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id21 viewpoint - Can mining industry codes replace government regulations?

Although the mining industry is an important economic sector in many developing countries, it has been heavily criticised by many non-governmental organisations (NGOs) and civil society organisations for its impacts on the environment, human rights and social protection. The mining industry has recognised that these criticisms threaten its ‘social licence to operate’, and may lead to certain areas or even whole countries being ‘off limits’ to the industry.

One part of the industry’s response has been to develop environmental and social codes of conduct. Examples include the Australian mining industry’s Enduring Value Framework, the International Council on Mining & Metals’ Sustainable Development Framework and Principles and the International Cyanide Management Code for the Gold Mining Industry.

There is some evidence that these codes have improved the environmental performance of individual companies, through improving compliance with regulations and raising the profile of environmental and social issues within companies. However, it is difficult to determine whether these improvements are due to the codes themselves, or due to other pressures faced by the industry, such as the threat of government regulation, increased NGO scrutiny and the desire to access new resources. In addition, many companies who have agreed to these codes have continued to be involved in disputes around land rights and adverse environmental impacts, particularly when operating in developing countries.

There are two specific problems:

There is evidence that code signatories do not always apply code requirements to all of their operations. This has been a particular criticism of mining companies operating in less developed countries.
Organisations that do not sign codes at all are not bound by the restrictions.

These problems do not mean that industry codes have no role to play in strengthening environmental policies in developing countries. There is evidence that codes can provide some guarantees regarding companies’ environmental performance and that they can help to reduce the burden on regulators, such as reducing the need for inspections by regulatory bodies.

However, policymakers should take great care when deciding how much importance to give such codes when deciding on mining licence conditions or the degree of government regulation needed for mining operations. They should pay close attention to issues such as:

What issues does each code address? What issues are not covered?
What are the performance targets to be achieved? Are these levels of performance acceptable?
How is compliance with the rules of a code enforced? Are there guarantees regarding the performance levels that must be achieved?
How are the rights of local communities and other stakeholders taken into account?
Does the code include opportunities for independent review and verification of performance?

Policymakers should also examine closely each company’s record of environmental and social performance, particularly whether the company has had difficulties or conflicts with other operations. This record should be taken into account when deciding on the award of concessions and the specification of mining licence conditions. Finally, regulatory bodies should be wary of solely relying on codes. They should, as far as possible, ensure that there are appropriate regulatory mechanisms and sanctions to ensure that the desired performance goals are delivered by the mining industry.

Source(s):
‘Rethinking Voluntary Approaches in Environmental Policy’, by Rory Sullivan, Edward Elgar: Cheltenham, UK, 2005

id21 Research Highlight: 12 October 2005

Further Information:
Rory Sullivan
Insight Investment
33 Old Broad St
London
EC2N 1HZ
UK

Tel: +44 (0) 207 321 1875
Contact the contributor: rory.sullivan@insightinvestment.com

Insight Investment

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