– by ORKASH Labs, Copyright: ORKASH Services Pvt Ltd
ORKASH’s operational risk management work for greenfield industrial projects represents over 40 man years of primary source research and field work covering the entire life-cycle of projects from pre-feasibility stage to post production.
Our findings from these assignments show a strong evidence that well planned and systematically designed corporate social responsibility / sustainability strategies can act as powerful risk mitigation means, particularly in sectors such as mining, oil & gas, infrastructure, power, manufacturing, etc. Projects in these sectors tend to have a large impact area footprint and project affected population (PAP). It is important to note that due to delicate socio-economic dynamics of ethnic, rural, tribal and marginalized indigenous communities, such projects in majority of cases tend to be extremely intrusive on the local communities and the local environment. Such local communities invariably have a high reliance on land, forests, and local resources (such as water), both economically as well as for the foundation of the social structure of the community. The rate of rejection of large projects by local communities is therefore high.
ORKASH Labs has extensively used CSR activities for risk management for large greenfield projects, particularly where the project affected communities consisted of tribal and rural agrarian populations. By using CSR as means for sustainable socio-economic development of local communities, and by making these communities empowered stakeholders in such development, ORKASH has evolved a robust methodology for mitigating project risk and at the same time enabling sustainable development at the grass-root level beyond the Projects in question. This is in strong contrast to the prevalent approach where CSR activities are still viewed as ‘philanthropic acts’ or attempts to garner general goodwill in society by corporates. In the latter approach, we find that even when a few companies, poised against socio-political and socio-economic risks for their projects, have attempted to use CSR as a risk mitigation measure, their rate of failure and rejection from the affected communities has been high.
The research findings as represented in this paper have emerged from numerous projects undertaken by ORKASH team members as part of our consulting assignments, and provide a framework for evaluating and designing CSR strategies to be used as a strategic risk mitigation tool for large industrial greenfield projects. We identify the key components for devising CSR based risk controls, and a set of key risk indicators based on the extensive field research and experience of consultation on a fairly large number of such projects in India and south Asia.
This risk mitigation/management approach entails a careful selection of CSR initiatives, management of stakeholders, a well designed strategic communication plan, as well as monitoring and feedback mechanisms to identify possible risk triggers in the local community and the local environment. Further, the timing of investment in CSR is a crucial determinant of the success of the overall strategy for project related risk management.
This paper also provides a 5 point framework for evaluation of CSR based risk controls in order to mitigate socio-political and socio-economic risk exposure of greenfield projects in sectors such as mining, oil & gas, infrastructure, power, manufacturing, etc. We find strong evidence to support the argument for a bottom up approach to CSR strategies. At the outset, two kinds of risks have been identified, one originating from the companies own operations (i.e. the project), and those originating from the location (i.e. the locational risks originating for such diverse factors as terrain/geography, local demographics, social and cultural dynamics, security factors, interplay of various influences and local and external stakeholders, etc.). The second part of this paper provides a set of practical tips to support corporate decisions on timing of investment in CSR, nature of CSR activities and scale of CSR intervention. Finally, it is argued that a set of triggers, various stakeholders and Key Risk Indicators should be monitored in order to pre-empt risks and take corrective measures.
Mapping the Risks
Operational risks for any large industrial or extractive sector project may be divided in two categories – i) risks originating from companies operations, and ii) location specific risks that arise either due to geographical, demographic, social/cultural, economic, or political factors existing in the location.
Social Risk Manifestation – The Stalled Projects
Risks originating from companies’ own operations Each entity, be it an individual or a company, causes certain degree of impact to the society and the environment in which it functions. Socio-political and socio-economic risks often originate as a direct consequence of the companies operational requirements. Land acquisition, for example, is one of the biggest hurdles for large Greenfield projects in countries like India. A large number of private industrial projects had either been abandoned or stalled due to failed attempts of land acquisition in India (Kakani et. al. 2008). Similarly, depletion of ground water is a major issue for companies having water intensive production process. Risks arising due to the Business activity could include:
- Land Acquisition, Displacements (Relocation & Rehabilitation)
- Depletion of shared resources (water, grazing land, forest resources etc)
- Environmental concerns, pollution and health concerns emerging as a consequence of pollution.
