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Columbia FDI PerspectivesPerspectives on topical foreign direct investment issues
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Riccardo Loschi ([log in to unmask])
The Columbia FDI Perspectives are a forum for public debate. The views expressed by the authors do not reflect the opinions of CCSI or our partners and supporters.
No. 325 February 21, 2022
How FDI in the mining sector can assist communities to achieve sustainable development
The mine opens and extracts minerals for 25 years. Then it closes, and the site is rehabilitated as required by law. End of story? From the perspective of an international investor, this is often the case—a classic example of the boom-bust cycle associated with large mines. However, the immediate impact of closing a mine can be devastating to local communities, businesses and people that had depended on the project. Acknowledging that closure impacts can be mitigated, governments, extractive companies, civil society, and other stakeholders have developed approaches that target long-term sustainable development. These approaches, which can be contractual, seek to strengthen communities’ capacity to develop sustainable economic activities while mines are in operation, and that can be maintained after they close.
Today, governments and industry have a stronger interest than in the past to achieve sustained development in communities affected by large projects. Increasingly, the trend is to move to a standardized, statutory approach to national investment regulation. Several tools are available now to promote immediate and sustainable development around mining projects. These include two complementary approaches: corporate social responsibility (CSR) programs and community development agreements (CDAs).
CSR programs. Large mines have always played a role in local economies—directly, as providers of employment, local procurement and infrastructure; indirectly, through economic multiplier impacts. However, community expectations can be higher than this, and increasingly investors need to earn “a social license to operate” by gaining and maintaining the support of the local population. Most large mines today have voluntary CSR programs, often emphasizing immediate needs—for example, building a school, providing uniforms for the kids’ soccer teams or organizing immunization efforts. The strength of CSR programs is that they address immediate needs. However, well-designed CSR programs can, but do not always, address sustainable development, development that will prepare affected communities for after the operations close. For example, how will teachers in the investor-built schools work and be paid after investors leave?
CDAs. As the name implies, a CDA focusses on development, which may include not only immediate community development, but also sustainable development to prepare communities for post-closure. Some CDAs are legally binding contracts; others take forms that are less enforceable. The parties to such agreements may include affected communities, the investors and possibly governments. Unlike CSR programs (that can be substantially unilateral, but need not be), CDAs are generally bi- or multi-lateral, with the obligations of the signatory parties defined in the agreements. CDAs may be required by statutory law (for example, where the mining law requires all large-scale mines to have a CDA) or created at the discretion of the interested parties. Over 40 jurisdictions now require CDAs for large-mining operations and more than 50 impose some sort of community development effort. To aid governments in mandating CDAs, the World Bank has published an in-depth source-book on CDAs, including model mining regulations that set out recommended regulatory and CDA content requirements. Following the World Bank’s publication, the United Nations published an updated version of model regulations. Other organizations have published various best-practice CDA guidance, including on how to address implementation challenges.
For governments that mandate CDAs, statutory law may address such topics as what types of projects are required to have CDAs, parties to agreements, mandatory agreement content, periodic CDA revision, negotiation capacity, agreement approval, alignment with government development plans, how new community members are to be handled, annual minimum expenditure and reporting requirements, penalties, and enforcement.
Although statutory law may set out certain CDA requirements, the specific content of a CDA needs to be tailored to the situation. Typically, a CDA should include the agreement’s objectives; beneficiaries; the party managing the agreement; the person or body representing the community; how the community, including marginalized groups, will participate in decision-making processes and implementation; a development program plan; community consultations on mine-closure planning; obligations of the community to the investor; how and when CDAs will be reviewed and updated; consultative and monitoring frameworks; how funds made available under the agreement are disbursed, what accounts must be kept and by whom and reporting and auditing requirements; grievance and dispute-resolution provisions; and the process by which agreements may be modified. These elements are also described in detail in the above-mentioned model CDA regulations.
The use of CSR and CDAs can (and should) play an important role in managing community expectations. They provide a means to achieve sustainable development for mine-dependent communities long after the mine ceases to operate.
* James Otto ([log in to unmask]) is the former Director and Professor of the Environmental and Natural Resources Advanced Degree Program at the University of Denver Sturm College of Law. The author wishes to thank Boris Dolgonos, Perrine Toledano and Louis T. Wells for their helpful peer reviews. Anne B. Read, “Defending home: How resistance movements are framed against mineral extraction in Cajamarca and Tambogrande, Peru,” International Development, Community and Environment (IDCE) (2017), p. 18. James Otto, “How do we legislate for improved community development?,” WIDER Working Paper 2017/102, April 2017, pp. 8 and ff. See Otto, op. cit., pp. 19-28.
The material in this Perspective may be reprinted if accompanied by the following acknowledgment: “James Otto, ‘How FDI in the mining sector can assist communities to achieve sustainable development,’ Columbia FDI Perspectives No. 325, February 21, 2022. Reprinted with permission from the Columbia Center on Sustainable Investment (http://ccsi.columbia.edu).” A copy should kindly be sent to the Columbia Center on Sustainable Investment at [log in to unmask].
For further information, including information regarding submission to the Perspectives, please contact: Columbia Center on Sustainable Investment, Riccardo Loschi, [log in to unmask]; Luca Jobbagy, [log in to unmask].Most recent Columbia FDI Perspectives
- No. 324, Charlie Garnjana-Goonchorn, “An Advisory Centre on International Investment Law: Is perfect the enemy of good?,” Columbia FDI Perspectives, February 7, 2022
- No. 323, Julien Chaisse, “FDI and sustainable development in the EU-China investment treaty: Neither high nor low, just realistic expectations,” Columbia FDI Perspectives, January 24, 2022
- No. 322, Mohammad Saeed, “Implementing an Investment Facilitation Framework for Development: Lessons from the Trade Facilitation Agreement,” Columbia FDI Perspectives, January 10, 2022All previous FDI Perspectives are available at https://ccsi.columbia.edu/content/columbia-fdi-perspectives.
Other relevant CCSI news and announcements
CCSI's 2022 Executive Training Program on Extractive Industries and Sustainable Development will take place online from June 6-17, 2022. The program is designed to equip participants with the necessary skills to promote the responsible development of the extractive industries sector in resource-rich developing countries and to encourage a rich dialogue about best practices from around the globe. The two-week training emphasizes the interdisciplinary nature of resource-based development. By working through real case studies and with practitioners and experts in the field, participants will be able to apply analytical tools and frameworks to the unique context of the extractive industries in their country. For more information, and to apply by March 31, 2022, visit our website.
- CCSI's 2022 Executive Training Program on Sustainable Investments in Agriculture will take place online from May 3-13, 2022. The training provides an interdisciplinary approach to addressing the challenges and opportunities of agricultural investments. The program is designed to equip participants with the necessary knowledge and skills to address some of the key challenges posed by international investments in agriculture, and to encourage a rich dialogue about practices from around the globe. Applications will be considered on a rolling basis until March 31, 2022. For more information, and to apply, visit our website.
- The 2020 edition of The Yearbook on International Investment Law and Policy (edited by CCSI's Lisa Sachs, Lise Johnson, and Jesse Coleman) is now available online and in hard copy. The 2020 edition includes policy, thematic and regional developments from 2020 in investment law and policy, including the impacts of the COVID-19 pandemic on investment flows and governance.
Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
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Columbia Center on Sustainable Investment
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