Direct Social Expenditures: A Monitoring Guide for Civil Society Organizations

This paper provides civil society organizations with different strategies to obtain and analyze detailed information on Direct Social Expenditures (DSE) by companies. It also provides civil society with useful lessons on advancing the transparency agenda in this area.

The World Bank defines Corporate Social Responsibility (CSR) as “companies’ commitment to contribute to sustainable economic development by working with employees, their families, the local community and society at large to improve their quality of life in a way that is beneficial for business and also for development.” Extractive industries engage in CSR because their activities are considered among the most environmentally and socially disruptive and it is critically important for them to secure their ‘social licenses to operate’.

As part of their CSR extractive companies invest significant amounts of resources to undertake social development programs; in 2001, oil, gas and mining companies disbursed more than $500 million in community development programs. These expenditures can have a large impact on small local economies. When poorly conceived and implemented, they can lead to corruption and undermine government authorities and institutions. In addition, these resources are obtained on the basis of concessions of oil, gas and minerals that belong to citizens. Companies receive fiscal concessions or incentives from the social activities undertaken in the countries where they operate. All these reasons make it imperative that civil society organizations monitor DSE to ensure they are spent effectively.

Companies can employ different mechanisms to disburse DSE. These could be a function of program objectives and other contextual factors. A company might implement different mechanisms in different countries. It could use public or private disbursement channels, or a combination of both. CSOs need to understand these mechanisms and their pros and cons in order to monitor them. The paper studies the experience of two CSOs—Grupo Propuesta Ciudadana (GPC) in Peru and Instituto Brasileiro de Análises Sociais e Econômicas (IBASE) in Brazil—that successfully made extractive companies disclose information on their expenditures and have since monitored and evaluated the impact of these expenditures. Both CSOs created transparency indices and performed social audits to rigorously assess and rank company performance and undertake evidence-based policy advocacy. GPC successfully obtained information from more than 30 companies on $900 billion worth of social expenditures, and IBASE convinced over 300 private companies to disclose their social audits. The paper also explores experiences of countries that have negotiated including direct social expenditures in the disclosure requirements of the Extractive Industries Transparency Initiative (EITI).

Despite progress in companies disclosing relevant data in recent years, transparency of direct social expenditures is more the exception than the norm. Companies should improve their reporting by providing detailed information about the types of projects funded, the objective of such projects, the amounts disbursed, and the persons responsible for allocating these resources. Contracts that include social expenditure obligations should be available for public consumption.