CU Study: Dakota Access Pipeline Companies Lost $7.5 Billion by Ignoring Social Risk
University of Colorado researchers calculated that the company and its partners involved in constructing the Dakota Access Pipeline lost at least $7.5 billion because they did not account for the effects of the development on and around indigenous lands.
The fact that Energy Transfer Partners, the U.S. Army Corps of Engineers and other investors ignored years of opposition by the Standing Rock Sioux Tribe meant they “missed opportunities to understand the developing social risks that subsequently manifested into intense social conflict and ultimately resulted in material loss,” according to a CU case study published in a report this month .
Boulder residents were among those who traveled to North Dakota and joined thousands of others to protest the pipeline’s construction, which opponents said threatened water, land and sacred sites in the area.
The report was produced by CU’s First Peoples Investment Engagement Program, which is a partnership between the Colorado Law School and Leeds School of Business. The program examines indigenous rights and economic development, both as they relate to economic resources by and for indigenous peoples and also the effects of external development.
“From our point of view, the company and other firms that had an ownership stake in the project actually endured significant losses from the project, the risks of which were not disclosed at the time the project was financed by the investors,” said Carla Fredericks, who is the founder and director of the program, an associate clinical professor and a co-author of the report.
There is more of a framework for companies to assess, disclose and address possible negative environmental and governmental factors in projects than there is for companies to do the same with possible negative social factors, Fredericks said.
“One of the things that we were very struck by was how little information particularly the banking industry investors in the pipeline had going into the project about the potential for social conflict,” she said. “We noticed that there was likely a gap in human rights due diligence that exists and continues to exist for business transactions that have impacts on indigenous peoples.
“The field of human rights due diligence is fairly nascent, but I think our study shows the importance of that type of due diligence to protect against downside risk resulting from social unrest.”
Based on their analysis — which included using the methodology used in securities litigation, called event study methodology — researchers found at least $7.5 billion in incurred costs from protests, boycotts, legal challenges and divestment campaigns.
Between August 2016 and September 2018, Energy Transfer Partners stock declined in value by almost 20 percent, while the S&P 500 increased in value by nearly 35 percent, which could in part be due to social pressure, according to the report.
“These losses show how important it is for companies to fully account for environmental, social and governance risks before projects get going,” Mark Meaney stated in a news release about the report. Meaney is the executive director of CU’s Center for Ethics and Social Responsibility. “Social risks are clearly overlooked in the market.”
There is both a moral and business case for human rights, Fredericks said. The researchers found that if investors had known about the risk of the losses in the Dakota Access Pipeline project, they would not have invested.
This project did not occur in a vacuum, she added, and the findings will be applicable to similar ongoing and future projects.
“There is a worldwide social movement that’s happening now for indigenous peoples’ rights, and a huge percentage of undeveloped natural resources are on or near indigenous lands or territories,” she said, referencing the Enbridge Line 3 and Keystone XL pipeline projects. Indigenous people are going to fight to protect their rights and lands, she said
The researchers also developed a questionnaire in line with the United Nations declaration on the rights of indigenous peoples, which they hope investors will use to assess projects and understand how the companies in which they are investing engage with indigenous people who would be affected.
Fredericks said the cooperation among various CU programs and experts was an important component of the case study.
“As indigenous peoples, we really look at the world through a holistic lens, and what we’re trying to do with this study is really to honor that viewpoint as well,” she said.
Cassa Niedringhaus: 303-473-1106, firstname.lastname@example.org