Respecting Indigenous rights in the low carbon economy transition

Ten questions investors should ask companies in the transition.
August 2021
Rosa van den Beemt

Rosa van den Beemt

Vice President, Responsible Investment Analyst
Derek Ip

Derek Ip

Vice President, Analyst, Responsible Investment

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Indigenous People make up less than 5% of the world population, but protect close to 80% of the planet’s biodiversity and own, occupy, or use 25% of the world’s surface area. To reach the goals of the Paris Agreement by 2050, we need rapid expansion of the renewable energy industry, as well as increased mining for minerals. These could come at a cost often bared by the indigenous groups – for example, land title issues and destruction of habitats. Therefore, the energy transition needs to be done in partnership with, and not negatively affect, indigenous communities and land stewards.

However, the Business and Human Rights Center’s Renewable Energy & Human Rights benchmark found that the renewable energy industry on average scored less than 1 out of 6 points on their commitments to respect the rights of indigenous peoples and affected communities, and on their approaches to respecting land rights.

A social contract requires consent

The theme for this year’s commemoration of the International Day of the World’s Indigenous Peoples is “redesigning the social contract”, where Indigenous People’s own ways of governance and life are respected and based on their free, prior and informed consent (FPIC).

As investors, we expect companies with land-based operations to commit to upholding FPIC to ensure indigenous communities consent to operations on or near their land – to mitigate risk to people and business, as well as to identify opportunities for mutual benefit. FPIC should be the premise of any business decision that would have a negative impact on local stakeholders, not the other way round. A hopeful best practice emerging in Canada on the opportunity side of things is the creation of partnerships between companies and indigenous communities, whereby the community owns a direct equity stake in the project. Such partnerships aide economic reconciliation with indigenous communities, and establish better social contracts that are mutually beneficial.

Commitments versus practice

Although the Renewable Energy & Human Rights benchmark also found that most companies have basic commitments to FPIC in place, unfortunately policy commitments do not readily translate to good practice on the ground – as was demonstrated in 2020 when mining companies Rio Tinto and BHP destroyed an Aboriginal cultural heritage site at Juukan Gorge in Australia, a tragedy that could have been easily prevented. In order to ensure that this type of harm to indigenous people and culture does not happen again, investors need to have a better understanding of the underlying practices and indicators of strong FPIC.

At BMO Global Asset Management, we have been engaging companies in the energy, mining and renewable energy sectors this year to encourage more transparency around the implementation of respect for indigenous rights. We have identified that at a minimum, companies need to have human rights due diligence processes in place, conduct human rights impact assessments at the site or project level and commit to respect the UN Declaration on the Rights of Indigenous Peoples.

Diving deeper

What other information can investors ask from investee companies, particularly those in the extractives and energy sectors, to understand how robust their public commitments to respecting indigenous rights are in practice? Here are ten questions we have found helpful in our own engagements with companies:

  1. How are concerns from affected communities escalated to the top, and does senior management and the board have responsibility for and oversight of indigenous relationships?
  2. What type of expert advice does the board and senior management take into account to inform them of good practice, such as an external advisory committee consisting of indigenous representatives?
  3. How does the company identify indigenous persons and how does it discern what constitutes customary, ancestry, or collective land, territories, cultural heritage and resources in each project area?
  4. How often is FPIC reviewed and renewed? What is the company’s contingency plan if FPIC wasn’t granted, or would the company still proceed as usual assuming FPIC is a soft requirement? Once agreements between the company and communities or titleholders are signed, how does the company ensure there is ongoing project-based consultation and consent?
  5. What does the company and the community define as consent, and with whom has consent been secured? Are there any groups (neighbouring, or otherwise) which have not consented?
  6. Do the contracts contain any elements that would prohibit titleholders from speaking out publicly in cases of discontent?
  7. Is the company able to provide transparency into contracts with indigenous communities or disclose them in full, and if not, why? (i.e. a good reason would be that the indigenous communities do not want contracts to be made public)
  8. Can the company provide insight into grievance cases and the actions it has taken to provide remedy?
  9. How does the company work with the local authority to respect indigenous rights when lands are not officially titled to the local indigenous groups?
  10. How does the company incorporate benefits-sharing with communities explicitly into its projects?

Final thoughts

With any best practice related to minimising harm of affected people, what constitutes robust FPIC and a good relationship with indigenous communities should be informed by what indigenous communities themselves identify as being best practice.

Interested in learning more? For further reading, we would recommend:

Risk warnings

The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

BMO Global Asset Management’s voting, engagement and public policy work is conducted independently of the wider BMO Financial Group. Positions taken by BMO Global Asset Management may not be representative of the views of the BMO Financial Group as a whole or of the other lines of business.

Use our handy glossary to look up any technical terms you are unfamiliar with.

Get to know the authors

Rosa van den Beemt

Get to know the authors

Rosa van den Beemt, Vice President, Analyst, Responsible Investment

Rosa joined BMO GAM’s Responsible Investment team in 2020, covering extractives in North America and specialising in voting and corporate governance, diversity and inclusion, and human rights. She also serves on the Advisory Council for the Investor Alliance for Human Rights. Rosa hails from the Netherlands and now lives in Toronto, where she loves going on canoe trips across Canada’s beautiful lakes.

Derek Ip

Derek Ip, Vice President, Responsible Investment

Derek joined BMO GAM in 2019 as a responsible investment analyst, covering climate change and corporate governance. He is an enthusiastic photographer and is looking to build a darkroom for himself.

Risk warnings

The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.

BMO Global Asset Management’s voting, engagement and public policy work is conducted independently of the wider BMO Financial Group. Positions taken by BMO Global Asset Management may not be representative of the views of the BMO Financial Group as a whole or of the other lines of business.

Use our handy glossary to look up any technical terms you are unfamiliar with.

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