WORLD BANK DISCUSSION PAPER NO. 384 @ ~~~~WDP 3 8i Work in progress for public discussion ffi 0 1 4 8 Integrating Social Concerns into Private Sector Decisionmaking A Reciew of Coipol-ate Praaices in the Mining, Oil, and Geis Seaors Kathr vi I(Ph i! Aila'an I)av v Recent World Bank Discussion Papers No. 313 Harnessing Information for Development: A Proposal for a World Bank Group Strategy. Eduardo Talero and Philip Gaudette No. 314 Colombia's Pension Reform: Fiscal and Macroeconomic Effects. Klaus Schmidt-Hebbel No. 315 Land Quality Indicators. Christian Pieri, Julian Dumanski, Ann Hamblin, and Anthony Young No. 316 Sustainability of a Government Targeted Credit Program: Evidencefrom Bangladesh. Shahidur R. Khandker, Zahed Khan, and Baqui Khalily No. 317 Selected Social Safety Net Programs in the Philippines: Targeting, Cost-Effectiveness, and Optionsfor Reform. Kalanidhi Subbarao, Akhter U. 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Shahid Yusuf and Praveen Kumar No. 341 Beyond Privatization: The Second Wave of Telecommunications Reforms in Mexico. Bjorn Wellenius and Gregory Staple No. 342 Economic Integration and Trade Liberalization in Southern Africa: Is There a Rolefor South Africa? Merle Holden No. 343 Financing Private Infrastructure in Developing Countries. David Ferreira and Karman Khatami No. 344 Transport and the Village: Findingsfrom African Village-Level Travel and Transport Surveys and Related Studies. Ian Barwell No. 345 On the Road to EU Accession: Financial Sector Development in Central Europe. Michael S. Borish, Wei Ding, and Michel Noel No. 346 Structural Aspects of Manufacturing in Sub-Saharan Africa: Findingsfrom a Seven Country Enterprise Survey. Tyler Biggs and Pradeep Srivastava (Continued on the inside back cover) WORLD SANK DISCUSSION PAPER NO. 384 Integrating Social Concerns into Private Sector Decisionmaking A Revw of Corporate Practices in the Mining, Oil, and Gas Sectors Kathryn McPhail Aidan Davy The World Bak Wsfinon, D.C. Copyright © 1998 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing January 1998 Discussion Papers present results of country analysis or research that are circulated to encourage discussion and comment within the development community. The typescript of this paper therefore has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to mem- bers of its Board of Executive Directors or the countries they represent. The World Bank does not guaran- tee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this vol- ume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the Office of the Publisher at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permrission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to copy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A. Cover photos: "Lao mother with child." Linda Schneider. "Yugoslavia. Construction workers on the oil pipeline for crude oil to refineries." Yosef Hadar, 1979. ISSN: 0259-210X Kathryn McPhail is senior social scientist in the Social Development Department at the World Bank. Aidan Davy is an environmental management consultant. Library of Congress Cataloging-in-Publication Data McPhail, Kathryn, 1949- Integrating social concerns into private sector decisionmaking: a review of corporate practices in the mining, oil, and gas sectors / Kathryn McPhail, Aidan Davy. p. cm. -(World Bank discussion papers; no. 384) ISBN 0-8213-4188-X 1. Energy industries-Social aspects-Developing countries. 2. Intemational business enterprises-Social aspects-Developing countries. 3. Energy industries-Developing countries-Planning. 4. Energy industries-Environmental aspects-Developing countries- Planning. 5. Energy industries-Govemment policy-Developing countries. I. Davy, Aidan, 1965- . H. Title. III. Series: World Bank discussion papers; 384. HD9502.D442M33 1998 333.79'09172'4-dc2l 98-9991 CIP Contents Foreword iv Abstract vi Acknowledgments vii Executive Summary ix Chapter 1 Introduction 1 Chapter 2 Governmental Factors 7 Chapter 3 Private Sector Factors 11 Chapter 4 Local Community and NGO Factors 37 Chapter 5 Recommendations: Next Steps 39 Annex 1 Members of the Steering Committee 41 Annex 2 Social and Environmental Assessment: Exploring Linkages 43 Bibliography 75 . . Foreword r g# his publication is about how corporations act within communities. It looks at mining, oil and gas companies, and the people and communities who are affected by their activities. It aims to guide corporations from these sectors on how best to factor social concerns into planning and developing projects by showing examples of corporate good practice. The traditional roles of governments, corporations, and development institutions such as the World Bank Group are changing. Mining and oil and gas projects in developing countries are predominantly financed by the private sector. There is often uncertainty as to the limit and locus of responsibilities for the social and environmental aspects of projects, concerns about governments as sole facilitators of social and economic development, and expanding expectations of the role of corporations and nongovernmental organizations (NGOs). The key "environmental" challenge that many private corporations investing in developing countries are grappling with is how to manage social and community concerns. The concept that corporations should be concerned about social issues is by no means universally accepted. An alternative view-that corporations have social and ethical responsibilities towards their stakeholders is gaining ground. This is particulaly true in developing countries, where corporations may represent the primary source of direct employment, other income generating activities and social infrastructure within a region. What is unclear, even to many corporations that subscribe to this alternative perspective, is how to establish the boundaries of their responsibilities and, having done so, how to manage their involvement with communities. This publication is aimed at strategic decisionmakers within corporations, governments and NGOs. It is also intended to be of practical value to those responsible for managing social and environmental issues within mining and oil and gas operations by illustrating the potential for doing things differently. iv Foreword v Work began in January 1997 and has been led by the Social Development Department of the World Bank. It has involved a wide range of private sector interests and was overseen by a steering committee comprising representatives from the industrial subsectors of interest, academics, representatives of NGOs, consulting firms, the Government of Denmark, and private sector interests from across the World Bank Group. In this respect, it represents a good example of the Bank Group's preferred approach to working collaboratively with the private sector. Glo-ia Davis Robert Watson Director Director Social Development Department Environment Department Andreas Raczynski James Bond Director Director Technical and Environment Department Industry and Energy Department International Finance Corporation Abstract C orporations within developing countries often have a profound impact on the social fabric of the area within which they operate, particularly in sectors such as mining and oil and gas. Even the more socially responsible corporations have difficulty in managing their relations with and responsibilities towards local communities and other stakeholders. This publication deals with the integration of social concerns into project plannirg and development in the mining and oil and gas sectors. It explores the government, corporate, and NGO/community factors-referred to as critical success factors-which support the integration of social concerns. The primary focus is on corporations, and a series of recommendations are presented to assist corporations to manage the social aspects of their activities. The publication also explores the linkages between social and environmental assessment of projects, identifies current practices with respect to social assessment, and makes specific recommendations on their integration. The publication is aimed at both strategic decisionmakers (within corporations, governments and NGOs), and at those with direct responsibility for managing social issues at the project level. vi Acknowledgments T he tragedy of acknowledgments is that invariably some people who deserve credit are not mentioned. Consequently, these acknowledgments mention only groups of people and organizations. To the individuals who have contributed so generously of their time, thoughts, and insights, we are extremely grateful. This publication is the product of a series of stimulating responses to questionnaires, interesting conversations, and absorbing details garnered from a range of publications. First, we are very grateful for the time and effort taken by all the respondents from corporate, consulting, and nongovernmental organizations (NGOs) who took the time and effort to complete questionnaires. Second, to those who met with us or who we talked to by telephone and those who provided us with background information and the benefit of their experience, we are particularly grateful. Third, to the authors referenced in the bibliography, we are thankful for having the benefit of their insights, which have helped to shape our thinking. We also owe a great deal to the members of the steering committee (see annex 1). Their time and effort in reviewing the terms of reference for the project, the draft questionnaires, and pre-publication drafts of this publication was invaluable. In particular, some members have challenged us to grasp nettles that we might otherwise not have grasped; we are indebted to them for that. Finally, our sincerest thanks to all our colleagues who are working on private sector issues within the World Bank Group, our colleagues in the Social Development Departrnent, and sterling support staff members, who have given their time and support in various guises to help produce this publication. vii Executive Summary he social and ethical dimensions of business are increasingly on the =agenda of major corporations and range from minimizing the social _ impacts of new investments to contributing to local charities. This book focuses on one narrow aspect of corporate social responsibility. It explores the factors supporting the integration of social concerns into the planning and implementation of privately financed projects within developing countries. The two sectors of interest are mining and oil and gas, although the lessons may be transferable to other business areas. The emphasis is on matters of principle rather than on detailed methodological guidance. The intention is that these fundamental principles should provide a partial basis for developing social policies and methodologies. The recommendations are based on current practice by leading-edge organizations in the sectors of interest, which represent apparently progressive approaches to managing social issues. Social Concerns The key social concerns emerging from a review of corporate social and environmental assessment practices in developing countries are as follows: * Assessing and managing the socioeconomic risks of investments (for example, the impacts on vulnerable groups, cultural resources, and natural resource use by local communities). * Determining government and corporate responsibilities for social and community development activities (for example, water and sanitation, health care, and education). ix x Integrating Social Concerns into Private Sector Decisionmaking a Ensuring the long-term sustainability of investments in social infrastructure through public involvement, partnership approaches, and the fostering of local ownership. * Respect for basic human rights, particularly among vulnerable groups in society. * Developing awareness of and capacity to manage social issues within corporations. Managing these social concerns is increasingly viewed as essential if corporations are to maintain their license to operate. Critical Success Factors Critical success factors to ensure that social concerns are integrated into the planning and implementation of privately financed projects include factors controlled by project proponents, and also political, institutional, and societal factors. As corporations must engage in partnerships with governments and civil society to be socially responsible, critical success factors must apply to each of these three groups. The realization of critical success factors amounts to (socially and environmentally) sustainable decisionmaking. This strikes a balance between societal, environmental, and economic considerations. The ideal project scenario will rarely, if ever, exist, and not all critical success factors must be in place. However, identifying these factors provides direction to corporations on how to manage aspects of project planning within their control, helps them to recognize constraints to sustainable development arising from the absence of extemal critical success factors, and suggests a means of overcoming them. The main emphasis is on factors directly under the control of the private sector, although governmental, local community, and NGO factors are also briefly discussed. Governmental Factors Perhaps the most important external factor influencing socially responsible private sector decisionmaking is the existence of legal requirements to consider social aspects during project development and approval. This may either be included in the legal framework for environmental assessment, or within codes relating to mining and oil and gas development. Requirements for involving interested and affected parties should be legally assured, supported by the principles of protecting their interests and recognizing their rights to benefit from development. However, regulatory reforms should not be too prescriptive. Governments should establish clear objectives and benchmarks against which compliance can be measured. The challenge is to ensure basic requirements for social Executive Summary xi assessment (SA) without stifling corporate innovation. Government regulation might also extend to supporting the effectiveness and independence of NGOs. Regulation must be supported by capacity development in the relevant agencies, for example, to evaluate and approve SAs. A key source of conflict between corporations and communities is the extent of corporate funding for social provisions (such as health care and education), which are often required by way of societal compensation. Governments can help to clarify the extent of responsibilities for social provisions during project approval. It is also important that governments honor commitments to cofinance social provisions and explore mechanisms to ensure their sustainable financing. Another common source of conflict relates to the allocation of project revenues, which can be avoided or eased by governments developing a legal basis for directing some revenues to local development initiatives. Finally, in some situations governments might identify overriding social and environmental obstacles to development to help guide the allocation of concessions. This would prevent exploration companies from investing in areas of overriding social constraints and protect both companies and communities from conflicts. Private Sector Factors The critical success factors within the control of the private sector are presented below as a series of 10 recommendations. Their order reflects stages in a process that corporations might adopt to better integrate social concerns, from developing a social policy to evaluating social investments. 1. Adopt a policy on social issues and develop capacity Policies form the basis for implementing management, measurement, and reporting systems, supported by senior managerial commitment. Environmental policies are now standard practice for major corporations, whereas policies addressing social concerns are a fairly recent (though increasing) development. The training and experience required to implement such policies are typically in short supply in corporations, and developing capacity should be a priority. There is also a need to develop awareness and understanding of the value of enhancing social and human capital, both to companies and communities. 2. Identify stakeholders and acknowledge the legitimacy of their perspectives Stakeholders will typically include governments, local communities, NGOs, and perhaps core business stakeholders (such as shareholders and customers). Provisions for public involvement are either weak or nonexistent in many developing countries. However, experience has shown that acknowledging the xii Integrating Social Concerns into Private Sector Decisionmaking legitimacy of all stakeholder perspectives is very important. For example, failure to acknowledge the legitimacy of customary laws in parallel with national or regional laws pertaining to natural resource exploitation will almost certainly result in conflict with the owners or occupiers of land. Similarly, indigenous peoples often think in terms of stewardship rather than ownership, and they have a material and spiritual connection to both surface and subsurface resources. Acknowledging the legitimacy of stakeholder perspectives is perhaps most complex where armed conflicts between societal groups are ongoing. 3. Identify social risks and opportunities The challenge of social responsibility presents both risks and opportunities to corporations. Opportunities emerge where social responsibility is viewed as conferring business advantages (for example, improving access to future exploration concessions and reducing costly delays arising from local conflicts). Accidental spillage or release of products or process chemicals can significantly change public perception of corporate, social, and environmental responsibility. Managing social risks and preventing impacts is preferable to solving them retroactively in a climate of acrimony, litigation, and public opposition. 4. Assess social and environmental impacts thoroughly: Integrate where appropriate A thorough analysis of the social and environmental impacts of project alter- natives should form the basis for avoiding or reducing impacts to acceptable levels. However, social impacts are not always adequately dealt with in private sector projects as corporations may not understand social issues. Furthermore, project approval processes in many developing countries focus on environmen- tal rather than social issues and may exclude civil society. Where changes in environmental quality could profoundly affect local communities, or environ- mental resources could be threatened by social impacts such as in-migration, the integration of social and environmental assessments is very important. However, there are practical limits to integration. Many environmental impacts may be mitigated by engineering solutions, whereas social impacts are more difficult to manage and resolve (and appropriate expertise is very rare at the operations level). Most environmental concerns can be accommodated within the snapshot effect of environmental assessment, whereas social and community development programs are more evolutionary. Finally, corpora- tions should recognize that, in some situations, the social impacts of projects are so profound that avoidance is the only acceptable form of mitigation. 5. Recognize public involvement as integral to project sustainability Stakeholder involvement encompasses information exchange, consultation, participation, and joint decisionmaking. The success of public involvement can Executive Summary xiii be greatly enhanced by the use of experienced facilitators. In identifying and consulting stakeholders, special care should be taken to ensure the representation of indigenous people, women, and minorities who might otherwise be disproportionately impacted by development. Stakeholders may have concerns about land tenure, income, health, and so on, which must be identified and addressed. Stakeholders also have a key role to play in identifying social and environmental concerns and in developing mitigation measures. For consultation to be fully effective, a common language must be developed between communities and corporations, which requires a two-way education process. Companies must be prepared to listen and develop an understanding of the communities' concerns-of their values and social structures. They must also be prepared to develop capacity within communities for consultation and negotiation and adopt appropriate methods of communication. However, the adoption of more democratic consultative and decisionmaking processes may help to develop an awareness of issues that corporations may not be able to address, or that may conflict with government policies. 6. Delineate responsibilitiesfor social provisions Mining and oil and gas developments often require that the proponent assumes some responsibility for social infrastructure, which may greatly exceed government provisions for local people. This raises the issues of who should benefit and to what extent. The most obvious beneficiaries are employees and their families, although allocating benefits become complex when the project recruits from outside the area. In this situation, social equity considerations become important, particularly as the "enrichment" of recently arrived employees may be juxtaposed with impoverishment of the indigenous population. There appears to be an emerging consensus that investment in social and community provisions should be an integral part of doing business-in effect, pa&tof the license to operate from local communities. However, if broader support is to be developed for such a change in thinking, then the associated "social costs" and business benefits must be more clearly defined. As a rule, corporations should aim to complement government responsibilities and provisions, as opposed to replacing them. 7. Aimfor social equity in revenue distribution, compensation, and other social investments The public and private sectors should ensure that some project revenues accrue to key stakeholders in an equitable manner. For example, a proportion of govermnent income from royalties, taxes, or equity might be earmarked for local development activities to ensure that those most affected enjoy some of xiv integrating Social Concerns into Private Sector Decisionmaking the benefits. Corporations that are serious about sustainable development must concern themselves with such issues to avoid local disaffection or civil unrest. Where revenue-sharing arrangements are developed, transparent tracking mechanisms should ensure that benefits go directly to the intended beneficiaries. Social equity should also be of primary concern in determining and allocating compensation. Development projects invariably affect stakeholders in different ways, depending on factors such as gender, age, and economic and social status. Groups such as women, the poor, or indigenous peoples are prone to shouldering a disproportionate development impact burden, which should be factored into compensation arrangements. In providing compensation to affected people, the temptation to throw money at the problem must be avoided if social sustainability is to be achieved. Community-based compensation, where benefits accrue to communities as a whole, is preferable. 8. Develop partnerships in support of sustainable development There is increasing recognition of the interdependence between development issues and the environment and of the need for partnerships to address these complex issues. Corporations should actively pursue partnership approaches for delivery of social programs in support of sustainable development. The advantages of partnerships include pooling resources, building respect and understanding between potential adversaries, and transfering knowledge. For example, communities and NGOs can help to shape social mitigation or community development programs, and monitor corporate compliance with agreed objectives. Most leading-edge corporations believe that the responsi- bilities for community involvement cannot simply be outsourced-that direct partnerships with communities are essential if corporations are to maintain their informal license to operate. 9. Develop mechanismsfor long-term representation of stakeholders and conflict resolution Public involvement should continue throughout the lifetime of projects. The range of community development activities supported by many private companies, which are increasingly being developed with the involvement of communities, is evidence of many corporations' long-term commitments. However, some organizations with excellent community development programs struggle to deal effectively with conflict situations. Ideally, companies and communities should develop a means of resolving differences that involves no external parties-based on mutual trust and understanding. If necessary however, mechanisms to resolve intractable disputes, such as arbitration forums, should include an impartial respected outside agency or individual. Executive Summary xv 10. Evaluate the effectiveness of social investments Social investments encompass both mitigation measures and other community development initiatives. If the sustainability of projects in the oil and gas and mining sectors is to be partly judged on gains in social and human capital, it is important to evaluate the effectiveness of social and community investments. The simplest measure is the cash value of a corporation's contributions (including grants, donations, training, enterprise development activities, and so on). However, the total amount given is less relevant than the outcomes, and if the true social development impact of corporations in the mining and oil and gas sectors is to be captured, new indicators must be developed to measure the success of community investment activities. The aspirations of local communities should be a key consideration in deriving measures for evaluating the success of social investments. Local Community and Nongovernmental Organization Factors Governments and industry, as the main agents of development, should bear the burden for making development more sustainable. However, communities and their representatives must be willing to work as partners in the process. For example, they must recognize the legitimate role of governments to make strategic development decisions, providing that citizens have a role through electoral, consultation, or other processes. NGOs have played a crucial role in developing support for sustainable development. However, they also have a responsibility to accurately reflect the desires of the communities they represent and to be a part of the solution to the challenges of sustainable development. Similarly, NGOs should recognize the limits of corporations' abilities to exert social and political influence and their lack of authority to do so. Finally, some NGOs will need to reconcile their more traditional campaigning and advocacy role with their emerging role as partners with governments and industry in support of sustainable development. This is not to suggest that NGOs or the communities they represent should mutely accept development proposals. In particular, if communities are unwilling to accept development and are unlikely to be able to adapt while maintaining social and cultural integrity, then the case for no development is persuasive. Recommendations: Next Steps The preceding paragraphs outlined a series of recommendations on how corporations can attempt to manage social risks and better integrate social concerns into private sector decisionmaking. The emphasis has been on matters of principle, rather than on the specifics of how to implement any of the recommendations. Assuming that there is support for the principles outlined xvi Integrating Social Concerns into Private Sector Decisionmaking above, how should corporations move the debate forward, in collaboration with the other development actors as appropriate? It is recommended that * The views of industry association members be sought on where the priorities lie, for example, should the focus be on methodological guidance * A representative number of case studies be evaluated in greater detail to leam how successes have been achieved and obstacles overcome * A systematic approach to managing social issues be jointly developed between one or two companies from the sectors of interest and the World Bank Group * On a pilot basis, the World Bank Group might take the lead in a partnership role between a corporation, relevant government departments, and local communities and NGOs to help facilitate the various actors to maximize the development benefits for all concemed * The outcome of the above be factored into training modules aimed at corporations, NGOs, and World Bank Group staff. CHAPTER 1 Introduction ry'I he past decade has witnessed a dramatic shift in corporations' attitudes * toward the environment. In the early 1980s the environment was generally perceived to be of peripheral concern to industrial and commercial operations, and potential impacts were viewed as manageable through "end-of-pipe" solutions. This perception has given way to a widespread recognition of the environment as a mainstream business issue, demanding the application of systematic management techniques that often influence behavior far beyond a corporation's site boundaries. However, the primary focus of concern has been on the natural environment, and little attention has been paid to the social and ethical dimensions of corporate activities. Corporate social responsibility (CSR) is now, however, increasingly on the agenda of major corporations. It takes many forms, ranging from minimizing the social impact of new investments; providing employees with better working conditions; purchasing from suppliers who behave ethically with respect to child labor or other social and environmental issues; and supporting local charities, environmental groups, enterprise initiatives, or education trusts; to financing international foundations that aim to promote environmentally or socially sustainable development. There are numerous examples of all forms of CSR in action throughout the business world (see figure 1.1). This report focuses on one narrow aspect of CSR. It explores the factors that support the integration of social concerns into the planning and implementation of privately financed projects in two sectors within developing countries, with particular emphasis on the interfaces between social and environrmental assessment processes. The sectors of interest are mining and oil and gas, although the lessons may well be transferable to many other business areas, such as forestry and agribusiness. The aim is to provide guidance to corporations on how best to integrate social factors into development-building on the experiences of others elsewhere within developing countries as a means of enhancing the sustainability of projects. 