Social Capital Group, 2008 by jean pierre sciolli

TABLE OF CONTENTS

LETTER TO OUR STAKEHOLDERS Dear Friends,

LETTER TO OUR STAKEHOLDERS ABOUT THIS REPORT FOCUS ON SUSTAINABILITY OUR FIRM OUR MISSION OUR SERVICES Social Assessments Services Management Planning and Alignment Services Implementation Support and Outsourcing Services OUR CLIENTS MANAGING FOR CONTINUAL IMPROVEMENT TEAM SAFETY STAKEHOLDER ENGAGEMENT GOVERNANCE REPORTING GRI Indicator Performance on 2007 Sustainability Report Targets MANAGING THE SUPPLY CHAIN OUR ENVIRONMENTAL FOOTPRINT FINANCIAL PERFORMANCE THE CHALLENGES AHEAD IMMEDIATE BUSINESS NEW CHALLENGES OUR TEAM IN 2008

3 4 6 6 7 8 10 14 16 18 21 21 24 25 28 30 30 31 32 33 34 36 37 37 38

Looking back on 2008, we are proud of what the Social Capital Group has accomplished. Despite the turmoil that has beset the world economy, we have continued to grow and provide our clients with high quality social management services. Our Annual Sustainability Report 2008 reviews the scope of these services, our major projects for the year and our efforts to meet the goals we set for ourselves in 2007. It also looks ahead to the challenges posed by the current global crisis, which we hope to weather well with our committed staff, strong reputation, prudent management, and a touch of continuing good luck. This Report draws on indicators defined by the Global Reporting Initiative (GRI) to assess the firmâ&#x20AC;&#x2122;s performance in areas having to do with a) the impact of our services; b) improvements to our professional and administrative team and internal governance; c) our security record; d) reporting; e) the performance of our suppliers; and d) the extent of our environmental footprint, among others. The framework established by the GRI provides a respected global standard against which to assess the record of the firm. Starting from the baseline established last year in our first report, we can begin to see advances on a number of fronts. Internally, we have made solid progress toward achieving our objectives for our governance structure and procedures, improving human resource and financial management, and meeting the objectives of our firm-wide operational plan. With regard to our clients, we also feel that we have improved project management and communication and expanded our client base in sectors such as oil and gas and multilateral development agencies. By the end of 2008, we were in a strong financial position and had met close to 80% of the strategic objectives set forth for the year.

In the immediate future, our greatest challenges are also those faced by our clients. The effect that the global financial crisis has had on economic growth around the world has depressed demand for the very commodities our major clients produce. So far, the demand for our services has remained relatively stable, although the intensity of the activity of our major world-class clients may have slowed. The social challenges facing established industries grows in slowing economies, placing an even higher premium on having effective social engagement programs in place. This does not guarantee a role for the Social Capital Group, but it does underscore the long term value our services can help create. Looking forward, we will maintain our commitment to providing the highest possible quality of professional services to our clients, helping them manage the social risks they face by engaging effectively with the communities they affect, enhancing the local benefits generated by their operations, and strengthening their national and international stature. We are delighted to make SCGâ&#x20AC;&#x2122;s Annual Sustainability Report 2008 available to everyone with whom we have worked and want to express our sincere thanks and appreciation for your friendship and support over the years. With Kind Regards,

Alan W. Dabbs CEO Social Capital Group

SCG : : ANNUAL SUSTAINABILITY REPORT : : 2008

ABOUT THIS REPORT This is the Social Capital Group’s second Annual Sustainability Report and it covers calendar year 2008. In this report we present our performance on several fronts, including:

• The impact of the services we provide and the clients we serve; • Our efforts to continually improve performance with regard to: Team Safety Stakeholder engagement Supply chain Governance Reporting • Our environmental footprint • The year’s financial results • The challenges we see in the future The topics included in the Sustainability Report have been defined as material and prioritized based on our commercial performance and our general impact on sustainability. In our work the main impact on sustainability stems from the quality of the services we offer and the performance standards of our clients. For this reason, the report describes the types of services that we render and includes illustrative examples of our work in 2008. The challenges facing our company and sustainability can also be evaluated through our performance in other areas. These include our safety performance, our team of professionals, our involvement with stakeholder groups, supply chain, company management, and our standards regarding transparent reporting on our operations. Finally, although relatively small, we are aware that we must further assess our environmental footprint in order to show a comprehensive view of our impact on sustainability.

The information used for the preparation of this report has taken into account the performance indicators of GRI, although not all of the indicators have been included because they were not considered relevant to our current status or because we did not have sufficient data from a statistical viewpoint. In the future, we will increase the number of indicators and continue to seek input and suggestions from our team, clients, and external groups for our sustainability report as we have done this time. The boundary of this report is limited to Social Capital Group S.A.C. headquartered in Lima, Peru. This report does not consolidate financial and sustainability reporting for the Social Capital Group in Brazil, Chile and the United States. While all SCG offices share mission, code of conduct, services and a level of strategic planning, they are legally separate entities. These organizations plan to have unified reporting by 2010.

We have completed independent audits of our financial reports since 2003, although our 2008 financial audit will not be completed prior to publishing this report. The other information presented in this report has been collected and verified internally, but not audited independently. SCG will consider an independent audit of its unified sustainability reporting in 2010. For further information or feedback please contact doris.montoya@s-c-g.net.

FOCUS ON SUSTAINABILITY OUR FIRM The Social Capital Group (SCG) is a privately held international professional services firm specializing in the analysis and management of the social issues and risks associated with complex public and private sector investment projects.

