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Darwin's lessons for the extractive industry

May, 2009
Environmental and social performance is shaping a new breed of oil, gas, and mining companies.
On May 26, shareholders at Chevron's annual meeting in California will vote on a resolution
urging management to assess the company's compliance with the environmental laws of every
country in which it operates. The vote has been triggered by pension fund investors anxious over
the oil giant's liabilities in an environmental disaster dubbed the "Amazon Chernobyl."
Chevron inherited a lawsuit for ecological damages and human health impacts caused by
massive oil spills in the species-rich rainforests of eastern Ecuador when it bought the company
responsible, Texaco, in 2001. An Ecuadorean court judgment is due later this year, with Chevron
facing damages that may dwarf the $3.9 billion paid by ExxonMobil for the infamous 1989
Alaskan oil spill.
The lesson in all this is one that is being learned not only by Chevron, but by the broader
extractive industry: in our modern world of instant communications, Darwin's theory of
evolution applies not only to animals and plants, but also to companies.
Survival depends on being able to adapt to a changing environment. Oil, gas, and mineral
reserves have been depleted, and the extractive industry increasingly competes for access to
resources in remote corners of developing countries. In these new environments, companies face
challenges that go well beyond engineering, including fragile ecosystems, impoverished
communities, and weak local governance.
In earlier times, they might have been able to ignore such issues. But today, business-as-usual
approaches will no longer suffice.
The world has become a global fish bowl. Modern information and communication technologies,
combined with increasingly sophisticated and networked NGOs and local activists, subject
companies to a level of scrutiny and accountability unimaginable even a decade ago. The voices
of communities in the remotest corners of the globe can reach the ears of politicians and
journalists worldwide in just a few hours. Campaigns have also grown in sophistication. Some
NGOs directly support communities impacted on the ground. Others, like the BankTrack
network in the Netherlands, focus on extractive companies' financiers, campaigning against
banks to remove harmful project financing lifelines.
Banks, in turn, are requiring their clients to demonstrate stronger environmental and social
commitments. The International Finance Corporation (IFC), the private financing arm of the
World Bank, has developed a set of "Performance Standards" that clients must meet before
receiving financing. Other banks, such as the private financial institutions who have signed up to
the Equator Principles, voluntarily commit to apply the IFC's Performance Standards to their
investments. John Ruggie, the UN Special Rapporteur on business and human rights, has
explicitly recognized this new playing field, emphasizing the importance of the "court of public
opinion"— regardless of what a developing country's laws require.
On the frontline of extractive development, communities are increasingly intolerant of mining
companies that sacrifice the environment for short-term economic benefits. In addition to the
Chevron case, communities from the Peruvian Amazon have brought a lawsuit in California
against Occidental Petroleum (Oxy), alleging that the company discharged oil wastewater into
communities' water sources, and Shell is facing a lawsuit in New York for its alleged human
rights abuses in Nigeria in the 1990s. Both Ecuador and Peru have also seen massive social
protests in the past year against controversial mining policies.
While a company like Chevron or Shell may survive a multi-billion dollar judgment, the
reputational damage of legal settlements is increasingly likely to result in governments, banks,
and communities hesitating to do business with such companies in the future. President Correa of
Ecuador, for example, took a public stance against Chevron, and the company will almost
certainly not be able to operate in the country for several decades.
In true Darwinian fashion, the most successful extractive companies are adapting to these forces
of change, investing in improvements to their environmental and social management systems.
Thriving in this new competitive environment, however, is not simply about corporate charity or
token consultations with communities. It entails making environmental and social management,
and respect for human rights, central to companies' business model. Communities must be
engaged at all stages of operations, from exploration through to restoration, and must have the
opportunity to participate in key decisions.
Community consent, and the reputational benefits in the wider world that it brings, will likely be
the prize of those companies that manage to ground their operations in a longer-term
development process that is sustainable beyond the life of a project. Skills in effective
community development may soon be an extractive company's most competitive trait.
It may even make the difference between extinction and survival.
A Survival Road Map for Extractive Industries
WRI's 2009 report, Breaking Ground: Engaging Communities in Extractive and Infrastructure
Projects recommends 7 principles to help companies adapt to the changing rules of natural
resource extraction by more effectively involving communities in project decision-making:
1. Prepare communities before engaging.
2. Determine what level of engagement is needed.
3. Integrate community engagement into each phase of the project cycle.
4. Include traditionally excluded stakeholders.
5. Gain free, prior and informed consent.
6. Resolve community grievances through dialogue.
7. Promote participatory monitoring by local communities.