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When companies and indigenous peoples collide

“In all corners of the world, indigenous peoples are increasingly being displaced and challenged by major investment and development projects that are encroaching on their lands, territories and resources. Despite good intentions, good laws and progressive human rights instruments, there remains a gap between words and actions.1

So said Mariam Wallet Aboubakrine, the Chair of the United Nations indigenous body UNPFII, as the UN General Assembly marked the tenth anniversary of the adoption of the United Nations Declaration on the Rights of Indigenous Peoples in September 2017. Indeed, indigenous peoples are facing even greater struggles and rights violations than they did 10 years ago. And the implications of such human rights abuses will be far-reaching not just for companies, but investors too.

In the last decade, the time taken to bring oil projects online has doubled, with 73% of delays due to non-technical problems – including resistance from indigenous stakeholders2. According to the UN, there has been an increase in the number of indigenous people denouncing the lack of compliance with the UN Declaration on the Rights of Indigenous Peoples (UNDRIP), particularly with companies not obtaining their Free, Prior and Informed Consent (FPIC) before enacting projects on their land3. Such tumult has prompted investors to engage with companies about FPIC.

FPIC is a specific right that pertains to indigenous peoples in UNDRIP. It is supported by the Protect, Respect and Remedy Framework for human rights (as discussed later under Indigenous rights, human rights and international law). In brief, consent should be sought by companies - and authorities - before any project, plan or action takes place (prior), it should be given voluntarily without coercion, intimidation or manipulation (free) and based on accurate, objective, and timely information, provided in a culturally appropriate way (informed) for it to be considered a reasonable outcome of a collective decision-making process4.

A sense of scale

There are approximately 370m indigenous people living across all regions of the world today, comprising over 5,000 different tribes5. Although they make up just 5% of the global population, they account for 15% of the extreme poor6. As such, indigenous peoples tend to be heavily dependent on their land, which is also inextricably linked to their identities, cultures, livelihoods and spiritual well-being. But many large corporations, particularly those in extractive and agricultural industries, also want access to this land to invest in projects, which are often large in scale. An estimated 46% of extractive companies’ reserves lie on land inhabited by indigenous peoples. What’s more, 39% of their current production takes place there7.

On the FTSE All World Developed Index, 250 large-cap companies were identified as having an exposure to indigenous rights. Only 19% of these companies have an enterprise-wide indigenous rights policy, while 20% disclose employment data on indigenous peoples8.

Figure 1: Indigenous rights: where companies fall short

Source: Survival International, First People Worldwide, World Bank and Experts in Responsible Investment Solutions as at October 2017

Respect and disrespect

Companies should respect human rights. According to the UN Guiding Principles on Business and Human Rights, such respect is the global standard of expected conduct for all companies, wherever they operate.

In order to meet their responsibility to respect human rights, some companies may seek to provide infrastructure on indigenous lands where they are undertaking corporate projects. Forms of compensation offered by companies could include building housing, schools, and medical facilities, as well as skills training and jobs. But this is not necessarily a sufficient or appropriate approach.

Rather, obtaining FPIC from indigenous peoples is essential and, as previously mentioned, companies must respect the rights, land and culture of indigenous peoples during this process. In order for FPIC to be truly meaningful, the right to refuse consent to development projects must be respected. While building infrastructure or providing other resources may be part of the way in which companies seek to obtain FPIC, it is not sufficient in isolation without ensuring that the indigenous communities’ other concerns are identified and addressed. Therefore, companies and indigenous people must engage each other to create a mutually beneficial agreement (see Figure 2).

However, some companies fall short as they often fail to engage meaningfully with local tribes, or worse still, make insufficient effort to establish a mutually beneficial agreement through FPIC. This failure can be detrimental to the cultures and livelihoods of indigenous peoples.

The irresponsible extraction of natural assets, including mineral resources, timber, water and agricultural lands, is another significant worry for indigenous peoples. Furthermore, the loss of land through brutal evictions has caused deep psychological damage for indigenous peoples. According to Survival International, the global movement for tribal peoples’ rights, the most important factor by far for tribal peoples’ wellbeing is whether their land rights are respected9. And here, the numbers speak for themselves. Brazil’s Guarani tribe has a suicide rate 34 times higher than the national average, with the youngest member of the tribe to die by suicide just nine years old. The tribe has lost almost 95% of its ancestral land to industrial scale biofuels, sugar cane and soya plantations, and to cattle ranchers. Indeed, research suggests agricultural producers are among the worst at addressing indigenous rights, with 84% of companies showing no evidence of adopting a formal corporate response aiming to the concerns of indigenous people10. This is unacceptable, particularly as FPIC is a universal standard of international law outlined in the UNDRIP, the ILO Convention 169 and the Convention on Biological Diversity (CBD).