- Intrusion due to migrant labour
- Cultural and Political stresses
Locational Risks Certain risks, specific to the project location, which may often be seen as external to the company, can significantly impact its operations and perceptions. In a water scarcity region for example, depletion of shared water resources are likely to become a much bigger threat and a cause for inter community stress and community vs company stress than it would be in other places. Likewise, mining or blasting in a landslide prone region, or employing migrant labour in an area with high unemployment rate, become bigger existential risks for the company, not necessarily because the company operates unethically or violates any norms, but because the location itself offers pre-existing stress points. In emerging markets especially, many other locational risks could exist like internal conflicts or extremist movements, resource constraints, excessive social and economic disparities etc. Thus such potential risks need to be understood and factored in, before designing the CSR strategies. A few of them are discussed below:
- Economic vulnerability and lack of social security: Emerging economies, like India, have a lack of social security. Project affected community groups, which most often consist of indigenous communities at the very bottom of economic and social structures, are faced with high level of risks resulting from land acquisition, livelihood challenges and and lack of alternate employability. Thus, ownership of land and access to permanent job opportunities are the only means for a secure livelihood for majority of families in such communities. Any insecurity to this effect easily manifests itself in the form of highly aggressive social behavior, social unrest and opposition to the project.
- Dynamics in a diverse society: Inter-community, inter-caste and inter-religious dynamics in India/ south Asia are often misunderstood or underestimated. Interestingly, social or political risks may arise from what may appear to be logical, well planned and sound business decisions. In a multi-caste, multi-ethnic society like India, for example, the decision to employ skilled labour could very well mean employing more migrant labour, especially if the plant or mining site is located in a rural or tribal region. This practical business decision is easily be viewed by the indigenous population as a discriminatory one, where more jobs are created for the migrant populations while the natives remain less privileged and unemployed. This risk can be effectively overcome if the CSR activities of the company adopts targeted sustainable development programs to create better livelihood options for the native population. These alongwith leverage of project related investments in development of local infrastructure and roads etc for ease of dual use by local communities are powerful risk mitigation options. Therefore the CSR strategy must be designed in a manner that it incorporates such factors and level out such imbalances caused due to inter-community interactions and project’s adverse socio-economic impact on local communities.
- Community Perceptions based on prior experiences: Even if requisite permissions and clearances are obtained and ethical operations are ensured by the company, social risks may continue to exist due to experiential perceptions and vulnerabilities within the local community. The community perceptions in these locations are based on their prior negative experiences, which are not easy to change. Several scholars who studied the impact of industrial development and development induced displacement, have found that large populations became worse off after being displaced due to land acquisition or by sharing community resources with industrial units [Fernandes 2007; Mahapatra 1999; Pandey 1998]. Such instances have a long lasting impact on not only the affected populations but the neighboring areas as well. These locations therefore present a bigger challenge for the company, which, has to not only tackle the actual issue, but also the negative perceptions and notions of the community.
- Risks created by third party stakeholders and political influences: Paul Brass [Theft of an Idol, 1997] demonstrates the strength of regional political networks and sub-national authoritarian groups within small cities and rural areas, that are capable of manufacturing collective violence even in the absence of pre-existing hatred or discontent. This phenomenon of ‘manufactured riots’ in a top down fashion by political parties or influential groups for their own vested interests, indicates the power that such ‘stakeholder’ groupings can wield. This was evidently demonstrated in Singur where farmers vehemently opposed the Land acquisition attempts for the Tata Nano Plant. However, soon after the Tata’s announced that they would relocate, a large group of farmers actually admitted that they were misled by politicians [http://timesofindia.indiatimes.com/india/Singur-reversed-Now-farmers-seek-govt-help-to-sell-land/articleshow/5764866.cms]. Managing the political and other third party stakeholders and understanding their motivations is hence critical from a risk management perspective.
