Going Beyond Revenues in Extractive Sector Governance: But How?

By Nicola Woodroffe, Perrine Toledano and Jeff Geipel
August 14, 2019

Extractive projects can generate substantial revenues for host countries, and discoveries often bring hopes of jobs, development and newfound wealth. But they also generate a range of negative environmental and social effects, which can have direct and significant economic implications. Take for example the estimated US$1 billion price tag to fully clean up Nigeria’s Ogoniland after decades of environmental devastation, not to mention the toll on other economic activities and loss of productivity and incomes over the last 50 years.

Needless to say, revenues alone cannot measure the sector’s overall impact on a country’s economy and society. However, fiscal impacts and environmental and social impacts are often assessed and monitored by separate regulatory bodies in separate processes, leading to an incomplete understanding of extractive sector performance. A more complete picture might support better decisions about if and when extraction should take place, and under what conditions.

Against this backdrop, at the Extractive Industries Transparency Initiative (EITI) global conference in Paris, the Natural Resource Governance Institute (NRGI), the Columbia Center on Sustainable Investment (CCSI) and the Mining Shared Value (MSV) initiative of Engineers Without Borders held an event that delved into how we can better measure, value and report on the non-fiscal impacts of extraction, alongside fiscal impacts.

Here are two resulting recommendations:

1. Expand existing reporting standards. 

More integrated reporting of the fiscal and non-fiscal impacts seems a reachable first step. The EITI board formally approved changes to the EITI standard, adding employment data disaggregated by gender and environmental impacts to reporting requirements.

As a global initiative, EITI has significant advantages that could drive more holistic reporting. Fifty-two countries participate in EITI. National multi-stakeholder groups in each EITI country act as forums to collect, discuss and utilize this information. Amid rapidly rising concerns over “reporting for the sake of reporting” and “zombie transparency” (by which published data are not actually used to improve governance) multi-stakeholder forums and the possibility of EITI mainstreaming offer promise that information will be analyzed and disseminated to stimulate public debate and prompt better management.

However, efforts to protect civic freedoms (or “civic space”) will be necessary to realize this promise, at a time when these freedoms are increasingly under threat in EITI countries.

There is also the Global Reporting Initiative. This reporting framework is already in use by a majority of the world’s largest extractive companies and involves reporting on a wide range of impacts. However, the GRI is focused more on reporting on a company basis. This makes information less accessible and relevant to host communities who are most interested in impacts from nearby extractive projects.

Host country governments could adapt the GRI and require all companies operating in the country to use the GRI and report publicly at site-level for each of the impacts. This way, the information could be standardized across extraction sites.

A similar approach could be applied to any number of existing frameworks. During the event in Paris, MSV presented its Mining Local Procurement Reporting Mechanism (LPRM) as a standardized format for mining companies to share site-level information on their local procurement efforts and results. Countries might adopt and require reporting based on frameworks like the LPRM where other systems like the GRI do not yield the desired level of detail on particular issues.

2. Expand the scope of financial modeling for policy-making to include non-fiscal impacts.

Not all environmental and social impacts can be quantified. However, some organizations are beginning to explore how they might expand fiscal models to go beyond projections on revenues from extractive projects.

NRGI will soon publish a report detailing recommendations for host countries on using and improving measurement and valuation of environmental and social impacts in extractive sector governance. The publication will include a database of existing tools, frameworks and standards that countries might use or adapt.

In Paris, CCSI presented its initial work on integrating non-fiscal impacts into fiscal models, including costs and benefits of shared-use infrastructure; provision for environmental risks and mitigation costs based on multiple scenarios of tailings dam failures; and integration of carbon pricing.

Last month, the International Institute for Sustainable Development also brought together economic modelers, policy analysts and sustainability experts to draft a book to capture approaches, considerations and lessons on using models for sustainable development policy-making.

There are additional considerations that could help guide the natural resource governance community in improving extractive sector assessment and reporting:

There is no one-size-fits-all process for measuring and reporting on the broad range of extractive sector impacts. Different countries should utilize existing systems and competencies and focus on the impacts most relevant for the country and, particularly, affected communities. For example, if a country already has a strong EITI process and multi-stakeholder group, then adding new impacts there may make sense. If a government is already collecting and disseminating quality information on a wide variety of impacts, strengthening these processes might make more sense.

However, as much as possible, common indicators and metrics should be used in reporting on various kinds of impacts. If countries want to add new impacts to their EITI reporting, utilizing standard indicators such as those of the GRI avoids every country applying different reporting requirements to companies.

The few attempts at holistic modeling, encompassing fiscal and non-fiscal impacts, have often been too mathematically sophisticated for practical use by policy-makers. Integrated models should be designed with policy application in mind.

Achieving more holistic modeling and measurement of extractive sector impacts will require inter-ministerial and multi-stakeholder cooperation. The attainment of robust results will require the competencies and knowledge of ministries and government agencies not traditionally involved in extractive sector management, as well as effective participation of companies and affected communities.

Governments seeking to achieve more integrated measurement and reporting of extractive sector impacts—as well as users of the information produced—are in need of capacity building. It is not enough to add new impacts to the EITI, or to require companies to use a system like the GRI. To use results to hold companies and government decision-makers accountable, affected communities need more skills and meaningful civic space. In addition, systems and initiatives like EITI need adequate resources if their scope is expanded.

Nicola Woodroffe is a senior legal analyst with the Natural Resource Governance Institute (NRGI). Jeff Geipel is managing director at Mining Shared Value. Perrine Toledano is head of extractive industries with the Columbia Center on Sustainable Investment.

This blog was first posted on the Natural Resource Governance Institute website here.