OUR MISSION Founded in 1999 in Lima, Peru, SCG now maintains offices in Brazil and Washington D.C, and has carried out projects in Latin America, Africa, and the Near East. Over the past 10 years the firm has worked with public and private sector clients in a variety of sectors, including, oil and gas, mining, petrochemicals, agriculture and forestry, urban development, resettlement and disaster management. As of the end of 2008 the firm has 77 team members on permanent staff. The expertise of our professionals include sociology, anthropology, political science, architecture and urban planning; GIS, agronomists, disaster prevention, response and mitigation, law, business economics, industrial relations and HSE management, and environmental assessment, policy and planning. In 2008, SCG was engaged in over 60 projects in 10 different countries and generated US$4.7 million in revenue.

Our mission is to provide global leadership in managing the social opportunities and risks linked to major developement projects and investments.

We will grow as a company to achieve this mission by: • Working together with clients and partners to understand and meet their objectives by anticipating challenges and providing innovative and effective solutions; • Building and maintaining a motivated team of employees and consultants by providing a challenging, but safe, work environment with opportunities to develop new skills, innovate and achieve personal goals; • Communicating clearly and quickly to our suppliers and service providers regarding our needs and expectations regarding their services; • Seeking to identify social trends and opportunities in order to expand our expertise with new methodologies and services; and • Developing and strengthening partnerships with academic institutions, private companies, government and NGOs to share relevant expertise that will increase effectiveness of shared operations. We will conduct these activities by being open and transparent and treating all stakeholders with respect; complying with all national laws where we operate and with the principles of the United Nations Global Compact; recognizing our shortcomings, learning from our experiences and seeking to continuously improve our internal standards and practices.

SCG : : ANNUAL SUSTAINABILITY REPORT : : 2008

OUR SERVICES The main objective of our work is to create the conditions for sustainable development where we work.

For our clients, SCG’s services can help sharpen their understanding of the social risks and opportunities confronting their enterprises or projects and lead to constructive and mutually beneficial engagement with the local communities potentially affected by a project. Helping clients and communities negotiate the terms of a durable “social license” to operate is a complex task, however, and there are no sure formulas for success. Whether or not, our services produce solutions for sustainability depends on the interplay of our own talents with the commitment and capacity of our clients and the nature of the communities involved. In 2008, we have provided a range of services designed to promote the social sustainability of a wide range of complex projects. These services can be grouped in three main areas:

Management Planning and Alignment

Social Assessments • • • • •

Stakeholder and Issue Identification and Analysis Social Risk Assessment Social Baseline Social Impact Assessment Social Due Diligence and Performance Audits

• • • •

Management Alignment Strategy Development and Management Planning Policy, Procedure and Guideline Development Organizational Structure and Social Management Training

Implementation and Outsourcing • • • • • •

These are all services that SCG provides to private or public sector clients who have embarked on complex projects involving social issues. These projects include the creation of new public infrastructure, regional and urban development, industrial plants, mining and oil and gas operations, disaster recovery and mitigation planning or the development of new corporate policies and strategies for social responsibility. SCG provides these services to clients using its own employees and consultants and does not outsource to third parties. Each of these services relies on specific methodologies that we have revised and improved during 2008. In addition, we have further trained our team in their appropriate application. These methodologies draw on policies, procedures and standards of good practice such as those issues by the World Bank and International Finance Corporation (IFC), the Equator Principles, Global Compact, Voluntary Principles, the Extractive Industries Transparency Initiative (EITI) and other guidance such as ISO standards.

Land Acquisition and Resettlement Social Investment and Regional Development Urban Development Stakeholder Relations Conflict Prevention and Management Capacity Building/ Training

At SCG, we prioritize the continuous improvement of our methodologies. Throughout the year, the continuous improvement of our services has been driven towards better applying and adapting our methodologies to the unique reality of each of our clients. In this way, we can guarantee that our service is in aligned with the objectives that the client is interested in achieving. Furthermore, our service involves clients in the process of preparing the product and takes as a source of continuous improvement recent service experiences and international standards. Whenever it has been necessary, we have also trained our clients’ teams in the use of methodologies. Below we present a brief description of main characteristics of these services in order to provide a clearer idea of SCG’s contribution to building the social foundations for sustainable enterprise.

Social Baseline

SOCIAL ASSESSMENTS SERVICES A project must successfully integrate into a given social context in order to manage risks and generate benefits for project sponsors, local stakeholders and national interests. SCG provides a range of social assessment services to help project management, shareholders, financers, regulators and other stakeholders understand the actual social context of a given project.

Social baselines provide detailed quantitative and qualitative understanding of the social context of a Project. Baselines can measure a broad range of social information including demographic data, education and health information, economic and employment data, quality of life information, cultural data and stakeholder perceptions. Participatory methodologies are employed to build local participation in key processes.

saves money by helping management ensure that resources and attention are focused in the right areas. SCG has developed its own internal methodologies for social impact assessment as well as working with methodologies utilized by our environmental impact assessment partners.

Stakeholder and Issue Identification and Analysis

Social Impact Assessment

Major projects in the infrastructure and resource sectors share similar social issues such as requirements for land, environmental impact, opportunities from employment and supply chain, shared social infrastructure, social investment, logistics, worker conduct and consultation. However, each Project creates a unique mix of these issues due to the project’s activities, management programs and social context. Furthermore, the issues of each Project affect stakeholders differently. Some may expect to benefit while others may be more concerned with adverse impacts.

Social impact assessments have long-been regulatory requirements. Now they are increasingly being used as by Project sponsors as tools to establish the basis for project design, management planning and continued monitoring for future management action. Effective social impact assessment reduces risks and

Stakeholder and issue identification and analysis provides a general view of what needs to be addressed by a Project. It also helps to identify the particular issues that may need greater management or additional baseline data for planning actions or measuring results.

