This article is to discuss how social investments can yield operational, reputational, and financial benefits for companies—and not just wasting financial resources without clear results—especially in industries as sensitive and high-stakes as mining. It is based on author’s speech in EGA Briefings Annual Conference, on November 7th 2024.
Mining operations are typically extensive and often situated near rural or underserved communities. These circumstances present unique opportunities—and obligations—for companies to invest in ways that benefit both the community and the business. As the world transitions to a low-carbon economy, the demand for minerals and metals needed for electrification, renewable energy, and energy storage continues to grow.
It is no surprise that mining and processing activities are expanding in many parts of Indonesia where these critical minerals are found. However, local communities must be ensured to be the beneficiaries, and not the sufferers, of these developments. Only then can the energy transition be just.
My aim here is to share examples and strategies to highlight the broad scope of social investment. I’ll also discuss how strategies like quick impact projects and empowerment initiatives, coupled with effective communication, are vital for maximizing the value of these investments.
Diverse Scopes of Social/Community Investment
According to popular literature on social investment, there are three scopes of social investment, namely community projects, employment opportunities, and local business development. However, I would like to argue that donation or discretionary funds is also an important part. Indonesia still has a high poverty rate, is full of national and religious holidays, and relatively often experiences disasters, making companies need flexible funding schemes to respond to sudden aid needs.
Community Projects: Mining companies have the power to transform communities through carefully targeted projects. Investing in education, healthcare, and infrastructure has long-lasting effects. Many companies helped establish vocational training programs in engineering and mining for local youth. This not only addressed a local skills gap but also created a pipeline of talent for their own operations. Projects like these build goodwill, strengthen local capacity, and create direct operational benefits.
Employment Opportunities and Skill Development: Employment is one of the most immediate and impactful ways mining companies can support communities. Hiring locally not only builds trust but also reduces costs associated with relocating workers. Mining companies like Freeport Indonesia have established training center in Central Papua to skill local workers for higher-paying jobs within the company and elsewhere. This initiative not only lifted local incomes but also built a more skilled and committed workforce, which translated to operational efficiency for the company.
Local Business Development: Supporting local enterprises as part of a social investment strategy adds another layer of impact. By investing in local suppliers and small businesses, mining companies like Vale Indonesia in South Sulawesi helped create a thriving local economy that not only provided supplies and services for the mine but also bolstered the community’s economic resilience. By integrating local businesses into their supply chain, mining companies can improve their own operational sustainability while fostering broader economic development.
Discretionary Funds and Flexible Community Assistance: Some companies establish discretionary funds for flexible, community-driven projects that address specific and immediate needs. Many companies include community development funds that enable local leaders to propose and oversee projects they deem important. Discretionary funds allow companies to act quickly and adapt their support to evolving community needs, enhancing their responsiveness and the relevance of their investments. However, companies need to be careful to ensure that these funds are truly for the needs of society, especially vulnerable groups, and do not end up in the hands of elites and their own networks.
Strategic Approaches: Quick Impact and Empowerment
The approach companies take in their social investments is crucial. I want to highlight two effective strategies: quick impact projects and empowerment initiatives.
Quick Impact Projects: Quick impact projects meet pressing community needs and build immediate goodwill. These can include providing access to clean drinking water, healthcare, or housing improvements. Borneo Indobara in South Kalimantan initiated a water project to address a community’s urgent water shortage. This quick response had an immediate positive effect on its relationship with the community, reducing social tension and gaining trust that opened doors for more in-depth engagement.
Empowerment Initiatives: While quick impact projects are vital for immediate results, empowerment initiatives lay the groundwork for long-term success. Empowerment initiatives involve building skills, providing resources, and fostering independence among community members. Agriculture and business training programs in Indonesia are a strong example. Through training and support, local farmers and entrepreneurs became more resilient and economically independent, which, in turn, created a stable and prosperous community that valued companies presence. Empowerment initiatives are more sustainable than one-off projects, as they help communities thrive beyond the lifespan of the mine.
Mining companies in Indonesia still have much to learn about the long-term objective of social investment in this industry. When reviewing global standards, frameworks, and best practices, it’s clear that social investments should be designed to ensure communities achieve well-being, self-reliance, resilience, and sustainability before mining companies conclude operations and exit the area. However, social investment planning here tends to be short-term, often annual and rarely extending beyond a five-year guideline. This limited timeframe makes it challenging to achieve these essential conditions. As a result, it’s not surprising that the mine closure phase is frequently marked by disputes or even conflicts with the community.
The Power of Communication
No social investment program can reach its full potential without effective communication. Therefore, stakeholder mapping using a robust methodology is essential for developing a strategy to foster engagement with stakeholders. This includes a communication strategy, which is a prerequisite for building meaningful engagement.
Transparency, clarity, and continuous engagement are key to ensuring that communities understand the intent and impact of a company’s efforts. Communicating through local languages, respecting cultural nuances, and providing updates on project progress are essential for building trust.
Mining companies should work closely with community leaders to convey the purpose and expected outcomes of their social programs. By hosting regular forums and allowing community members to share their thoughts, companies built a feedback loop that enhanced community buy-in and addressed concerns early on, which significantly reduced the risk of project disruptions.
Transparent communication also strengthens a company’s reputation with external stakeholders, including investors, lenders, academia, NGOs, and governments. When communities speak positively about a company’s social investments, it reinforces the company’s image as a responsible and trustworthy partner.
Lessons Learned for Mining Companies and Beyond
So, what are the key takeaways for mining and other industries?
First, Understand Community Needs and Act Responsively: Listening to and understanding the community’s needs is fundamental. Engaging with community leaders and members to co-create programs ensures that investments are well-received and effective. Flexibility is key—communities evolve, and so should investment strategies.
Second, Focus on Empowerment for Long-Term Impact: Projects that build capacity and empower communities foster long-term partnerships and reduce dependency. By focusing on empowerment, companies ensure that communities are resilient and economically stable even after mining operations conclude. However, companies should not overlook the significant benefits of quick impact projects and discretionary funds, each offering unique advantages for building strong relationships with the community.
Third, Integrate Local Business and Employment into Operational Plans: Supporting local employment and business development creates economic multipliers that benefit the entire community. By integrating these elements into operational planning, companies can strengthen local economies and their own supply chains.
Fourth, Adapt and Measure Impact: Companies need to measure the environmental, social and economic impact of their investments and remain adaptive in their approach. A responsive investment strategy that adjusts based on community feedback and changing needs is a hallmark of a responsible and resilient company.
And, lastly, Leverage Strategic Communication: Establish clear, open, and consistent communication with communities and other external stakeholders. Transparency not only builds trust but also safeguards against misinformation and misunderstandings that can lead to operational and reputational risks.
In conclusion, strategic social investments are no longer optional but essential for mining companies to thrive. In a world where ESG increasingly serves as a measure of corporate performance, including in the mining industry, strategic social investments has always been a key component of the “S” dimension.
This holds true not only for natural resource industries but for many other sectors as well. They create operational stability, enhance reputational value, and generate financial returns. Mining companies that successfully embed these principles into their operations not only secure their license to operate but also pave the way for a lasting, positive legacy.
Depok, 11 November 2024
