The risk posed to investors by disputes with local populations is widespread, materially significant and growing, according to new analysis by TMP Systems of over 260 case studies of tenure risk.
Our review of 262 agriculture, energy and mining sector disputes found that conflicts with local populations had a materially significant impact on investors in 67% of these cases. An overwhelming 82% of disputes had occurred since 2000.
The analysis was released by TMP Systems alongside two free and open source toolkits.
The tools draw on geospatial data and improvements in communications technology to help investors quickly assess and manage tenure risk, enhancing environmental, social and governance (ESG) diligence efforts.
They have been developed alongside the Rights & Resources Initiative (RRI) with funding from the UK’s Department for International Development (DFID).
TMP Systems partner Ben Bowie, said: “Compensation or the lack thereof was rarely a primary driver of dispute. Rather, population displacement in the agriculture and energy sectors and environmental degradation in the mining sector were the core causes of dispute.”
Speaking at the Bern Conference on community resource rights, he added: “Investors need better information on the key impacts of projects they finance. It is, after all, easier to avoid a dispute than to resolve one. We see the material impact of tenure risk on real asset investments becoming increasingly pronounced.”
The release of the two tools – IAN: Risk and IAN: Diligence, which can be found here - coincides with that of a new report by RRI which highlights that local communities and Indigenous Peoples are estimated to hold as much as 65% of the world’s land area under customary systems; yet many governments formally recognize their rights to only a fraction of those lands.
Bowie said: “It is clear from our research that these tools are needed: engagement with local populations can help investors to better identify and manage environmental, social and governance (ESG) risks. We believe these tools can help investors efficiently allocate human resources to address the most likely sources of dispute – we hope to see their adoption and adaption by the investment community.”
Their release follows TMP Systems’ and the RRI’s analysis last year spanning almost 73,000 commercial natural resource developments in eight emerging/frontier market economies, that found that over 93-99% of those developments were inhabited by local communities or Indigenous Peoples.
Not taking these inhabitants into account can cause social conflicts, which heighten financial risks for emerging market investors ranging from EM-specific funds through to sovereign wealth funds and banks; commodities-driven corporations or insurers who guarantee the performance of those assets.
“The assumption that land without clear ownership is uninhabited is a dangerous recipe for any kind of natural resources-based development,” said Andy White, Coordinator of RRI,
“In fact, almost none of the world’s land is uninhabited today. Often, local and indigenous communities have been stewards of the land in question for centuries–certainly long before national governments came into the picture. Instead of being pushed aside, these communities need to be treated as key counterparties in any decisions that affect their land and livelihood.”
Treating local communities as actual partners in economic development can lead to far-reaching impacts on a project’s sustainability and financial health, as well as positively affect key development indicators such as poverty and hunger.
“Industrial or infrastructural development is inherently tied with the economic rights of local inhabitants,” highlighted White. “Equitable economic growth is impossible without taking those rights into account.”
IAN: Risk brings together 25 existing publicly available datasets from three different categories into an open-source database that anyone will be able to download, explore and improve. It includes high resolution geospatial data from NASA’s SEDAC and the European Space Agency’s GlobCover. The three categories, viewable via an interactive map, encompass:
1: Subnational data about social conditions, specifically:
· Demographics (population count/density per 30-seconds cell)
· Conflict (incidents of civil unrest and political violence, time series of displacement)
· Welfare (access to sanitation, child mortality, displacement)
2. Subnational data about environmental issues, such as:
· Land use (anthropogenic land use, soil health)
· Climate (temperature, forecasted climate impacts)
· Water (baseline water stress, watershed boundaries)
3. Mostly national-level data on governance, such as corruption perceptions or regulatory quality.
IAN: Diligence provides accessible, step-by-step guidance for companies and investors to use when assessing and negotiating tenure risk issues. Its core is a set of over 90 questions, organized according to stages in the project lifecycle that are designed to provide investors with the information they need to make good decisions on tenure risk management.
TMP and RRI have completed three LDTs for investor adoption, on agriculture, mining and energy. LDTs on infrastructure and forestry will follow by the end of the calendar year.
TMP Systems is a UK-based consultancy working in asset management, climate and ecosystems and economic development. Among the company’s offerings, TMP Systems deploys economic and technological systems to improve the efficiency and impact of aid and philanthropic spending. TMP has worked extensively in both the public and private sectors, with partners ranging from equity funds to governments, NGOs and the United Nations.
TMP Systems partner Ben Bowie was previously an independent consultant for a range of institutions including the ODI, the European Commission and companies in the extractive industries. Ben lives in London and received his MSc from SOAS and his BA from Cambridge. For further enquiries or to arrange an interview with Ben or another of our partners, please contact firstname.lastname@example.org.