Extractive industry projects may not be created to victimize women, but violence against women has become a major by-product of these project operations. Rampant exploitation of women happens when thousands of mostly male workers are housed in makeshift “man camps” located at the sites of company operations.
For example, North Dakota’s Bakken oil field has boomed: Over the past five years, it has increased daily oil production from 200,000 barrels to 1.1 million barrels, becoming the second largest oil-producing state in the country. Thousands of highly paid workers have flocked to the region. Within two years, the combined influx of cash and oil workers has tripled the rate of murders, aggravated assaults and robberies. Sex crimes, rape, prostitution and human trafficking have increased by 20.2 percent. Business Insider summarized the region thusly: “[L]aw enforcement says Bakken is a made-to-order market for sex.”
Violence against women is widespread across extractive industry site operations. It is social pollution as toxic as any chemical released into the environment. Yet in the socially responsible investing (SRI) community, of the three principal criteria — environment, social and governance — metrics are proceeding the slowest in terms of measuring impact, corporate accountability and investor risk. Currently, the Securities and Exchange Commission does not require corporate securities reporting on community relations or human rights due to their perceived lack of material relevance. However, just last year, EY (formerly Ernst and Young) elevated the “social license to operate” to the third place on its list of the greatest business risks to the mining industry.
John Ruggie, author of the U.N. Guiding Principles on Business and Human Rights (the Guiding Principles), told Business Ethics that “for a world-class mining operation … there’s a cost somewhere between $20 million to $30 million a week for operational disruptions by communities” and that the time it takes to bring oil and gas projects online has “doubled over the course of the past ten years, creating substantial cost inflation”. Additionally, “analysis by Environmental Resources Management of delays associated with a sample of 190 of the world’s largest oil and gas projects (as ranked by Goldman Sachs) found that 73 percent of project delays were due to “above-ground” or non-technical risk, including stakeholder resistance.”
The problem is that current efforts to engage the private sector on human rights are largely driven by the Guiding Principles, which offer a rigidly “top down” framework that does not account for local dynamics such as the cumulative impacts of multiple companies operating in close proximity to a community, or the spikes in violence against women. Furthermore, the Guiding Principles mention women, along with indigenous peoples, only in passing, thereby largely excluding them from the corporate social responsibility conversation. The resulting lack of guidance and metrics enables companies to disclose minimal information about their social impacts—especially on vulnerable groups — which limits investors’ ability to measure social risks and keeps nefarious social costs invisible and running rampant.
Published in November 2014, First Peoples Worldwide’s Indigenous Rights Risk Report (IR3) offers a case study for measuring one of the most pressing social risks to the extractive industries — indigenous peoples’ rights — from the bottom up.
Designed over a two-year process with input from indigenous leaders and activists, financial analysts, and industry experts, IR3 assessed 52 U.S. oil, gas and mining companies to identify where their projects overlap with or impact indigenous peoples, and rated each project’s risk exposure for failing to obtain free, prior, and informed consent (FPIC). FPIC is recognized in the U.N. Declaration on the Rights of Indigenous Peoples as indigenous peoples’ right to give or withhold support to corporate activities that affect them. Eighty-nine percent of the 330 projects assessed had medium- to high-risk exposure (a searchable database of the scorecards is available on First Peoples’ website). By assigning quantitative risk scores at the project level using a methodology designed to capture the complex undercurrents within both communities and companies, IR3 provides a framework — and three key lessons — for designing social metrics that can be applied beyond just indigenous peoples.
The first lesson is that the results of preliminary back testing indicate a possible correlation between the companies’ average project risk scores and their market growth between 2010 and 2014. Companies with lower average project risk scores outperformed companies with higher average project risk scores by 4.21 percent. There are some caveats to this figure resulting from our small sample size, but it’s an important step in demonstrating the connection between corporate social and financial performance.
The second lesson is that most companies operate with no governance structure whatsoever for addressing social risks. One of IR3’s risk indicators is risk management, which rates a company’s capacity to identify, manage and mitigate social risks at the board level. Forty-eight of the 52 companies have virtually nothing in this regard. They have no board committees with community relations or human rights in their mandate, or board members with community relations or human rights expertise. Without the governance structure or company capacity to identify, manage, and mitigate social risks, investors are left with a Management by Headlines approach, and virtually all communities that host or are proximate to extractive projects are in danger—as we’ve seen in case after case of violence against women.
Reports of Native American women and girls being trafficked to the Bakken has put the Fort Berthold Reservation on high alert, but how are the companies operating in the region responding? They’re not. Companies including Apache, ConocoPhillips, ExxonMobil, Hess and others have taken zero responsibility for their workers’ collusion in the growing sex trade, increased drug violence, and general crime wave in Fort Berthold, North Dakota, over the past two years — let alone the rest of the region.
While some companies in the region are making efforts to reduce flaring and improve transparency, no substantive dialogue is taking place about social impacts. This trend of neglecting social risks has permeated corporate interactions with communities across the globe.
By Rebecca Adamson
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