1. Towards Successful and Sustainable Social Investment Projects Anton Artemyev, Director Public Finance Transparency Program Soros Foundation-Kazakhstan Atyrau Oil and Gas Conference 6 April 2011

2. What is a SI Project? Voluntary or mandatory expenditures Aimed at raising the welfare of local communities, individual citizens and organizations Not related to extractive companies’ business operations nor intended to generate profit for the extractive companies. Shall not include expenditures exclusively intended to: – Reduce the direct negative impacts of business operations on communities or environment; – Compensate individuals or community for relocation costs, or any other costs related to any negative impact of business operation – Improve welfare of company personnel; – Promote companies’ contribution to social investment projects.

3. Much has been said about the need for… Increased transparency of SI payments: reporting in the framework of EITI, voluntary CSR reporting Community engagement in decision-making, monitoring and evaluation: establishment of multi-stakeholder councils on the local level Greater value for both the communities and the companies as a result of SI projects

4. There Are Many Challenges With Implementing SI Projects: SI projects are non-core business activities for companies; SI projects performance is hard to quantify and measure; Well-intended SI projects can sometimes be used against companies; Many SI projects are not sustainable; Sometimes companies feel like substituting the role the local government should play; Companies have limited control over some SI budgets; Most SI projects are developed based on the available budget rather than the actual needs; Often SI projects fuel conflicts between stakeholders.

5. Some Global Trends in SI Are Emerging Shift from donations and infrastructural projects towards soft skills and livelihood programs; From a focus on symptoms to addressing root causes; Increased use of local partners; Attracting external funding or generating larger local benefits; From “we know what is good” to “let us discuss”; An increased focus on boosting the capacities of local authorities; EITI recommends development of a reporting mechanism for all material benefit streams as a result of SI projects Source: IPIECA’s “Creating Successful, Sustainable Social Investment”. A Guidance Document for the Oil and Gas Industry

6. Matched by Trends on the National Level Increased interest to SI projects from international and national NGOs and mass media stressing the need for greater transparency, accountability and effectiveness; Local communities feel empowered to demand greater engagement in the SI design, implementation, monitoring and evaluation; A shift towards tripartite engagement mechanisms is irreversible (councils in Aktau, Atyrau, Karaganda, …); More companies and local authorities render their support for new mechanisms; Central government indicates its interest to have full information about SI projects complementing regional development programs; Most likely, SI payments will be reported within EITI in Kazakhstan as soon as in 2012

7. The companies can address these challenges and trends SI programs should be developed in accordance to the recommendations of international organizations (GRI, AA100SES) and industry associations (such as IPIECA); SI should be carefully designed as part of companies’ – stakeholders relations management system; – Risk management system; – Sustainable development reporting framework.

8. Key International Reporting Standards AA1000SES – AccountAbility Stakeholders Relations Standard, the first international standard on stakeholder engagement: guidance on how design and implement stakeholder engagement to achieve an accountable and strategic response to sustainability (www.accountability.org) Global Reporting Initiative (GRI) will present its Oil and Gas Sector Supplement in 2011 with reporting indicators, including Social Protocol (www.globalreporting.org)www.globalreporting.org

9. IPIECA Has Developed Useful Program Design Guidelines and Reporting Framework International Petroleum Industry Environmental Conservation Association – the global oil and gas industry association for environment and social issues “Creating Successful Sustainable Social Investment. Guidance document for the oil and gas industry” (2008) IPIECA, API and OGP: “Oil and Gas Industry Guidance on Voluntary Sustainability Reporting” (2010)

10. These Design Guidelines and Reporting Standards Will Help Companies… Increase transparency of SI projects and win broader support from external stakeholders; Build cohesion among different interest groups; Improve stakeholder (and especially community) relations; Bridge the gap between needs, expectations and deliverables; Plan SI projects strategically integrating them in the business project design (including an exit strategy); Approach SI with the same rigor as any other investment; Add sustainability to SI projects; Successfully measure and report social performance.

11. Thank you! Contact information: Anton Artemyev aartemyev@soros.kz +7 777 802 91 71 www.soros.kz