Time to Go Beyond the Fringe on CSR by Arvind Pandey

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Community- and environmental sustainability-related challenges are the most critical elements for the mining, metals and steel industries

Arvind Pandey

Singur proved that the dissatisfaction of a few hundred can derail billions of dollars of investment,” commented a senior official at a steel company. Singur is the West Bengal village from where Tata Motors Ltd was forced to pull out its Nano car project in 2008 because of farmers’ protests against land acquisition.

Actually the list of companies with delayed or shelved projects is quite long. Most of these companies were spending on traditional CSR, or corporate social responsibility, activities in varying measures, but clearly the old calculus is no longer working.

“What gives?” I enquired from the promoter of a leading infrastructure company, and his response was that earlier successful project execution required managing a select few to ensure that the state apparatus delivered the project, but now project execution has gone retail. One has to ensure that village panchayats, block pramukhs, district panchayats, local non-government organizations (NGOs), the ruling establishment, and the main and fringe opposition are aligned with the project. Any dissatisfied group left unattended can ensure years of delay, if not outright project failure. The need for companies to earn their “licence to operate” from the communities was never so important.

Community- and environmental sustainability-related challenges are the most critical elements for the mining, metals and steel industries. This is because their projects involve dealing with large tracts of land, forests, biodiversity and the local community.

Furthermore, their presence affects communities, both existing ones and those that grow up around their plants and captive mines. Typically, companies in this sector spend 2–5% of profit on CSR and environment-related activities. Steel Authority of India Ltd spends around 2% of its net profit on CSR. Tata Steel Ltd spends 5-7% of its net profit on CSR initiatives. But clearly there is pressure to do more, and more importantly, differently.

Increased awareness among communities and government focus is making sustainability-related activities even more important for companies. A myriad social and political forces are arrayed behind issues ranging from the environment and conservation to community rights, and protection of local practices and culture.

The ministry of environment and forests’ growing activism on environmental issues coupled with hyper-activism at the grassroots level against any form of development in the most backward areas as well as remnants of class warfare rhetoric against capitalism has made progress of new projects extremely difficult. A direct consequence was the zero growth in Coal India Ltd’s output in 2010-11. Regulatory pressures are likely to increase, with the Companies Bill, 2011 mandating that companies spend at least 2% of their net profit on CSR, and the Mining Bill, 2011 stipulating that holders of coal mining leases pay 26% of mining profits to a district mineral foundation for the benefit of the project-affected people.

It is not as if the industry has been sitting on its hands. Google ‘Noamundi’ and you will find extensive coverage of water conservation and reforestation work by Tata Steel in its iron ore mines at Noamundi, Jharkhand. Completed in difficult terrain and challenging conditions, the project won the Confederation of Indian Industry’s 2011 national award for excellence in water management. There are many more examples of engaged corporate action on sustainability and environment, but to a large extent they have proved ineffective in the face of negative sentiment against large projects that seems to have paralysed billions of dollars of investment. As governments watch from the sidelines, competitive local politics ensure that effective resolution is nigh impossible. This imperils the growth potential of India’s mining and steel industries.

Domestic steel demand is expected to double in the next 10 years. To take advantage of this opportunity, most Indian companies built aggressive growth plans, but progress on the ground has been slow, and many global majors such as Posco and ArcelorMittal have reallocated their funds to other opportunities.

Leading global companies view sustainability as a “source of competitive advantage”— as a source for newer, greener businesses (such as green energy and waste recycling), an opportunity for efficiency improvements (such as energy savings, water conservation and waste reduction) and a pool of intangible benefits (such as brand innovation and talent management). They believe these are critical for them to have a licence to operate, and as bidding for new assets becomes intense in the coming decade, their track record on sustainability will make the difference. This is making CSR move from the sidelines to being at the core of strategic management agenda.

Despite spending significant sums on CSR initiatives and community work, many companies have not been able to get any resultant benefits. This is because their CSR spending was not directly linked to driving community support for their business plan.

These companies are still relying on the government to see their expansion plans through. Companies can no longer count on the government to deliver their projects. They need to aggressively develop a holistic agenda for community development that involves all stakeholders and NGOs as well as government institutions. These activities need to start as soon as a community becomes critical to their future strategic plans.

Companies need to drive setting up of local councils to prepare a long-term development blueprint for the community or district, and then actively ensure that all stakeholders work towards the goals. This will ensure that companies have a more transparent and effective mechanisms for transforming communities and gaining local support. Companies with a reputation for investing in and developing communities will find themselves at a competitive advantage, as they will be able to achieve capacity additions and expansions at a faster pace. Given the nature of the mining and steel businesses, growth cannot happen without sustainability. They are two sides of the same coin.

Arvind Pandey is partner and director and global leader —metals and mining at The Boston Consulting Group.

(Sourced from LiveMint)

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