Sustainable International Investment: Introducing CCSI’s Mission and

ActivitiesJune 2014

Established in 2008 as a joint Center of Columbia Law School and the Earth Institute

Mission of CCSI: To develop and disseminate practical approaches and solutions to maximize the impact of international investment for sustainable development.

FDI can contribute to sustainable development, through the transfer of capital and technology, job creation, linkages with local industries, infrastructure development and capacity building

Extent to which these benefits actually accrue to host countries depends heavily on the policies of the host country and the investors, and the institutions available to find mutually satisfactory outcomes for both.

Columbia Center on Sustainable Investment (CCSI)

Promotes practical approaches and solutions to critical development issues through research, education, events, and projects in Africa, Asia, and Latin America.

A multi-disciplinary approach integrates expertise in international law, investment, land/agriculture, human rights, and extractive industries with diverse fields of sustainable development.

Workstreams include investment in natural resources and sustainable development (including land, oil, mining, and gas); international legal regimes (the implications of treaties and arbitration for sustainable development); emerging market multinationals; and other trends and developments in foreign investment.

Columbia Center on Sustainable Investment (CCSI), cont.

INVESTMENTFRAMEWORKfor Long TermInvestment andSustainableDevelopment

Equitable

Transparent

Cooperative

This guiding principle is

especially important for

extractive industries, given the

size of the investments, the

duration of the projects, the

complicated settings in which

the investments take place,

and the potential impacts.

Efficient

Our goal: a context-specific, multi-stakeholder, and multi-sector investment and development framework, linking governments, extractive companies, civil society, donors and local communities.

CCSI- Guiding Principles

Extractive industry investments can be win-win investments for governments, companies and

communities…

Potentially transformative opportunities: Long-term partners (investments are often for many decades) Major infrastructure and supply chain needs with potential

spill-over effects Profitable projects while generating billions of dollars of

revenue for governments Potential for domestic use of the resources (downstream

potential) Potential linkages to local services Opportunity for technology transfers Increasing recognition that extractive industries can

be a key driver for long-term growth

Extractive Industries and Sustainable Development: WHY?

Pre-existing governance constraints and development challenges

Asymmetry of information Confidentiality Threat of the “resource curse” Volatility of revenues Resources are non-renewable Extractive projects can be treated as enclave sectors Resettlement and land rights disputes Potential environmental impacts Historical records of human rights and environmental

shortfalls Highly politicized at times Complex web of stakeholders with differing interests

Extractive Industries and Sustainable Development: Special Challenges

Dependence on Extractives Increasing

OPM 2011

Challenges and opportunities for resource-based development

Encouraging all stakeholders to adopt a longer-term perspective

‘Leveling the playing field’ in terms of information, resources, capacity,

Distilling good practices, optimal linkages, successful models, etc…

Implementing regulations that improve standards, accountability, access to justice and remedies

Potential for short term consequences

Santa Ana – Silver Mine (Peru) / Bear Creek Mining 10,000+ protestors respond to development of Santa Ana Silver Mine Asset represents 20% of Bear Creek silver reserves - $96 mm invested

to date June 24, 2011 – Peruvian government annuls mining concession Market Response: $311 mm decline in market capitalization (43%

decline)

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

Jan-11

Feb-

11

Mar-1

1

Apr-1

1

May-1

1

Jun-11

Jul-11

Aug-1

1

Sep-1

1

Oct-1

1

Nov-1

1

May 9 June 24Gov't Annuls Mining Concession

BlockadesInitiated

Bear Creek Mining – 2011 YTD Share Price

Brainstorming Session

What issues need to be addressed to maximize the benefits and minimize the costs of extractive industry investments?

Five-pillar Framework

Sustainable

Investment in

Extractives

Legal Framework

Planning & Revenue

Management

Leveraging Linkages

Integrated Development & Human

Rights

Environmental

Management &

Protection

Pillar 1 – A Transparent and Mutually Beneficial Legal Framework

Increased capacity on auditing, financial modeling and contract negotiation

Active, broad, inclusive, and detailed Extractive Industry Transparency Initiative and mandatory payment disclosures

Use of innovative, flexible fiscal mechanisms that balance investors’ needs for a fair return with governments’ need for a fair value for their resources

Balanced fiscal and non-fiscal benefits in legislation and contracts

A transparent and mutually beneficial legal framework that enables a stable and predictable investment climate, maximizes benefits for host populations, and minimize the risk of disputes includes:

Contract Transparency encourages a fair deal and clear allocation of responsibilities

Collaborative action to combat tax evasion, havens, and transfer mispricing

Increased transparency and capacity around investment treaties and investor-state dispute settlement

Disproving that Transparency Hurts Valuation

Transparent companies: 17 companies that disclosed payments on a country-by-country basis in 2010

Non-transparent companies: 17 companies that are either EITI or GRI supporters but do not disclose payments on a country-by-country basis

Return on Equity

Return on Investment

Price-Earning Ratio

0.00 5.00 10.00 15.00 20.00 25.00 30.00

14.51

10.29

29.24

12.85

8.77

21.23

Average of Selected Ratios in 12/31/ 2010.