1 2 Integrating Social Concerns into Private Sector Decisionmaking Figure 1.1 Elements of corporate social responsibility Customers: Supply of safe Shareholders: Accuracy of products, dumping of materals information, share dividends banned in developed countries, ethical marketing The political arena: Human Suppliers: Prompt payment, rights, bribery and corruption, preferential contracting of local property issues (land rights, suppliers % genetic resources, cultural property), political interference Key stakeholders: Employees: Equal opportunities, Stakeholder identification, welfare conditions, pay, health consultation on local and safety, child labor development initiatives Source: Prepared by Aidan Davy. The emphasis is on matters of principle that should underpin the approach of corporations, rather than on detailed methodological guidance. The intention is that these fundamental principles should help to provide a basis for the development of new, or the adaptation of existing policies and methodologies. The recommendations are based on current practice in relation to corporate social responsibility by leading-edge organizations in the sectors of interest. In this respect, they have been endorsed by industry leaders. They are, however, preliminary, since they are mainly derived from interviews with employees of the organizations profiled as opposed to site visits, or in some cases are based on published texts that have not been independently verified. They do not imply that the organizations or operations profiled consistently apply best practice to managing social and environmental issues. However, they represent apparently progressive approaches to dealing with specific issues from which others can hopefully learn. The Meaning of Social Concerns and Critical Success Factors The key social concerns relating to projects in the mining and oil and gas sectors, which emerged from a review of corporate practices with respect to social and environmental assessment in developing countries, in order of priority, are as follows:' I This paper has its origins in a review of corporate practices in the areas of social and environmental assessment. The results are presented in Annex 2. Introduction 3 * Assessing and managing the socioeconomic risks of investments (including the impacts on vulnerable groups, cultural resources, social structures, and cultural values, the use of natural resources by and the quality of life of local communities; and impacts arising from failure to consult in a meaningful way with relevant stakeholders) * Delineating institutional responsibilities between governments and the private sector to provide support for social and community development activities (housing, water and sanitation, health care, education, training and enterprise development, and infrastructure such as access roads or bridges), either to mitigate potential social impacts or to improve social cohesion * Ensuring the long-term sustainability of such investments in social infrastructure through public involvement, partnership approaches, and the fostering of local ownership e Respect for basic human rights, particularly those of the vulnerable groups in society-such as indigenous people * Developing internal awareness of and the capacity to manage social issues within corporations Managing these social concerns appears to be increasingly viewed as essential if a corporation is to maintain its license to operate. The critical success factors for ensuring the integration of social concerns into the planning and implementation of private sector projects includes not only factors within the control of the project proponent, but also political, institutional, and societal factors. The realization of critical success factors combined with rigorous attention to the environmental aspects of projects collectively amounts to what might be termed socially and environmentally sustainable decisionmaking. In the context of private-sector-sponsored development projects, this strikes a balance between societal, environmental, and economic considerations. It combines the elements of social equity, environmental stewardship, and environmentally sustainable development2 (see figure 1.2). This is not to suggest that all critical success factors must be in place in order to ensure adequate integration of the social and environmental aspects of projects. This ideal project scenario will rarely if ever exist. However, identifying the factors that are most likely to ensure the successful integration 2 Sustainable development may be simply defined as meeting the needs of the present without compromising the ability of future generations to meet their own needs. In practice, the means of achieving sustainable development is hotly debated, as is the extent to which extractive industries can ever be truly sustainable. In the absence of agreed indicators of sustainability, this report assumes that the integration of social and environmental concerns into development decisions must improve the sustainability of projects. 4 Integrating Social Concerns into Private Sector Decisionmaking Figure 1.2 Elements of sustainable decisionmaking Social equity: Balance between the production and the distribution of Social cnri concerns t_ concerns Sustainable development: Balance between economic and environmental management / Environmentl | Environmental stewardship: concern Outcome of social decisions which respect the natural Sustainable decisionmaking: environment Socially and environmentally sustainable development Source: Prepared by Aidan Davy. of social concerns is of practical benefit to businesses, operating in developing countries, that take corporate social and environmental responsibilities seriously. It not only provides direction on how to approach aspects of project planning within their control, but also helps them recognize constraints to sustainable development arising from the absence of external critical success factors, and suggests means of overcoming them. Corporations do not exist in a vacuum. For corporations to behave in a socially and environmentally responsible manner, they must engage in formal or informal partnerships with both governments and civil society. Therefore, critical success factors to ensuring integration of the social and environmental aspects of private sector development (and enhancing project sustainability) must apply to each of these three groups (see table 1). The factors summarized in table 1 and described below have been derived from discussions with, and questionnaire responses from, multinational corporations and larger local enterprises, consultants to private enterprises, NGOs, and a literature review.3 Invariably, the extent to which the principles 3 The emphasis on multinational corporations (MNCs) assumes that examples of good practice would be more prevalent within such organisations. This reflects the intense scrutiny applied to MNCs by both regulators and NGOs, availability of resources to attempt to address such issues, and the breadth of experience spanning continents, which MNCs can applv. Clearly, the transferability of an MNC perspective to small and medium enterprises (SMEs) can be challenged. However, MNCs, directly or indirectly (through partnerships, joint ventures, or subcontracting), have a profound influence within the sectors of interest-sectors in which social and environmental impacts are perhaps most potentially damaging, and difficult to resolve satisfactorily. Introduction 5 Table 1 Critical success factors for integrating the social and environmental aspects of development Govemment factors Private sector factors Civil societyiNGO factors Strategic planning in the allocation of * Adoption of a policy on addressing so- Willingness to work as partners in concessions cial concems and developing in-house sustainable development in collabo- * Identification of social and environmental capacity ration with the private sector and factors as integral to the project approval * Identification of stakeholders and govemments, for example, process, preferably within the legal acknowledgment of the legitimacy of monitoring framework for environmental assess- their perspectives * Recognition of the legitimate role of ment * Identification of social risks and govemments to make strategic * Inclusion of requirements for public in- opportunities development decisions, providing that volvement in planning development * Assessment of social and environmen- citizens are adequately involved in projects within the legal framework tal impacts decisionmaking * Clear definition of institutional responsi- * Recognition of public involvement as Adoption of a responsible attitude bilities for social provisions and environ- integral to project sustainability toward the extent to which a private mental management, and the develop- Delineation of responsibilities for social corporation can influence govem- ment of adequate capacity (in terms of provisions ment policy on development planning, capability and financial resources). * Aim for social equity in revenue social equity and so on * Development of a legal basis for directing distribution * Development of accountability struc- a proportion of govemment revenues to * Development of partnerships in support tures to local communities local development initiatives and encour- of sustainable development * Reconciliation of the campaigning/ aging private sector investment in the * Development of mechanisms for long- advocacy role with the development community term representation of key stakeholders of long-term solutions * Willingness to work as partners in sus- and conflict resolution2 tainable development in collaboration with * Evaluation of the effectiveness of social the private sector, civil society, and investments NGOs a. Key stakeholders in this context are the people directly and indirectly affected by the project or their local representatives, as opposed to intemal employees, customers, govemment agencies, or intemational NGOs. Source: Summary of authores findings. underpinning sustainable development may be applied is heavily dependent on the political, legaL and institutional context of private sector projects, the financial resources and expertise available to the project sponsors, the environmental and social context of projects, and so on. The main emphasis is on factors directly within the control of the private sector, although governmental, local community, and NGO factors are also briefly discussed. CHAPTER 2 Governmental Factors A lthough government entities were not part of the survey on which this report is based, discussions with private corporations and NGOs 1 i revealed a number of factors within the control of governments that are relevant to the integration of social concerns into private sector decisionmaking. These factors are highlighted as recommendations in the following paragraphs. No distinction is made between the various forms and levels of government, and the relevance to national, regional, or local governments will vary between countries. Aside from the existence of an enabling framework in support of foreign direct investment, perhaps the most basic factor influencing the integration of social concerns into development decisions is the existence of a legal requirement that such factors be considered in project development and To strengthen the legal approval processes. This may either be included within the legal framework for basisfor integrating environmental assessment, assuming one exists, or within legal codes social concerns into pertaining to mining and oil and gas development. A clear correlation exists private sector between the existence of regulations and their enforcement and the behavior of decisionmaking, regulated corporations. requirements relating to public involvement To strengthen the legal basis for integrating social concerns into private should be specified. sector decisionmaking, requirements relating to public involvement should be specified. The basic principles of protecting the interests of communities and recognizing their rights to benefit from development should be legally assured. Clearly, there are practical limits to the level of public involvement that may be achievable, depending on the project circumstances. Ultimately, legal responsibility for managing projects resides with the concessionaire, while the authority for granting or refusing permission to proceed with projects rests with government authorities. However, beyond these constraints, most governments would agree that those affected by development should have some say in the process. 7 8 Integrating Social Concerns into Private Sector Decisionmaking However, regulatory reforms should avoid being overtly prescriptive, which could hinder the development of sustainable approaches. Government should be establishing clear objectives and benchmarks against which compliance can be measured. Solutions to social impacts cannot be imported in the form of design or discharge standards. They must be developed locally and driven by local conditions and communities. The challenge is to establish regulations that impose basic mandatory requirements for SA, without stifling innovation in developing locally appropriate solutions. This might be best supported by a combination of legislation, economic instruments, and self- regulatory approaches. The promulgation of regulations in the social arena needs to be supported by capacity development to ensure that the appropriate expertise exists within the relevant agencies (either at the national or local levels) to evaluate and "approve" SAs. This is essential if such regulations are to be effectively implemented and enforced, which will also require the full commitment of governments. Given the importance of developing locally appropriate solutions, the limits to any social oversight role are potentially difficult to establish. However, at a minimum, it could include establishing key principles which must underpin a SA process (for example, stakeholder identification and involvement, use of appropriate expertise, and so on) and ensure that these principles are complied with. Where regulations or government guidelines touch on issues such as public consultation, compensation, involuntary resettlement, and so on, the oversight role should extend to such matters. Regulations or guidelines might also extend to the legal aspects of NGOs. In many developing countries, the absence of a supportive legal environment is a major constraint on the effectiveness, independence, and sometimes the existence of NGOs. The World Bank's NGO Unit has recently published a draft Handbook on Good Practices for Laws Relating to NGOs. The aim of this ongoing initiative is to create or improve NGO laws so that NGOs can act as constructive, reliable, and independent partners for social and economic development. The handbook emphasizes the rights and responsibilities of all partners in development and provides guidance for governments aiming to address these issues. One of the key sources of conflict between corporations and communities during the planning, implementation, and closure of projects within the sectors of interest is the extent to which corporations fund social provisions (health care, education, housing, and the like). Such provisions are traditionally the responsibility of governments (with the exception of employee housing), but are often required of private corporations by way of societal compensation or planning gain. The demand for social compensation may come from either government entities or local communities. Governments can play an important role in clarifying the extent of responsibilities for social provisions as part of the project approval process. Governmental Factors 9 Perhaps more important, where govemment-industry partnerships are developed to cofinance social provisions, as often occurs, it is important that goverrunents do not renege on commitments, which often involve financing the To clearly define the recurring costs of staff or supplies, (for example, for schools or hospitals). social costs of develop- Where this occurs, corporations can find themselves in the role of surrogate ment, mechanisms to government, with little prospect for the sustainability of social provisions ensure sustainable following closure. They can also come into conflict with local communities, who financing of social make no distinction between commitments by government and private provisionsfrom project industry, and for whom the best prospect for resolving grievances is through revenues should the disruption of industrial activities. To clearly define the social costs of be explored. development, mechanisms to ensure sustainable financing of social provisions from project revenues should be explored. One obvious approach is to levy a royalty or tax surcharge on companies to help fund social provisions or enhance the capacity of governments to fulfil their oversight role. These could be applied to production or profits and, from a corporate perspective, have the advantage of enabling costs to be determined up-front. Taxes could be subject to reductions, for example, where companies voluntarily make contributions to enhancing social or human capital beyond their obligations by law or as required to mitigate social impacts. Other approaches might include requiring corporations to post performance bonds for social mitigation in advance of development proceedings, establish social development trust funds, or to insure against the risks of social impacts. For a more detailed discussion of funding mechanisms for environmental and social mitigation, see Reinventing the Well: Approaches to Minimizing the Environmental and Social Impact of Oil Development in the Tropics (Conservation International, 1997). Another common source of conflict between private corporations and communities relates to the allocation of project revenues. Corporations may make significant contributions to national governments (in the form of royalties and taxes) that generally hold legal title to subsurface resources, but if little or none of the benefits accrue directly to affected communities, this can result in local disaffection. In practice, the centralized nature of governrnent in many developing countries is such that remote communities derive little or no benefit from state-allocated resour,es One of the most effective means of avoiding such conflicts is for governments to develop a legal basis for directing a proportion of project revenues to local development initiatives, as exists in the Philippines, Colombia, and Bolivia (see box 2.1). In so doing, consideration must be given to the equitable distribution of revenues between regions. In principle, the region within which potentially disruptive developments are located might be expected to benefit disproportionately from project revenues. Conversely, the economic benefits afforded by development (in terms of social mitigation, infrastructure provision, employment, and its multiplier effects) may dictate that government revenues should be directed to less developed parts of the country in greater need. In practice, the specific country and regional circumstances will dictate the approach to adopt. 10 Integrating Social Concerns into Private Sector Decisionmaking Box 2.1 Allocation of project revenues to local development initiatives: Bolivia The recently enacted mining code in Bolivia aims to balance land ownership rights for surface and subsurface resources with the needs of communities and the state. B9olivia is divided into 9 departments and 305 municipalities. Under the mining code, progressive fees apply to the use of land (for exploration and mining) from the point of concessions being awarded. The municipalities within which mining takes place receive 30 percent of those fees. Of all taxes paid by mining or oil companies (including income, corporate, value- added tax, transaction, withholding, and so on), 25 percent is allocated to municipalities, who have the right to allocate finances to social and community development or other projects. The only constraint is a 15 percent ceiling on administration charges. Furthermore, to encourage investment by mining and oil companies in social development initiatives, voluntary contrbutions by companies can be deducted from taxes, provided that they do not exceed 10 percent of the companies' cumulative investment and that they meet certain sustainable development criteria. For example, they must be long-term projects involving communities, and the municipalities must provide 20 p.- :cent cf counterpart funds to foster ownership and long-term sustainability. The new mining code has only recently come into force, consequently, there is little experience to evaluate its success. Source: Communication with Ministry of Economic Development, Bolivia. Finally, in some situations it wotuld be advantageous for governments Governments should to undertake a form of strategic planning to help guide the allocation of undertake strategic concessions, which identifies overrid; f- social and environmental constraints planning to help guide to development within the sectors of interest. The concept of biodiversity "hot the allocation of spots" as planning constraints is gaining ground. Similar principles might be concessions, which applied to identify social and cultural hot spots at a national or regional level- identifies overriding this aspect is explored further in the section below on assessing impacts social and environ- thoroughly. This would have advantages for both the private sector and mental constraints communities. It would prevent exploration companies from investing in areas to development. where social and environmental issues would ultimately act as overriding to develPment, * constraints to development, and protect both exploration companies and communities from the almost inevitable conflicts that would develop. However, the identification of cultural hot spots would need to follow a rigorous and transparent process to ensure the credibility of such designations. CHAPTER 3 Private Sector Factors T he critical success factors that lie within the direct control of the private sector are presented below in a series of 10 preliminary recommen- dations. The order of recommendations reflects stages within a process that corporations might adopt to better integrate social concerns rather than relative priorities. The starting point of the process is adopting a policy on social issues and the final stage is the evaluation of the effectiveness of social investments. Adopt a Policy on Social Issues and Develop Capacity Perhaps the most basic indication of a corporation's commitment to environmental and social responsibility is the existence of a policy statement on these issues. The policy forms the basis for the implementation of management, measurement, and reporting systems. In the absence of a strong social and environmental policy, supported by senior management commitment, the allocation of resources to these issues is likely to be minimal. Developing awareness and appreciation of the policy among senior managers within operations (supported by strong internal communications) is very important. The adoption of an environmental policy is almost standard practice for major corporations, whereas very few companies have an explicit social policy. Social and community concerns have often been encompassed by a general clause relating to stakeholders (including customers and shareholders as well as local communities). However, this is changing and corporations such as the mining conglomerate Rio Tinto (formerly RTZ-CRA), WMC, and British Petroleum, are increasingly addressing social and community concerns by explicit policy commitments (see box 3.1). The principles that might be reflected in such policies include mutual respect, partnerships, community involvement, long-term commitment, an emphasis on sustainability, and recognition of the legitimacy of various stakeholders' perspectives. 11 12 Integrating Social Concerns into Private Sector Decisionmaking Box 3.1 Emerging policy commitments to social and community concems Rio Tinto's (formerly RTZ-CRA) annual report for 1996 sets out the company's communities policy, which is separate from but complements the company's Health, Safety, and Environment Policy and Aborginal and Torres Strait Islands People Policy (an Australian indigenous group). It is based on the premise that good relations with neighboring communities are fundamental to Rio Tinto's long-term success and commits all operations to developing an understanding and constructive interaction with local communities. This interaction will enable collaboration on development of local communities in ways that apply principles of mutual respect, active partnership (with both govemments and communities) and long-term commitment. The policy is being actively promoted throughout the group's operations and is supported by internal guidelines on its enactment. These stress the need to: ensure the consistency of approach and personnel who interact with the community, develop a consultation process, and develop a five-year program to assist the development of local communities and enhance the community interaction skills of employees. The communities policy will be supported by ongoing research into the social impacts of mining activities. The aim of this research will be to provide a sound basis for developing community assistance strategies, as opposed to the experiential approaches currently applied. British Petroleum's (BP) health, safety and environmental (HSE) performance policy places particular emphasis on consultation with local communities and public interest groups, as well as partnership approaches to raising oil and gas industry standards. However, since the publication of the most recent version of the policy in January 1996, BP has recognized the need for greater clarity with respect to some of the social and ethical dimensions of their industry. They are currently updating related policies that address ethics (which will address human rights at the country and community level), employment practices, and relationships (with all stakeholders). These policies are in the final stages of revision. The approach currently being developed by BP is similar to that followed by WMC, the Australian mining company. WMC has identified core values based on its statement of purpose (business principles), code of conduct (statement of ethics), safety and health policy, environment policy, and indigenous peoples policy. The latter commits the company to developing relationships of mutual understanding and respect with the indigenous peoples of the areas in which WMC operates. The training and WMC's indigenous peoples policy commits to establish effective, sustained experience required to communication with indigenous groups, recognize their desires to fulfill responsibilities undertake consultation within their traditional culture, identify and deal with indigenous interests, and increase and adopt participatory awareness of indigenous issues within the company. approaches to develop- Source: Discussions with representatives of Rio Tinto, BP, and WMC. ment planning are typically in short supply in corporations. The training and experience required to undertake consultation and adopt participatory approaches to development planning are typically in short supply in private corporations, and developing the capacity to address these issues effectively should be a priority. First, this will involve hiring appropriately qualified staff at a sufficiently senior level to ensure that social Private Sector Factors 13 issues are institutionalized. Aside from hiring qualified staff, there is a more basic need to foster an understanding among technical, environmental, and social specialists of the legitimacy and importance of each other's contributions. Within operations, there is a need to develop an appreciation of the importance of, and commitment to, public involvement, social assessment, the interlinkages between social and environmental assessments, and so on. There is also a need to develop an awareness and understanding of the value of enhancing social and human capital, both to companies and to local communities. Acknowledging the legitimacy of all stake- holder perspectives Identify Stakeholders and Acknowledge the Legitimacy is critical if the social of Their Perspectives sustainability of projects is to Acknowledging the legitimacy of stakeholder perspectives firstly requires be achieved. identifying who thr stakeholders are. The most obvious stakeholders are national or local ge iernments, and local communities who live or obtain their livelihood in and around the project area. International, local, and national NGOs and core business stakeholders (such as shareholders, customers, and suppliers) may also have legitimate interests in, and concerns relating to, projects. At this initial stage of identifying stakeholders, it is important to establish formal communication mechanisms to encourage and ensure the effective exchange of information. The extent to which stakeholders are legally assured involvement in the development process varies, but provisions for public involvement are either weak or nonexistent in many developing countries. Furthermore, the right to develop natural resources (including subsurface deposits or surface waters) typically resides with governments of developing countries and overrides any customary or other laws on land tenure. From a strictly legalistic perspective, therefore, the state is clearly the most important stakeholder. However, experience has shown that acknowledging the legitimacy of all stakeholder perspectives is critical, particularly if the social sustainability of projects is to be achieved. Land tenure provides a useful illustration of this point. In many developing countries land is regarded as the most precious asset and is subject to customary laws on ownership, inheritance, and acquisition. This is particularly true of indigenous cultures, where the concept of ownership may also differ radically from the developed world's perspective. The ability of such cultures to sustainably exploit natural resources such as game, fish, medicinal plants, and so on is often far more important than the notion of ownership. Failure to acknowledge the legitimacy of customary laws in parallel with national or regional laws pertaining to natural resource exploitation will almost certainly result in conflict with the owners or occupiers of land (see box 3.2). The specific issue of land rights is clearly bound to the distribution of project revenues, which is discussed in a later section. 