China drafts environmental guidelines for firms investing abroad

China is drafting environmental guidelines for companies investing in or providing economic aid to overseas countries.

 The work is being undertaken by the Chinese Academy for Environmental Planning (CAEP), in cooperation with the Global Environmental Institute (GEI) and the University of International Business and Economics. The first draft is now being discussed, the GEI said.

 A report released by the CAEP last week said the country lacked comprehensive environmental protection policies in its overseas projects, although investment had been expanding.

 Statistics show that between 2002 and 2006, China’s overseas non-financial direct investment grew by 60 percent annually. By the end of 2006, 5,000 Chinese companies had set up nearly 10,000 directly invested firms and invested $90.6 billion in 172 countries.

China’s overseas investment and aid mainly focuses on exploring oil and other resources, processing, manufacturing, and construction in African and Southeast Asian countries. Without proper management, such projects are likely to cause environmental problems, the report said.

In April, several companies, including China Mobile, Haier Group, and China International Marine Containers, joined “Caring for Climate”, a voluntary UN initiative to combat global climate change. Liu Meng, director of UN Global Compact China Office, told China Daily earlier that these companies’ participation suggests that China’s business sector is catching up with its international counterparts on climate issues.

China National Petroleum Corporation, the country’s largest oil producer, has pledged to stick to stringent environmental requirements before deciding on overseas projects.

Currently, only four banks in China have either formulated independent environmental standards for financing, or have joined the United Nations Environment Program Finance Initiative to reduce environmental risks.

Engineers Against Poverty provides practical guidance to oil, gas and mining companies on local enterprise development

EAP has produced an eight-page briefing note to guide oil, gas and mining (OGM) companies on how they can maximise the contribution of local enterprises to the supply chain of their projects in low income countries. The document was produced with the support and assistance of the International Finance Corporation (IFC) PENSA Program in Indonesia.

New Report on Conflict-Sensitive Business Practice (CSBP)

A new report Conflict-Sensitive Business Practice: Engineering Contractors and their Clients, has been prepared by Engineers Against Poverty and International Alert

Contractors operating in unstable states face a range of conflict risks. Oil, gas and mining projects, which frequently have significant contractor involvement, can inadvertently trigger or sustain violence, or become the focus of resentment themselves. Produced in partnership with Engineers Against Poverty, this guidance note is addressed both to engineering contractors and their clients. It examines some key issues related to conflict, contractors and conflict sensitivity, and introduces conflict-sensitive business practice (CSBP) – steps through which these issues can be understood and managed.

The report outlines some of the key costs of conflict to projects, which include:
Direct costs:

• Security – Higher payments to state/private security firms; staff time spent on security management
• Risk management – Insurance, loss of coverage, specialist training for staff, reduced mobility and higher transport costs
• Material – Destruction of property or infrastructure
• Delays – Lost time through site blockades or disruption of materials and services
• Capital – Increased cost of raising capital
• Personnel – Kidnapping, killing and injury; stress; recruitment difficulties; higher wages to offset risk; cost of management time spent protecting staff
• Reputation – Consumer campaigns, risk-rating, share price, competitive loss
• Litigation – Expensive and damaging law suits

Indirect costs:

• Human – Loss of life, health, intellectual and physical capacity
• Social – Weakening of social capital
• Economic – Damage to financial and physical infrastructure, loss of markets
• Environmental – Pollution, degradation, resource depletion
• Political – Weakening of institutions, rule of law, governance movements

Training the oil and gas industry in human rights

It is excellent to see guidelines being released that can assist oil and gas companies manage difficult human rights issues. Although, such companies should also consider the value of obtaining some specialist expertise to help them customise the Toolkit, and provide practical advice that is related to the particular experiences and situations that they have already been faced with.

The Training Toolkit aims to raise awareness of human rights issues in the oil and gas industry. It provides managers with a template that can be used and adapted to conform to a company’s policy or position on human rights and applicable domestic laws and regulations. This Toolkit is not intended to be an in-depth instruction on how to conduct human rights training.