Risk Monitoring Parameters
CSR activities as a tool for Risk Mitigation
The pertinent question that must be answered here, why is CSR such an important tool for Risk management? But before we attempt to answer this question, we should look at our options deal with socio-political risks. ‘If not CSR, then what?’ If a community refuses to sell their land, share their water resources, or disrupts operations through other forms of forced lockout protests etc, then the available options with the business organisations are actually very few. One option is to rely on state support and police forces, which are neither dependable nor capable of managing such crisis. The failure of both these machineries in handling such disputes is well documented in a number of cases in India. (Singur and Nandigram in West Bengal, Vedanta Aluminium in Lanjigarh, Orissa, Utkal in Kashipur, Orissa are among a few). Moreover, community protests are mostly based on genuine issues, thus use of coercive tactics is not only a violation of human rights and grossly unjustified, but also practically unadvisable since it only aggravates the problem.
Furthermore, government decisions’ rest with the politicians who are in turn elected on the basis of community support. Thus, depending solely on government or police would mean being at the mercy of politicians giving them room to manipulate. Direct support base formed through community intervention is therefore a mutually beneficial and effective mechanism for companies to deal with socio-political risks in the long run. Business strategies for resettlement and rehabilitation have focused largely on financial compensation models which have neither found acceptance nor support of the affected communities. This is primarily because financial compensation given as a onetime payment does not offset the loss of livelihood easily. CSR can provide a solution to such livelihood problems. But, while in theory an emphasis on CSR finds easy acceptance; in practice, most managers are often forced to stand at odds with academicians and activists regarding the scale and extent of investments.
Managers have to perform the challenging task of striking a balance between community interests and business interests of the company. Despite considerable effort in academic literature to establish the reliable relationship between CSR and financial performance, the evidence remains mixed at best [see Chochran and Wood, 1984; Pava and Krausz, 1996]. Where CSR and business interests readily associate, decisions become easy. But wherever they conflict, theory and practice may find it difficult to reconcile, thus leaving the managers to tread a difficult double edged sword. Although it may never be possible to avoid risks entirely, “rational decision-making requires, a clear and quantitative way of expressing risk so that it can be properly weighed, along with all other costs and benefits, in the decision process” [Kaplan and Garrick, 1981]. Thus, if we are able to define the risks, controls and triggers appropriately, it would also be possible to quantitatively measure the risks and the effectiveness of CSR controls.
Companies face three key challenges: risk measurement, risk management and embedding risk management within their businesses. Developing key risk indicators, (KRIs), corresponding key control indicators (KCI) and key performance indicators (KPIs) for companies to report risk management performance could help in overcoming these challenges. A few practical guidelines for designing CSR strategies for the purpose of risk mitigation are provided below.
Model for CSR planning and identification of risks (Who should design the strategy?)
Centrally engineered CSR frameworks using a top down approach often result in a total disconnect with the local community and lack a grass root level understanding of the issues. CSR initiatives must first attempt to minimize and address the damage caused by the companies’ own operations (such as dust management during earth-moving phase of construction, which adversely impacts pollination in crops and therefore no or little agricultural yield in many sq kms around a project site), thereby also minimizing the consequent risks. These risks are unlikely to be common for all of their industrial facilities, thus the key controls that cater to these risks can only be evolved from grass-root field surveys. An overarching strategy that identifies the primary issues, risks, and guidelines on controls may therefore be formulated centrally only to the extent of laying down the management approach and priorities
A centralized strategy is not able to cater to locational and third party stakeholder risks. Thus, identification of beneficiaries, scale of CSR engagement needed and model for implementation, and communication plan must be specific to a plant or location and should be decided at the local level. Though, the risk management teams of the company must constantly be aware of the locational risks and vulnerabilities created by third party stakeholders, addressing them directly may not always be viable. Moreover, third party stakeholder risks are more likely to manifest when issues on account of companies own operation remain unaddressed. Thus if the CSR strategies of the company are able to successfully tackle risks originating from the company’s project (e.g. land acquisition or utilization of local water resources), own products or production process, the other risks may automatically become latent.
