Social Investment in the Extractive Industry

“Social investment programs are the voluntary contributions companies make to the communities and societies where they operate. These programmes typically donate or develop skills and resources to local communities and local or national institutions.” IPIECA

“Strategic Community Investment is the “Voluntary contributions or actions by companies to help communities in their areas of operation address their development priorities, and take advantage of opportunities created by private investment—in ways that are sustainable and support business objectives.” IFC

What Motivates Companies to Make Social Investment?

Companies are becoming increasingly aware of the need to ensure that the communities and societies in which they operate will be better off for them having been there. This is achieved through, among other things, social investment in the host country and communities close to their operations. Ensuring that company social investments are optimized requires a strategic approach in which human development considerations are embedded in to core business decision-making.

Social Investment (SI) is just one, albeit important, piece of the puzzle that makes up the contribution a company makes to the country and local communities in which it operates. A company’s value add is implemented through many channels  tax and royalty payments to the government, payments to country shareholders, local procurement, local employment and compensation as well as through social investment.

What makes a good Social Investment Strategy?

Making a social investment is not a goal in itself; its ultimate goal is to contribute to the overall well-being of stakeholders impacted by company operations. Since companies are not charities, the manner in which they contribute need to be linked to business considerations and should ensure that their investments benefit society as well as ensuring that the company is recognized for its efforts and maintains its social license to operate.

To achieve this goal, a social investment strategy should be based on the following overarching principles:

  • The company approach needs to be consistent and build on a shared understanding of company values and objectives;
  • The strategy needs to be based on stakeholder engagement to make sure that investment priorities are known, discussed, agreed upon and monitored;
  • The impact of contributions needs to be measurable;
  • In order the avoid tensions between have’s and have not’s, the manner in which benefits are distributed needs to be perceived locally as fair and transparent.
  • The investment strategy needs to be strategically linked to overall company objectives and based on a social risk analysis;
  • The strategy needs to build on the comparative advantage of the company and integrated into core activities;
  • To ensure that social investments are sustainable the strategy needs to include an exit plan, does not provide free social services and are implemented through partnerships.

How do you know the strategy is working?

As with any other business activity, the social investment strategy should be built with the aim of encouraging continual improvement in the use of available resources. Periodic reviews with internal and external stakeholders should be undertaken in line with business planning processes and should take into consideration the results from engagement and monitoring and evaluation exercises.

Periodic reporting should be in accordance with regulatory and company reporting requirements and should include GRI Indicators. Some companies systematically track their sustainable development impact and use consultants or academic institutions to determine how the company contributions translate into impacts on people’s lives. Others conduct periodic perception surveys to determine the more qualitative impacts that result from sustainable development contributions.

In response to the need for a better determination of the return on investment of some forms of sustainable development contributions (community investment in particular), the IFC has developed a Financial Valuation Tool. The Financial Valuation Tool uses traditional investment analysis to articulate Net Present Value ranges for the return on sustainability investments.

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