Indaba Day 2: The IFC Won’t Invest In Any Project Which Doesn’t Have CSR And, For Good Financial Reasons, Nor Should You

By Mark Nunn of CSR21.org

With the talks at Indaba today offering little for CSR aficionados, we drifted up the hill so somewhere more pleasant, to wander a while amongst the bougainvillea and look down on the chaos of the town. Behind the flowers and the Cape Dutch gables, though, sat something steely. A tightly focussed panel discussion of the fundamental question you don’t often see asked as frankly as you’d like: what exactly is the investment case for CSR?

A word of context, though, to explain our temporary defection from Indaba. As Minesite wrote on Monday: The 121 Mining Investment conference got underway this week to coincide with the opening of the annual jamboree that is Indaba… Indaba boasts an attendance of around 7,000; the 121 conference boasts far less. But that’s the point. This isn’t a free-for-all scrum pitching every sort of sector hanger-on into one big melting pot in the hope that some sort of deal or deals will emerge at the end of it. Rather, the 121 conference is all about the targeted marketing of companies to a specific audience.

Or looked at from the other point of view, it’s all about people with money coming together with real opportunity, without gatekeepers or the disruptive interference of service providers all over the place.

Interesting, then, that this should be the forum for the frankest discussion so far this week of the investment angle on mining’s social side… and it should be noted that we’re deeply grateful for the crew at 121 Mining Investment for inviting us up.

The topic on one of the most interesting panels: The investment case for CSR in mining and an inclusive approach to communities and stakeholders

This was a panel with a promising range of perspective—and a heavyweight moderator in Steve Davis, CEO of Programme for Appropriate Technology in Health (PATH), one of those American NGOs that does such a good job of agglomerating the corporate mindset with the social mission. The panellists were a lively mix: – David Couldridge, Senior Investment Analyst at Element IM; Jack Cunningham, Group Sustainability Manager at Gemfields; our old friend Amanda Van Dyke, Chaiman of Women in Mining UK; and Stephan Vermaak, Principal Investment Officer at IFC, the investment arm of the World Bank Group.

—A group you’d imagine had sights set solid on the bottom line.

Moderator Davis opened with an introduction of PATH, a Gates-funded organisation which, while an NGO, is “very engaged with private sector partners all the time, at R&D level and at community level.” The reason was to become a theme for the session: “with partnerships, we can deliver high, measurable, sustainable impact.”

Citing PATH’s work on malaria in DRC in partnership with mines, and a USD25m project with BHP Billiton in South Africa & Mozambique that has seen a 65% reduction in morbidity and mortality in women and children, Davis argued that a general consensus is growing in the world that there’s a need for more multisectoral partnerships—open, fair and leading to all getting their fair share of revenues, including governments and communities.

There are challenges though—particularly an erosion of trust between stakeholders, and the inherent conflict between businesses’ requirements for quarterly reporting and the 5-25 year cycles of long term development projects. Echoing others in Cape Town this week, he concluded by identifying huge potential in the mining sector for private/public/non-profit collaboration, and asked: “are we collaborating like we should?”

If there had to be but one magic bullet for development, segued Davis, it would be the education of women – the development gains of which have been well chronicled down the years; and with that, Amanda Van Dyke, wearing her WIM hat, was first of the panel to speak. Citing recent research on the business case for women on boards of mining companies that showed those companies performed well and scored more highly on CSR, she argued that CSR is now integral to the success and viability of any mine: “it gives companies a social licence to operate that pays – literal – dividends.”

Stephan Vermaak of the IFC was next up. The IFC invests $500m pa in emerging markets, and knows what to look for as regards danger signs. Prominent, open, transparent dialogue between all parties is key to the success of a project, he argued, building partnerships across government, communities and civil society.

Jack Cunningham of Gemfields was in agreement, even to the extent of arguing rather surprisingly that “increased regulation is in many ways a good thing”; the challenges of history having (perhaps forcefully) now made mining a leading sector in sustainability. With standards set so high, compliance is often the most feasible way for smaller companies to meet them.

David Coulridge represents Element IM, a Cape Town value investor looking for mines with “intrinsic value”; and that valuation includes safety records and full assessment of all risks, including social. As a member of PRI (Principles for Responsible Investment), Element hold the social factor of the investment equation in high regard, and have worked on projects including development of South Africa’s code for responsible investing; carbon projects; integrated reporting initiatives; and a varied range of other activities to improve the investment environment and encourage investors to take material sustainability issues into account.

But how to measure the relationship between impact and value?

This was a question that seems to require a quantitative answer but in reality tends to spark qualitative discussion. That was true again today, though the discussion was no less convincing for it. Partnership still featured heavily, with Cunningham arguing that some of the most exciting potential is to be found in the supply chain (watch this space for an upcoming interview with UK-based supply chain managers Dintz for a very interesting separate discussion of this). The luxury brands of the coloured gemstones market, he said, can be “incredibly committed to sustainability,” and this affects the whole sector profoundly, from sourcing through cutting and polishing to traceability. This influence is likely to be a transformative, given that 80% of coloured gemstones currently on the market are thought to originate from illicit production. “The partnership element,” he said, “is at the forefront of risk mitigation.”

