CSIS: Maximizing Partnerships Between Indigenous Communities and the Extractive Sector

The Center for Strategic and International Studies (CSIS) partnered with BHP Billiton to discuss how to maximize partnerships between indigenous communities and the extractive sector at a public session on June 17. Moderated by Daniel Runde, CSIS Schreyer Chair and Director for the Project on Prosperity and Development, the panel included:

P. Gladu, President, Canadian Council for Aboriginal Business (CCAB)
James Ensor, Group Senior Manager, Social Policy, BHP Billiton
Sam Woods, Business Development and Government Affairs Manager, Navajo Transitional Energy Company (NTEC)
Emmanuel Boulet, Principal Environmental Specialist, Environmental and Social Safeguards Division, Inter-American Development Bank (IADB)

Canadian Aboriginal Relations
Gladu began the discussion by describing the Canadian government’s role in working with indigenous peoples. The federal government primarily manages liabilities, which has allotted a significant amount of political and legal clout to aboriginal communities. The government, however, is not forward-thinking when it comes to resource development, Gladu said, which is where corporate Canada saw the value in developing long-term, viable relationships with indigenous peoples.

Gladu said when indigenous peoples first engaged with the extractive sector, they were only interested in jobs. But as they became more business savvy, they became a part of the supply chain, and are now pursuing partnerships or took over as the primary producers for many extractive companies.
The main challenge is getting on the ground and building relationships with the indigenous communities, Gladu said. He recommended industries go into the communities without agendas and simply embrace the communities and their cultures, listening to their needs, aspirations, and leadership’s goals.
Industries need to recognize indigenous tribal governance and the community leaders who can act as company ambassadors, Gladu said. This means including indigenous peoples as frontline staff, managers, executives, and as board members.

Gladu lamented that the board structure in Canada tends to be “pale, male, stale,” but indigenous peoples need to be invited into the highest board levels if companies want to demonstrate they are serious about building relationships.

Runde suggested the U.S. can learn a lot from Canada and Australia. Gladu responded that the Canadian government has invested in entrepreneurs and supported business aspirations of indigenous peoples nationwide, noting 37,000 aboriginally-owned businesses in the nation. But this federal progress has started to evaporate, he said. Meanwhile, at the provincial level, investments have increased, resulting in a higher tax base and economic improvement.

Gladu later said corporations have a choice in dealing with people “as a carrot or as a stick,” and he prefers the carrot. Given indigenous peoples’ political and legal clout, corporate Canada must involve aboriginal communities in the project dialogue, or else their exclusion will only lead to project delays and higher costs, as well as missed opportunities for all parties.

Gladu also highlighted Canada’s use of the Progressive Aboriginal Relations (PAR) strategy to help companies think strategically and align their relationships with indigenous peoples. PAR improves companies’ relationships with employment, investment, and procurement, and is an effective precursor to Free, Prior & Informed Consent (FPIC).

Global Infrastructure Development

Ensor discussed the growth of global infrastructure development as a result of urbanization, which ultimately demands more mining, and how companies like BHP Billiton can successfully obtain social licenses to operate.

The natural resources sector is very different from fast-moving consumer goods market, Ensor said. If consumer goods companies have bad relations with indigenous communities or the government, they can subcontract with other companies or move to other countries and continue with business as usual.

But investments in mining operations require billions of dollars and direct company presence in areas for 80-120 years. Long periods of time may be required for companies and indigenous communities to develop well-established and trusting relationships. How a company exercises citizenship is crucial, but this isn’t the only stone in the foundation; opportunities must be found to impact communities beneficially for multiple generations.

Ensor said a strong Corporate Social Responsibility (CSR) policy is a way to foster intergenerational relationships between indigenous communities and extractive companies. Acknowledging the historical traumas of marginalization and societal exclusion among indigenous peoples in a company’s CSR policy should be a priority, he added.

Ensor talked about BHP Billiton’s integration of indigenous needs into its CSR models, which benefits the company in three areas: economic empowerment, intergenerational trust, and equity.

Economic empowerment involves revenue sharing, project equity, intergenerational annuities, and other methods that require businesses to procure goods and services from aboriginally-owned businesses.

Intergenerational trust is an ongoing and evolutionary relationship. As an example, Ensor cited the Navajo Nation’s transition—because of equity and intergenerational trusts—from operator to employer at the Navajo Transitional Energy Company.

Regarding social development needs, Ensor said extractive companies can assist indigenous peoples through one percent pre-tax profit investments in the communities, such as funding Science, Technology, Engineering and Math (STEM) programs for students.

Ensor referenced BHP Billiton’s mandatory cross-cultural training program for all employees. The program is scaled according to an employee’s previous exposure to a community, and how the company can work with the community to meet each employee’s particular goals. The goal is to be a partner of choice with indigenous peoples, he said.

The Navajo Transitional Energy Company

Woods said his business, Navajo Transitional Energy Company (NTEC), LLC, was started primarily to protect the Navajo economic interests, not just supply and produce coal. The Navajo people engage in mining in order to serve their communities, provide education, implement self-determination, and develop responsible energy resources.

“Coal is king” in the Navajo Nation, comprising one-third of its revenue, and the rest comes from the federal government. Today NTEC manages a Navajo coal mine that supports 340 full-time jobs with over 80 percent Navajo employment. NTEC supplies coal-generated energy to 500,000 households, and the Four Corners Power Plant produces $2.45 billion in gross domestic product for the Navajo Nation.

Woods emphasized that community engagement is made possible through the Navajo Nation’s ownership of the mine. Woods said his company exemplifies the word “transitional” that’s in its name; more often than not, people resist transition and don’t allow for change. But in looking to the future, he said being “transitional” means being resilient.

