Gastech 2017: Japan. April 4-7

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1 Theme: Health, Safety, Environment: People Day 3. Thursday April6, :30pm - 2:55pm Gastech 2017: Japan. April 4-7 Paper Title: Social Performance: Can you get it right? Getting social performance right is difficult and we know that moving forward with large projects is no longer just about a tick in the Permits and Approvals box. Public awareness and social media can act fast to cause irreparable damage to reputation and can ultimately result in a project not getting off the ground. Just following regulatory process is no longer enough. Companies have to do more, but what is the right direction? Community buy-in to a project involves trust and the development of a shared goal. Porter and Kramer in the Harvard Business Review article Creating Shared Value (Porter & Kramer, 2011) state that Companies could bring business and society back together if they redefined their purpose as creating shared value generating economic value in a way that also produces value for society by addressing its challenges. A shared value approach reconnects company success with social progress. Showing that a community is heard, and has a stake in the project allows for opportunities for the community to input into the development of mitigation strategies early in the project. This may result in fundamental change such as site or layout to avoid existing or traditional activities and sensitive or valued receptors. Hearing first-hand the views of communities early could significantly increase the likelihood of success and reduce risk. With changes in society and the increase in focus on sustainability and resilience the relationship between industry and communities is evolving to consider mutually beneficial arrangements. With a shared value approach the intent is to create partnerships that address the need for a symbiotic relationship between the two parties to create successful projects and resilient communities. Cooperative planning of improvements to local infrastructure, enhancement of technology, and public education programs can create a welcoming environment for other industries, which can diversify the local economy. As the economy diversifies there is less reliance on a single industry, avoidance of the boom-bust cycle associated with a one-industry supported community, and increased capacity for the community to recover when the facility is no longer in operation. As communities thrive beyond one industry, cooperative planning can take place in the cycle of decommissioning and closure, and companies are able to maintain their reputation and social license to operate. This paper will examine case studies where early planning and engagement has allowed a path to social license resulting in a future of shared value between proponents and the community in which they operate. Author: Co Author: Dr. Mary Lou Lauria Sarah Palmer, P.Geo. Advisian WorleyParsons Group Suite Still Creek Drive Burnaby, BC V5C 6S7 Canada Lauria & Palmer Page 1 of 8

2 Social Performance: Can you get it right? We have created a paradox. People want investment in their communities however there is uncertainty around the long term environmental and social impacts that large projects bring. These non-technical risks can stop a project in its tracks and we have seen that communities can stop projects and facilitate change. Through awareness in society and the increased focus on sustainability and resilience the relationship between industry and communities has evolved out of necessity to consider more mutually beneficial arrangements. Taking British Colombia (BC), Canada as an example the development of the LNG market over the last 5 years has seen this paradox first hand. In BC there are approximately 4.6 million people including 200,000 Indigenous people (R. Muckle 2014) and First Nations have a long history of asserting their rights; collective rights which stem from Indigenous peoples continued use and occupation of certain areas. These rights have been practiced since before European contact, and in general include: rights to the land; rights to subsistence resources and activities; the right to selfdetermination and self-government; and the right to practice one s own culture and customs including language and religion. As is the case with peoples the world over, protest and court action have sometimes been necessary in the assertion of these rights. In BC we have seen the strength of Indigenous and non- Indigenous communities in pushing companies to consider a more shared value approach. How did we get here? Historically, successful industrial projects were those with an economic benefit to corporations. As we have evolved, shareholders and communities have shifted the paradigm; demanding more considerations for local sustained development which brings benefits back to the community. With changes in society and the increase in focus on sustainability and resilience the relationship between industry and communities is evolving out of necessity to consider more mutually beneficial arrangements. Sometimes referred to as corporate social responsibility, the intent is to create an approach whereby companies create a symbiotic relationship between themselves and the community to deliver successful and sustainable projects. Corporations have struggled in recent years to balance economic pressures with the strengthening pushback from communities who want more from a proposed project than the promise of short term jobs. Communities struggle with higher social, infrastructure, and environmental pressures and a lower tax base. While companies work to make new projects fiscally conservative, communities and government view these projects as potential sources of necessary injections of cash. While these two sides seem at odds, our review has shown that successful communities and projects often only develop when mutualistic symbiotic relationships are formed. The sustainable success of any project is based on the trust and relationships of the people and the teams involved. Longevity of projects relies heavily on the relationships established at the early stages and by attaining a social licence at an Indigenous and non-indigenous community level. Social Performance: Can you get it right? What is social performance? Social performance refers to a company s strategy, programs and investments in responsibility and sustainability and is measured through stakeholders assessment of the overall quality of those programs and investments. In business there are a number of terms that are used - Corporate Social Responsibility refers to the actions and activities that improve or protect communities at a local or global level; and Lauria & Palmer Page 2 of 8

