Corruption, Mining & Sustainability

Anti-mining activists often cite corruption as a case against mining. Source: K. Bacongco

Evidence of corruption often leads to community opposition to mining projects. Source: K. Bacongco

This week, I read another damaging story about corruption involving mining companies and the Guinean Government revolving around Simandou, the vast undeveloped iron ore resource in Guinea. As you may know, there have been several allegations of corruption surrounding mining licenses granted various mining giants relating to the iron ore resources in Guinea. With Rio Tinto alleging impropriety on the part of Vale and others. Now it is Rio Tinto’s turn to explain its actions in Guinea to its stakeholders.

The new allegation of corruption made me want to share some thoughts with you on corruption, mining and sustainable development. Let me first say that the alleged actions are unacceptable (apparently, even to Rio Tinto’s current leadership) and should be condemned categorically. However, these allegations, and many like it, raise concerns about whether we have made any progress in this area.

In recent years, there has been a strong understanding of the fact that resource development (including mining) have significant impacts on governance of the host community/nation. Two of the ten principles of the International Council on Mining & Metals (ICMM), a leading industry group that Rio Tinto belongs to, addresses corruption. Many other industry leaders, academic voices, and other stakeholders have stressed the importance of strengthening governance institutions and operating in a transparent manner.

Principle 1: Apply ethical business practices and sound systems of corporate governance and transparency to support sustainable development.

Principle 10: Proactively engage key stakeholders on sustainable development challenges and opportunities in an open and transparent manner. Effectively report and independently verify progress and performance.

However, incidents like these continue to emerge. Which shows me that, despite the many speeches where industry leaders highlight the importance of governance and transparency, it is not accompanied with the right level of commitment. Or perhaps, it is far more difficult to operate, at least in certain jurisdictions, in a manner consistent with these principles than we realize. This leads me to my second point.

Unlike other industries, mining companies have to operate where the resources occur. In a competitive market, a company that wants to compete has to discover and develop the best mineral resources. And sometimes these resources exist in countries with questionable ethical standards (at some or all levels of government). And a pay to play attitude makes it difficult for even a well intentioned executive to operate ethically. In this regard, the Extractive Industries Transparency Initiative (EITI) and the various disclosure regimes surrounding it will provide some needed pressure on both government and industry to work ethically. However, we need the continued vigilance of citizens and non-governmental organizations to hold all parties accountable.

Mining executives want to develop mineral resources in a manner that maximizes their return on investment. And there is no shame in that. However, as an industry, we have come to understand that when we develop mineral resources in a manner that is not sustainable but only maximizes return on investment, the socio-political risks increase, significantly. Some choose to ignore this fact and occasionally believe they can develop resources without creating shared value or break other known best practices for sustainable development of mineral resources. As I am sure executives at Rio Tinto are finding out, the risks are not worth it.

Finally, I think all of us (miners or not) have a responsibility to create societies in which unethical business behavior is punished by law and there is rule of law. It is easy to blame resource development for its corrupting influence. However, let’s note that societies that have built strong legal systems against corruption have done so while developing their mineral resources to facilitate development. So I continue to believe the solution is to build strong legal systems against corruption (we can never prevent anyone from being corrupt but we can ensure that corruption is always punished when it comes to light) and also develop mineral resources to further economic development in a sustainable manner. I will like to hear your thoughts in the comment box below.