Coulridge raised the spectre of barriers to good partnerships, citing in particular the obstructive influence of South Africa’s Social and Labour Plan, which he said is often cited as a reason why suggested improvements to mines’ CSR plans can’t be made—even, he said, in the period post-the Marikana disaster, a point at which the demand for effective partnership building can’t have been greater. The lesson: building relationships is vital to business sustainability.

Van Dyke pointed out a salient fact that to which we probably don’t tend to pay sufficient attention: mining is one of the oldest industries in the world, and as such exceedingly traditional. The question of where there’s value to CSR or whether it’s just a cost isn’t uncommon, and real effort was and is needed to shift that mentality: “changing hearts & minds of companies is a difficult thing to do.”

She cited the historical paradigm shift with regard to Health & Safety as evidence that it’s not an impossible quest; initial resistance to change gave way to productivity, efficiency & improved relationships with the workforce that created real value. Long term commitments from NGOs, advocates and others are needed to make it happen; and while it may be counterintuitive to some in the industry, investing in stakeholder management & building sustainable companies means a long-term, significant social licence with incredible returns. She cited a 50% increase in dividends and returns, though the source of the figures wasn’t clear.

Vermaak agreed: such returns are what drives IFC to make investments, and in his experience the problematic projects are the ones that don’t do the CSR—to the degree – and this is stop press stuff for mines that haven’t got the message yet – that IFC simply won’t invest in them now. If you don’t work with the stakeholders, you have problems. “To us,” he said simply, “it’s not a cost, it’s a necessity.”

We all agree… so what’s the problem?

You may have noticed – we certainly had, by this point – that the discussion till now seemed to consist of the panel agreeing enthusiastically with one another. Great news for the industry and the world, perhaps, but we all know the reality on the ground isn’t always so rosy. So—as Davis then asked—what do we need to do differently to make this thinking more systemic?

We were running out of time by now, and these are big questions. This was explored with a light touch, but one interesting intervention came from Coulridge who argued that this is already happening. He cited as an example the crossover this year between speakers and participants at Indaba and Cape Town’s annual “alternative Indaba” run in parallel by civil society. This, he said, is a very good sign, because “the challenges to the sector are so great that no-one can meet them alone.”

A Q&A followed: time was short and it was fragmented, so we’ve grouped the summary into themes below, and merged the responses. There was no disagreement.

How to express to explorers or small producers that there’s financial value in CSR?

The people pushing the change are in fact the people who are investing, because they’re been burnt in the past by companies with poor CSR. 90% of hits on Bloomberg ESG scoring are from investors; it’s now an accepted part of investment analysis. Seeking commercial viability by cutting CSR costs is wrong; the basis must be right, and the market will change radically in the coming years—maybe even months—to reflect this. For smaller companies with a capacity gap, it could be that compliance and low level local engagement is the best they can do; but smaller companies are starting to realise this needs to be done.

Mining is tough, and investing in it has to be done very carefully. The investors on the panel look for leadership, and that’s a driver: capital moving towards leadership will help encourage the growth of CSR.

When mining labour is migratory, what communities do you invest in?

Countries don’t always have the capacity to control or guide the CSR work of companies. Effective collaboration with, and use of, international communities, benchmarks and standards are the way forward in making the CSR happen right; and that’s investor-driven.

What can be done when companies’ execution of CSR obligations or commitments is limited?

This happens often; but it’s part of the natural growth curve for companies. Expertise is required to measure impact, and companies need to push through till they get it right.

Before we melted back into the fragrant blossoms, three simple headlines brought to an end a fruitful and interesting discussion notable mainly for the fact that representatives of industry, civil society, pressure groups and the money men were all perfectly aligned in believing the core truth that CSR is a fundamental part of a mine’s business case. The only (!) remaining obstacle, going on this discussion, is that of working the agreement into something real and tangible.

1. “CSR is happening, and it’ll continue to happen”; and the future of the mining industry will be determined by how well it is done.

2. There is a consensus call for more strategic thinking – where & how to measure, how to assess impact, & what investors can and should do.

3. Multi-stakeholder models, while crucially necessary, need to be rethought and reworked—and the investor’s role is important in making that happen.

No-one is exempt from this, and it’ll be interesting to see how things change over the next few years.

Interesting too – we’ll leave you on this – that the most focussed case for the fundamental necessity of CSR so far this week hasn’t been made at Indaba per se, but rather at the maverick conference designed and touted as the forum where “mining executives and institutional investors can connect, build relationships and forge deals.”

Food for thought.