Explain the context, concept, lessons and recommendations from the Norsk Hydro's Utkal Venture case study with examples from other mining companies.
Explain the context, concept, lessons and recommendations from the Norsk Hydro’s Utkal Venture case study with examples from other mining companies.
This report defines mining related conflicts between mining companies and local communities using corporate social responsibilities and Ethical models using examples from Norsk Hydro Utkal Venture in India and other benchmark companies.
The report begins by explaining corporate social responsibility. The report then describes mining industry overview and globalization drivers of mining industry. The report then describes some ethics and corporate social responsibility pro-organization & mining impact on external environment.
The reports then analyze mining industry by using different models of corporate social responsibility and Ethics. The report then conclude that there is much learning to be done by mining companies, and that they should acknowledge and confront their CSR challenges in an honest and transparent manner
Finally the report then tells how mining industry can develop a best practice model by using Harvard model, Stakeholder analysis and offer some actionable recommendations.
TABLE OF CONTENTS
INTRODUCTION & CONTEXT
Mining related conflicts have become a permanent feature in many developing countries, where conflicts between mining companies and local community leads to violence, cultural issues, green issues, human rights issues, ethical issues and above all the violation of corporate social responsibility. In recent years mining companies have come under tremendous pressure from different organization in developing a global corporate social responsibility as part of their global business strategy.
This report addresses by investigating corporate social responsibility policies in Norsk Hydro Utkal Aluminium international project in Orissa, India, followed by ethical analysis, cultural analysis. Norsk Hydro is a Fortune 500 energy and aluminum supplier & leading offshore producer of oil and gas; and a pioneer in renewable energy and energy-efficient solutions. The company is headquartered in Oslo, Norway and employs about 43,000 people & operates in 40 countries.
Corporate social responsibility (CSR) is the detailed issues on which an organization exceeds the minimum required obligations to stakeholders. However some critics of corporate social responsibility argue that the organization main purpose is to maximize the return to shareholders whilst obeying the laws of the countries within which it operates. While some critics argue that the only reason organization start a project is utilitarian that they see commercial benefit in order improve their reputation with the public or the government.
The evolving CSR agenda for mining companies is driven by a global shift in the way the role of business is perceived. In the context of globalization and the challenges of sustainable development for mining companies in the developing countries, business is increasingly seen as a crucial element in the process of social transformation, for the benefit of society in general, as well as business itself. Globalization for mining companies have contributed towards improved social development, through providing jobs, paying taxes, building an industrial base, enhancing efficiency, earning foreign exchange and transferring technology, but they have also been linked publicly to interference in sovereign affairs, deepening disparities in wealth, poor labour conditions, corruption, transfer pricing, pollution incidents, health and safety failings, and the disrespect of human rights. It is equally true the many developing countries are desperate needs of development and wealth creation that mining brings.
PESTLE analysis in the mining context send not only to offer the means of understanding the risk associated with mining companies but also the socio-cultural changes resulting from its development. The key factors of change from PESTLE analysis for the mining companies are the globalization of economies which create an impact on all the PESTLE factors from creation of wealth for developing countries such as providing jobs, building industrial base to disrespect of human rights, affecting environment etc.
The mining industry has been transformed from a small industry into a group of multinational corporations (MNC’s) managing massive operations in increasingly remote areas of the developing world. The growing scale and intensity of modern mining operations have greatly impacted the local communities which are often rural, indigenous and poor and are particularly vulnerable to the environmental and social impacts unique to large-scale mining.
GLOBALIZATION DRIVERS OF MINING INDUSTRY:-
The metals mining industry is characterized by high risk and capital intensiveness. As purveyors of commodities whose prices are set by the world market, mining companies compete on the basis of cost, seeking to minimize the expenses while investing heavily in exploration to secure access to new resources at a rate that outpaces depletion of current reserves.
