Companies can use a social shield to reduce corporate project risk

The Rio International F-1 circuit has been closed and expansion at Charles de Gaulle and Heathrow airports has been blocked by environmental groups. Large mining projects have a long global history of facing local opposition. Solar projects in the US are facing similar challenges. Environmental forums such as Earth.org have accused companies ranging from Volkswagen and petroleum majors such as BP and Exxon to food companies such as Nestle, Coca-Cola and Starbucks for allegedly ‘greenwashing’ their many activities and investments. asked for. ESG Positive’.

In India too, there are many examples of large projects failing: the debacle of the Vedanta Foundation University in Odisha, the closure of Sterlite’s booming copper plant in Tuticorin and the suspension of diamond exploration operations by mining major Rio Tinto in the central region. . What is common in all these cases is the inability of the promoters to get buy-in from the local community because they could not properly address concerns about their environment, health and livelihoods.

The Vedanta Foundation’s objective of seeking large tracts of land in Odisha for its proposed university was viewed with incredulity by the public from the very beginning. It was a new project with nothing to show for prior achievement. Then, the involvement of the government in the acquisition of land for a private company also raised public concerns. In the eyes of the law, Vedanta Foundation failed to explain why it needed 8,000 acres of land by uprooting 6,000 farmers. The main argument given against this was that it was agricultural land under cultivation, education was probably not the main motivation of the company and the aim was ultimately to put the land to commercial use. It was held that Section 3(f) of the Land Acquisition Act of 1894, the provisions of which were invoked, could not be used for compulsory acquisition, as it was done for a private purpose by a private company. which was not permissible under the Act. , It appears that the Foundation attempted to overcome that objection by revising its private company status to public. The Orissa High Court observed that it had only three directors on its board and less than seven shareholders, which was less than that required for a public limited company under Section 12(b) of the Companies Act, 1956. It also said that the pressure was so high in collusion with the company that the District Magistrate had even bypassed the public hearing of objections on the acquisition process. Finally, the High Court ordered that all the land be returned to the respective land owners, irrespective of whether they challenged the acquisition of their land or not. The court also canceled the grant of 495 acres of government land given as patta.

After 15 years of initiation, the matter reached the Supreme Court. The Apex Court also observed that the acquisition proceedings and benefits that were proposed by the State Government were affected by bias and were violative of Article 14 of the Constitution of India: “The proposal was for an exaggerated demand. There was malicious intent on the part.”

Could Vedanta have handled the matter better? Yes. An important lesson from this case is that stakeholder management in large projects needs to be structured and comprehensive. Importantly, it must begin from the moment a project is conceptualized; Such engagement should never be an afterthought. Vedanta’s spokespersons have often criticized the Indian bureaucracy as a dying state. There was an active bureaucratic affair here, but the company itself got bogged down, despite the apparent nobleness of the project’s goal.

There will be many more instances where corporates will need to set up large stand-alone facilities in the mining, metals, energy and manufacturing sectors, where land and communities will be substantially involved. For example, India needs to develop more than 100GW of hydropower and 280GW of solar power to meet its energy transition goals. These aspirations have to be seen against the backdrop of the problems faced by all hydropower projects in the past based on land acquisition, displacement of villagers and environmental activism.

Companies often mistakenly believe that timely corporate social responsibility (CSR) spending, presence of designated CSR officers and PR-campaigns will be sufficient. ESG strategy has to be more holistic and project strategy adapted and effective. It should be viewed as the definitive stakeholder management tool for corporate risk mitigation.

In an era of climate-change vulnerability, with a more demanding social and political environment, it is imperative for companies to have a strong social-risk management framework. We can call it ‘social circle’. It should be designed to manage and strengthen the company’s interface with non-market stakeholders. This should be an institutional structure for the duration of the project, starting from the idea stage and continuing through to the development and operation phases. This should include experienced administrators with credible field experience who are located within the area of ​​influence of the project, people who understand the sensitivities of the local community and the social and environmental impacts and even the psyche of the powers that be. Can The social girdle should monitor a dashboard of closely calibrated parameters, act as a sounding board for the company, hold frequent meetings with stakeholders to clear their doubts and resolve issues arising out of the growing footprint of the project. All issues should be resolved immediately. Only such an intensely focused effort will help to firewall large investments from the unexpected guillotine and safeguard the company’s brand image.

Raghav Chandra is former Secretary to the Government of India

Updated: June 16, 2023, 12:24 AM IST