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NO STONE UNTURNED

The mining industry outspends every other sector in CSI, but is it enough?

NO STONE UNTURNED

The mining industry outspends every other sector in SA when it comes to corporate social investment (CSI). The top 10 mining producers in the country spent a noteworthy R2.4 billion on community development in 2012, according to the Chamber of Mines of South Africa.

‘The mining sector contributes about half of all CSI spend in South Africa, but this contribution comes in various forms. Some of it is legislated and it’s difficult to pinpoint the exact figure,’ says Reana Rossouw, MD of Johannesburg-based firm Next Generation Consultants, which specialises in development issues.

Her research found that the sector is legislated through the BBBEE scorecard and companies are expected to contribute a minimum of 1% of net profit after tax to socio-economic development (SED). This includes CSI. She says: ‘But also remember, the sector has to contribute to local economic development – in the geographic area where the specific mine operates – through its social and labour plans [SLP], on which they have to report to the Department of Mineral Resources.

‘These figures exclude other obligations as part of their licence-to-operate conditions, such as enterprise development, skills development and housing provision.

‘To get a real sense of the size of the sector’s contribution, one can painstakingly go through their sustainability and integrated reports to see what is being spent per annum. But that this figure is in the billions is not disputable.’

The 16th edition of the CSI Handbook, published by Cape-based consultancy Trialogue, says mining companies spent an average of R62 million on CSI initiatives in 2013. This is slightly less than the previous year, but significantly more than the next largest contributors (financial services and retail).

Trialogue director Nick Rockey states that much of the money goes to developing schools, clinics, houses and roads. ‘Infrastructural projects tend to be efficiently managed. Mines deploy their engineers to oversee the projects and often tap into their procurement processes to source the required materials,’ he states in the handbook.

‘Sometimes the SED commitment even includes a small budget for maintaining the infrastructure for a period of time after the project is completed. However, the obligation of the mine does not extend to an indefinite maintenance programme or to ensuring the clinic or school is fully functional. Results are based on successful delivery of infrastructure, not on the outcomes of what the infrastructure was intended to achieve in the first place.’

Impala Platinum works with the Chamber of Mines to find successful common solutions to some of the challenges faced by the industry. The platinum group metals producer provides an explanation of its investment strategy in its 2014 sustainability report.

‘While our immediate focus is to bring the Rustenburg mines back to full production … we are deeply conscious of the need to invest further in anticipating and being responsive to society issues,’ says Implats CEO Terence Goodlace.

His latest performance highlights include the development of a second home-owner programme, Platinum Village in Rustenburg. The R1 billion flagship project has a final target of 2 420 units, expected to be completed over the next three years.

The delivery of these quality, bonded houses to employees is an important step towards normalising their living and working environment, he says.

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‘Companies that seek to create “shared value” endeavour to incorporate social issues into their core business strategies’

REANA ROSSOUW, MD, NEXT GENERATION CONSULTANTS

The company is in the process of developing the Platinum Village schools project, which will mirror a project near the Sunrise View development (1 717 houses at a cost of R406 million, now owned by employees) that was completed in 2013. The new primary and secondary schools serving the new housing estate has 1 372 learners, 39 educators and 10 support staff.

David Noko, AngloGold Ashanti’s executive vice president of sustainability, says: ‘Of course it’s important to provide returns to our shareholders, but we know, too, that we must operate for the good of all stakeholders. That’s not charity, it’s good business.’ He says the group aims to use its CSI projects to create ‘shared value’ by contributing to the development of its host communities.

Shared value is based on the long-term profitability of corporate giving. It’s the next step in the changing CSI landscape that has moved from short-term philanthropy to a collaborative approach that addresses long-term societal needs with a business model.

Rossouw says: ‘For a number of my clients in the mining sector, we are now working on “shared and blended value” models. Creating shared value moves CSI from reacting to external pressures to defining social priorities based on a clear understanding of business goals, the corporate impact on society, and the effect of social issues on business competitiveness. Companies that seek to create “shared value” endeavour to incorporate social issues into their core business strategies to benefit both society and their own long-term competitiveness,’ she says.

‘Therefore mines have come to realise that it’s both in their business’ interest as well as the community’s interest to work together to create this shared value. This will hopefully lead to more sustainable development in South Africa.’

Rossouw lists Anglo American’s $100 million eMalahleni water treatment plant as a successful example of a shared value model. The joint project between Anglo American’s Thermal Coal and BHP Billiton near Witbank reclaims underground water from its mining operations and, through treatment, reverts it to drinking-water standard.

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The initiative has created permanent jobs and much needed water for the community while offsetting more than half of its operating costs. It also supports a water-bottling business for small entrepreneurs and reclaims gypsum waste (a byproduct of the water reclamation). The waste is used to make bricks, which are then used to build affordable houses for employees. The project has been replicated by other mining operations.

Mining companies tend to direct a proportion of their CSI spend towards health and welfare issues, such as primary healthcare and HIV/Aids prevention and management, as the disease poses a serious threat to productivity.

Diversified resources group Exxaro spent R57 million on community development in 2013. Most went to enterprise development, education and infrastructure but its HIV awareness campaign saw the best social return on investment.

‘These interventions address core elements of human life and welfare that have long-term impacts on beneficiaries (individuals) and significant co-benefits for others (families and communities),’ the company states in its annual report.

A KPMG assessment of Exxaro’s mine community development revealed that the social return on the HIV/Aids awareness initiative was 1:5.12 – every R1 that the company invests or plans to invest generates a social and economic impact of R5.12.

By comparison, the overall weighted average of the community investment portfolio amounts to 1.32. This shows that the majority of projects have a return that exceeds the initial investment.

Veti Mongezi, Exxaro’s GM of safety, health, environment and community, says: ‘The results offer excellent insights into common themes across projects that are thriving, as well as those that are struggling to achieve their objectives. We now have an excellent basis on which to move forward and report more transparently to our shareholders, employees and community stakeholders on the impact of our investments.’

This is what CSI should be about: creating the highest socio-economic value possible with your investment. In other words, getting bang for your buck. It’s not enough that the mining sector outspends every other sector in SA, it should also generate the biggest CSI impact in uplifting its workforce and host communities.

By Silke Colquhoun
Image: Mr.Xerty © www.nomastaprod.com