Social baselines enable selection of indicators that can be tracked to assess the positive and negative impacts associated with a project. Similarly a better understanding of the limitations and potential of a region allows for improved direction of a company’s social investment.

Key Social Issues of Project Development Transportation and Logistics Worker Conduct Royalties & Tax Distribution Impact of Product and Production Housing

Employment Social Infrastructure Land Use and Resettlement Social Investment Supply Chain Security

SELECTED PROJECT DESCRIPTIONS: 2008 The Project profiles presented here account for over 60% of SCG revenue in 2008 Inter-American Development Bank Washington D.C., United States

The Inter-American Development Bank (IDB) approved a new environmental policy in January 2006. The policy is applied through a series of Safeguard requirements used to guide the evaluation of loan proposals for development projects in Latin American and Caribbean countries. In 2008, the IDB hired SCG to develop a series of Project profiles to be used in training programs

on Safeguards application. The cases include guidelines on Environmental and Social Assessment, Involuntary Resettlement, Indigenous Peoples, Natural Habitats, among others, applied to transport infrastructure projects, regional agriculture development projects, financial institutions, mining and hydroelectric dams. The training courses will involve IDB professionals and their clients responsible for complying with the safeguards policy. The work should be completed in 2009.

El Galeno Project – Cajamarca, Peru In 2008, SCG continued working with Lumina Copper in the Galeno Project to ensure broad-based community support for the Project. SCG implemented technical assistance programs in agriculture and livestock, as well as resettlement process with eligible families. Besides strengthening traditional activities, SCG also gave local residents guidance on establishing businesses that could be part of the Project supply chain. By the end of 2008, these

activities allowed the Project to increase purchasing of goods and services from over a dozen local businesses. In addition to these implementation activities, SCG continued the Social Impact Assessment for El Galeno and, with the support of the Project, provided technical assistance to the government of the La Encañada District in order to prepare the Strategic Participatory Development Plan.

SCG : : ANNUAL SUSTAINABILITY REPORT : : 2008

Social Risk Assessment

Social Investments

Probability

High

Management

SCG has its own risk assessment methodology refined through years of working with social issues linked to the infrastructure and resource sectors. It also has experience in applying the in-house methodologies used by major companies to meet internal reporting requirements.

Social Due Diligence and Performance Audit

Social Risk Assessment

Social risk assessments evaluate the potential events or conditions that could impact a Project’s ability to achieve its objectives. In addition to identifying the risks to stakeholders through social impact assessments, SCG clients often ask for risk assessments to identify issues that may affect their own timelines, business continuity, budget and reputation.

Stakeholder engagement

Employment

Med.

Local Purchasing

Land Use Operational Activities

Low

Adequate Minor Improvements Major Improvements

Low

Med.

SCG : : ANNUAL SUSTAINABILITY REPORT : : 2008

High

Potential Impact on the Operation

SCG has broad experience conducting social due diligences and audits for development projects. SCG also has experience conducting due diligences and audits against various standards. Standards can include a Project’s own commitments and management plans, good practice in general, international guidelines or shareholders standards. Audits can review both management systems and performance and they generally engage both internal and external stakeholders. Internal aspects review policies, strategies, team understanding of roles, actions and documentation. Social performance audits can be done for project managers or shareholders, potential buyers or financiers, government or civil society.

SELECTED PROJECT DESCRIPTIONS : 2008

SCG social risk assessments, which build on knowledge obtained from stakeholder and issues analysis, evaluate both the probability and consequences of risks and also identify management and mitigation strategies that a Project can implement to lower the probability and potential impacts of these risks.

Intervention Protocol in Social Cases – Lima, Peru SCG has provided support to the Ministry of Energy and Mines’ Social Management Office (Oficina General de Gestión Social (OGGS)) to prepare an intervention protocol for managing sensitive social issues and conflicts. The tool intends to facilitate the OGGS team’s adequate and timely advice to stakeholders regarding efforts to prevent and resolve controversies associated with the presence of mining, hydrocarbon and energy development activities in local communities.

PetroTech Peruana – Peruvian Coast It should be pointed out that preparation of the Protocol included the experience and permanent participation of OGGS staff in regular meetings and workshops. The service was performed as part of the management modernization project of the Ministry of Energy and Mines with the assistance of the Canadian Government through Stantec Consulting International.

During 2008 SCG continued providing various services to PetroTech Peruana. These services focused on social baselines and impact assessments for various facilities associated with off-shore and coastal oil and gas concessions.

The services included consulting the population of Lambayeque on hydrocarbon exploration and development. The principle local stakeholders included traditional and industrial fishermen.

MANAGEMENT PLANNING AND ALIGNMENT SERVICES

SELECTED PROJECT DESCRIPTIONS : 2008

For many organizations, be they private corporations or public agencies, the central challenge for the management of social issues is internal. Experience shows that one of the root causes of external conflict is the internal failure of an organization to achieve a common understanding about the nature of the social challenges it faces and the approaches it will pursue to address those challenges. In part this has to do with internal leadership, communication and clarity of roles; in part with sharing an understanding of what is required to design and implement an effective management system that integrates social engagement into the everyday policies and practice.

Social Management System Clarity of Purpose Stakeholder and Issue Identification

Evaluate Results and Take Corrective Actions

Set Management Measures

Stakeholder Engagement

Establish Baseline Conditions

Set Targets

Organizational Structure and Social Management Training

SCG has experience at both a corporate level developing policies and guidelines and at an operational level designing specific strategies and management plans. Our experience addresses key issues such as local employment, purchasing, land acquisition, resettlement, social investment and public consultation. SCG works with a client’s management team to ensure that strategies are viable from the beginning and that responsibility for specific actions are clearly allocated internally according to an integrated timeline.

