Canadian mining, energy and oil and gas companies can minimize certain risks by handling relations with indigenous communities better, according to a new executive brief from the Ethical Funds Company.

According to the research, companies that adopt the latest evolving standards in dealing with local communities can reduce reputational, operational and fiduciary risks.

“Recent history has given us many cases of major resource companies seeing their multi-billion dollar projects evaporate, their reputations dragged through the mud and their share prices tumble, because they have not taken the time or made the effort to fully inform and consult with indigenous communities,” said Robert Walker, vice-president of sustainability at Ethical Funds. “A new approach is needed for our leading mining, energy and oil and gas companies if they are to avoid the mistakes of the past.”

The report cites examples such as Alcan’s sale of its interest in Utkal Alumina in India, saying it couldn’t influence key decisions. Also, in 2004, Royal Dutch Shell pull out of a project in Peru after it experienced strong community opposition. Recently, the proposed Kemess copper-gold mine in Northern B.C. was deemed not in the public interest by a Federal-Provincial joint review panel because it would have adverse social, environmental and cultural effects.

The World Resources Centre identifies seven areas of risk for resource extraction projects: financing, construction, operational, reputation, corporate, host government and host country political risk.

The Ethical Funds report, called “Winning the Social License to Operate,” gives resource company executives and board members a set recommendations to follow to help successfully manage this growing assertiveness. Top among the recommendations is the adoption of the standard of Free, Prior and Informed Consent (FPIC) when dealing with indigenous communities.

“Resource extraction companies must at least review these new FPIC standards and consider their adoption if they are to ensure their expensive investments see a return,” said Walker. “And the more progressive companies are the ones that are recognizing the need for community consultation and the delivery of tangible benefits to impacted communities. If FPIC has not yet fully arrived, it is clearly on the horizon.”

Ethical says it will use the findings of its research to guide parts of its shareholder action dialogue during 2008, including engaging Canada’s leaders in the mining and oil and gas industries.