Choosing a balanced set of activities:
The overall CSR strategy should ideally be balanced on two dimensions – internal and external balance, and long term vs. short term balance.
a. Internal and External Balance: Internal CSR encompasses management of internal stakeholders like work safety and health concerns of employees, adapting to changing environment, dealership schemes and benefits; as well as management of impact on environment through internal measures like treatment of toxic wastes, reduction of dependence on shared resources etc. External aspects of CSR would involve initiatives with the local communities, government, business partners and other stakeholders. Three kinds of CSR activities have been identified, these include ‘community involvement’, ‘socially responsible production processes’ and socially responsible employee relations’ (Moon 2002). The overall CSR strategy must attempt to integrate components of all the three.
b. Balance between Sustainable Development activities and General Goodwill initiatives The overall CSR strategy must attempt to balance long term and short term initiatives. Some companies spend enormously on events, donations and advertisements that are meant to generate goodwill in society. They are however, often get rejected as PR or advertising gimmicks by the community since no positive impact is seen on ground. The actual benefit to each individual remains significantly low. On the contrary, companies that undertake long term initiatives are often get restricted to very small number of beneficiaries and are unable to change broader perceptions. Moreover, they often find that community expectations keep rising, and the company does not find business sense in meeting such growing expectations. Thus a balanced mix that combines sustainable development initiatives for a certain set of targeted beneficiaries (especially project impacted persons), with general goodwill activities for a larger set of people is considered ideal for mitigating business risks, and building a strong ethical corporate branding.
|Table 1: Long Term vs Short Term CSR
|Sustainable Development Activities
||General Goodwill activities (Short event based programs)
|Public memory is short for long term activities. They are often forgotten or taken for granted.
||Higher recall value. Regular PR opportunities
|Reaches only a limited number of targeted beneficiaries
||Can reach a much wider number of beneficiaries
|Communities get accustomed and begin to demand more. (Escalating Community Expectations)
||It is often seen as an eye-wash. Does not bring any substantial long term benefit to the community.
|Create several opportunities for general goodwill activities as well
|Eg: Employment or livelihood based initiatives, housing, education, etc
||Eg: Health camps, scholarships, awards, donations etc
The choice of sustainable development activities should be made considering two factors:
Nature of impact: The CSR activity should directly address the nature of risk created by their business activity. For example, if the operations of a company affect the water supply of a village, then the CSR activity must provide suitable alternatives for the same. Where as an impact on the livelihood can be offset by targeted CSR strategies that cater to employment generation.
Scale of Impact: The scale of the impact on project affected persons/community may be measured in terms of number of people impacted and the extent of social and economic impact on each individual (for example negative impact on local water resources can be converted into dollar/rupee cost in terms of agricultural yield impacted). The scale of the CSR activity (as well as alternative livelihood models and opportunities to be created) should be at the least equivalent to offset the negative impact in order to diffuse the risks. Thus, the number of project impacted persons should more or less equate to the number of beneficiaries from the CSR activities and the extent of negative impact should also be offset by extent of benefit through the CSR led sustainable development and alternate livelihood activity. In addition, companies should also seek the engagement of employees, contractors and sub-contractors. As the group, these put company policy into action. Employees in particular have considerable influence over the outcome of CSR effort. Where possible, staff should be given to opportunity to provide input into decisions relating to CSR policies and programs. In addition, companies should clearly communicate the reasons behind CSR effort, including the anticipated benefits from the perspective of the community, the organization and, where applicable, employees themselves. In cases where staff have a clear understanding of the reasons behind CSR policies and programs, and are provided the opportunity to provide input into decision making, they are more likely to apply CSR policy in a diligent manner. They are also more likely to participate actively in specific CSR programs.
Choosing appropriate CSR models: The effectiveness of CSR is highly dependent on the degree to which it is embedded in the Business Operations of the company. The CSR model is usually chosen on the basis of level of investment and engagement that the company intends to employ. But the model used, is a key determinant in ensuring that the objectives of CSR are actualized on ground at the operational level. A number of CSR models have been tried by companies in India, each having its own pros and cons. Table 2, presented below, gives a short overview of a few of them.
| Table 2: Comparative assessment of CSR models
|Direct community engagement programs.
- Direct interaction between the company and the community.
- No intermediary.
- Limited scope for Misinformation
- No Diversification of Risk
- Huge manpower/teams needed within the company.
- Lack of previous community presence could create vulnerabilities and difficulty in dealing with the community.
- Might conflict with interests of NGO’s and other stakeholders.