3 Corporate Social Performance is the measurement of the company s overall performance in improving and protecting communities compared to their competitors in the industry. By this definition, having a good measure of social performance allows companies to take a step above their competition and develop a reputation for being a company that delivers on their strategy of being a good corporate citizen. It can improve corporate perception. Perceived poor social performance Research and history suggests that perceived poor social performance can result in millions of dollars of lost revenue and reputational damage and that social issues or non-technical risks are the primary cause of delay and/or cessation to major projects. For example, Goldman Sachs Investment Research completed an analysis of the top 190 oil and gas projects from around the world and found that stakeholder and political risks are the main cause of delays. Similarly, in 2011, the U.S Chamber of Commerce analysed 351 stalled projects and concluded that social activism was the leading contributor. A research project by Harvard University and the University of Queensland into the monetary costs of company-community conflict in the extractive industry found that the costs of such conflict are mainly associated with project delays and lost productivity, but are also strongly associated with: Opportunity costs such as the inability for a company to pursue new projects Additional staff time needed to address conflicts from the CEO level down This study by Davis and Franks (2014) estimated that the cost of community conflict for a major, world class project with capital expenditure between US $3-5 billion, could be US $20 million per week of delayed production. No project phase is immune to the impacts of poor social performance. Community conflict and reaction can suspend or cause abandonment of a project from exploration to operations and during expansion, as indicated by the results of the Davis and Franks study, and these costs can escalate. It consistently shows that it gets more and more expensive to try and buy back social support in progressive stages of a project s lifecycle. Common themes of poor social performance The most common root social causes of community tensions with major projects relate to: Environmental and community health and safety issues Competition for resources and prevention of traditional lifeways Consent and land access matters Distribution of benefits, such as employment Labour issues Consultation and communication processes In regards to these community tensions, the core feelings of communities should be understood to be able to address the reaction. When projects are announced, communities expectations can be raised for: Employment and business opportunities Investment in communities Lauria & Palmer Page 3 of 8

4 However this can also result in feelings of anxiety that these opportunities may not be realised, where people are: Frightened of change Mistrusting of industry-provided information Unsure that environmental and social effects can be managed Unsure that government can properly regulate the industry As a result communities and stakeholders are responding by: Forming lobby groups and undertaking coordinated grass root movements Building scientific knowledge and methodologies to better assess effects Networking and developing strong alliances Organising extensive media campaigns, including TV, radio and internet Gaining high profile / celebrity support and holding concert rallies Community Resilience Community resilience relies on the ability of the community to fund services and infrastructure over the long term under changing economic, social, and environmental conditions. In communities where populations fluctuate based on local industry, methods to improve resilience are critical to long term viability of the community. Partnerships with a specific incoming industry project can provide shorter term solutions to concerns with key infrastructure and services, as well as the educational programs required for a facility s operation. Community planning for resilience must also consider long term sustainability of the community after the facility closes. For example, short term community improvements may include: Jobs from a specific facility/project Health, education, and services improvement Local infrastructure improvements Population and tax base increases, which improve diversity and available funds However, long term community improvements may include: Community design for future use including industry lands that consider diverse usage Environmental risk management of changing climates Increased education and health levels Evolving technology-based infrastructure Attracting diverse businesses and populations to improve a community s ability to survive changes following an industry s facility closure While communities can look to a potential industry to assist in the development of shorter term and smaller infrastructure and social benefits, the community must develop a long term plan that considers the requirements of long term resilience for future generations and the ability of the community to transform over time. Development of a long term community plan alongside industry can help focus project benefits to meet the goal of long term community resilience. Lauria & Palmer Page 4 of 8

