Enhancing Benefits to Communities from Extractive Industry March 5, 2009 Extractive Industry Week Dafna Tapiero Manager, CommDev

2 Extractive Industry Projects Are Often Seen As “Controversial”… Increased pressure by governments and communities for a larger share of profits Social benefits often underestimated Environmental degradation often more feared than real Unrelenting civil society attention Amplified brand and reputational risk Industry context …and yet no sector is more important to development than ours…

Sustainable Approach to Extractive Industry Projects: A Business Imperative EI companies are guests in remote, impoverished areas, often for years Increased NGO activism and reputational risk A “Social License to Operate” does affect the bottom-line A condition of finance/investment – Equator Principles, World Bank Standards To ensure long-term success, mining operations must be strategic, transparent & equipped with qualified human resources Government (local, provincial, national) Investors Community Non- governmental organizations Local business EI Company Uninterrupted operations Effective local stakeholder management happens by design

Community Investment Labor, employment Suppliers, local infrastructure, spin off businesses Royalties, Revenues and Taxes to Government Extractive Industry Yields Benefits to Communities Amounted invested depends on the project

Evolution of how to acquire a social license to operate Cash Contributions “Handouts” Ad hoc philanthropy programs No results measurement Examples: Building Schools, Clinics Strategic community investment Conduct social baseline study Participative methodology (consultation) Identify metrics for monitoring results Communicate development results to stakeholders Environmental Mitigation “Do No Harm” Unilateral decisions New International Best Practice Old Approach Thinking About Development

What Companies say about Community Investment (CI) Challenges We spend lots of money on CI but relations with communities don’t improve (and sometimes even deteriorate)… Our CI program itself becomes a source of conflict Local stakeholders become dependent on us Infrastructure projects we build lie abandoned and unused In the end, we have little to show for all the resources spent Endless requests from communities – difficult to say “no” We get pulled in a hundred different directions We end up having to take over the government’s role Our CI program has little to do with our core business

7 What Causes these Problems? Limited understanding of often complex local context Ad hoc approach – reactive to community requests Notion of “giving” rather than “investing” (grants & donations) No exit strategy Focus on bricks & mortar /short-term projects CI isolated from operational side of business Lack of participation & ownership of local stakeholders Failure to measure impact (no baseline /focus on outputs ) Lack of transparency and clear criteria Lack of alignment with business objectives/core competencies

What is IFC CommDev? $12 million fund focused on helping communities receive sustainable benefits from Extractive Industry (EI) projects; Offers capacity building, technical assistance, tool development and information sharing through on-line Clearinghouse Supports IFC/World Bank clients who want to collaborate to go above and beyond IFC Performance Strandards; Global, but emphasizes Africa (60 – 70%)

Project Funding Knowledge Support Monitoring & Evaluation Capacity Building Partnerships CommDev: Enhancing the local benefits of extractive industry projects $12 million fund - Norway PGI and IFC 17 community development projects valued at over $3.8 m. External funds leveraged: $9.86 m. Toolkits – risk mitigation, participatory processes… CommDev.org Support to companies to improve their M&E. Financial valuation of sustainability Indicators Tri-partite approach: Forge network of companies, civil society, local government practitioners and donors. Clients Multi- stakeholder Local civil society

10 IFC CommDev – Helping Companies Move Towards a Best Practice Model for Community Investment... Strategic in nature Participatory in Approach Sustainable in Design Systematic in its tracking Yields measurable returns to both Company and communities

11 Spotlight: Lonmin Increased number of local suppliers and the value of Lonmin’s local procurement contracts - 30 local suppliers received 165 contracts worth US$43.3m. Generated a 42% jump in Lonmin’s female workforce through the Women in Mining program. Developed project planning process for Lonmin’s key stakeholders, resulting in +20 projects worth over US$12.1m addressing issues such as education, potable water, and agriculture.

12 Among the Results DRC – Artisanal Mining Developed roadmap detailing specific recommendations for key stakeholders to take an integrated approach for cooperation and development. Peru and Colombia – Revenue Management and Social Accountability 68 institutions were trained to track extractive industry royalty flows to local governments and ensure responsiveness and accountability. Through direct technical assistance and through its on-line platform, IFC has built capacity in over 840 municipalities to improve the investment of royalties Guatemala – Participatory Monitoring Helped establish a community-based mechanism for monitoring the environmental impact of the Marlin mine

CommDev.org Over 2,000 resources available A “go to” resource for information and knowledge on community development around extractive industries, Tripled user base to over 900 visitors every day in January Over 50% of users come from developing countries.

14 CommDev Tool: Financial Valuation of Sustainability Methodology, enhanced by Monte Carlo simulations Shows how results change as key assumptions change Process brings together multiple functional lines in companies Help companies make strategic decisions about WHICH sustainability investments to make WHEN Value Creation (productivity increases) Project specific issue mapping to identify high and low risk issues. Cost-benefit analysis Estimation of value generated by specific sustainability investments Value Protection (mitigating delays) Aggregate estimates of the extent to which sustainability investments mitigate project- specific risks.

15 Capacity Building: Ghana Workshop Multistakeholder training to maximize the benefits that extractive industry projects can bring to local people. Setting clear objectives and a clear exit strategy Making the business case – cost-benefit rationale Stakeholder analysis Engagement with communities and local government Participatory processes Capacity building plan Quantitative and qualitative indicators/strong M&E framework Communications strategy

IFC ComDev Contact Information Thank you! Dafna Tapiero Manager, CommDev Oil, Gas, Mining and Chemicals Department Phone:1 (202) Fax:1 (202)