14 Integrating Social Concerns into Private Sector Decisionmaking The issue of indigenous peoples deserves specific mention. In the past few years there has been a radical shift in the relationship between many governments and indigenous peoples, from a policy of integration into society to recognition that distinct social and cultural identities are important and can make a contribution to conservation and development. The potential contribution of indigenous people to biodiversity conservation based on traditional knowledge systems is also being recognized. The common perception of indigenous peoples as antidevelopment is misconceived-their concern is often with maximizing development benefits on a shared basis that accommodates the retention of cultural identity. However, the legal framework may not accommodate indigenous perspectives on stewardship rather than ownership and on their material and spiritual connection to both surface and subsurface resources. This is exacerbated by the lack of appreciation by private corporations of the disconnect between legal and indigenous perspectives in relation to land access. Practical approaches to bridging this disconnect are introduced in the section below on public involvement. However, in countries such as Indonesia, where minority groups have no formal recognition, there may be limits to the extent to which corporations can accommodate indigenous concerns. Acknowledging the legitimacy of stakeholder perspectives is perhaps most complex where armed conflicts between societal groups are ongoing. It can also be fraught with legal and practical difficulties where responsibility for the exploitation and management of mineral resources passes from the informal sector to the formal mining sector, as in the case of the Las Cristinas project in Venezuela (see box 1.4). The management of social issues relating to small-scale informal mining is beyond the scope of this report. Finally, the question of selection criteria for stakeholders has not been discussed, although this issue is touched on in the section dealing with local community and NGO factors. Identify Social Risks and Opportunities The challenge of social and environmental responsibility presents both risks and opportunities to corporations. Opportunities emerge where environmental and social responsibilities are viewed as conferring business advantages rather than being seen as constraints. The business opportunities of environmentally responsible behavior include developing innovative approaches to environmental problems (sometimes in the face of regulation) and improving efficiency or reducing wastage with associated economic benefits (see box 3.4). The opportunities arising from socially responsible corporate behavior are less tangible in economic terms, but are often cited as improving the prospects of access to future exploration concessions within the same country or elsewhere, reducing potential conflicts with local communities, which can result in costly delays, and improving employee commitment. Such benefits may collectively confer competitive advantage on the more socially responsible corporations. Private Sector Factors 15 Failure to identify and manage the social and environmental risks of projects can have significant adverse consequences. Environmental degradation often represents wastage of potentially valuable products or process materials. More significantly, operational errors can lead to costly closures, loss of product or revenues, or can compromise the ability to open new operations or expand existing ones. For example, in 1996 an accidental release of tailings from the Marcopper Mine on Marinduque, the Philippines, resulted in criminal charges being filed against a number of company employees, temporary closure of the mine and cessation of exploration licenses, and costs of US$80 million (estimated by the parent company). In addition to the short-term adverse effects of such incidents on share price or consumer decisions, the longer-term costs (and difficulties) of borrowing or obtaining insurance can be very significarnt. Preventing negative social and environmental impacts is preferable to attempting to solve the impacts retroactively in a climate of acrimony, litigation, and public opposition. Box 3.2 Land titling for indigenous peoples in advance of mining: WMC in the Philippines WMC is currently evaluating the feasibility of copper mining at the Tampakan prospect, situated in an isolated part of the island of Mindanao in the Philippines. The area is home to five traditional indigenous Bla'an communities, whose way of life (including the use of natural resources) is governed by customary laws. The Department of Environment and Natural Resources Administration Order 63 of 1991 requires foreign mining companies to recognize and respect the rights of indigenous peoples. In addition, the Philippine Mining Law of 1995 contains provisions relating to prior consent for the opening of ancestral domain lands and for payment of a royalty to indigenous cultural communities to finance a trust fund for their socioeconomic well-being. However, unless indigenous communities have secured recognition of their traditional association by registering an ancestral domain claim (which very few have), they have no rights to claim the royalty. As the indigenous people within the Tampakan area were not officially recognized, the concession agreement between WMC and the Philippine Government placed no restrictions on the company. However, once it became apparent to the company that indigenous communities were present, exploration activities were put on hold until such time as the company had identified all the indigenous communities. In the absence of any existing socioeconomic baseline data, the company initiated a comprehensive data- collection program. This included ethnographic studies, archaeological studies, evaluations of social structures and customary laws, mapping of traditional territories, and an assessment of the dependency of local communities on natural resources. These studies formed the basis for assessing the potential socioeconomic impacts of mining, initiating a community development program to manage and mitigate these impacts and for assisting the indigenous communities to collaboratively develop and register an ancestral domain claim. President Ramos has recently granted a Certificate of Ancestral Domain to one of the Bla'an groups, and WMC's expectation is that the submissions by the other four indigenous groups will be successful. Source: Discussion with representative of WMC. 16 Integrating Social Concerns into Private Sector Decisionmaking Box 3.3 Enhancing the sustainability of displaced small-scale mining communities When Placer Dome commenced gold exploration in the Las Cristinas prospect area in southern Venezuela in 1992, they inherited a legacy of involuntary resettlement of some 5,000 people (small-scale or artisanal miners and their families) from the concession area, dating from 1989. Miners and their families were relocated from eight small villages (subsequently bulldozed) to a site some 5 kilometers outside the concession, and they were allocated small building plots and basic construction materials. Infrastructure and social provisions were poor to nonexistent, anarchic conditions prevailed, and no alternatives to illegal mining were available to sustain the economic survival of the communities. Not surprisingly, the relationship between Placer Dome's exploration staff and the artisanal miners (many of whom continued to work illegally) was strained, and the risks to the project of potential conflicts were becoming apparent. Although never enforced, a clause in the concession agreement obliged Placer to keep the concession area free of informal mining. In 1994 the company initiated a consultation process with the artisanal miners and conducted a census and needs assessment survey. The miners' prime concerns were the inability to work without fear of prosecution and the lack of basic infrastructure and social provisions. After extensive consultation with the artisans, Placer allocated a suitable tract of the concession, known as Los Rojos, to small-scale mining as part of a technical support program to develop organized mining. Partly to help build capacity to mine on a commercial basis, and partly due to Placer's ultimate legal responsibility for the site, the company required the artisanal miners to form an association, with membership based on criteria such as the duration of residence and mining as the main source of income. The association provides leadership, labor, and knowledge and organizes community participation in decisions on the development of Los Rojos, while acting as an intermediary between Placer and the artisanal miners. Placer finances a small, dedicated project team that provides technical support and training in mining methods and in developing and managing a business. The team jointly plans and coordinates the implementation of mining with the association. Existing and planned investments include a meeting house, a cooperative food store, latrines, an infirmary, and a cyanide and mercury-free ore mill. Over time, the association has incrementally increased its control over small-scale mining activities and introduced contributory membership, identity cards, agreed norms relating to health and safety, substance abuse, and discipline, and employed more than 10 staff. These include an inspector of mining and a paramedic. Placer recently helped the association to gain full legal status, and the government revoked the concession clause excluding small-scale miners. The association currently has 200 full members and 300 partial members who are bound by the rules of the association. In effect, a collection of uncontrolled illegal operations have been transformed into a legal entity, with health, safety, and environmental standards. Placer is also starting to address the longer-term sustainability of the post-closure mining communities. The achievement of legal status means that the association may apply for other concessions, or perhaps utilize other areas suited to small-scale mining within the Las Cristinas concession. In parallel, Placer has jointly developed a project with the Canadian International Development Agency (CIDA) to evaluate a range of options to diversify the local economy and expand employment opportunities not directly related to mining. These include commercial construction block production, poultry rearing, garment assembly, and ecotourism projects. While it is far too early to evaluate the ultimate success of the artisanal miners project, the experience is promising, to date. Source: Discussions with representatives of Placer Dome Inc. Private Sector Factors 17 Box 3.4 Environmental responsibility and business opportunities The shifting business perspectives on environment-from a constraint on industry to a business opportunity-are influenced by a range of factors. Regulation, the threat of regulation, or the avoidance of regulation is one factor, but others include gaining competitive advantage, responding to marketplace pressures, or recognizing opportunities for efficiency. Irrespective of the motivation, there are many examples of environmental responsibility bnnging clear economic benefits. Not all these technologies or approaches have been applied in developing countries, but all are applicable, subject to the right institutional, legal, and economic conditions. In the oil and gas sector, British Petroleum developed a means of drilling several wells from a single wellhead using horizontal drilling techniques at its Wytch Farm facility in southem England, which it has applied to operations in Latin America. This limits both the costs and associated environmental impacts. Arco has led the field internationally in the development and promotion of reformulated gasolines that are lead free and emit significantly less pollutants-either directly toxic pollutants, such as carbon monoxide, or those that contribute to the development of photochemical smog. Such fuels may ultimately help to improve urban air quality in some of the developing world's most polluted urban centers. The Canadian mining company, Inco, is renowned for innovation as a means of achieving environmental improvements. Inco was formerly one of the world's highest cost nickel producers, and the largest point source of pollution in North America was its Canadian Sudbury smelting works. By developing a new smelting process-the oxygen flash smelter-to replace conventional reverberatory furnaces, it reduced emissions by 60 percent, and became one of the lowest-cost nickel producers. Similarly, Inco was responsible for developing cyanide recovery and treatment processes that are becoming the industry standard of best practice within the gold mining sector. By licensing both technologies it has further offset initial development costs, realizing economic as well as environmental benefits. While technological innovations do not always directly help to resolve some of the social challenges related to private sector developments, the adoption of environ- mentally sound technologies can help to build support for developments among stakeholders. Source: Review of literature. Accidental spillage or release of products or process chemicals can compromise the health and safety of workers or local communities and significantly change public perception of corporate social and environmental responsibility. Perhaps the most extreme example occurred in 1984 in Bhopal, India, where an accidental release of toxic methyl isocyanate from a Union Carbide plant resulted in more than 2,000 deaths and 200,000 injuries and protracted an expensive litigation process, which has profoundly influenced the fortunes of the entire corporation. The threat of litigation as a consequence of social impacts is also increasing within the sectors of interest. Extensive media coverage has been given to a number of civil actions against corporations, both within developing countries and in the country where the corporate head office is based. 18 Integrating Social Concerns into Private Sector Decisionmaking It is important to recognize the links between socially and environmentally responsible behavior on the part of corporations and the existence of a sound regulatory framework. A study of corporate environmental responsibility within the oil and gas sector in Latin America (Moser, unpublished) identified strong legislation and enforcement as the most important factors in influencing environmentally responsible behavior. Other important factors were obligations to fully implement corporate internal policies, followed by pressure from NGOs and the media. Assess Social and Environmental Impacts Thoroughly: Integrate Where Appropriate A thorough analysis of the social and environmental impacts of project altematives should form the basis for avoiding, offsetting, or reducing impacts to acceptable levels. The methods and techniques of environmental assessment (EA) will be familiar to most corporations with global operations. However, analysis of the social impacts of development projects is less common in the sectors of interest, or is often limited to determining the basis for compensating affected people. Social assessment (SA) in the broadest sense is not as commonly undertaken as environmental assessment for private sector projects. This is often due to poor understanding of the social aspects of development by technologically sophisticated organizations, but may, in part, reflect constraints imposed by the project approval process in some countries and also differences in terminology, both of which may mask socially responsible practices by corporations. However, a few leading-edge corporations have developed internal guidelines on social assessment (see box 3.5). Permitting or project approval processes in many developing countries focus on environmental rather than social issues, and in some countries, the prevailing political conditions effectively exclude civil society from the process. This does not preclude corporations from behaving in a socially responsible manner, but may ensure that social issues are not explicitly dealt with or publicly debated. Some corporations also view social analysis and social assessment as synonymous, and ending at the point of project approval, whereas they consider social and community development programs as a separate, though important, aspect of a project's development. Development of community relations programs or negotiations of integrated benefits packages might occur late in, or after, project approval. Irrespective of the extent to which consideration of social concerns is Stakeholder involve- integral to the approval process, or of differences in terminology, it is essential maent7isntoegra tnolhe- that the social and environmental impacts of alternative project scenarios ment iS inte8ral to t7te (including not proceeding with the project) be thoroughly assessed. For social assessment of social impacts, it is strongly recommended that stakeholder involvement be integral issues and potential to the assessment of social issues and potential impacts of projects, and that this impacts of projects. involvement be continued during the collaborative development of mitigation measures to eliminate, reduce, or offset these impacts. Social assessment also has an important role to play in refining the economic evaluation of projects. Private Sector Factors 19 Box 3.5 Social impact assessment guidelines of Shell International In recognition of the increasing importance of managing the social risks related to oil exploration and production, and to facilitate a consistent corporate approach internationally, Shell International Exploration and Production BV published comprehensive guidelines on Social Impact Assessment (SIA) in June 1996. The guidelines are also intended to raise managers' awareness of the potential social impacts of operations, and to illustrate how SIA can be conducted as an integral part of EA. Although the guidelines are not intended as detailed guidance on SIA, they provide a comprehensive overview of the types of social impacts and the methods and techniques to assess those impacts. Shell has broadly defined SIA as a process for predicting the significant social consequences of an activity, evaluating alternatives sites, techniques, and technologies in terms of their social impacts and proposing changes and management solutions that will lead to the enhancement of positive effects and a reduction of adverse effects. The guidelines reflect the breadth of this definition and helpfully set out the benefits to be derived from SIA and the associated responsibilities. A section on social impacts provides a good introduction not only to the types of impacts, but also to the nature of impacts illustrated by examples (that is, direct or indirect, cumulative, and so on). Sensitivity in dealing with indigenous peoples is emphasized, although the guidelines would have benefited from guidance on what defines a social grouping as indigenous. However, numerous sources of further information are cited. The mitigation section emphasizes a hierarchy of impact prevention, reduction, and compensation, as a last resort. The guidelines caution against the use of monetary compensation where practicable. Throughout the document, the importance of consultation with and involvement of affected communities is emphasized. For example, the section on mitigation recommends that communities and local institutions be involved in developing mitigation strategies. The importance of sustainable mitigation, both in terms of technology and responsibility, is also highlighted. Source: "Social Impact Assessment Guidelines." EP95-0371, Shell International Exploration and Production B.V. Assessing the economic costs of ongoing social mitigation measures is important, particularly where these costs may affect the economic viability of projects (see also the section on compensation below). Potential social impacts encompass a range of concerns that may have little inter-relationship with environmental quality-for example, the effects on religious and cultural resources or on social structures. However, in other situations, changes in environmental quality or resource availability may profoundly affect local populations, or environmental resources may be threatened as a consequence of social impacts such as in-migration. In such circumstances, there is a developing consensus among environmental and social assessment professionals that the integration of both processes is very beneficial to project planning and development. The ideal scenario would involve site visits and data collection being undertaken by joint teams, with the involvement of stakeholders as the basis for impact predictions. This is ideally 20 Integrating Social Concerns into Private Sector Decisionmaking followed by the development of environmental and social mitigation measures, with the involvement of the affected communities, who may also have a valuable role to play in monitoring the effectiveness of such measures. The desire to maximize the level of integration between the physical, environmental, and social issues appears to stem from a growing awareness among environmental professionals of the importance of people in ensuring the long-term sustainability of mitigation measures, and of the importance of social issues. Perhaps one of the most persuasive reasons for integrating environmental and social assessments is that social and community development initiatives (as part of, or distinct from, mitigation measures) are sometimes detrimental to environmental protection, and vice versa. For example, the application of best available technology for pipeline construction may limit the extent of environmental disruption, but will result in far less employment and attendant socioeconomic benefits of more labor-intensive approaches. Conversely, conferring protected-area status on ecologically sensitive areas adjacent to mining or oil production sites and restricting access can adversely affect local communities. These examples highlight the importance of integrating social and environmental assessment in relation to natural resources and human activity. However, it is important to recognize the practical limits to integration. Most potential environmental impacts can be mitigated by engineering solutions, with the exception of some ecological impacts (such as disturbance to tn some situatons the breeding sites of rare birds). In contrast, social impacts are more difficult to the social impacts of manage and resolve to the satisfaction of all stakeholders. The consultative projects are so profound processes required to resolve social issues are also unfamiliar to many that avoidance is the corporations that are more accustomed to interacting with government only acceptableform agencies, as opposed to local communities. In-house expertise in the application of mitigation. of appropriate methodologies and techniques are very rare at the operations level. The time frames for resolving environmental and social issues may also differ. Most countries EA processes have been developed to address environmental rather than social concerns, and are concluded in advance of permitting. Some corporations consider that iterative consultation, which is essential to developing community investment programs, is not compatible within the time frame of EA. Furthermore, they view community development programs as integral to all projects, even where environmental concerns are negligible. Most environmental concerns can be accommodated within the timescale of EA, whereas social and community development programs are more evolutionary. One final point in relation to social assessment must be mentioned. In some situations the social impacts of projects would be so profound that avoidance is the only acceptable form of mitigation. This points to a need to exclude certain hot spots from development. Ideally, such areas would be predetermined and excluded from exploration by governments, but this will often not be the case. For private corporations (and permitting authorities) two essential preconditions should apply, which may help to guide this course of action. First, communities must lack the capacity to adapt to the proposed Private Sector Factors 21 mining or oil and gas development, while retaining the integrity of their social and cultural identities. This will rarely apply, but may be valid for certain indigenous peoples. Second, the affected communities must be unwilling to accept the development. Where communities are enthusiastic about development, yet have an informed awareness of its adverse social implications, social concerns must not be used as the basis for rejecting development projects. Decisions regarding the maintenance of cultural diversity should ultimately rest with the communities concemed. Recognize Public Involvement as Integral to Project Sustainability As mentioned above, formal provisions for public involvement in many developing countries are either weak or nonexistent. However, public involvement (consultation, participation, and the like) should be recognized as essential to the social and environmental sustainability of projects. Stakeholders may have concerns about land tenure, income, health, access to or degradation of natural and cultural resources, resettlement, compensation, migration, and so on, which must be identified and addressed. The success of public involvement can be greatly enhanced by the use of experienced social scientists and anthropologists to guide the process. Stakeholder identification is the first stage in involving the affected public. In identifying and consulting stakeholders, special care should be taken to ensure representation of indigenous people, women, and minorities who might otherwise be disproportionately impacted by development. In some cases representation may need to be via intermediaries (for example, there are potentially serious risks in direct contact with voluntarily isolated peoples, including disease and social disruption). Stakeholders have a key role to play in identifying social and environmental concerns, and also in developing For consultation to strategies to enhance project benefits while minimizing adverse impacts. For F ultative, example, a number of corporations are recognizing the benefits of involving befacmly effective, stakeholders in compliance monitoring. This approach is being adopted by a common language Chevron in its seismic operations in Block 52 within the Ucayali Basin in Peru, must be developed and by Shell in Camisea (see box 3.6). between communities and corporations. For consultation to be fully effective, a common language must be developed between communities and corporations, which requires a two-way education process. Companies must be prepared to listen and develop an understanding of the communities concerns, of their values and social structures, and (where relevant) of indigenous perspectives on ownership and stewardship. They must also be prepared to develop capacity within communities for consultation and negotiation and an appreciation of the scale and nature of the potential impacts of development, as well as the benefits. Finally, they must focus on appropriate methods of communication (often oral and visual rather than written) and communicate in the languages of those affected. Ideally, interaction between communities and corporations should occur via existing institutions. All communities have social groups through which they organize activities such as work groups, religious groups, women's 22 Integrating Social Concerns into Private Sector Decision making Box 3.6 Involving stakeholders during project development: Shell in Peru From the earliest stages of the Camisea project in the Inca region of Peru, Shell Prospecting and Development Peru (SPDP) has committed to a development approach based on openness, consultation, and