In addition to taxes levied by central, regional and local governments, extractive companies often make social and environmental contributions in the areas where they operate. These contributions can be made to central, regional or local governments, communities, non-governmental organisations or other third parties.
Social and environmental payments – either in-kind or cash – are a form of contribution from companies with the aim of supporting social development or to account for potential environmental impact. In some cases, these social or environmental expenditures are based on legal or contractual obligations. In other cases, companies make voluntary social or environmental contributions.
Communities do not always know how much companies are obliged to contribute according to their contracts. Misunderstanding about what constitutes a mandatory and voluntary social and environmental expenditure and lack of access to the contractual terms can make public oversight challenging. It is thus important to be transparent about the expectations and the actual contributions made to provide a more complete picture for all stakeholders involved.
Government stakeholders and citizens have a particular interest in ensuring that the social and environmental expenditures are effective and reach the intended beneficiaries. Companies also have an interest in demonstrating their positive contribution beyond fiscal payments, managing community expectations and ensuring that the expenditures they make and the projects they are directed towards are well managed and executed.
Requirement 6.1 of the EITI Standard requires that significant mandatory social expenditures and environmental payments are disclosed and reconciled where possible. This note provides step-by-step guidance to multi-stakeholder groups (MSGs) on how to report on social and environmental expenditures, offers examples from implementing countries and outlines opportunities to strengthen the dissemination and use of data.
What social and environmental expenditures are made by companies and who are the recipients and beneficiaries?
How do actual expenditures by companies compare with their contractual obligations?
Do the expenditures reach intended beneficiaries including women and marginalised groups?
How significant and effective are environmental payments?
How are environmental rehabilitation funds managed and monitored?
Afghanistan:Social expenditure mandated by contract
Article 31 of the Afghanistan - Qara Zaghan Gold Project contract states that “during the first two years of [the] contract [the company] shall spend a minimum of US$ 50,000 for implementation of social programmes as per the Social Development Plan.”
Guinea: Social expenditure mandated by law
Article 130 Development of the Local Community of Guinea’s Mining Code (2011 amended) states that:
“A holder of a Mining Operation Title must enter into a Local Development Agreement (LDA) with the Local Community residing on or in the immediate vicinity of its Mining Operation Title. The terms for drafting these agreements are set out in a joint order of the Minister in charge of Mines and the Minister in charge of Decentralization.
The purpose of the Local Development Agreement is to establish conditions that are conducive to the efficient and transparent management of the Contribution to Local Development paid by the holder of the Mining Operation Permit, and to strengthen the capacities of the Local Community in the planning and implementation of the community development programme.
The Local Development Agreement must include among other things, provisions for training the Local Community and, more generally, Guineans, environmental protection and health measures for the Local Community, and processes for the development of social projects.”“
Ukraine: Social expenditure mandated by law
Section VIII of Ukraine’s Tax Code (2010) requires companies operating in the country with activities that result in “emissions of contaminants by stationary sources into the atmospheric air”, “the discharge of contaminants directly into the water pools”, “the placement of the waste in the specifically designated places or objects” and “generation of radioactive waste” to pay environmental tax.
Democratic Republic of the Congo: Disclosure of mandatory social expenditures
Extractives companies in the Democratic Republic of the Congo are required to disclose mandatory social expenditures, and many also disclose voluntary social payments. The absence of a consensus definition of what constitutes a social expenditure meant that many companies failed to disclose required information, while others were accused of inflating the value of such payments or not addressing communities’ needs. The 2018 Mining Code introduced provisions taking these concerns into account.
The Philippines: Social and environmental spending and contributions
Philippines’ 2017 EITI Report describes the existing social and environmental expenditures, including requirements to funds community assistance projects, mandatory expenditures as part of Environmental Work Programmes and mandated transfers to Mine Rehabilitation Funds. The report also describes voluntary expenditures made by companies as part of their Corporate Social Responsibility (CSR) efforts.
Ukraine: Disclosure of environmental tax
Ukraine EITI has been disclosing and reconciling the environmental tax through EITI reporting since 2013. While this revenue stream represents a small share of total revenues, the MSG agreed to include it in the scope of EITI reporting due to its significance for local communities. Moreover, civil society is actively engaging in the environmental discussion in Ukraine, including on analysing the environmental tax and providing recommendations on how it can better benefit citizens.
Zambia: Discretionary social expenditures
Zambia’s 2019 scoping study found that there were no mandatory social expenditures in Zambia, while it identified discretionary social expenditures. The MSG agreed to include these in the scope of EITI disclosures and request data on such expenditures from companies. This was documented in the 2019 EITI Report.
Afghanistan: Disclosure of mandatory social expenditures
Afghanistan’s Ministry of Mines and Petroleum has published details on mandatory social expenditures on its website, including a comprehensive review of contractual requirements to undertake social expenditures in all material companies’ operating contracts. The review highlighted mandatory social expenditure requirements in the contracts of eight of the 14 material companies. The review distinguished mandatory and voluntary social expenditures. Information on the values, disaggregation of cash and in-kind contributions, and non-government beneficiaries were provided for some, but not all expenditures.
Liberia: Cash and in-kind social expenditures
Liberia’s 2015-2016 EITI Report breaks down mandatory and discretionary cash and in-kind social expenditures, with indication of the amount, beneficiary and date of transfer. The data includes information on the legal/contractual basis for the expenditures.
Mongolia: Water use and related payments
Mongolia’s 2018 EITI Report provides information reported by companies on water use and related payments, comparing the contracted and actual use of water. The report also provides information on waste management and air pollution.
Norway: C02 and NOx tax
The Philippines: Social and environmental expenditures
Philippines’ 2017 EITI Report includes a summary of the social and environmental expenditures.
Zambia: Beneficiaries of voluntary social expenditures
Zambia’s 2019 EITI Report provides details on the value, nature and beneficiaries of voluntary expenditures by companies. This includes beneficiaries who represents women, youth and local communities.
Kazakhstan: From disclosures to accountable spending
Oil, gas and mining companies operating in Kazakhstan have to make mandatory social investments in the regions where they operate. The investments are large, amounting to almost USD 150 million annually. By disclosing the amounts paid, the purpose and beneficiaries, EITI Reports have revealed lack of accountability in spending decisions at local level. As a result, a centralised payment and disbursement mechanism was introduced in 2014, including budget classification codes, limiting the opportunity for discretionary spending.
Zambia: Environmental Protection Fund
In Zambia, concerns have been raised by stakeholders about mining company payments related to rehabilitation and the management of the Environmental Protection Fund (EPF). The fund “lodges” contributions as deposits to be spent by the government in case of need for rehabilitation of mining areas where the mining licence holder fails to do so. Companies are required under the EITI to report their payments to the EPF.
Audits conducted on the EPF by the government found that the fund was not working effectively. The audits undertaken to ascertain the extent of the environmental liability caused by each individual mining firm concluded that mining companies were not complying with the EPF’s regulations and the majority were not paying the stipulated contributions. Zambia EITI Reports have also highlighted challenges in the oversight of the fund, and the latest 2017 report recommends improving the implementation of the EPF by setting up a clear investment policy, appointing a fund manager and ensuring that all mining companies comply with the EPF requirements. These recommendations are being followed up by the Ministry of Mines and Mineral Development.