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The balancing act – Companies and indigenous rights

Home / EOS articles / The balancing act – Companies and indigenous rights

Tim Goodman,
01 June 2016
EOSSocial

Many companies, particularly those in the extractives sector, develop and operate projects on lands inhabited by indigenous communities. We urge companies to take this into account to minimise their financial, operational and reputational risks.

Setting the scene

Our planet is home to approximately 400 million indigenous people and more than 5,000 tribes, according to the UN. While indigenous peoples represent only about 6% of the world’s population, they account for 15% of the world’s poor. They live on 20% of the earth’s land mass but that land harbours 80% of the world’s remaining biodiversity. Crucially, an estimated 46% of the reserves of extractives companies is on that land, as is 39% of their current mineral production, according to First Peoples Worldwide, an indigenous-led NGO. Projects, such as oil sands exploration and mines, have significant physical impacts on the local communities and their environment, but even agriculture, forestry and public transport can leave a substantial footprint.

Banks meanwhile can come under fire for financing projects that threaten indigenous rights. The relationships of companies with indigenous peoples are therefore increasingly critical to the profitability, operations and reputation of businesses.


 

Concerns and benefits

As indigenous peoples have lived on lands earmarked for exploration by companies for a long time, they are particularly vulnerable to the change in environment that accompanies extractive projects. Concerns are the possible eviction from native lands and the physical removal or stripping of natural assets, including mineral resources, timber, water and agricultural lands. This can destroy sacred sites, impact traditional hunting routes and upset the ecological balance necessary to sustain indigenous cultures, often leading to impoverishment of the communities.

Even if the communities remain on their native lands, they may be adversely affected by the effects of exploration activities. These may include deterioration in public health due to pollution of the air, land and water. In addition, an influx of migrant, predominantly male, workers can lead to the threat of sexual violence against natives, as well as anti-social behaviour, often linked to alcohol or drug abuse.

However, projects can also undeniably benefit communities by providing them with access to potable water, infrastructure such as sewage systems and even medical facilities, housing and schools, as well as training and jobs. These are particularly crucial as indigenous peoples tend to be marginalised and disadvantaged economically.

Rights

Historically, few countries have recognised indigenous peoples as legitimate groups and so denied them political and legal rights. However, in some parts of the world legal frameworks have been improving for indigenous peoples, leading to better recognition of their rights, for example in Latin America.

The UN Global Principles on Human Rights, the 2007 UN Declaration on the Rights of Indigenous Peoples, the ILO Convention 169 on Indigenous and Tribal Peoples, as well as the Indigenous Peoples and Mining Good Practice Guide by the International Council on Mining and Metals have helped to increase awareness of the issue and companies have become more alive to the rights of indigenous peoples, in particular in their recognition of free, prior and informed consent (FPIC). FPIC entails that companies – and authorities – planning to operate in an area home to indigenous peoples must engage with the communities and reach an agreement through FPIC before a project can commence. FPIC also means that indigenous peoples have some right to withhold consent to a project, in line with their right to self determination, without being put under constant pressure to agree.

FPIC should not be seen as a legal compliance checkbox but as an opportunity to communicate and engage with a community and establish good relationships, according to indigenous-led NGO First Peoples Worldwide (FPW).

Risks

Indigenous rights are important to companies as any breaches or shortcomings of expected standards can expose them to reputational and legal risk, particularly in the age of social media, and lead to conflict with indigenous communities. Furthermore, controversy and protests can lead to interruptions and shut-downs in exploration, project development and operations, as well as to problems in obtaining and maintaining a social licence to operate – thus potentially resulting in financial damage.

Moreover, increasingly indigenous communities and NGOs are using legal remedies to enforce their rights.

Balancing act

Many companies are improving and best practices are evolving, however, this is not happening as quickly as many investors would like to see. Often, engagement with indigenous peoples is also more complex than companies expect.

Any construction projects undertaken – especially as these typically take place in remote areas – will always have some impact on the environment and communities. In our engagement with companies, we therefore urge them to minimise that impact and the associated risks by putting in place appropriate mitigation measures.

In Brazil, for example, some dam projects had a severe impact on their locations, through flooding of a significant area and the displacement of communities through a large number of workers. More recent projects are managing this more carefully. Brazilian utility Eletrobras appears to have learned from past projects and in planning for its Tapajós dam is engaging much more intensively with local communities on the developments and informing them about the dams and hydroelectric power plants. It is also seeking less disruptive methods to transport materials to the site and to house the construction workers.