The Inter-American Development Bank (IADB)
Boulet said France’s national extractive efforts include financing projects in 60 countries, with the majority in the Pan-Caribbean region. The Inter-American Development Bank’s (IADB) loans to governments and the private sector fund projects in areas such as education, solar energy, mining, and roads.
The extractive sector matters to IADB primarily because it has been the bank’s largest sector over the past decade, Boulet said. By recognizing the different perspectives on land ownerships and cultivation around the world, and incorporating this aspect into its consultation, IADB can help indigenous peoples benefit from development in their lands. Also important is achieving social acceptance and establishing long-term relationships before projects begin.

Boulet said IADB uses an “offshore inland” model for developing resources, which emphasizes minimal impacts and treats the fragile, roadless forests of South America as if they were offshore ecosystems. Limiting the mining exploration footprint is key to social acceptance among indigenous peoples, while ongoing consultation builds trust and empowerment.

Empowering indigenous peoples through the authority to monitor and oversee extractive projects helps them gain trust in the company, Boulet said. He warned that top-down management is not effective.

Audience Comments and Response from Panelists

In recognition of her expertise, Runde called upon Rebecca Adamson of First Peoples Worldwide to provide her insight on this subject. Adamson described her Nontechnical Risk Advisor role for a number of organizations, one-third of whom were working with indigenous communities that had not worked with the extractive industry before.
Adamson recommended a corporate-wide Indigenous Peoples Policy for genuine engagement to assess the management and mitigation of social risk. She also suggested that instead of thinking about the lack of capacity in a community, try to determine where specifically the corporate capacity can be used. Most companies operate with sub-optimal data to manage and mitigate social risk.

As an example, a corporate report of a company operating in Greenland lacked any community engagement with the Inuit people, and failed to employ a Social Environmental Impact Assessment to evaluate risks and benefits to the Inuit community. As a result, Greenland as a whole became more adverse to industry, rejected development, and elected anti-development candidates to parliament. The company was no longer able to continue its operations.

Adamson said this is one example of many that show how companies that mitigate social risk can achieve higher economic performance. Companies that address the risk have higher returns on their investments, which include quality metrics and high capacity for community engagement.

In response, Gladu agreed that if a company fails to build relationships, there can be significant impacts. Companies in Canada that have integrated the PAR strategy have had positive outcomes.
Suncor, for example, became PAR-certified, which made headlines in Financial Times, indicating that a company’s products can be at risk if it isn’t building quality relationships with indigenous peoples. The bottom line, Gladu said, is community engagement with indigenous peoples adds value to products. Not only the big companies should be required to take responsibility, all levels of the supply chain need to be incentivized for local indigenous hire.
Ensor said he only partially agreed with Adamson. Risk mitigation is necessary, but it’s not enough. While compiling data and observations on communities is important, nothing substitutes for local hire in building relationships with cross-cultural communication. It helps recognize the possible benefits the extractive industry can bring to indigenous peoples, enables indigenous culture to exist within a corporate entity, and embeds cultural norms in the workforce.

Ensor said being fully empathetic toward indigenous peoples is critical.

Woods agreed with Ensor, and noted that the Navajo Nation is still a developing nation. While the community is engaged in all areas from business management to regulations and compliance, the company also recognizes that the nation must work and communicate directly with other corporations in order to understand the best way to operate its businesses. In this way, NTEC works from the grassroots to gain the social license to operate.
Veronika Kohler of the National Mining Association said she was glad IADB was part of this conversation as an investor.
Tom Outlaw, external relations director for the Ambatovy mine project in Madagascar and previously with the U.S. Agency for International Development (USAID), said his role was to “redefine” the company for the local community, winning many awards for corporate sustainability in the country.

At the same time, Outlaw said the company had a coal mine in Alberta, Canada, that breached its safety procedures and dumped a “cocktail of death” into the province’s watersheds. This controversial incident impacted the French ambassador’s involvement in Madagascar and underlined the need for consistent principles set at the corporate suite level, as Adamson discussed.
Andrew Mack at AM Global Consulting said a company he represented in Africa “didn’t put much effort” into hiring locals, and thinks there is too much pressure to hire people in the region. He asked what lessons the panel could give his organization, recognizing that local hire is important to effective community engagement.

Ensor said extractive companies can be the largest employers (sometimes the only employers), and the largest taxpayers, and can have major influence through local indigenous hire. The supply chain has a significant reach, and companies should conceptualize their roles as economic actors, not just as employers. Companies can then position themselves to work with governments, civil society, local communities, and other reliable resources.

Woods responded that sometimes it may not make sense to only employ people from the indigenous community. But with the Navajo Nation, the region had 52 percent unemployment among 300,000 people. So from his company’s perspective, hiring as many Navajo as they could made sense. He said local hire boosts individual productivity, which is good for the company and the community, and makes a direct return in investment to taxpayers and local governments.

Woods said the Navajo Nation has abundant resources with 42.2 billion tons of coal, and NTEC is exploring how to use more resources to create other revenue-generating business that employ locals, such as in the oil and gas, engineering and construction industries. This would maximize relationships with companies like BHP Billiton to build resources to benefit people and communities.

Gladu had the final word, saying indigenous peoples should be built into the whole process. If they are involved in risk mitigation, the companies have their validators to help address environmental impacts and ensure suppliers have procurement strategies with indigenous business services.

He said the U.S. has strong government procurement policies, while those in Canada are not as strong. If countries have strong procurement policies in place, companies are more likely to invest there.