Less than a month after the federal government introduced a new transparency law that that will require oil, gas, and mining companies in Canada to disclose their payments to governments around the world, Ottawa announced that it intends to punish companies in the extractive sector that do not adhere to its new corporate social responsibility policy by withdrawing Canadian diplomatic and economic support.
The new corporate social responsibility (CSR) strategy redefines the role of the Office of the Extractive Sector CSR Counsellor, introduces new international best practices extractive companies should adopt, and for the first time links Canada’s “economic diplomacy” assistance in foreign jurisdictions to a company’s adherence to the new policy. While the federal government has been lauded for its efforts, legal observers have voiced concerns over the lack of guidance and legislative framework surrounding the new strategy.
“It is the cutting edge of law because there are expected norms as to how companies should operate overseas,” observed Riyaz Dattu, an international trade lawyer with Osler, Hoskin & Harcourt LLP. “But at present we are trying to find solutions in the absence of a legislative framework.”
CSR is difficult to regulate, noted Michael Amm, co-head of the mining and metals group at Torys LLP. It’s a catch-all phrase that emphasizes avoiding harm such as forcing people off their land or environmental pollution, and extends to performing good acts such as resorting to local procurement and helping local communities. “It’s a very broad spectrum,” said Amm. “The (federal) government can’t possibly seek to regulate all aspects. They are trying to simply set up a forum and processes to deal with the more problematic liability type aspects.”
The new CSR policy implicitly recognizes that the original CSR strategy was ineffective. The original CSR policy was introduced in 2009 following the near passage of private member’s Bill C-300, which would have mandated the removal of any federal financial support for any Canadian extractive company found to have violated CSR guidelines, including a refusal to meaningfully participate in a non-judicial CSR dispute resolution mediation. Facing industry opposition, the federal government in its place created an Office of the Extractive CSR with a mandate to provide CSR advice and guidance to stakeholders as well as to carry out reviews and dispute resolutions respecting the foreign operations of Canadian companies. The federal government also committed to a five-year review, which prompted the new changes. “The federal government was keen to show that they were doing something, introduced a CSR strategy, created the Office of the CSR Counsellor – and it was useless,” noted Graham Erion, a regulatory compliance expert with Davis LLP.
The 2009 CSR strategy was a voluntary initiative that did not have mechanisms in place to force companies to adhere to CSR guidelines, added Erion. Also, Canadian companies were not compelled to participate in the dispute resolution process mediated by the CSR Counsellor, Marketa Evans, who quietly resigned in October 2013 — a year before her contract was up. Six complaints were made to the CSR Counsellor before she left office, and Evans had little success in mediating them. In fact, several companies refused to participate in the dispute resolution process she tried to initiate. “They didn’t create any accountability, and didn’t create any incentives or disincentives for companies to participate in the dispute resolution process,” said Erion.
The new CSR strategy builds on the old strategy, with the CSR Counsellor role remaining in place. But it is designed to strengthen the dispute resolution process by expressly linking it with National Contact Point (NCP) process established by the Canadian government to deal with complaints relating to the OECD Guidelines for Multinational Enterprises. In effect since 2000, the NCP process is managed by Foreign Affairs, Trade and Development Canada. “The federal government is trying to beef up the CSR Counsellor’s role by having matters referred to the NCP, which is seen as a more robust way to deal with CSR issues,” noted John Terry, a civil litigator who practices international trade and investment law at Torys LLP.
The new CSR strategy also raises the bar by endorsing six international practice standards that the federal government has set as the performance benchmark for Canadian extractive companies operating abroad. Two notable guidelines have been added to the new CSR policy, including the United Nations Guiding Principles on Business and Human Rights, an international human rights framework that sets expectations for corporations to address human rights impacts through enhanced due diligence. The other is the OECD Due Diligence Guidance on Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, which explains how multinational companies sourcing gold, tin, tantalum, and tungsten can avoid fuelling conflict and responsibly source and trade minerals.
“The guidance principles are not typically or not at least formally transformed into enforceable domestic or international law,” explained Terry. “They may provide a basis for the courts to determine whether a negligent act or a tortious act has occurred but they are not binding principles that are specifically enforceable. That being said, companies ought to do their utmost to comply to those principles.”
Extractive companies will not be expected to follow all of the six international guidelines, noted Michael Pickersgill, co-head of Torys’ mining and metals practice. Rather, they will be expected to comb through the various guidelines and combine the different principles into something that fits their circumstances, the jurisdiction they are operating in, the nature of their operations, and the communities affected by their operations, added Pickersgill. “Some companies given the nature of their business may have more reason to look at the principles carefully,” said Pickersgill. “For some, it may be environmental principles. Other companies may be looking at labour and human rights principles. They are all important but they are going to have a level of relevance that may differ from company to company.”
Though still viewed by the federal government as a process that extractive companies voluntarily submit to, companies that are “found not to be embodying CSR best practices” or who refuse to participate in the dispute resolution process can expect to pay a price. The federal government has said that it will withdraw trade commissioner and other support from companies who fail to comply. Non-compliance will also be taken into account by Canada’s financing Crown corporation, Export Development Canada, when considering financing or other support.
The new CSR policy, however, does not spell out how the determination of non-compliance with best practices is defined, and by whom, said Dattu. “In some ways, by saying it is voluntary but we can name and shame you is contradictory,” said Dattu. “To be named and shamed appears to me to be a remedy or a sanction that the government is intending to use without due process. It’s one of those concerns that companies have where a government of the day could be heavy-handed — and companies value very much their reputation. It’s troublesome.”
The passage of the Extractive Sector Transparency Measures Act (ESTMA), which received Royal Assent in mid-December, and the new CSR policy are part of the federal government’s efforts to deal with Canadian extractive companies doing business abroad, said Eden Oliver, the practice leader of the mining and energy sectors for Bennett Jones LLP. Canada after all is a dominant player in the global mining industry. In 2013, Canadian-headquartered mining and exploration companies accounted for nearly 31% of global exploration expenditures, according to government figures. In 2013, over 50% of the world’s publically listed exploration and mining companies were headquartered in Canada.
The ESTMA, introduced as part of an omnibus bill, Bill C-43, contains broad reporting obligations with respect to payments to governments made by oil and gas and mining companies and is intended to supplement anti-corruption measures enshrined in the Criminal Code and the Corruption of Foreign Public Officials Act. “It’s all part of the bigger government picture policy,” said Oliver. “The objectives are similar. It’s just a different way to get about it.”
The endorsed standards include:
- The 2012 International Finance Corporation Performance Standards on Environmental & Social Sustainability (IFC Performance Standards);
- The United Nations Guiding Principles on Business and Human Rights (UNGP);
- The OECD Guidelines for Multinational Enterprises (OECD Guidelines);
- OECD Due Diligence Guidance on Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas;
- Voluntary Principles on Security and Human Rights (VP);
- Global Reporting Initiative (GRI).
A brief update.
The National Post reports that the federal government spent more than $180,000 last year to run the Office of the Extractive Sector CSR Counsellor for the Canadian mining industry even though there was no counsellor.
International Trade Minister Ed Fast said a process to choose a new counsellor began last November, more than a year after Marketa Evans, the first counsellor, resigned. No potential candidates have yet been interviewed, but Fast said “the government is moving to staff this important post as soon as possible.”
This story was originally published in The Lawyers Weekly.