The drivers for mining companies’ global expansion are both internal and external factors. At the industry level, improvements in ore extraction and processing technologies and efficient inventory management systems have dramatically cut the costs, rendering once uneconomic mine sites both feasible and profitable. The second major driver of expansion has been the liberalization of investment regimes and the privatization of state-owned mining industries in developing countries. Finally, demand cycles for raw metals which have pushed prices to notable peaks have given rise to a new segment of entrepreneurial mining juniors focused on exploration. These small to medium-sized firms specialize in obtaining recovery rights to unexploited mineral reserves in far-flung regions of the world, and typically sell these rights to larger, extraction-focused mining MNC.
MINING IMPACT ON EXTERNAL ENVIRONMENT:-
The wide range of mining techniques and production processes can lead to broad array of environmental impacts and number of conflicts between the mining industry and the host communities. The after affects of few mining industry are as follows:
- Alaska: Red Dog, the world largest zinc mine releasing 196,000 metric ton of toxic pollutant per year.
- Romania: Bal Mare, In 2000 the tailings dam from this gold mine spilled 100,000 metric tons of toxic waste water, killing fish and poisoning water of 2.5 million people.
The impacts of mining of Norsk Hydro Utkal Aluminium international project in Orissa, India are illustrated in the PESTLE analysis. The biggest challenges faced by Norsk Hydro were corporate social responsibility, ethical issues such as Loss of land or livelihood, Environmental degradation, Human rights violations, Health & Safety, Cultural issues etc.
CORPORATE SOCIAL RESPONSIBILITY AND STAKEHOLDERS:-
Caroll’s three dimensional model of Corporate Social Responsibility illustrates the relationship among the social issues involved, the categories of social responsibilities and the four level of the philosophy of reaction, or responsiveness: reaction, defense, accommodation and proaction. Carolls model shows that the firm with proactive philosophy will put in extra effort and to fulfill the discretionary responsibilities and firm with a defensive philosophy will not be considered beyond its legal responsibilities. For example, Rio Tinto mining company met its ethical and discretionary responsibilities by setting up positive program by changing its strategy due to diverse culture and social environments each location was required to design a social responsibility program. The company also developed practical guidelines that can facilitate the implementation of its values. For Example Norsk Hydro, which were forced by the Norwegian pollution control authority to close down three of its plants in Norway using sodenberg technology ; a more proactive stance would have considered the environmental conditions.
This is a preview of the whole essay
There is a natural fit between the idea of corporate social responsibility and an organization’s stakeholders. MNC operating in international operations have to consider the home country, host country and society as shown in figure-2.
MNC face a big challenge to decide which stakeholders merit and receive consideration in the decision-making process. In any given instance, there may be numerous stakeholder groups both from host and home country along with society clamoring for company’s attention. For example, Norsk Hydro Utkal project in which Hydro’s five step project evaluation checklist promote the good beginning with what is best for financial shareholders. The list ought to better to be arranged focus on the needs of the environment and stakeholders first. The pyramid of corporate social responsibility is depicted in Figure 3, portrays the four components of CSR, beginning with the basic building block notion that economic performance, at the same time, business is expected to obey the law, business’s responsibility to be ethical and business is expected to be a good corporate citizen which comes under philanthropic responsibilities.
Source: Adapted from Carroll,Archie B.The Pyramid of Corporate Social Responsibility: Toward the Moral
Management of Organizational Stakeholders, Business Horizons, July-August 1991
The ethical component of CSR pyramid is an important component this section will analyze it more thoroughly in the context of stakeholders. One way to do this is to use major ethical principles such as those of justice, rights, and utilitarianism to identify and describe ethical responsibilities.
Utilitarianism is a moral theory according to which an action is right if and only if it produces more utility (or welfare or well-being) for all people than any alternative. For example in Norsk Hydro Utkal project the homes and lives lost by few hundred Orrissa villagers were more when compared with the lower cost lighter weight aluminum. Utilitarian perspective this was an unethical behavior as this act does not produces the well being or welfare of the society or community.
A lesson can be taken from Antamina mining company- Peru project which returned the majority of the money to the communities, which help them to construct road, build health clinics, improvement in the educational infrastructure and start of five electricity projects which provide access to 225 communities.
