Wednesday November 5 2014
Until society reaches consensus on how to reduce dependency on fossil fuels and transitions the global economy to new energy technologies, the extractives sector remains a powerful economic driver, representing an estimated five percent of global gross domestic product. Yet the sector is losing billions to community strife. Oil and gas and mining companies operate in some of the most underdeveloped regions on earth; their communities face significant challenges in health, education, economic development, and basic infrastructure. And according to the International Council on Mining and Metals, reported conflicts between companies and communities have increased more than eight times since 2002.
However, new research provides a pathway for the extractives sector to deliver positive social outcomes by tying business success to the prosperity of host communities and countries. “Few sectors have a more urgent need to recast a short-term community risk mindset into a shared value model,” asserts Harvard Business School Professor Michael E. Porter in the foreword to Extracting with Purpose. Shared value—defined as policies and activities that measurably improve socio-economic outcomes and improve related core business performance—establishes a framework for identifying opportunities to address societal issues and deliver real business value. This approach moves the extractives sector out of a short-term risk management approach towards a long-term community engagement strategy.
The study includes an in-depth review of existing upstream activities related to extraction and offers a new approach for these companies to engage with communities. The research identifies several ways to create shared value in the sector. Building local markets for byproducts created by extractive activity, improving local workforce capabilities, and developing local operating environments supporting the extractives sectors are just a few of the ways innovative companies use the shared value framework.
For shared value to thrive, companies must remove internal barriers, measure the full costs and benefits of shared value strategies, embrace collaboration, and align with government. The research details how other stakeholders such as NGOs, local and national government, sector and industry associations, investors, and host communities can contribute. Actual examples from a range of operators—Anglo American, BHP Billiton, Chevron, Rio Tinto, Pacific Rubiales, Suncor, and more—illustrate a menu of opportunity for the sector and its key players.
Access the full report, executive summary, and accompanying resources at sharedvalue.org/extractives.