Even if communities remain on their native lands, there are residual dangers from extractive and agricultural projects. They can affect traditional hunting routes, for example, which are an important food source for indigenous people, or damage sacred sites or the local ecology. Air pollution is a significant health risk and water sources and land used for traditional agriculture subsistence or hunting may also become polluted. In addition, an influx of migrant, predominantly male, workers can lead to the threat of sexual violence against indigenous people, as well as anti-social behaviour that is often linked to alcohol or drug abuse11.

Figure 2: Indigenous rights, indigenous wrongs

Source: Hermes Investment Management as at January 2018. Note: Both case studies are examples of engagement with indigenous peoples by Rio Tinto and Samling Global in Australia and Malaysia, respectively.

Indigenous rights, human rights and international law

The history of relationships between indigenous peoples and companies is marred by conflict. It is often characterised by exploitation and violations of human rights, as well as disputes about rights to lands, territories and resources.

Furthermore, since few countries have historically recognised indigenous peoples as legitimate groups, governments have also contributed to the discord between indigenous peoples and companies. This makes it extremely difficult for indigenous peoples to protect their human rights. Nevertheless, companies should respect human rights wherever they operate, regardless of the local legal system.

In recent years, the international community has recognised that special measures are required to protect the rights of indigenous peoples and lands:

  • Indigenous and Tribal Peoples Convention, 169: The 1989 treaty by the International Labour Organisation addresses the specific rights of indigenous peoples and outlines the legal responsibilities of governments to promote and protect their human rights. It is the only international treaty open for ratification that deals exclusively with the rights of indigenous peoples12.
  • UNDRIP: This is the most comprehensive statement of the rights of indigenous peoples ever developed. It establishes the rights of indigenous peoples to protect their cultural property and identity as well as the right to education, employment, health, religion, language and culture. It also protects their right to collectively own land.UNDRIP was adopted by the General Assembly on September 13, 2007. However, subsequent laws and court rulings protecting the rights of indigenous peoples against violations by corporations are often inconsistently upheld by governments.Securing FPIC is a principle protected by the UNDRIP. As previously discussed, it allows indigenous peoples to give or withhold consent to a project that may affect them or their territories. The UN has published the FPIC Manual as a practical tool for companies on how to implement FPIC and obtain consent. It outlines the essential steps to follow during a project’s lifecycle, including - but not limited to - identifying which communities need to be consulted, disclosing information about the project to communities in a clear and timely manner– including positive and negative effects, documenting the consultation process, and building relationships of mutual trust with communities13. Notably, for companies, FPIC involves more than just one meeting with indigenous communities, but rather a series of them to develop an ongoing relationship of trust.
  • Universal Declaration of Human Rights: Indigenous peoples are also protected by this instrument. Indeed, the UN Special Rapporteur on the rights of indigenous peoples says that nation states have a duty to “effectively consult” with indigenous peoples and that this duty is grounded in the core human rights instruments of the UN14.
  • UN Guiding Principles on Business and Human Rights (UNGPs): This is the global standard on business and human rights, which was unanimously endorsed by the UN Human Rights Council in 2011.  The UNGPs consist of 31 principles implementing the UNGP Protect, Respect and Remedy Framework15. These three pillars of the UNGP Framework are:
    - Protect: State duty to protect
    - Respect: Companies responsibility to respect
    - Remedy: Victims’ access to effective remedyThe UNGP Guiding Principles Reporting Framework is aligned with the UNGPs. It helps companies to disclose the most relevant and meaningful information in relation to their objectives under the UNGPs16.In addition to having a human rights policy in place, conducting a Human Rights Impact Assessment (HRIA) is an integrated part of the UNGPs. It is process used for identifying, understanding, assessing, and addressing the adverse effects of projects on the human rights enjoyment of workers, communities, consumers and other rights-holders17. Any HRIA affecting indigenous peoples must therefore address the need for their FPIC to activities affecting them.

