The resource curse of corporate social responsibility: The case of Rio Tinto

Corporate social responsibility (CSR), the vague term used to describe the voluntary self-regulation undertaken by companies to promote positive socio-economic and environmental outcomes, is especially prevalent in the mining industry. Yet the extent that CSR fulfils its ambitiously stated aims and thus represents large-scale mining companies as the honourable middlemen of Mother Earth is, frankly, highly debatable.

The western model of CSR spread into developing countries on the back of multinational mining, oil and gas companies during the period of enforced liberalisation of structural adjustment. The emphasis on CSR in the extractive industry is quite possibly a reflection of its preponderance for negative externalities – from environmental degradation, loss of biodiversity, pollution, displacement of indigenous and local communities and social conflicts. Consequently, extractive companies are under great pressure from environmental, indigenous and human rights movements, who are concerned about the negative social and environmental impacts of extraction.

Often, CSR in the mining industry is little more than a public relations exercise, with no tangible reality to support its elaborate rhetoric. In the case of Rio Tinto, the British-based Australian mining giant with operations on 6 continents, its most recent sustainable development report showcases the amount spent ($331 million) on 2,200 socio-economic programmes worldwide. It details how Rio Tinto is seemingly in line with all major international standards, from the United Nations Human Rights charter, to the management of resettlement of displaced communities under the World Bank’s International Finance Corporation’s Performance Standard 5: Land Acquisition and Involuntary Resettlement (p.36). It also highlights that Rio Tinto is a co-signatory of an ostensible external regulator’s (the International Council for Mining and Metals) sustainable development principles. The ICCM is in fact entirely toothless: it is funded and maintained by the largest mining companies in the world, including Rio Tinto.

Yet, Rio Tinto’s report has only a smattering of case studies, none of which has any tangible quantitative or qualitative evidence to support Rio Tinto’s claims. Additionally, Rio Tinto’s website shows only five anecdotal case studies of CSR practice in developing regions (Africa, Asia, South America).

According to Dr. Gavin Hilson, an expert on the mining industry, the largely anecdotal analyses of CSR buffers against the criticism mounted against the mining industries recent foray into the developing world. This foray often bypasses local and international law. During its time extracting in South America, Africa and South East Asia, Rio Tinto has been the recipient of 16 cases of resistance, with locals angered by Rio Tinto’s unsound and dangerous practices, including but not limited to: biodiversity loss; soil contamination; soil erosion; deforestation; surface water pollution; displacement; loss of livelihoods; violations of human rights; lack of job security; and land dispossession.

Furthermore, a recent report by the global union IndustriALL, which represents more than 50 million industrial workers worldwide, criticised Rio Tinto for its “blind pursuit of profit at any cost” and for not “operating in a sustainable manner”. The report included details of the apparently avoidable deaths of 40 workers in 2013 on Rio Tinto operations, the consistent refusal to adhere to Free, Prior and Informed Consent (FPIC) for indigenous communities prior to mining, and avoidable uranium mine spillages.

The reasons why CSR in developing countries has failed to match rhetoric with reality are manifold. As natural resource industry expert Ellen Morgan argues, holding companies responsible for contributing to the sustainable objectives of host countries in the developing world is both politically and morally attractive, but it is no panacea. CSR is primarily based on voluntary principles, none of which are supported by any form of implementable law. Furthermore, multinational extractive companies often produce third-party sustainable development progress reports from actors with debatable impartiality. In the case of Rio Tinto, their ‘independent assurance report’ was curiously produced by PriceWaterhouseCoopers, a major multinational accountancy firm and the de-facto accountant of Rio Tinto.

Furthermore, the developing countries that host multinational extractive companies often do not have the political capacity or the financial clout to hold the companies to account if they transgress their previously stated promises of CSR. There is often a financial, organisational and human capital disparity between rich MECs with their legions of lawyers, contract negotiators and public relations experts and the often impoverished, indebted and dysfunctional host developing states. For example, Rio Tinto generated revenue of US$51.1 billion in 2013, which is more than twice that of the gross domestic product (GDP) of Madagascar for example, a country in which it has been accused of severe human rights violations.

Moreover, it needs to be explicitly stated that multinational extractive companies are not averse to engaging host states in a court of law. For example, Canadian mining major Infinito Gold is suing the Costa Rican government for more than USD$1 billion in the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID), for allegedly violating the Costa Rica-Canada Bilateral Investment Treaty by denying the company the right to mine in a protected rainforest.

Often, the host states, NGOs and local communities’ ability to hold MECs to account is further constrained by the murky world of subsidiary ownership that is prevalent in developing countries. This not only constrains accountability but also the ability to collect appropriate taxation to such an extent that it is often actually deplorable that MECs espouse virtues of transparency and fairness as principles of their CSR. MECs often have a plethora of subsidiaries that operate in developing countries. For example, according to the Company Structural Secrecy Index, Rio Tinto has 509 fully- or partly-owned subsidiaries, while mining major Anglo American has 766. The extent to which a subsidiary’s negative externalities and poor CSR practice blemishes the reputation of the mother company is limited: subsidiaries are dispensable and their names can be changed. Also, bizarrely, subsidiaries can even technically own subsidiaries – further muddying the waters.

The Tax Justice Network explains that the profits gathered by MECs in developing countries are being siphoned off to subsidiaries in tax havens – to such an extent that developing countries are losing billions of dollars each year. For example, According to its Chamber of Mines, Africa’s largest copper producer – Zambia – is estimated to lose as much as US$2 billion annually through corporate tax avoidance structured by repatriation of revenues to foreign subsidiaries.

From a global perspective, there is also very little consistency to CSR initiatives. They can fluctuate wildly from company to company or region to region. They also can have only a very tenuous connection to ‘sustainable development’ processes.

Worst still, CSR may actually undermine the formation of a fully functioning democracy with appropriate taxation mechanisms in place. As Ellen Morgan argues, CSR can displace accountability for the provision of social services or environmental protection – responsibilities that are at the heart of the state-citizen social contract. Rather than rely upon CSR to deliver an illusion of sustainable development, host governments must surely focus upon rebalancing the often-inequitable resource extraction taxation regimes in place in most developing countries, and use the taxation revenue to provide adequate social services and to regulate MEC behaviour more effectively.

Ultimately, CSR can never be an excuse for the displacement of accountability onto largely untouchable extractive companies, or for the tacit acknowledgement that multinational extractive companies actually pay very little in taxation relative to revenue generated in developing countries.

SOURCE: http://jamesmitchellmining.wordpress.com/2014/05/08/the-resource-curse-of-corporate-social-responsibility-the-case-of-rio-tinto/

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