CSR - How to make it right?

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  • Current situation at freeporthttp://theglobalrealm.com/2011/10/28/freeport-loses-midas-touch-in-indonesia/ environmenthttp://www.bbc.co.uk/news/world-asia-pacific-14417718
  • Entire project: http://kalinganagar.tatasteelindia.com/
  • Kalinganagar state is also known as Steel City, TataNagar or simply Tata.9-30% of people in Oriassa are locals.
  • Why Tata City? Tata Motors, Tata Steel, Tata Ryerson, and Tata MotorsThe plant in Jamshedpur is considered to be one of the best not only in India but the entire world. It has won numerous awards for that like World’s Best Steel Maker for three times by World Steel Dynamics,[1] Prime Minister's Trophy for Best Integrated Steel Plant for a record five times,[2] world renowned Deming Prize for major advances in quality improvement any many more.
  • Investment bank: ‘up-or-out’FCX: ‘kill-or-out’" focusing on various operational and manufacturing issues. The company's mission statement in 1998 was re-drafted to include: "Tata Steel enters the new millennium with the confidence of a learning and knowledge-based organization."
  • The purpose and the concept of organising oneself for self-help are discussed in detail. Relocated people are encouraged to organise themselves into groups that are capable of building micro enterprises. For women in particular, self-help groups are a means of beneficial involvement in economic activities that keep them away from social marginalisation.Functional literacy is facilitated by providing the people with relevant reading and writing skills.
  • Resources : $$ , experience
  • Part of the same collaborative project that produced A Resource Guide to Corporate Human Rights Reporting, this publication is a survey of recent sustainability reports by over 50 leading companies. It examines trends in current corporate disclosures on human rights and highlights good practice examples as well as ongoing shortcomings in reporting in this area. (UNGC/GRI/Realizing Rights, 2009)
  • This interactive online tool — revised from the Road-Testing Draft 2007 — is designed to provide companies with guidance on how to assess and manage human rights risks and impacts of their business activities. While the Guide may benefit different types of organizations, companies are the main and intended audience of the Guide to HRIAM. The Guide to HRIAM can be accessed free of charge, following registration. (UNGC/IFC/IBLF, revised 2010)
  • CSR - How to make it right?

    1. 1. Human Rights: How to execute it right? GBUS 3020 Case Analysis: Auditing for Human Rights Freeport-McMoran Cooper and Gold in Papua Jasper Yip | Kenneth Wu | Alexander She | Nikika Lee 24 November, 2011GBUS 3020 Case Analysis: Auditing for Human Rights: 1Freeport-McMoRan Copper and Gold in Papua
    2. 2. An analogy: Auditing and operations are intertwined … Oasis Airlines • Long-haul low-cost airline based in Hong Kong • Ceased operations after an accumulated loss of HK$ 1 billion within 2 years Business Theories Airline Industry Business Model Performance Evaluation • Deficit Auditing / Consulting • Cut cost • Add valueGBUS 3020 Case Analysis: Auditing for Human Rights: 2Freeport-McMoRan Copper and Gold in Papua
    3. 3. Our thesis today is … Stated Commitment Action Evaluation Underlying model AuditingWe ask ourselves:Why auditing, instead of how to audit? We answer the question: Auditing is not valuable, unless reforming the underlying model. GBUS 3020 Case Analysis: Auditing for Human Rights: 3 Freeport-McMoRan Copper and Gold in Papua
