Soft Side Risks Hard Side Costs

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Soft Side Risks ? Hard Side Costs
The growing importance of social and community
issues in project finance
A presentation to United Nations Environment
Program Fifth International Roundtable Meeting on
Finance and Environment Sept. 9, 1999 Chicago,
USA
Presented by Wayne Dunn Wayne Dunn Associates
Ltd.
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Presentation Overview

• Growing influence of social and community issues
  examples, causes and impacts
• Does it matter?
• What is being done?
• Managing and understanding the issues
• Questions

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Our background

• International management consulting firm
  specializing in corporate community relations
  management systems (www.waynedunn.com)
• Direct experience with corporate, community, NGO,
  government and institutional sectors.
• Born in Canada
• Broad personal experience Prospector to Stanford
  Business School)
• Pragmatic approach to issues management

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World is Changing
1 Billion cost

• Friday August 13, 1999 Big Oil Cos. Stop Nigerian
  Pumping
• LONDON (AP) -- A joint venture between Texaco
  Inc. and Chevron Corp. was forced to stop pumping
  oil off the coast of Nigeria on Friday because
  angry residents in the area blocked supplies from
  reaching the company's platforms.

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Community relations a new challenge

• The corporate community interface is a new
  challenge
• Communities have increased influence and bottom
  line impacts
• Not unlike the challenge posed by emergence of
  environmental issues in the 80s and 90s

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Social License No project is immune

• Nike and labour issues
• Camisea project
• Mining projects
• Antamina
• Belize highway
• Forestry projects

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Why is this happening

• Global media The CNNization of the world
  remote local issues direct to television screens
• Proliferation of NGOs direct, well organized
  and financed support to communities
• Internet and other communications innovations
  direct communications from remote projects to
  worldwide audience
• Global Democratization increased attention to
  local issues

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Why is this happening (cont)

• International standards and directives
• World Bank Operational Directive 4.30
  Involuntary Resettlement
• World Bank Operational Directive 4.20
  Indigenous Peoples
• IDB Community Consultation, Sustainable
  Development
• IDB Operational Directive 710 Involuntary
  Resettlement
• International Labour Organization Convention 169
  on Indigenous and Tribal Peoples Convention
• United Nations Conference on Environment and
  Development Chapter 26, Agenda 21
• United Nations Declaration on the Rights of
  Indigenous Peoples (Draft)
• Organization of American States Declaration on
  the Rights of Indigenous Peoples (Draft)

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Why is this happening (cont)

• Increased permeability of institutional and
  organizational boundaries
• Regulatory frameworks and licensing-permitting
  procedures platforms for public involvement
• Growing public interest - driven by increased
  access to information (CNNization and other
  communications)

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NGOs a powerful force
1 Trillion influence

• Big government, big business give way to 1
  trillion big nonprofit sector
• Washington (AP) -... NGOs distribute more aid
  than World Bank and, if viewed as a nation, would
  rank 8th in economic power... Key roles in trade,
  environment, corporate decision making
• Tony Blair third way in world affairs
• Gerhard Schroeder represent the new middle
• Employ over 7 of U.S. Workforce
• Distribute 30 of U.S. aid

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Increased community influence

• Social/local license
• Communities supported by well organized/financed
  NGOs and interested public
• Direct community influence on project design,
  development and profitability

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Soft issues ? direct financial impacts

• Project delays and blockages
• Difficulty securing regulatory approvals and
  permits
• Increased cost and complexity
• Difficulty accessing financing
• Increased political risk premiums
• Erosion of management credibility

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Community issues have direct impacts

• Deterioration in government and institutional
  relations
• Erosion of corporate reputation
• Increased scrutiny of other operations
• Difficulty acquiring other opportunities
• Difficulty with goods markets

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Corporate responses

• Corporate policy statements
• Increasing communications (reports, executive
  speeches, etc.)
• Social and community relations approaches
• Efforts at systematizing approaches
  social/community issues

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Financial stakeholders are targets too

• Project and reputational risk for developers and
  financial backers
• Greens Gun for Finance FT Feb 9, 1999
• Potential impacts
• Negative publicity
• Possible boycotts of consumer business
• ? financial returns

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Response by financial institutions

• Tomorrow Magazine Survey (Aug 99)
• Increasing focus on environmental and social
  aspects of projects (7 of 10 respondents)
• UNEP Round Table an indication of growing
  interest

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Growing interest in social issues

• Corporations and financial institutions
  demonstrating growing interest in social and
  community issues
• Social and environmental reporting (and auditing)
• Little progress in formally integrating into
  management systems
• BP Amoco audit management processes for
  implementing relationship policies are less
  formalized... following (policy) introduction...
  limited review of process for management of
  relationships against expectations of policies.

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Consistency and management

• Lack of consistency in corporate social and
  community programs
• Ad hoc approaches to managing local relationships
  ? increases risk of problems

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Connecting policies to programs
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Spending isnt the answer
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Need for a systematic approach
Community Relations Management
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A systematic approach to social issues
Constructive interaction
Measuring monitoring
Projects Operations
Corporate ethos
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Corporate Ethos the foundation

• Understanding the importance of the issue
• Providing tools, training and support
• Bridging cultural and capacity gaps
• Cross-cultural communications and conflict
  management.
• A necessary core competency for the new millenium

Corporate ethos
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Constructive Interaction
Constructive interaction

• Beyond Beads n Trinkets
• Interaction Continuum
• Strategies for developing interaction points
• Multi-Dimensional considerations

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Interaction Continuum
Constructive interaction
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Framework for interactions

• Framework for negotiations and consultations with
  local interests
• Facilitates internal and external communications
• Facilitates a system based understanding of
  community relations

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Measuring and monitoring
Measuring monitoring

• What gets measured gets done
• Impact of interactions
• Systematic integration into corporate management
  practices
• Necessary for standardization

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What about financial institutions?

• Are community and social issues too important to
  leave to ad-hoc approaches?
• Do current due diligence processes capture social
  and community risk?
• Can you evaluate overall portfolio risk?
• Will a systematic approach work?

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Questions and discussion

• Community and social issues can you afford an
  ad-hoc approach?