The prescriptive is that different groups of people ought to have different ethical standards for evaluating acts as right or wrong, these different beliefs are true in their respective societies, and these different beliefs are not instances of a basic moral principle.
For example the Norsk Hydro Utkal project there was difference in Norwegian and Indian culture as seen in the power distance and masculinity-femininity culture parameters. Implementation of Norwegian culture by Hydro was not successful. In Indian culture it was not considered good that women should be hired for jobs or their was a issue of caste low and high caste faced by Hydro.
A lesson can be taken from BHP billiton Company which provided fund to NGO’s to promote Women issues under their banner.
According to proponents of ethical absolutism that there are certain universal laws that are so fundamental that they should under no circumstances be violated. Examples of such imperatives are that one should not torture or kill other people or no person should be imprisoned without a fair trail and more generally that human rights, such as freedom of expression should not be violated.
For example, Hydro in it Utkal project violated the human rights in order to acquire land by forcing the villagers to leave their home and police killing innocent villagers.
CORRUPTION AND BRIBERY:-
In some countries corruption involving bribes are so widespread that it is very hard for the MNC to operate without being involved. However Hydro had ‘no bribe’ policy, this policy must trump local Indian practices of corruption.
ENVIRONMENTAL IMPACT & HEALTH & SAFETY ISSUE:-
The mining companies need to promote the transfer of clean technologies by generating less waste and increase recycling; and encouraging self-regulation, environmental research and development, worldwide corporate standards, and partnership schemes to improve access to clean technology.
For example Hydro Utkal project the environmental pollution and health & safety issues were not considered which were followed in Norway like use of cadmium in the production process, the provision of asbestos gloves for workers and lack of an adequate waste treatment centre.
SUMMARY OF ISSUES
The most important conclusion can be drawn from the analysis is that there is much learning to be done by mining companies, and that they should acknowledge and confront their CSR challenges in an honest and transparent manner.
In Summary following are the main points:
- Due to globalization MNC need to consider not only the home country stakeholders but also the host country stakeholders along with the society.
- Business should not only consider maximization of return to shareholders but should also consider legal, ethical and philanthropic responsibilities.
- Understanding of local community values, norms & culture should be done.
- MNC should not contribute to violate international humanitarian law.
- Effective relationships required on the part of both the company and the community.
- MNC should take care of the environmental impact and other health and safety issues.
Mining companies need to develop a geocentric approach as ethnocentric approach by companies is not successful. Furthermore companies need develop a sustainable development program by implementing the policies at all levels of the companies. Also companies can use Harvard model of HRM which consider both the stakeholder interest and situational factors. Stakeholder Power interest matrix can be helpful in determining the key player among the stakeholders. A sample plan of social responsibility policy for Newmont mining company is shown in appendix-1 which can be used as a benchmark. However following possible recommendation can be used to develop a best practice for organization operating in the mining industry.
SHORT, MEDIUM & LONG TERM PLANS
SHORT & MEDIUM TERM PLANS:-
- Develop a company-wide operating policies, standards, and performance indicators for critical issues such as human rights, mine closure and rehabilitation, biodiversity, tailings management, water and energy use, and greenhouse gas emissions.
- Adopt a policy of best management practices where regulations are absent and standards are not set as in the case of Hydro Utkal project as there were no institution.
- Practically apply the sustainable development principles into decision-making.
- Complete the major initiatives of the sustainable development strategy including:-
- Ensuring sustainable development principles are incorporated in the formal business performance measures.
- Ensure ‘priority projects’ are planned and implemented in accordance with sustainable development principles.
- Conduct an audit of sustainable development progress ‘the way company is working’.
- Conduct an annual review of the priorities for the sustainable development principles and prioritize them accordingly.
- Develop six monthly updates of the sustainable development strategy to ensure continuous improvement & contribution to sustainability.
- Continue sustainable development & importance of corporate social responsibility and Ethics awareness programs and training for all employees and Managers before the commencement of mining project as well as during the project execution.
- Setting site and corporate performance targets for sustainability issues.
- Establishing stakeholder advisory boards in the host countries.