partnerships. The project will produce gas and condensate from the San Martin and Cashirian reserves in the Lower Urubamba Basin, and construct a 500 km pipeline to transport the products across the Andes to the coast at Lima. The project is currently in the appraisal drilling stage. SPDP's consultative approach has had, and continues to have, an important influence on project development-which extends far beyond the EA process. SPDP's License Agreement applies to two blocks that adjoin the Manu National Park, one of the world's foremost biodiversity areas. The region is also home to many indigenous peoples, both within settlements (mainly the Machiguenga) and living a nomadic existence. An initial study in 1994 involving consultation with a wide range of stakeholders on SPDP's proposed activities identified three key concerns relating to opening access for colonist loggers or hunters, disruption of the Manu National Park, and ensuring that indigenous peoples benefit from the project. In response to concerns over access, SPDP has treated the project as an offshore operation. To avoid the direct and indirect impacts of constructing a road into an isolated area, river access via hovercraft (that does not require landing areas) and helicopters are the main means of transport for people and materials. To better understand biodiversity issues within the Lower Urubamba Basin, SPDP sponsored a consultative workshop, headed by the Smithsonian Institution and attended by 55 conservation groups, to develop recommendations for assessments of the region's biodiversity and sociocultural significance. Based on the outcome of the workshop, the Smithsonian Institution has been commissioned to undertake a detailed regional biodiversity study, in collaboration with a number of universities and other institutions, to support longer-term sustainable development of the region. The SPDP is also committed to delivering a sustainable net benefit to local communities. In collaboration with Pro-Natura, an International NGO, they are developing a social capital program in the key areas of health, training and education, women's issues, resource use, and business development. This is supported by baseline diagnostic studies in each of the key areas, which involve broad consultation with stakeholder groups. For example, a detailed health baseline assessment has been undertaken to identify disease prevalence, assess the status of health care, and recommend improvements. As a first step, the Ministry of Health opened a new clinic in Camisea to provide long-term health care to native peoples. A medical passport system has also been instituted to ensure that all workers and visitors have a full set of vaccinations. A socioeconomic diagnostic is currently being carried out by the regional government and NGOs, to provide a stronger basis for sustainable development initiatives. Finally, in keeping with the objective of openness, SPDP has reached agreement with Red Ambiental Peruana, a network of 35 social and environmental NGOs in Peru, to undertake independent third-party monitoring of their social and environmental performance. This will enable three-person teams to monitor any SPDP activities at Camisea on a quarterly basis. Source: Project publications and discussions with representatives of Shell. Private Sector Factors 23 groups, and schools. New institutions with which people are unfamiliar should be avoided in preference for existing groups within which people feel comfortable. This does not rule out a role for intermediaries, who can help to facilitate public involvement (see also recommendation on conflict resolution). More advanced levels of community involvement than consultation, such as participation or joint decisionmaking, also require new ways of thinking and working, which are not explored in any detail in this report. There is growing recognition of the important contribution that such approaches can make in improving the sustainability of projects. However, the adoption of more democratic consultative and decisionmaking processes may help to develop an awareness of issues that corporations may not be able to address. In many countries with the greatest potential to develop natural resources, the relationship between governments and communities is dysfunctional to varying degrees. In many project scenarios there may be an enormous unsatisfied demand for basic infrastructure (such as water and sanitation) or services (such as health and education) that governments have been unwilling or unable to provide. Where dissatisfied communities are disconnected from civil processes or services, which are traditionally supplied by governments, it is perhaps inevitable that corporations may become the targets of both high expectations and subsequent frustrations. Finally, one of the challenges is to match the level of public involvement to the phase of the project (starting during exploration), and to maintain continuity as the project proceeds beyond exploration into subsequent phases. As concessions frequently pass through one or more junior exploration companies before being developed, continuity can be very difficult. The common perception among exploration companies that their activities have minimal social consequences is ill-conceived. In practice, the point of impact and potential conflict is increasingly brought forward to the exploration phase, and the more progressive exploration companies are wrestling with how to address these issues (see box 3.7). The major mining and oil companies have an interest in ensuring that exploration companies act in a socially responsible manner, otherwise they may inherit a legacy of public opposition to their planned operations. This might best be achieved through industry codes of conduct developed collaboratively between the juniors and the majors. Delineate Responsibilities for Social Provisions Development projects within the sectors under discussion almost inevitably require that the private sector assume some responsibility for social provisions, either during construction or throughout operation and beyond (as distinct from compensation, which is discussed in a later section of this report). It is not uncommon for private developers to provide social services that far exceed government provisions for local people and to fund them from project revenues. The basic issues that this raises are who should benefit from such provisions and to what extent, who should be excluded from access to these 24 Integrating Social Concerns into Private Sector Decisionmaking Box 3.7 Avoiding contact with voluntarily isolated indigenous peoples during exploration: Mobil in Peru Contact between exploration workers and local communities can have significant social and health impacts, in particular on voluntarily isolated indigenous groups that have had little or no exposure to modern society. Experience has shown that the loss of cultural identity and the spread of contagious diseases can result from relatively limited contact. This can in time result in a departure from traditional subsistence lifestyles, leading to increased competition for natural resources, a dependence on aid, and the breakdown of social structures. A recent example of the successful management of potential contact comes from Mobil in Peru. During Mobil's initial EIA of the proposed seismic surveys in Block 77, Peru (referred to as Las Piedras), consultants identified the probability of voluntarily isolated peoples being present. Las Piedras lies to the north of the Manu national park. With guidance from anthropologists, Mobil established a contingency plan for contact with voluntarily isolated peoples, supported by a contact response team. The team comprised anthropologists, medical specialists, and communicators who spoke the local dialects. They were contracted to ensure that any contact would have minimal consequences for the indigenous. Education ot the seismic workers, communication of nonthreatening messages, and vhe availability of medical assistance were key elements of the contingency plan. A "no-contact" policy was adopted, and workers were trained to proceed with caution. All workers also received medical screening and vaccination against infectious diseases. In the event of accidental contact, workers were to signal that they were unarmed, retreat, and immediately notify the contact response team and nearby crews. Work would be temporarily stopped to give indigenous people at least 24 hours to retreat. Following accidental contact, the contact response team would determine whether medical attention or further communication were necessary. They would also determine whether the location of operations, such as seismic lines, would disrupt indigenous lands or traditional activities. If sightings continued, the contact team would advise on the need to permanently stop work in certain areas. Maintaining the confidentiality of information was an important principle to prevent outsiders, such as loggers and missionaries, from gaining access to voluntarily isolated indigenous communities. No direct contact with voluntarily isolated indigenous peoples occurred during Mobil's seismic program. However, the Mobil team indirectly gained a better understanding of the way of life of the indigenous peoples. In addition, the presence of the contact team and their ongoing interactions with workers during the seismic program helped to develop a more in-depth awareness of indigenous peoples issues. Source: Discussions with representatives ol Mobil. provisions (and on what basis), and the boundaries (and linkages) between the state and the private sector regarding social provisions. Clearly, the most obvious recipients of such benefits are employees and their families. Where the workforce is locally recruited and drawn from many or all families within the project area, social benefits will naturally extend to most people affected by the project. However, where the project recruits from Private Sector Factors 25 outside the area, and where immigration associated either with employment or the hope of employment alters the demography of the project area, determining the boundaries of social responsibilities becomes far more complex. In this situation, social equity considerations become important, particularly as the enrichment of recently arrived employees is often juxtaposed with actual or perceived impoverishment of the indigenous population. Extreme examples of this situation have occurred where responsibility for exploitation and management of mineral resources has passed from the informal sector to the formal mining sector, sometimes with the forceful intervention of state armed forces (see box 3.3). While highly complex, there are some basic criteria that may be applied to help guide corporations on the extent of social provisions beyond the immediate workforce. First, where immigration is either essential to (or an inevitable consequence of) a project, the proponent should be prepared to extend some social provisions beyond the workforce. Second, where the project may increase the burden on existing social provisions or generate a demand for Paternalism should be new social provisions, these should be strengthened. For example, if a avoided in favor of hydropower project is likely to increase the incidence of malaria or other vector- involving the recipients borne diseases, risk-control measures, such as improved medical services or the in determining the provision of bed nets and mosquito repellent coils, should be extended to those nature of social most vulnerable to the disease. Third, when the project represents the main provisions. source of employment within an area, local communities should benefit from employment opportunities. This may be achieved through the preferential employment of local people, training or education to improve their skills, assistance in developing businesses to provide support services, and so on. Fourth, paternalism should be avoided in favor of involving the recipients in determining the nature of social provisions. Public participation in this respect is essential if the true needs and desires of the community are to be fulfilled. While returns on investments in environmental control technology are both tangible and readily justifiable, investing in social and community initiatives are often viewed as optional. Private sector funding for social provisions (in the broadest sense) has often been allocated in a somewhat haphazard and paternalistic fashion. However, there appears to be an emerging consensus among the business community that investment in social and community provisions should not be considered voluntary, but an integral part of doing business-in effect, part of the "license to operate" from local communities. However, if broader support is to be developed for such a change in thinking, then the associated social costs, as well as the business benefits, must become more clearly defined. One factor that complicates the assignation of costs is what might be termed the "creeping commitment to social provisions." In the initial stages of project development (exploration and prefeasibility), govemments tend to impose few restrictions on private companies, as they are anxious to encourage the identification of exploitable resources. However, as projects proceed to the feasibility and approval stages, governments (and local communities) may 26 Integrating Social Concerns into Private Sector Decisionmaking incrementally impose requirements for social provisions, which may be outside the scope of any social mitigation costs identified through the social assessment process. Where the returns on investment are marginal, such costs may profoundly affect a project's viability. Therefore, corporations should aim to define the limits of their ongoing responsibilities for social provisions during project negotiations, which should be set out in the concession agreement. Determining the boundaries and linkages between the state and the private sector regarding social provisions is a complex process. Corporations should aim to complement government responsibilities and provisions, as opposed to replacing them-the adage "if it isn't broken, don't try to fix it" should apply. Where possible, these complementary measures should aim to enhance the capacity of government institutions to better deliver social provisions as a basis for long-term sustainability beyond the project's lifetime (see box 3.8). Finally, there must also be limits to private sector responsibilities for social provisions if sustainability is to be ensured. Aim for Social Equity in Revenue Distribution, Compensation, and Other Social Investments It is important to qualify any discussion of social equity in relation to private sector development by acknowledging the legitimacy of the private sector's profit-centered focus. The roles and responsibilities of the private and public sectors are clearly different. However, if the sustainability of privately sponsored projects is to be enhanced, it is imperative that the issue of revenue distribution be fully addressed by both parties. The aim should be to ensure that a proportion of the project revenues accrues to key stakeholders, either directly or indirectly, in a fair and equitable manner. Governments derive income directly from private sector projects through royalties, taxes, or equity. In most instances such income enters the state coffers for a variety of end uses. However, a proportion of this income is sometimes earmarked for development activities within the locality of projects, to ensure that those most affected by the project enjoy some of the benefits (see box 2.1). These might include improved infrastructure, services, education, or access to funds for local enterprise initiatives. Alternatively, a government may offer a proportion of the returns on its investment within a project to those directly Resolving issues relating affected. to allocation of project revenues should be Should private corporations concern themselves with the allocation of factored into state-earned project revenues? If developers don't raise such issues and no negotiations with formal mechanisms for revenue sharing exists, revenues will almost certainly be governments. directed to government coffers, with no specific consideration of local interests. This almost inevitably leads to disaffection on the part of local communities and, in some cases, culminates in civil unrest. Therefore, corporations that are serious about sustainable development must concern themselves with just this Private Sector Factors 27 Box 3.8 Developing institutional capacity for sustainable community development: British Petroleum in Colombia The underlying philosophy of British Petroleum's (BP) community development strategy in the Casanare department, Colombia, is to help the departmental and municipal authorities develop the capacity to manage substantial oil revenues, as the basis for the long-term sustainable development of local communities. The 200,000 inhabitants of Casanare are primarily agrarian-based, and non-oil- related incomes have been about half the national average. The workforce is relatively unskilled, unemployment is high, and health infrastructure is inadequate. The presence of paramilitary and guerrilla groups (with the guerilla groups opposed, in principle, to the export of crude oil) combined with the impoverished conditions of many inhabitants contribute to a politically and socially sensitive environment. Oil exploration and the start of production in the Cusiana field, in 1994, led to heightened expectations of improved employment prospects and investments in social and economic infrastructure. BP and its partners (state-owned Ecopetrol, Total and Tritonl) have developed a far-reaching social investment strategy known as Casanare 2000, which outlines the partners' vision for developing the hydrocarbon resources located in Casanare. This vision defines a strategy of integration with Casanare, which, with the support of the local communities and authorities, will assist in enabling people to take advantage of the resources and the socioeconomic opportunities that the oil and related developments can offer. This is part of the contribution of BP and its partners to laying the foundations for sustainable development in Casanare, in partnership with the departmental and municipal authorities and local communities, through careful stewardship of the revenues that will accrue to Casanare. Under the provisions of Colombian legislation pertaining to the exploitation of natural resources, the regional and municipal authorities should receive revenues of more than US$100 million in 1997. BP and its partners have provided extensive training to these authorities in strategic planning, budgeting, and other areas designed to ensure the sound stewardship of revenues. The Casanare 2000 strategy is a living example of an attempt to convert natural capital into social, human, and produced capital as the basis for sustainable development. The principles underpinning the strategy include maintaining an open and continuous dialogue with communities and authorities. The priority social action programs to be funded were determined through a four- year continuous open dialogue, that was gradually established with the authorities and the communities. These include: investment in infrastructure with the participation of, and in-kind contributions from, local communities (500 projects completed in 1994-96); human development programs that emphasize technical and professional education (more than 5,000 students trained in the same period); regional economic development through agricultural and microenterprise programs; and environmental activities, including reforestation and watershed rehabilitation and protection programs. Source: Project publications and discussions with BP representatives. 28 Integrating Social Concerns into Private Sector Decisionmaking type of issue, as social equity is integral to project sustainability. Resolving issues relating to the principles of allocation of project revenues should be factored into project negotiations with governments and reflected in concession agreements. Where revenue-sharing arrangements are developed, transparent tracking mechanisms are essential to ensure that benefits go directly to the intended beneficiaries and are not misappropriated. Furthermore, the anticipated lag- time between the project commencing and benefits accruing to local people should be clearly communicated to beneficiaries. The delay in delivery of landowner benefits in Chevron's operation in Kutubu, largely due to reasons outside Chevron's control, was a key factor in the escalation of landowner demands. Other factors included tensions between some of the major stakeholders and the expectation that benefits should have accrued with investment (before revenues and profits-to which many benefits were linked-were generated). Social equity should also be of primary concern in determining and allocating compensation. Development projects invariably affect (or are perceived to affect) stakeholders in different ways. The variation in degree of impacts depends on factors such as the extent of peoples' reliance on natural resources, their gender, age, economic status, and social status (for example, caste in India). Women, the elderly and the poor, ethnic minorities, or indigenous peoples are all prone to shouldering a disproportionate development impact burden (see box 3.9), which should be factored into arrangements for compensation at the local level. In providing compensation to affected people, the temptation to throw money at the problem must be avoided if social sustainability is to be achieved. Monetary compensation linked to the market value of resources is unlikely to The concept of reflect the value of the asset to the individuals affected. It also wrongly places proportionality should the burden of mitigating adverse impacts on those directly affected and can apply-the greater the create dependency on the donor. In determining compensation for families or level of disruption, individuals who are relocated due to a privately financed project, the basic the greater the issues to consider are whether compensation is sufficient to provide equivalent compensation. housing (a sustainable income) and whether the recipients have the capacity to benefit fully from the compensation. The enrichment of individuals unaccustomed to money without some control over, or guidance on, how it is managed is rarely sustainable. Community-based compensation, where benefits accrue to communities as a whole under the control of a competent authority is preferable. Social assessment, combined with the economic evaluation of social impacts, should form the basis for determining the level of compensation. The concept of proportionality should apply-the greater the level of disruption, the greater the compensation. The principles of social equity and sustainability should also underpin all other social investment activities undertaken by the project sponsors. In this regard, foundations can have certain advantages in the delivery of social and community development programs, particularly where they develop an Private Sector Factors 29 Box 3.9 Revenue distribution and compensation for the Lihir project, Papua New Guinea In March 1995 the government of Papua New Guinea granted a special mining lease to allow construction and operation of the Lihir Gold Mine by the Lihir Management Company, a subsidiary of Rio Tinto. Based on earlier socioeconomic studies, the company recognized that the project would profoundly and irrevocably affect the traditional way of life on Lihir. Typically for indigenous cultures, land was regarded as the most precious asset and was subject to customary laws on land-rights inheritance and acquisition. Although ownership of natural resources rests with the state, under the Papua New Guinea constitution, customary landholders view subsurface resources as an inherent component of their land rights. An intensive land investigation revealed the land to be owned by family groups from each of the 6 Lihir clans and 18 subclans. The company and govemment officers assisted the landowners to form a landowners association to represent their interests in negotiations. This association and the local government authority (Nimamar Development Authority) represented Lihirian society as active participants in negotiations. Arising from these negotiations, an integrated benefits package was agreed on, providing revenue distribution and compensation as follows: * Payments for damages, disturbances, and the use of land and its resources. * Provision of development support and project assistance. * Establishment of sustainable trust funds to provide for community and human development once mining ceases. * Provision for cooperative development of rehabilitation plans. * Lihir will receive half of the royalties of 2 percent, 60 percent of which will go to the Nimamar Development Authority and 40 percent to the affected landowners, some of which will be put in trust for future generations. * Trust funds have been established (with landowner participation) to administer the benefits streams. * Lihirians own 8.55 percent of the equity in the $725 million project, to be administered by a trust. In recognition of the importance of working with the community, the company has financed programs aimed at improving the quality of life, while supporting traditional lifestyles and customs-which Lihirians identified as important to maintain in order to enhance community stability. These have included water supply, medical services, disease vector eradication, and educational assistance programs. The company has also recognized the disproportionate impact of the project on women-as a consequence of the pressures on traditional relationships within the family. They employ a female Lihirian social development officer who has established a women's association, with the objective of promoting and developing women's education and training, participation in decisionmaking, health education, and so forth. One of the most significant initiatives promoted through the landowners' association is the Society Reform Program. This has the objective of reforming, strengthening, and developing the Lihir traditional clan system as the basic unit of organization within local communities and society as a whole; integrating all social and community development programs to enable a coordinated approach to development; and helping Lihirians cope with social change resulting from the mine and increased exposure to underlying changes in Papua New Guinea. Source: Mining Environmental Management. vol. IV, no. 1, and discussions with representatives of Rio Tinto. 30 Integrating Social Concerns into Private Sector Decisionmaking independent existence from the founding corporation or operating unit and their survival is not wholly dependent on its existence (see box 3.10). Develop Partnerships in Support of Sustainable Development Partnerships are increasingly being forged between private corporations and organizations with an on-the-ground capacity to deliver social services or promote socioeconomic development (community groups, NGOs, local governments, or international financing institutions). The advantages of partnerships include mobilization of greater resources (financial, skills, and so forth) than could otherwise be achieved, building respect and understanding between potential adversaries, and transfer of knowledge, skills, and Box 3.10 The evolving developmental role of the San Isidro Foundation in Colombia Prior to Cerro Matoso S.A. (CMSA) commencing nickel mining in 1981 at Montelibano in Colombia, the local communities had little or no access to health and education facilities, water and sanitation, and so on. The local economy was agrarian-based, and the Catholic Church was the main agent of social development. The company was committed to social and community development activities. Following consultation with the prelates of the nearby towns of San Jorge and Alto Sinu, the Foundation of San Isidro (FSI) was formed with the aim of building a bridge between CMSA and local people. Over time, the FSI successfully implemented many projects on behalf of CMSA to help upgrade education, health, water, and sanitation services to local communities. In 1988 the FSI evolved from delivering CMSA's social programs to having a more strategic development role. It began to attract funds from other donors, and formed alliances with other NGOs, such as Actuar and Fundecor, who were involved in a range of small-scale economic activities. In collaboration with local community groups and institutions such as the Red Cross, the FSI established a rotating microenterprise fund (the San Jorge Fund) which finances microenterprise developments. Under the guidance of its director, Carmen Luna, the FSI also developed a participatory approach to community development, which underpins its approach to all activities. In 1991 close links were established with Accion internacional and a foundation based at the University of Cali (CIMDER) that helped to enhance the foundation's capacity for participatory development. It also served to strengthen direct links between CMSA and local communities. More recently, in 1994 the FSI adopted a strategy of participatory evaluation and restructured its operations to reflect their new approach. It developed a vision statement, 'Towards the Montelibano we aspire to," which provides the framework for managing its four key development platforms of microenterprise and social development; health and community participation; education and citizenship; and biodiversity conservation and social progress. These encompass the social and community development activities of CMSA. The evolution of the FSI, from managing CMSA's social programs to an autonomous entity that operates independently of the company, will ensure its continued contribution to social and economic development after the mine closes. Source: Fundaci6n San Isidro, 15th anniversary edition. Private Sector Factors 31 technologies between partners. Corporations should actively pursue partnership approaches for the delivery of social programs in support of Corporations should sustainable development. actively pursue There is increasing recognition of the interdependence between partnership approaches development issues and the environment, and the need for partnerships for the delivera of between nations and sectors to address these complex issues. The Prince of social programs Wales Business Leaders Forum (PWBLF), a London-based NGO, has promoted in support of sustain- the use of partnerships by businesses, and has provided practical guidance on able development. how this might be achieved in two landmark publications: Partnerships for Sustainable Development and Business as Partners in Development. Based on its experience with a wide range of partnerships, the PWBLF has identified common success factors, which can be summarized as: * Strong leadership or vision on the part of one or a few individuals * Clear focus and purpose, based on mutual benefit to the various partners a Agreed management structure and systems for operation, decisionmaking, conflict resolution, evaluation, and so forth * Good communication between partners * Equality of contribution and participation to help generate ownership, facilitated by intermediaries as appropriate * Local applicability and ownership. All of these factors were evident to some degree in the partnership approach to developing long-term environmental management capacity in Kazakhstan (see box 3.11) and in Chevron's work with World Wildlife Fund in Papua New Guinea (see box 3.12). Working as partners in making development more sustainable within the sectors of interest can take a variety of forms. An important partnership role that communities and NGOs can play is in helping to shape social mitigation or community development programs. Increasingly, corporations are recognizing the benefits of this form of public involvement. A second important role for local communities and NGOs is in monitoring corporate compliance with agreed objectives (see box 3.6). The extent to which corporations become engaged as active partners varies widely. Most are keen to remain proactively involved to some extent, whereas at the other extreme corporations are willing to bear the financial costs but desire minimal input into what is perceived as noncore activities. However, most leading-edge corporations believe that the responsibilities for community involvement cannot simply be outsourced-that community involvement must be a mainstream activity if corporations are to maintain their informal license to operate. 