STAKEHOLDERS’ PERCEPTION ON THE APPLICABILITY OF SHARED VALUE CREATION IN MONGOLIAN MINING DEVELOPMENT by Damdinnyam Gongor B.A., Mongolian State University of Education, 2004 M.A., Mongolian State University of Education, 2008 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF APPLIED SCIENCE in THE FACULTY OF GRADUATE AND POSTDOCTORAL STUDIES (Mining Engineering) THE UNIVERSITY OF BRITISH COLUMBIA (Vancouver) April 2015 © Damdinnyam Gongor, 2015 Abstract In recent decades, world population growth has resulted in an unprecedented rise in consumer demand for goods and commodities, and has resultantly triggered the rapid development of relevant industries, including the mining sector. Site-specific effects of the rapid industrial development have led to environmental issues and mounting social dissatisfaction, and have created major obstacles for the industry. Weak governance, an unstable regulatory environment and ill-defined public expectations are considerations that should all be taken into account in order to better understand the current dynamics. Researchers, scientists and business owners are looking for ways to effectively mitigate some of the non-technical challenges facing the industry, proposing various tools, approaches and innovative ideas to moderate risks and to assist with collaboration. One idea gaining momentum is the “Shared Value” approach, which is the subject of this thesis. This research explores the applicability of the Shared Value approach within the Mongolian context. This research focuses on the mining industry’s impact on Mongolia’s development, the negative effects of which have mainly been caused by the unequal distribution of the mining wealth over the last 25 years, analyzes and identifies factors which have led to current social and political issues faced within Mongolia, and which can be traced back to the development of the mining sector. The current situation regarding public perceptions and expectations in Mongolia are based on a survey of the major mining stakeholders. The results of this survey will help us understand the ii public expectations held in Mongolia with respect to mining development, and these considerations will be taken into account in the development of future strategies. The case study of the situation in Mongolia offers us a unique opportunity to study the development of the mining industry in a country with a highly educated population that is endowed with vast untapped natural resources, and yet which is unable to fully benefit from these advantages because of weak governance, appropriate or inappropriate governmental regulations, mining projects with disastrous environmental and social impacts, and the often one- sided and polarized involvement of civil societies. iii Preface I was responsible for the identification, design and online survey for this research. I also performed the compilation and interpretation of the collected data throughout all the different stages of the study. Some basic data analyses were outsourced and performed by a graduate student in Statistics from UBC. The study complies with the requirements of the UBC Research Ethics Board, and the H15- 00113 Certificate of Approval Minimum Risk was issued. iv Table of contents Abstract .......................................................................................................................................... ii Preface ........................................................................................................................................... iv Table of contents ............................................................................................................................v List of figures .............................................................................................................................. viii Acknowledgements ..................................................................................................................... xii Dedication ................................................................................................................................... xiv Chapter 1: Introduction ................................................................................................................1 1.1 Background ..................................................................................................................... 1 1.2 Research questions and thesis objectives ........................................................................ 4 1.3 Thesis outline .................................................................................................................. 6 Chapter 2: Literature review ........................................................................................................7 2.1 Extractive industry .......................................................................................................... 7 2.2 Challenges in the mining industry .................................................................................. 9 2.3 Shared Value approach ................................................................................................. 14 2.3.1 Concept of the Shared Value approach ..................................................................... 14 v 2.3.2 Shared Value approach vs. corporate social responsibility ...................................... 17 2.3.3 Main areas of investment and elements of the Shared Value approach ................... 22 2.3.4 Criticism of the Shared Value approach ................................................................... 25 2.3.5 Conclusion ................................................................................................................ 26 Chapter 3: Mongolian mining industry .....................................................................................28 3.1 Introduction ................................................................................................................... 28 3.1.1 Brief summary of the Mongolian mining industry ................................................... 28 3.1.2 Benefits of the mining industry and resource dependent economy .......................... 30 3.2 Challenges of the extractive industry in Mongolia ....................................................... 43 3.2.1 Fear of powerful neighbors and negative images of Chinese investments ............... 45 3.2.2 Legacy of “The Gold” program and Ninja miners .................................................... 53 3.2.3 Public perception of “Greedy western mining legacy” ............................................. 57 3.2.4 Corruption ................................................................................................................. 60 3.2.5 Policy and government changes................................................................................ 63 Chapter 4: Survey of Shared Value perceptions .......................................................................70 4.1 Survey purpose and questions ....................................................................................... 70 vi 4.2 Conducting the survey .................................................................................................. 71 4.3 Survey results and discussions ...................................................................................... 73 4.4 Survey conclusions ....................................................................................................... 91 Chapter 5: Summary, conclusions and recommendations .......................................................94 5.1 Summary ....................................................................................................................... 94 5.2 Conclusions ................................................................................................................... 96 5.3 Recommendations ......................................................................................................... 98 References .....................................................................................................................................99 Appendices ..................................................................................................................................106 Appendix A : Survey questionnaire ........................................................................................ 106 Appendix B : Survey results ................................................................................................... 110 vii List of figures Figure 1-1: Number of mining related community conflicts .......................................................... 1 Figure 2-1: Role of mining in national economies ......................................................................... 8 Figure 2-2: Mining project delays................................................................................................. 10 Figure 2-3: Challenges for the mining industry ............................................................................ 12 Figure 2-4: Difference between CSR and Shared Value approach ............................................... 20 Figure 2-5: Philanthropy vs. Shared Value ................................................................................... 22 Figure 2-6: Levels of Shared Value creation for extractive companies........................................ 23 Figure 2-7: Strengths and weaknesses of Shared Value approach ..............................................