Decision-making in the extractive sector is shaped by a complex global, regional, national and local architecture of relationships between individuals and institutions. The term governance refers to the many ways that individuals and institutions manage their common affairs in this context. Governance of the extractive sector is a process characterised by diverse actors, normative frameworks, hierarchical relationships, and spatial and temporal boundaries. These components are summarised below and illustrated in Fig. 2 below.
In the following paragraphs, we provide a formative outline of the SDLO. It should be made clear at the outset that SDLO is not intended to function as a licence in the regulatory sense of that term.Footnote 7 Instead it contains a flexible and coherent collection of principles and policy options, which over time will give rise to best practice that are practical in nature and applicable in diverse contexts at multiple spatial scales. As illustrated in Fig. 3, the SDLO is designed to function as a normative reference point for the multiple actors concerned with the extractive sector, enabling them to act in a coordinated and cooperative manner that supports the achievement of the 2030 Agenda for Sustainable Development. This involves building on the wider suite of relevant priorities, obligations and standards that are compatible with the SDGs, including but not limited to those relating to:
National and regional economic development—including instruments such as the Africa Mining Vision, Gaborone Declaration for Sustainability in Africa.
Environment and climate change—including Paris Agreement on Climate Change, Convention on Biological Diversity including the Aichi Biodiversity Targets, and United Nations Convention on the Law of the Sea.
Human rights—including the UN Guiding Principles on Business and Human Rights.
Trade and investment—including agreements of the World Trade Organisation.
Industry best practice—examples of initiative setting standards for industry include the Global Reporting Initiative (GRI) and Extractive Industry Transparency Initiative (EITI).
Distilling practical principles and policy options from the complex of relevant norms is a significant undertaking, and only a preliminary and indicative attempt is made to do so here. It will become clear that there is no one-solution-fits-all, and that a flexible approach is required whereby proposed policy options and best practices account for and adapt to the specific socioeconomic, geopolitical, cultural and historical specificities of each particular area, country and region. However, the paragraphs that follow sketch out principles and policy options that are broadly applicable everywhere.
Actors and stakeholder engagement in extractive sector governance
The governance regime depicted in Fig. 2 operates as a holistic multi-level complex of formal and informal arrangements, encompassing governance institutions and mechanisms that act at the international, regional, national, local and project levels, and performed by a multitude of actors (Ekins and O’Keeffe 2014).
These actors include but are not limited to ‘home’ and ‘host’ governments, intergovernmental organisations, private commercial entities and ‘third’ sector actors such as non-governmental organisations, and diverse communities within civil society. Each of these actors pursues different sets of interests at different spatial and temporal scales, in different social, cultural, political, economic and environmental contexts. A characteristic feature of the extractive sector is the influential role played by transnational corporations (TNCs),Footnote 8 including state-owned enterprises from other countries (Cotula 2013; Holden and Pagel 2013; UNCTAD 2009). The conflicting interests and asymmetries of information, negotiating skills, leverage and power between governments, TNCs and communities present important political economy challenges.
The divergence in expectations between stakeholders has been a key driver of conflict in the extractive industry. This happens as certain stakeholders may be excluded from the decision chain. Stakeholders may also lack knowledge of the economic specificities of a mining project, fail to collectively understand how mining can benefit each group and view value creation as a ‘zero sum’ game of winners and losers (Pedro 2015). A notable attempt by the World Economic Forum to address this is the Responsible Mineral Development Initiative, which entails a platform and tool to create a shared understanding of the benefits and costs of mining, and identify beneficial solutions (WEF 2017).Footnote 9
Appropriate governance of mineral resources, so as to enhance their contribution towards sustainable development, is a shared responsibility along the mining value chain. From an ethical standpoint, developed importing nations should share responsibility for the adverse social and environmental impacts of mineral resource extraction occurring in mainly developing exporting countries. A global multi-level governance architecture will therefore need to address not only an agenda for resource security, resource efficiency and decoupling of resource use and environmental impacts from economic growth that is of particular importance to developed nations but also the need for continuous economic development, structural transformation and economic diversification in resource exporting and other developing countries.