- A deeper understanding of the different economic and social impacts of business operations on local communities.
- Regular and public meetings with the local communities in language everyone can understand.
- Forum in which community, government and company meet periodically to discuss infrastructure development or maintenance.
LONG TERM PLANS:-
- Ensuring policies are long-term and cover all activities from exploration to provision of support for sustainable community businesses following mine closure.
- Review the mine closure policy and develop a policy for sustainable development as most of the projects are long term.
- Embed the cost for sustainable development programs before the start of the project.
- Transparency in decision making, communication and conflict resolution.
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NEWMONT Mining company Social Responsibility Policy
Newmont is an international mining company, primarily producing gold. The company has active operations, explorations and projects in North and South America, Central Asia, Australasia, Europe, and West Africa.
Newmont's future is dependent on its ability to develop, operate and close mines consistent with our commitment to sustainable development, protection of human life, health, the environment, and to adding value to the communities in which we operate.
To realize these commitments, every Newmont operation will:
- Develop and use systems to identify and manage risks, and provide accurate information to support effective decision making;
- Train our people and provide the resources to meet our social responsibility objectives and targets;
- Respect the Universal Declaration of Human Rights in its business operations;
- Respect the social, economic and cultural rights of indigenous people;
- Adopt policies and standards and operating practices that ensure ongoing improvement;
- Wherever appropriate and feasible, set operating standards that exceed the requirements of the local law;
- Assess our performance against our policies and standards.
- Demand leadership in social responsibility from all our people;
- Seek to share our success by partnering with stakeholders in appropriate community development programs;
- Consult stakeholders in matters that affect them;
- Strive to communicate our performance in an accurate, transparent and timely manner;
We understand the actions and conduct of every Newmont employee and contractor are the basis on which our stakeholders will evaluate our commitment to achieving the highest standards of social responsibility.
Since environmental, health and safety issues can affect the communities where we operate, we will carry out our Social Responsibility Policy in conjunction with Newmont's Environmental and Health and Safety Policies.
Newmont's Mission Statement of Environmental Compliance was established in 1991. It states:
Newmont and its affiliates (Newmont) intend to set standards of excellence with regard to environmental matters.
Three supporting policies provide definition to the Environmental Mission Statement.
The first policy is,
Newmont will, at all times, operate its facilities in compliance with applicable laws and regulations.
This is a non-ambiguous commitment by Newmont that requires all of its operations to comply with local laws and regulations that apply to its activities.
The second policy states:
Newmont will adopt and adhere to standards that are protective of both human health and the environment at the facilities it builds and operates.
This means Newmont will ensure that environmental factors are included in new and modified facilities. It also applies to discharge to surface of ground water, air emissions and the protection of aquatic and marine environments.
For the design and construction of new facilities, and the modification or expansion of existing facilities, this second policy requires Newmont adheres to the host country’s laws and regulations. However, in some countries, particularly developing countries, minimum design criteria and standards for mining and milling operations either do not exist or require a standard lesser to that which Newmont has set as a minimum of for the Company. In such cases, Newmont’s own (higher) standards are applied, often based on the Nevada Administrative Code governing the design, construction, and operation of mining facilities.
Similarly, when discharges to surface or ground waters are unavoidable, Newmont is required to comply with the host country’s laws and regulations. If country laws are non-existent, inadequate or incomplete, U.S. EPA primary drinking water standards will be deemed the appropriate standards for the protection of human health.
Emissions to air are also required to comply with the host country’s laws and regulations. Where those laws are non-existent, inadequate or incomplete, U.S. EPA national ambient air quality standards will be used.
There are typically no universally applicable or relevant standards to draw upon for the protection of terrestrial, aquatic and marine environments. As such, Newmont aims to protect aquatic, terrestrial and marine environments based on site-specific, risk-based water discharge standards. The risk-based approach is required to address the potential pathways of pollutants from Newmont facilities to the applicable environmental receptors. Again, the operating site must always comply with the host country’s laws and regulations.
