Earlier this month, China’s leadership announced that “social risk reviews” will be required for all major industrial projects. This is yet another signal that social and human rights impact assessments are becoming standard practice, expected by governments and other stakeholders—and employed by companies to spot problems before they occur.
Companies should not view a social risk review as a regulatory burden, but rather a tool to aid smart decision-making and business continuity. Assessing potential risks ahead of time can prevent harm to people, the environment, company reputation, and the bottom line. The 2010 report of the U.N. Special Representative on business and human rights cited studies showing that labor and community problems present the greatest threat to new oil and gas projects, with one company losing US$6.5 billion in value in just two years for such reasons.
When I was in Indonesia working with BP to develop a liquefied natural gas project, there were myriad social complexities: isolated indigenous communities, a secessionist movement, endemic corruption, a military with a track record of human rights abuses. This led us to go beyond the government-required economic and social impact assessment and commission a human rights impact assessment, akin to a social risk review.
We brought in experts who spoke with local community leaders, international scholars, and development professionals to determine how our project might change life in the area and what we might do differently. The recommendations in the final report have helped the company avoid social strife around that project for the 10-plus years since then.
Even more important than the report itself was the process of engagement. A social risk review should not be viewed as a report to sit on a shelf, but as an opportunity to build relationships that will help ensure the stability of a project in the long run.
As is the case with laws and regulations everywhere, the effectiveness of China’s new requirement will depend on how it is implemented. Is the requirement simply to conduct a social risk review, or will the review determine whether a project proceeds at all? Will the findings be linked to whether a project gets financing? Who will conduct the reviews, and how will they be paid? Where issues are identified, how will they be managed and who will be held accountable?
The answers to these questions will determine whether social risk reviews make industrial development work for all, or merely fan the fires of protest. Requiring social risk reviews has the potential to benefit governments, companies, and communities alike.