The direct cost of community conflict in the extractives industry is high, according to a 2014 report by the Corporate Social Responsibility Initiative (CSRI) at Harvard Kennedy School

One conflict led to stoppages that cost a project $100m in a single year. In another case, a conflict that shut down power lines caused an entire operation to halt at a cost of $750,000 a day.

In the case of initial mineral exploration (early reconnaissance work), interviewees estimated that $10,000 is lost for every day of delay – through lost wages and the costs of maintaining an exploration camp. For advanced exploration, involving drilling and delineation of ore-bearing rocks, up to $50,000 a day can be lost if programmes are placed on standby.

For one company, the working assumption is that 5% of an asset manager’s time should be spent managing social risk. Yet for one of its subsidiaries in an African country, it is in fact 10% to 15%, and in one Asia-Pacific country, it is 35% to 50%. Company staff successfully used these figures to make the case to management for upfront social risk planning in a new operation the company was developing in the Middle East and North Africa region.

A former senior manager of one extractives operation estimated he spent only a third of his time “actually doing my job”, with the rest spent managing internal staff and external community issues
arising from conflict.

Source: Harvard Kennedy School

This management briefing was published as part of knowledge exchange for upcoming Responsible Extractives Summit North America, where the likes of Shell, Conoco Phillips, Rio Tinto and Vale Global will be discussing how to collaborate and innovate to support sustainable business growth. Find out more here.

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