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Carole Biau
Director, Center for Financial Markets
Africa and Capital Markets and Emerging and Frontier Markets and Global Economy and Regional Economics
Carole Biau is a director at the Milken Institute Center for Financial Markets, where she launched and now leads the IFC-Milken Institute Capital Markets Training Program. Hosted at the George Washington University, this program offers an accredited certificate in capital markets development to mid-career policymakers from developing countries. So far, 39...
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Finding the Silver Lining: Mining Firms Move from Compliance to Shared Opportunity

By: Carole Biau
June 02, 2016
   
   

For the past two years at least, “gloomy” and “bleak” have been two of the most common adjectives to appear in news related to the global mining industry — and with good reason: The hard downturn in the commodity price super-cycle has pummeled the industry for several years now. Talk of downsizing, ceasing production and selling off assets has permeated large mining conferences as well as the news. More recently, however, we may be starting to see a silver lining to this cloud. In particular, the low prices and constrained financial positions of mining and oil companies are leading some of them to re-evaluate how they do business, and to consider more innovative approaches in order to do more with less. Importantly, this trend is emerging not just when it comes to cash flow, but also with respect to sustainability and the industry’s engagement with surrounding communities and host economies.

Last week I attended the 10th Annual IFC Sustainability Exchange, where more than 200 hand-picked global executives and practitioners from companies, non-profits, the public sector, international development agencies and academia gather for frank dialogue on sharing value across business and society. The conference website promised an “interactive, trust-based, provocative discussion,” and I must say I was not disappointed. One of the opening speakers clearly set out a number of priorities on which mining companies urgently need to move forward, in partnership with communities and governments:

  • Generating shared value through inclusive business models
  • Spearheading innovative models for public-private service delivery
  • Making use of innovative finance, such as blended finance to support mine, infrastructure, community and value-chain development
  • Better application of responsible business standards across mining operations.

A common feeling among participants, echoed across several panels, was that progressing on these fronts was not just as a matter of complying with host-government regulations, or of fulfilling corporate social responsibility requirements; but rather, it had become a question of survival. As one speaker put it, sustainable investment is a “must-have,” not just a “nice-to-have” for mining companies today. Increasingly, the elements above are essential facets of every company’s bottom line.

As a result and as I describe in this short video, the mood of the gathering was unexpectedly upbeat. Companies, governments and communities seem to be moving beyond pessimism based on the commodity outlook, and instead are exploring pro-active ways to become more engaged, informed and collaborative. From a mindset focused on compliance and on maintaining a “social license to operate” in host countries, we may be witnessing a gradual shift toward a broader-minded attitude of mutual opportunity and benefit sharing.

However, this shift does not happen easily, nor is it painless. As expressed by another speaker, truly sustainable investment in the extractive sector requires going beyond case-by-case bilateral partnerships between mining companies and governments to developing “systematic solutions for a range of systematic problems.” Companies appear to be actively on the lookout for guidance for building inclusive business models, using blended finance effectively and establishing standards for their involvement in various non-mining sectors (health, agriculture, infrastructure, etc.) Equally important, communities and governments must be ready to play an active role in sorting through the available options and creating the enabling environment for such public-private innovations to flourish.

This provides an exciting and supportive backdrop for the Milken Institute’s work on developing a set of principles for shared use of mining infrastructure. This initiative brings together a broad group of mining companies, governments, regulators, investors, development partners, community organizations and academia. As a follow-on to our initial workshop in February in Cape Town (summary of discussions here), we held a working lunch on May 25 at the IFC Sustainability Exchange. We discussed practical options for moving forward on four fronts: investor certainty, infrastructure project bankability, shorter and faster contract (re)-negotiations, and financial, contractual and regulatory mechanisms for encouraging more collaborative behavior among mining companies regarding infrastructure.

Using an approach similar to that of our signature Financial Innovations Labs®, the Milken Institute is working with this diverse and growing stakeholder group to drill down into the specifics of each of these fronts. Collectively, we aim to identify the “systematic solutions” that mining companies, communities and governments need, and on which they are ready to agree. Together, we have a chance to seize the cloud’s silver lining. Times of crisis often foster innovation, and if tackled right, the commodity-price downturn can be one of those times.