Different organizational and social contexts require different structure. SCG has worked with organizations to help them establish their overall approach to social management. This requires identifying key issues, setting the organizational structure, identifying job responsibilities, internal coordination and team skills.

Policy, Procedure and Guidelines Development

Management Alignment

Making the management system work also involves helping clients design policies, guidelines and procedures for the entire range of social management issues. These provide clear indications to both internal and external stakeholders of management’s vision and direction.

Even when the management system is well designed, its effectiveness may suffer from a lack of internal alignment around the nature of the issues and the roles and responsibilities of the operational team. For SCG, this alignment process involves facilitating internal discussions and debates to achieve consensus among project managers, shareholders and implementers on the nature of the issues they face and the roles and responsibilities of each actor.

Fenix Project – El Estor, Guatemala During 2008, SCG continued its work to strengthen the community relations team of the Fenix Project. In particular, support was provided in the preparation of a Strategic Community Relations Plan, an Annual Operations Plan, and the implementation of a data management system for physical and electronic data. In addition, terms of reference were prepared

Strategy Development and Management Planning

Similarly, the SCG experience in community relations and social management is condensed in training services that it offers. Training programs identify and strengthen the individual abilities of the participants. They also include knowledge about the sector in which a particular project is being developed, the legal framework, the client’s standards and the international standards that will frame performance.

Mining Unit Yauliyacu - Chicla, Lima for hiring staff to support the department’s activities during 2009. Finally, SCG advised the Project on matters such as employment, local purchasing and supply chain. SCG started working in 2007 for Compañía Guatemalteca de Níquel –CGN. CGN is now a subsidiary of Canadian mining company Hudbay Minerals Inc.

During 2008, SCG continued providing services to Los Quenuales (Glencore Peru). During the year SCG gave advice to the operations team of the Mining Unit Yauliyacu, located in the highlands of Lima. SCG developed a Social Baseline to support the identification of potential investment areas for the company to design its social investment program.

Furthermore, SCG worked together with the company’s Community Relations team to prevent the occurrence of any significant social incident in the area.

SCG : : ANNUAL SUSTAINABILITY REPORT : : 2008

IMPLEMENTATION SUPPORT AND OUTSOURCING SERVICES Our firm also has been directly responsible for implementing plans and programs on behalf of our clients. Moving beyond the conference table and the training hall, we have direct on-the-ground experience in all areas in which we have play advisory roles. Working directly with diverse and sometime volatile stakeholders and communities in often remote locations sharpens and continually tests our professional staff and the design and effectiveness of our services. Some of the areas in which we taken on direct operational roles are:

Capacity Building

SELECTED PROJECT DESCRIPTIONS : 2008

SCG has helped to build the capacity of a broad range of stakeholders to participate in the development process. It has helped stakeholders to understand the risks and opportunities associated with development as well the means to get engaged. SCG has worked to build the capacity of government representatives, local leaders and indigenous communities to address the social challenges associated with a range of potential development initiatives.

Land Acquisition and Resettlement

Stakeholder Relations

Conflict Prevention and Management

SCG has provided on the ground support to land acquisition and resettlement processes to meet international standards and good practice. Work is usually focused on assessing measures to minimize resettlement; organizing activities to engage affected populations; building local understanding and capacity; identifying social issues and vulnerabilities within affected populations; creating compensation frameworks; assessing and planning requirements for restoration of livelihoods; and establishing frameworks for future monitoring. In addition, SCG gives specific support to the land acquisition process to ensure that it is integrated with a client’s other negotiations with stakeholders to avoid unforeseen escalated risks to the Project.

SCG has provided implementation support and outsourcing for stakeholder engagement activities when clients are starting or expanding activities or face unanticipated temporary challenges. Depending on the complexity of the issues involved, this type of support generally lasts from several months to a couple of years. It may involve assigning a single person to a remote project or providing an entire team to a client who does not have the internal capacity required to match the social complexity of a given situation.

The social context that surrounds large development projects can easily become conflictive. The situation can result, for example, from the increased expectations regarding individual or collective benefits that the activity may generate or from the concerns regarding the social and environmental impacts that the development might produce. In other contexts, the conflicts are further compounded by the internal dynamics and tensions within the population itself.

Urban Development SCG has a team of urban planners, architects and social specialists who focus on the unique challenges of development projects in urban and rural environments. This can include issues of urban expansion or renewal, as well as reconstruction efforts following natural disasters such as earthquakes. Also the design team has been instrumental in laying out urban plans for major resettlement projects.

Accha-Yanque Projects – Cusco, Peru SCG continued providing advisory, assessment and implementation services to Exploraciones Collasuyo (Zincore Metals) in its exploration projects in the regions of Cusco and Apurimac. The Project’s social performance challenges resulted from the presence of illegal mining activities, internal conflicts within

one community and the need to create company-community alliances for jointly preparing social development programs. SCG helped the company to manage these social challenges and enabled the company to maintain a sound relationship with the local population.

Social Investment and Regional Development SCG can help its clients implement activities that strategically link social investment to project development. We establish stakeholder participation in planning, implementation and monitoring of social investments. We can also determine the appropriate alternatives to channel social investments to populations either directly from an operation or through a separate foundation structure. SCG support helps ensure local buy-in on the design, implementation and monitoring of activities linked to specific objectives.

SCG can help its clients to understand the social dynamics that surround a Project and modify activities or plan intervention strategies to prevent conflict which are customized for each social context. Similarly, SCG helps its clients to ensure that existing conflicts are addressed and do not escalate to further impact objectives.

Next Steps 2009 Target Services

• Formalize knowledge management role within the company to ensure our service benefit from our constantly evolving experience, well-trained staff and rigorous internal review.

