Building Better Partnerships: Lessons from Extractives
“If you want to go fast, go alone. If you want to go far, go together.” -South African proverb
Oil, gas and mining exploitations have a large impact on economic, social and environmental conditions of people around the world. Where there is extraction, one often finds high capital investments in very remote locations, not reflected in neighboring communities that remain under the poverty line.
Resource rich countries don’t usually rank well in human development indexes, and there are only a few examples of nations that have accomplished social and economic development around their natural resources in an inclusive way. This is something the extractives industries are trying to change. A research project conducted by FSG in 10 countries around the globe, through an extensive review of industry reports and over 170 interviews with experts, showed that companies are not comfortable with the status quo and are making efforts to better engage the communities. Businesses, NGOs and multilateral organizations have made very interesting progress in working together to address this, unfortunately, the pace at which this has been happening is far from ideal.
During the breakout session "Shared Value Partnerships: Lessons from the Extractives Industries for Other Sectors" at the recent Shared Value Leadership Summit, representatives of leading companies, NGOs and multilateral organizations convened to discuss the value, challenges and lessons learned from their experiences tackling social and environmental issues in the extractives industries. It was clear that collaboration among key players through shared value partnerships is essential for generating positive outcomes in the triple bottom line and crucial for the sustainability of businesses in the sector. The discussions were centered on B2B partnerships, partnerships between businesses, NGOs and multilateral organizations, and lessons learned in the implementation of each. Further details are discussed in the following sections.
B2B partnerships that respond to new motivations are expected to create transformations. In a historically competitive environment, companies are now collaborating more and more, understanding that collective action allows them to be stronger and more effective. They are now being more transparent about their problems, allowing for outsiders to come up with innovative solutions. CEOs are collaborating on environmental performance and workforce safety, these being key issues in the industry.
Furthermore, company leaders are building partnerships for improving the welfare of industry communities and want to reach across the table to work on advocacy. There’s a definite shift in business, where companies that usually fear peer-to-peer competition are now working together to be sustainable.
Partnerships between Businesses and NGOs
It is no secret that companies are not experts on working with communities and meeting their needs effectively. NGOs, on the other hand, have a mandate to do so and have a vast experience in the area. The advantages of a partnership between these two actors are therefore evident and it is clear that their common objectives and interdependence can lead to very promising collaborations.
In order to choose the right NGO to work with, companies should search for a solid track record of solution oriented organizations. The chosen partner also has to be able to stand by the company and the community and still be trusted by both sides.
Companies should, nonetheless, face community relations directly and build this capacity within. Working with NGOs does not mean that businesses should now outsource this fundamental responsibility. Companies should leverage community relations competencies from their social investment team and implement them in their business practices.
Partnerships between Businesses and Multilateral Organizations
By reviewing their equity portfolios, multilateral organizations have realized that, in terms of investment, ESG (Environmental, Social, and Governance) leaders outperform. This is why working with business leaders in CSR, sustainability, and Creating Shared Value is very interesting for these institutions.
On the other hand, businesses get several benefits from partnering with multilaterals. Working with development experts gives companies credibility and an independent evaluator of its community engagement activities. Multilaterals also give financial assistance, as well as standards and tools that enable companies to become more transparent and gain more supporters.
Nevertheless, there are bureaucratic and administrative challenges in these partnerships that should not be disregarded. Reporting is also an issue, the more information a company discloses, the more expectations it creates for its stakeholders creating additional requirements.
We would all agree that building partnerships in the extractives industries is a hard task. The participants of the breakout session were able to define three main reasons why these partnerships are challenging: corporate culture, forced partners, and insufficient capacity.
The extractives industries are populated by engineers and accountants who are people with highly structured professions. It is an industry of high capital investments with long lead times, where the focus lies on controlling and mitigating risks. Unfortunately, a controlling mindset is not compatible with partnership building.
Extractive projects tend to be hugely significant in terms of regional or country GDP. Because of this, structurally, the partners to choose from are frequently restricted to governments. Under these conditions, where partners don’t choose each other and there is no equitable participation in the decision making process, unfavorable dynamics tend to appear. Companies control the money, the technical information, and the majority of votes in the board. Therefore, because of these structural non-symmetrical conditions, governments use non-traditional ways to exert influence.
There are evident capacity issues as well, that make partnerships a difficult endeavor in the extractives industries. There is a clear skill set needed to promote the best conditions for collaboration, mostly related to relationship management. Unfortunately governments, NGOs, and companies are frequently limited in this respect.
Finally, taking these factors into account, there are seven recommendations that could be useful in order to establish effective partnerships:
Editor's Note: These reflections are based on the breakout workshop session "Shared Value Partnerships: Lessons from the Extractives Industries for Other Sectors" at the recent Shared Value Leadership Summit. The presentation slides from this session are available on sharedvalue.org.