CSR Roundtables - Canada |
| Tuesday, 27 November 2007 | |
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The Advisory Group Report (National Roundtables on Corporate Social Responsibility (CSR) and the Canadian Extractive Industry in Developing Countries - Advisory Group Report)presents two possible courses for the future of CSR and Extractive industries: a high road of responsibility or a low road of the status quo, which will lead to disaster. If the reports recommendations are accepted, and implemented by Parliament, then there will be better oversight, more monitoring, changes in enforcement of Canada's domestic laws overseas, and changes in how the government values CSR. All of these changes have the potential to improve the reputations and practices of Canadian companies abroad. This is a big "if". The Report was commissioned by the previous Liberal government (2005) and the Conservative government may be less enthusiastic about adopting the recommendations. There are also questions about Canadian businesses competitiveness with less regulated corporations from other countries. We would argue that Canada cannot compete with countries like China or Sudan by lowering our human rights or environmental standards. A decision to not adopt the recommendations will be a significant and damaging policy choice because we will continue to fall behind the practices of the UK, EU and USA and the government will be turning away from the recommendations of not only civil society but the leaders of Canada’s extractive industry.
Originally published (March 2007) at TCBCO.ca So what is the big deal about the Advisory Report? Recommendations for Monitoring and Regulatory Change What happens if the recommendations are shelved or rejected? So what is the big deal about the Report?First, it includes a wide range of perspectives and therefore has credibility. ("61 [submissions] were from civil society, 33 from industry, 15 from labour organisations, 31 from academics and research institutes, and 16 from members of the public without a stated affiliation'). The final report is signed by some big players in the mining industry who would traditionally be seen as enemies of CSR reform. Now they are recognizing the challenges in their extractive industries (Reg Manhas, Talisman (oil) and Tony Andrews, Prospectors and Developers Association). These players strengthen the call to create more oversight bodies, including an ombudsperson for CSR gain strength through these players support. Second, many of the recommendations are conservative and pragmatic. For example, that Canada comply with OECD (Organization for Economic Cooperation and Development) on criminal legislation changes to prevent corruption and to prosecute international crimes, or that Canada meet CSR and reporting standards of the International Finance Corporation (IFC - an affiliate of the World Bank)). These standards are so limited and conservative in their requirements that major banks as well as the World Bank and the IFC have made them mandatory for project funding (Equator Principles – members include the Royal Bank and Scotiabank). Third, the Roundtable process has led to dialogue and coalition building around CSR challenges. The parties who participated almost universally have an interest in some sort of CSR standards being implemented (there may still be disagreements about timing and how mandatory the standards should be). This will make it difficult for the government to ignore the issues of CSR. CSR DefinedThe Advisory Group defined CSR as “the way firms integrate social, environmental and economic concerns into their values, culture, decision-making, strategy and operations in a transparent and accountable manner and thereby establish better practices within the firm, create wealth and improve society.” [From the Reports footnote 5: See Corporate Social Responsibility: An Implementation Guide for Canadian Business, (Government of Canada: 2006), 5. This definition notes that CSR “builds on a base of compliance with legislation and regulation, and typically includes “beyond law” commitments pertaining to a wide range of topics, including corporate governance and ethics; health and safety; environmental stewardship; human rights (including core labour rights); human resource management; community involvement development and investment; involvement of and respect for Aboriginal peoples; corporate philanthropy and employee volunteering; customer satisfaction and adherence to principles of fair competition; anti-bribery and anti-corruption measures; accountability, transparency and performance reporting, and supplier relations, for both domestic and international supply chains.” And see Department of Foreign Affairs and International Trade, National Roundtables on Corporate Social Responsibility and the Canadian Extractive Sector in Developing Countries: Discussion Paper (Government of Canada: 2006). http://geo.international.gc.ca/cip-pic/library/ CSR%20Roundtables%20Discussion %20Paper%20(English).pdf] Recommendations for Monitoring and Regulatory ChangeThe Report recommends the creation of an Independent Ombudsman and Tripartite Compliance Review Committee, improvements to non-financial disclosure of overseas activities, modifications of the criminal law, and the income tax act, and conditioning government support for industry on compliance with CSR standards. The creation of a well-funded independent Ombudsman and Tripartite Compliance Review Committee, with powers to investigate and make determinations and recommendations about corporate compliance with the Canadian CSR Standards presents an opportunity to boost the extractive industries’ reputation and the CSR industry’s monitoring efficiency. By being independent and mandated to examine non-compliance, these bodies have the potential to transform companies’ behavior overseas through naming and shaming the “bad apples”. Even if this does not lead to a formal legal penalty or remedy, fear of