32 Integrating Social Concerns into Private Sector Decisionmaking Box 3.11 Partnership to develop environmental management capacity: BG Plc in Kazakhstan BG Plc support for environmental management capacity development in Kazakhstan is a good example of where human capital is being increased, with support from revenues derived from the exploitation of oil and gas. Through its handling of environmental technology BG is providing core funding for the establishment of an M.Sc. in Environmental Engineering and Management at the Academy of Architecture and Construction in Almaty, capital of Kazakhstan. The program, now in its third year, should be self-financing and sustainable within five years of initiation and looks set to be an excellent example of how private enterprise (or development institutions) can successfully develop partnerships with academic institutions. The acute need for improved in-country training for environmental management had been recognized within Kazakhstan for a long time. The prime minister brought this to the attention of the chief executive of BG, and as a result, BG offered to fund a training program in environmental technology to transfer Western know-how in environmental management to Kazakhstan. The program has become very effective and its success can be attributed to a number of factors. First, the preparatory work was approached in a systematic manner. BG teamed up with the University of Southampton in the United Kingdom and approached the premier academic and research institutions within Kazakhstan to identify a suitable local partner. Considerable time and effort was invested in developing support for the M.Sc. program, both within the Academy of Architecture and Construction and the local authorities, who were initially skeptical of BG's proposal. In this respect, the advocacy of the rector of the academy was key in changing skepticism to enthusiasm. Second, BG was committed to ensuring the long-term sustainability of the program from the outset. It provided core funding to set up the management structure, equip a laboratory, and employ a resident expatriate professor of environmental technology. To enhance the capacity to manage all aspects of running the course (financial, technical, and administrative) additional external funding was obtained from private companies, international organizations, and foundations to enable the training of several staff members overseas. In addition, a range of private and public enterprises operating within Kazakhstan fund scholarships covering the costs of tuition fees and living expenses. To further enhance the sustainability of the program, academy staff are being trained to develop research proposals in partnership with other institutions to enable them to bid for research funding. This has paid dividends, and a number of EU research projects have been awarded to the academy. The expectation is that, within two more years, the program should be fully self-sustaining-without input from either BG or the University of Southampton. Source: Discussion with representatives or BG and the University of Southampton. Develop Mechanisms for Long-Term Representation of Stakeholders and Conflict Resolution Public consultation and involvement should not end with the planning approval process-it should be complemented by involving local communities throughout the lifetime of projects. Clearly, the range of community Private Sector Factors 33 Box 3.12 Assisting communities with sustainable development: Chevron and the World Wildlife Fund in Papua New Guinea Environmental conservation and the maintenance of cultural diversity were central to the development of the Kutubu petroleum project in Papua New Guinea, operated by Chevron Niugini Pty. Ltd., on behalf of its joint venture partners. The oil field is located near the prstine Lake Kutubu in the Southem Highlands province. Oil is exported, via a 264 km pipeline, to a marine terninal through the Kikori River basin, home to 20,000 people from 12 ethnic groups, who depend on the river for transport and food, and on the ecologically diverse adjoining tropical rainforest for subsistence agriculture and hunting. One of Chevron's priorities is to enhance the well-being of local communities, without adversely changing their traditional life style. Chevron's Community Affairs programs aim to promote the self-reliance of local communities in their dealings with the company, government agencies, and NGOs. A land-titling program assisted 200 indigenous communities to incorporate traditional lands into formal land tenure supports this approach. This enables the land groups to receive royalties on profits, and assistance in managing these funds through accounts registered under Certificates of Incorporated Land Groups. Village development committees have been established in each of the 80 villages within the project area to help determine local development priorities. The company has also provided assistance with building schools, clinics, water tanks, and training in nutrition and health in response to local priorities. Another priority is a training program to develop the oilfield skills to enable local communities and other nationals to benefit from employment opportunities in the company and the industry as a whole. The infrastructure associated with the Kutubu project provides opportunities for the non-oil-related economic development of natural resources. However, this has the potential to degrade the natural and social environment unless managed with the objective of longer-term sustainability. To support such an approach, a partnership has evolved between the World Wildlife Fund (WWF), Chevron Niugini and Chevron USA, and national and local authorities, to run an Integrated Conservation and Development Project (iCDP). This WWF-managed initiative is aimed at helping local communities in the 2.5 million hectare Kikori River basin to establish a model of ecologically sustainable development, to protect biodiversity and promote sustainable resource use, and to provide local employment once finite oil resources are exhausted. The ICDP initiative is being developed with the understanding, endorsement, and participation of local communities and landowners by a multidisciplinary team. Activities under evaluation include ecologically sustainable forestry, ecotourism, establishment of protected areas, and improved subsistence agriculture. The expectation is that the project will be fully operated by local people after a period of six years. Source: Project publications and discussions with representatives of Chevron. development activities supported by many private companies provides evidence of a commitment to long-term involvement with local communities. The involvement of communities in developing these activities is also increasingly common, in place of the more paternalistic provision of services without eliciting local opinions. However, some organizations with excellent community development programs still struggle to deal with conflict situations effectively. 34 Integrating Social Concerns into Private Sector Decisionmaking Ideally, companies and communities should develop a means of resolving differences that involves no external parties, based on mutual trust and understanding. If necessary however, mechanisms to resolve intractable community concerns or grievances such as arbitration forums should ideally include an impartial, respected outside agency or individual. Consultation and more advanced levels of community involvement can sometimes be hampered by a perceived power imbalance between companies and their stakeholders. Lt this respect, intermediaries-objective third-party individuals or organizations-can play a critical role as facilitators of community involvement. Intermediaries must be viewed as independent arbiters and accepted by all parties if they are to fulfill the role of bringing the parties together in suitable discussion forums, and providing a balanced viewpoint on potentially contentious issues They can also provide an effective institutional structure in support of long-term, ongoing public involvement. Evaluate the Effectiveness of Social Investments The finite nature of resources available for social and community development initiatives, and the compelling nature of many of the concerns that they seek to address (such as inadequate health or education services) underline the importance of measuring their effectiveness. In addition, if the sustainability of projects in the oil and gas and mining sectors is to be judged on gains in social and human capital as well as on environmental criteria, it is important to If the true social evaluate these gains. Social investments encompass both mitigation measures evelfothetr impact and other community development initiatives. development impact of corporations is The simplest measure of social investments is the cash value of a to be captured, new corporation's contributions (including grants, donations, secondments or indicators must be consulting services, contributions in-kind, in-house training, or enterprise developed to measure development activities). This relatively simple measure is often not applied by the success of corporations in the sectors of interest. However, the total amount given is less community invest- relevant than the outcomes, or what is achieved as a consequence of the ment activities. investments, in terms of human and social capital. If the true social development impact of corporations in the mining and oil and gas sectors is to be captured, new indicators must be developed to measure the success of community investment activities. Not all of the performance measures are amenable to economic evaluation. For example, actions to improve nutritional and health services for nursing mothers and to reduce infant mortality, or in any other way improve peoples' quality of life, cannot readily be assigned costs using available in-house expertise. However, noneconometric measures may legitimately be used as measures of success for social investments. Other examples include the number of people supplied with fresh water (or the reduction in the incidence of diarrhea) and the number of young adults attaining a certain level of training or improvement in their employment conditions and opportunities. WMC has Private Sector Factors 35 identified reductions in child mortality as one of the key indicators of success for their planned social investments at Tampakan, on the Island of Mindanao, the Philippines (see box 3.2). The aspirations of local communities should be a key consideration in deriving measures for evaluating the success of social investments. The best way to develop an understanding of these is through consultation and participation. CHAPTER 4 Local Community and Nongovernmental Organization Factors Gf-a overnments and industry are the main facilitators and instigators of development, therefore they should shoulder the burden of making development more sustainable. However, local communities and their representatives must be willing to work as partners in the process. This is not to suggest that they should mutely accept development proposals without question or opposition. In particular, if communities are unwilling to accept development and are unlikely to be able to adapt while maintaining social and cultural integrity, then the case for no development is persuasive. Communities and NGOs must also recognize the legitimate role of governments to make strategic development decisions in the interests of the nation, region, or municipality. The exploitation of natural resources may represent the best opportunity for a company to encourage foreign direct investment and promote broader socioeconomic development. However, citizens should have a role in such decisions through electoral, consultation, or International and other processes. Ultimately, the communities that are subject to adverse impacts local NGOs also have from development should benefit preferentially. a responsibility to NGOs have played a crucial role in developing the concepts of, and accurately reflect fostering support for, sustainable development. Their advocacy of the desires of environmental and social issues serves to balance the proponents of the communities development, regardless of the consequences. However, international and local they represent. NGOs that subscribe to social objectives also have a responsibility to accurately reflect the desires of the communities they represent. The widespread perception of all indigenous peoples as antidevelopment for example, almost 37 38 Integrating Social Concerns into Private Sector Decisionmaking certainly stems from their stereotyped simplistic portrayal by some NGOs. In practice, they are often concerned with maximizing development benefits on a shared basis. Similarly, NGOs should recognize the limits of corporations' abilities to exert social and political influence and their lack of authority to do so. NGOs have a responsibility to be a part of the solution to the challenges of sustainable development in the sectors of interest (see box 3.12). For example, NGOs and local communities can play a valuable role in monitoring the scale of predicted impacts. A related issue of the legitimacy of stakeholders and the interplay between local communities and NGOs that represent (or purport to represent) their interests is not explored in any detail here. While governments are generally responsible to the electorate, and companies are accountable to governments and shareholders (as a minimum), NGOs with social agendas are often not transparently accountable to the people who they represent. The development of recognized accountability structures to local communities is important if NGOs are to legitimately maintain their license to operate. Finally, some NGOs will need to reconcile their more traditional campaigning and advocacy role with their emerging role as partners with governments and industry in support of sustainable development. This is not intended to devalue the tremendous contribution of NGO campaigning and advocacy to advancing the cause of environmentally and socially sustainable development. However, the development of long-term supportive relationships between these stakeholders is achieved through incremental progress and requires long-term commitment and understanding from all parties. CHAPTER 5 Recommendations: Next Steps Tl he preceding paragraphs have, for the most part, outlined a series of recommendations on how corporations can attempt to manage social risks and better integrate social concerns into private sector decisionmaking. The emphasis has been on matters of principle, rather than on the specifics of how to implement any of the recommendations. The logic has been that, without agreement on or understanding of the rationale, there is little point in fleshing out the specifics. However, assuming that there is support for the principles outlined above, how should corporations move the debate forward, in collaboration with the other development actors, as appropriate? In addition, what further actions could the World Bank Group support in a next phase to further develop the concepts articulated above? The possible options for next steps range from individual corporations evaluating whether the recommendations could be used to add value to their risk management strategies or social and community development activities, to the collaborative evaluation of their possible merits by industry associations. In addition, there are implications for the developing role of the World Bank in promoting the creation of an enabling environment for sustainable private sector investment. Traditionally, the focus of much of the Bank's efforts in this regard has been with its member-country governments, but its involvement with the private sector and civil society have increased dramatically. This shift has mirrored the diminishing significance of overseas development assistance relative to private sector capital flows to developing countries. Accordingly, it is recommended that: *The reports be submitted to industry associations representing each of the two sectors on social and environmental issues (both the multinational corporations and small- and medium-sized enterprises (SMEs). This may help to stimulate debate or assist these organizations 39 40 Integrating Social Concerns into Private Sector Decisionmaking in developing policies or procedural guidance in support of managing social risks. * The views of association members be sought (by way of their associations with responses directly to the World Bank) on where the priorities lie with respect to the recommendations. For example, should the focus be on cross-sectoral collaboration on ensuring the sustainability of social investments, methodological guidance on stakeholder identification, and the like. * A representative number of case studies (perhaps three) be evaluated in greater detail in a subsequent phase of this work, with input from the various stakeholders, to learn in more detail how successes have been achieved and obstacles overcome. Clearly, the agreement of the corporations, government agencies, and communities concerned would be an essential first prerequisite. * A "management systems" approach to managing social issues be developed by one or two companies from the sectors of interest, with the support of the World Bank Group, on a pilot basis. * On a pilot basis, the World Bank Group might take the lead in a partnership role between a corporation, relevant government departments, and local communities and NGOs to help facilitate the various actors to maximize the development benefits for all concerned. * The outcome of the above be factored into training modules aimed at corporations and NGOs within both developed and developing countries, and World Bank Group staff. ANNEX 1 Members of the Steering Committee George Littlewood Murray Jones Head of Community Relations Manager HSE Rio Tinto, 6 St. James Square Shell Prospecting and Development (Peru) B.V. London SW1Y 4LD Avenida Nicolas Arriola No. 740 United Kingdom Lima 13, Peru Tel/Fax: ++ 44 17 930 2399/930 3249 Tel/Fax: ++ 51 1 224 2037/224 1616 Stephen Davis Peter Scupholme Group Geographer Manager of External Enviromnental Relations WMC Resources Ltd British Petroleum Company Plc. PO Box 7727, Cloisters Square Britannic House, 1 Finsbury Circus Perth, Western Australia London EC2M 7BA Tel/Fax: ++ 61 9 479 0648/479 7004 United Kingdom Tel/Fax: ++ 44 171 496 4000/496 4707 Jim Cooney VP for Sustainable Development Amy Rosenfeld, Coordinator Placer Dome Inc., Canada Conservation International 1600-1055 Dansmuir St. 2051 M Street, NW Suite 200 49330 Vancouver, BC V7X lPl, Canada Washington DC 20037 Tel/Fax: ++ 1 604 661 3737/684 7261 Tel/Fax: ++ 1 202 973 2274/887 5188 Kit Armstrong Frances Seymour Legal Advisor on Environment World Resources Institute Chevron Overseas Petroleum Inc., 1709 New York Avenue, NW 6001 Bollinger Canyon Road Washington DC 20006 San Ramon, CA 94583-2324, USA Tel: ++ 1 202 662-2530 Fax: ++ 1 510 842 2784 41 42 Integrating Social Concerns into Private Sector Decisionmnaking Jane Nelson/Harriett Fletcher Richard Roberts Prince of Wales Business Leaders Forum President, Praxis Consultants 15-16 Cornwall Terrace 2215 19th Street S.W. Regent's Park, London NW1 4QP Calgary, Alberta T2T 4X1, Canada United Kingdom Tel/Fax: ++ 1 403 245-6404/229-3037 Tel/Fax: ++ 44 171 467-3600 Mr. Jonck Finn Todd Hanson Ministy of Foreign Affairs Dames and Moore International Denmark 7101 Wisconsin Avenue Fax: ++ 45 31 54 05 33 Suite 700 Bethesda, MD 20814 Tel/Fax: ++ 1 301-652-2215/656-8059 Bank Group Staff John Horberry Martyn Riddle ERM International CTEED 8 Cavendish Square London WIM OER John Strongman United Kingdom IENIM Tel/Fax: ++ 44 171 465-7200/465-7350 Hossein Razavi Roger Hill IENOG Hill Sloan Associates, Inc. 111 Farnham Avenue Elkyn Chaparro Toronto, Canada M4V 1H6 FPD Tel/Fax: ++ 1 416-323-1288/323-0029 Neil Roger Cathy Harris PSD WS Atkins International Woodcote Grove, Ashley Road Penelope Brook Cowen Epsom, Surrey, KT18 5BW, UK PSD Tel/Fax: ++ 44 1372 726-140/740-055 Gerald West Britha Helene Mikkelsen MIGA COWI Consulting Engineers and Planners Gladsaxevej 372 Ellen Schaengold 2860 Soborg, Denmark ASTHR Tel: ++ 45 45 97 22 11 Lars C. Lund Janet Eppes ASTHR EMC International Sydney, Australia ANNEX 2 Contents Background 45 Aims and Objectives 46 Approach 46 Outcome of the Review 47 Summary and Conclusions 57 Attachments: 1 Questionnaire Respondents 59 2.1 Responses to Questionnaire for Private Sector Corporations 61 2.2 Responses to Questionnaire for NGOs 66 2.3 Responses to Questionnaire for Consultants 70 43 ANNEX 2 Social and Environmental Assessment: Exploring Linkages Background ticularly multinational corporations and NGOS). In parallel, corporations are developing an enhanced As large-scale infrastructure projects with poten- awareness of the social implications of their activi- tially significant social and environmental concerns ties, while acknowledging difficulties in managing are increasingly financed by the private sector, the their interaction with local communities and NGOs. traditional roles of governments, private corpora- Because of the unique role that the Bank Group oc- tions, and development institutions such as the cupies at the interface between governments, private World Bank are changing. Along with these changes, sector corporations, and NGOs, it has a potentially there is often uncertainty as to the limit and locus of important role to play as broker between these vari- responsibilities for the social and environmental ous development actors. aspects of projects. Uncertainties, combined with a lack of understanding of these aspects, may coritrib- For several years the Bank's internal policies on ute to inadequate attention to social and environ- environmental assessment (EA), indigenous peoples, mental issues. This may cause costly delays or and involuntary resettlement have required an ap- design changes in the last stages of project planning, praisal of both the social and environmental conse- or detrimentally affect people and their environ- quences of Bank-supported investments within our ments. It can also lead to conflicts between local client countries. Over the past three years the World communities and project proponents. Bank has been piloting and expanding the method- ologies and tools for incorporating social factors and The shifting roles of the various development processes into its work. To complement these efforts, actors have, in some countries, been accompanied by with financial support from the Government of Den- a loss of trust in governments as facilitators of social mark, the World Bank is committed to improving and economic development and in the expanding guidance on integrating social concerns into the expectations of the role of private corporations (par- planning and development of private sector invest- 45 46 Integrating Social Concerns into Private Sector Decisionmaking ments in sectors such as mining, power develop- tated corporations to integrate social con- ment, and oil and gas. cerns into project planning. This is not to suggest that the environmental In addition, the review aimed to identify good- issues associated with corporate activities should be practice examples of social assessment, as defined by of no concern. They clearly are, but leading-edge the private sector or by corporate social responsibil- corporations either have the technological skills to ity more generally. The intention was that these resolve these issues or are increasingly developing would be used in a study on the critical success fac- partnerships with conservation NGOs to help man- tors for iniegrating social concems into private sector age biodiversity issues where they lack the requisite projects, to illustrate examples where corporations skills. The failure of some corporations to manage had adopted a progressive approach to dealing with environmental issues is therefore not a function of social issues. This study constitutes part one of this lack of know-how within the wider business com- integrated report. munity. However, the key environmental challenge, which even leading-edge corporations investing in developing countries are grappling with, is how to Approach manage social and community concerns. The review was based on an investigation of pub- lished literature and on questionnaire responses Aims and Objectives from corporations, consultants, and NGOs. The re- sponses formed the basis for more detailed follow- The objectives of this review were as follows: up discussions. A steering committee was constituted to oversee the review. It comprised rep- To explore current practice with respect to social resentatives from the three industrial subsectors of assessment (SA) among corporations in selected interest (oil and gas, mining, and power genera- sectors: Issues of particular interest were the tion)-academics, representatives of NGOs, consult- extent to which the social implications of ants, the Government of Denmark, and private projects are considered, who undertakes sector interests in the World Bank Group. The ques- the assessment of social impacts, and the tionnaires served to collect some basic data on cur- locus of responsibility for managing social rent practice with respect to the integration of SA risks. and EA and as a route to exploring good practices with respondents in more detail. The questionnaire * To examine the extent of, reasonsfor, and ob- was issued to 60 organizations and responses were stacles to integrating SA and EA: How closely obtained from 34 (see attachment 1 for a list of re- were the assessment of social and environ- spondents). This review initially concentrated on mental impacts integrated, the underlying three sectors-oil and gas, mining, and power devel- reasons for integration, and the obstacles to opment, but the latter was eventually excluded on closer or more systematic integration. the basis of the paucity of responses from indepen- dent power producers (IPPs). * To explore the benefits of integrating SA and EA and the implicationsfor project sustainability: The aim was not to exhaustively report on the Has improved integration brought advan- range of practices within the private sector. Instead, tages and has it had a positive influence on the focus has been primarily on companies with a project design, and what implications does proven track record in the area of social and environ- this have for improving the sustainability of mental responsibility, their consultants and NGOs projects? that monitor their activities to identify good prac- tices (see attachment 2 for questionnaires). These are * To identify critical successfactorsfor better not representative of behavior throughout the sec- integrating social concerns into private sector tors of interest, but should illustrate the potential for projects: What factors influenced or facili- doing things differently. Due