Talara Refinery Modernization Project, PETROPERÚ – Piura, Peru Petroperú is Peru’s main government enterprise and is mainly engaged in crude oil transport and refining for export from its port terminal in Talara. In 2007, the company started an intensive modernization process of the Talara Refinery, which will enable it to produce fuel that meets international quality standards and to process new refined products. In 2008 SCG started providing services regarding the Project’s social performance management including advice to improve

participatory processes, communication and corporate social responsibility in general. Talara’s local economy depends almost entirely on the oil activity and the Talara Refinery is one of the main sources of employment of the city.

SCG : : ANNUAL SUSTAINABILITY REPORT : : 2008

United Kingdom United States

OUR CLIENTS

Kazakhstan

Over the years, The Social Capital Group has had a client base that included private sector companies engaged in oil, gas, mining, petrochemical, agro-industry and urban development, as well as government ministries, multilateral development agencies, and NGOs. Specifically, out of our total of $4.7 million dollars in revenue: • 87% of our work was with private sector companies • 73% of our work was in the mining sector • 7% of our work was in oil and gas sectors • 95% of our work was in Latin America.

United States

Venezuela Honduras

Guatemala

Oman

Suriname Colombia

DR Congo

Ecuador

Guinea

Brasil

Malawi

Peru

Angola Bolivia

Madagascar Australia

SCG Worldwide Activities

Chile Argentina South Africa

In 2008

SELECTED PROJECT DESCRIPTIONS : 2008

Before 2008

Sociedad Minera Cerro Verde – Arequipa, Peru

Las Bambas Project – Apurimac, Peru During 2008, SCG provided implementation and outsourcing services to the Las Bambas Project regarding resettlement issues. SCG organized a community relations team that worked in an integrated manner with the Project for the implementation of a resettlement plan. The objective of the work has been to ensure that the process is conducted with the agreement of

the community and becomes an opportunity for social and economic improvement of the families involved. One of the challenges faced by the resettlement plan is that the affected rural Quechua communities are not familiar with largescale mining activities. To address this social challenge, SCG assembled a team with significant experience in both mining and the cultural context of the specific region.

During 2008, Sociedad Minera Cerro Verde hired SCG to prepare two social baseline studies, including one that is part of the Environmental Impact Assessment for the expansion of the mining activities. The studies enabled a deeper and updated knowledge of the economic and social reality of the company’s area of influence, ranging from the mining operations to the ore shipment port.

Baseline studies incorporated photography taken by the local population in order to assess local opinions on various relevant issues such as culture and environment. The results provide input to the company for designing its local development programs within a framework of social responsibility framework.

The Commitment of Our Clients For the final analysis, the sustainability of our work depends on the commitment of our clients, as much as on the quality of our service. We invest in relationships and continued services with clients (and potential clients) who share our commitment to good social management and sustainability. The high demand for our work in 2008 has further enabled us to prioritize relations with committed clients. This upfront attention to ensure alignment helps our potential clients as much as it helps us since it makes sure our approach and services match with client expectations prior to either of us investing in the relationship.

SELECTED PROJECT DESCRIPTIONS : 2008

Seventy per cent of our income from private sector clients came from clients committed to at least one of the following international standards: Ecuador Principles, Global Reporting Initiative, Voluntary Principles, UN APELL or Extractive Industries Transparency Initiatives.

Our clients who have not committed to these standards have not done so for a variety of reasons. However, we have seen no difference in actual social performance among our clients based on whether or not they have an explicit commitment to one of these internationals standards. In reality, some of our most innovative and socially committed clients in 2008 had made no formal commitment to international standards. In addition, compliance with international standards does not always guarantee good performance or business results. Our clients face challenges arising from diverse social realities, where international guidelines may not give sufficient guidance on how to overcome such obstacles. In many cases, the greatest challenge is to honor the intent of the standards while designing solutions that meet the needs of a unique social situation.

Within the framework of the Social Development Plan, the field team, led by SCG, carried out work with different strategic

SCG competitiveness depends on continually improving the management of:

TEAM

• • • • •

SCG recognizes that its professional team is the company’s most important asset. For this reason, SCG is committed to fostering a safe and challenging work environment that offers opportunities to develop skills, innovate, and achieve personal goals. SCG will continue to work so that our team of professionals who make up the company remain highly motivated and who enjoy a great place to work.

Our Team External Engagement Supply Chain Governance Reporting

These issues together with the impact of our services and our environmental footprint are considered to be the main material impacts SCG generates with regards to overall sustainability.

In 2008, the expertise of SCG continued to grow through our team. At present, we have professional staff specialized in fields such as sociology, anthropology, law urban development, economics, environmental planning, industrial relations and business management.

La Granja Project – Cajamarca, Peru

Ambatovy Project – Toamasina, Madagascar Following the resettlement of 200 subsistence agricultural families, SCG helped the Project design a Social Development Plan and establish an implementation team. The plan aims to enable livelihood restoration of these families on their new land and ensure that the Project meets a range of commitments to generate positive social impacts.

MANAGING FOR CONTINUAL IMPROVEMENT

partners to implement projects in areas such as education, health, local employment, trade and training in income generating activities. The population has responded positively. The primary challenges and activities have focused on building local capacity to realize their development opportunities.

During 2008, SCG worked with Rio Tinto to address issues linked to land acquisition and resettlement. This included addressing the Project’s earlier commitments to landowners made during the pre-feasibility phase. SCG worked with 22 families who had been temporarily resettled and many more who had leased

properties to the company. SCG also worked to plan the potential resettlement of several hundred families who could be affected in case of the eventual project development.