The SDLO envisages an inclusive multi-stakeholder approach, whereby decisions concerning the mining industry are made with the involvement of stakeholders. All relevant actors should be included through, among others, information exchange, media and other campaigns, and collaboration with institutions such as those with oversight roles. A community-orientated, context-sensitive approach to engagement requires in-depth knowledge of local culture, circumstances and power dynamics, alongside a sophisticated approach to engaging diverse voices (including alternative and marginalised voices) within affected communities (Owen and Kemp 2013). It is thereby important that industry engages in patient, long-term and broad-based collaborative social dialogue regarding each mining project, articulating an agenda which balances its own commercial needs with managing and meeting broader expectations about the contribution of mining to sustainable development (ibid).
Comprehensive, consistent and flexible national governance regimes
The SDLO can build on a plethora of existing policy options, initiatives and instruments. Nevertheless, there is a danger of ‘initiative fatigue’ as the ‘proliferation of initiatives and lack of linkages make it challenging for mining companies to decide which ones to adopt and make a focus on sustainability more costly to implement’ (Resolve and WEF 2015, p. 6). Importantly, for many countries, the challenge relates less to the absence of appropriate constitutional provisions, legislation, regulations, contracts and licences, but more to the challenge of enforcing these.
In addition, effective governance of the mining sector requires a legal system that is comprehensive, consistent and universally applicable to all projects. In addition to adopting policies/legislation, governments also need to build the institutional capacity to implement the rules. And rules and institutions, in turn, need to be supported by a critical mass of citizen understanding (Collier 2013). They also need to be appropriate to the local context. Differentiated governance approaches are needed, for instance, for countries where standards and guidelines can be easily implemented, compared to others with a large artisanal and small-scale mining sector, or with high levels of corruption, or that are affected by conflict and war. Governance strategies thus need to be tailored to a particular country’s socioeconomic, geopolitical, historical and cultural background.
Coherent global governance architecture
Different actors and normative frameworks shape extractive sector governance at different spatial and temporal scales, including local, national, regional and international. The spatial boundaries of governance at each of these scales are often not aligned with the biophysical and spatial characteristics of resources, many of which are location-specific point resources. Mineral resources are concentrated in small areas and are unevenly distributed, which means that they must be exploited where they occur, most often through capital intensive techniques. Yet, many activities in the extractive sector, and impacts of these activities, straddle, migrate across or are affected biophysically by activity located beyond jurisdictional boundaries. A powerful recent example of such impacts is the collapse in November 2015 of a mine-tailing dam in Brazil, which generated a wave of toxic mud killing 20 people and severely affecting hundreds of kilometres of river, riparian lands and Atlantic coast across the two states of Minas Gerais and Espirito Santo (Couto Garcia et al. 2017).
The ubiquitous movement of extractive resources across national boundaries is driven by the organisation of production, trade and investment into globalised supply and value chains (Kaplinksky and Morris 2001; OECD et al. 2014). These chains have diverse characteristics—including different degrees of complexity, fragmentation, interconnectedness and resource intensity, and different structures of control and ownership (OECD 2013).
The management of mineral resources therefore requires interventions of different actors in different spatial horizons in both ‘home’ and ‘host’ countries. Setting clear legislative and political boundaries with regards to these strategic resources is important. Nigeria, for example, has legislated to include a minimum 13% derivation rule in its Constitution, for allocating oil and gas revenues to the nation’s oil-producing states. Despite the introduction of such an instrument for the fairer distribution of extractive revenues between national and local governments, this has nevertheless led to unequal revenue transfers and failed to avert militant struggle in the Niger Delta (Iledar and Suberu 2010).
Relevant normative frameworks
Decision-making by different actors concerning the extractive sector is enabled, constrained and influenced by a wide variety of normative frameworks. More formal normative frameworks include treaties, constitutions, laws, policies, regulations, contractual agreements and technical standards. Less formal normative frameworks include administrative, commercial, professional, cultural and interpersonal practices.
The past two decades have also witnessed a plethora of domestic, regional and international legal and regulatory frameworks as well as formal and informal initiatives aimed at better governing the extractive industry for increased economic prosperity and environmental protection. These include many commendable examples such as the Africa Mining Vision, the UN Guiding Principles on Business and Human Rights, the Extractive Industry Transparency Initiative (EITI), the Dodd-Frank Act, the Global Reporting Initiative (GRI), the Model Mining Development Agreement, the Initiative for Responsible Mining Assurance, the Natural Resource Charter, the development of indicators to measure resource governance and the broader work of the International Council on Mining and Metals (ICMM).
In distinguishing between different normative frameworks, these include international agreements, national legislation and standards of practice.
