Conflict between mining, oil, and gas companies and local communities poses a substantial financial risk to businesses.
And yet businesses rarely consider the full cost of this conflict, a study finds.
A world-class mining project with capital expenditure of between $3 billion and $5 billion could suffer roughly $20 million a week of delayed production.
Communities often respond strongly to proposed developments by industries such as oil and gas which generate social and environmental risks for local populations.
Daniel Franks of the University of Queensland, Anthony Bebbington of the Clark University in the US and colleagues interviewed 45 professionals in industries involved in natural resource extraction.
They also examined 50 case studies of extraction projects worldwide involving prolonged conflict, and conducted 136 interviews for in-depth research in Peru.
Case research revealed that the most common issues in dispute were environmental, such as water contamination or competition for natural resources.
Interviewees cited project delays as the most frequent cost, noting that delays can cost roughly $20 million per week for mining projects valued between $3 billion to 5 billion.
The highest costs were due to the value lost when projects could not be pursued. The results suggest that financial risks associated with conflict provide an incentive for companies to minimize environmental and social risk to local populations.
Understanding the relationships between environmental, social, and business risk might help shape better outcomes for communities and companies, according to the authors.
The study, “Conflict translates environmental and social risk into business costs,” is published in PNAS (Proceedings of the National Academy of Sciences).