts

Social and cultural breakdown

Anti-social behaviours

Influx and forced resettlementSocial Risk to the business – Manage, Prevent and Mitigate

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The domain of Social PerformanceA cynical view perhaps?: Managing social risk

OK community relations team – go out there and

give them some good stuff so they tolerate the bad

stuff and let us get on with digging up rocks!!

Trust – the key to Shared Value

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• How do we manage dynamic risks and sustain

operations within our impacted communities?

• By Building Trust - doing the right

things in the right context

• Interesting work by CSIRO – Reflexivity/VononiQ

led by Kieran Moffat and his team

• Reflexivity has developed a conceptual model for

measuring and understanding the drivers for the

establishment of trust with communities

• The model is based on the quantification of the

factors underpinning relationships between

operations and communities.

CSIRO Model – Drivers of Trust

14After Lacey et al. 2017: Moffat et al. 2017 Moffat et al. 2015

Distributional

Fairness

Procedural

Fairness

Contact Quality Community or

Societal TrustAcceptance of

Operations

Key Drivers of Trust

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The previous figure works on different levels depending on the development context

• Distributional fairness - Judged on whether the country and its people get a fair deal from

the operations/industry. Also can relate to fair distribution of benefits within communities

• Procedural fairness – Sound governance through appropriate legal and regulatory

frameworks where regulatory agencies hold operations to account. Also entails engagement

processes which provide opportunity for community input into regulatory and corporate

decision-making

• Contact Quality - Relationships at both an institutional level as well as with immediately

impacted adjacent landowners and communities

• Trust is a basic human value

• To establish trust a company must itself be trustworthy

• Values only have meaning when they become a lived reality

• Newcrest Values

• “Caring about people” and “Integrity and honesty” means more than doing no harm – it entails

honouring commitments to performance and contributing to positive change in communities

• To build trust we must also engage with the values and aspirations of the community

• Recognise that their world view may hold values which are very different from our own

Company and Community values and trust

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The challenge of corporate consistency

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• Being consistent and building trust relies on

integrity – doing what you say you will do

• We all know what happens as soon as

commodity prices crash – exploration and

Community Relations budgets are

challenged as non-essential expenditures

• My position is that building Shared Value

requires us to honour social commitments,

these cannot be considered any differently to

other essential mine sustaining capital

expenditures

• Without consistency and commitment to

agreed outcomes trust is rapidly eroded

What is “Shared Value”?

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The term “shared value” first appeared in a paper by Harvard academics Michael Porter

and Mark Kramer in 2006 “Strategy and society: the link between competitive advantage

and corporate social responsibility”.

This built on earlier work by Porter and Kramer on Corporate Social Responsibility (CSR).

The central premise behind creating Shared Value is that:

• “The competitiveness of a company and the health of the communities around it

are mutually dependent. Recognizing and capitalizing on these connections between

societal and economic progress has the power to unleash the next wave of global

growth.”

Barriers to Shared Value – divergent world views

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Land connected peoples’ world view (making up many

indigenous communities):

• Land = heritage

• Land lies at the very centre of culture and identity

• Custodians - land is a legacy for future generations

• Land is not a tradable commodity

• Their culture lives and exists within their community and in

the landscape around them

Western World View

• Land is a tradable commodity like many others

• Our culture is often associated with written history, literature

and the arts - done by others – somewhere else!

Barriers to Shared Value – divergence of capacity

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Mining in the Developing World

• Remote locations with limited knowledge of, or access to markets

• Low educational status

• Limited business capacity to service a complex industry

• Limited understanding of western concepts of corporate

governance

• Limited or no understanding of economics or investment

• Divergent socio-political systems

• Culture of living for today

• Lack of trust in foreign companies or foreigners generally

• Different views concerning gift-giving and of what constitutes

corruption

How is SV different from typical CSR?

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Purpose – to secure access to land and resources – Social License to Operate

Characteristics of CSR (generalisation) - evolved over time

• Early CSR engagements focused on giving – often transactional in nature

• Corporate Philanthropy – doing good to/for others - buying peace

• Community projects aimed at meeting community demands – again buying peace

• Generally a one-way transaction between donor and recipient

• Little in the way of reciprocity other than securing continuous operations

Risks inherent in poorly designed CSR

• Communities come to view miners as a source of benefits rather than a source of opportunity

• Creates long term dependence and a hand-out mentality

• Threat to sustainable social closure outcomes

Models of CSR vs Shared Value

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CSR – responding to community expectations/demands with philanthropy

Shared Value – co-creating a shared vision for the future

Company Community

Company Community

Donor Beneficiary

Giving

Shared Vision

Co-Creation

Shared Achievement &

Responsibility for Outcomes

Community

Self reliance

Philanthropy

Case Study – Lihir Malaria Elimination Project

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LMEP is a partnership between Newcrest, MMV, National, Provincial and Local Government,

PNGIMR, ISGlobal - University of Barcelona and the Lihir Community.

Objective: Eliminate Malaria in the Lihir group of islands

Why is this a shared value project?

• Extensive community support and engagement

• Malaria Incidence rate 400/1000 – approaching the highest in the world

• Treated Infections amongst workforce in 2018 – 1188 cases (in a workforce of 5200)

• Significant disease burden in both the community and the workforce

• Malaria is a shared burden and Elimination is a shared value – reduced suffering in the

community, and reduced absenteeism and increased productivity of our workforce.

• Builds capacity of local institutions to sustain outcomes

Building Resilient communities - Lower Watut Cocoa Growers

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• Wafi-Golpu lies in the mountains adjacent to the Watut

Valley in PNG - will be a block cave operation employing

only 850 generally highly skilled people. Community

opportunities for direct employment will be limited.

• WGJV agreed with the community to support development

of an economic ecosystem surrounding the project.

• Community engagement led to an agreed vision for

agribusiness development in the area surrounding the mine.

• Cocoa was an existing cash crop but needed support to

enlarge plantations and improve product quality.

• WGJV has partnered to provide technical support to local

farmers to establish and develop a hybrid seedling nursery

and build new cocoa fermentaries to improve quality.

Case Study – Wafi-Golpu and the Lower Watut Cocoa Growers

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• Results

• Significant increase in cocoa quality enabling the

Lower Watut Cocoa Growers Association to win a

prestigious “Salon du Chocolat” prize for best

cocoa quality in Paris in 2015.

• Local grower Chefang Yaling won the Gold Prize at

the PNG Cocoa show in 2019.

• Improved market penetration and pricing for their cocoa

• Production of a delicious Lower Watut single origin chocolate

• Significant increase in the value of cocoa sales and village

livelihoods.

• Building self reliant communities who view the WGJV as a partner

in their own development

In conclusion

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• Managing the Transition from CSR to Shared Value

• Making a transition from a mentality of risk mitigation through CSR and corporate

philanthropy to a Shared Value approach requires a shift in corporate culture.

• Requires a long term and consistent commitment with partners both in civil society and local

communities

• Basic CSR philanthropy approaches may be a necessary first step in building the trust

relationships necessary to commence and deliver shared value outcomes

• Shared value cannot be achieved without trust – it is a prerequisite

• Shared value is about partnerships which deliver on community aspirations which are

coincident with corporate objectives

• Shared value in our context is about creating self sustaining and resilient communities

Finishing thought – A Dutch Proverb

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“Trust comes on foot – but leaves on horseback”