Lessons learned from Case Studies of InternationalInternational Investment Financial in Extractive Flows and Land-use Industries and the Environment Best Practices for Transnational Investment in Extractive and Land Use Sectors School of International Service American University Foreword With the wave of globalization and the empowerment of civil societies around the world, foreign investment has become an increasingly important issue due to the inherent social and environmental impacts that foreign companies inflict upon the local communities in which they operate. The results of foreign investment are complicated: some investment improves local economic, environmental, and social conditions, while other investment leads to tensions between transnational companies and local communities. There are currently few broadly agreed-upon standards that guide how foreign companies should invest and behave in host countries in order to achieve not only business benefits, but also social responsibility and environmental sustainability. This portfolio of best and worst practices of foreign investment exhibits both positive and negative cases of foreign investment. This document is the cooperative product of the World Resources Institute (WRI) and the American University (AU) practicum team. IFFE’s Senior Associate, Mr. Hu Tao, and Research Analyst, Denise Leung, worked closely with the practicum team to develop the project. The AU practicum team consisted of professors Dr. Ken Conca and Dr. Judy Shapiro and eleven graduate students: Stephanie DaCosta, Kristin DeValue, Hilary Kirwan, Lauren Lane, John Noel, Sebastian O’Connor, Schuyler Olsson, Jen Richmond, Natnari Sihawong, Toussaint Webster, and Yuxi Zhao. In March 2013, the AU practicum team travelled to Beijing, China, to present their initial research and coordinate with a WRI partner research team from Beijing Normal University. Acknowledgements The American University student practicum team would like to express our gratitude to the World Resources Institute for giving us the opportunity to collaborate with the International Financial Flows and Environment (IFFE) project. We would like to thank Mr. Hu Tao, who organized the interactive program with American University, and Ms. Denise Leung, who coordinated the project. Both of these individuals provided insightful guidance during our research and throughout the project. We would also like to thank the School of International Service at American University for providing our team with accessible and helpful academic and financial support. We would especially like to express our gratitude to the practicum supervisors, Dr. Ken Conca and Dr. Judy Shapiro, who inspired and enlightened us throughout our research. Without their guidance and consistent help, this report would not have been possible. In addition, we would like to sincerely thank Professor Mao and students from Beijing Normal University who hosted us during our research trip to Beijing. Beijing Normal University students were not only great partners to collaborate with professionally but were also very giving and inviting ambassadors of their community. Finally, we would like to thank Junyan Guo for his graphic design contributions. 1 Table of Contents Foreword 1 Acknowledgements 1 Synopsis 3 Summary of Case Studies 10 I. Extractives: Mining Mining in Conflicted Lands: Lessons from Freeport-McMoRan in Indonesia Schuyler Olsson……………………………………………………………………………………………………………… 13 Mitsubishi’s Mining Investment in Australia Yuxi Zhao…………………………………………………………………………………………………………………….... 44 Broken Hill, Broken River: Broken Hill Proprietary and the Ok Tedi Mine Sebastian O’Connor……………………………………………………………………………………………………….. 68 Newmont Ghana Gold Limited: The Ahafo Mine Project Toussaint Webster…………………………………………………………………………………………………………. 102 II. Land Use Aligning Profit and Purpose: Starbucks and Conservation International's C.A.F.E. Practices Program in Latin America Hilary Kirwan……………………………………………………………………………....................................... 124 Oil Palm’s New Frontier: Lessons from Sime Darby in Liberia Kristin DeValue…………………………………………………………………………….................................... 151 Asia Pulp and Paper Group in Indonesia: Uprooting Deforestation Lauren Lane……………………………………………………………………………......................................... 178 III. Extractives: Energy Swedish Oil Giant Lundin: Investment in Sudan (1997-2003) Jen Richmond…………………………………………………………………………......................................... 206 Seismic Shift: Cuadrilla Resources Shale Gas Development in the UK John Noel…………………………………………………………………………................................................ 239 The Camisea Natural Gas Project in Peru: Controversies and Financial Implications Stephanie DaCosta…………………………………………………………………………................................. 266 Sustainable Hydropower Development: Nam Theun 2 Hydropower Project in Lao PDR Natnari Sihawong…………………………………………………………………………................................... 293 2 Synopsis The American University team’s research covers case studies of investment projects within the mining, energy, and land use sectors in Africa, Southeast Asia, Europe, Oceania, and Latin America. We present best and worst business practices in accordance with social and environmental safeguards. Our recommendations propose an alternative for foreign companies: build a strong partnership with local communities and raise social and environmental standards when investing abroad. The following themes represent key elements of best practices for foreign direct investment (FDI). 1. Stakeholder engagement It is becoming increasingly important for companies to implement effective stakeholder engagement when investing in a foreign country. Although stakeholder engagement is not a new concept, the business landscape is increasingly demanding greater accountability. Companies must respond to pressures from governments, international institutions, and civil society. As a result, top business leaders are now considering stakeholder engagement as a way to mitigate risks and increase operational performance. Yet not all companies have incorporated stakeholder engagement into their business practices, which can affect their profitability. Stakeholder engagement is a key process in mitigating environmental and social impacts and can lead to collaborative solutions to improve company performance.1 According to AccountAbility, a sustainability consulting firm based in London, “stakeholder engagement is the process used by an organization to engage relevant stakeholders for a clear purpose to achieve accepted outcomes. It obliges an organization to involve stakeholders in identifying, understanding and responding to sustainability issues and concerns, and to report, explain and be answerable to stakeholders for decisions, actions and performance.”2 Stakeholders are actors that are affected by a company’s operations or those that can affect a company’s operations and performance. These actors may be individuals; local communities; non-governmental organizations (NGOs); businesses; international institutions; and/or local, municipal and federal governments. The case studies in this report will each refer to the types of stakeholders relevant to their specific cases. When considering an effective stakeholder engagement framework, it is best to consider certain policies and procedures to mitigate environmental and social harm. The following are the most notable aspects of stakeholder engagement to consider: 1 Ceres, “Stakeholder Engagement,” accessed April 20, 2013, http://www.ceres.org/company-network/how-we-work-with- companies/stakeholder-engagement. 2 AccountAbility, AA1000 Stakeholder Engagement Standard 2011, last modified 2011, accessed April 20, 2013, http://www.accountability.org/images/content/3/6/362/AA1000SES%202010%20PRINT.PDF, 6. 3 1.1 Identify stakeholder and relevant issues Identifying the company’s relevant stakeholders is a critical step in implementing an effective stakeholder engagement strategy. In every project, there are multiple stakeholders with conflicting needs and interests. It is difficult to assume the priorities of stakeholders because not all actors in a particular group or community will share the same interests.3 By investing time to identify and prioritize stakeholders throughout the project, the company will be able to better manage potential conflicts, reputational risk, and the interests of all parties involved. Large extractive projects, like many of the case studies in this report, both directly and indirectly affect a wide range of stakeholders. Extractive projects tend to operate near or within marginalized or disadvantaged communities, such as the Amazonian indigenous tribes of the Camisea Natural Gas Project case study, which are vulnerable to environmental harm. It is important for companies to identify and understand these stakeholders’ interests, legal rights, and cultural contexts, because engagement and quick response leads to inclusion and a greater sense of accountability and transparency. 1.2 Show transparency and accountability throughout operations To avoid conflict with relevant stakeholders, the company should demonstrate transparent activities and approaches towards engagement. Through different techniques like information sharing and consultation, participatory approaches (See recommendations in the Sime Darby in Liberia case study), negotiations, and culturally sensitive meetings, companies can exhibit openness and trust. A company’s failure to adhere to its commitments,