Company representatives should review the trainer’s manual prior to using the Training Toolkit to customise it to the needs of their particular circumstances. The trainer’s manual provides information on how to finalise the materials for a company’s specific purposes.

The toolkit examines the history and background of human rights and defines key risk areas for the oil and gas industry. The largest section of the toolkit deals with the engagement with stakeholders, including

• Non-Discrimination
• Employment Terms
• Supply Chain Issues
• Mitigating Community Impact
• Indigenous People
• Land Rights and Resettlement
• Local Content
• Relationships with Governments

The toolkit also presents dilemmas and scenarios that may arise form these engagements and presents a decision-making tool.

The Toolkit consists of four sections:

• 1. a presentation with the key messages for use in a training session
  2. a workbook to be used in conjunction with the presentation
  3. a trainer’s manual
  4. a resource guide.

Protests over unfavourable mining concessions in Mongolia

Some 200 demonstrators – including 10 hunger-strikers – have ended their protests over alleged government corruption and the mishandling of mineral wealth in Mongolia after the country's leaders agreed to investigate their complaints.

The activists had been camped in a central square in the capital Ulan Bator for two weeks when their demonstration ended. They were demanding that the government obtain favourable terms from a Canadian mining company's concession to mine huge copper and gold deposits in the southern Gobi region – or resign.

The demonstrators gave up their protests after Prime Minister Mieagombo Enkhbold and his cabinet ministers agreed to form working groups to investigate agreements signed with foreign mining companies under previous governments.

The groups will also look into mining licensing issues and work together to amend the Mongolian minerals law, passed in 1997, which protesters say favours foreign mining companies.

"We demonstrated during the last two weeks to establish a just and transparent government, and as a result they have listened to us," said S. Ganbaatar, an activist with Radical Reform, one of several civic groups that claim to represent Mongolia's poor and unemployed.

Voluntary Principles on Security and Human Rights for extractive industries: Doors Open to New Participants

The Voluntary Principles on Security and Human Rights Plenary today announced it will open participation to more extractives companies, non governmental organizations (NGOs) and host governments. Since the launch of the Voluntary Principles in 2000, a company or NGO could only participate in the Plenary if its home government was a participant. This is no longer a requirement.

The Voluntary Principles on Security and Human Rights are a unique tripartite, multi-stakeholder initiative established in 2000 that introduced a set of principles to guide extractives companies in maintaining the safety and security of their operations within an operating framework that ensures respect for human rights and fundamental freedoms. The Voluntary Principles address three main areas: risk assessment; interactions between companies and public security; and interactions between companies and private security.

New Environmental and Social Guidelines for Asia

The new guidelines provide invaluable advice for this high risk market. They can be expected to improve performance and reduce environmental and social risks, therby supporting investment in this region.

The guidelines cover the following key sectors in Asia: Auto, Banking, Metals & Mining, Oil, Gas & Petrochemicals, Power, Pulp, Paper & Timber, Supply Chain and Technology.

It highlights "three important, cross-cutting risks affecting the Asian equity investment outlook". These are:
1. limited disclosure, which hampers ESG risk assessment;
2. the influence of government ownership and control of many large listed companies in the region; and
3. the effect of globalisation in amplifying ESG risks, especially with regard to China and India.

The Association for Sustainable and Responsible Investment in Asia (ASrIA) has published a report to help investors better assess Asia-specific environmental, social and governance (ESG) risks.

The Taking Stock report identifies "key themes for sustainability investments in Asia" and seeks to fill what ASrIA describes as "a very large analytical gap in the Asian investment literature".

"Investors need a framework for assessing the growing and complex environmental, social, and governance issues that face companies in Asia today. This report begins the process of creating such a framework," said Rachel Kyte at the International Finance Corporation, which financed the report.

"Taken together, the sector reports raise important questions about how to shape investment strategies, reflecting the range of risks and opportunities that sustainability analysis of Asian equities can highlight", the Hong Kong-based association says.