Calls for tighter legislation on Australian businesses in wake of Solomon Islands mining controversy

As aid-for-trade continues to play a key role for donor countries to grow developing economies and create future markets, governance is crucial. The need for better regulation on businesses operating in developing countries has never been more important.

But in the Solomon Islands, a dispute between local communities on the island of Nendo and Pacific Bauxite — an Australian Stock Exchange listed company — demonstrates the systemic weaknesses that exist in prioritizing the economic growth of Australia over the needs of communities in developing countries.

What is the dispute?

As reported in the Guardian, the dispute between Pacific Bauxite — a company that mines for bauxite, the primary ore used in aluminum — has seen a standoff between the mining company and locals living on Nendo.

The community says residents have been coerced, bullied and tricked into signing over prospecting rights to their land and have taken to blocking roads and confronting the mining company directly.

Based in Perth, Pacific Bauxite have been in operations since 2005. Until December, they were known as Iron Mountain Mining. A range of subsidiaries enhance their mining portfolio, including AU Capital Mining and Aluminex Resources Limited.

Pacific Bauxite, which did not respond to requests from Devex for comment, claim no wrongdoing. According to their website, they have a “best practice operations policy” for sustainable mining.

But policy and the social context in which they operate are very different and that often leads to conflicts between mining companies and the developing communities in which they operate.

“Whether prospecting, exploring or mining, this case highlights the complexity of social contexts within which mining companies — small and large — seek to operate,” Deanna Kemp, director of the People Centres at the Centre for Social Responsibility in Mining, explained to Devex. “While the company claims to have consulted all landowners, and secured consent, we need to ask whether Pacific Bauxite has investigated claims that people were ‘tricked.’ Have they assured themselves that every company representative has acted properly, or have they convinced themselves that they have?”

Companies, she said, must ensure they have adequate knowledge of the socio-political contexts in which they work and be willing to respond appropriately when faced with the kind of challenges seen in the Solomon Islands.

A red flag raised for local communities

Though the activities of Pacific Bauxite are currently only in reconnaissance stage, the recent history of bauxite mining in the region raises serious concerns for locals about the impacts expanded mining would have. Past projects have led to long-term effects on livelihoods, culture, history and health.

In 2014, bauxite mining was banned in Indonesia, leading to a rush in Malaysia to fill the market gap. But the environmental damage this caused resulted in Malaysia following suit, banning bauxite mining in January 2016. Currently, the ban is still in place, with strong environmental regulations expected when it is lifted.

The situation is hardly a new one.

“Australia’s mining companies have a long history of involvement in adverse mining for environmental impact around the world,” Brynn O’Brien, executive director of the Australian Centre for Corporate Responsibility, told Devex. “There is growing concern of Australian companies operating internationally, particularly in our region.”

For Pacific communities, she said, there were unresolved questions on whether large-scale mining could actually deliver social and environmental benefits often promised but rarely delivered upon. “Pacific communities are demanding more — and rightfully so,” O’Brien said.

The push for bauxite mining in the Solomon Islands is a valid concern for residents, who see their communities being the next in line for environmental destruction as companies and governments think only of the short-term economic gain.

And the fear is causing increasing distress among groups and those working with the communities, according to Chis Bone, CEO of OceansWatch.

The Australian government’s response

Since Pacific Bauxite is an Australian Stock Exchange listed company, there might be expectation of the Australian government to have some level of responsibility in ensuring local companies operate ethically and, at minimum, within standards they are required to adhere to in Australia.

Not so.

The Australian government have been hands off with this dispute between the Nendo community and Pacific Bauxite. Austrade, the Australian government organization tasked with supporting international business development, denied any knowledge or awareness of Pacific Bauxite or its associated companies.

“Austrade has no record of involvement with the companies mentioned and is unable to comment on this matter,” a spokesperson for Austrade told Devex.

And while the Department of Foreign Affairs and Trade said they were aware of the company and the dispute, it said the Australian government “does not become involved in commercial disputes.”