- Have to confront escalating expectations
|Partnership with NGO’s
- Diversification of risks related to CSR projects
- Field support teams
- Sound understanding of local dynamics
- Previous community presence may be advantageous.
- Credit sharing. Often complete credit gets transferred to the NGO’s
- Not much direct interaction with the community unless conscious effort is made
- Association with the NGO implies image branding of the company by way of association
|Village Self Help Groups or Community based Cooperatives
- Can become self sustaining democratic units
- Can cater to ‘Escalating Community Expectations’ by encouraging a sense of ownership within the community.
- Require good amount of training and honing of skills.
- Gestation lags of the CSR Project could be longer.
- There may be a lack of persons with entrepreneurial abilities within the community.
|Facilitation and tie ups with Government Welfare Schemes
- Lesser investments may be needed
- Bureaucratic set up is slow and less efficient.
- Greater chances of corruption
- Monitoring and evaluation may not be under corporate control.
- Not necessarily accepted as a corporate initiative.
Timing of Investments
Socio-political risks inevitably originate as issues amongst the project impacted communities. These are then ‘liberally’ leveraged by various stakeholders, including vested interests, resulting in a ‘fog’ surrounding genuine issues and the exploitive forces (such as the local land mafia-politico nexus) at play.
Identification of the triggers and timely investment could prevent them from escalating beyond manageable limits. A simple rule may be formulated in this regard. “Investment in CSR should precede actualisation of the risk”. There is usually a time-lag between the emergence (in latent form) and escalation (actualisation) of risks. Duration of this time lag depends on a number of factors like political activity, severity of the issue and nature of risk.
Risks related to land acquisition for example would escalate a lot earlier and faster (e.g. a project invariably results in rapid escalation of land prices) than those connected with shared resources. Investments made prior to the establishment of the manufacturing plant are likely to act as much better confidence building measures, and thus limit the scope for exploitation at the hands of the politicians or activist groups. Moreover, direct interaction of the company with the affected communities helps eliminate the spread of misinformation. Though many businesses may argue that investment in CSR before the project Breaks Even is against the interest of their shareholders; a strong counter argument can be built against it, considering their long term interests. Many projects that fizzle out due to social risks, in fact lead to much greater losses for their shareholders. Strategic use of CSR may prevent such a situation, thus in high risk projects, there is substantial justification for an early investment in CSR. Similarly, large multi-national companies, capable of making early investments in CSR without much strain on the corporate resources, must attempt to do so, especially because multinational companies are always easier symbolic targets by virtue of being well known brands. Furthermore, if community issues relate to the livelihood or sustenance, the consequent socio-political risks are significantly high. Thus investments must be made with a proportionate sense of urgency. A large number of companies wait until their business operations begin, or at times until they break-even, before any they make any substantial investments in CSR activities. For projects with lower risks, this may be admissible. But for high risk projects this delay could be fatal since it inevitably leads to skepticism and insecurity in the community which is further fueled by activist groups as well as local politicians.
Risk = [Threat (Stakeholders + Issue)] X (Vulnerability)[Kytle and Ruggie, 2005]
Risk can be viewed as a function of the ‘inherent vulnerability’, and the ‘Threat’ emerging from the community (Kytle and Ruggie 2005). When the vulnerability of the company is low, it would have a higher propensity to deal with external threats thus the overall consequent risk would be low. Table 3, provided below, enlists the different stages of a business cycle and a CSR cycle respectively.
|Table 3: Seven stages of Business cycle and CSR cycle
|Business Project Stages:
||CSR Project stages:
- Project Conception and planning
- Feasibility studies and Risk Assessment for the Business.
- Preliminary engagement with the community and identification of local stakeholders.
- Construction and establishment of the Business Unit.
- Project breaks even/ sustained profits.
