Proper stakeholder management saves costs

30-10-2013 | Engage | Daniëlle Essink

When engaging with companies, investors sometimes have to sort through a stack of claims and data from a whole range of stakeholders including companies, investors, NGOs and local communities. Daniëlle Essink, Senior Engagement Specialist, encountered various competing claims during her engagement with GDF Suez about the construction of the Jirau Dam in Brazil.

The Jirau dam: environmental and social implications
In 2011, GDF Suez was accused of insufficiently taking into account the social and environmental impact of the construction of the Jirau Dam. GDF Suez has a majority stake in a consortium building this dam, which is one of the two dams in the Rio Madeira Hydroelectric Dam project in Brazil. Although hydroelectric dams can produce renewable energy with low or no carbon emission, the flooding of areas can have a significant impact, such as relocation of local communities, ecosystem damage and loss of land. The Madeira River, where the dam is being built, supports the life of an estimated 750 fish species, 800 bird species and other endangered rainforest wildlife.

Stakeholder management is key
The NGO alliance Friends of the Earth – Brazilian Amazon (FOEBA) has accused the consortium of serious irregularities in the dam’s environmental licensing processes and has criticized the biodiversity assessment conducted as being incomplete. In addition, the Bolivian government has argued that the flooding resulting from the Jirau dam would have a significant impact on Bolivian natural resources and water quality and would cause mercury contamination. Other allegations from NGOs concern the dam’s impact on indigenous communities.

Proper stakeholder management is crucial in such a case. The lodging of objections or protests such as strikes can stall the project for months or more. This is very costly and is neither in the interest of the company nor its investors. For this reason we started engaging with GDF Suez in late 2011. We formulated eight objectives, including the development of a biodiversity policy, the implementation of stakeholder engagement to assess local concerns, and the set-up of a plan to mitigate impact.
At the start of the engagement GDF Suez had not responded publicly to the NGO concerns. In December 2011 we sent a letter to the company. As GDF Suez usually addresses biodiversity quite well, we expected a positive outcome. Given the limited availability of public information about the project, we asked the company various questions related to our engagement objectives. We asked, among other things, further information about the biodiversity assessment and the extent to which stakeholders had been consulted.

"Investors have to sort through a stack of claims and data from a whole range of stakeholders."

34 social and environmental projects
In August 2012 we held a conference call with, among others, the company’s manager of Sustainable Development for Brazil in which we discussed our questions. The company sent us additional information which showed, among other things, that it had set up 34 social and environmental projects, investing a total of EUR 520 million. Examples of these projects, which have been approved by independent agencies, are the monitoring of groundwater, the minimizing of the impact on plants and animals and the support of indigenous communities. On top of the official programs, the company has invested in several voluntary programs to comply with its own standards.

Good progress
In our talks, GDF Suez indicated that the Jirau project had been audited by the International Hydropower Association. This industry organization has developed a framework for the assessment of such projects. Although some NGOs criticize the independence of the framework, we have found out that, among other organizations, World Wildlife Fund (WWF) is involved. This gives us a good indication of the framework’s independence. The audit report turned out to be quite positive, especially with regard to the company’s biodiversity assessment, stakeholder engagement, the mitigation of the impact on the environment as well as on local communities, and the detailed responses to NGO concerns.

"Proper stakeholder management is crucialfor the company and its investors."

We have observed positive progress on various objectives, especially in the field of stakeholder engagement. GDF Suez has set up a Sustainability Committee with representatives of indigenous communities, government bodies, and all NGOs that wish to participate. It has also invited the NGO that has been very critical of the project, FOEBA, but according to GDF Suez they have never responded. In addition, the National Foundation for Indian Affairs (FUNAI) has been involved in the licensing process and in the 34 projects mentioned earlier. Audits have described the project as exceptional and impressive and the UN Framework Convention on Climate Change has registered the Jirau Hydropower Plant under the Clean Development Mechanism. The issue with the Bolivian government has also been solved and Bolivia has agreed with the project. We have closed the engagement successfully.

danielle-essink.jpgDaniëlle Essink
Senior Engagement Specialist
RobecoSAM Governance &
Active Ownership