5 New Approaches Often the approach of companies is to react to community demands by making social investments to gain goodwill and support for their company and the project. This can be viewed as a narrow approach to value creation that focuses on optimizing short-term financial performance, whilst overlooking economic development needs as well as broader influences on their long-term success. Porter and Kramer in the Harvard Business Review article Creating Shared Value (January/February 2011) state that companies could bring business and society back together if they redefined their purpose as creating shared value generating economic value in a way that also produces value for society by addressing its challenges. The concept of shared value shifts thinking from protecting a social licence and mitigating impacts, to proactively creating business and societal value simultaneously. Shared value redefines the overall goal of companies from making profit to creating value shared with the community. It takes away the concept of sharing the value already created by firms, and instead talks about expanding the total pool of economic and social value. The traditional approach to projects has been: companies make money, and in turn support employment and income, and eventually come up with ways to give back to the community. The emerging view supports a different approach, one in which companies work on enhancing the competitiveness (and profitability) of their company, in order to advance socio-economic conditions simultaneously. Typically when corporations consider a project there are stages to the development of the project. As an example, the Centre for Excellence in Mining Innovation identifies the following (Wright, 2012): Pre-evaluation study/ conceptual: minimal engineering, cost estimate in an order of magnitude, general time lines Scoping: 2% to 5% engineering, cost estimates to +/- 50%, contingency +- 30% Pre-feasibility: 5% to 15% engineering, cost estimates to +/- 30%, contingency +- 20% Feasibility: 25% to 50% engineering, cost estimates to +/- 10 to 20 %, contingency +- 15% Detailed design follows feasibility and generally develops the final design and procurement strategies for the facility after which the project moves into construction, operation, and into the future, closure. During the pre-evaluation or conceptual study a company may consider multiple sites with respect to existing infrastructure, local political issues, government taxation and subsidies, and community acceptance of a project. Assessment of location and political and social risk are often considered at the initiation of the process, but only from the view of potential risk to the proponent. The risk is carried through the analysis process until permitting and approvals are complete. Often community engagement is viewed as a major exposure and risk in project planning and therefore may be delayed until a project is well into design and entering the approvals phase. The approach of delayed community involvement results from concerns that communities will challenge projects and shut down the development. This fear of early engagement can result in missed opportunities to establish trust, share knowledge, understand concerns and lay the foundations for a strong relationship. Where do we go from here? In some cases the balance of power seems to have changed corporations may not be in the driving seat. People can stop projects. Companies are beginning to understand that at the outset of a project it is no longer sufficient to follow the traditional engineering phases of a project for which there is a prescriptive Lauria & Palmer Page 5 of 8

6 process: Concept, pre-feed, FEED, Detailed Design. It is also important to embed the relevant environmental and social approvals process into the schedule and allow adequate time for community engagement. More broadly, proponents are recognising the importance of considering communities in the businesses long term strategic investment planning rather than making decisions and setting budgets quarter-by-quarter or year-by-year. To date there has been a reluctance by many companies to invest in communities for the longer term until approvals have been granted beyond funding of small community projects or events although millions are spent on creating and enabling business and political environments for projects. There is a vast imbalance in spending on building an enabling social environment. There is a measurable value in planning for the non-technical aspects. The environmental and social constraints and the concerns of communities if not considered adequately can result in a fatal flaw. People can stop projects, but if engaged and considered at the business case evaluation, can result in a shared value for both the project and society and long term mutual success. Successful Projects and Community Resilience Community buy-in to a project involves trust and the development of a shared goal. Porter and Kramer in the Harvard Business Review article Creating Shared Value (Porter & Kramer, 2011) state that Companies could bring business and society back together if they redefined their purpose as creating shared value generating economic value in a way that also produces value for society by addressing its challenges. A shared value approach reconnects company success with social progress. For industry, early engagement with local communities can improve the outcome of the scoping exercise and reduce potential risks identified in the pre-evaluation study and other engineering phases. Shared value can be realised through: Public/private partnerships on mutually beneficial infrastructure (road development, technology requirements (i.e., internet), clean water, sewage works) Project siting in industry appropriate locations to avoid locally sensitive areas and take advantage of already planned industrial infrastructure Potential commercial benefits (tax or incentive based) through project partnership with Indigenous peoples or local government Increased cooperation from government Reduced risk and uncertainty in project development Diverse economic development to reduce the long term dependence of a community on a specific industry Lauria & Palmer Page 6 of 8