SCG : : ANNUAL SUSTAINABILITY REPORT : : 2008

Firm policy encourages staff to seek additional training to improve management or technical skills. Our company continues to appeal to and retain highly qualified and committed personnel. At the end of 2008, SCG had a team of 77 full time members on its payroll (43 men and 34 women). Two persons went to work for mining companies while an equal number resigned from mining companies to work with us. Moreover, one person joined an international development agency. No team members left to work with competing organizations. These movements occurred within the context of the recent mining and energy boom; a time when companies offered appealing salaries and additional favorable conditions. We are happy that amidst the economic boom turn-over was around 5%.

SELECTED PROJECT DESCRIPTIONS : 2008

In accordance with the laws of Peru, SCG shared 5% of its annual profit with the entire team. In addition it provided additional performance bonuses to project managers and coordinators. SCG also met its obligations regarding social benefits and was not fined for any labor-related infringement.

Throughout 2008, we have made efforts to improve the opportunities of the staff and the work environment in order to remain competitive. However, we believe we must continue to improve our performance. In general, we have learned that we need to improve our systems of internal documentation and improve procedures to make out goals more visible within our own team. Although we established significant goals for 2008 regarding time and investment in team training, we did not fully implement the management mechanisms to adequately measure our progress. SCG established its “Fitness Challenge” health program during 2008. The program encourages better team health by awarding incentives to team members who lost at least 3% of body fat and maintained their weight loss during the second semester of 2008. There were eight winners (4 men and 4 women). SCG also paid up to 50% of the cost of individual fitness programs during the year. 45% of workers (21 men and 13 women) enrolled in the program. All in all, SCG disbursed US $ 9,000 for incentives and for rewarding good performance.

Abra Apacheta Project – Ayacucho, Peru

Finally, the professional internship program was expanded and the company had three interns throughout the year. The changes in the business environment and the financial crisis have had an impact on our team. We do not anticipate downsizing in 2009, but we do expect a change in the demand for our services. In this sense, we expect fewer requests for social assessments and more for implementation services. Fortunately, we have a good set of professionals with skills in both areas. The challenge to us is reallocation and training in order to make adjustments that do not affect the efficiency and quality of our services. We also anticipate that we will be asked for smaller, specific studies, related to the implementation of services. This means we have to improve our system of staff allocation and improve our internal planning for time management. We also need to improve distance work management given the number of persons working in remote locations.

On this matter, our goals are to maintain high team spirit and good communication. All of these situations require a high degree of organizational flexibility.

Next Steps 2009 Target Team Training

• Achieve the average number of 61 hours of training on topics related to their fields. • Share, up to 60% of the cost of learning foreign languages.

Evaluation Process

• Revise and improve the performance evaluation process.

Health of Team

• Increase team participation and results over 2008.

Milpo Explorations – Peru

Minera Newcrest Peru conducted surface explorations in the highlands of Ayacucho.

Among the negotiation items were employment generation and social assistance for the community.

SCG worked with Newcrest to manage a critical social risk linked to land disputes among three Quechua communities, which had persisted for decades and generated great divisions among the communities.

The purpose of the process was to obtain the informed consent of the community for starting the geology program. The negotiation process was built on an intercultural approach.

The Project implemented a process of dialogue and negotiation with the communities focused on conflict prevention.

Additionally, 20% of the staff participated in a training program on foreign languages. The total investment was US$ 14,000 and SCG paid 50% of that amount.

In 2008, SCG provided social management implementation services to the Exploration Program of Compañía Minera Milpo. These services included six exploration projects involving eight rural communities in three regions of the country.

negotiation and informed consent according to the specific realities of each community. The specialists took charge of the Projects’ prior commitments in matters such as employment generation and community assistance.

SCG assigned community relations specialists to each project. Their work included evaluating the social context and implementing engagement processes to create dialogue,

The processes resulted in mutually accepted agreements between the company and the communities for exploration activities.

SCG : : ANNUAL SUSTAINABILITY REPORT : : 2008

SAFETY Safety is a high priority and continuous concern for SCG. Firm personnel travel to remote locations over illmaintained roads; living conditions in many locations can be challenging; and the potential social and political volatility can make personal security an everpresent concern. With regards to safety issues, the firm supports the precautionary approach to addressing risks. The firm must continuously monitor safety, health and logistics issues and seek to reduce threats and prevent accidents. The firm does not employ any armed security.

SELECTED PROJECT DESCRIPTIONS : 2008

During 2008, several incidents occurred that highlighted the importance that our teams establish good local relations where we operate, improve coordination with our clients regarding safety risks and empower our team members to stop work or travel when the safety standards are not met. On one occasion a SCG vehicle was stolen at gunpoint, although it was recovered quickly thanks to rapid coordination with both the client and the community’s civil defense organization. On another occasion a SCG field team was detained by

the local population for several hours when it passed through a region without being informed that an incident had just occurred between a company and the community. On a third occasion a team member was in an auto accident that would have been avoided if the vehicle contracted by the client had met the client’s own safety requirements. In addition to these high-risk incidents, in 2008 SCG dismissed a contractor for not meeting our safety standards. In 2008, SCG contracted a company specialized in safety performance to assess our performance and identify potential solutions to identified gaps. During 2009 SCG will focus on promoting its safety culture, team training on safety and implementation of safety procedures. We will continue to promote internal understanding that all team members have the right to interrupt whatever activity they consider as unsafe.

Next Steps 2009 Target Safety

• Improve communication between our teams and clients regarding management of safety risks.

Social Audit - Loreto, Peru SCG conducted a social audit for ConocoPhillips a wholly owned subsidiary of Burlington Resources, on its Community Relations Plan for the 2D Seismic Project in Block 104, located between the watersheds of the Tigre and Pucacuro rivers in the heart of the Peruvian Amazon.