    4. 4. Background of FCX 1 FCX is a global company engaging in copper and gold mining. 2 FCX faced pressure from allegation in human rights abuse in Papua Province, Indonesia. 3 FCX responded to the pressure by requesting ICCA to conduct a third-party Human Rights AuditSource: Case StudyGBUS 3020 Case Analysis: Auditing for Human Rights: 4Freeport-McMoRan Copper and Gold in Papua
    5. 5. FCX’s responses Criticism Response 1 Insufficient knowledge of • Improve effectiveness of training programme HR policies • Revise its human rights training curriculum 2 Providing military • Discontinue this practice personnel using PTFI roads 3 Violation of Indonesian • Gray area in certain aspects labor lawsGBUS 3020 Case Analysis: Auditing for Human Rights: 5Freeport-McMoRan Copper and Gold in Papua
    6. 6. Let’s look at one news happened recently… “Worker unions have complained they are the lowest paid among all of Freeport’s global mining properties” “The week of suspended operations in July caused Freeport to lose about US$30 million per day in lost revenues.”Source: Asia Times. Freeport loses Midas touch in Indonesia (Oct 27, 2011).GBUS 3020 Case Analysis: Auditing for Human Rights: 6Freeport-McMoRan Copper and Gold in Papua
    7. 7. Auditing and improvement are not an identity... Auditing 2005 20111 Military abuses • Continue military • Drive the military violence around • Military allegedly • Under-table bribes funded by FCX2 Labour • Violation of • Lowest paid Indonesian labour among all FCX law global mines3 Environmental • Pollute the local • Destroy marine life abuse landscape near mineGBUS 3020 Case Analysis: Auditing for Human Rights: 7Freeport-McMoRan Copper and Gold in Papua
    8. 8. How Human Rights are practiced in FCX?GBUS 3020 Case Analysis: Auditing for Human Rights: 8Freeport-McMoRan Copper and Gold in Papua
    9. 9. Our thesis today is … Stated Commitment Action Evaluation Underlying model AuditingWe ask ourselves:Why auditing, instead of how to audit? We answer the question: Auditing is not valuable, unless reforming the underlying model. GBUS 3020 Case Analysis: Auditing for Human Rights: 9 Freeport-McMoRan Copper and Gold in Papua
    10. 10. Tata Steel is a true success of CSR in the mining industry. • One line of the business of Tata Group, the largest Indian conglomerate • Highly recognized in India with its community and national contribution • Exemplary contributions: – Retain 3 to 20% of its net profits for community development – Align company’s policies with the SPICE (Society, Partner, Investors, Customers and Employees) spiritSource: Forbes Indian (Nov 1, 2011). Tata Steel: An Unbeaten Track Record.GBUS 3020 Case Analysis: Auditing for Human Rights: 10Freeport-McMoRan Copper and Gold in Papua
    11. 11. When benchmarking Tata Steel against FCX … 1 Size of the Operating profit of $23.6 Operating profit of company billion (2011) $18.982 billion (2010) • United States • United States (Arizona, 2 Scale of • S. America (Brazil Colorado, New Mexico) production • Europe • S. America (Peru, Chile) • S. Asia (India, Iran, • Europe (Spain) Bangladesh, Vietnam) • S. Asia (Congo, Indonesia) Similar in both size and scaleSource: Annual Report 2010.GBUS 3020 Case Analysis: Auditing for Human Rights: 11Freeport-McMoRan Copper and Gold in Papua
    12. 12. They receive different perceptions of brand image … 3 Lines of business • Steel • Copper • Steel-related product • Gold • Silver Both belong to the exhaustive industry. How about the response to their mega project? Mega steel plant in Grasberg mine in Kalinganagar state, India Papua province, Indonesia 4 Perceptions of • Awarded with ‘UN • The community brand image Global Compact City’ remained poorGBUS 3020 Case Analysis: Auditing for Human Rights: 12Freeport-McMoRan Copper and Gold in Papua