to the small sample Annex 2 - Social and Environmental Assessment: Exploring Linkages 47 size and its inherent bias, statistical analysis is not However, the review did reveal striking differences presented (nor was this ever the intention). How- between the literature on private and public sector ever, basic data on the responses is contained in the investment projects, which merits a brief discussion. appendices (see attachment 2) and mentioned in the discussion of outcomes. Comment on the Literature Review The bias toward multinational corporations (MNCs) assumes that examples of good practice During the past decade a wealth of literature has would be more prevalent within such organisations. been published on both SA and EA, some of which is This reflects the intense scrutiny applied to MNCs by listed in the bibliography. Most of the literature both regulators and NGOs, the availability of re- originates from and deal with OECD countries, al- sources to attempt to address such issues, and the though some focuses on developing economies (see breadth of experience spanning continents that Biswas and Agarwal 1992; Smith and Van der MNCs can apply. Clearly, the transferability of a Wansem 1995). Many of the more recent texts on EA MNC perspective to small and medium-size enter- deal with SA in some detail and explore aspects such prises (SMEs) can be challenged. However, MNCs, as public consultation, participation, and participa- directly or indirectly through partnerships, joint tory planning (see Vanclay and Bronstein 1995). ventures, or subcontracting, have a profound influ- However, there appears to be almost nothing within ence within the sectors of interest-sectors in which the published literature on integrated social and social and environmental impacts are potentially environmental assessment, as applied to the private very damaging and difficult to resolve satisfactorily. sector. One article on the future of SA did, however, conclude that integrated SA and EA teams were Based on the steering committee's comments on more likely to address important interlinkages be- initial drafts of the questionnaires, it became appar- tween social and environmental impacts (Bisset ent that the initial focus on integration of SA and EA 1996). Even more striking is the dichotomy within would not necessarily capture actions on the part of the literature between the environmental and the the private sector to enhance the social sustainability social aspects of private sector developments, as of investment projects. Many corporations and their opposed to projects financed by public sector or consultants view SA as one element of EA or, for a development assistance institutions. variety of reasons, divorce social and community development activities from the EA/SA process. The private-sector-related literature is over- Accordingly, the questionnaire to private corpora- whelmingly biased toward environmental manage- tions was amended to reflect this observation, and ment, corporate social and environmental reporting, follow-up interviews have attempted to explore the or the ethical dimensions of business and the envi- range of private sector activities in support of ronment. It typically exists in book form (Gray, sustainability that might lie outside the private Owen, and Adams 1996; Bennett, Frierman, and sector's perspective of what constitutes SA and EA. George 1996), although a few journals deal exclu- sively with the subject (such as Greener Management International). Conversely, the literature linked to Outcome of the Review public sector/aid agency projects deals predomi- nantly with methodological approaches to EA or SA. The findings of the review are presented under a Most EA/SA textbooks (such as Canter 1994; Wood series of headings that are based on the questions 1995) or joumals, contain no private sector-specific contained in the questionnaire. A literature review case studies-some may identify sectoral impacts was undertaken in parallel with the development and approaches, but without specific mention of and administration of the questionnaires and the organizations or projects. The few specific references follow-up discussions. While a wealth of books and to private enterprises (Smith and Van der Wansem journals were reviewed, the benefit was somewhat 1995; Gilpin 1995) tend to present examples of poor limited because of the paucity of information on the rather than best practice. The joumals that cover integration of SA and EA for private sector projects. environmental and social assessment (such as Project 48 Integrating Social Concerns into Private Sector Decisionmaking Appraisal) are generally silent on the experiences of Finally, the incidence of post-development moni- the private sector and tend to focus on the method- toring and evaluation of the environmental and so- ological aspects of EA and SA. cial impacts of private sector projects, in any formal sense, is less than for public sector or aid agency- Why the above dichotomy? The answer will financed projects. While monitoring may be under- differ greatly depending on whom you ask. Some taken, it is often linked to regulatory or loan NGOs would argue that the lack of examples of pri- conditionality compliance, as opposed to formal vate sector EAs and SAs is evidence of their poor reviews of actual versus predicted impacts. quality and is consistent with a lack of transparency on the part of the private sector, specifically multina- tional corporations. Business advocates would argue Current Practice with Respect that the private sector routinely behaves in an envi- to Social Assessment ronmentally and socially responsible manner, and that there is no need to shout it from the rooftops. Some multilateral investment banks define SA as a process that provides a framework for incorporating The reality probably lies somewhere between social analysis and participation into development these diametrically opposed views. First, for the projects in order to evaluate their potential impacts more socially and environmentally responsible cor- on stakeholders and to involve them in developing porations, SAs and EAs are simply the starting mitigation and management plans. The private sec- points on the road to production-their primary tor definition of SA is typically narrower and is re- concern is with sound environmental and social stricted to social analysis as part of an overall EA, stewardship throughout the lifetime of projects or which will often include consultation. Social and production facilities, which influences this bias community development activities, which may in- within the literature. Arguably, this focus on envi- volve stakeholder participation, are for the most part ronmental management is justifiable-of several seen as distinct activities that lie outside the defini- thousand EAs produced in Thailand and the Philip- tion of SA but that may be developed, in part, to pines throughout the 1980s, not one project was de- mitigate adverse social impacts. These typically in- nied clearance for environmental reasons (Werner clude the provision of housing, water and sanitation, 1992). In such circumstances environmental manage- health care, education, training and enterprise devel- ment rather than impact assessment should be at the opment, and infrastructure such as access roads or heart of the process of environmental impact assess- bridges. ment (EIA). This unbundling of social analysis and participa- Second, the EA and, by extension, the SA pro- tion from EA occurs for a number of reasons. First, cesses have historically been viewed as adversarial- several corporate respondents suggested that poten- mere hurdles to overcome on the route to approval tial environmental impacts can be readily mitigated by the relevant authorities, as opposed to opportuni- by engineering solutions, whereas social impacts are ties to explore the optimal environmental and social more difficult to manage and resolve to the satisfac- conditions for meeting private sector development tion of all affected stakeholders. Therefore, they con- objectives. Third, while there are undoubtedly good sidered that iterative consultation, which is essential examples of EAs and SAs undertaken for private to developing community investment programs, is sector developments, the focus of the individuals not compatible within the time frame of EA. Further- responsible (principally consultants or corporate more, they view community development programs employees) is rarely on publishing the results of as integral to all projects, even those in which envi- their efforts. Furthermore, any promotion of good ronmental concerns are negligible. The perception practices in the area of social responsibility might was that most environmental concerns could be ac- well become the target of NGO criticism, particularly commodated within the snapshot effect of EA, in the absence of agreed measures on what consti- whereas social and community development pro- tutes good practice. grams are more evolutionary. Annex 2 - Social and Environmental Assessment: Exploring Linkages 49 To what extent are the social implications of nerable groups and of their significance was high, projects requiring environmental assessments which was borne out in follow-up discussions. being considered? The follow-up discussions revealed that almost All corporate respondents indicated that the social all the corporate respondents who stated that they implications of their operations within developing undertook comprehensive SAs were referring to SAs countries were considered either as part of or sepa- of projects currently being developed. This may rate to the project EA. Most corporations indicated partly explain the disconnect between the views of that they address the enviromnental aspects of corporations and NGOs on the adequacy of private projects comprehensively, whereas the level of as- sector SAs. It was clear that while many corporations sessment of social issues more commonly depends were rapidly advancing up a steep learning curve (in on the sensitivity of the location. This was similar to some cases supported by internal policies), there the responses from consultants, who indicated that were few examples of cases in which comprehensive corporate clients less frequently required a compre- SAs had been completed for projects that are cur- hensive assessment of social issues, whereas envi- rently operational. The approach that most corpora- ronmental issues were typically thoroughly dealt tions have adopted in the past has been one of social with. However, this contrasted markedly with the analysis, focusing on a limited number of issues. views of NGOs, who were generally less positive These issues were addressed through a top-down about the performance of corporations. Half of the approach to SA, as opposed to being based on ini- NGO respondents considered that corporate assess- tially identifying and consulting with stakeholders. ments of environmental issues were occasionally adequate, and three of the eight respondents indi- However, SAs of many more recent projects cated that they were generally inadequate. Almost within both sectors are increasingly being based on a all NGO respondents indicated that social aspects combination of social analysis and participatory were rarely adequately assessed in private sector approaches. Up-front identification of stakeholders projects. and early consultation is becoming much more com- mon, as is participation in project planning and de- Approximately half of the corporate respondents velopment. In particular, the benefits of participation identified all of the social risks or concerns listed in in helping to ensure the sustainability of social and the questionnaire as important (that is, impacts on community development activities is increasingly the natural resources used by local communities, being recognized. However, there is still consider- inpacts associated with in-migration and out-migra- able confusion regarding what constitutes a compre- tion, impacts on vulnerable groups, cultural re- hensive SA and how the various components, such sources, the economy, health, lack of consultation, as social analysis and participation, are undertaken social structures and cultural values, and the quality in practice and combined to help guide of life). On balance, there was little variation in the decisionmaking. total number of respondents highlighting each social risk or concern (between 12 and 15). Impacts on the It is important to recognize that many corpora- quality of life and health and on social structures tions seemed to be having a positive development and cultural values were among the less frequently impact in some of their ongoing operations, without identified concerns. This partly reflects the socioeco- having completed a formal SA. However, in the ab- nomic circumstances of some projects, where the sence of any baseline socioeconomic information, it main concern of local commaunities is with direct and is difficult, if not impossible, to assess the demand indirect employment opportunities. It is also indica- for, and value of, the social "benefits" reported in tive of the level of consultation conducted by the anecdotal responses. corporate respondents-more issues are raised as companies expand the range of stakeholders they A recent survey of the CEOs of international consult-and of their appreciation of the issues. In mining companies operating in the Asia-Pacific re- general, awareness of indigenous peoples and vul- gion provides evidence of the emerging significance 50 Integrating Social Concerns into Private Sector Decisionmaking of social concems (Clark 1997). The survey identified project approval and the operational phases, and social and cultural issues as second only to land ac- lowest during the feasibility stages. The level of ef- cess and tenure in terms of issues impacting mining fort that corporations identified for each of the other operations. In a similar study conducted in 1995, stages was broadly similar. social concerns were barely on the radar screen. The Extent of Reasons for, and Who is responsible for managing social risks and Obstacles to, Integration for social assessment and environmental assessment, and at what stage of projects? Over one-third of the corporate respondents indi- cated that an integrated team undertook SA and EA In the majority of cases consultants were responsible with site visits conducted jointly. Only a few compa- for undertaking EA and SA, although most corpora- nies indicated that SA and EA were undertaken in tions had in-house environmental specialists (and a parallel by separate teams and integrated into a few had social experts) who guided the assessment single report, or were conducted and reported on process. It is noteworthy that most of the larger cor- separately. Almost all respondents opted for a com- porate respondents have dedicated teams that man- bination of the above approaches, depending on the age the environmental risks of their operations (often project circumstances. Three-quarters of the corpo- in combination with health and safety issues), which rate respondents indicated that they had been in- generally form part of the technical service function. volved in projects where SA and EA had been However, responsibility for social issues at the cor- successfully integrated. porate (and often operations) level is usually vested with external affairs or community relations person- Half of the eight consultant respondents indi- nel. The HSE and extemal affairs groups are rarely cated that SA and EA were undertaken by an inte- directly linked in terms of organizational structures, grated team, while three adopted parallel and the degree of cooperation depends on informal approaches to SA and EA with integrated reporting personal contacts, as opposed to any formalized arrangements. This partly reflects the range of re- interaction. quirements specified in terms of references (TORs), which, in turn, reflect the preferences of their corpo- Responsibilities for dealing with potential social rate clients. However, some consultants indicated impacts at the project level were generally assumed that TORs from companies in the sectors of interest by corporations, although several indicated that were increasingly requiring an integrated approach. either NGOs or governments, or both, should be Others claimed to be actively promoting the concept active partners in addressing social concems. Devel- of integration, either in helping corporate clients to oping partnership approaches to managing social develop TORs or in responding to TORs where re- issues was a recurring theme in many follow-up quirements to address the social aspects were weak discussions. In general, corporations believed that or absent. It is unclear from the consultant responses this was beneficial as it allowed them to tap into the whether integration is being promoted by in-house knowledge and expertise of those with the on-the- SA staff, as almost all indicated that both EAs and ground capacity to deliver social services. An addi- SAs were undertaken by a combination of staff, asso- tional benefit cited was the enhanced sustainability ciates, or affiliates. However, based on follow-up of social investments by fostering local ownership discussions, it is clear that maintaining in-house staff and management. with the requisite skills to conduct SAs is still the exception rather than the rule within consulting Most corporations agreed that social concerns companies. needed to be addressed at each stage of project plan- ning (prefeasibility and feasibility, detailed design, In follow-up interviews almost none of the cor- project approval, construction, operation, and clo- porate respondents were willing to identify a "good sure), although the feasibility studies and project practice" project where SA and EA had been suc- approval stages were cited most frequently. The cessfully integrated. This was somewhat at odds approximate level of effort was greatest during the with the questionnaire responses in which several Annex 2 - Social and Environmental Assessment: Exploring Linkages 51 companies expressed their willingness to discuss Within the oil and gas sector, strategic develop- good practices in greater depth. However, most did ment plans or policies were also an important driv- share good practice examples of certain aspects of ing force for integration. This is true of countries SA or corporate social responsibility. Their caution such as Colombia, Peru, and the Philippines, which in describing an overall project as 'good practice" is have explicit requirements that oil exploration and perhaps understandable, given that the techniques production companies consider the social dimen- for SA are rapidly evolving and that measures of sions of their activities as an integral part of the success are undetermined, to claim overall success project approval process. Less than one-third of the with integrating SA and EA would almost inevitably corporate respondents identified legal requirements invite very close scrutiny. as important determinants of social or environmen- tal responsibility. Four respondents indicated that One final point deserves mention. Associations integration between SA and EA was an obvious ap- representing both the mining and oil and gas indus- proach to adopt, due to the interlinked nature of tries are actively exploring the issues associated with environmental and social concerns the integration of SA and EA, and managing the social aspects of their activities. The Exploration and The NGO perspective on factors that influence Production (E & P) Forum's Environment Commit- corporations to produce better EAs and SAs pro- tee, which represents 35 of the world's largest oil vides an interesting counterpoint. Robust legal re- and gas companies, are in the process of developing quirements within developing countries where the a set of principles on the integration of social and operations are based and pressure from NGOs were environmental concerns into the planning and the most frequently cited factors, along with the implementation of their operations. This will eventu- influence of a good consultation process with stake- ally be supported by guidelines for project managers holders. Internal company policies were mentioned on the practical aspects of integration. Similarly, the by half of the NGO respondents as important influ- International Council on Metals and the Environ- ences on the quality of SAs and EAs. Other influ- ment is grappling with the management of social ences cited included customer pressure, the issues. Therefore, the question of integration is existence of strong independent monitoring agen- clearly not one of academic interest, but of pressing cies, and direct action by disaffected local communi- and practical concern to corporations. ties at existing operations. In conversation, this last factor was acknowledged to be significant by a few corporate respondents. Reasonsfor integrating social assessment and environmental assessment This is partly borne out by a paper derived from Ph.D.-related research (Moser and Tsai, draft), which Almost all of the corporate respondents indicated evaluated 20 factors influencing environmentally that the integration of SA and EA stemmed from responsible behavior by multinational corporations company policy. Although few companies had an and non-multinational corporations in the oil and explicit policy requirement for integration, it is cer- gas sector in Latin America. Initial findings suggest tainly in keeping with the spirit, if not the letter, of that legislation and enforcement tops a hierarchy of their policies. The underlying reasons cited by cor- factors, followed by senior management support, porations for adopting a policy in support of integra- corporate policies, and previous experience. Pres- tion were mainly due to positive experiences with sures from employees, local communities, sharehold- projects in which social and environmental concerns ers, and local NGOs are grouped together in the were integrated, in particular, with the benefits asso- middle of the list of factors in terms of influence. ciated with stakeholder consultation. Over half the However, pressure from international NGOs ap- corporate respondents cited negative experiences peared, toward the end of the list, as only moder- with projects in which integration had not taken ately influential in affecting environmentally place as an important policy driver. Shareholder responsible behavior. expectations, pressure from other stakeholders, and staff commitment were also cited as reasons for Follow-up discussions with corporations re- adopting a policy on integration. vealed that negative experiences in which social 52 Integrating Social Concerns into Private Sector Decisionmaking issues were not addressed, either intemally or solutions to social impacts. This is often exacer- among other companies within their sector, were a bated by skepticism regarding the legitimacy very important factor influencing greater attention to and value of SA, public consultation, or tra- managing the social risks of development. The threat ditional knowledge. Creative, nontraditional of litigation as a consequence of social impacts is ways of thinking, communicating, and joint increasing within the sectors of interest. Extensive problem solving are required, which have media coverage has been given to a number of civil not classically been part of the engineering actions against corporations, both within developing tool-kit. Similarly, environmental and social countries and in the country in which the corporate specialists follow different approaches and head office is based. A related concern is the reputa- often have difficulty in communicating and tion risk for corporations involved in litigation or in working collaboratively. whose activities have attracted the attention of the media or NGOs. One respondent specifically men- * Lack of methodological guidance on how to ap- tioned the importance of improved communications proach SA for the sectors of interest, particu- in this regard. In particular, the ability to dissemi- larly on measurable indicators of both social nate information on projects via the internet means and cultural impacts and the success of miti- that failure to manage social risks can very rapidly gation measures. result in corporations becoming the focus of negative campaigns. This can result in significant short-term * Lack of robust SA legislation, which is often costs as share prices are affected, and also longer- exacerbated by a lack of appreciation of the sig- term costs related to access to capital and insurance nificance of social issues by monitoring and en- products. These factors have resulted in social con- forcement agencies. In some instances cerns being considered an integral part of many cor- developing countries have had limited expe- porations' risk management strategies. rience of integrated approaches or are insti- tutionally unprepared to accommodate an integrated approach. Obstacles to Integration The token requirements for SA in many laws Given the apparent consensus that closer integration requiring EA of development projects, combined between SA and EA would be beneficial, at least with a lack of expertise in and skepticism toward SA when the project may directly or indirectly impact techniques, has reinforced the separation of the envi- the natural resources used by local communities, ronmental and social aspects of projects by many why are SA and EA not more systematically inte- corporations. In practice, this means that social is- grated? The responses indicate some agreement be- sues are often dealt with cursorily in EAs by refer- tween the three target groups on the obstacles to ring to proposed community development activities, integration, with each group also raising other spe- which will evolve over the lifetime of the project. cific concerns (see appendix 2). The obstacles to Furthermore, the traditional locus of responsibility closer integration cited by all three groups were: for managing social issues at the operations level has meant that corporations struggle to strate- * Lack of experience with integrating SA and EA, gically manage such issues from the corporate head- and lack of expertise within corporations and quarters. among consultants in effectively identifying and addressing these issues. This is parficularly The failure of corporations to recognize the op- true of project managers, who rarely have an portunities arising from SA was raised by both cor- adequate appreciation of both the environ- porations and consultants. A number of respondents mental and social aspects of projects, and strongly believed that there were business benefits to that the social safety net in many developing be derived from social responsibility, such as im- countries is often insufficient. proving the prospects of access to future exploration concessions, or reducing potential conflicts with * Inability of staff in corporations renowned for local communities that can result in costly delays. In technical excellence to develop nonengineering addition, the locus of institutional responsibilities for Annex 2 - Social and Environmental Assessment: Exploring Linkages 53 social and environmental issues, as described previ- * Improves the cost-effectiveness of projects ously, may also present an obstacle to integration. (for example, by accelerating the permitting process) During follow-up discussions, several corpora- tions expressed concern at the prospect of prescrip- * Facilitates the resolution of interdisciplinary tive regulations governing the integration of SA and issues before development concepts are fi- EA being developed. These concerns related to some nalized practical limits to integrating the social and environ- mental aspects of projects, as described in the section * Improves project designs (for example, the below on whether integrating SA and EA enhances routing of pipelines and seismic lines, or the project sustainability. While some might dismiss location of project infrastructure) and pro- these concerns as a desire to maintain the status quo, vides a better basis for sustainable develop- some leading-edge organizations considered that ment prescriptive regulations could hinder creativity and innovation. This was partly because the field of SA is * Engenders community interest, involvement, rapidly evolving and partly because, unlike EA, acceptance, ownership; and enhances social impact solutions cannot be imported in tie form of stability design or discharge standards. They must be devel- oped locally and driven by local conditions and com- * Facilitates the incorporation of local and munities. However, most respondents were traditional knowledge, which improves the supportive of regulations that would impose certain design of projects and mitigation plans mandatory requirements for SA, without constrain- ing their flexibility to innovate and develop locally . Provides for the resolution of interdiscipli- appropriate solutions. nary concerns through public involvement i Reduces the impact on natural resources on The Benefits of Integrating Environmental which communities may be dependent, or Assessment and Social Assessment, and which may be important to conserve, on Implications for Project Sustainability biodiversity, cultural, or religious grounds The overwhelming majority of respondents identi- * Enhances the training and employment op- fied a number of advantages associated with inte- portunities to help develop local capacity to grating SA and EA, and several gave generic undertake integrated SA and EA. examples of the positive impacts on project design or implementation. A few of these pertain to process or The only disadvantage cited by a few corpora- business issues such as enhanced international