Opportunities and threats of transparency in the extracting industry

Why you should be transparent – and why not

This Article was published first on reputationaffairs.com.

The Internet made the world more transparent, transparency creates credibility, credibility increases reputation – and a good reputation is the essence in todays’ age of the internet. The formula of this cycle is easy to understand. But is it also correct? What if transparency complicates business, what if published information is misunderstood, and what if your stakeholders prefer to withhold information? Will transparency suddenly become a curse rather than open, good intention? This article shows the importance but also the consequences of transparency in the often-criticized extractive industry.

Transparency is the “Swiss army knife of policy tools”. A description that is often made – and not without good reason. Transparency challenges the privacy of companies and state sovereignty over and over again. Invoked in many highly critical areas such as security, financial policy, economics, corruption, human rights, and the environment, to name but a few. Thus, industries involved in all these areas are the most challenged. This applies, among other sectors, to the raw materials industry – regardless of whether gold and diamonds are extracted, oil drilled, or gas shipped to foreign countries: this is about safety for employees and the environment, about technological leadership, about human rights – and about money. A lot of money.

Being a winner thanks to transparency

Particularly in developing countries and emerging markets, the management of natural resources can generate revenues that are important for economic growth and social development. However, failure to disclose information on these revenues can lead to mistrust, weakening of administrative and governance standards, or even conflict. If it leads to conflicts or disregarded human rights standards, bad publicity is awaiting around the corner for the companies involved; damaging their reputation, followed by financial losses. Transparency with regard to the management of raw materials is an important prerequisite for ensuring that a country’s natural resources benefit the population. Because publicly accessible information promotes an informed debate on the management and use of natural resources. This way, the citizens of a country may hold accountable those being responsible in politics and businesses. Local politicians may show how they deal responsibly with the environment, international companies show that they behave legally, economically and (hopefully) morally correct, and the home countries of the involved companies may check that international standards are being observed.

Many companies are pro-transparency…

When it comes to transparency, involved companies often have to balance interests, because many of them advocate disclosure of the money flows to promote their own credibility, especially in their countries of origin – mostly OPEC countries – where commodity traders often have to listen to a lot of criticism. Transparency helps to reduce prejudices, correct misinformation and fight fake news. The own employees stand behind the company, and the cooperation with NGO’s becomes easier and more fruitful for both sides. At Exxon Mobil for instance, this is expressed as follows:

“We are committed to sincere and ethical behaviour and to fighting corruption by promoting transparency initiatives. In the countries where we do business, we are actively committed to signing transparency agreements to disclose government revenue. In detail, these are: Azerbaijan, Chad, the joint development zone of Nigeria/São Tomé and Príncipe, Kazakhstan and Nigeria.” ExxonMobil, 2019

ExxonMobil proved that these are not just empty words when back in 1998 they led a consortium of Western oil companies asking the World Bank to jump on board for a planned pipeline project in Chad and Cameroon. The idea was that the Bank’s involvement offset the reputational risk posed by investing in a conflict-prone, undemocratic country through a project drawing high levels of NGO attention. The bank agreed to draft a plan on how Chad should manage its future returns. In addition to protections of the environment and local communities, the resulting legislation required transparent and development-focused revenue expenditures monitored by oversight bodies which included civil society, legislative, and international members (Gillies, 2010).

… but are being slowed down by governments

Yet, implementing transparency does not always achieve its desired outcomes. Studies have found that despite the EITI auditing requirement (I’ll explain this later), member states (and companies) may not produce complete and reliable data (Van Alstine, 2014).Also, the lack of a strong and educated domestic civil society that can actually understand “transparency” may hinder the effectiveness of revenue transparency. In many countries, residents do not even know which rights they actually have. Thirdly, there is no scientific evidence that a transparent cash flow actually contributes to better and more resource-oriented growth. And finally, there are also quite trivial reasons why governments have little interest in transparency: corruption, money laundering and self-enrichment occur again and again. In order to counteract these unpleasant aspects, global initiatives have been in place since the late 1990s to achieve greater transparency – By the way: at the same time, the term CSR (Corporate Social Responsibility) became increasingly popular.

International initiatives

The Extractive Industries Transparency Initiative (EITI) is probably the best-known and largest global initiative for greater financial transparency and accountability in the collection and disclosure of revenues from natural resource extraction. The standard is implemented in some 50 countries around the world by governments in collaboration with business and civil society. Information on tax payments, licenses, production volumes and other important data relating to the extraction of energy and mineral resources must be disclosed. Many large corporations are active members of the initiative, including Swiss based Glencore for example:

“Glencore is committed to high standards of corporate governance and transparency and welcome increased transparency around the redistribution and reinvestment of such payments. We seek to maintain long-term, open, transparent and cooperative relationships with tax authorities in our host countries.” Glencore, 2019

Of course, there are countless other organizations and social movements promoting more transparency. For example, Transparency International, which fights corruption worldwide. And “Publish what you pay” (PWYP), founded from an alliance of London-based NGOs, including Global Witness, Open Society Institute, Catholic Agency for Overseas Development (CAFOD), Oxfam GB, Save the Children UK, and Transparency International UK, now includes more than 650 civil society organisations in over 50 countries.