International agreements establish a basic architecture of extractive sector governance at a global level, through the recognition of several general rights and obligations of nation states. For example, States are afforded permanent sovereignty over extractive resources within their respective territories, and sovereignty or sovereign rights over certain extractive resources depending on where they are located offshore.
National laws, policies and regulations establish detailed frameworks concerning rights to extractive resources, management and development of the extractive sector taking into account impacts on the environment and other economic sectors, and the allocation of associated benefits and impacts. An important issue in several countries is the discrepancy between formally recognised rights to resources, and the resource-related expectations and dependencies of local communities (Toulmin and Quan 2000).
Voluntary and private standards—As mining companies have sought to earn a ‘social licence to operate’, this has resulted in an explosion of soft regulation in recent years (Pedro 2015). Such voluntary initiatives are aimed at addressing potential consequences of mining on the environment (for instance, owing to tailing spills, deforestation, loss of biodiversity, soil erosion, water depletion and CO2 emissions), poverty and inequality, employment and inflation, immigration, displacement, loss of ancestral lands and livelihoods and other human rights violations.
Relationships—Both actors and normative frameworks are influenced and shaped by relationships of power, authority, cooperation or influence at multiple levels. These relationships can be hierarchical, or cooperative and voluntary. The prominent and influential role of private transnational entities, including TNCs, not-for-profit organisations and other formalised partnerships and associations, is a defining feature of extractive sector governance in recent decades. The ability of TNCs to influence extractive-sector decision-making across globalised value chains depends on the governance structure of the chain in question. The aforementioned asymmetry of power between TNCs, government and communities, for instance, may prevent local communities from exercising their rights and developing country governments from securing a ‘fair’ mining deal. Different value chain structures afford different degrees of power and influence to TNCs. Figure 4 presents five well-known illustrative modes of interaction between different private sector actors within globalised value chains, and corresponding degrees of power asymmetry and coordination. Extractive sector value chains tend to be characterised by high levels of integration, with transnational mining companies exercising a high degree of coordination and power over private sector activities in the relevant value chain. A number of extractive sector TNCs participate in collaborative networks designed to promote better governance within and across global value chains—a focal point being the International Council for Mining and Metals.
While domestic laws and policies are critical in managing mining operations, rents and investment in host countries, there is also an important role to be played by home countries and the wider international community. A number of proposals have been put forward for improving the governance of resources (including mineral resources) at the global level in support of sustainable development. These range from the creation of extended sustainable commodity agreements to an International Convention on Sustainable Resource Management, an Integrated Resource Management Agency and an international metals covenant (Ekins and O’Keeffe 2014; Bleischwitz and Bringezu 2007; Bleischwitz et al. 2012; Wilts and Bleischwitz 2012). Proposals for such global governance regimes for sustainable resource management should complement other related arrangements in the mining sector and aim to promote mineral resource sufficiency and security of access, the decoupling of mineral resource use and impacts from economic growth, and the contribution of mineral resources to the achievement of the SDGs.
Transparency and accountability
A new governance approach must recognise that although appropriate legal, regulatory and voluntary frameworks and instruments may to a large extent already be in place to govern the mining sector, the problem is all too often the uneven or outright lack of their enforcement. In order to implement laws and policies governing the mining sector, transparency is an essential, even if not a sufficient, prerequisite.
Transparency is also important for helping to combat ills associated with transfer mispricing (whereby governments may lose out on tax revenues owing to the distorted prices applied to transactions within TNCs) and illicit financial flows (amounting to estimated annual losses of over 50 billion in Africa) (UNECA 2015).
The transformations that occurred in the marketplace due the financialisation of commodity markets are a cause of great debate. A key concern is the potential perverse impacts in commodity price formation, particularly those arising out of speculative practices which exacerbate price volatility and lead to price distortions (Cheng and Xiong 2014; Heumesser and Staritz 2013). In developing countries, this can lead to significant difficulties in managing macro-economic imbalances driven by volatile export revenues, changes in the balance of payments and public finances as well as in inflation and exchange rates.
The issue of transparency has received significant attention in international policy circles, and there have been some notable advances in this field, including the Extractive Industry Transparency Initiative (EITI), mandatory disclosure requirements in the European Union and the USA, as well as numerous national initiatives (Kaufman 2014). Several valuable diagnostic tools have also been developed, including the Resource Governance Index.Footnote 10 Yet, analysis using this tool shows that fewer than 20% of resource relevant countries displayed adequate quality of transparency and accountability (Revenue Watch Institute 2013) (see Fig. 5).