STAKEHOLDER ENGAGEMENT SCG pursues active engagement with our stakeholders to ensure our long-term business viability. Specifically, engagement allows us to: • Identify trends and emerging issues; • Improve communication and understanding with stakeholders about SCG, in general, and specific projects, in particular, • Improve the quality and efficiency of SCG activities; and • Identify new business opportunities. SCG has identified a broad set of stakeholders that includes our clients, partners, regulators, employees, service providers, competitors and industry associations. They also include civil society organizations involved in similar issues as well as the communities and other stakeholders linked to our Projects.

Team members participated in various workshops and presentations for NGOs and academic groups to share our experience and approach Additional investment was made in 2008 to participate in the: • International Association of Impact Assessment Conference in Perth, Australia • Prospectors & Developers Association of Canada conference in Toronto • IPIECA Human Rights and the Oil & Gas Industry in Latin America Conference in Buenos Aires • IV International Conference on Mining, Petroleum and Gas in Cartagena • Social Committee of Peru’s National Society for Mining Petroleum and Energy as associate members • XIV Colombian Congress on Mining, Medellin • Inter American Development Bank CSR Americas, Cartagena • In addition, SCG organized, financed and implemented a series of Community Relations Training Workshops throughout Peru in 2008 targeting experienced professionals seeking to learn more about the sector (see above).

Information Kit on Peruvian Mining The audit team visited the Project area of operations and assessed the performance of the Community Relations Plan and social management practices. The company requested the audit as part of its internal management measures to ensure the quality of its operations.

During 2008 SCG continued working with the Canadian Embassy to develop and disseminate the Mining Kit for Peru. The kit is a tool to promote a better understanding of the mining activities and the informed participation of the stakeholders in all stages of the mining cycle. The kit includes an information manual, summary pamphlets and a trainer’s guide. The Kit includes information on the four phases of the mining

cycle (exploration, development, operation and closure), the regulations, the potential positive and negative impacts of each phase, and the opportunities for participation. Private sector, civil society and government stakeholders have shown great interest in using the Kit following the comprehensive engagement process implemented during its development.

SCG : : ANNUAL SUSTAINABILITY REPORT : : 2008

Some of the more frequent issues that we have covered in stakeholder engagement have included: social management systems, the state of current social management practices, research methodologies, business ethics, internal alignment issues, regulations, team building, performance auditing, royalty distribution, change management, negotiations, land acquisition, supply chain, local employment, resettlement, improving communications with stakeholders, human rights, risk management, building understanding, managing conflict, and the benefits and limitations of international standards.

Community Relations Workshops During 2008 SCG initiated its Community Relations Workshop Program. The program objectives were increase understanding of private sector social management and to improve our own identification and recruitment of excellent team members. The workshops were implemented in four distinct regions of Peru outside of Lima located in the northern, central and southern zones of the country. Each workshop lasted 16 hours and SCG assumed all related costs.

Next Steps 2009 Target

SELECTED PROJECT DESCRIPTIONS : 2008

Institutional Partnerships

The participants were chosen through a rigorous selection process that permitted the identification of highly equipped professionals for community relations. One out of every 30 applicants was invited to a workshop. In some cases regional regulators linked to the oil, gas and mining sectors were also invited to the workshops.

• Formalize strategic partnerships with private sector and other organizations to increase the success of shared objectives.

Social Management during Mining Exploration – Peru SCG has worked with Votorantim Metais since 2007. During 2008, the work conducted by SCG was focused on consultancy services in social management issues for their mining exploration program in Peru. The service provided by SCG included support on the planning, field implementation and monitoring of the program’s social management. As a result, agreements were reached with the communities involved in five projects in the regions of Amazonas, Junin, Lima and Ica.

The implementation of each workshop included the participation of several SCG managers and project coordinators in a structured program aimed at transferring knowledge and identifying abilities. Also, SCG utilized its own logistics team to ensure an adequate process of notification, selection and invitation of participants. In addition, the workshops signified a new source of regional recruitment for SCG and created an opportunity to evaluate excellent professional in action. As a result, 30% of the new SCG team members recruited in 2008 were identified through these workshops. As a consequence of this work we are now linked to a broader base of good professionals in different regions of the country and will probably have opportunities to work with them in the future.

Constancia Project – Cusco, Peru The work methodology included social assessments, preparation of specific conflict prevention strategies and communication and participation plans.This process contributed to the successful management of key social issues in the early stages of the projects, such as managing expectations, environmental concerns and local employment.

SCG has been working with Norsemont Mining Inc. on its Constancia exploration project since 2007. During 2008, the copper, molybdenum and silver project advanced to the feasibility stage. The company plans to have a final feasibility study and to present the environmental impact assessment by the end of 2009. SCG is in charge of conducting the social studies for the Project and assisting in the planning of its social management.

Informal mining inside and surrounding the concession area is a major challenge for the Project. SCG helped analyze the situation and define strategies to reduce the level of conflict. The next step will be to study the informal mining activity in more detail with the participation of both regional and community authorities as well as the informal mining groups.

SCG : : ANNUAL SUSTAINABILITY REPORT : : 2008

GOVERNANCE SCG vision and mission statements establish overall company purpose and direction. SCG Code of Conduct together with other corporate policies and operational procedures, all of which were originally established through broad internal participation, provide clarity regarding how we expect to conduct our business. Each year during our internal strategic planning meeting, they are reevaluated to ensure that they reflect the goals and ethical commitments of the firm. The Chief Executive Officer and the SCG managers in Peru constitute the management committee. The committee (5 men and 3 women) meets several times per month to oversee operations. A strategic plan is revised and updated annually with involvement from the management team and other team members. The strategic planning process helps identify high level expertise and qualifications that need to be introduced into the organization.

