Valuing social investment in mining

Valuing social investment in mining

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.

Related content

Getting more out of social investment in the mining sector

 

"Strategic investments in communities should create value for both the beneficiary and the investor.  By taking a strategic approach to corporate social responsibility, mining companies can maximize the impact of their social investments."

 

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

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.

 

"Companies should aim for a small number of programs with measurable social impact."

 

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.

Unlocking value

When considering options for social investment, the starting point is not: “how much should we pay?” but rather: “what can we achieve?” This mindset should lead to programs with measurable social impact. Beginning at board level, the strategy has to be aligned with local development plans as well as wider business goals, and designed to produce the maximum benefit to the target groups and the mining organization.

 

Considerable research and discussions are required to uncover the optimum choices. For example, investment in local farm sourcing can cut the cost of food, resulting in a healthier, more energetic workforce; while education and counselling on alcohol and drug abuse could reduce absenteeism.

 

It is equally important to play a long game, avoiding quick wins in favor of deeper partnerships with the community, local businesses, non-governmental organizations (NGOs) and government. Businesses should encourage and empower local people to participate and take ownership of the program, with a clear exit and handover strategy.

 

"Creating value for society must be a top strategic priority – whether it is seen as simply a cost of doing business or by looking at it as an opportunity for growth. Simply investing more money or outsourcing it to someone else is not the answer. Leaders need to be personally invested in seeing the business create value for communities and apply the same rigor to these investments as one would to ‘mainstream’ investments." - Rohitesh DhawanGlobal Mining Leader, Climate Change & Sustainability

 

Measurement is arguably the hardest challenge, in order to produce tangible goals and assign a monetary value to objectives such as higher worker self-esteem. In the absence of recognizable financial targets, there are sophisticated tools available to quantify and monitor the economic and business value of social, behavioral, health, environmental and infrastructure improvements. Like any business activity, each component has to be tracked, including financial payments and employee voluntary hours – even when the funds have been entrusted to NGOs. Patience is also needed, as some benefits can take years to materialize. An early years’ education program will not lead to overnight change. Over time it could produce an increase in literacy, which in turn generates a long-term increase in employment rates and reduced poverty. This speaks to the importance of effectively managing the expectations of all stakeholders, including local authorities, in order that there is a realistic idea of timeframes and outcomes.

View full infographic

 

Finally, it is important to communicate the concept and the results of shared value to the board, investors and stakeholders, including project partners, using a combination of quantitative and qualitative information to tell the story. At a macro level, all parties will also want to see how any achievements are improving the local economy and environment.

 

By treating social investment like any other commercial initiative, companies can demonstrate the return for every dollar spent, identify under-performing programs and reinforce relationships with community stakeholders and partner organizations. Such discipline can help them combine cash and employees’ skills to tackle some of the biggest challenges facing the world, secure a social license to operate – and enhance their performance. 

Connect with us

 

Request for proposal

 

Submit

KPMG's new digital platform

KPMG's new digital platform