Further inroads have to be made to increase transparency in a number of areas across the value chain, including mining contracts and licences, social and environmental impact assessments, royalties and tax payments at the project level, as well as state-owned enterprises, sovereign wealth funds and beneficial ownership of mining companies (Kaufman 2014). In this endeavour, responsibility does not only rest with governments and industry but also with countless other non-governmental actors, who include unions, non-governmental organisations, think thanks and academics, and who can share public auditors’ burden, analysing data, reporting on findings, and demanding more accountable governance and management in the mining sector (ibid).
While greater transparency is critical for ensuring accountability and hence successful policy implementation, it also has to be accompanied by efforts to fight corruption, improve the rule of law, and protect civil and political rights (including press freedom) (Kaufman 2014). These are important prerequisites for effective governance of the mining sector to ensure companies commit to the highest environmental, social and human rights standards, and the sector contributes towards sustainable development.
Support for broad development objectives, including poverty reduction, economic diversification and structural transformation
In establishing a new governance framework for the mining sector, it is essential to understand the sector within the broader context of a national economy, and its development objectives and strategies. This means both managing the potential impacts of mineral resource extraction on other parts of the economy (such as on the artisanal and small-scale mining sector), as well as maximising linkages between the mining sector and other parts of the economy (including through job creation, local procurement of goods and services, the downstream use of mined goods, and shared infrastructure). This will require a long-term comprehensive strategy, going beyond industry regulation to also include investment in education and training, and other policies for creating an enabling environment.
In the case of low-income resource-rich countries, governance strategies need to focus on breaking away from the enclave nature and extractivist model of the mining sector. Countries need to build forward and backward linkages with other socioeconomic sectors, build infrastructure and capacity for greater value addition along the value chain, and promote regional partnerships and integration. A range of structural reforms and industrial policies need to be implemented to help achieve structural transformation and economic diversification. Developed countries and the global community need to afford developing countries sufficient policy space to do so, including through reform of the international trade and investment regime that constrains the use of the full range of policy instruments to achieve resource-based industrialisation at the local level (Acosta 2013; UNECA and African Union 2011).
The Africa Mining Vision (AMV) presents one such comprehensive governance framework that extends beyond the narrow confines of the mining sector, to also advocate for linkages to other sectors, diversification, development of socioeconomic infrastructure and regional integration. The AMV Action Plan, which is structured around programme clusters, specific goals, outcomes and activities, was developed in 2011 for the practical application of the vision for the continent. The AMV Action Plan, which is structured around programme clusters, specific goals, outcomes and activities, was developed in 2011 for the practical application of the vision for the continent (Pedro 2016).
A result-oriented monitoring framework has also been developed to assess AMV compliance, as measured by the level of implementation of the 83 activities recommended by the AMV Action Plan (GIZ 2014). Approaches such as the AMV could be replicated in other regions and implemented at the national level. Another example of a suggested comprehensive approach to governance of the extractive sector is the Natural Resource Charter, which is a set of 12 precepts that put forward choices and strategies in order to increase the sustainable development benefits of natural resource exploitation. An accompanying Benchmark Framework has also been developed as a tool for the management of oil, gas and minerals against global best practice as prescribed in the Charter (NRGI 2016).
In addition to examining the inter-linkages between the mining sector and other socioeconomic sectors, there is also a need to look at the dynamic relationships between minerals and other natural resources such as land, energy and water. Extractive industries place large demands on these resources, risk polluting water resources and can lead to biodiversity loss and ecosystem destruction. This calls for a systems-thinking approach that accounts for the nexus between resources so as to steer policy efforts towards integrated natural resource management along the mining value chain.
In this context, strategic environmental impact assessments and integrated spatial planning or landscape planning are crucial to ensure that a mining project effectively contributes to local and national development. These instruments help protect local habitats, manage forests and water resources more sustainably, arbitrate between conflicting land use options and reduce poverty and improve the livelihoods of local communities.
Inclusiveness and reduced gender and other inequalities
An important element of the SDLO is recognition that mining activities can impact men and women in a different manner. Special attention should be paid to the role of women in artisanal and small-scale mining, their growing portion of employment in large-scale mining, and the adverse environmental and social impacts of mining that can disproportionately affect women. Examples of the latter include the impact of deforestation on women’s ability to collect water and fuel, or the rise of prostitution to serve mine workers and associated risks of sexually transmitted diseases including HIV/AIDS. A gender lens therefore needs to be adopted in governing the mining sector in order to maximise its development contribution, whilst also promoting female empowerment and gender equality that are central to the achievement of the SDGs.