However, assessing the social impacts and ascertaining what is good for the affected communities and what a company should and can do can be a difficult balancing act. If companies can negotiate positively using FPIC, the project is more likely to be successful. But even establishing whether an entire community is in favour of a project or a select few representatives of a community are presenting their own views can be challenging. In our dialogue with companies operating in areas home to indigenous peoples, we urge them to take a multi-faceted approach to engaging with the community. This should include different parts of the community, such as tribal and other leaders. It is crucial that companies familiarise themselves with the community to ensure negotiations are conducted properly and to find out how they can manage the issues affecting indigenous peoples. In addition, we press companies on the extent to which their boards oversee their social licence to operate.

Apart from indigenous rights policies and ensuring their correct implementation, companies need to look at the country risk. They need to be aware of how they manage their relations with the government controlling the country, especially those that grant indigenous groups fewer legal rights. For example, does the company choose to be the preferred partner to the government and make concessions on indigenous rights or does it decline work in countries where it cannot ensure that indigenous rights are upheld? We believe companies should not step into the role of the governments and must be careful that they do not substitute themselves for the state. Often the infrastructure they build, such as roads and medical facilities, is welcome. However, providing infrastructure such as a school is arguably beyond the company’s role and the funding of teaching staff even more so.

major-extractive-frontiers

The resettlement of local communities can be a controversial issue for projects on indigenous lands. However, companies are more concerned than previously about keeping the relocation of communities to a minimum. Today the focus often lies on land reclamation after a project has come to an end. Companies need to address the social consequences of finishing a project, such as an increase in the local unemployment rate, in addition to minimising the environmental legacy of the project.

At the other end of the spectrum, companies and investors also need to assess how representative NGOs are about the claims they make about the impact that operations have on indigenous communities and their environment. It can be difficult to assess the truth in this environment.

Seeking indigenous views

As part of our due diligence and risk assessment of companies that operate on lands home to indigenous peoples, when necessary, we go beyond the information provided by them and pursue direct contact with community members.

On our trip to the Arctic in 2015 to investigate offshore oil and gas activity in the region, for example, we met leadership representatives of the indigenous peoples from the nearest settlement to the proposed offshore activity and from across the region. While they were selected by the company, their support for the development of the Arctic was nevertheless striking. The leaders saw this development as the only way to maintain the living standards and basic amenities of their communities, such as electricity, sanitation, television and telecommunications. However, other indigenous people also pointed out that there was a complete spectrum of opinion about the exploration activities. We requested more detail from the company on the extent of its community outreach programme. While we were pleased that it confirmed that it had held more than 500 meetings with the community since 2006, we sought contact with community representatives who had reservations about its activity to better understand their perspectives via FPW.

As part of our engagement on Canada’s oil sands, we met a representative of one of the First Nations peoples local to the oil sands developments and a doctor who has been advocating on their behalf. The doctor, who appears to be a credible source due to his experience of living in the region and making sacrifices on behalf of his patients, believes that the significant increase in acute and chronic diseases in the indigenous communities is caused by developments of the oil sands. The local First Nations blame the provincial and federal governments for what they view as a crisis in their communities and seek greater regulatory protection. In response to our questioning, the company involved argued that there was decent baseline data on the environment prior to oil sands activity and pointed out that the oil occurs in the water and land naturally so could not be attributed to the oil sands industry. Companies confronted with such claims need to investigate any causes of ill health or similar matters through an independent third party with an open mind and explain their findings. The company concerned in this case said that it was developing a survey to provide better data.

We commended a US materials company for providing a detailed report on the outcome of its human rights risk assessment at its mine in the Democratic Republic of Congo, which it had identified as the riskiest in relation to human rights. We were impressed by its willingness to share what it is doing in such a difficult human rights environment and pleased that it will undertake a similar report on another controversial mine. The company has already taken some of our suggestions on board to improve its reporting.

It remains important to take a balanced view on the controversies that often accompany proposed projects on indigenous lands. But we believe that an equilibrium can be found between companies and indigenous peoples so that any developments are undertaken sensibly and carefully with economic and social benefits for the communities involved.

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Tim Goodman Tim Goodman is a director at Hermes EOS and sector lead for oil and gas. He is also responsible for Hermes EOS’ activities in North America. Previously, he worked in the insurance industry and held a number of senior operational management roles before acting as a company secretary in a UK-listed company. He is a member of the Institute of Chartered Secretaries and Administrators, having obtained the institute prize for the best overall performance when he qualified. Tim is a regular speaker on governance-related matters, a member of the US Council of Institutional Investors’ corporate governance advisory council and a former chair of the UK Quoted Companies Alliance corporate governance committee.
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