- Monitoring and Evaluation
- Development of CSR strategies
- Feasibility and Risk Assessment for CSR Projects
- Opening of Communication channels with the community and formulating a support base
- Commissioning, training and establishment of the CSR project
- Decommissioning (in case of self sustaining models)
- Monitoring and Evaluation
The first few stages of planning and feasibility studies involve minimum persons on the field. Thus, the disruption within the community and adjustments are minimal. However, during stage 3 and stage 4 of the business cycle, the number of ‘feet on ground’ increase manifold. At this stage the company identifies local stakeholders and the construction and operations, the projects vulnerability is the highest. This is also the time when massive adjustments have to be made within the community. Thus, threat is also at its highest at this stage of the business cycle. In order to diffuse the risk, the company must have amassed a body of well-wishers within the community before it enters Stage 3 of its project. (Note: Business Stages 3-4 could overlap or have an interchangeable sequence depending on the companies business strategy.) CSR provides a mechanism for amassing this body of well-wishers as well as reducing the threat from the community. Therefore, if the substantial investments in CSR precede stage 3 of the business cycle, the risk could be reduced substantially. The risk equation for risk management can therefore be modified as:
Risk = [Threat (Stakeholders + Issue)] X (Vulnerability)
Graph 1 shows the trends of business risk corresponding to the different CSR project stages. During the construction and establishment of the business unit (stage 4 of the business cycle), if CSR projects are already operational (stage 5 of the CSR cycle), then the overall business risk could be reduced from A to B. For a high risk project, this reduction could bring it to a manageable level (Rm) and prevent it from escalating beyond control.
Graph 1:Business Risk corresponding to different stages of the project cycle
The pattern and degree of escalation of risks with time would also differ slightly based on the kind of risks. For example, risks associated with depleting water table would peak after the business operations have commenced and its impact is felt by the community. This trend is clearly visible if one looks at the protests against Coca cola in India, where the community reactions began after 2 years of the establishment of the plant on each respective location. For high risk projects, as depicted in Graph 2, the risk is likely to escalate further with time, as third party stakeholders like politicians or media get involved. The original Business cycle (B0) is directly proportional to the associated risks. However, if the CSR strategies are initiated at the initial stages of the project, then it is possible to move from B0 to B1 or B2 depending on how much has been accomplished on account of the CSR initiatives. However, if the investments are made in CSR at a later stage when the risk is already escalated, (as shown by C2) then it would have negligible impact in terms of risk mitigation.
Graph 2: Timing of CSR strategies to reduce Business risks [This graph is hypothesis driven, drawn on the basis of field experiences and analysis of case studies. It needs to be corroborated with statistical and empirical evidence]
The success of a CSR strategy as a measure for risk mitigation, depends to a very large extent on the manner and timing of engagement with the local community. One critical aspect of a communication plan is the identification of the degree of engagement needed with different stakeholders and its respective timing thereof. Involving stakeholders and the community at large during different stages of the business project, tends to eliminate skepticism and sentiments of alienation. However, circulation of excess information could easily lend itself to misuse and sabotage by individuals or organizations having vested interests. Crisis Communication strategies used by companies during high risk projects, often involve a high level of secrecy and lack of communication. This results in a vacuum which makes it easier to manipulate perceptions and breed insecurity or anger within the community.
Thus, while information security is necessary, communication voids are undesirable. Managers need to identify segments of society that have direct influence viz a viz those wielding indirect or insignificant influence on the community. They also need to understand the motivations and leanings of each entity. Such communication strategies are usually project and location specific. Though certain generic rules may apply, communication plans should largely be based on an in-depth understanding of the different personalities, organizations and their influence patterns within a project area. The communities of interest may broadly be divided among the following categories:
- Migrant communities
- Indigenous Communities
- Village Panchayats
- District Administration (Collector, Revenue Officer, etc)
- NGO’s (Developmental orientation, Activist Orientation)
- Local Politicians
- Media/ Journalists
Each of these communities may be further divided into subgroups. For example, some NGO’s would have a developmental orientation with greater emphasis on constructive and participatory field projects, while others may be activism oriented with greater emphasis on organizing protests and collective political action. Similarly, among local populations there would be project impacted persons and others. The manner and extent of communication with each entity should ideally be different and an outcome of a planned strategy rather than incidental exchanges. Greater the extent or depth of mapping of influences and motivation, better is the communication plan likely to be. The chart below demonstrates a communication plan of a hypothetical village where the Village Panchayat and Local politicians wield significantly high degree of influence on the locals. The migrant population is small and non-influential and the local government officers have moderate or low influence. Since the influence of the panchayat is high, the degree of engagement with the panchayat is much greater. Moreover, in the initial stages there is minimal engagement with the media and local politicians. The engagement with local politicians is in fact kept low throughout the project cycle, despite their high influence because they are likely to have vested interests and ulterior motives. However, such generalizations may not be accurate, thus it is important to have further detailing of sub-groups and individual personalities.
