Conflict translates environmental and social risk into business costs

Other Contributors:

  • Rachael Davis
  • Anthony J. Bebbington
  • Martin Scurrah

Published by: Proceedings of the National Academy of Sciences (PNAS)

Sustainability science has grown as a field of inquiry, but has said little about the role of large-scale private sector actors in socioecological systems change. However, the shaping of global trends and transitions depends greatly on the private sector and its development impact. Market-based and command-and-control policy instruments have, along with corporate citizenship, been the predominant means for bringing sustainable development priorities into private sector decision-making. This research identifies conflict as a further means through which environmental and social risks are translated into business costs and decision making. Through in-depth interviews with finance, legal, and sustainability professionals in the extractive industries, and empirical case analysis of 50 projects worldwide, this research reports on the financial value at stake when conflict erupts with local communities. Over the past decade, high commodity prices have fueled the expansion of mining and hydrocarbon extraction. These developments profoundly transform environments, communities, and economies, and frequently generate social conflict. Our analysis shows that mining and hydrocarbon companies fail to factor in the full scale of the costs of conflict. For example, as a result of conflict, a major, world-class mining project with capital expenditure of between US$3 and US$5 billion was reported to suffer roughly US$20 million per week of delayed production in net present value terms. Clear analysis of the costs of conflict provides sustainability professionals with a strengthened basis to influence corporate decision making, particularly when linked to corporate values. Perverse outcomes of overemphasizing a cost analysis are also discussed.

DOI Link

10.1073/pnas.1405135111

CITATION

Franks, DM, Davis, R, Bebbington, AJ, Ali, SH, Kemp, D, Scurrah, M. 2014. Conflict translates environmental and social risk into business costs, Proceedings of the National Academy of Sciences. http://www.pnas.org/cgi/doi/10.1073/pnas.1405135111