The Chief Executive Officer is also the Chairman of the Shareholder Board. This Board is legally the highest governance body for the organization and is constituted under Peruvian law for professional corporations. In practice, since the shareholders are also among the 8 managers on the Management Committee, the Shareholder Board members participate in the debates and consensus building that occur on the management committee. The Shareholder Board did not reverse any decision taken by the Management Committee in 2008. By definition, stock ownership is the requirement for membership on the Shareholder Board and there are no independent members. The Shareholder Board meets annually to review the operations of the firm. The performance of the organization against our strategic plan helps us evaluate the performance of both our Management Committee and our Shareholder Board. SCG had intended to establish an Independent Advisory Board in 2008, but this was not completed.

Code of Conduct All SCG employees and contractors will: 1.

Work to create lasting benefits for SCG, its clients, partners and society, reduce potentially negative impacts and modify or end activities when no longer making a positive contribution; Act in good faith in their conduct of business for SCG and its clients and engage all stakeholders in an honest, professional and respectful manner; Dedicate time to understand the culture and values of stakeholders, embrace dialogue and recognize that addressing different perspectives will benefit all activities; Avoid and report work conditions that create health or safety risks for themselves or other stakeholders or harm the environment; Not use SCG resources to support any political parties, candidates or campaigns;

Avoid situations where personal interests might conflict or appear to conflict with responsibilities to SCG or its clients and inform SCG in writing of potential conflicts; 7. Provide no more than modest gifts, entertainment, or other benefits to stakeholders on behalf of SCG or its clients nor accept more than modest gifts or benefits from stakeholders; 8. Maintain the confidentiality of information from SCG, its clients, suppliers and partners that has not been authorized for disclosure; 9. Reject all forms of discrimination and harassment; 10. Manage internal differences internally; 11. Comply with applicable national or international laws and take corrective action when noncompliance is identified; and 12. Work with clients who have adopted or seek to adopt Codes of Conduct of comparable standard.

In 2008 at least 25% of anticipated profits are allocated to bonuses. Peruvian law requires 5% profit sharing with the entire team. The remaining 20% is given principally to managers or team leaders to strengthen the link between compensation and overall performance. In 2008 the CEO had lower base salary than the rest of the management team. His final compensation depends significantly on overall performance. In 2007 SCG began refining the evaluation criteria for individual performance to support bonus decisions. In 2008 SCG revised and updated the process for setting individual targets and evaluating performance of all managers. SCG held two multi-day strategic planning workshops during the year that included participation of managers and project coordinators. It also met its goal of achieving approximately 80% of the strategic targets established for 2008.

SCG has an open door policy with regard to personnel issues and complaints. We also maintain a formal grievance system to protect the confidentiality of employee concerns. The management team also reviews conflict of interest issues according to an internal policy.

Next Steps 2009 Target Strategic Planning

â&#x20AC;˘ Meet at least 80% of 2008 strategic targets.

Performance Evaluation

â&#x20AC;˘ Revise and update processes regarding setting individual targets for managers and evaluating performance.

Advisory Board

â&#x20AC;˘ Establish an independent advisory board to review company performance and planning.

SCG : : ANNUAL SUSTAINABILITY REPORT : : 2008

REPORTING

many of our clients now follow GRI guidelines, we hope that they can benefit from our keeping similar report standards in our capacity as service providers.

Our reporting in general and this Sustainability Report in particular seeks to provide a transparent picture of our professional and financial performance as well as our operational impact on sustainability. Our objective is that our employees, clients, and current and potential partners can assess the work we do and compare it to that of other providers or potential employers. Since

GRI Index 1.1 1.2a 1.2b 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 3.1 – 3.9

3.10 3.11 3.12 3.13 4.1- 4.10

4.11 4.12 4.13 4.14-4.17

GRI INDICATOR The Global Report Initiative establishes an index for the filing of sustainability reports. The chart below shows the page number of the report on which the topic is dealt with by GRI.

Brief Description Of GRI Required Contents STRATEGY AND ANALYSIS Statement of the most senior decision maker The key impacts of the organization on sustainability The impact of sustainability trends on the organization ORGANIZATIONAL PROFILE Name of the organization Primary brands, products, and/or services Operational structure of the organization Location of organization’s headquarters Countries where the organization operates Nature of ownership and legal form Markets served Scale of the reporting organization Significant changes during reporting period Prizes received in reporting period REPORT PARAMETERS Reporting period; date of most recent previous report; reporting cycle; contact point for questions; process for defining report content; boundary of the report; specific limitations on the scope or boundary of the report; basis for reporting on joint ventures & subsidiaries; and data measurement techniques Re-statements of earlier reports Significant changes from previous reporting periods in the scope GRI Table of Contents Policy on external assurance GOVERNANCE, COMMITMENTS, AND ENGAGEMENT Governance: Governance structure of the organization; executive role of Chairman; number of members of the highest governance body that are independent and/or non-executive members; mechanisms for shareholders and employees to provide recommendations to the highest governance body; linkage between senior compensation and the organization’s performance; processes to ensure conflicts of interest are avoided; process for determining qualifications of the members of the highest governance body; internally developed statements of mission or values, codes of conduct; procedures of the highest governance body for overseeing performance; and processes for evaluating the highest governance body’s own performance Adoption of the precautionary approach Externally developed charters adopted by the organization Memberships in associations and organizations Stakeholder Engagement: Stakeholder engaged by the organization; basis for identification and selection of stakeholders with whom to engage; approaches to stakeholder engagement; issues raised through stakeholder engagement

Page # 3 4 37 5 8 6 5 18 6 18 6 34 None 4

None None 30 5 28

PERFORMANCE ON 2007 SUSTAINABILITY REPORT TARGETS SCG conducts strategic planning at least once a year. Many of the targets set for 2008 were in our 2007 Sustainability Report.