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April 2017

Social Performance: Can we get it right?GasTech Japan

We have created a paradoxPeople want investment in their communities. However, there is uncertainty around long-term environmental and social effects

Investment VS Environmental &Social Concerns

Uncertainty can stop a project in its tracks

LNG in Canada Aboriginal Rights are collective rights which stem from Aboriginal peoples’ continued use and occupation of the land.Rights have been practiced since before European contact, and in general include: • Rights to the land• Rights to subsistence resources and activities • Right to self-determination and self-government• Right to practice one’s own culture and customs

including language and religion

Approx.

4.6mPeople in BC, Canada

Approx.

200kFirst Nations people

The changing meaning of success

How did we get here?• Historically successful projects were those

with an economic benefit to corporations• Corporations have struggled to balance

economic pressures with the strengthening pushback from communities Re-defining

the definition of success

Success =mutual symbiosis between project and community

Communities are demanding more than the promise of short-term

jobs

Companies link societal outcomes to business success

What is social performance?

Definitions

A good measure of social performance allows companies to step above their competition.

Leading to a Social Licence - an ongoing approval from the local community and stakeholders; an acceptance.

Corporate Social

Responsibility

Social Performance

Refers to actions and activities that improve

or protect communities at a local or global

scale

Refers to a company’s strategy, programs and investments in responsibility and is measured through stakeholder’s assessment

Common Themes of Poor Social Performance

Competition for resources and prevention of traditional lifeways

Consent and Land Access

Distribution of benefits

Breakdown in the communication and consultation process

Environmental and community health and safety

A study of the Top 190 oil and gas projects around the world revealed there was an average delay of 12 months for non-producing fields.

Source: From Shell presentation “Managing Non-Technical Risk at the Project Level” at Social and Environmental Risk Management Conference, 2011; adapted from Goldman Sachs Investment Research “The Top 190 Projects to Change the World”, 2008.

Non-technical(e.g. political or stakeholder related)

Commercial(e.g. cost or contract related)

Technical

Reporting frequency by Type of Delay (%)

Type

of D

elay

Rep

orte

d

73% of sample Top 190

63% of sample Top 190

21% of sample Top 190

Reacting to Risk

ProjectDevelopment

Approvals Driven Process Possible Pitfalls

Commission

MonitoringConstruction

Detailed Design

Pre-FEED/ FEED

Concept

Management Plans

Impact Assessment

Scoping and Baseline Studies

Approval Rejected

Major Change

Market Shift

Community

Conflict

Community tension and conflict can be costly…

Types of Cost

Types of cost that that may be experienced by extractive companies as a result of conflict with local communities (Davis & Frank, 2014)

Project Modification

Risk Management

Personnel

Reputation

RedressMaterial Damage

Lost Productivity

Capital

Security

Type of Costs

Source: www.csrm.uq.edu.au/conflict-costs

The cost of conflict in the extractive sector can result in up to…

$10,000/dayduring initial exploration

$50,000 / dayduring advanced exploration

$20m/weekduring operations

Getting it right

All the components of an ESIA have the opportunity for interaction with communities

It’s not just a tick in the box

Are Formal Processes Enough?

Formal Processes• Environmental Impact

Assessment • Permitting Process

Building Relationships• Deep communication• Mutual respect• Long-lasting trust• Understanding priorities• Incorporating in project development• Sustain through project delivery and

operation

Shared Value

Shared ValueCreating economic value in a way that ALSO creates value for society.Communities are more likely to support projects if there is a solid base of trust.

Shared ValueShared Value is defined as policies and activities that measurably improve socio-economic outcomes and improve related core business performance (Kramer and Porter, Harvard Business Review 2011).

OLD VIEW EMERGING VIEWBusiness makes profits

Supports employment

Provides wages / income

Taxes / royalties

Enhance business competitiveness

Simultaneously advance socio-economic conditions

Establish enablers for the project that will last

Shared Value

Reference:: FSG Shared Value Initiative: Extracting with Purpose

Redefine Productivity in Value Chain

→ Improve workforce capabilities

→ Strengthen suppliers in the value chain

→ Increase local disaster & emergency preparedness, response/ rehab capabilities

→ Improve utilization of water & energy used in operations

→ Build local markets for intermediate products created by extractive activity (e.g. drinking or irrigation water, electricity)

Reconceive Products and Markets

Create Enabling Local Environment

→ Develop a local cluster to support project

→ Invest in shared infrastructure and logistics networks

→ Partner with other local clusters & government in community infrastructure

→ Play an active role in economic and community development

→ Improve local & national governance capacity

Why isn’t this Business as Usual?

Inadequate Organizational Structures and Behaviors:• Organizational designs prevent the

identification of shared value opportunities.

Incomplete Measurement of Cost and Benefit:

• Companies cannot accurately measure shared value opportunities.

Low Motivation for Collaboration:

• Collaboration often is seen as a hindrance and at odds with reputational objectives.

Lack of Alignment with Government:• Companies can strengthen their own

ability to create shared value by helping to build local, regional, and national capacity for effective governance.

Challenges

Shared Value Initiative demonstrates that four interrelated and entrenched challenges inhibit creation of shared value

Resilient Community

Avoidance or mitigation through design

Commission

MonitoringConstruction

Detailed Design

Pre-FEED/FEED

Concept

Management Plans

Impact Assessment

Scoping and Baseline Studies

Map local specialists/ capacity building

Early identification of societal needs

Reconceive products

Local workforce ready

The future – not too distant

ProjectDevelopment Value Creation

Approvals Driven Process

It often all starts with a handshake and a willingness to put yourself in someone else’s shoes

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FOR MORE INFORMATION CONTACT

Mary Lou Lauria | Vice President, Environment, Society & Geosciences – Americas

E marylou.lauria@advisian.com