Rules of engagement
The mining industry needs to invest more in government and community engagement in order to convince stakeholders that it’s not only safe but in their interest to develop new mines in their ‘backyards’
By Henry Hall, ERM Partner, Managing Director of the Critical Resource Team
According to a plethora of recent studies by the World Bank, IMF and IEA, demand for ‘transition materials’ like copper, nickel and lithium are projected to skyrocket in the coming decades as the global economy rewires itself for green energy. However, stakeholder acceptance of new mines is at an all-time low with even the most advanced miners struggling to develop their projects, including in supposedly ‘tier one’ jurisdictions. In the USA, Canada and Australia, stakeholder concerns around carbon emissions, cultural heritage, environmental justice, and ever-tougher permitting processes are extending the time taken to develop mines to well over a decade. Meanwhile in the developing world, volatile politics, sky-high expectations for economic benefits, and challenging infrastructure requirements pose their own obstacles.
The winds of change
While the ESG movement has created ever more pressure for companies to improve performance, this pressure has tended to focus on data friendly metrics like safety, emissions and employee demographics. The measurement of companies’ performance on engagement with governments, communities and civil society has proven more difficult to disentangle. When compared against the other core disciplines of the mining industry, stakeholder engagement seems a somewhat neglected art.
More than ever, mining companies’ success will be defined by their ability to unlock resources in the ground by building trusting relationships with their stakeholders. While the title of this piece suggests a clear set of rules that if followed will win stakeholder support, the reality is that there is no silver bullet or standard approach to building trust. It necessarily has to be situation specific and bespoke to the individuals involved. All of what follows below is well known to the mining industry, but is often patchily employed.
1) Invest in thoroughly understanding the context and agenda of those you are engaging with
Developing a relationship of trust and mutual respect with stakeholders is close to impossible without having a deep understanding of the counterparts’ motives, bugbears, relationships and influences. While every management team will have a decent understanding of its stakeholder context, in our experience executives frequently over-rely on anecdotal evidence or the guidance of local managers who often form part of a narrow political or economic elite, without sufficient triangulation against dissenting views.
Where millions are spent on techno-economic and baseline studies, the crucial issue of strategic engagement is too often left to chance. Having the right local team and partners is of great value, but is best complemented with a thorough independent analysis based on the views of a broad spectrum of supporters and opponents. Such an analysis should include an assessment of what could ultimately derail the project, its inherent strengths, how they align with stakeholder interests, and a mapping of the key government, community and civil society stakeholders at the heart of the risks that are identified. This allows executives to engage more intelligently and direct resources to where they are most needed. It also enables companies to get more out of their engagements by providing capacity to understand and decode what stakeholders are really saying, and provide benefits that really resonate.
2) Attempting to stay ‘below the radar’ may be sensible early on, but regularly begs opposition and protest when overused
At the early stages of a project, particularly before it is clear whether a mine is commercially viable, keeping communication and engagement at low levels is a sensible means of keeping expectations low and avoiding unnecessary ‘noise’. Most projects rightly follow this approach, but too often executives fail to identify the moment to take the initiative. This gifts project opponents the opportunity to set the narrative of the project with stakeholders, and leaves projects devoid of crucial ‘relationship capital’ that can help management to overcome crises when they arise. Proactive engagement is too often seen as an unnecessary luxury rather than a critical investment, an attitude which is often sadly reinforced by investors. While investors will generally closely question the permitting status of an exploration project, they often do not feel equipped to judge whether management has a sensible engagement strategy in place to secure these permits in what is an inherently political process.
Attempts to stay below the radar have contributed to the derailment of a number of projects in Europe and North America. A common emerging pattern we have observed sees an early-stage mining project with a degree of government support inadvertently allow an information vacuum to build, which is then filled by critical NGOs. Over time, these NGOs begin to win over uncertain community groups which eventually outnumber project supporters. As local opposition builds, the opposition and national media weigh in eroding support which, when combined with an election cycle, eventually leads to the government cutting ties and revoking permits or licenses. Seeking to unwind this sort of crisis after the fact can be extremely challenging. Many executives are scarred by their experiences of this reactive type of stakeholder engagement / crisis management, which reinforces the idea that engagement is risky and should be avoided. This in turn makes it more likely that an information vacuum will build in the first place.
3) Set realistic timelines and expectations and carefully explain any setbacks
I predict a riot
Each time a deadline or commitment is not met, the support of stakeholders is eroded. It is therefore vital that executives set realistic expectations with stakeholders, informing them of risks as well as benefits. Given the frequent changeover of team members in the early stage of a mining project, a register of all of the commitments that have been made is perhaps the most important tool of stakeholder engagement. It is simple to implement and helps embed the idea with team members that commitments have consequences and should not be made flippantly.
Mining projects are complex and challenging, and even under the most favourable circumstances commitments will be go unfulfilled due to factors outside management’s control. It is equally important to acknowledge successes as to explain setbacks, so that stakeholders build a clear understanding of how things are progressing. Where major changes to timelines, footprint or other relevant issues are needed, it is vital to communicate clearly to stakeholders what will change and why and listen and provide reassurance that their fears either will not come to pass, or or can be rectified. Without such communication, stakeholders will generally assume the worst. For example, at a recent project in Europe, the management team changed its mine design in order to significantly reduce negative environmental impacts on its stakeholders, but because the reasoning for these changes was not sufficiently well-communicated, the design change became a lightening rod for opposition to the project.
4) Communicate a genuine mission and purpose that aligns with stakeholder interests
The companies that engage best with their stakeholders are those that have a compelling narrative around their mission and purpose that is rooted in a deep understanding of what stakeholders want and need. Such a narrative needs to draw together into a clear story the company’s social investment, hiring, procurement, and environmental and social impact mitigation. Where appropriate and in line with stakeholders’ interests, this purpose should also consider macro trends such as climate change and the energy transition. Having a clear company purpose provides an easily-understandable identity, which if backed up by action, gives stakeholder confidence without having to have a detailed understanding of all its different programs and activities. While compliance with relevant international standards is important, what really builds social capital is crafting a genuine alignment of purpose between company and stakeholders.
It is important to note that while such a narrative and mission can be very powerful, unless it is genuine it will do more harm than good. If stakeholders reach the conclusion that such a narrative is mere green wash then it will become impossible for the company to reestablish trust.
5) If it seems too good to be true, it probably is
Reaching agreement with government, community or broader sets of stakeholders will require multiple phases of negotiation and horse-trading in which companies are expected to minimise their negative impacts and maximize the positives. Often these negotiations will be asymmetric at various points as stakeholders will have only a limited understanding of the mining process, which could result either in unrealistic demands or in stakeholders not asking enough relative to peers in other regions or countries.
While it is tempting for companies to take advantage of these imbalances, executives should be wary of striking too hard a bargain. Stakeholders may be happy with such a deal in the short term, but in the longer term such arrangements very rarely escape revision. What’s more, the perception of having been ‘cheated’ is a poison pill for the mines long term prospects. Companies should enter negotiations with a clear sense of what they are willing to concede, and what fair looks like. Where there is a lack of expertise or understanding it can be extremely valuable to bring in an expert third party to provide guidance to stakeholders. Revising an agreement further down the line may be necessary, but could become more challenging under the critical eye of disappointed investors. Getting a stable, fair deal from the start is not always possible, but certainly preferable.