The third policy:
Each Newmont operation will develop, during the design phase, and implement closure and reclamation plans that provide for long-term environmental stability and suitable post-mining beneficial land-uses.
Closure and reclamation are the completion of the life cycle of a mining operation. The post closure environmental condition and beneficial and uses of Newmont sites is the Company’s lasting legacy. Consideration of closure and reclamation must occur during the design of a project and must be included as an integral component during the life of the operation. The operations will be managed during the life of each facility in a manner consistent with full implementation of the closure and reclamation plan. The cost of reclamation and closure must also be included in all front-end project evaluations. Adequate financial provisioning for closure and reclamation will be provided for all operations.
To support the activities that are necessary to achieve compliance with the environmental mission statement and policies, Newmont is committed to providing the necessary human and financial resources.
To motivate and reinforce behaviors in employees (and contractors) that support the environmental mission statement and policies, compensation programs include a component linked to annual environmental performance targets.
Each employee (including contractors) will be held accountable for ensuring that those employees, equipment, facilities and resources within his or her area of responsibility are managed to comply with this policy and to minimize environmental risk.
Health Safety and loss prevention standards
This Policy provides the framework for the development of Health, Safety and Loss Prevention (HSLP) Standards, Procedures and Guidance, which will address the control environment, risk assessment, information and communication, control activities and monitoring of Core Business Processes.
This Policy addresses the intentions and principles of Newmont with respect to effectiveness and efficiency, reliability of financial reporting and compliance with laws and regulations to achieve Core Business Activities as follows:
- Strategic and Action Planning: HSLP will provide assistance to HSLP strategic and action planning in line with the BETS planning model that identifies value and drives continuous improvement upon efficiency and cost controls.
- Risk and Opportunity Program: HSLP will implement a Risk and Opportunity Program that will enhance Newmont’s business performance through a common framework that can be utilized by any discipline or functional area.
- Five Star Program: With the cooperation of Environmental and Social Responsibility, HSLP will manage an integrated Five Star System and ensure that all applicable operations are assessed according to the standards established within the program.
- Safety Team: HSLP will establish and coordinate the meetings of a Safety Team in an effort to develop and manage global HSLP programs.
- Training and Competencies: HSLP will establish and maintain a common guidance to training and competencies for HSLP positions, the Safety Team, senior and general management and mentoring program support.
- Technical Advisory Support: HSLP staff will provide the service of HSLP technical advisory support for internal stakeholders and interact with external stakeholders, such as peer industry, universities and government agencies.
- Information Management System: HSLP will establish a central Information Management System with global access to current HSLP information. Key elements of this system include collection, analyses and reporting of consolidated global HSLP data and research information for advisory reports.
- Assurance: HSLP will provide assurance to required corporate programs through independent assessments, with a focus on HSLP practices and, when appropriate, Rapid Response activities.
- Newmont will identify health and safety exposures and hazards with the potential for injury and illness.
- Newmont will adhere to Newmont Safety Principles, which includes health and safety leadership in all our people.
- Newmont will implement and maintain a health and safety management system that identifies, assesses and controls health and safety risks.
- Newmont will identify measurable objectives and targets that will drive the continuous improvement necessary to pursue an injury-free workplace.
- Newmont will comply with relevant and applicable statutory and other requirements.
- Newmont will promote positive behaviors to achieve superior HSLP performance.
- Newmont will be reviewed by internal and external sources to ensure that the HSLP organizational goals are being achieved through conformance and compliance.
- Newmont will publicly report its HSLP performance
Hydro & datamonitor website
JOHNSON,G. & SCHOLES, K (1999) Exploring Corporate Strategy, Prentice Hall Europe
Darryl Reed, “Resource Extraction Industries in Developing Countries,” Journal of Business Ethics 39,
no. 3 (2002): 201.
Amy Rosenfeld Sweeting and Andrea Clarke, Lightening the Lode: A Guide to Responsible Large-Scale
Mining, Conservation International (2000): 9
Sprinlink database, The case of Rio Tinto
Datamonitor database: Norsk Hydro Company Profile
Norsk Hydro Utkal Venture Case Study