Human rights posing ‘high risk’ to miners’ social license to operate in Latin America

Human Rights Outlook 2019

Latin America is an undisputed hotpot for active socio-environmental conflicts, with the metals and mining sector currently involved in more than 340. With these types of protests on the rise over the last decade, securing and maintaining a social licence to operate (SLO) is now, more-than-ever, the make-or-break issue for mining projects in the region.

To put the scale of the problem in perspective, costs to the industry from lost investment, disruption to operations and legal rulings as a result of social conflicts are closing in on $7.78 bn (US) in Latin America over the last 15 years, with Chile, Peru and Colombia responsible for the lion’s share.

We’ve assessed nine regional mining jurisdictions against key human rights issues that can help drive social licence risks, including indigenous rights, labour rights and security forces violations. Eight of the nine countries rate as ‘high risk,’ including the region’s four biggest economies – Brazil, Colombia, Mexico and Argentina – while the only exception is Chile, considered ‘medium risk.’

Of course, at the project level the issues driving protests differ significantly from location to location and need managing accordingly. But understanding the baseline drivers is a useful tool for scoping projects and understanding the long-term risk environment, ahead of implementing measures, such as human rights impact assessments (HRIAs), to help address some of these social licence dynamics.

Human rights issues a ‘high risk’ in 8 regional mining hubs

Our analysis focuses on the nine countries that have witnessed a spike in socio-environmental protests in response to extractive projects in the last 15 years.

The table below shows the scores for six of our indices that cover issues central to mining companies’ social licence to operate. Combining these into an aggregate score reveals that 8 out 9 of the countries are ‘high risk.’

We can see that indigenous rights are ‘high’ or ‘extreme risk’ in every jurisdiction, even in Chile which scores favourably on all other measures. Breaking down the issues further, we can see that labour rights, corruption, civil unrest and violations by security forces all pose a high level of risk across the majority of countries.

Alongside other related factors, such as water quality and availability, these issues can help drive higher regulatory, operational, and reputational costs as communities take direct action against projects. This has taken the form of disruptive protests, claims before domestic tribunals and popular referendums that have, for instance, resulted in categoric rejections of mining projects in Ecuador and Colombia.

Indigenous rights the key factor

The nine jurisdictions assessed for this report have experienced a steady increase in anti-extractive socio-environmental protests since the mid-2000s, with mining the main target of opposition (see map below).

Among the main factors driving the increase in protests are poorly defined, or absent, legal frameworks regulating Free, Prior and Informed Consent (FPIC), which have created legal uncertainty, both for investors and indigenous communities.

This has resulted in alleged violations of International Labour Organization Convention C169, which states that indigenous communities must be consulted over commercial projects taking place on their land before they get off the ground. In certain cases, such violations have undermined indigenous communities’ right to self-determination, property, cultural identity and, indirectly, their right to life during protests for lack of FPIC in all the countries we assessed. This is shown by poor scores across the board for the region in our Indigenous People’s Rights Index.

Unfavourable rulings and major investment losses continue to mount even decades after alleged FPIC violations were committed, increasing investor exposure to losses in projects that pre-date the adoption of FPIC requirements.

Securing social licence to operate outstrips potential cost of disruption

Beyond conventional socio-environmental risk assessment and risk management approaches, mining companies have another tool in their locker. While project-level HRIAs are ultimately about respecting the rights of stakeholders, they can also contribute to, and offer, valuable insight into a project’s social licence to operate and the drivers behind it.

Such assessments can include meaningful engagement with large numbers of stakeholders to understand a project’s actual and perceived impacts, and prioritise remedial actions in line with the interests of local rights holders. By doing so, companies can build a richer, ecosystem-based approach to project risk management by taking full account of the interests of local actors.

Looking ahead, the region offers a challenging picture for mining companies. Colombia, for instance, has undertaken 10 popular referendums between 2013 and 2018, all of which resulted in the unequivocal rejection of mining projects (98/99%). Despite the Constitutional Court closing the door to such referendums in 2018, regional authorities are using municipal agreements to prevent projects getting off the ground – 43 of these agreements are already in place. Ecuador also displayed similar dynamics in early 2019, when 86.8% of voters in the district of Girón rejected the development of the mining project Loma Larga de Quimsacocha.

Across the region, we expect local communities, NGOs, trade unions and institutional stakeholders to become ever more vocal, with human rights remaining high on the agenda. With this in mind, it’s crucial for mining companies to remember that the cost of losing a project's social licence to operate far outstrips the cost of implementing international best practice regarding community engagement and human rights due diligence.

Victoria Gama

Senior Human Rights Analyst