Everybody’s business: the nexus between Peace-Profit-Prosperity

July 14th, 2009The Commonwealth Club

Diana Klein

Presentation overview

Why is this link important? Role of business in conflict? Policy options for improving business

conduct in conflict

The nexus

Peace

ProfitProsperity

The nexus of evil

Conflict

LossesPoverty

Conflict:

•Armed conflict (civil unrest, war)

•Community level violence

Costs of conflict

SecurityHigher payments to state/private security firms; staff time spent on security management

Risk managementInsurance, loss of coverage, specialist training for staff, reduced mobility and higher transport costs

Material Destruction of property or infrastructure

OpportunityDisruption of production, delays on imports

CapitalIncreased cost of raising capital

PersonnelKidnapping, killing and injury; stress; recruitment difficulties; higher wages to offset risk; cost of management time spent protecting staff

ReputationConsumer campaigns, risk-rating, share price, competitive loss

Litigation Expensive and damaging law suits

Costs of conflict

• US$ 25 million + lost opportunities

• Esquel Gold Project (Argentina) – losses of US$ 379 million (reserves $ 1.33 billion)

• Samut Prakarn Wastewater Management Project (Thailand) losses of US$ 650 million

• Minera Yanacocha Gold Mine(Peru) –US$ 1.7 billion (lost opportunity after production costs)

• Middle East:US$ 12 trillion since 1991 (opportunity costs)

• Bosnia: US$ 60 billion to the country + $ 53.68 billion to the international community

• Rwanda :US$ 4.5 billion (humanitarian and peacekeeping costs)

• The Gulf War: over US$ 100 billion to the international community

Costs of peace

Conflict prevention- countries• Macedonia: $ US 255 million(potential conflict costs: $ US 15-

143 billion military & humanitarian expenditures)

• Slovakia: less than US $ 1 billion (during a 7 year period)

(potential conflict costs: US $ 1.2 billion per year- military & humanitarian expenditures)

Conflict prevention-companiesShell – Malampaya project

(Philippines) estimated at approximately US$ 6 million on a total project cost of US$ 4.5 billion (0.13% of total costs).10-15 days delay estimated costs: US$ 50-72 million

Compliance

What can business do?

Extractive Industry Transparency Initiative

Voluntary Principles on Security & Human Rights

Kimberley Process

Global Compact

Publish What You Pay

Equator Principles

Pay as You Go

Walk like an Egyptian

What can business do?

Example: There is inadequate provision of training and education for local youth. They cannot access local jobs and feel marginalised.Companies recruit trained and skilled staff from elsewhere, instead of training local youth. As a result young people feel further marginalised, resort to violence.

Example: Community members feel physically insecure, and there is inadequate security provision by authorities.Companies work with vigilante groups to provide security for their business, ignore wider community’s needs. Vigilante groups turn violent and become part of the problem

Conflict Sensitive Business Practice

Risks

Impacts

Create positive value

Social Investment Public policy dialogue

Core business

Create positive value

Conflict sensitive business practice

Compliance

Company engagement at 3 levels

Policy options?

Dear Policy Maker…

• Accountability – Consider a company’s record on social responsibility as one criterion for

evaluation in the awarding of government contracts – Require companies to perform conflict impact assessments, undertake due

diligence with regard to brokers, intermediaries and middle-men • Norm creation & Implementation

– Enhance public sector engagement with and support for the full implementation of ongoing private sector initiatives (VPs, KP,etc)

– Expand the adoption of the Equator Principles on project finance to include public agencies and institutions

• Adoption of conflict sensitivity– Deepen and extend conflict sensitive business initiatives to sectors beyond the

multinational extractive industry, to suppliers and subcontractors, and state-owned enterprises

– Create conflict-sensitive standards for government procurement, lending, official development assistance, export credit, insurance and investment promotion programs

• Review & revise:– Aid, trade and investment support policies to provide incentives for businesses

who can act in a conflict-sensitive manner or support peacebuilding(from: Global Compact: Enabling Economies of Peace)