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September 27, 2012

Extractives Commitment to Human Rights Improving
    by Robert Kropp

But research from Oxfam America indicates that policies supporting Free, Prior, and Informed Consent must include a transition from resource extraction to development partnerships. -- Companies in the oil and gas sector have been touting technological advances that have allowed them to pursue extractive methods such as hydraulic fracturing and deepwater drilling. But the fact remains that for companies in the sector, and for mining companies as well, the era of relatively straightforward extraction is over.

As Paul Bugala of Calvert Investments describes the situation in a new Research Backgrounder published by Oxfam America, "Easily-accessible mineral and hydrocarbons deposits are becoming scarcer. Grades of gold and other minerals maintain their terminal decline. And crude oil sulfur content continues to grow as the densities of petroleum liquids, API gravities, slide."

In order to keep sufficient reserves on their balance sheets, companies in the extractives industries are more often locating their operations in countries "under the regulatory control of host governments that cannot or will not account for the priorities of local communities," Bugala wrote. To counter inefficient regard by governments and companies for the rights of local communities, many international organizations have exerted pressure on behalf of the principle of free, prior, and informed consent (FPIC).

Oxfam defines FPIC as "the principle that indigenous peoples and local communities must be adequately informed about these projects in a timely manner and should be given the opportunity to approve (or reject) a project prior to the commencement of operations." Its Research Backgrounder assesses the commitments of 28 companies in the extractives industries to the principle.

Five of the 28 companies—Inmet, Newmont, Talisman Energy, Rio Tinto and Xstrata—have made explicit commitments to the principle of FPIC, Oxfam found. Another eight companies have made somewhat more qualified commitment to the principle, while two-thirds of the companies make reference to concepts such as community support and the social license to operate.

Noting that the number of commitments has increased since Oxfam's 2009 report on the issue, Raymond Offenheiser, president of Oxfam America, said, "With more than half of the world’s poorest people living in countries rich in natural resources, the increasing trend of companies incorporating human rights in their policies is encouraging."

However, "Business as usual is simply not going to cut it," Offenheiser continued. "In order for oil and mining companies to survive in the coming decades, they need to transform themselves from primarily resource extractors to development partners."

"How can investors be assured that conflict and resultant project delays will not affect a new or expanded operation in a country or region where social license to operate has been difficult to secure in the past?" Bugala of Calvert wrote. "A company's approach to materiality and transparency helps dictate the type of investors it may attract. Without the disclosure necessary for investors to substantiate strong long-term assumptions, a company may have difficulty attracting long-term investors."

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