7 For communities, early engagement in facility and infrastructure siting and design can allow for consideration of issues such as: Community planning initiatives (i.e., residential housing, hospital, services and industrial zone planning) Existing infrastructure challenges o Storm water management concerns o Lack of potable water o Insufficient sewage works o Commercial traffic management o Historical industrial site contamination Emergency response requirements (i.e., fire) Cooperation on procurement Potential public/private partnerships on mutually beneficial infrastructure While the initial shared values of a company and community may revolve around short term goals such as training for facility employment and coordination of procurement, the longer term goals should look toward the long term resilience of the community beyond the current facility and the integration of the project/company into the community. To prevent the destabilisation of the community as a company winds down operation, community planning and economic growth unrelated to the facility needs to occur over the course of the facility operation. While a company may not immediately see the benefits of engaging in long term resilience planning with a community, the decommissioning of a facility can represent substantial non-technical risk in relation to reputation, long term financial dependence, and liability. Development of education and infrastructure beyond the immediate need of the facility should be part of the shared goals. This approach can only be successful if the goals are shared and mutually beneficial and all parties respect the chosen path forward. An example of a tool currently being used for community benefits is an Impact Benefits Agreement (IBA). The development of an IBA can formalize an agreement and build trust with communities, but only if both parties respect the terms. While the name itself suggests a negative outcome to the project (impact) the intent is to build positive relationships and trust, and secure local benefits (Prno, Bradshaw, & Lapierre, 2010). In their review of IBAs negotiated for three northern Canadian diamond mines, Prno, Bradshaw and Lapierre noted that IBAs were generally found to be effective in meeting their intent of delivery of benefits. It was noted in the assessment that community members felt that the IBAs focus primarily on benefits directly linked to the project and therefore did not necessarily provide benefits to the greater community. For shared value projects IBAs may need to evolve to meet the intended goal of broader community benefits. Agreements developed for a future shared value will only be successful if they consider the long-term community and company benefits that can be realised through the shared goal. Successful long term operation of a facility within a community requires a continued commitment to the shared values agreement and recognition that the relationship must be mutualistic to be successful. This approach requires transparency in planning and cooperation as well as understanding the economic, operating, and social challenges. As the facility and community relationship ages the shared goals and sense of value must evolve to address the long term resilience of the partners. Lauria & Palmer Page 7 of 8

8 Cooperative planning of improvements to locall infrastructure, enhancement of technology, and public education programs can create a welcoming environment for other industries, whichh can diversify the local economy. As the economy diversifies there is less reliance on a single industry and increased capacity for the community to recover when the facility is no longer in operation. Case Studies These willl be describedd in the presentation. Contacts Dr. Mary Lou Lauria Vice President, Environment, Society & Geosciences Americas P M E marylou.lauria@advisian.com Sarah Palmer P. Geo. Practice Lead, Permits & Approvals Americas P M E sarah.palmer@advisian.com Advisian is the independent consulting business line of WorleyParsons with more than 3,000 people in 19 countries. We provide solutions for clients in the Hydrocarbons, Minerals & Metals, Chemicals and Infrastructure industries. We have combined the deep technical consulting capabilities of WorleyParsons Consulting, Select and INTECSEA with our existing strategy and management consulting expertise. For more information on how we can add value to your business, please visit our website. Lauria & Palmer Page 8 of 8