The United Nations Global Compact network meeting last week was focused on the challenges of operating in conflict affected and high risk areas.  Related to the recent release of a guidance for companies and investors [1], the discussions were timely, given the unfolding events in the MENA region and the indications that we may well enter more uncertain than stable times.  No-one predicted the sweeping call for change across the region, from Tunisia onwards, nor the conflict that has so quickly escalated.

Seeing as the recent spate of protests have also involved people weary of corrupt regimes, companies have a critical role in championing anti-corruption programmes. Collective action and engagement in initiatives like the Extractive Industries Transparency Initiative [2] (EITI), can help create positive change.  And with the UK Bribery Act due to come into force on 1 July -  with guidance released today [3] - companies operating globally are futher required to take a clear anti-bribery stance.

Beyond corruption, many areas of the world contend with conflict issues on a daily basis, often at a very local level.  For businesses, whatever their size, it is imperative that they implement reponsible busines practices.  They can do this by living up to the Global Compact Ten Principles [4], so they may maximise their long-term financial performance and make positive contributions to peace and development, while minimising risks and negative impacts to both the business and society. 

The  UNGC/PRI [5] report was informed by a series of multi-stakeholder events around the world where it was recognised that the private sector can make a meaningful contribution to stability and security.  Commercial activities have direct and indirect positive impacts by creating job opportunities, generating revenues that can advance economic development, and - if addressed correctly - build good relations between ethnicities and communities.  Negatively, business can not only undermine their own operations but their activities may exacerbate conflict or instability.

For responsible investors, who often have considerable funds committed to sectors such as the extractive industry, who have a signficnat presence in many high risk areas, responsible business practice is watched very carefully.  The fund managers actively create dialogue with senior management and boards in order to influence best practice - which in turn is believed to support long term financial return.

There was also discussion around the need to integrate the issues into daily operations and mainstream them into general management practice, not just being the territory for corporate responsiblity, security, external affairs and PR departments.

At an operational level and across all disciplines companies can only benefit from raising awareness around appropriate responses, and finance professionals have a key role to play-  not only in assessing risk but in calculating benefits, as one of the case studies from the report illustrates:

Issue – Conflicts between local communities and an oil company in Asia over the impacts of the oil operations threatened to cause delays and financial losses for the company.

Approach – The company employed four main strategies to engage more effectively with communities:

1. Community outreach and interviews with key opinion leaders and decision makers.
2. Information dissemination, education, and communication activities for the wider community.
3. Perception surveys and participatory workshops to introduce the project and validate initial survey results.
4. Participatory involvement in the formulation of environmental management plans.
The cost of this engagement was estimated at approximately US$6 million on a total project cost of US$ 4.5 billion (0.13% of total costs).

Result – The company calculated that by changing its engagement with local communities, it managed to avoid project delays of approximately 10-15 days, equivalent to an estimated saving of US $50-72 million through timely completion of construction and avoiding contractual penalties.

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Later this week CIMA will be releasing the findings of its members survey on the Bribery Act and I will post further then.