These human rights instruments have effect around the world. Today, some countries recognise indigenous peoples in their constitutions, while others have legislation and policies in place to address historical injustices and promote the rights of indigenous peoples. Furthermore, some national and regional courts are invoking the UN Declaration to protect these rights.

Investor fallout

The widespread adoption of these instruments puts corporations and their policies on human rights and indigenous peoples in the spotlight – and those who fall short face reputational, legal, financial and operational risks.

NGOs are keen to ensure the minimum standards for the survival and wellbeing of indigenous peoples are being met on the ground. And companies and investors must take account of indigenous rights.

Companies that fail to honour the rights of indigenous people by adequately consulting local tribes or providing them with the opportunity to express or withhold FPIC before a project begins often triggers a bitter fallout between both parties. As a result, companies – and those financing the project - can suffer considerable reputational damage, putting their social contract to operate at risk, impeding future growth and their ability to attract talent and investment. Importantly, their ability to negotiate successfully with other indigenous peoples is likely to be jeopardised severely.

Meanwhile, banks are keen – at least in theory – to avoid funding ventures that violate the rights of indigenous peoples over their land (see Figure 4). Before any funding is approved for a project, due diligence should be undertaken, including a HRIA, and where indigenous peoples are affected, their FPIC must be obtained. Otherwise, banks financing projects will be exposed to a slew of risks, including reputational, legal and financial, and face the wrath of indigenous peoples, investors and other stakeholders (see Figure 4). After all, failing to obtain FPIC means failing to meet the minimum global standard for the treatment of indigenous peoples.

Protests by indigenous people over mining projects and a lack of appropriate engagement can cause interruptions and shut-down exploration efforts, project development and operations. It can also lead to problems in obtaining and maintaining a social licence to operate. This can manifest as financial damage, legal or reputational risk.

Furthermore, potential violations of indigenous rights may also lead to unforeseen regulation or litigation, which can be both costly and prohibitive to future projects. In fact, indigenous communities and NGOs are increasingly using legal remedies to enforce their rights – and with growing success. For example, Brazil’s Supreme Court has unanimously upheld indigenous land rights against the government of Mato Grosso state in the Amazon18. The government was demanding financial compensation for not being able to use land in the Xingu Indigenous Park, which it believed was wrongfully mapped out as indigenous territory in 1996. However, the Supreme Court ruled that the disputed lands were traditional native territories, citing archaeological evidence of occupation by indigenous peoples some 800 years earlier. The ruling also renders subsequent land claims, and claims for compensation, null and void19.

Meanwhile, Australian mining group Fortescue Metals lost a landmark legal battle against the Yindjibarndi tribe. The Yindjibarndi people sought to prove its native title rights to land in the Pilbara, a region rich in iron ore. They initially lodged their claims in 2003 and have been locked in a long-running feud with Fortescue over land access and royalties since 2007. In July 2017, Australia’s Federal Court ruled that the Yindjibarndi people hold exclusive native rights to the land, which includes Fortescue’s multi-billion-dollar Solomon Hub iron ore mine.  The Solomon Hub produces approximately 70m tonnes of iron ore per annum – that’s a significant percentage of the company’s total annual output of 165m tonnes20. The next step in this lengthy battle will see the Yindjibarndi people sue for compensation from the mine, which is estimated to contain $218bn of iron ore. And the implications of this ruling will be far-reaching for mining companies worldwide21.

Figure 3: How extractive industries can affect indigenous people

Source: “Indigenous people and mining,” published by the International Council on Mining and Metals as at December 2015. Note: This is a general good practice guide produced by a trade association and therefore inevitability contains generalisations. It is for individual indigenous tribes to determine what may be positive for them as part of the FPIC process.

Rules of engagement

Engagement between companies and indigenous people is key. And in recent years, mounting pressure from stakeholders has prompted companies to act responsibly. Industry bodies have also developed improved engagement processes. For example, the International Council on Mining and Metals produced a general good practice guide around aspects of engagement between corporations and indigenous peoples (see Figure 3).

Until FPIC has been obtained, a project should not commence. Even during a project’s lifecycle consent can be withdrawn and amended. It is therefore vital that projects not only deliver on what has been agreed but that dialogue and consultation continues between the indigenous peoples affected by any project and the project developers and owners.

