Companies working within the extractive sector have increasingly come to realize that the intelligent management of social and environmental impacts is essential to successfully reducing financial and reputational risks.

The 2010 explosion and fire at the Deepwater Horizon offshore oil platform, which killed 11 workers and was followed by an uncontrolled well blowout that resulted in major impacts to sensitive ecosystems in the Gulf of Mexico, offers a poignant reminder to companies operating in these industries that cutting corners to reduce upfront project development costs can result in massive financial liabilities from social and environmental damages.

Changing attitudes towards impact management

While the Deepwater Horizon disaster tarnished the reputation of the offshore oil industry as a whole, it is worth noting that many of the major companies operating in the mining and oil & gas sectors have made significant progress in managing the social and environmental impacts of their operations in recent years.

These companies do not garner front page headlines for these efforts, but by intelligently managing social and environmental impacts they are able to successfully reduce associated financial and reputational risks.  There is no way to obscure the fact that emissions from the mining and oil & gas industries have real impacts on the quality of the air, land, and water.  Due to the nature of their extractive operations, companies operating in these industries will always have to deal with certain trade-offs between economic development and environmental degradation.

The extraction of non-renewable natural resources can therefore often seem incompatible with the concept of sustainable development, which emphasizes the interaction of positive social, environmental, and economic outcomes.  Faced with these issues, companies operating within these industries are increasingly sensitive to public perceptions of their activities.

Towards industry best practice

Technological advances and the era of social media have hastened the public dissemination of information about company impacts on communities and the environment, and many have begun to embrace the concept of Corporate Social Responsibility (CSR) as a means of ensuring their social license to operate.  Given this context, the prevention, avoidance, and mitigation of social and environmental impacts has grown in importance, and management of these risks is now a top priority for many companies.

In the mining industry, leading companies now incorporate environmental and social risk management into every stage of a mine’s development as part of international best practice, from the early stages of planning and design until closure and decommissioning.  In the natural gas industry, the increased use of hydraulic fracturing and horizontal drilling as extraction methods has drawn increasing scrutiny from regulators and the public, forcing companies to develop detailed management plans to ensure that aquifers and freshwater resources are adequately protected.

Whether by choice or necessity, these changes signal a shift in the way that companies operating within these industries conduct their business.  At the end of the day, responsibly managing social and environmental impacts is not only the right thing to do- it also directly affects a company’s reputation and bottom line.