Can “Free, Prior and Informed Consent” implementation reduce conflict over natural resource development?

This posting first appeared on the United States Institute of Peace blog here.

From Peru to Guatemala to Ghana, many investments designed to develop natural resources – such as oil and gold – are beset by protests and conflict. Too often, these projects suffer from an “original sin” – affected communities were not adequately consulted prior to the investment decision and had little say about how and whether these projects were developed. With the inevitable environmental and social impacts that come from large-scale projects such as mines, oil pipelines, dams, it’s no wonder that protests, grievances and conflict result. In some cases, such protests shut down operations for weeks, months or years at a time. In Peru, indigenous communities blockaded a river in the southern Peruvian Amazon and occupied oil facilities for weeks during the construction of the Camisea gas project. In Nigeria, Shell, Chevron and other companies have had to forego hundreds of thousands of barrels a day in production because of community protest and conflict.

The good news is that there is growing international support for free, prior and informed consent (FPIC) from governments, international financial institutions, investors and the companies themselves. They recognize that it is not only a basic right for indigenous communities and a principle that should be respected for all affected communities, but it also makes bottom-line sense.

One approach to defining FPIC is proposed in the Framework for Responsible Mining, which was developed by NGOs, retailers, investors, insurers and technical experts working in the minerals sector to create a basis for developing responsible sourcing and investing policies. The definition says that consent must be obtained free of coercion or manipulation. Such consent must be secured prior to any authorization by the government or third parties, and prior to commencement of activities by a company affecting indigenous peoples’ lands, territories, and resources. Finally, the consent must be informed by meaningful participation and consultation of indigenous peoples based on the full disclosure of relevant aspects of the proposed project by the company and permit granting authority in a form that is understandable and accessible to indigenous peoples and local communities.

FPIC creates an opportunity for project sponsors to identify concerns among affected communities early in the project development process, and to adjust project planning accordingly. For example, project sponsors might reroute a pipeline to avoid a site considered sacred by local communities, and in doing so prevent conflict over the longer term.

FPIC is recognized by the 2007 UN Declaration on the Rights of Indigenous Peoples and the US reversed its position on the Declaration and finally endorsed it last December. Extractive industry companies have also begun to take more progressive positions on FPIC. In 2009, Oxfam documented public commitments to FPIC by the mining companies Rio Tinto and Xstrata, as well as project and/or country specific public commitments to FPIC by Anglo American, BHP Billiton, ConocoPhillips, Pluspetrol, and Talisman Energy. In May last year, Talisman Energy released a report that it commissioned on the feasibility of adopting an FPIC policy. The report, written by law firm Foley Hoag LLP, concludes that “in the long-term, the benefits for oil and gas companies of obtaining community agreement based on FPIC principles, and thereby both supporting their social license to operate and reducing legal and reputational risks, are likely to outweigh the substantial challenges of securing consent.” In December 2010, Talisman Energy committed to the principle of FPIC in its Global Community Relations Policy.

Importantly, the World Bank’s International Finance Corporation, its private sector lending arm – which, for example, has financed gold mines and oil projects in Peru and Ghana – has come out in support of FPIC. On May 12, the IFC announced an update to its environmental and social standards and said that it would use FPIC for projects with potential significant adverse impacts on indigenous peoples. While the full text of the new requirement has not been released, this appears to be an important step forward.

Common misconceptions about FPIC include the idea that it represents a “veto” for individuals or communities or that FPIC is very difficult to implement in practice. The FPIC process is a dynamic one and becomes oversimplified when viewed as a simple ‘yes’ or ‘no’ vote. In a scenario where the community withholds its consent, the project proponent may, for example, adjust the project design in order to further minimize impacts or relocate to another site. FPIC has also been successfully implemented in a number of cases. Recently Oxfam produced a case study on the successful implementation of FPIC in the context of a hydrocarbon exploration project in Bolivia.

The growing movement by governments, companies and lenders to respect FPIC as a norm and in practice will reduce conflicts related to some of the largest economic investments in socially and environmentally sensitive regions around the world.