A new CSR strategy for the Canadian mining and oil and gas sectors has been released by the Government of Canada, imposing new consequences on companies who refuse to adhere to endorsed CSR best practices and dispute resolution processes. Here are three things you need to know about this new development affecting Canadian extractive companies in their global operations.
BACKGROUND
On November 14, Minister of International Trade Ed Fast announced a new Government of Canada initiative: "Doing Business the Canadian Way: A Strategy to Advance Corporate Social Responsibility in Canada's Extractive Sector Abroad" (the CSR Strategy).
This announcement followed on a review of the Government of Canada's original corporate social responsibility (CSR) strategy for the extractive sector released in 2009. That strategy included the creation of the Office of the Extractive Sector CSR Counsellor (CSR Counsellor), a non-judicial grievance mechanism with a primary mandate to "mediate" international disputes between local communities and Canadian extractive companies.
The CSR Counsellor's office received much criticism – from non-governmental organizations for not being strong enough, and from the mining community for being ineffectual. Several mining companies declined to participate in the voluntary process offered by the CSR Counsellor. The renewed CSR Strategy released this month was long anticipated, particularly following the resignation of the first appointed CSR Counsellor one year ago.
The new CSR Strategy builds on the old strategy, with the CSR Counsellor role remaining in place. The CSR Strategy's goal remains promoting CSR best practice standards throughout the mining and oil and gas extractives sector. It remains to be seen how, following this announcement, the new CSR Strategy will actually be implemented. It will likely be done through an order-in-council establishing the role of the CSR Counsellor, as was done in 2009.
THREE KEY DEVELOPMENTS
1. Consequences for Non-Participation in CSR Counsellor Process
One of the most eye-catching developments in the new CSR Strategy are the consequences for companies that refuse to participate in the CSR Counsellor process. The Government of Canada announced its view that Canadian companies are expected to align with the endorsed CSR standards in order to be eligible for "enhanced Government of Canada economic diplomacy."
Companies will also face withdrawal of trade commissioner services and other Government of Canada advocacy support abroad if they do not participate in the dialogue facilitation processes of Canada's CSR Counsellor and OECD National Contact Point (another non-judicial grievance mechanism established by the Government of Canada). This would include withdrawal of government services, including the issuance of letters of support, advocacy efforts in foreign markets and participation in government trade missions. Canadian companies determined to not be sufficiently adopting CSR best practices, including adherence to the endorsed standards, and who refuse to participate in dispute resolution processes contained in the CSR Strategy, will no longer benefit from economic diplomacy of this nature. It is not clear from the strategy precisely how this determination of non-compliance with best practices or non-participation would be defined and by whom. More guidance will be needed on exactly how this process will work.
Where companies are designated as not being CSR compliant, this will also be taken into account in the CSR-related evaluation and due diligence conducted by Canada's financing crown corporation, Export Development Canada, when considering financing or other support.
Such findings could also be taken into consideration by Equator Principles Financial Institutions, including all five of Canada's chartered banks, which consider similar standards in certain financing decisions.
2. New Endorsed CSR Standards
The new CSR Strategy endorses several international best practice standards that the Government of Canada has set as the performance benchmark for Canadian companies operating abroad. When host country legal requirements differ from the international standards listed below, the government expects Canadian companies to meet the higher, more rigorous standard. 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).
The 2009 strategy had endorsed the 2006 IFC Performance Standards, the OECD Guidelines, the VP and the GRI. The 2012 IFC Performance Standards will now be endorsed, including presumably their requirements with respect to free prior and informed consent of indigenous communities in certain circumstances.
In a very significant move in light of international developments, the 2014 CSR Strategy has also endorsed the UNGP, an international human rights framework setting expectations for corporations to address human rights impacts and conduct due diligence. That framework was endorsed by the United Nations Commission on Human Rights in 2012 and action plans on its implementation have been released by the United Kingdom with similar plans announced by the United States.
3. Coordination between CSR Counsellor and OECD National Contact Point
Another noteworthy development is the role of Canada's OECD National Contact Point (NCP) as a body to which complaints can be referred where they would benefit from formal mediation. The NCP is another dispute resolution mechanism applying the OECD Multinational Guidelines on responsible business conduct, and active in 46 countries. As set out in the new CSR Strategy, in situations where parties to a dispute would benefit from formal mediation, the CSR Counsellor will make a referral to Canada's NCP. This was not previously part of the CSR Counsellor process.
CONCLUSIONS
These developments, though not a radical departure from the previous strategy, do show that the Government of Canada has doubled down on the CSR Counsellor and the endorsement of international best practices for Canadian extractive companies.
For our mining and energy clients, this development should re-emphasize the importance of understanding international standards as an element of compliance, beyond host country legal expectations.
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