Conflict with communities can incur costs of roughly US$20 million per week for mining projects valued between US$3 billion and US$5 billion according to a study by Queensland university and the Harvard Kennedy School.
Researchers, who interviewed professionals in the mining and the oil and gas industries, want to better quantify the cost of conflict so “. . . the environmental and social risks are translated into business costs and decision making.”
“Clear analysis of the costs of conflict provides sustainability professional with a strengthened basis to influence corporate decision making, particularly when linked to corporate values,” writes the reports authors.
Costs can add up. One company counted US$6 billion in costs over a 2-year period, which represented a double-digit percentage of the company’s annual operating profits.
Abandonment of projects most often occurred at the pre-feasibility and feasibility stage. Authors speculate that this stage is most fraught because project impacts are being experienced for the first time, such as an influx of workers, and the project’s viability is more fragile since most of the financing hasn’t be sunk.
Authors argue that under-investment in community outreach may damage the viability of future projects.
“The cost-cutting currently underway in the mining, oil and gas industries seems to be missing the potential opportunities for cost savings that can come from investing in improved relationships with communities,” said Dr. Daniel Franks in a news release discussing the study. Franks is one of the lead authors of the study.
Rachel Davis, one of the study’s other authors, said that “It is much harder for a company to repair its relationship with a local community after it has broken down; relationships cannot be ‘retro-fitted'”.
“Companies are realizing that conflict is predictable, and so are the systems needed to prevent it. That’s why we see leading companies implementing the UN Guiding Principles on Business and Human Rights—to manage their human rights risks more effectively,” she said.