CSR increasingly at heart of extractive sector’s business with banks

TORONTO (miningweekly.com) – Extractive and exploration companies needed greater awareness of the banking sector’s view on corporate social responsibility (CSR) and how this informed its willingness to lend, Canadian law firm Goodmans partner Kate Lyons told an audience at a recent Canada-Southern Africa Chamber of Business corporate social responsibility (CSR) seminar.

Lyons had represented both private and public-sector clients in municipal and environmental law.

Companies must also recognise that sustainability and environmental issues increasingly shaped lending models and practices. “If you’re in the extraction business, you now have to think about what a bank’s stated environmental objectives are,” she advised.

NEW ORDER
Lyons noted that almost all major banks now had CSR programmes and sustainability officers in place, something not present a decade ago. “[Banks] are also beginning to say: ‘We have some objectives with respect to our customers and our function in the business market and those things have to [benefit] the environment’,” she added.

Through the prism of CSR and environmental concerns, the banking sector had become increasingly vocal about the type of operations they were willing or unwilling to support. For example, Lyons highlighted the position of PNC Financial Services that announced it would no longer participate in the funding of mountaintop removal mining (MTR).

In March, the New York Times also reported that Credit Suisse, Morgan Stanley and JP Morgan Chase were distancing themselves from MTR, which involved the removal of mountaintop overburden above coal seams and was mainly undertaken in the US’s Appalachian chain.  

“That sounds serious to me,” Lyons said. “Extraction is capital intensive and reducing access to funds is meaningful. It’s a way in which stakeholders have found a pressure point to raise environmental concerns.”

Lyons had examined several unnamed banks to assess these developments. One bank said it would support transactions and business activities that reduced greenhouse-gas emissions, improved water quality and availability, helped environmental sustainability or facilitated the adaptation to climate change.

A second bank announced that it would no longer finance operations that led to the purchase of timber from illegal logging operations, assisted MTR operation or facilitated the trade in or manufacture of nuclear, chemical and biological weapons, or landmines and cluster bombs.

“So we now have mountaintop coal removal listed alongside not getting involved with biological weapons,” Lyons noted. “That’s a stake in the ground. They’ve singled out MTR coal mining but, from among the banks I’ve looked at, oil sands or other types of extraction [haven’t been listed].”

FACE-TO-FACE
Extractive companies often overlooked the banking sector’s need to be customer-facing and, because of this, its desire to engage public concerns, some of which had been driven by advocacy groups.

In addition, many companies failed to appreciate how visible and subject to critical assessment their sector had become. “The extractive industry is not as remote as it used to be. For example, I can look at the oil sands region simply by looking it up on Google Maps from the comfort of my own living room,” Lyons pointed out. 

Banks and extractive companies should seek arrangements that met both business needs and CSR goals. “We have to find a sweet spot where there is social engagement and a way to advance business interests. But asking more than that makes it philanthropic.

“Philanthropy can be fantastic, but it must be recognised as being in a different place to a business model that seeks to operate in a pragmatically, sustainable way,” she added.

Pockets of cynicism had remained in some companies with regard to CSR and sustainability. In part, this was fuelled by obvious contradictions in modern society. For example, many opponents of the extractive sector had protested the transportation of fuel by train or pipeline, but refused to give up their cars. Others had sent out anti-extractive tweets, despite knowing their electronic devices might contain conflict minerals.

Meanwhile, banks have also created niches whereby credit, under certain circumstances, could be offered to industries from which they had publicly distanced themselves. “For example, what’s the actual policy of US banks with respect to mountaintop mining?” Lyons asked. “Well they’re not [really] refusing to lend. Policies state credit will not be extended to coal producers with 25% or more of their production coming from mountaintop mining.”

But the fact remained that extractive companies must be prepared to change and adapt their business structures with CSR and environmental issues in mind. “You must be someone a bank can invest in. The CSR part of what you’re doing must be impressive and it needs to be moved to the top [of the agenda] when you’re talking to your lenders and financiers," she said.

COUNTING THE COST
Away from interacting with the banking sector, the cost of failed CSR and community conflict was increasingly apparent in recent years, both in terms of damage done to the corporate image but also to a company’s bottom line.

As an example, Lyons highlighted the Davis-Franks study from 2014 that investigated the impact of community conflict on mining operations. The authors estimated that a world-class mining project that required capital expenditure of between $3-billion and $5-billion would suffer costs of roughly $20-million a week on any delays or interrupted production.

Community conflict also proved prohibitively expensive for mining juniors and exploration companies, many of whom operated on tight budgets with limited resources to cushion the effects of any delays or interruptions.

Companies also needed to note possible legal costs with regard to failed community relations. Lyons highlighted the Tsilhqot'in Nation versus British Columbia case as an important example. “The court effectively revoked a logging licence after a decade-long case that included a trial spanning over 300 days, with two appeals to the higher courts,” she explained.

“I can’t imagine the legal costs of that.

“So, while we should engage [in CSR and sustainable practices] because we want to be good citizens, we should also understand that it makes extraordinarily good business sense,” Lyons added.