Experts find increasing trend of oil and mining companies adopting human rights policies

By Oxfam

Washington, DC – Oil and mining companies are increasing their stated commitments to human rights, including in some cases adopting policies in favor of securing community approval prior to projects moving forward, according to new research by international relief and development organization Oxfam America.

“Too often, communities have no say in the decision of whether to extract resources from their backyards and receive little information about these projects,” said Raymond C. Offenheiser, president of Oxfam America. “With more than half of the world’s poorest people living in countries rich in natural resources, the increasing trend of companies incorporating human rights in their policies is encouraging.”

The research released today reviews the public policies of 28 oil and mining companies. Five of the companies surveyed (Inmet, Newmont, Talisman Energy, Rio Tinto and Xstrata with total market cap of $180.58 billion) have made explicit public commitments to Free Prior Informed Consent (FPIC), a number which has more than doubled since a 2009 Oxfam America report. Another eight companies (including Anglo American, BP, Repsol, and others) have made somewhat qualified or indirect commitments to FPIC. The report assesses stated policies but does not attempt to measure observance of corporate policies.

FPIC is considered the gold standard of policies since it requires communities to be adequately informed about oil, gas and mining projects in a timely manner and given the opportunity to approve (or reject) a project prior to the commencement of operations. FPIC is a right for indigenous peoples according to international law, and Oxfam America believes that it is also a best practice for sustainable development of any oil, gas, or mining project.

The report also finds that approximately two-thirds of the companies surveyed now have incorporated the concept of community consent or less strong concepts such as community support or social license in their policies regarding development activities, either directly or indirectly through their commitments to other standards. Some companies that only referenced consultation or community engagement in 2009 now have policies more aligned with community support or social license principles, including ExxonMobil, Total, Shell, and Barrick Gold.

With intensified conflicts over land, water and mineral rights, business as usual is simply not going to cut it,” said Offenheiser. “Companies need to work with communities to ensure they have a meaningful voice in the decision-making process and that projects are designed in ways that respect human rights.”

The change within companies in the last three years is likely due in large part to the intensification of controversies and conflicts surrounding oil, gas and mining projects coupled with new international lending standards set by the World Bank’s private sector lending arm - the International Finance Corporation. Total World Bank Group’s commitment to the extractive industries sector has averaged US$910 million per year over the last five fiscal years.

“In order for oil and mining companies to survive in the coming decades, they need to transform themselves from primarily resource extractors to development partners," said Offenheiser. "Companies that fail to implement the policies will be at a competitive disadvantage."

Frequently Asked Questions on Free, Prior, and Informed Consent

Q: What is Free, Prior, and Informed Consent?

FPIC is a dynamic process. It ensures communities receive adequate and timely information about oil, mining, and other development projects affecting them and their lands. It also ensures that communities have the opportunity to approve or reject projects. However, some governments and companies fear that FPIC implies a one-off procedure, a simple yes or no vote, but it’s really about giving all sides the opportunity to share their concerns. Within an FPIC process, for example, an oil company could learn that its planned pipeline is located on land considered sacred by the community. With that information, the company can choose to reroute the pipeline to another site, improving its relationship with local communities and in some cases even preventing conflict and revenue losses in the long-term.

Q: Is the right to FPIC protected by international law?

In short, yes. International bodies like the International Labour Organization through its Convention No. 169, Concerning Indigenous and Tribal People in Independent Countries, and the Inter-American Court of Human Rights (IACHR) have recognized the right to FPIC in certain circumstances. For example, in 2007 the IACHR ruled that the government of Suriname had violated the Saramaka peoples’ right to collective property for awarding a timber concession on their lands without prior consultation. The United Nations Declaration on the Rights of Indigenous Peoples also calls on states to secure the FPIC of indigenous peoples for projects that affect their lands or resources.

Q: How does the private sector view FPIC?

Oil, gas and mining companies have started adopting FPIC into their own policies and standards. For the private sector, it’s a bottom-line issue and it also promotes responsible spending. When communities become unhappy and begin protesting a particular project like blocking off roads or shutting down production facilities, projects becomes riskier. That was the case for Newmont’s Yanaocha Mine in northern Peru. When the company decided to expand the mine without consulting the community, thousands of people staged demonstrations and blocked access to the mine for two weeks. During those two weeks, the company’s stock price fell 7 percent, a loss of more than $ 1 billion in shareholder value, according to calculations made by Oxfam.

Because companies in the oil and mining sector are especially vulnerable to financial and reputational risks, many of them such as Newmont, Rio Tinto, Xstrata, Anglo American, BHP Billiton, ConocoPhillips, Pluspetrol and Talisman Energy have made some type of commitment to securing community consent prior to launching projects.

Socially Responsible Investment (SRI) fund managers have also started highlighting the importance of FPIC as a way to ensure that the companies within their client’s portfolios demonstrate a commitment to sustainability and respect for indigenous peoples’ rights. In 2009, mutual fund company Calvert Asset Management Company removed Weyerhaeuser from the Calvert Social Index for failing to recognize FPIC in its relationship with the Indian Tribe Grassy Narrows First Nation of Ontario, Canada.

More recently, international financial institutions are requiring companies to implement FPIC as a condition of financing. In August 2011, the International Finance Corporation – the World Bank Group’s private sector lending arm – released its new sustainability framework. For the first time, companies receiving IFC financing will be required to consult and receive the FPIC of indigenous communities prior to launching development projects that could potentially impact them adversely. This is a significant move by the IFC. The new policy will set a global standard for companies and financial institutions to follow. This includes the 72 export credit agencies and private banks that commit to the Equator Principles-- a voluntary set of standards for identifying and managing social and environmental risk in project financing. The Equator Principles are based largely on IFC policies.

Q: Does FPIC work in practice?

The practice of FPIC is relatively new. Increasingly, governments, companies, and international financial institutions are embracing FPIC as a best practice and putting it to the test.

A case study produced by Oxfam describes Bolivia’s Ministry of Hydrocarbons and Energy successfully applying FPIC during a gas exploration project in the indigenous territory of Charagua Norte e Isoso, located in the Santa Cruz region. The Ministry consulted the community about the project and, prior to exploration, indigenous leaders signed an agreement with the Bolivian government documenting consent for exploration activities by the Argentine company Pluspetrol. The consultation process reached a positive outcome thanks largely to the willingness of the government to respect the use of traditional indigenous institutions and systems, provide complete and truthful information to affected communities, and approach the process with good faith.

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