    13. 13. Kalinganagar in India progressed from the poorest region in India to … GDP per capita Rank State / Union territory (US$, 2009) 35 Bihar 343 34 Nagaland 453 33 Uttar Pradesh 551 32 Manipur 602 31 Assam 626 30 Madhya Pradesh 631 29 Jharkhand 680 18 Dadra and Nagar Haveli Territory 1,050 India (average) 1,087 17 Arunachal Pradesh 1,090 2 Chandigarh Territory 3,668 1 Goa 3,745 Kalinganagar (city): US$3,100 Source: UNGBUS 3020 Case Analysis: Auditing for Human Rights: 13Freeport-McMoRan Copper and Gold in Papua
    14. 14. Poverty in Papua remains serious … The Papua’s poverty remains higher than the national average. 50 46.0 41.5 40.8 40 44.4 37.0 41.8 40.8 41.3 39.3 Poverty rate (%) 38.7 38.7 30 35.0 19.1 20 18.4 18.2 17.4 16.7 16.7 17.8 16.6 15.4 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Papua Papua Barat NationalSource: Central Bureau Statistic (BPS) Extracted: World Bank (2009). Spending for Development in Papua. Source: Central Bureau of Statistics (BPS), various publications. GBUS 3020 Case Analysis: Auditing for Human Rights: 14 Freeport-McMoRan Copper and Gold in Papua
    15. 15. The living conditions of the community has no obvious improvement Value Rank in Papua (out of 29) Human Development Index (BPS) 2006 60.1 21 Population (BPS) 2006 50,766 20 Net Enrollment Rate for Primary % (Susenas) 2007 86.7 21 Net Enrollment Rate for Junior % (Susenas) 2007 47.2 14 Net Enrollment Rate for Senior % (Susenas) 2007 23.8 20 Household with access to safe water % (MoH Survey) 20.8 19 2008 Household with access to electricity % (Susenas) 2007 47.6 16 Extracted: World Bank (2009). Spending for Development in Papua. Source: BPS, Susenas, MoH Survey.GBUS 3020 Case Analysis: Auditing for Human Rights: 15Freeport-McMoRan Copper and Gold in Papua
    16. 16. What is ‘understanding the local needs’? Relationship 1 Trust 2 Employment 3 Cooperation Empowerment Embracement 4 EnhancementGBUS 3020 Case Analysis: Auditing for Human Rights: 16Freeport-McMoRan Copper and Gold in Papua
    17. 17. ‘Localized’ ideas, ‘Localized’ people Economic rehabilitation Employment Social Empowerment rehabilitation Embracement Enhancement Cowherd to Office Assistant Entrepreneurial of Maa Pickles Women Self- Help Group Right to Information (RTI)GBUS 3020 Case Analysis: Auditing for Human Rights: 17Freeport-McMoRan Copper and Gold in Papua
    18. 18. Enhanced collaboration among 4 parties is required Freeport Local Local Local workers government community Empowerment, Embracement, EnhancementGBUS 3020 Case Analysis: Auditing for Human Rights: 18Freeport-McMoRan Copper and Gold in Papua
    19. 19. FCX - Workers: Open up two-way communication channel Capitalize the local specialties Local expertise Local Freeport workers Global resources Motivate local workers towards FCX’s goals • Provide financial and social support • Provide incentive schemesGBUS 3020 Case Analysis: Auditing for Human Rights: 19Freeport-McMoRan Copper and Gold in Papua
    20. 20. FCX – Local government: Initiate regular meetings Problems Solutions 1 Human rights • Clarify stance against human right abuses • Provide human rights training 2 Security force • Avoid government’s interference over operations • Increase use of private armed security providers Improve mutual understandingGBUS 3020 Case Analysis: Auditing for Human Rights: 20Freeport-McMoRan Copper and Gold in Papua
    21. 21. FCX – All stakeholders: Encourage engagement on discussing security arrangements Empower human rights compliance officers Freeport • Ensure human rights violations are resolved timely Local Local workers government • Hold regular forums to facilitate interactions • Keep FCX informed of human rights performance Local Local and communities Int’ NGOs of relevant public security forcesGBUS 3020 Case Analysis: Auditing for Human Rights: 21Freeport-McMoRan Copper and Gold in Papua
