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The Role of Sustainable Development in Risk Assessment and Management for Multinational Corporations

Article excerpt

Abstract:

The nature and causes of international business risk fall into two categories-macro causes, such as competing political systems, conflict, and social unrest; and micro causes, such as changing market conditions and unstable economies. The mining and minerals sector faces especially high risk in both categories due to increasing exploration and production in developing countries. This paper presents a conceptual model for risk assessment and management integrating traditional financial valuation models and the principles of sustainable development utilizing corporate social responsibility as the strategic focus for decisions to reduce risk exposure. Examples of the model's application are provided from Newmont Mining's worldwide operations.

INTRODUCTION

In 1987, the World Commission on Environment and Development issued a report that served as the catalyst for the sustainability movement. Our Common Future (World Commission on Environment and Development 1987) laid out a "global agenda for change" recognizing the need for cooperation, coordinated political action, and the engagement of the private sector as a leader and major driver of innovative solutions for a broad array of environmental, social, economic, and security challenges. Because of stagnant economies, rising debt and a mismanaged environment, the 1980s were referred to as the "lost decade" in Latin America (Holliday, Schmidheiny, and Watts 2002). In the U.S., evidence was mounting that many corporations were experiencing high levels of growth and profitability through a variety of illegal and unethical practices. The subsequent market collapse at the end of the 1980s, referred to in the press as the "decade of greed," was a precursor to the market collapse at the turn of the century when society was witness to a $10 trillion worldwide loss of aggregate market value brought on by the now infamous cases of Enron, WorldCom, Adelphia and many others (Gordon 2002).

Today, companies continue to struggle to regain lost trust of customers, employees, shareholders, governments, and communities. Ãç response, a growing number of enlightened companies have begun contributing to sustainable development goals by adopting corporate responsibility strategies aimed at aligning the self-interest of the corporation with the greater public good in ways that add to the value of the firm and society.

This paper presents a conceptual model for risk assessment and management that utilizes the principles of sustainable development while being true to the finance/economic goal of maximizing firm value within the context and constraints of an increasingly complex and uncertain global environment. Examples are provided from the mining and minerals sector using the experiences of Newmont Mining, one of the world's largest gold mining companies.

LINKING SUSTAINABLE DEVELOPMENT AND CORPORATE RESPONSIBILITY

In 1983, the General Assembly of the United Nations created the World Commission on Environment and Development. While the early focus was on environmental concerns, it was quickly recogitized by the Commission that the environment does not exist independently from human actions, needs, and ambitions. A definition of sustainable development was needed that embraced an integrated interdisciplinary approach to global concerns and recognized the interdependency of economic development, environmental integrity, and social justice. In the past, attention focused on the impacts of economic growth on the environment. The equally important issue recognized by the Commission was the ecological stresses on the ability to maintain and grow economically. Per Lindblom (1985) commented, "The problems of today do not come with a tag marked energy or economy or carbon dioxide or demography, nor with a label indicating a country or a region. The problems are multi-disciplinary and transnational or global. The problems are not primarily scientific and technological. …