Sustainable business in conflict areas benefits all involved

25-11-2013 | Engage | Daniëlle Essink

An increasing number of companies are entering conflict-affected areas. In such high-risk countries, sustainable operations management can benefit companies, investors, local communities andgovernments alike. RobecoSAM is actively involved in guiding companies on how to implement sustainable business practices.

High-risk areas offer growing market potential
As globalization opens up remote and less developed regions of the world to foreign company investments, there is a growing recognition of the market potential of low-income countries, including high-risk and conflict-affected areas. Companies entering thesenew markets are attracted by the availability of human and natural resources. Although these areas pose significant risks, firms are learning how to conduct sustainable operations and contribute to the common good. Together with Shell, we have contributed tothe ‘Guidance on Responsible Business in Conflict-Affected and High-Risk Areas: A Resource for Companies and Investors’ report. This report seeks to show how companies and investors can implement and promote responsible business practices in conflict-affected and high-risk areas, thereby improving market potential.

Guidelines for sustainable business
Since 2010, we have been working with other investors to investi-gate the topic of conflict and business, when the report was published. The goal was to assist companies and investors in implementing responsible business practices and living up to their commitment to the Global Compact Ten Principles, even in the most challenging operating environments. Building on this key document, we were involved in a pilot project to test its practical value and translateit into the reality of company investment decisions and operations.

The benefits of corporate sustainability practices can be great for companies and investors, as well as the host country. Profitable ventures that implement good business practices, respect the rights of local people and protect the environment contribute offer use-ful lessons for other companies considering investment in the country. Within a country, a company that implements responsible business practices can help strengthen trust from local residents, government officials and company employees, bolstering confidence that allsides can benefit from such practices. The Guidance report is a key resource to support companies in their efforts. It provides a common framework for companies and investors to structure their dialogue about the challenges of operating in high-risk environments, enabling them to communicate better and align their sustainability and financial objectives. This, in turn, can help ensurethat financial markets reward sustainability performance.

Aligning sustainability and financial objectives
Cooperation is crucial to managing risks in a sustainable manner and requires a dialogue among stakeholders at different levels. An important dialogue takes place among companies and the local communities in the areas where they operate. Often differences can be overcome by creating a forum in which all sides can freely express themselves and establish mutually agreed upon priorities. Cooperation should also involve officials from various government levels, including local, regional and national representatives. Typically, companies pay taxes and royalties to the national government, but local communities may see little of these proceeds. Residents of-ten expect the companies to provide schools and clinics that are the responsibility of the host government to build. Therefore, compa-nies need to manage such expectations carefully. This can play a vital role in creating or enhancing the dialogue between host governments and the people who live in the areas in which the companies operate.

"Operational managers in the field need to understand the company’s sustainability policy and its practical impact on their work."

Measuring the benefits
The key is to ensure that operational managers in the field understand the company’s sustainability policy and that employees are trained to understand the policy’s practical implications for their work. This is more easily achieved if the Corporate Social Responsibility policy is linked to business objectives. Companies are likely to do best when the incentives of the various stakeholders are aligned. Local acceptance is more likely if people living in the area reap direct economic benefits from the company’s operations. And governments will provide more support if royalties or tax revenues grow as a result of successful business operations. Furthermore, the royalties and tax arrangements should be defined and fully transparent from the onset of the company’s operations in the country, otherwise there could be a risk that it might be perceived as bribery or corruption. Finally, all of these benefits need to be measurable in order to see whetherthe steps taken help the company obtain its objectives or need to be revised. Establishing key performance indicators that can be measured regularly is critical to hold all stakeholders accountable. If the company can show measurable achievements, it is easier to build local and government support for its work in conflict-affected areas.

"If the company can show measurable achievements, it is easier to build local and government support for its work in conflict-affected areas."

Since 2010 and 2011, we have been engaging directly with various companies in the energy and resources sector in controversial regimes, including ExxonMobil, Rio Tinto and Alcoa. With a few exceptions, most of these companies have made good progress in areas such as human rights policy, stakeholder management and risk assessment. We are also conducting enhanced engagement proj-ects with companies that have breached the UN Global Compact in areas such as bribery, the environment or international labor standards. With the exception of one natural resources company that has been excluded from Robeco Group’s investment universe, the dialogue with all of these companies is still ongoing.
danielle-essink.jpgDaniëlle Essink
Senior Engagement Specialist
RobecoSAM Governance &
Active Ownership