A new study has uncovered the true scale of the costs companies incur when they come into conflict with local communities. Co-authored by Anthony Bebbington, the Higgins Professor of Environment and Society and Director of the Clark University Graduate School of Geography, the study contends that understanding the relationships between environmental, social, and business risk might help shape better outcomes for communities and companies.
Bebbington is a co-author of “Conflict translates environmental and social risk into business costs,” published in the Proceedings of the National Academy of Sciences. The research revealed that delays caused by conflict with communities can incur costs of roughly $20 million per week for mining projects valued between $3 and $5 billion. Analysis by one company of their exposure to nontechnical risks revealed $6 billion in costs over a 2-year period, representing a double-digit percentage of the company’s annual operating profits.
“Sustainability professionals within the private sector can play an important role in helping business to understand the links between environmental, social and business risks and in shaping better outcomes for both communities and companies,” Bebbington said.
Bebbington, in collaboration with researchers from the University of Queensland (Australia) and the Harvard Kennedy School, interviewed professionals in the mining, oil and gas industries and examined case studies of extraction projects worldwide to quantify the costs of company-community conflict, and understand how companies interpret these costs.
Case research revealed that the most common issues in dispute were environmental, such as water contamination or competition for natural resources. Interviewees cited project delays as the most frequent cost, noting that delays can cost roughly $20 million per week for mining projects valued between $3-5 billion. The highest costs were due to the value lost when projects could not be pursued. The results suggest that financial risks associated with conflict provide an incentive for companies to minimize environmental and social risk to local populations, according to the report.
The study is co-authored by Daniel Franks, Rachel Davis, Saleem Ali, Deanna Kemp and Martin Scurrah.