ESG and Indigenous communities – the need to focus on relationships

Torys Quarterly: ESG’s turning point

As the importance of Indigenous matters in Canada continues to grow, discussion is focusing on how Indigenous issues can be better integrated into ESG standards and ratings.

ESG frameworks are criticized as taking a “checklist” approach that does not reflect the need for and importance of meaningful consultation, or of adopting a simplistic view of concepts like free prior and informed consent (FPIC) that does not recognize the spectrum of Indigenous rights and impacts on communities that may be engaged in a particular project.

A large part of this problem stems from the nature of ESG standards, which have been developed primarily to assess factors—such as the level of greenhouse gas emissions or diversity on a company’s board of directors—that can be quantified.

In the case of Indigenous issues, there are some factors that can be measured – numbers of Indigenous employees, Indigenous representation on the board of directors, contracts with Indigenous businesses, support for Indigenous community organizations, among other things. But many aspects of a company’s record of dealing with Indigenous issues are relationship-driven and qualitative, and hence difficult to measure by means of a typical ESG ratings framework.

Collaboration is critical not only at the start of a project to establish a lasting, meaningful relationship with Indigenous groups.

While Indigenous groups, investors and rating agencies work to find better ways to put the “I” in ESG, corporations interested in developing projects that engage Indigenous communities should focus on the relational and qualitative aspects of their engagement with those communities. Though current ESG standards are not yet designed to adequately measure those qualitative issues, a company’s ESG ratings will be impacted—sometimes significantly—where there has been a marked impact on the project caused by a breakdown in a company’s relations with Indigenous communities.

An ESG rating agency may not be able to measure the strength of a company’s relationship with Indigenous communities. But it will take note where a project is delayed or otherwise materially impacted by litigation, blockades or media campaigns that arise from the breakdown of a company’s relationship with Indigenous communities.

Meaningful collaboration: what does it look like?

In our view, the best approach to cultivate the qualitative aspects of relationship with Indigenous peoples is to engage in meaningful collaboration.

In order to maximize its benefits, in our experience, a collaborative approach cannot be superficial. It must be applied in a purposeful and thorough manner. Meaningful two-way dialogue must be prioritized and aimed at minimizing the impacts of the project on each Indigenous community and exploring the opportunities that are created by the involvement of Indigenous communities. These conversations should be held in a manner responsive to the specific context of the Indigenous community, rather than through generalized measures. Taking the time to truly understand each Indigenous community’s objectives—including their own ESG objectives—and how they can be met, will be part of the formula for success.

Collaboration is critical not only at the start of a project to establish a lasting, meaningful relationship with Indigenous groups. From the consultation related to initial permitting and throughout the life cycle of a project, true and meaningful collaboration serves an important role in building trust, resolving disagreements, and, ultimately, facilitating the efficiency and success of the project.

Implementing an effective, collaborative approach requires an investment of money, time and effort. But the reality is that these costs are often far less than the money, time and effort required to address the effects of litigation, not to mention the monetary, timing and effort costs that are typically required to develop a productive relationship after litigation. Often, the lost opportunity cost of the damaged relationship can be more significant from an overall project perspective than the investment in an effective, collaborative approach, not to mention the ESG and reputational costs.

Conclusion

Ultimately, focusing on the uniquely qualitative nature of collaboration helps sets the course for a project pathway that is mutually beneficial for all parties involved. While a collaborative approach requires qualitative, relationship-based strategies to be implemented as part of the project’s broader ESG mandate, the benefits extend to tangible benefits for a range of key business drivers, such as value generation, reducing costs and creating competitive advantages and reputational benefits from both ESG and financial perspectives.

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The Authors

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