In summary: Transparency yes, but…

Ironically, some companies are afraid that too much transparency will make them vulnerable because their value chains are complicated. This can lead to public shaming, which in turn creates complex reputational dynamics. For instance, a company could perceive that bad press scares off consumers, attracts legal investigations, lowers employee morale, and threatens shareholder confidence. Nevertheless, the benefits of transparency clearly outweigh and will become even more important in the future. Because “not to inform” is much more likely to cause negative publicity. And in the age of the Internet, a multinational company can simply no longer afford this.

Sources

Gillies, A. (2010) ‘Reputational Concerns and the Emergence of Oil Sector Transparency as an International Norm’, International Studies Quarterly. Oxford, UK: Blackwell Publishing Ltd, 54(1), pp. 103–126. doi: 10.1111/j.1468-2478.2009.00579.x.

Van Alstine, J. (2014) ‘Transparency in Resource Governance: The Pitfalls and Potential of “New Oil” in Sub-Saharan Africa’, Global Environmental Politics, 14(1), pp. 20–39.

The fear of reputational loss – A case study on climate models

Reliability issues and the consequences for scientists, policy makers and the media

This Article was published first on reputationaffairs.com.

 

Global Climate Models (GCM) play a crucial role in understanding climate change in general and anthropogenic climate change specifically. With growing importance, their reliance is key to predict manmade climate change and to deduce consequential actions. This is where a considerable debate over fidelity and utility starts. If GCM’s fail due to a lack of information, calculation errors or natural anomalies in the climate system, climate change deniers instantly use this momentum to criticize governments approaches towards a low or even zero carbon future. For international organizations such as the Intergovernmental Panel on Climate Change (IPCC), part of the UN and responsible for reports about climate change, but also for policy makers who have to deduce actions and finally the media who has to inform the public, there is a lot at stake, especially the potential of a reputational loss.

Reliability issues of global climate models

Constructing a climate model means selecting thousands of different parameters which need to be assessed and weighted individually. Understandably these highly sophisticated models are fragile towards errors since just one wrongly weighted variable will result in an unprecise outcome. And there are more difficulties: The models are only capable of taking into account 20th century observations and are therefore unable to calculate with a decadal-to-century timescale. Criticism is not new as Spencer and Christy (1990) argued almost 30 years ago that the tropical troposphere temperature, measured by a satellite, did not show a similar warming to that of the tropics surface temperature. They saw this as proof that no global warming took place and hence the so-called greenhouse effect was in fact non existing. Not surprisingly those findings were picked up immediately by a conservative radio show (Rush Limbaugh) and were used as proof against climate change. Today, various researchers also point out that there is evidence that climate models are exaggerating the effect of global warming due to increased atmospheric carbon dioxide – one of the measures for anthropogenic climate change. Despite the criticism, though, GCM’s are undoubtedly important for various actors and, by the way, GCM’s are backed up by a majority of researchers. So, who has to deal with GCM’s and what are the risks they deal with?

“I don’t believe it” Donald Trump on the Fourth National Climate Assessment

Impact for international organizations and policy makers

First and foremost: International organizations and policy makers. One of the most prominent examples are the reports produced by the Intergovernmental Panel on Climate Change (IPCC), which are responsible for the knowledge used in the Paris Agreement in 2015. Needless to say, that the IPCC is therefore keen not to make any mistakes and relies on exact models. This is where the issues outlined in the previous paragraphs play a significant role, because the IPCC had to deal with a potentially negative finding: Some researchers noted that the IPCC’s Fifth Assessment Report (AR5) was formulated less precise than the Forth Assessment Report (AR4) which was published several years earlier. This basically means, that the IPCC had to admit that the real impact of humans on climate change is not as well-known as they had thought.

Putting the critics aside, the IPCC is by no mean casual when setting up new reports and is eager to work with a huge variety of scientists from all over the world in order to write the most precise assessments. When asked to write a new report, the IPCC usually starts with a scoping phase. This includes drafting an outline and developing the most suitable experts who are nominated by governments and observer organizations. Once the panel and the outline are approved, authors are nominated and at a later stage selected by the IPCC. The authors are then asked to prepare a first draft which is reviewed by an expert’s panel. The second draft is accompanied by an extended Summary for Policymakers (SPM) and both documents will be reviewed by governments and experts. From this point onwards, the draft papers go back and forth between the expert’s panel and the involved governments until a final draft is set up. This final draft will then be approved and accepted by all involved parties and is prepared to be published as an official IPCC report. (IPCC, 2017)

