BHP adds ‘social value’ into its business planning

BHP has said it must forge a new pact with society to ensure the long-term sustainability of the world’s biggest mining company’s business and secure access to resources, markets and capital.

Speaking ahead of an investor briefing in London on Tuesday, BHP’s chief external affairs officer Geoff Healy said the Anglo-Australian group was adding a social value assessment to the business plans of all its assets to “hardwire” local interests into its decision-making processes.

“In order to deliver financial value, you have to deliver social value. The two are completely intertwined,” Mr Healy said. “This is just good, sensible business.”

BHP’s move comes as debate increases about the purpose of business and the value it brings to society.

America’s Business Roundtable, which represents 181 of the world’s largest and most influential companies, last month dropped the “shareholder first” mantra that has driven US capitalism for decades, urging companies to consider the environment and workers’ wellbeing alongside their pursuit of profits.

These concerns are particularly acute for the mining industry, which needs the support of host nations and local communities to secure access to commodities. In BHP’s case this means steelmaking ingredient iron ore, copper, coking coal and oil.

In the past, miners thought that generating employment and tax receipts for government was enough to secure a so-called “licence to operate”. But in an era of populist politics and growing activism, senior executives now say the industry needs to do more, especially following a deadly mining disaster in Brazil earlier this year that further damaged its reputation.

Mark Cutifani, chief executive of Anglo American, said last week that mining’s status quo was “unsustainable” and the industry needed to move beyond “what we previously thought of as the way mining adds value”.

Mr Healy said BHP wanted to empower the general managers of its mines and oilfields to think harder about the impact on the local community and not just focus on cost, volume and safety.

By adding a social value assessment to the five-year business plans at all of its assets and linking this to the company-wide scorecard that determines employee bonuses, Mr Healy said “social value” would become embedded in BHP’s business model.

“It’s going to be a significant change for us,” added Mr Healy. He cited the example of BHP’s iron ore business in Western Australia, where the company had started polling local communities on issues including land use, automation and procurement.

Daniel Litvin, managing director of Critical Resource, a London-based group that helps companies assess social, political and environmental risks, said BHP’s move was not revolutionary — Anglo American already uses a socio-economic assessment to understand the needs of local communities — but showed the industry was alive to the risks around its licence to operate.

“It’s no longer an unusual occurrence for a mining project to face opposition from a local community. It’s the norm,” he said. “That leads to projects been delayed, abandoned and written off.”

Mr Litvin added: “But it is very hard to do this well. No one has found a magic bullet for making this [community relations] easier.”

Rival miners have said changes to the UK corporate governance code mean that all London-listed companies, including BHP, will have to explain in their next annual reports how directors promote a culture that is aligned with the company’s purpose, strategy and values.

BHP’s social value initiative comes after Andrew Mackenzie, its chief executive, has taken a more aggressive stance on environmental issues than some of its peers.

In July, Mr Mackenzie said the Melbourne-based company would set public goals next year on reducing greenhouse gas emissions from its products even after they have been sold.

Mr Healy said BHP was planning to run Escondida, the world’s biggest copper mine in Chile, entirely on renewable power in a further effort to reduce greenhouse gas emissions.