A similar need for differentiated analysis and policies may also arise with respect to other groups, such as indigenous people, who may be marginalised.
Potential policy instruments
The principles outlined above would need to be operationalised through a range of policies along the entire mining value chain (that is, from licencing of mineral terrains, geological mapping, mineral exploration, mine development, mining, mineral processing and refining, ore transportation, manufacturing of end-use products, to recycling and mine closure). Van der Lugt (2014), based on Gunningham and Grabosky (1998), summarises examples of policy and regulatory instruments that can be applied in an appropriate mix of mandatory and voluntary instruments, creating both carrot and stick incentives, to advance the environmental performance of the sector.
On command and control regulation, possible instruments include environmental standards (e.g. process standards, technology standards, performance standards), permits and licences (e.g. point source or facility), and covenants (negotiated agreements, co-regulation). Economic and market-based instruments vary and include property rights, market creation, fiscal instruments (e.g. taxes, charges, subsidies), financial instruments, liability instruments, performance bonds, deposit refund systems (solid waste), removing perverse subsidies and sustainable procurement. On self-regulation (industry group or social control), there are standards and codes of practice. Voluntarism can also be practiced at the individual firm level or in the context of corporate social responsibility. Education, capacity building and information instruments include education and training, corporate environmental reporting, community right to know and pollution inventories, product verification and labelling, and award schemes (Van der Lugt 2014, based on Gunningham and Grabosky 1998).
There is a strong case for governing the extractive industries through detailed robust laws and regulations, rather than reliance on the negotiation of extensive and complex individual mining contracts as is often the case in developing countries. Contracts should as far as possible be consistent with the general legislative framework, include standardised terms, avoid stabilisation clauses, be allocated through a competitive bidding process and be accessible in the public domain.Footnote 11 This can help the government maintain a coherent strategy for the sector and broader economy, reduce the challenges associated with the negotiation of each project (particularly amid asymmetries in negotiating skills and leverage), facilitate effective rule enforcement by easing the work burden of regulatory and oversight bodies, and increase transparency and accountability (UNSDSN 2015).
Support for broad development objectives is likely to require a coherent formulation and coordinated implementation of a wide range of policies, which may relate to such issues as local content, shared infrastructure, international trade, investment, industrial policy, education and training, and many others, and which can help strengthen institutions, build capacities and create an enabling environment.
At the global level, policy action is needed for setting global standards in the form of rules and regulations, voluntary initiatives and reporting obligations in areas that include:
coordination of mining policies and initiatives and agreement on international mining standards [including pressurising transnational corporations (TNCs) to disclose information and adhere to global codes of conduct, and ensuring host countries receive a fair deal];
influencing incentives and behaviour (examples of policies being extended consumer responsibility and eco-labelling of metals);
technology transfer; and
regulation of the financialisation of commodities, and to curtail illicit financial transactions, transfer-pricing abuse, use of tax havens and other tax evasion or avoidance techniques.
The World Bank has developed a value chain approach for the extractive industries aimed at supporting countries translate mineral and hydrocarbon wealth into sustainable development, shown in Fig. 6.Footnote 12
Policies need to be designed at each of the illustrated different stages of the extractive sector value chain, which for space limitation are not described further. The implementation of the various policy options identified will differ from country to country depending on the local context, but some policies will very likely be required at each of the identified stages of the value chain.
Upward harmonisation of best practices
A number of authors have recognised the need to achieve the upward harmonisation of global standards of good practice for the mining sector to contribute to sustainable development (see, for example, Nickless et al. 2015). What is required is a set of international guidelines for what is acceptable, for instance, in terms of environmental, social and human rights impacts of mineral extraction, getting a fair deal and share of profits, profit repatriation, transparency and accountability, and investing in the future and in support of sustainable development objectives, along the lines discussed above. The guidelines would need to be used to set clear and concrete benchmarks for countries and companies to aim for. A formal mandate could be given to an institution such as the International Organisation for Standardisation to develop such global standards and benchmarks of good practice, which will need to include new reporting guidelines (for example those of the Global Reporting Initiative—GRI), and sustainability indicators (such as the Responsible Mining Index being developed by the Responsible Mining Foundation).