“This is a matter between Pacific Bauxite and the government of the Solomon Islands,” a spokesperson for DFAT told Devex. “Australian companies are responsible for obtaining independent legal advice in relation to any conduct in a foreign jurisdiction.” But they have advised Pacific Bauxite to seek independent legal advice on the issue.

The Australian High Commission in Honiara did not respond to requests for comment by Devex.

Highlighting flaws in Australia’s system

The response from the Australian government did not surprise experts.

“Australia has one of the weakest legal regimes when it comes to the monitoring of businesses overseas,” Luke Fletcher, executive director of Jubilee Australia, told Devex.

More clarity and clear regulations and oversight on Australian companies operating overseas are clearly required, Keren Adams, director of legal advocacy for the Human Rights Law Centre, explained to Devex. “There is a lack of clear guidance from the government to the standards they expect from Australian companies when they are operating abroad.”

But there have been numerous attempts to encourage the Australian government to legislate the operations of Australian businesses overseas — something it has not been willing to do.

“There is a history of trying to enact such laws, in countries like Australia, through the Corporate Code of Conduct Bill,” Kemp explained. “Currently, the activities of Australian mining companies operating offshore are covered by ‘soft’ law and regulation — corporate policies, commitments, procedures and so forth.”

The Corporate Code of Conduct Bill was first introduced in 1998 for debate and was reviewed by a parliamentary committee to determine the impact of the legislation and provide recommendations. Submissions were divided with the companies attacking the proposed legislation while NGOs favored a stronger code to be implemented on Australian businesses.

The conclusion was that the proposed bill was unwarranted and unworkable, and only recently have there been further investigations on legislating responsible international business practices.

Shaming, pressuring and shareholder resolution are currently the best ways of forcing better practice among companies operating in developing countries where standards and regulations may be poor or nonexistent.

“Companies are becoming more aware of the reputational damage these kinds of disputes can create,” Adams said. “Simply having a company know people have their eyes on them can be helpful in trying to remedy their behavior.”

But it is also important for Australia to plug the holes in systems that enabled companies to operate unethically in international operations.

“The lack of accountability for Australian companies allows them to take advantage of weak processes within developing countries,” O’Brien said

Adams explained that currently, it is “extremely” difficult to take an Australian company to court in Australia over their international actions because of costs and challenges to jurisdiction. And non-judicial grievance mechanisms were equally poor in operations.

“The non-judicial grievance mechanisms we have in Australia aren’t operating well at all,” she said. “We have a mechanism called the national contact point that sits within Treasury and is almost unknown. Those contact points operate better in other parts of the world and it’s a much lower cost way for communities to try and raise grievances within Australia. But at the moment, almost no one knows of its existence and it doesn’t do a particularly good job of performing its functions.”

The system is currently under review and in addition to a newly announce multistakeholder advisory group on the implementation of the U.N. guiding principles on business and human rights, there is hope the gaps may start to fill

According to O’Brien, policies requiring better standards and practices are worthless without oversight, and she says there has been a worrying lack of interest in ensuring Australian companies are acting in the best interests of developing communities.

O’Brien highlighted another example: a liquified natural gas project in Papua New Guinea — funded in part by the Australian government — which has led to “some really worrying development, particularly around human rights interactions with security forces in the southern highlands.”

“Yet despite the financial investment, the Australian government has taken very little interest in it.”

The Australian government and DFAT, she believes, could not be held up to be a reliable scrutineer of Australian company operations overseas.

Addressing the Solomon Islands controversy

Reports from the Solomon Islands are causing concern for Australian NGOs and human rights groups. It is unlikely to fade any time soon with already enough evidence to start the process of advocacy within Australia on behalf of the Nendo community.

“There is a pattern of Australian and other companies in the extractive industries that are able to obtain consent from means that we would consider not following proper due diligence,” Fletcher said. “We are concerned this is happening here, based on reports and what our partners are telling us.”

Fletcher expects Jubilee Australia to be just one of the organizations that will be putting up their hand to support the community, but the challenge will be the political will.

“Politically this is a challenging thing to get across,” he said. “You need a majority of support in both houses of Parliament. Sadly, it is just not an issue they are concerned with.”

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