Monday, May 14, 2007

WRI Report On The Business Case for Community Consent

May 14: A new report released by the World Resources Institute (WRI) and endorsed by a $110 billion coalition of faith-based institutional investors concludes that multinational corporations and financial institutions that seek local community consent for their operations will have a competitive advantage over those that fail to do so. The report, Development Without Conflict: The Business Case for Community Consent, is the first to document the precise financial and operational opportunities and risks a company faces when engaging with communities affected by environmentally sensitive development projects. It provides a roadmap for implementing community consent procedures into project and investment strategies.

The report's four case studies of industrial projects in the Philippines, Argentina, Thailand and Peru demonstrate the financial opportunities of achieving community consent including project cost savings, increased access to international capital and positive reputational benefits. Companies that fail to achieve consent face a range of financial implications including project cost-overrun risks, litigation, increased scrutiny and concern from Wall Street stock analysts, and significant reputational harm.

The report has received the endorsement of the Interfaith Center on Corporate Responsibility (ICCR), a 35-year-old international coalition of 275 faith-based institutional investors, which include denominations, religious communities, pension funds, healthcare corporations, foundations and dioceses with combined portfolios worth an estimated $110 billion. Rev. David M. Schilling, program director of ICCR, said, "Companies that look to the principles laid down in the WRI report and learn from the valuable case studies will be better equipped to work with the communities in which they operate.

The central tenet of free, prior, informed consent (FPIC) is that local indigenous communities have the right to determine how projects that might affect their land or way of life are developed. The principle has been expanded by some companies and financial institutions to all communities impacted by their projects and investments. Jon Sohn, WRI senior associate and a co-author of the report said, "WRI supports companies and financial institutions that mainstream community consent-based policies into their projects and investments. Respecting local community rights makes plain sense from a business perspective and we expect trends towards this practice to increase."

WRI cites, for example, that in April 2007, religious institutional investors, led by Christian Brothers Investment Services, filed a shareholder resolution that required Newmont Mining Corporation (NEM) to produce a report addressing community-based opposition to its operations around the world. In an unprecedented move for a U.S. mining company, Newmont's board of directors supported the proposal. Newmont's shareholders overwhelmingly approved the resolution, with 91% of shares voting in favor. WRI also indicates that on May 15, 2007, the World Bank's International Finance Corporation is hosting a meeting of Equator Principle Banks, export credit agencies and other development banks to explore best risk management practices to achieve "broad community support" in projects they support.

Operationalizing FPIC is an evolving concept in development circles, yet several institutions have recently adopted strengthened consultation procedures and are considering ways to achieve "consent" based development outcomes. The report provides best practice principles to achieve that goal.

Access a release on the WRI report (
click here). Access the complete 70-page report (click here). Access an overview and links to an executive summary and related information (click here). [*All]