Fair growth, fair business
On one side is a potential triumph of human rights, direct democracy while there are also fears about scaring away investors.
Village councils in the Niyamgiri Hills of Odisha have last week voted decisively against mining in their area and decided the fate of billions of dollars in investment. With this, activists, policy makers and business leaders alike are confronted with a paradox that may well define our times.
On one side is a potential triumph of human rights and direct democracy. On the other side are anxieties about economic growth being slowed down by social and environmental concerns. There are also fears about scaring away international investors if India is seen as a location mired in conflicts between local people and industrial projects.
Some have already left. In July, Posco and ArcelorMittal announced they were shelving plans to build steel plants in Karnataka largely due to long-drawn-out disputes over land acquisition. The Niyamgiri vote pertains to mining for bauxite by giant Vedanta as part of a $7.7 billion project that also includes an alumina refinery and power plant. Tribal communities around Niyamgiri, regarded as a sacred hill, have opposed the mining since 2006, because it destroys their homes and livelihoods.
Oxfam estimates that three-fifths of the world's poorest people live in countries rich in natural resources. Historically, the people who actually live atop the minerals have had no say in how the resources are exploited - nor have they benefited much from projects in their area.
But in fact the perceived conflict between economic growth and direct democracy may not be intractable - and India is in a position to lead the quest for workable solutions. That's because empowering village gram sabhas to decide their own fate is actually in conformance with emerging global standards.
But first, it is important to emphasise that struggles by project-affected people are not unique to India. Instead, the situation in Odisha reflects an intense global clamour to align the interests of business with human rights and democratic participation.
Second, and more important, there is also a growing confidence that such conflicts are not inevitable. International forums are abuzz with new ideas and creative mechanisms that foster win-win outcomes.
Third, there was a time when mining companies could venture into a project as long as they had all the required agreements with the government of that state or country. But the impetus for change has been driven by many cases where companies find that governments often ignore the voices of project affected people who can mobilize and cause delays that are devastating to a company's money bottom line.
Let us first briefly review the emergence of new and higher social and environmental standards by the mining industry worldwide. Many decades of bitter struggle between local communities and mining companies in different parts of the world led to the formation of the International Council on Mining and Metals (ICMM) in 2001. Twenty two of the world's major mining and metals companies joined hands with 34 national and regional mining and global commodity associations, to create this body in order to improve the sustainable development performance of this sector.
The ICMM - which includes among others mining majors like Anglo-American, Rio Tinto and Mitsubishi Materials - is committed to the following core principles: care for safety, respect for people, the environment and the values of host societies, integrity and accountability.
The ICMM's work is part of a much larger trend which includes the work of the United Nations Global Compact and the emergence of detailed social and environmental guidelines for multi-national corporations. It is in this context that, in January 2012, the International Finance Corporation acceded to a long-standing demand by human rights groups and adopted the principle of Free, Prior and Informed Consent (FPIC) from indigenous communities affected by any industrial project. In May this year even the ICMM issued a position statement in favor of FPIC in case of indigenous communities.
This is a radical departure from the common practice of companies first putting a project on the ground and then trying to win support from local people.
Of course applying FPIC in practice is extremely difficult and often not acceptable even to democratically-elected governments which treat the minerals resources as the property of the state. A report published by the journal Ethical Corporation has noted that sometimes mining companies that want to honor the FPIC principle, find themselves in a fix because the host government does not accept it. Additionally, there is the problem of working out how to go about seeking consent in ways that are fair to all the local people.
Significantly, India has legislation that can be used to apply the FPIC principle in tribal areas. The Panchayats Extension to Scheduled Areas Act (PESA), a central legislation passed in 1996, gives gram sabhas the right to decide the fate of mineral resources on their lands. Like many other laws, this one has never been properly implemented - contributing to the mess in which Vedanta and Posco find themselves in Odisha. Posco's US $12 billion integrated steel plant and captive port has also faced local opposition since it went on the ground about seven years ago.
While Posco and Vedanta are not members of ICMM, both are publicly committed to honoring human rights and environmental standards - such as the UN Global Compact's 10 Principles as well as the OECD Guidelines for Multi-national Enterprises.
However, numerous studies have found Vedanta and Posco in violation of some global norms as well as Indian laws which protect communities and environment. This includes panels appointed by the Ministry of Environment and Forests which have found both companies to be in violation of various regulations, including the Forest Rights Act (FRA) and the Environment Protection Act (EPA), in active collusion with State officials. So have international NGO networks and investors like Aviva, a leading UK equity firm, which are committed to the higher global standards.
Posco's Odisha project has also invited close scrutiny. Norway's Oil Fund, the world's largest sovereign wealth fund, was recently called to account for its investments in this project. An independent committee set up by the Norwegian government to safeguard OECD ethical guidelines found that the Oil Fund had "failed to take appropriate steps to prevent or mitigate negative human rights and environmental impacts in connection with its investment in POSCO".
So how then do we work towards both greater democracy and mining projects necessary for growth?
The good news is that the proliferation of democratic resistance has generated a powerful incentive for businesses to implement the higher standards.
According to the July-August 2012 Ethical Corporation study, mining companies in particular want support from local populations. "Central to the arguments of indigenous groups and their representatives is not the fact, but the manner, in which mining projects go ahead" says report author Oliver Balch.
This may have to include the willingness to abandon locations where local people, in particular tribal communities, do not want the project. For example, Rio Tinto, the British-Australian mining company gave up plans to develop uranium deposits in the Jabiluka area of Australia's Northern Territory when it could not secure the consent of local aborigines.
New business models with provisions for revenue-sharing with the local people are increasingly being factored into negotiated settlements, according to Balch's report. In one case, Colorado-based Newmont Corporation entered into a community partnership agreement in Western Australia operations to ensure that the local people receive both financial and social service benefits from the mining operations.
Such examples may be anecdotally inspiring but the actual road ahead for mining companies which want to both grow their operations and honor democratic rights, is fraught with practical challenges.
However help is at hand since there are now global platforms on which both the promise and pain of solving this paradox are being addressed. For example, the UN Global Compact operates a web-based forum that aims to stimulate discussion about the dilemmas that responsible multinationals face in their efforts to respect and support human rights when operating in emerging economies.
Within India, the first step might be for policy makers and political leaders to accept that the 'growth at any cost' approach is not working. Circumventing laws designed to protect the environment and local people, in order to speed up projects, can instead lead to fatal delays - as the cases in Odisha show.
Instead, India could poise itself as a location that is hospitable to those operating by the higher standards. At present, companies trying to live by those standards are often undermined by governments that are unwilling to honor principles like FPIC. Many international norms, such as the IFC's Performance Standards, are not yet binding on sovereign states.
Only visionary political leadership within each country can change this. This is a key requirement for narrowing the gap between human rights standards - that are currently largely aspirational - and their actual practice.