    22. 22. Reforming the underlying model brings value to auditing. Stated Commitment Action Evaluation Underlying model AuditingWe ask ourselves:Why auditing, instead of how to audit? We answer the question: Auditing is not valuable, unless reforming the underlying model. GBUS 3020 Case Analysis: Auditing for Human Rights: 22 Freeport-McMoRan Copper and Gold in Papua
    23. 23. Recommendations on improving HR audit Criticism Recommendation 1 Insufficient awareness of • Human rights-aware environmental abuse approach 2 Staff unwilling to • Qualified and experienced disclose details investigation team Short time spent on • Timely and regularly audit 3 investigationGBUS 3020 Case Analysis: Auditing for Human Rights: 23Freeport-McMoRan Copper and Gold in Papua
    24. 24. Mining Industry is experiencing an unprecedented global expansion … … 60% of total recent exploration expenditure is directed at developing regions Total exploration spent (US$ millions) Developed regions 7 200 Developing regions 8% United StatesMining companies areoperating internationally … 11% Australia 5 600Global mining Countries of 8%companies operation 19% Canada 13% 26 3 900 8% 19% 18% ROW 15% 7 16% 4% Asia 2 300 20% 4% 16% Africa 16% 7% 17 15% 17% 22% 4% 11% 16% 4% 24% Latin America 17% 23% 19 22% 24% 2003 2004 2005 2006 Extracted: McKinsey (2009). Achieving Sustainable Development in Mining Source: Bloomberg, MEG GBUS 3020 Case Analysis: Auditing for Human Rights: 24 Freeport-McMoRan Copper and Gold in Papua
    25. 25. But we forgot one question: why auditing? One extra stakeholder: NGOs One extra stakeholder: The governmentNo.of NGOs in consultative status with UNESCO3000 2 new agreements ECOWAS2500 per year Account Ability 1000 No. of NGOs2000 registered with Initiative for Responsible Mining Assurance UNESCO tripled Council for Responsible Jewellery Practices1500 from 1995-2007 Towards Sustainable Mining1000 Partnering Against Crime initiative500 Kimberly Process 0 Equator Principles Intergovernmental Forum on Mining, Minerals and Metals and 1940 1950 1960 1970 1980 1990 2000 2010 Sustainable Development Extractive Industry Transparency Initiative International Council on Mining and Metals One extra stakeholder: FIs Diamond Development Initiative Communities and Small Scale Mining Equator Principles FTSE 4 Good A financial industry benchmark for determining, Cyanide Management Code assessing and managing social & UN Global Compact Voluntary Principles on Security and Human Rights environmental risk in project financing Millennium Development Goals 2000 2005 2009 Extracted: McKinsey (2009). Achieving Sustainable Development in Mining Source: : Google; Factiva, McKinsey Survey, Equator Principles website GBUS 3020 Case Analysis: Auditing for Human Rights: 25 Freeport-McMoRan Copper and Gold in Papua
    26. 26. Summary: Redefine the purpose of human rights audit, localize the commitment in human rights Case Study: Tata Steel as the role model Stated commitment is based on the local situation Universal standards Local situation Stated Commitment Action Evaluation • Professionalism Auditing • Methodology Multilateral security agreements Local workers Global CSR • Companies are operating Top Management internationally • Increasing expenditure from developing countries Local government Local communities Local and Int’ NGOsGBUS 3020 Case Analysis: Auditing for Human Rights: 26Freeport-McMoRan Copper and Gold in Papua