reputation damage may change corporate behavior and give corporate directors and managers the courage and incentives to look outside the financial bottom line. For those that still fail to comply with CSR standards, the Advisory Group recommends changes in the criminal law to “remedy legal and other barriers to the extraterritorial application of Canadian criminal law to ensure this law is being used as effectively as it can be” (3.3.2.1). The built in limitation of “as it can be” leaves all sorts of wiggle room for the politicians. However, there are at least four benefits to increasing the risk of prosecution. First it helps the law abiding companies compete with the “bad guys” who do not meet Canadian standards. Second, companies (and their lenders) contemplating substantial capital outlays will be very concerned about risk and they will likely respond to potential prosecution by at least making an attempt to meet standards. Third, “bad companies” will not be able to hide behind claims that they comply with the host (developing) countries “laws”. This is an especially strong effect when combined with civil society and competitors combined monitoring. Fourth, amending the Corruption of Foreign Public Officials Act to clarify that it applies to extraterritorially to Canadian nationals (3.3.2.2), the practices of corruption that lead to so many other CSR abuses, will reduce these abuses and improve Canadian corporations abilities to stand up to corrupt governments. Changes in the Income Tax Act strike directly at the bottom line of the “wrongdoers” by “eliminat[ing] double tax relief in Canada for tax paid by a company to a foreign government where there is serious non-compliance with the Canadian CSR Standards in that country (where permissible under tax treaties)” (3.3.2.3). It seems bizarre to comply with tax treaties with countries that are failing to meet their obligations under international law because they are in conflict zones or have weak governance. Here, the Canadian Government’s commitment to CSR will be tested, and will hopefully lead to modification of treaties or temporary suspension in certain cases. This is not without precedent in international law as seen through the United States of America’s passage of the Helms-Burton Act to discourage investment in Cuba or Israel’s and its neighbors’ laws related to trade between these conflicting Middle Eastern States. There is also an apt analogy with sanctions against human rights abusing states like South Africa in the 1980s. By removing the tax incentives, Canadian corporations will be less likely to invest in these troubled areas. And at the least Canadians will not be implicated in subsidizing their harmful investments through tax incentives. The Report makes a strong recommendation that “EDC’ contracts should provide that serious failure by extractive-sector companies to meet the Canadian CSR Standards should lead to the withdrawal of financial and insurance support when reasonable efforts by EDC and the Government of Canada to bring the company back into compliance have failed” (3.4.2.1). Government support in other forms should also be withdrawn in the case of a “serious failure” (3.4.2.2). Note: “serious failure” is not explicitly defined. It will be determined based on the Compliance Review Committee’s recommendations and the EDC’s policies. For this stick to be effective against CSR abusers, the “serious failure” bar must not be set too high. Otherwise, the EDC and the extractive industry in general will take a reputational hit and Canadian citizens will be implicated in international CSR abuses. (While the EDC is a Crown Corporation and theoretically independent from the Government, its loans on the international market are backed by the Government of Canada (taxpayers). The EDC and the Government have a strong role to play in the development of best practices in the CSR field. The bottom line is that the practices of all participants in the extractive industry will be improved by these combinations of incentives and penalties as participants seek out the carrots and try to avoid the sticks. What happens if the recommendations are shelved or rejected?Governments and businesses are concerned about competitiveness and uncertain liability arising from stronger CSR standards. This could lead to a rejection of the recommendations or worse a call for more study. There is no need for more study. There have been plenty of submissions and time for discussion. The time for action is now. Both of these concerns have been dealt with through the roundtable process The best way to clarify corporate obligations and liability is through legislation that adopts the recommendations and this will make Canada a leader in the CSR field. Already, Europe and especially Britain have made great strides in CSR standard setting and enforcement. These countries and their markets (with accompanying conscious consumers) will be supportive and open to Canadian producers with strong reputations for CSR. The business case for corporate responsibility is solid (Just ask Reg Hanson). There is also a fundamental argument that corporations, as participants in the Canadian economy, have a duty to respect fundamental human rights and environmental standards, even if they are not in the direct short-term benefit of the corporation. Amnesty International is involved in strong campaign to remind individuals, governments, and corporations that “human rights matter because human rights matter”. At some point Canada, has to put its “legal pen” where its mouth is and step up to the plate with regulations on the extractive industry abroad. ConclusionIf the recommendations are left on a dusty shelf in Ottawa, the Government and Canadian citizens will be turning their collective backs upon a future of responsibility. Adoption of the Advisory Group's Recommendations is a first step towards a more responsible Canadian Corporate community.
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