The chart below provides an indicative template for designing the communication model.
Note: Kakani et.al (2008) studied the patterns of communication and community engagement of private companies during land acquisition for projects in India. Their research demonstrates a very strong connect between the communication plan of a company and the success of their project. Companies that engaged with local politicians and middlemen at the planning stage had much lesser success rate than those which engaged with the village communities directly before involving any middlemen. Further, involving the media at the initial stages also tended to increase the risk of failure. While their study was limited to land acquisition, it has much wider implications in understanding the patterns of community engagement.
Risk Triggers and Key Indicators In its latent form risk could exist for fairly long periods without any hint of activism or protests. Its latency poses a challenge for the company to identify or assess the risks. However, there are a number of indicators and triggers that seem to correspond with sudden escalation of risk from its latent to active form. In the operational risk framework, trigger is normally defined as ‘symptoms and warning signs that indicate whether a risk is becoming a near-certain event and a contingency plan/response plan should be implemented’. A few ‘scale up factors’ that act like propellants in aggravating a crisis, and thus require monitoring as likely triggers, may be identified as follows: ‘Communication void’ in the early stages of the project (Eg: stage 1-2 of the business cycle); involvement and mishandling by police forces; pre or post election activism; high unemployment or sudden increase in unemployment due to migration, seasonal availability of agricultural labour; Water shortages or crop failure due to bad monsoon.
Conclusion: Milton Freedman (1970) argued that the only social responsibility of a Business is to increase its profits. Ironically however, in case of high risk projects, even for generating profits and ensuring business continuity, CSR becomes incredibly important. Moreover, the CSR strategies need to be driven by genuine intent towards the community for them to be effective. A large number of companies still view CSR as a burden or drain on profits. Thus, they retain a minimalistic view of CSR, attempting to minimize their investment or ‘perceived loss of shareholder profits’ through CSR. For a large number of companies CSR is nothing more than a buzzword that must be a part of their boardroom vocabulary and public image. Critics of CSR argue that corporations derive more benefit from their social activities than the community they claim to benefit. Thus corporate philanthropy is often condemned for being driven by ulterior motives. In fact, many companies do tend to be driven purely by their own personal gains while designing CSR strategies. But greater social good and community benefit is not a key driver for many companies. From tax saving, to image building; they derive several benefits to at least project a willingness and favourable attitude towards CSR.
Some mining companies for example, show mandatory rehabilitation and resettlement costs as expenditure on CSR. When a government regulation on land acquisition stipulates the minimum necessary requirements for a rehabilitation policy, it must not and cannot be counted as a Corporate Social Responsibility. Undoubtedly, CSR activities can bring an enormous amount of benefit to the companies in the form of image building, advertising and diffusion of pressure groups. But what is wrong with it being a win-win situation, with the company and the community benefiting equally? A community would hardly ever reject benefits merely because they are also advantageous to another group. The problems arise when companies fail to admit to their own gains and instead try to project CSR as a philanthropic activity rather than a measure for risk mitigation. It is this fallacy that creates skepticism within the community. In many cases the benefits to society are in fact not even sufficient to outweigh the losses caused due to the company’s operations. In such situations, a facade of philanthropy is easily rejected by communities and in fact increases the risks. Moreover, such dichotomies create room for exploitation and manipulation by third party stakeholders like politicians and social activists.
Thus incorporating CSR within the Operational risk framework is an ideal way of devising mutually beneficial solutions for the company as well as society. This paper provides a framework for evaluating and designing such strategies. It identifies the key components for devising CSR controls, and a set of key risk indicators. ORKASH’s further work includes benchmarking, establishing comparable standards as well as devising key performance indicators to quantitatively evaluate the effectiveness CSR as a risk mitigation tool.