    27. 27. Supplementary slide: Corporate Human Rights Reporting: Analysis of Current Trend Areas for Improvement • Presenting clear maps within human rights reports • Collecting and sharing baseline data in reports on local communities • Adopting best practice in disclosure on employee and community grievance mechanisms • Exploring “traceability” in supply chain reporting • Developing proactive approaches to human rights reportingSource: United Nations Global Impact /GRI/Realizing Rights, 2009)GBUS 3020 Case Analysis: Auditing for Human Rights: 27Freeport-McMoRan Copper and Gold in Papua
    28. 28. Supplementary slide: Guide to Human Rights Impact Assessment and Management• This interactive online tool• Designed to provide companies with guidance on how to assess and manage human rights risks and impacts of their business activitiesSource: United Nations Global Impact /IFC/IBLF, revised 2010)GBUS 3020 Case Analysis: Auditing for Human Rights: 28Freeport-McMoRan Copper and Gold in Papua
    29. 29. Supplementary Slides Overview and Investigation of Tata Steel in Kalinganagar Details of the project: http://kalinganagar.tatasteelindia.com/ GBUS 3020 Case Analysis: Auditing for Human Rights: 29 Freeport-McMoRan Copper and Gold in Papua
    30. 30. Supplementary Slide Impacts: Orissa Project (2005) • Posco and Govt: “2,000 people (400 households) to be relocated” • 2001 census: “30,000 farmers to lose lands and livelihood” • Of the 4,004 acres identified for the project, 2,958.79 acres is technically “forestland”, but people have lived in these lands for generations, hence the above discrepancy. • Main livelihood: Betel vineyards, cashew, paddy, coconut, supari, kewra, pisciculture. • Govt and POSCO claim creation of 48,000 jobsGBUS 3020 Case Analysis: Auditing for Human Rights: 30Freeport-McMoRan Copper and Gold in Papua
    31. 31. Supplementary Slide Orissa Project (2005): Criticism and Responses Criticism Response 1 Job-ability mismatch • Increase compensation • Provide more employment (48,000 jobs after project start, 467,000 jobs in construction phase) • Set up Woman Self-Help Groups • Empower SME entrepreneurship among locals 2 Insufficient skill sets • Provide language and skills training Language barrierGBUS 3020 Case Analysis: Auditing for Human Rights: 31Freeport-McMoRan Copper and Gold in Papua
    32. 32. Supplementary Slide 10 Principles of UN Compact CityGBUS 3020 Case Analysis: Auditing for Human Rights: 32Freeport-McMoRan Copper and Gold in Papua
    33. 33. Supplementary Slide Example: SME entrepreneurship Source: CNBC, India’s No.1 Financial News (http://www.moneycontrol.com/news-topic/tata-steel-parivar/video-kalinganagar-tata-steel- parivar-members-attain-un-millenium-development-goals_1oTFLBwkbvw.html)GBUS 3020 Case Analysis: Auditing for Human Rights: 33Freeport-McMoRan Copper and Gold in Papua
    34. 34. Supplementary Slide Example: Woman empowerment Source: Tata CSR Report 2008-2009 (http://www.tatasteelindia.com/corporate-citizen/pdf/csr-08-09.pdf)GBUS 3020 Case Analysis: Auditing for Human Rights: 34Freeport-McMoRan Copper and Gold in Papua
    35. 35. Reference Business Leader Initiative on Human Rights http://www.blihr.org/randa.html Corporate Human Rights Reporting: Analysis of Current Trend http://www.globalreporting.org/NR/rdonlyres/4C5DB4C6-5084-4A84-BE51- 0D134B3B5A2E/3605/Human_Rights_analysis_trends.pdf Human Rights and Business Dilemma Forum http://human-rights.unglobalcompact.org/case_studies/security-forces-and-human-rights Core values of Freeport Mcmoran http://www.fcx.com/envir/wtsd/pdf-wtsd/2008/PTFI_2008/intro.pdf Freeport abuses at the Grasberg gold mine http://www.freewestpapua.org/docs/risky_business.pdf http://www.twnside.org.sg/title/mine-cn.htm The politics of power: Freeport in Suhartos Indonesia http://books.google.com/books?id=CpT_HleBbEMC&printsec=frontcover#v=onepage&q&f=falseGBUS 3020 Case Analysis: Auditing for Human Rights: 35Freeport-McMoRan Copper and Gold in Papua

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