Notably, FPIC may require capacity building by both parties to reach consent, and negotiations can often be a lengthy process. As such, it is vital that all parties clearly understand the underlying issues, and re-group to tackle any potential barriers to FPIC until an outcome has been agreed that both parties are happy with.

Indigenous peoples can be keen for development to take place on their lands, and may simply want companies to address their concerns. If this is the case, it is possible to establish mutually beneficial partnerships, where indigenous peoples are not merely side-lined by developments or compensated for resettlement, but become important stakeholders in future projects.

Moreover, partnerships between companies and indigenous peoples can become mutually beneficial scenarios. The agreement between Rio Tinto and the Miriuwung, Gidja, Malgnin and Woolah peoples shows how this may be possible (see Figure 2).

Figure 4: Dakota Access Pipeline Case Study

Source: “Public Engagement Report: Q2 2017,” published by Hermes Investment Management as at June 2017. Note: Since original publication engagement has continued with a number of the parties involved in the DAPL.

The complete picture

Indeed, engagement programmes between companies and indigenous communities are far-reaching. They extend beyond the initial consultation process to include development, operation and decommissioning of the project, followed by restoration of the land. We believe that engaging meaningfully with indigenous peoples at every stage of a project and obtaining FPIC is necessary for a project to be successful, from inception to decommissioning.

As such, companies should identify and respect the most salient human rights issues of those affected by their activities. We also urge them to set goals in line with their human rights policies and develop processes to ensure that their operations respect internationally recognised human rights, including remedying human rights breaches.  By doing so, companies can address any potential consequences of advancing with a project, such as a disruption to a local community.

In our engagements, we seek evidence of such actions from companies, underpinned by a thorough human rights policy and well-resourced and highly trained human rights experts. We engage with companies where we believe more must be done in response to apparent human rights breaches and to prevent future problems – and we encourage other investors to do the same.

 

1 “Statement by the Chair of the UNPFII on the 10th Anniversary of the UNDRIP,” published by the UN as at September 2017

2 “Investors and indigenous people: Bridging cultures and reducing risk,” published by First People Worldwide as at November 2015

3 “Free Prior and Informed Consent: An indigenous peoples’ right and a good practice for local communities,” published by the Food and Agriculture Organisation of the United Nations as at December 2016

4 “Free Prior and Informed Consent: An indigenous peoples’ right and a good practice for local communities,” published by the Food and Agriculture Organisation of the United Nations as at December 2016

5 “Indigenous Peoples,” published by World Bank as at September 2017

6 “Indigenous Peoples,” published by World Bank as at September 2017

7 ”The balancing act – companies and indigenous rights,” published by Hermes EOS as at March 2016

8 “Indigenous rights: risk and opportunities for investors,” published by EIRIS as at June 2009

9 “Progress can kill,” published by Survival International as at December 2015

10 “Indigenous rights: risk and opportunities for investors,” published by EIRIS as at June 2009

11 “The balancing act – companies and indigenous rights,” published by Hermes EOS as at March 2016

12 “Indigenous and tribal peoples convention, 169,” published by the International Labour Organisation as at June 1989

13 “Free Prior and Informed Consent: Manual for Project Practitioners,” published by the Food and Agriculture Organisation of the United Nations as at December 2016

14 “Thematic advice of the expert mechanism on the rights of Indigenous peoples,” published by UN Human Rights Office of the High Commissioner as at 2013

15 “Guiding Principles on Business and Human Rights: Implementing the UN ‘Protect, Respect, and Remedy’ Framework,” published by the UN Human Rights Office of the High Commissioner as at November 2011

16 “Why Reporting Matters,” published by UN Guiding Principles Reporting Framework as at September 2017

17 “Human rights impact assessments,” published by the Business & Human Rights Resource Centre as at January 2017

18 “Brazil: campaigners welcome court rulings in favour of indigenous land rights,” published by Survival International as at August 2017

19 “Brazil’s Supreme Court rules in favour of indigenous claims,” published by Telesur as at August 2017

20 “Traditional owners win native title fight with Fortescue,” published by The Sydney Morning Herald as at July 2017

21 “Fortescue loses landmark case on indigenous lands rights,” published by Financial Times as at July 2017

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