Rural community in Lesotho

Mining activity has a significant impact. Mines bring social, economic and environmental change to the regions in which they operate. When the perceived share of wealth is unbalanced or does not meet the expectations of affected communities, it often leads to company-community conflict. If expectations are not managed, the resulting conflict can be ruinous for the mining company concerned.

Mining has both positive and negative impacts. “Mines are supposed to bring employment and positive benefits, but sometimes it just brings disruption,” says Benoit Froment, North American Director for IsoMetrix. “On the one hand, mining creates local employment, through the mining companies’ commitment to employing local laborers or make use of local suppliers, as well as providing skills development and training initiative.

“On the other hand, mining is detrimental to the environment and often displaces the local communities,” he explains. New mining operations also attract an influx of job seekers, creating a potential breeding ground for the worst aspects of society. This is especially true in developing countries. Mines exacerbate these negative effects when they do not manage the expectations of the local community effectively. “Big expectations can lead to big disappointment. If they are expecting employment and so on, but realize that the mine has not brought any significant change to their lifestyles, there will be disappointment, and both seen and unforeseen costs to the mining company,” he says.

The unclear cost

The most straightforward cost of company-community conflict is delayed production. However, there are less obvious consequences. According to The Cost of Company-Community Conflict in the Extractive Sector by Rachel Davis and Daniel Franks, some extractive companies do not currently identify, understand and aggregate the full range of costs of conflict with communities. These include:

  • Lost productivity in the form of temporary delays in operations
  • Delays in the start of the revenue stream
  • Indirect costs that arise when staff divert their time to manage conflict, especially at the senior management level
  • Low-level conflict can be a drain on staff
  • Loss of opportunity because of poor social management’s effect on organizations reputation.

“The most significant cost of company-community conflict is not so easily measured: damage to the organization’s reputation,” he says. The impact of competitive loss and the impact of losing investor confidence often has far-reaching financial impacts.

Blurred lines

Often, no single company is involved in the full lifecycle of a project. This makes it difficult to determine exactly who is responsible for what. According to the study, blurred lines of accountability create the potential for disputes and confusion when conflict arises from actions taken at earlier stages of the project. Mining companies can avoid this by taking thorough steps to manage stakeholders. These steps are now part of the best practices of the extractive industry. There is no project without a community relations department, and there is no mining project without community investment projects.

There is a growing recognition of the importance of maintaining a social license to operate, and the need to manage community relations as part of the organization’s risk mitigation strategy. “The community relation team interacts with the community, explains a project and shares information,” says Benoit. “When you engage properly with stakeholders, it is easier to manage their expectations.”

Five Stages in the Degradation of Company-Community Relationships

Conflict rarely occurs overnight. It is the result of a chain reaction of improperly managed relationships and miscommunication. Not managing stakeholder engagement creates a downward spiral where community relations break down and may lead to conflict. This suggests that mining companies can prevent company-community conflict by effectively managing stakeholders.

“You need to propose initiatives to develop the skills of the local workers and the local suppliers,” he says. Engaging with the stakeholders, and investing in the community helps to mitigate or manage the social issues that the company might encounter.

  1.   Expectations: By promoting Stakeholder Engagement, you can manage the local community’s expectations. If there is no Stakeholder Engagement, or you do not properly document minutes of meetings, the community will begin to have questions.
  2. Concerns: If the community’s questions are not answered, the stakeholders will have wrong expectations of the benefits the company can provide.
  3. Grievances: If the company does not manage the stakeholder’s concerns, the community will raise grievances.
  4. Incidents: The company-community relationship has degraded and the likelihood of an incident is high.
  5. Conflicts: Stakeholders have brought the company’s operations to a standstill, resulting in loss of production and revenue.

You can mitigate company-community conflict with effective Stakeholder Engagement, preventing financial loss and preserving the company’s good reputation.

Community buy-in

There is a close relationship between environmental and social issues. By damaging the environment, a mine threatens the natural resources the community depends on for their livelihood. To maintain buy-in from the local community, mines need to be cautious because it only takes one bad event for the local communities’ attitude to the mine to change.

Environmental issues are the most common issues that precede conflict. Davis and Franks identify pollution and access to resources as the most common proximate issues that can trigger conflict. The quality of the relationship between the company and the community also influences the likelihood of conflict developing.

Social risk management

Company-community conflict affects the reputation of the mining company, and this may negatively influence investor confidence. Nobody wants to be linked or related to environmental damage or social conflict. There is risk associated with every project, and there is risk in managing stakeholders. In this way, social investment is a kind of risk mitigation for the company. “Everything is about risk at the end of the day. You do not only invest in communities as part of a broader, integrated risk strategy, but also to create sustainable societies,” concludes Benoit.