repu- tions, but reiterated by several others during follow- tation or economies in the number of documents up discussions, was how to manage expectations produced. Most of the advantages attributed to inte- arising from consultation that may be difficult or gration relate to enhancing the basis for sustainable impossible to satisfy. In many project scenarios, for development, and are surnmarized below. It is im- example, there may be an enormous unsatisfied de- portant to bear in mind that these are not all strictly mand for basic infrastructure (such as water and a result of integrating SA and EA (which reflects bias sanitation) or services (such as health and education) in the way some questions were worded in the ques- that governments have been unwilling or unable to tionnaires). Some are also relevant to projects in provide. Where dissatisfied communities are discon- which corporations have adopted a progressive ap- nected from civil processes or services, which are tradi- proach to social and community development with- tionally supplied by governments, it is perhaps out integration. The advantages of integration are as inevitable that corporations may become the targets of follows: both high expectations and subsequent frustrations. Helps to secure agreement to proceed with Although few concrete examples were provided projects in questionnaire responses regarding benefits to 54 Integrating Social Concerns into Private Sector Decisionmaking projects arising from the integration of SA and EA, point of project approval. In contrast, they consid- follow-up discussions revealed a wealth of examples ered social and community development programs that illustrated the advantages of integration or of as a separate though important aspect of a project's socially responsible approaches. Several of these are development. Others stated that social impacts en- presented in the main contents of this report. compass a range of concerns that may have little interrelationship with environmental quality-for example, effects on religious and cultural resources Does integrating social assessment and or on social structures. Consequently, integration environmental assessment enhance project would be of little or no practical value in situations sustainability? where these issues were the primary concerns. Despite the majority of corporate and consultant However, there was support (from the corpora- respondents who indicate that integration enhances tions interviewed) for integration in project situa- the sustainability of projects, almost no examples tions where changes in environmental quality or were provided. This is somewhat surprising, given resource availability may profoundly affect local that all corporations reported benefits from integra- populations, or where environmental resources may tion, but it may reflect difficulties with the concept of be threatened as a consequence of social impacts sustainability and its applicability to sectors involv- such as in-migration. In such circumstances there ing the exploitation of nonrenewable resources. In was a general consensus that the integration of both practice, the means of achieving sustainable devel- processes is essential. The ideal scenario would in- opment is hotly debated, as is the extent to which volve the undertaking of site visits and data collec- extractive industries can ever be truly sustainable. In tion by joint teams (with the involvement of the absence of agreed indicators of sustainability, stakeholders) as the basis for impact predictions. this report assumes that the integration of environ- This would ideally be followed by the development mental and social concerns into development deci- of environmental and social mitigation measures sions must improve the sustainability of projects. with the involvement of the affected communities. The focus is therefore on enhancing the The willingness to maximize the level of integration sustainability of projects, as opposed to definitively in such circumstances may stem from a growing achieving sustainable development. awareness among environmental professionals both of the importance of people in ensuring the long- Two respondents indicated that the integration term sustainability of mitigation measures and of the of SA and EA was less important than the commit- importance of social issues. ment to address social issues and to provide for meaningful consultation and participation. While the A number of corporations cautioned that social questionnaire responses were generally supportive and community development initiatives are some- of integration, in follow-up discussions other respon- times detrimental to environmental protection, and dents cautioned against integration being viewed as vice versa. One cited a project scenario in which the the panacea to ensuring sustainable projects. Certain application of best available technology for pipeline practical limits to integration were raised. For ex- construction limited the extent of environmental ample, permitting or project approval processes in disruption, but resulted in far less employment and many developing countries focus on environmental attendant socioeconomic benefits of more labor- rather than social issues, and the prevailing political intensive approaches. Consequently, a few respon- conditions in some countries effectively exclude the dents highlighted the need for iterative evaluation of public from the process. This does not preclude the environmental consequences of social mitigation corporations from behaving in a socially respon- measures, and vice versa, during the development of sible manner, but may ensure that social issues are social and environmental management plans. not explicitly dealt with or publicly debated in the EA/SA. Discussions with respondents revealed a willing- ness to better define sustainability indicators for Some corporations also viewed social analysis projects within their sectors, but unease regarding and social assessment as synonymous, ending at the the widespread perception of their activities as in- Annex 2 - Social and Environmental Assessment: Exploring Linkages 55 herently nonsustainable. One or two were aware of changing circumstances or incremental demands for the World Bank and the United Nations Develop- social investment by local authorities or communi- ment Programme's work on the relationship be- ties, or because of government authorities reneging tween natural and social, human, and produced on counterpart funding comnmitments. The inability capital. In particular, leading-edge organizations to accurately predict social costs due to stakeholders were conscious of the need to develop sustainability moving the goalposts was a conmmon cause of concern. indicators for projects within their sectors. SA and social and community development initiatives were often characterized as "preventive" Cost and Profitability Implications investments in managing social risks. In some in- of Integrating Social Assessment stances these risks were strictly project-related and and Environmental Assessment resulted from potential public opposition to develop- ment proposals. In other cases the social and politi- Corporate and consultant respondents were asked cal setting of the project were, in themselves, for their views on how integrating social and com- significant risk factors that focused the corporations munity concerns affected the profitability of projects. efforts on enhancing social stability. A few corpora- The corporate responses were biased in favor of tions suggested that the costs should be viewed as integration resulting in cost savings (10 out of 17 part of obtaining a license to operate from stakehold- respondents) or having a minimal impact on project ers. Their view was that justifying the costs in eco- costs (six respondents). Of the six who specified that nomic terms might never be fully achievable, as the additional costs might be associated, four indicated behavioral response of stakeholders to a range of that these costs were short-term and would be re- project scenarios is very difficult to accurately pre- couped as a consequence of more substantive com- dict. It is therefore extremely difficult to be confident muunity relations. The main reasons cited for that increased up-front investments related to SA integration having a neutral or positive impact on will save money in the longer term, leaving aside project costs were greater ease in gaining the neces- regulatory or ethical considerations. However, as sary approvals and avoidance of costly delays or one respondent cautioned in follow-up discussions, disruption during project planning and implementa- it is impossible to contain the potential costs of fail- tion (which might otherwise arise from failure to ure to manage social issues to a particular opera- identify and address social concerns). A number of tion-public opposition to a corporation's activities corporate respondents acknowledged that the short- in one part of the world could have far-reaching cost term investment in consultation and developing implications for its global operations. participatory processes would take considerable time and effort, but that these would be offset by The few corporations that cautioned that inte- long-term benefits. The consultant responses were gration may result in more expensive projects in the more heavily biased in favor of cost savings. longer-term raised a legitimate concern. Their view was that, in situations where heightened expecta- From follow-up discussions, it was clear that the tions of socioeconomic benefits were difficult to sat- perception of integration as having minimal costs, or isfy, the increased short-term costs of integration indeed savings, was based on gut feelings rather may not be offset by reduced public opposition or than on economic evaluations of the costs and ben- smoother project processing. However, they still efits. None of the companies interviewed had con- considered that integration should be viewed as a ducted an economic evaluation of the costs and cost of doing business if private sector development benefits associated with integrating SA and EA or is to be made more sustainable. social and community development initiatives. In part, this stemmed from the fact that integration was a feature of projects in the planning or early stages of Critical Success Factors for Integrating development, for which no retrospective evaluations Social Concerns had been undertaken. It was also a function of the creeping commitment of many companies to social Several factors critical to successfully integrating and community investments, either in response to social concerns into project planning and develop- 56 Integrating Social Concerns into Private Sector Decisionmaking ment (whidh could include integrating SA and EA) * Public involvement (for example, in the de- were identified by the respondents. These factors velopment and implementation of mitigation can be divided into two broad categories. The first plans) category, which relates to human resource issues within corporations or their consultants, includes * Development of a thorough understanding the following: of social structures and cultural values in the project area * Developing an appreciation of the impor- tance of, and conmmitment to, integration * Sustained, thorough, and meaningful con- within corporations sultation that commences early in project planning, including information disclosure * Fostering an understanding among techni- cal, environmental, and social specialists of * Respect for basic human rights, particularly the legitimacy and importance of each the vulnerable groups in society, such as other's contributions indigenous people * Recognition of the value of building social * Allotrnent of sufficient time and resources and human capital for a truly integrated approach to be adopted throughout project development, * Employment of social scientists or other starting in the earliest stages of project relevant specialists (such as social anthro- planning pologists or historians) at the project level with in-country or sector-specific experience * Close coordination and interaction between (or both) the social, environmental, and feasibility study teams * Appointment of a multidisciplinary team that interacts well to undertake the EA /SA, * Development and implementation of mitiga- headed by a project manager with a good tion plans that provide sustainable programs appreciation of both environmental and for affected people (for example, guaranteed social issues or preferential employment) * Providing employment to local communi- * Ensuring shared impact-management re- ties, to the extent possible, when supported sponsibility between project proponents, by training and skills development. governments, and local communities The second category of factors relates to matters * Adoption of mechanisms to resolve conflicts of principle or process, that should be followed to ensure successful integration. These include the * Monitoring and evaluation of the success of following: social and community development activities. * Corporate commitment to integrating SA During follow-up discussions several organiza- and EA and follow-through at the project tions from each of the target groups expressed inter- level est in and support for developing additional guidance on these factors. There was a general appe- * A thorough evaluation of project alterna- tite for guidance on the principles that should under- tives, from a social and environmental pin corporate approaches to SA and social perspective investnents in their projects in developing countries. Annex 2 - Social and Environmental Assessment: Exploring Linkages 57 However, there was also unease among some corpo- enhance sustainability should be more rate respondents at the prospect of detailed guide- widely exploited. lines being developed for SA, public involvement, and the like, for private sector activities, without * Integration of the assessment and manage- corporations having a leading role. ment of social and environmental risks is on the increase and is often reflected in com- These critical success factors are not discussed pany policies. Associations representing in any further detail within this annex. They are both the mining and oil and gas sectors are the subject of the main report that explores these actively considering how to better integrate factors in greater detail, identifies linkages to social and environmental concerns into the factors outside the control of corporations, and planning and implementation of projects. provides examples of how principles may be put Clearly, there is a pressing need to promote into practice. a thorough understanding of the objectives of SA and to develop indicators that will measure whether their goals have been Summary and Conclusions reached and provide a basis for evaluation. The summary and conclusions presented below are * Obstacles to the closer integration of social equally applicable to both the mining and the oil and and environmental aspects include a lack of gas sectors. Furthermore, they are almost certainly expertise and methodological guidance (see applicable to many other areas of private sector in- above) and cultural barriers arising from a volvement in infrastructure provision and industry technological arrogance or bias within many within developing countries. They are not exhaus- corporations. Therefore, training and skills tive, but highlight the main findings of the review development are important to improving and areas in which additional work is needed integration. in support of more sustainable private sector development. * Inadequate attention to social issues within legislation is also an obstacle to integration, * There is a growing awareness within the given the importance of regulation in influ- private sector of the importance of social as encing the behavior of regulated corpora- well as environmental issues. However, tions. However, regulatory reforms should while most corporations have a wealth of avoid being overtly prescriptive, which experience in managing environmental risks, could hinder the development of sustainable they are in the early stages of undertaking approaches. comprehensive SAs and strategically manag- ing social and community development * Corporations identified several benefits to issues. closer integration between the social and environmental aspects of projects, including * Leading edge corporations generally have a improving the design of projects and reduc- good appreciation of the social risks associ- ing social risks. In particular, integration was ated with their activities. They are increas- viewed as essential where changes in envi- ingly developing partnerships with local ronmental quality or resource availability governments, NGOs, and communities to could adversely affect communities or where improve the effectiveness and long-term social impacts presented threats to natural sustainability of their community develop- resources. However, corporations were more ment initiatives. The potential of partner- cautious about claiming that integration ship approaches to foster ownership and alone would enhance the sustainability of 58 Integrating Social Concerns into Private Sector Decisionmaking projects. There is a pressing need to develop * Finally, each of the three groups of respon- sustainability indicators for projects involv- dents identified a range of critical success ing the exploitation of nonrenewable re- factors for integrating the social and environ- sources to assist corporations to develop mental aspects of projects, including human more sustainable projects (for example, mea- resources, principles, and process factors. sures of increases in human or social capital There was strong support among inter- such as reductions in infant mortality rates, viewees for additional guidance on these training and its impact on the non-project- factors, which could provide a basis for com- related employment opportunities for panies to better integrate social concerns into trainees). their projects in developing countries. Annex 2 - Social and Environmental Assessment: Exploring Linkages 59 Attachment 1 Questionnaire Respondents Oil & Gas Companies Texaco Inc. 2000 Wentchester Avenue ARCO International Oil & Gas Co. White Plains, NY 10650-0001 P.O. Box 26088 USA Plano, TX 75026-0888 USA Mining Companies The British Petroleum Company Plc. Anglo American Corporation Britannic House 44 Main Street lFinsbury Circus P.O. Box 61587 London EC2M 7BA Marshalltown 2107 U.K. Republic of South Africa BG Plc. ASARCO Inc. 100 Thames Valley Park Drive 180 Maiden Lane Reading New York, NY 10038 Berkshire, RG6 1PT USA U.K. Barrick Gold Corporation Chevron Overseas Petroleum Inc. Royal Bank Plaza 6001 Bollinger Canyon Road South Tower P.O. Box 6046 Suite 2700 San Ramon, CA 94583-0746 200 Bay Street USA P.O. Box 49 Toronto, Ontario M5J 2J3 Mobil Corporation Canada 3225 Gallows Road Fairfax, VA 22037-0001 BHP Minerals USA 550 California Street San Francisco, CA 94104 Norske Hydro ASA USA Bygdoy alle 2 N-0240 Cambior Inc. Oslo, Norway 800, Rene Levesque Ouest Suite 850 Phillips Petroleum Company Montreal, Quebec, H3B 1X9 P.O. Box 1300 B Canada Bartlesville, OK 74004 USA INCO Limited 145 King Street West Shell Prospecting and Development (Peru) B.V. Suite 1500 Avienda Nicolas Arriola No. 740 Toronto, Ontario, M5H 4B7 Lima 13. Peru Canada 60 Integrating Social Concerns into Private Sector Decisionmaking Placer Dome Inc. Steffen Robertson & Kirsten P.O. Box 49330 Consulting Engineers and Scientists Bentall Postal Station 265 Oxford Road, Illovo, 2196 1600-1055 Dunsmuir Street P.O. Box 55291 Vancouver, B.C. V7X lPl Northlands 2116 Canada Republic of South Africa Rio Tinto Plc. WS Atkins Limited 6 St. James Square Woodcote Grove London SW1Y 4LD Ashley Road, Epsom U.K. Surrey KT18 5BW U.K. WMC Lirnited P.O. Box 7001 Nongovernmental Organizations Cloisters Square Perth, WA 6850 Beme Declaration Australia P.O. Box 177 8031 Zurich Consulting Organizations Switzerland AGRA Earth & Environmental Coalition in Support of Amazonian Peoples and 2233Argentina Road their Environment Suite 400 1511 K St, N.W. Mississauga, Ontario, L5N 2X7 Washington, D.C. 20005 Canada USA COWI Consultants Conservation International Roskilde University 2501 M Street, N.W. P.O. Box 260 Washington, D.C. 20037 4000 Roskilde USA Denmark Community Aid Abroad Envirosearch International (Oxfam Australia), Level 2 2319 S. Foothill Drive 16-22 Wentworth Avenue Suite 180 Surrey Hills NSW, 2010 Salt Lake City, UT 84109 Australia USA Friends of the Earth ERM 1025 Vermont Avenue, N.W. 8 Cavendish Square Washington, D.C. 20005 London WlM OER USA U.K. Inhured International Mouchel Consulting Limited P.O. Box 2125 Ktm. West Hall, Parvis Road Inar, Pulchowck West Byfleet, Surrey, KT14 6E2 Lalitpur U.K. Nepal NSR Consultants Pty. Limnited Oikos 25 Burwood Road 42 Kingsway Hawthome, Victoria 3122 London WC2B 6Ex Australia U.K. Annex 2- Social and Environmental Assessment: Exploring Linkages 61 Attachment 2.1 Assessing the Environmental and Social Aspects of Development Responses to Questionnaire for Private Sector Corporations Number of questionnaires issued: 34 Number of respondents: 17 This schedule contains the questions answered by corporations, and indicates the numbers of responses to each question. Please note that as several respondents ticked more than one box for several questions (legitimately), the total number of responses to some questions appears to exceed the number of respondents. 1. Does your organization ever consider the social implications of your projects within developing countries which require Environmental Assessments (EA), either as part of or separate to the project EA? I Yes |17 | | No I O | 2. To what extent do you assess the social and environmental implications of your projects in developing countries durng project planning (please tick one for both environmental and social): Env. Social * Comprehensively in all cases? 12 7 * Level of assessment depends on sensitivity of the project location? 6 11 * Only where legally required? 0 0 * Level of assessment guided by company policy (please attach)? 2 1 3. Who would generally undertake the assessment (please tick all that apply): Env. Social * Extemal consultants? 3 4 * In house experts? 5 3 * Extemal consultants, guided by in-house experts? 13 12 4. What do you perceive as the major potential environmental risks or concerns associated with your projects in developing countries (please tick all that apply): * Impacts on surface and groundwater resources? 16 * Impacts on natural biological resources? 14 * Impacts on agricultural land? 8 * Impacts on air quality? 8 * Nuisance (e.g. noise) and aesthetic impacts? 10 * Contamination of land (either historical site contamination, or contamination arising from future operations)? 13 62 Integrating Social Concerns into Private Sector Decisionmaking * Global atmospheric issues (e.g. global warming or ozone depletion)? 4 * Impacts on non-renewable resources? 10 * Impacts on local communities, or other stakeholders (see question 5 below)? 11 * Other (please specify)? 0 5.a What major potential social risks or concems associated with your projects in developing countries have been raised by local communities, pressure groups, or others (please tick all that apply): * Impacts on use of natural resources by local communities? 15 * Impacts on quality of life of local community? 13 * Economic impacts on stakeholders (effects on homes, lands, or employment)? 14 Impacts of moving people into or out of the project area? 13 Potential health impacts of the project? 13 * Impacts on vulnerable groups, such as indigenous peoples? 14 * Lack of consultation with stakeholders? 13 * Impacts on cultural resources (archaeological or religious artifacts/structures)? 15 * Impacts on social structures and cultural values? 12 5.b Which of the social risks or concerns you have ticked in question 5.a would you expect to address, and which would you expect to be addressed by governmental or non-governmental organizations, or other entities (please specify, illustrating with examples as appropriate on the reverse of the page)? Social risks or concerns: Potential impacts on.. Typically addressed Typically addressed by by our company others (please specify) Use of natural resources by local communities 15 10 Quality of life 10 7 Economic aspects 15 8 Movement of people 11 7 Health issues 15 6 Presence of vulnerable groups 13 9 Lack of consultation 14 5 Cultural resources 15 6 Social structures and cultural values 11 8 Annex 2 - Social and Environmental Assessment: Exploring Linkages 63 6. At what stages of project planning within developing countries do you deal with social risks or concerns, and roughly what is the level of effort involved in dealing with these risks (please tick all that apply)? Project stages Social concems addressed Level of effort (low, medium, or high) Initial pre-feasibility or feasibility studies 15 4, 5, 6 Development of detailed project designs 12 1, 4, 6 During project approval or permitting 15 0, 2, 11 During construction 12 2, 4, 5 Throughout operational phase of project 14 0, 3, 10 Closure or decommissioning 14 0, 5, 8 7. To what extent do you consider the social and environmental implications of your projects in developing countries in an integrated manner (please tick all that apply): * Both environmental and social aspects are addressed by an integrated team, with site visits conducted jointly ? * Environmental and social aspects are addressed in parallel by separate teams, and integrated within a single report? 2 * Environmental and social aspects are dealt with and reported on separately? 3 * A combination of the above, depending on project circumstances? 14 8. What are the main reasons for your corporation assessing environmental and social concerns in an inte- grated manner (please tick all that apply)? i Their integration stems from company policy? 14 e Legal requirements of countries in which we operate? 5 • Depends on consultants we employ? 1 * Requirement of strategic development plan or strategic EA? 9 * Other (please specify)? I Note: Four respondents indicated that integration stemmed from the considerable overlap between EA and SA; one considered integration to represent best practice. 9. If your internal policies are the main reason for addressing environmental and social concerns in an inte- grated manner, what factors have helped to shape these policies (please tick all that apply)? * Positive experiences with projects where these concerns were integrated? 12 * Negative experiences with projects where these concerns were not integrated? 9 * Expectations of shareholders? 6 * Pressure from other stakeholders, such as customers or pressure groups? 6 * Positive experiences of consultation process with project stakeholders? 9 * Other (please specify)? 2 Note: One respondent mentioned staff commitment as important in shaping policies. 64 Integrating Social Concerns into Private Sector Decisionmaking 10. On balance, do you consider the cost implications of adequately addressing social and environmental concems of projects in developing countries to have: * Minimal impact on project costs? * Additional costs associated? * Cost savings associated? Note: Of the six respondents who specified that additional costs would be incurred, four indicated that these were short-termn costs that would be recouped. Four of the 10 respondents who specified costs savings indi- cated that these would only be recouped in the longer term. 11 .a Have you been involved in projects in developing countries where strategic plans with strong environmen- tal components influenced the project design or location? |Yes | 3 | No I 1 3 11 .b If yes, have the strategic plans helped to set the terms of reference for integration of social and environ- mental concerns at the project? | Yes | 2 | | No I 1 12.a Has integration of the assessment of social and environmental concerns (either in the field or at the reporting stages) influenced the design and implementation of your projects in developing countries? I Yes | 14 | 12.b If yes, has the influence been mainly positive or negative (please specify positive or negative)? I Positive 14 | I Negative | 3 13. Do you have any indications that integrating the assessment of social and environmental concerns during project development results in better, more environmentally and socially acceptable projects? I Yes N 14 1 | No I 1 14. What do you see as the advantages or disadvantages of integrating the assessment of social and environ- mental concerns (from a regulatory, financial, environmental, social, or other perspective)? Note: Advantages cited included the following: helps to secure project development; engenders community interest, involvement, acceptance, ownership and enhances social stability; facilitates the incorporation of traditional knowledge; reduces the impacts on natural resources; enhances training and employment opportuni- ties; improves project design; provides an opportunity for establishing open communications; establishes a framework for consuftation; accelerates the permitting approval process; improves the cost effectiveness of projects; and enables identification (and facilitates resolution) of inter-disciplinary issues. The principal disad- vantage cited was of raising expectations that may be difficult to satisfy through public involvement. Annex 2 - Social and Environmental Assessment: Exploring Linkages 65 1 5.a Has your company promoted projects where, in your opinion, the assessments of social and environmen- tal concems have been successfully integrated? IYes | 13 | No I I | 15.b If yes, would you be willing to share information on these projects through (please tick all that apply): * More in-depth discussions? 