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An Expense or Investment? How Much Should Natural Resource Companies Commit to Indigenous and Community Consultation and Engagement

I recently spent several days in Toronto facilitating a workshop with senior management of one of the world’s largest resource companies discussing the importance of and strategies for effective engagement with Indigenous Peoples. The context related to projects in Canada and globally, emphasizing the increasing need for Indigenous peoples to be not only consulted but also full partners in resource development projects. This discussion is crucial, and I commend many Indigenous leaders in Canada and those involved in the mining and energy sectors for taking a global leadership role.

A key point we discussed was the cost and resourcing needs of a company’s activities in this area. Many acknowledged that they often did not allocate enough resources and that employees lacked the support, authority, or direction needed to be effective. These factors can put significant projects and initiatives at risk.

We don’t need to look far to see the problems arising for resource companies that have not done an adequate job of Indigenous and community engagement. Major delays, damaged reputations, increased development costs, loss of social license, and sometimes projects being rejected and hundreds of millions in investments lost. These are not isolated cases. Across Canada, the USA, Central and South America, Australia, Europe, and Africa, wherever resource projects are being developed, Indigenous peoples and local communities are pushing back. The risks to company investments are high if not addressed to meet the needs and expectations of impacted people.

There are many guides on what good engagement looks like. Practitioners offer advice on how to engage, enter into agreements, and the importance of earning a social license. All valuable resources, and I encourage everyone to seek these out. A good example is the book “Weaving Two Worlds – Economic Reconciliation Between Indigenous Peoples and the Resource Sector.”

Above: "Weaving Two Worlds – Economic Reconciliation Between Indigenous Peoples and the Resource Sector.

What is not often discussed is how much funding and resources should be committed to this area. And by what metric should this spending be based?

For instance, in resource project engineering, it is generally accepted that about 15% of capital costs relate to engineering and design activities. For a $250 million capital project, that’s over $42 million on engineering and design work, an accepted cost of doing a project.

“We need to reframe the discussion of consultation, engagement, community affairs, and relationship management obligations from a cost centre to an investment in the future.”

However, when it comes to effective and robust Indigenous and community engagement, companies and their finance departments often view this as an overhead spend, lumped in with administration and environment. Yet, it can be the most critical factor in whether a resource project gains support or faces opposition from Indigenous communities, the public, and government.

I propose we reframe this as an investment that, when done well, will return significant benefits. Time is one of the most important, along with reputational capital, access to land, permitting efficiencies, and being a valued partner. The question then becomes how much investment is needed? 0.5%, 1%, 2%, 5% of anticipated capital costs? More? For our hypothetical $250 million project, that would mean spending between $1.25 and $12.5 million on engagement professionals, cultural sensitivity training, consulting support, economic development partnerships, legal advice, investments into communities, ongoing relationship management, and more.

My experience is that companies often spend on the low end of this range, if not less. Senior management teams often do not invest in their own training in these areas and resourcing, tracking and accountabilities are not adequate.  What is needed today is fully open and transparent engagement, a total company commitment to building trusting and respectful relationships, and a team fully resourced to carry out their work effectively. This requires budget, patience, and an understanding that companies and their investors are guests on the lands of others who were there first. These Rights Holders and stewards of their communities and the natural environment require their consent for development to proceed.

We need to reframe the discussion of consultation, engagement, community affairs, and relationship management obligations from a cost centre to an investment in the future. An investment that, when done well, will return dividends far beyond the cost per tonne expense that some might perceive.

Michael McPhie, M.Sc. QEP
Executive Chairman and Founding Partner