‘Where’s the money?’ – published by Ethical Corporation

March 2007

By Daniel Litvin and Juliet Hepker – A version of this article was published by Ethical Corporation

Progress on business and human rights might be quicker if human rights were seen as a means to protect value not just avoid bad headlines.

Barely a day goes by without an energy or mining company being accused in some part of the world of complicity in a human rights abuse. On the face of it this is a paradox. The past five years have seen a flourishing of human rights initiatives involving extractives firms. Many of the large firms have taken up the mantra of human rights. So why do problems apparently continue?

Certainly some of the criticisms are unfair, with companies being blamed for what are ultimately government failures. Firms often argue that problems blamed on them are actually beyond their control. But that is only part of the story.

Consider the sort of human rights criticisms still often made against extractives firms – for example, that security forces around mines or oil fields are violent to communities, that resettlement of local people has taken place without adequate consultation, or that companies are too cosy with non-democratic governments. A range of initiatives, policy frameworks and tools now exist for companies to manage these issues relatively responsibly, and also without incurring disproportionate costs or damaging their relationships with host governments.

For example, by supporting and applying the Voluntary Principles on Security and Human Rights, the IFC standard on involuntary resettlement, and the Extractive Industries Transparency Initiatives, firms can go a long way to tackling the sort of problems mentioned above. They can also apply a number of recently-developed tools for human rights risk assessment. Some of the large firms have also developed detailed guidelines setting out the implications of their own policies on human rights.

A core problem is that such initiatives and policies often need to be driven further and deeper. The large western oil and mining firms have gone furthest in their human rights efforts, but even they face challenges – which they themselves often recognise – in guaranteeing on-the-ground implementation of the policies and initiatives to which they have committed, and in building sufficient internal skills and capacity. Among the thousands of smaller oil and mining companies and also some of the non-western majors, meanwhile, basic awareness of the practical tools and tactics now available in this area is lacking. Most notably recently, Chinese firms have been criticised for allegedly neglecting human rights in their dealings in Africa.

Extracting values

For as long as human rights are framed in executives’ minds largely as a reputation risk issue, however, dramatic acceleration of progress in this area is unlikely. In commercial terms, bad headlines can do damage, but in themselves they cannot change the actual economics of a resource investment. What might galvanise corporate action, for the same reason, is recognition within the companies of the potential usefulness of human rights as a lens for strategic planning and for protecting long-term shareholder value.
This is not to make a simple claim – as some do – for human rights as a key to commercial success, nor to downplay the genuine dilemmas which a human rights commitment can raise for companies (a current risk, for example, is being undercut in the short term by less high-minded Chinese firms). A simple version of the ‘business case for human rights’ – for example, that it helps protect the corporate reputation, motivates employees, and so on – is often rehearsed by activists and companies alike without gaining real traction with executives. Even so, using human rights to help guide corporate strategies, particularly in the oil and mining sectors, may hold some as yet unrecognised benefits.

A key point here is that investments in both oil and mining are very long term, often lasting 30 years or more. Protecting shareholder value requires keeping on side throughout this period all those stakeholder groups which can directly affect profitability: governments, consumers, employees and communities. In the face of uncertainty about how the exact attitudes of these groups will evolve over time, a commitment to human rights can provide a useful long-term reference point for companies as they design their projects and manage relationships day-to-day – particularly given that awareness of human rights can probably be expected to gain increasing hold over all these groups over time.

Certainly in the past, extractive companies have seen tens of billions of dollars of shareholder value destroyed when regimes to which they were perceived to have become too close were later replaced by new, more democratic host governments which rewrote their contracts. An approach based on a stronger awareness of human rights might have helped, to a degree, avoid such risky closeness with unstable governments. In the case of consumer pressure, De Beers famously experienced a major threat to its business over the particular human-rights issue of conflict diamonds. Consumer concern over human rights now has the potential to grow, and influence buying behaviour, for other commodities too. A human rights perspective, meanwhile, can help firms assess and manage potential long-term community concerns – providing a broader view than a traditional community relations approach – and thereby reduce the risk of community opposition (which in worse cases can stop production).

In the extractive sector, in short, a human rights lens is one of the tools which can help firms to identify and pre-empt stakeholder actions which might eventually damage shareholder value. This is a modest claim for human rights perhaps, but potentially more mind-focusing for management than the threat of a bad media story.

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