11 * Providing access to relevant documents for review such as project EAs (as the basis for developing case studies of good practice?5 * Providing contact details for stakeholders (such as regulatory agencies) directly involved in the project? 5 16. In the event that you wish to maintain a dialogue on this subject, should we maintain contact with you or one of your colleagues (if a colleague, please enter their details below): |F iesT I 8ll 1 7.a Finally, do you consider it important to integrate the assessment of social and environmental concerns, and briefly give reasons for your answer? IYes |13 | I No I 1 Note: Several respondents cross-referred to the answers given to question 14. In addtion the following were also men- tioned: important if sustainable development is to be achieved; integral to the concept of sustainable development; and important to obtain the support of local people to prevant potential opposition by national and intemational govemmental and non-govemmental organizations. 1 7.b If yes, what do you consider to be the critical factors for successfully integrating the assessments of social and environmental concerns? (please list) Note: Critical success factors cited included: developing an appreciation of the importance of integration within corpora- tions; fostering an understanding amongst technical, environmental, and social specialists of the legitimacy and impor- tance of each other's contributions; recognition of the value of building social and human capital; developing a thorough understanding of local social structures; employment of social scientists at the project level with in-country and/or sector specific experience; use of multidisciplinary teams that interact well to undertake the EAISA, headed by a project manager with a good appreciation of both environmental and social issues; close integration between environmental/social and feasibility study teams; providing employment to local communities; respect for basic human rights, particularly the vulnerable groups in society; public involvement; sustained, thorough, and meaningful consultation that commences early in project planning; a thorough evaluation of project alternatives; adoption of mechanisms to resolve conflicts; and monitor- ing and evaluation of the success of social and community development activities. 17.c If yes, why do you think that assessments of social and environmental concerns are not more systemati- cally integrated? Note: The reasons cited included the following: lack of experience with integrating SA and EA, and lack of expertise within both corporations and consultants to effectively identify and address these issues.; failure to adopt an interdisciplinary approach; inability of staff in corporations renowned for technical excellence, to develop non-engineering solutions to social impacts; lack of methodological guidance on how to approach social assessment; lack of robust SA legislation; failure of corporations to recognize opportunities arising from SA; reluctance of national joint-venture partners to consider social issues; fast-tracking of projects does not allow for adequate consideration of social and environmental issues; and lack of understanding of what constitutes sustainable development. 66 Integrating Social Concerns into Private Sector Decisionmaking Attachment 2.2 Integrated Environmental and Social Assessment Questionnaire for Non Governmental Organizations Number of questionnaires Issued: 14 Number of respondents: 6 1. Does your organization monitor Social Assessments (SAs) and Environmental Assessments (EAs) under- taken for private sector development projects within developing countries? | Yes | 8 ||NI E l.a. Do your monitoring activities within developing countries primarily focus on (please tick all that apply): - Environmental aspects of development projects? • Social aspects of development projects? - Both the environmental and social aspects of development projects? 2. Which groups of private sector organizations do you typically monitor (please tick all that apply): • Multinational corporations? 8 * Corporations within specific countries or regions? 5 * Corporations within specific sectors? 5 • Market leaders in specific countries/regions or sectors? 0 * Corporations with historically poor social and environmental performance? 3 * Corporations which publicly declare themselves to be socially and environmentally responsible? 2 3.a Which aspects of EA, as practiced by private sector corporations in developing countries, is your organiza- tion most concerned with (please tick all that apply): * Definition of the project's area of influence, and initial identification of natural resources potentially impacted by the project? 6 * Legal and institutional framework for environmental protection? 6 * Impacts on surface and groundwater resources? 5 * Impacts on natural biological resources? 5 * Impacts on agricultural land? 4 * Impacts on air quality? 2 * Nuisance Impacts and aesthetic impacts? 0 e Development of environmental mitigation and management plan? 4 * Consultation with affected communities, or others? 8 * Other (please specify)? 1 Note: One respondent also mentioned analysis of project altematives. Annex 2 - Social and Environmental Assessment: Exploring Linkages 67 3.b Which aspects of the SA of such projects is your organization most concemed with (tick all that apply): * Definition of project's area of influence and identification of project affected stakeholders? 5 * Demography within project area and potential impacts? 6 * Usage of natural resources (water, fish, forest products)? 8 * Quality of life/values of time of local communities? 8 * Availability and source of labor supply? 4 * Induced in-migration or out-migration associated with project? 8 * Health statistics for the project area and potential health impacts? 4 * Legal framework for public consultation, involvement, etc.? 8 * Presence of vulnerable groups such as indigenous peoples and their legal rights to common property resources? 8 * Economic impacts on stakeholders (loss of homes, lands, or employment)? 8 * Access to alternative income generating opportunities? 7 * Impacts on cultural resources (archaeological or religious artifacts/structures)? 4 * Impacts on social structures and cultural values? 6 • Consultation with stakeholders in developing mitigation and management plans? 8 4. To what extent do you expect corporations to assess the social and environmental implications of develop- ment projects within developing countries in an integrated manner (please tick): e Both the EA and SA should be undertaken by an integrated team, with site visits conducted jointly? 4 * EA and SA should be undertaken in parallel by separate teams, and integrated in a single report? 0 * EA and SA may be undertaken and reported on separately? 0 * A combination of the above, depending on project circumstances? 5. What standards do you assess corporate social and environmental responsibility against, with respect to EA and SA of projects in developing countries (please tick all that apply)? * Legal requirements of countries in which corporations operate? 6 * Legal requirements of countries in which corporation has its head offices? 6 * Internal policies of corporations? 4 * In country requirements of strategic development plans or strategic EAs? 5 * Other (please specify): 5 Note: Other benchmarks mentioned included World Bank guidelines, basic environmental principles, the influ- ence of the sustainable development agenda, and industry norms and standards. 68 Integrating Social Concerns into Private Sector Decisionmaking 6. In your experience, to what extent do corporations evaluate the social and environmental impacts of develop- ment projects within developing countries in a comprehensive manner (please tick)? EAESA * Environmental or social aspects are generally adequately assessed? 1 1 * Environmental or social aspects are occasionally adequately assessed? 4 0 * Environmental or social aspects are rarely adequately assessed? 3 7 7. In your opinion, what factors influence corporations to produce better EAs and SAs for projects within developing countries? * Robust legal requirements within countries in which corporations operate ? 7 * Robust legal requirements within country where corporation has its head office? o * Robust internal policies of corporations? 4 * Pressure from NGOs? 7 * Results of a good consultation process with stakeholders? 7 * Other (please specify)? 4 8.a Are you aware of any good examples of the integration of EA and SA of private sector financed projects in developing countries? I Yes I 1 | No | 6| 8.b If yes, would you be willing to share information on these projects through more in-depth discussions, or by providing references or access to integrated EAs/SAs or other relevant documents for review (as the basis for developing good practice case studies)? I I I 9.a Has your organization worked in partnership with any private sector corporations on the environmental or social aspects of projects within developing countries? I Yes | 4 | Z No r 4 9.b If yes, would you be willing to share information on these projects through: * More in-depth discussions? * Providing access to integrated EAs/SAs or other relevant documents for review (as the basis for developing good practice case studies? Annex 2- Social and Environmental Assessment: Exploring Linkages 69 10. Do you wish to maintain a dialogue on this subject? 11 .a Finally, do you consider it important to integrate EA and SA, and briefly give reasons for your answer? Note: Responses included the following reasons: because inclusion of affected people is essential to the development process; integration leads to participation; because indigenous people are inextricably dependant on the environment. 11 .b If yes, what do you consider to be the critical factors for successfully integrating EA and SA? Note: The factors cited included the following: consultation with and participation of project affected people, and disclosure of information; development and implementation of mitigation plans which include sustainable programs for affected people; thorough analysis of altematives; respect for basic human rights; guaranteed or preferential employrnent of locals; start integration early, before exploration commences; use of appropriate specialists (e.g. social anthropologists, sociologists, historians, etc.) and acceptance of associated costs; transparency; communication with stakeholders; and NGO/community participation. 11.c If yes, why do you think EA and SA are not more systematically integrated? Note: The reasons cited included: lack of legal requirement to integrate SA and EA; inertia on the part of the private sector to try new approaches; inadequate governmental policies and programs; technocratic bias of most EAs; and lack of expertise/experience of dealing with social issues. 70 Integrating Social Concerns into Private Sector Decisionmaking Attachment 2.3 Assessing the Environmental and Social Aspects of Development Responses to Questionnaire for Consultants Number of questionnaires issued: 12 Number of respondents: 8 This schedule contains the questions answered by consultants, and indicates the numbers of responses to each question. Please note that as several respondents ticked more than one box for several questions (legitimately), the total number of responses to some questions appears to exceed the number of respondents. 1. Does your organization undertake social assessments (SAs) and environmental assessments (EAs) of private sector projects within developing countries? I Yes I 8 I I No I 0 l.a Who would generally undertake the assessment (please tick all that apply): Env. Social * In-house staff? 3 1 * Associates or affiliates? 0 1 • Combination of in-house staff, associates or affiliates? 7 7 2. To what extent do your private sector clients in developing countries require an assessment of the social and environmental implications of development proposals located in socially and environmentally sensitive areas, as part of project planning (please tick one for both environmental and social): Env. Social X Comprehensively in most cases? 5 2 * Comprehensively in some cases? 2 5 * Only where legally required? 2 1 3.a Which aspects of the natural environment do you typically evaluate for EAs of private sector projects in developing countries, in sectors such as mining, power, transport, and oil and gas (please tick all that apply): * Definition of the projects area of influence? 8 * Legal and institutional framework for environmental protection? 4 * Impacts on surface and groundwater resources? 8 * Impacts on natural biological resources? 8 * Impacts on local and regional air quality? 8 * Nuisance (e.g. noise) and aesthetic impacts? 6 * Impacts on agricultural land? 7 * Contamination of land? 7 * Impacts on non-renewable resources? 7 Annex 2 - Social and Environmental Assessment: Exploring Linkages 71 * Impacts on local communities, or other stakeholders (see question 3.b below)? * Economic evaluation of environmental impacts? * Other (please specify)? Note: Other categories mentioned included Landscape, visual impact, occupational health and soils/geology. 3.b What major potential social risks or concerns associated with your projects in developing countries have been raised by local communities, pressure groups, or others (please tick all that apply): * Definition of project's area of influence and identification of project affected stakeholders? 8 * Demography within project area and potential impacts? 8 * Usage of natural resources by local communities? 8 * Impacts on quality of life of local community? 7 * Impacts of moving people into or out of the project area? 8 * Health statistics for the project area and potential health impacts? 5 * Legal framework for public consultation, involvement, etc.? 6 * Presence of vulnerable groups, such as indigenous peoples and their legal rights to common property resources? 8 * Economic impacts on stakeholders (effects on homes, lands, or employment)? 8 * Impacts on cultural resources (archaeological or religious artifacts/structures)? 8 * Impacts on social structures and cultural values? 8 * Social equity issues, i.e. land tenure issues, income distribution, etc.? 8 * Consultation with stakeholders in developing mitigation and management plans? 6 4. To what extent do you assess the social and environmental implications of private sector projects in devel- oping countries in an integrated manner (please tick all that apply): * Both the EA and SA are undertaken by an integrated team, with site visits conducted jointly ? 4 * EA and SA are undertaken in parallel by separate teams, and integrated within a single report? 3 * EA and SA are undertaken and reported on separately? 1 * A combination of the above, depending on project circumstances? 3 5. What do you think are the main reasons for integration of EA and SA (please tick all that apply)? * Legal requirements of countries in which our clients operate? 0 * Company policy of our clients is to integrate EA and SA? 2 * Our policy is to integrate EA and SA wherever possible? 7 * Requirement of strategic development plan or strategic EA? 0 * Other (please specify)? 3 Note: The two other reasons cited were cost effectiveness and the influence of multilateral financing institution guidelines on private sector practices. 72 Integrating Social Concerns into Private Sector Decisionmaking 6. Where the driving forces are primarily your internal; policy, what factors have helped to shape these policies (please tick all that apply)? * Positive experiences with projects where SA and EA were integrated? 6 * Negative experiences with projects where SA and EA were not integrated? 5 * Pressure from other stakeholders, such as customers or pressure groups? 1 * Positive experiences of consultation process with project stakeholders? 2 7. What are the cost implications of integrating SA and EA? * Minimal impact on costs to clients? 1 * Additional costs associated? I * Cost savings associated? 6 Note: Six respondents identified cost savings linked to efficiencies associated with integration. 8.a Have you been involved in private sector projects in developing countries where strategic plans with strong environmental components influenced the project design or location? Yes t1 No 4 8.b If yes, have the strategic plans helped to set the terms of reference for integration of social and environ- mental concerns at the project level? 9.a Has the integration of social and environmental assessments (either in the field or at the reporting stages) influenced the design and implementation of private sector projects in developing countries? =:=Yes 8 |NoO|0 9.b If yes, has the influence been mainly positive or negative (please specify positive or negative)? I Positive | 7 | | Negative 10. Do you have any indications that integrating the assessment of social and environmental concerns during project development results in better, more environmentally and socially acceptable projects? Ie No | 2 Note: Two respondents indicated that integration of SA and EA was less important than private sector clients willingness to address social issues and provide for consultation and participation. 11. Have you experienced difficulties in integrating the social and environmental assessment of projects (from a methodological, regulatory, financial, environmental, social, or other perspective)? |LYesi|J3i|i| No I 1 Note: Problems cited included a lack of understanding on the part of clients of the importance of integration, methodological constraints, and difficulties associated with host countries being inexperienced or institutionally ill-prepared to accommodate integrated approaches. Annex 2 - Social and Environmental Assessment: Exploring Linkages 73 12.a Has your company promoted projects where, in your opinion, the assessments of social and environmen- tal concems have been successfully integrated? 12.b If yes, would you be willing to share information on these projects through (please tick all that apply): * More in-depth discussions? 6 * Providing access to relevant documents for review such as project EAs (as the basis for developing case studies of good practice? 3 * Providing contact details for stakeholders (such as regulatory agencies) directly involved in the project? 4 13. Do you wish to maintain a dialogue on this subject? 1 4.a Finally, do you consider it important to integrate the assessment of social and environmental concerns, and briefly give reasons for your answer? Note: The reasons cited included: ecosystems are integrated and include people and their actions (which in tum can profoundly influence environmental and social impacts and the effectiveness of mitigation measures); integration results in a better understanding of the true impacts; integration results in better projects; integration facilitates a strategic resolution of issues rather than a strictly technical approach; and integrating SA into E4 provides a mechanism for building social capital, and empowering local communities. 1 4.b If yes, what do you consider to be the critical factors for successfully integrating the assessments of social and environmental concerns? (please list) Note: Critical success factors cited included: client buy-in for integration and follow-up; stakeholder participation and client commitment; multi-disciplinary team approach using consultants with the right skills and 'aftitude"; allowing sufficient time and resources; improved guidelines for SA; SA/EA coordinator with a good appreciation of the interdisciplinary issues; mediation and issue resolution; recognition by the private sector of the importance of building social capital; regulatory clarity so that the private sector understands what is required; and shared impact management responsibility between proponent, govemment, and local communities. 1 4.c If yes, why do you think that assessments of social and environmental concems are not more systemati- cally integrated? Note: The reasons cited included the following: resistance to new approaches and conservatism; lack of recog- nition by engineers and scientists of the legitimacy and value of social science and public/traditional knowledge to project planning; lack of understanding of the value of integration by private sector clients; heightened sensi- tivity on the part of some private sector clients to allowing SA (consultation and participation particularly); lack of methodological guidance; historical lack of emphasis on SA, exacerbated by emphasis since Rio on environ- mental aspects and a lack of legislation supporting SA; benefits not sufficiently proven, therefore difficult to convince cdients to undertake integrated SA/EA; failure by industry to appreciate financial benefits to be gained by investing in local communities; and lack of project managers well versed in both environmental and social issues. Bibliography Bennett, S.J., R. Frierman, and S. George. 1996. Corporate Realities and Environmental Truths: Strategiesfor Leading Your Business in the Environmental Era. New York: John Wiley & Sons, Inc. Biswas, A.K., and S.B.C. Agarwala, eds. 1992. Environmental Impact Assessment for Developing Countries. Oxford, U.K.: Butterworth-Heinemann. Bisset, R. 1996. Social Impact Assessment and Its Future. Mining Environmental Management. vol. IV, no. 1. London: Mining Journal Limited. Canter, L.W. 1994. Environmental Impact Assessment. New York: McGraw-Hill. Clark, A.L. 1997. Structural Reform of the Mining Industry in Asia and the Pacific Region. Report by the East-West Center of Hawaii for the Metal Mining Agency of Japan. Tokyo. Gilpin, A. 1995. Environmental Impact Assessment (EIA): Cutting Edgefor the Twenty-First Century. Cambridge, U.K.: Cambridge University Press. Gray, R., D. Owen, and C. Adams. 1996. Accounting & Accountability: Changes and Challenges in Corporate Social and Environmental Reporting. London: Prentice Hall. Lihir Management Company. 1996. "Lihir: Socio-Economic Impact." Mining Environmental Management vol. IV, no. 1. London. Kjorven, 0.1993. "The World Bank and Environmental Assessment: An Overview." EA Sourcebook Update no. 1. Washington, D.C. McPhail, K., and S. Jacobs. 1995. "Social Assessment." World Bank Environment Department Dissemination Note 36. Washington, D.C. 75 76 Integrating Social Concerns into Private Sector Decisionlnaking Moser, T., and T. Tsai. "Multinational Corporations, Developing Countries, and Environmental Protection: The Case of the Petroleum and Chemical Sectors in Latin America and Greater China Region." Cambridge University, Judge Institute of Management. Cambridge, U.K. Nelson, J. 1996. Business as Partners in Development: Creating Wealth for Countries, Companies, and Communities. London: The Prince of Wales Business Leaders Forum. Piasecki, B.W. 1995. Corporate Environmental Strategies: The Avalanche of Change Since Bhopal. Chichester, U.K.: John Wiley and Sons, Inc. Rogers, M.D. 1995. Business and the Environment. New York: McMillan Press. Rosenfeld, A., D. Gordon, and M. Guenn-McManus. 1997. Reinventing the Well: Approaches to Minimizing the Environmental and Social Impact of Oil Development in the Tropics. Conservation International Policy Paper vol. 2. Washington, D.C. Shell International. 1996. Social Impact Assessment Guidelines. EP95-0371. The Hague, Netherlands: Shell International Exploration and Production B.V. Smith, D.B., and M. Van der Wansem. 1995. Strengthening EIA Capacity in Asia: EIA in the Philippines, Indonesia, and Sri Lanka. Washington, D.C.: World Resources Institute. UNEP (United Nations Environment Programme), and PWBLF (Prince of Wales Business Leaders Forum). 1994. Partners for Sustainable Development: The Role of Business and Industry. London: PWBLF. Vanclay, F,. and D.A. Bronstein. 1996. Environmental and Social Impact Assessment. Chichester, U.K.: John Wiley and Sons, Inc. Wathem, P. 1988. Environmental Impact Assessment: Theory and Practice. London: Routledge. Werner, G. 1992. "Environmental Impact Assessment in Asia." In A.K. Biswas and S.B.C. Agarwala, eds. Environmental Impact Assessment for Developing Countries. Oxford: Butterworth-Heinemann. Wood, C. 1995. Environmental Impact Assessment: A Comparative Review. London: Longman. World Bank. 1996. The World Bank Participation Sourcebook. Washington, D.C. Distributors of COLOMBIA GERMANY ISRAEL NEPAL PORTUGAL SWEDEN htornmac Uda. UNO-Ye*a Yozmot Litsratute Ltrd. Everest Mhtei Interlional Sstvikes (P.) Ltd. Lwrfari Porutua Wennrgfrn Wkan AS W orld Bank Carrera6tb.51-21 PoppoeidorterAltee 5 P.O. Box 6055 GPO Box5443 Apanado2681, RuaDoCarwmW7-74 P 0. Box 1305 ApatGtoereoMm34270 53115Brrn 3 Yoha3nHasandar Street Kathmnandtu 11200Llsbon St171 25Sotu Publications Santait deBogorddD.C. 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Todeib Guetna Ul. Piekna- 3117 100. SivOtarralam Gardiner Mawatha Fal.. (86 19) ew847 ~ 75116 Padis 4-5 Harcourt Road 14880 Mexic& .0 D60-677 Waezawo Coloffko 2 FTet (96 10)6340-Tel: (M 1) 404-rls 57 OHtlero 2 T40 (525) 624-2800 Tel: (48 2) 6284089 Tel: (941)32105 Fax: (331) 40-69-30-9 Tel: (3531)661-3111 Fax: (52 5)624-2822 Fax: (48 2) 621-7255 Fax: (941) 432104 For. (353 1)475-2670 E-mall itlolecirllunest.nr Erma: booksa tilarpalm.com.pI E-mall: LHLOI.Gaed a.nekarrt URL: hktypJ/rLn.netrmx URL: hlhwAew .i0scg.waepIpss/export/ Recent World Bank Discussion Papers (continued) No. 347 Health Reform in Africa: Lessonsfrom Sierra Leone. Bruce Siegel, David Peters, and Sheku Kamara No. 348 Did External Barriers Cause the Marginalization of Sub-Saharan Africa in World Trade? Azita Amjadi Ulrich Reincke, and Alexander J. Yeats No. 349 Surveillance of Agricultural Price and Trade Policy in Latin America during Major Policy Reforms. Alberto Valdes No. 350 Who Benefitsfrom Public Education Spending in Malawi: Resultsfrom the Recent Education Reform. Florencia Castro-Leal No. 351 From Universal Food Subsidies to a Self-Targeted Program: A Case Study in Tunisian Reform. Laura Tuck and Kathy Lindert No. 352 China's Urban Transport Development Strategy: Proceedings of a Symposium in Beijing, November 8-10, 1995. Edited by Stephen Stares and Liu Zhi No. 353 Telecommunications Policiesfor Sub-Saharan Africa. Mohammad A. Mustafa, Bruce Laidlaw, and Mark Brand No. 354 Saving across the World: Puzzles and Policies. Klaus Schmidt-Hebbel and Luis Serven No. 355 Agriculture and German Reunification. Ulrich E. Koester and Karen M. Brooks No. 356 Evaluating Health Projects: Lessonsfrom the Literature. Susan Stout, Alison Evans, Janet Nassim, and Laura Raney, with substantial contributions from Rudolpho Bulatao, Varun Gauri, and Timothy Johnston No. 357 Innovations and Risk Taking: The Engine of Reform in Local Government in Latin America and the Caribbean. Tim Campbell No. 358 China's Non-Bank Financial Institutions:Trust and Investment Companies. Anjali Kumar, Nicholas Lardy, William Albrecht, Terry Chuppe, Susan Selwyn, Paula Perttunen, and Tao Zhang No. 359 The Demandfor Oil Products in Developing Countries. Dermot Gately and Shane S. Streifel No. 360 Preventing Banking Sector Distress and Crises in Latin America: Proceedings of a Conference held in Washington, D.C., April 15-16, 1996. Edited by Suman K. Bery and Valeriano F. Garcia No. 361 China: Power Sector Regulation in a Socialist Market Economy. Edited by Shao Shiwei, Lu Zhengyong, Norreddine Berrah, Bernard Tenenbaum, and Zhao Jianping No. 362 The Regulation of Non-Bank Financial Institutions: The United States, the European Union, and Other Countries. Edited by Anjali Kumar with contributions by Terry Chuppe and Paula Perttunen No. 363 Fostering Sustainable Development: The Sector Investment Program. Nwanze Okidegbe No. 364 Intensified Systems of Farming in the Tropics and Subtropics. J.A. Nicholas Wallis No. 365 Innovations in Health Care Financing: Proceedings of a World Bank Conference, March 10-11, 1997. Edited by George J. Schieber No. 366 Poverty Reduction and Human Development in the Caribbean: A Cross-Country Study. Judy L. Baker No. 367 Easing Barriers to Movement of Plant Varietiesfor Agricultural Development. Edited by David Gisselquist and Jitendra Srivastava No. 368 Sri Lanka's Tea Industry: Succeeding in the Global Market. Ridwan Ati, Yusuf A. Choudhry, and Douglas W. Lister No. 369 A Commercial Bank's Microfinance Program: The Case of Hatton National Bank in Sri Lanka. Joselito S. Gallardo, Bikki K. Randhawa, and Orlando J. Sacay No. 370 Sri Lanka's Rubber Industry: Succeeding in the Global Market. Ridwan Ali, Yusuf A. Choudhry, and Douglas W. Lister No. 371 Land Reform in Ukraine: The First Five Years. Csaba Csaki and Zvi Lerman No. 373 A Poverty Profile of Cambodia. Nicholas Prescott and Menno Pradhan No. 374 Macroeconomic Reform in China: Laying the Foundation for a Socialist Economy. Jiwei Lou No. 375 Design of Social Funds: Participation, Demand Orientation, and Local Organizational Capacity. Deepa Narayan and Katrinka Ebbe No. 376 Poverty, Social Services, and Safety Nets in Vietnam. Nicholas Prescott No. 377 Mobilizing Domestic Capital Marketsfor Infrastructure Financing: International Experience and Lessonsfor China. Anjali Kumar, R. David Gray, Mangesh Hoskote, Stephan von Klaudy, and Jeff Ruster No. 378 Empowering Small Enterprises in Zimbabwe. Kapil Kapoor, Doris Mugwara, and Isaac Chidavaenzi No. 380 India's Public Distribution System: A National and International Perspective. R. Radhakrishna and K. Subbarao, with S. Indrakant and C. Ravi No. 382 Public Expenditure Reform under Adjustment Lending: Lessonsfrom World Bank Experiences. Jeff Huther, Sandra Roberts, and Anwar Shah No. 383 Competitiveness and Employment: A Frameworkfor Rural Development in Poland. Garry Christensen and Richard Lacroix 4i^\ THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433 USA Telephone: 202-477-1234 Facsimile: 202-477-6391 Telex: MCI 64145 WORLDBANK MCI 248423 WORLD)BANK World Wide Weh: http://N w-*vworldbank.org/ E-mail: books@aworldbank.org 9 780821 341889 ISBN 0-8213-4188-X