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The world’s leading sustainability consultancy

The more things change....

The world’s leading sustainability consultancy

Assessing Social Risks in Industry Swing Periods

Jo Render, May 2014
The world’s leading sustainability consultancy

About ERM

■ 160 offices in 40 countries

■ Over 5,000 employees

■ Clients include 50% of the 

Global Fortune 500 

companies 

■ Projects in more than 169 

countries

■ Annual Gross Revenues of 

US$900m (FY13)

■ Over 40 year history

The world’s leading provider of environmental, health and safety, risk 

and social consulting services
The world’s leading sustainability consultancy

ERM in the Appalachian Basin
The world’s leading sustainability consultancy

6%

3%

6%

35%

3%

6%

6%

23%

35%

42%

No details available

Technical challenges

Revenue sharing

Commercial issues

Adverse weather

Health & Safety

Land Access

Permitting issues

Environmental concerns

Lack of social acceptance

Causes of delay*

Extreme weather

Social opposition 

Why should you care about social risk?

Project delays (2008 – 2012)

*Does not sum to 100% due to multiple causes of delays

Non 

technical 

causes

30%

24%

46%

0% 50%

Delivered on 

schedule

No delay 

reported, 

project in 

progress

Delayed

Other 

causes

Source: ERM Analysis

4
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How does non-technical risk impact project value?

5

Concept

...and value 

seeking studies 

optimise design 

Delays in 

obtaining 

permits and/or 

social acceptance can erode 

substantial 

value

Changing 

regulations can 

increase the 

costs of 

rehabilitation

Events (e.g., 

protests) can 

disrupt 

production 

eroding value

Feasibility Execution Operation

Closure & 

Maintenance

Economic 

model estimates 

are refined...

Option 1

Option 2

Option 3

Option 4

Project options 

are analysed. 

Tendency to opt 

for options 

producing the 

highest NPV

Pre-Feasibility

NPV

Project value 

established 

based on high 

level 

benchmarks

Companies assume the 

best case scenario when 

it comes to sustainability

NPV excluding 

sustainability

NPV including 

sustainability 

Projects face a number of key decisions

• Which water source should we use?

• What is the optimal infrastructure location?

• Do we invest in local skills, or bring in crews?
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Selecting the preferred option

Concept Feasibility Execution Operation

Closure & 

Pre-Feasibility Maintenance

NPV including 

sustainability 

Project teams may 

consider more 

‘sustainable’ options, 

but NPV dominates 

decision making

Selecting an option 

with lower NPV but 

less risk can 

prevent delays 

protecting value

Designing projects 

with potential 

disruption events 

in mind can 

minimise impact

More sustainable 

designs can 

reduce closure 

liabilities

Option 1

Option 2

Option 3

Option 4

NPV excluding 

sustainability

NPV

6
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Key elements of social risk/opportunity analysis

7

Relationships

Impacts Investment

Stakeholder analysis:

■ Expectations

■ Perceptions

■ Aspirations

Social context analysis:

■ History

■ Economy

■ Culture

■ Capacity

Business analysis:

■ Where do you plan to go?
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Drivers of Social Risks and Opportunities

8

Business needs: 

• Land and resources

• Financial capital

• Regulatory approval

• Employees

• Contractors

• Physical capital

• Supplies

• Local infrastructure

• Safe and welcoming 

communities

Community needs:

• Land and resources

• Financial capital

• Minimum standard of 

behaviors/protections

• Employment

• Business opportunities

• Physical capital

• Local infrastructure

• Health, safety and 

security of community

Synergy

Conflict
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Our work in the Appalachian Basin

9

Stakeholder Analysis

Key informant surveys in in 2012; reviewed and updated in 2013

Active operating areas and exploration

Open-ended surveys 

■ what issues are you most concerned about?

■ what’s working/not working?
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Stakeholder Priorities

10

2012 (tail end of boom) 2013 (downturn)

Roads & Traffic

Safety

Housing Availability and Affordability

Economic Opportunity

Economic Vulnerability (boom and bust)

Communication & Transparency

Economic Vulnerability (boom and bust)

Economic Opportunity

Housing Availability and Affordability

Safety

Roads

Communication & Transparency

Surprised? Expecting to see something different?
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What have we heard? What have we learned?

11

Economic Vulnerability/Economic Opportunity

Companies hired, unemployment ↓, average incomes ↑; business growth 

Downturn

Many jobs moved to other shale plays

Newer small local contractors are idle

Downturn in associated industries (accommodations, restaurants, etc.)

Price inflation is decreasing more slowly

Low income groups remain vulnerable

Rural counties are facing growth constraints (infrastructure)
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What have we heard? What have we learned?

12

Housing

Vacancies down; prices up. Good for sellers/landlords, developers, 

associated businesses, and local revenue streams from property values. 

Challenging for low income residents, other business sectors offering 

lower wages (recruitment)

Downturn: 

Vacancies up

Prices are slow to come down

Low income residents are still under pressure (market drivers)
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What have we heard? What have we learned?

13

Safety

Crime rates and incident rates began to rise. First responders were 

losing skilled employees to the industry. Industry actors investing in 

H&S were recognized.

Downturn: 

Crime rates and incident rates are still elevated

First responders have hired up, but still under pressure

In operating areas, the professionals point to population growth, which is 

related to economic growth
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What have we heard? What have we learned?

14

Communication and Transparency

Stakeholders were looking for more and better information on what to 

expect. 

They wanted to be able to prepare for and manage the change

Downturn: 

Stakeholders are still looking for more and better information on what to expect.

The downturn is considered by some as an opportunity “to breathe” and plan
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Key Takeaways

15

• Not all stakeholders are alike

• It’s not all about environmental 

impacts. There are social impacts 

and they are complex

• Stakeholders at all levels are 

paying attention to whether 

companies are paying attention

• Some are preventable, with good 

planning 

• All are manageable – but you 

have to acknowledge them first
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Significant 

opposition

“They will destroy 

everything that we 

have”

“That’s not what we 

are about around 

here”

Us v Them

Unaligned values 

and goals

Basic disconnects 

on both sides

Do you know where your stakeholders are?

16

Minimal 

tolerance

“I can’t speak for 

my neighbors, but I 

won’t have it on my 

land”

“I get the jobs 

thing, but look at all 

the problems they 

bring!”

Us v Them, but 

more limited

Still focusing on 

what’s going wrong

Acceptance

“The contract 

ensures they will 

protect our land 

and water”

“I see this deal as a 

catalyst to support 

what we need to 

focus on”

Contract conditions

Short-term/ time 

delimited

Support

“”The Company is 

a critical partner in 

this community”

“All I have to do is 

pick up the phone”

Shared vision

Mutual 

understanding

Forgiveness
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The elements of community support

17

Build and maintain trust and confidence

Understand and manage expectations

Identify and proactively manage risks, 

impacts, and opportunities (Actual and 

Perceived)

Synchronize company and community 

development goals and capacities

Proactively measure, improve, and 

report on performance

Relationships

Impacts Investment
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Is your toolbox fully equipped?

18

Plan

Program objectives and 

action plans

Management systems

Performance indicators

Implement 

Management capacity

Communication

Program partnerships

Monitor and Report

Program design, delivery, 

outcomes

Risk profile

Identify and Assess

Strategic goals and objectives

Expectations

Risks and opportunities

Roles and responsibilities

CompanyCommunity

Dialogue
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Contact us

Jo.Render@erm.com

(202) 412-3503 Visit www.erm.com for more information, case studies 

and experience and to learn how ERM can help your 

organization