Foreign Affairs Committee on Oct. 27th, 2009

[Jim McArdle, Senior Vice-President, Legal Services and Secretary, Export Development Canada]

Thank you, Mr. Chairman, and thank you to the members of the committee for inviting me to speak to you today about Bill C-300 and the impact it would have on the Canadian companies EDC serves if we were to be included in it.

I am here today both as Senior Vice-President for Legal Services and as the executive responsible for CSR. As such, I have worked on CSR issues both on the policy level as well as in the context of the transactions I have worked on as a lawyer.

As I’m sure you already know, EDC provides financing, insurance, and risk management solutions to help Canadian exporters and investors succeed in the global marketplace. Our mandate is to support and develop Canada’s export trade and Canadian capacity to engage in that trade, and to respond to international business opportunities. In this way, we work to ensure that Canadians have a level playing field when competing against exporters from other countries.

In our opinion, including EDC in Bill C-300 would put Canadian companies at a significant disadvantage to exporters from other countries and severely inhibit EDC's ability to support Canadian companies and apply our CSR procedures and processes. Let me state clearly, however, that EDC supports the intent of Bill C-300 and shares the belief that Canadian companies should conduct their business in a socially responsible manner, no matter where in the world they operate. However, we believe that the best way to both promote human rights and ethical conduct and to improve environmental conditions related to projects around the world is by working with companies to proactively help them build their capacity in a responsible manner. Where there are established and clear international standards, we hold companies to these standards often in challenging environments.

I think it is important to note, though, that our experience confirms that the international community is struggling with how companies can integrate human rights issues into their daily global business practices, and currently there is no consensus on internationally recognized human rights standards for financial institutions to apply. However, I'm pleased to say that EDC is a very active participant in the international dialogue in this area. For example, EDC is a main sponsor of—and I will be a participant in—an expert meeting next week with John Ruggie, the special representative of the UN Secretary General on business and human rights, entitled “Opportunities and Challenges of Using Corporate Law to Encourage Corporations to Respect Human Rights”.

At EDC, leading-edge corporate social responsibility policies and procedures guide our activities every day. Over the past decade, we have worked hard to develop one of the world’s most comprehensive CSR programs among export credit agencies. EDC has been evolving its CSR standards consistent with international best practices. Our corporation actively supports a number of international commitments, including the Equator Principles, which only two other export credit agencies have signed on to. Being an EDC customer means that your transaction will be seen as having met some of the highest standards applied by any export credit agency.

For our corporation, CSR isn’t about checking boxes; it is an integral part of how we operate and is an ongoing process with our customers. EDC conducts CSR assessments when our support is in relation to sensitive markets or projects in order to ensure that the project and company in question meet our CSR requirements. If there are areas in which we believe a company is not up to those requirements, EDC gives direction and advice to the company on how they should improve. If a company does not meet our strong requirements after this, they will not receive EDC support.

By engaging with companies in this way, EDC is able to provide a balanced approach to CSR: to help build the CSR capacity of Canadian companies as well as ensure that they meet the internationally recognized standards we apply, while still providing the financing and insurance solutions they need to succeed on the international stage. We believe Bill C-300 would severely jeopardize our opportunities to engage with Canadians this way.

Including EDC in this bill and imposing compliance standards, several of which standards are, as noted earlier, still in the process of being defined and agreed upon by the international community, would require EDC to exit a relationship with any Canadian company the moment a CSR violation has been determined. This approach has at least two direct negative impacts. First, it restricts us from working with the Canadian company to remedy the issue and improve their standards; and second, we believe it will mean they won't access capital from EDC in the first place.

We believe that the uncertainty caused by the application of this bill and the standards would also impact other lenders’ willingness to provide financial intermediation to Canadian companies. If this happens, the void left by the Canadian companies will be filled, more than likely, by other international players with less regard for CSR.

Let me explain how this would occur. According to the wording of this bill, if a determination is made that a company has breached the guidelines during the period of a loan or an insurance policy with EDC, EDC would be required by the bill to terminate that loan or policy whether or not EDC has the right to do so under the contract. Therefore, we would have no ability to work with the company to have them remedy the situation in question.

Secondly, EDC cannot allow itself to be in the position of being required by the bill to terminate our support without having the right to do so under the contract. Our experience tells us, however, that Canadian companies, as well as other lenders, would be unwilling to accept such an EDC right in the contract, as its application would be out of their control and in the hands of a third party. That means that if Bill C-300 becomes law, EDC's ability to provide lending and insurance as well as to apply our rigorous CSR standards to projects and companies in the extractive sector will be seriously compromised. And given that the bill captures all business activity with a connection to the extractive sector regardless of size or product, all Canadian businesses along the supply chain would be negatively impacted by EDC's forced departure from the market.

The significance of this departure would be deeply felt here in Canada. In 2008, for example, EDC facilitated $27.4 billion of exports and investments in the extractive sector. EDC's support in this sector helped generate $21.4 billion in Canadian GDP and sustain 139,000 Canadian jobs in communities across the country.