Non-Transparent Companies Transparent Companies

Pillar 2 - Resource-based Development Planning and Revenue Management

Long Term Developm

ent Strategy

Identify public investment priorities and break down the long-term development strategy into medium-term plans

Setup revenue management system to smooth expenditure

Align the budget with development priorities Ensure budget

and procurement transparency (including of resource revenues)

Coordinate donor and private sector activities with national development priorities

Snapshot of Timor-Leste

Petroleum Fund

Over ESI

Infrastructure Fund

Human Capital

Development Fund

ESI Domestic Revenue

Tran

spar

enc

y

Long

term

st

rate

gy

Fiscal Framework

Pillar 3- Leveraging Mining Investments for Sustainable Development

Opportunities to create economic and infrastructure linkages from the extractive sector:

Investment in vocational

training

Planning for synergies and

shared platforms

Sound regulatory framework for open access

infrastructure

Upstream and Downstream

linkages

Economic Diversification Mining

Investments’ needs

Pillar 4 – Integrated Rural Development (IRD) and Human Rights

Agri-business Alliance to support smallholder agriculture (including agricultural extension services)

Strategies and approaches to protect and promote Human Rights of affected communities during all phases of the project

Local development plans to help companies identify appropriate and sustainable points of entry, to ensure companies are complementing, not replacing, local government

Early community engagement through discussions, negotiations and agreements

Pillar 5 – Managing Environmental and Climate Risks

Managing climate risks and realizing opportunities Identify primary (exogenous)

environmental risks in the regions so that companies’ programs can be tailored and proportional to the risk

Coordinate public, private, and NGO or donor-funded conservation, rehabilitation or adaptation projects to maximize the effectiveness of each

Managing climate risk with strategies to reduce rainfall-induced production variability

Cumulative Environmental Risk Management System Assessing cumulative environmental

impacts of mining operations

Expanding the Cumulative Impact Assessment to include competitive land and water uses and inform policy

Facilitating coordination among public and private initiatives

Summary

The responsibilities for resource based development are shared among companies, national governments and local governments, with critical roles for civil society, donors, NGOs and academia

Corporate Social Responsibility must be partnered with good governance: strategic medium-term planning, sound resource management, and effective partnerships.

At each stage, planning, transparency and cooperation in the process are critical for realizing the mutual benefits for both companies and governments.

Collaborative efforts to leverage extractive industries for development in new (and existing) producing countries should reflect the following:

Group Exercise

What role do you see extractive industries playing in your region?

What are the challenges and opportunities related to resource-based development?

5- P

illar

Fr

amew

ork

1) Legal Framework

2) Planning and revenue

management

3) Leveraging Linkages

4) Integrated Development

5) Environmental management and

protection

Medium-term planning, a public investment strategy, strategic resource management, and effective budgetary mechanisms and execution.

Multi-stakeholder management of the cumulative environmental risks, impacts and challenges associated with resource extraction and development.

Leveraging the extractive industry investments for infrastructure expansion, vocational training, upstream and downstream linkages in line with development objectives.

An integrated development strategy to ensure that the population benefits from the extractive industries both during and beyond the life of the project.

A transparent, legal and fiscal framework for extractive investments, mutually beneficial to industry and the host country.

Applying the five-pillar framework to your region

WHAT RESOURCES DOES YOUR REGION HAVE?

WHICH ARE THE MAJOR COMPANIES OPERATING IN YOUR COUNTRIES?

[NAME OF REGION]

[Noteworthy features of the legal/fiscal framework]

[Is the legal/fiscal framework investment friendly?]

[How is the relationship between investors and the government?]

[Are the contracts public? Are the laws accessible?]

[Have there been recent developments in the legal/fiscal framework?]

Transparent and Mutually Beneficial Legal and Fiscal Framework

[Are there resource or sovereign wealth funds in the region?]

[How are the revenues spent?]

[Is there transparency in resource allocations?]

[Is there revenue sharing with communities or sub-national regions?]

[Is there a national strategy to leverage the extractive industries for development?]

[Is there regional cooperation among national governments?]

Long-term Planning and Revenue Management

[What have been the employment impacts of extractive industries in your region?]

[Are there linkages programs? Has a supply chain developed?]

[What is the state of the infrastructure and infrastructure needs? Of the investors? Of the government?]

Leveraging Extractive Industry Investments

[What are the development needs of the communities near the extractive industries? What about other communities in the country?]

[Are there tensions at the local level?]

[How active and engaged is civil society?]

Integrated Rural and Community Development

[What are the major environmental concerns in the region?]

[Are there environmental policies to protect the environment? Are they monitored and enforced?]

Environmental Management

Fundamentals for

understanding the

extractive industries

Legal framework

Fiscal Framework

Revenue Management

and allocation

Long term planning

Transparency and

accountability

Infrastructure Linkages

Community Impacts

Integrated rural

development

Environmental

Management

Course overview

Wiki Instructions

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