Raw materials could unlock Zambian development

Getting more out of social investment in the Mining Sector

Mining companies are very aware of the significant impact of their operations upon local communities and recognize the need to earn a ‘social license to operate,’ in the form of an unwritten contract with workers, their families and other stakeholders. Consequently vast sums are ploughed into social investment initiatives including infrastructure, education and training, healthcare, sports and recreation. Countries such as South Africa and India have mandated social investment, and others are sure to follow. When entering new markets in emerging territories, governments want to see social investment plans before granting mining rights.

On the surface, such philanthropy should bring enormous benefits by reducing poverty, improving health and employment prospects, securing food and water supplies, and preventing environmental damage. The businesses themselves can enhance their reputations, build better relationships with local suppliers, attract talented and engaged employees, and reduce sickness and absenteeism, all of which should contribute to higher productivity and commercial success.

But are these huge outgoings really achieving their greatest possible impact? A recent KPMG survey suggests that many organizations struggle to demonstrate the effectiveness of their expenditure. In 2013, the 10 metals, mining and engineering companies in the study had combined social investments of 1.2 billion US dollars (US$). Although they all quantified the inputs and outputs, these were primarily in terms of volume, namely the financial contributions made and the number of participants in a program. But only one of the 10 reported any quantified outcomes, suggesting a lack of debate over the true impact of programs, both internally and with the communities they are serving.

And with 52 different types of programs across the group surveyed, companies risk spreading their efforts too thinly, rather than focusing on a few priorities that can really make a difference. More money and more beneficiaries do not necessarily translate into greater impact.

Taking a strategic view

Just four of the companies in the survey publish a detailed social investment strategy, despite growing pressure for better reporting. In South Africa, for example, businesses must have a Social and Ethics Board sub-committee to govern social investments.

Mines are incredibly complex operations spread across wide geographical areas, so there is a temptation to allocate social investment into broad categories such as health and safety, social welfare, education and sustainability.Yet without a detailed business plan, this money is at risk of disappearing into a black hole marked “charitable contributions.”

Program choices can also be influenced by administrators eager to score political points. So-called ‘ribbon cutting’ events such as the opening of schools, hospitals or roads can make a big impression on voters, but do not always bring the best return on capital.

A less glamorous, cheaper option like teacher training or safe sex education could potentially have a far greater positive effect for a smaller outlay, although they may have a less tangible effect on the company’s reputation in the short term. Those responsible for allocating social investment budgets therefore need to exert a stronger influence over the organizations involved in prioritizing programs, by engaging earlier with local economic development forums and other groups, and resisting demands for vanity projects. This closer working relationship will also ensure that authorities are aware of the value being added by the social investments of the business, without them having to create awareness around this through active PR activities.

Responsibility for choosing programs often rests in the hands of operational managers, who may be under pressure from regulators and stakeholders to deliver more immediate results, such as minimizing stoppages. Valuable as these initiatives may be, they should be balanced with projects that contribute to the longer-term social license to operate. The board has to underrstand these conflicting priorities and take responsibility for how money is spent, keeping all stakeholders well informed of the rationale behind any decisions. Once programs have begun, they tend to suffer from a lack of professional performance management, with ill- defined outcomes and measurements, and inadequate data reporting. The personnel assigned to run the initiatives may not always have the technical skills and capacity to carry out the required level of financial and operational analysis and monitoring commensurate with a major project. With rewards often linked to activity rather than outcomes, project teams lose sight of the true project goals.

You can download the Report here

David Okwara

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