Challenge for the media

Once the reports (e.g. IPCC) are published, they do not only affect policy makers but also public perception about (anthropogenic) climate change. Hence, it is fair to say that the way the media construct scientific knowledge influences the public opinion strongly (Antilla, 2010). Google, for instance, lists more than half a million findings for the IPCC’s last assessment report, and newspapers all over the world covered those findings. Yet, for newspapers and other outlets climate change is still a bit of a hot potato due to several reasons. Writing about risks in the future, based on climate change models and reports, is not the same as an objective report about something that has already happened and for which there is proof. This results in a situation, where climate change friendly journalists may be accused as sensationalist, while climate change deniers are seen as non-scientific, too industry friendly or even conspiracy driven. Yet, many journalists realized the significance of media coverage on climate change issues, since coverage is of great importance to support politicians and NGO’s in their attempt to implement new rules, laws, and recommendations.

“There’s a risk that writing about risks in the future will end up being sensationalist or exaggerated. But frankly the public is better served by information about future risks that they can do something about than about those that have already played out” Nicholas Kristof, New York Times columnist

Symbiotic systems need trust, and trust is reputation

The danger that just one of the involved parties does a foul play – resulting in unforeseeable reputational damage for all actors – is not to be dismissed and should, for as good as possible, be eliminated. For the scientific part, this means that findings should be backed up as good as possible by regulations, frameworks and peer reviews. For governments and international organizations, the challenge is to make sure that the deduced action is in the best interest of everyone and not just for the own or associated countries. And last but not least, journalists must be careful that they speak as objectively as possible about climate change, so that their message is not categorised as either too sensational or too much of climate denying.

Scientists, international organizations, policy makers and the media. Those four involved parties are heavily dependent on each other and live, at least to some extent, in a symbiotic system, which means that trust amongst the partners is crucial. Trust, in this case, means having a clean reputational sheet – and an honest and transparent handling of the data amongst all players.

References and further reading

Antilla, L. (2010) ‘Self-censorship and science: A geographical review of media coverage of climate tipping points’, Public Understanding of Science, 19(2), pp. 240–256. doi: 10.1177/0963662508094099.

Curry, J. (2017) ‘Assignment 1 Curry-2017 Climate Models .pdf’, GWPF, GWPF Brief, pp. 1–12.

Douglass, D.H & Singer, S. F. (2005) ‘Climate Data Disagree with Climate Models Policy Dilemma: Should We Believe in Atmosphere or in Models?’, American Geophysical Union.

IPCC (2013a) ‘Appendix A to the Principles Governing IPCC Work’, (February 2003), pp. 15–18.

IPCC (2013b) Summary for Policymakers. In: Climate Change 2013: The Physical Science Basis. Contribution of Working Group 1 to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Available at: https://www.ipcc.ch/pdf/assessment- report/ar5/wg1/WG1AR5_SPM_FINAL.pdf.

IPCC (2014) Climate Change 2014: Synthesis Report; Chapter Observed Changes and their Causes, Ipcc. Edited by F. Pachauri, Rajendra K Meyer, Leo Van Ypersele, Jean-Pascal Brinkman, Sander Van Kesteren, Line Leprince-Ringuet, Noëmie Van Boxmeer. doi: 10.1046/j.1365-2559.2002.1340a.x.

IPCC (2017) ‘The IPCC and the Sixth Assessment cycle’, IPCC Leaflets, p. 4. Available at: http://www.ipcc.ch/pdf/ar6_material/AC6_brochure_en.pdf.

Lloyd, E. A. (2012) ‘Confirmation and Robustness of Climate Models’, Philosophy of Science, 77(5), pp. 971–984. doi: 10.1086/657427.

Lynn, J. and Zabula, W. (2006) ‘outcomes-of-cop21-and-ipcc @ public.wmo.int’. IPCC. Available at: https://public.wmo.int/en/resources/bulletin/outcomes-of-cop21-and-ipcc.

Nisbet, M. and Mooney, C. (2006) ‘The Next Big Storm: Can Scientists and Journalists Work Together to Improve Coverage of the Hurricane-Global Warming Controvery?’, Commitee for Skeptical Inquiry. Available at: http://www.csicop.org/scienceandmedia/hurricanes.

Parry, M. L. et al. (2007) Climate Change 2007: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. Available at: https://www.ipcc.ch/site/assets/uploads/2018/03/ar4_wg2_full_report.pdf.

Spencer, R. and Christy, J. (1990) ‘Precise monitoring of global temperature .pdf’, Science, 247, pp. 1558–1562.

Weatherhead, E. C. et al. (2017) ‘Designing the Climate Observing System of the Future’, pp. 80–102. doi: 10.1002/eft2.267.

Winsberg, E. (2012) ‘Values and Uncertainties in the Predictions of Global Climate Models’, Kennedy Institute of Ethics Journal, 22(2), pp. 111–137. doi: 10.1353/ken.2012.0008.