Reporting social standards

A global survey by KPMG suggests that mining companies are making good progress in their efforts to become more accountable to external stakeholders, including non-governmental organizations (NGOs).

The report, titled Mining — A Survey of Global Reporting Trends, is based on an examination of the reporting standards of 40 large companies in Australia, Canada, South Africa, the United Kingdom and the United States. It is the most extensive survey of its kind ever undertaken in the industry, covering countries that accounted for 90% of global mining equity offerings in 1999.

As might be expected, the study reflects an industry in transition. In previous decades, economic factors such as metal prices were the primary concern of mining companies. Today, social responsibilities, including environmental issues, are providing additional external pressures. As a result, companies must balance the often competing interests of their shareholders and external stakeholders. This is no easy task, particularly for gold producers, who face escalating social and environmental costs during a period of weak metal prices.

The KPMG study found that 98% of companies reported on social and environmental issues, and that 85% included some discussions about the impact of their mines on local communities. Health and safety received the attention of 68% of companies. However, only 13% discussed human rights, an issue of importance to influential stakeholders, particularly NGOs. One of the best performers on this front was Freeport-McMoRan Copper & Gold, which has adopted a human rights policy that requires all employees to report suspected violations to designated human-rights compliance officers. The company also has numerous social programs in place that are aimed at securing the human rights of all citizens living in its area of operations (the Indonesian province of Papua, formerly Irian Jaya).

The survey also found that more than a third of the companies surveyed had produced a separate report addressing the environment, health and safety, or social issues, or a combination thereof. Half of these were based in Canada or Australia.

Lee Hodgkinson, national director of KPMG’s mining group, believes non-financial reporting has evolved considerably since the old days, when most companies relied on the “trust me” approach. Because of the high degree of public scrutiny that now surrounds mining, most companies (about 85% of those surveyed) provide quantitative data to augment their environmental discussions. This places most companies in the more highly evolved “tell me” stage of non-financial reporting. However, the survey found that only a few companies have evolved to the highest level — the “show me” stage of non-financial reporting. Only 15% provide any independent verification of their environmental and social performance.

Despite the progress to date, Hodgkinson believes companies must make more of an effort to reach out to external stakeholders. Without established systems for measuring non-financial performance, he says, a company may not earn its “social licence” to operate.

From our perspective, even more work needs to be done to educate external stakeholders, including NGOs, about the financial aspects of mining. Escalating social demands are rendering many projects uneconomic, and even some robust projects remain undeveloped because they are unable to provide both profits to shareholders and generous benefits to an expanding list of stakeholders. Companies operating in developing countries are sometimes asked to provide social services that governments have failed to deliver, which means that lines other than the bottom one are being distorted.

Perhaps the time has come for NGOs and other external stakeholders to disclose their policies, positions and goals so that resource development at home and abroad will become more transparent, fair and predictable.