EDC enables Canada to be a leader on CSR without tilting the playing field against Canadian companies. What we do at EDC is reviewed and regularly benchmarked, including by the OAG. To impose standards out of step with the rest of the world would not, in our view, improve CSR. It would only hurt Canadian companies and take them out of the game.

We believe there is a big difference between being a leader and a cheerleader. A leader is on the playing field, working with the team and using their skills and resources to reach the goal. A cheerleader is on the sidelines, hoping for the best. Today EDC is on the playing field, working with Canadian companies, influencing them, and building their CSR capacity. If this bill becomes law, we believe that our opportunities to be on the field would be severely limited. Instead, we as Canadian companies and EDC would be on the sidelines hoping that the other companies who remain in the market do the right thing from a CSR perspective.

Thank you very much. I'd be happy to take questions.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. McArdle.

We'll move to the first round.

Mr. Rae.

[Bob Rae, Liberal, Toronto Centre, ON]

Mr. McArdle, thank you for your presentation.

You say:

If there are areas in which we believe a company is not up to our requirements, EDC gives direction and advice to the company on how they should improve. If a company does not meet our strong requirements, they will not receive EDC support.

Does this mean there are major companies in Canada with projects you have in fact refused to finance?

[Jim McArdle]

Yes. And we end up refusing in many ways, as well as working with companies to improve the projects.

Right at the early stages of the situation when a company comes to us with an idea or a project they need support for, we do an assessment with the officers who first touched the company to try to determine how the situation looks, whether or not the company would have the capacity to do what would be necessary where they're putting the project in place, what the country's record is, and just how difficult it would be to do something in that country and with that project. In some situations we conclude that it's not possible, that we do not believe the company would actually be able to do that. So we turn them away, usually fairly early, because we don't want the company to be wasting its time. So we try to make an assessment up front.

There are other situations too, and we have an example that's ongoing now—though I can't give you the name, obviously. But in a sub-Saharan African country, we were approached by a company, and when we first looked at it, we thought, oh, this company may not have the capacity to do it; there are some problems in the country. But the project had tremendous value for the country and we believed there was the potential for that company to actually improve its standards and approaches. So we've been working with them for almost two years now, and they have done many, many things. They've engaged a well-recognized local NGO. They've implemented internal procedures and policies that are related to the voluntary principles on security and safety. They've hired external consultants to help them. They've beefed up their internal staff. We're not there yet, but we think we may actually be able to support them in a situation that's very difficult.

So the situations range from our pushing them away right at the beginning to working with them; but if at the end they can't make it, we'd still say to them, “You don't meet our standards, and we cannot support you.”

[Bob Rae, Liberal, Toronto Centre, ON]

I think you've certainly whacked away at the bill. But if there were a change to the wording of the bill, for example, if we were to suggest that the ombudsman or minister, or whoever's making the determination, would have to find a serious breach of the guidelines, I wonder whether that would not be out of line with what you're in fact already doing. It's just that you have your own standards and your own internal operations. You make your own decisions, which are not reviewable. We can't decide, as we don't know which companies are applying or not applying—and that's entirely appropriate—but we don't have any external mechanism to know what those standards are and how they're applied. I'm not being critical of EDC; I have a very high regard for EDC from my own professional work.

But I'm just wondering, do you not see the concern that we need some sort of process? It sounds to me like the process that's being suggested in Bill C-300 is not completely different. It's not as if you're rejecting the importance of CSR or saying that you don't actually turn down companies you don't think meet your standards or that you're not prepared to do that.

I don't know why we feel we have this huge chasm between what's being proposed in Bill C-300 and what is already under way. I regard Bill C-300 as a modest extension of what's already in place. I think with a little bit of work that's how it could in fact operate.

[Jim McArdle]

Thank you for that. I'll try to answer the several pieces to it.

As I mentioned, we've been engaged in the dialogue. In connection with environmental standards, there was clarity. The IFC and World Bank have worked on it, and the OECD's common approaches have identified various standards, and those are clear enough for companies to actually be able to deal with and sign up to in terms of covenants and the management practices they have to follow. But we believe that other than the three parts of the IFC performance standards that deal tangentially with human rights, the human rights standards are not clear enough yet, including who should be responsible for various aspects of human rights, as well as, for example, human rights, including a general right to water. A company can't deal with that as well as a local government can. So we think the standards the bill is trying to apply are not defined well enough yet.

I think they will be as CSR evolves. I think that John Ruggie or an institution such as the IFC will eventually be able to reach a position where they can say that a consensus has been reached on a standard, or standards, that should be applied to human rights. We think Canada is trying to do that ahead of the rest of the world and that it will jeopardize our Canadian companies with a standard that's not clear enough and with which no one will be able to get comfortable and apply.

EDC standards are very clear, and that's how we've been able to implement them and put them in loan agreements and make them covenants and why we've been able to say to somebody, “We cannot support you”, and to make a decision that's clear enough for everyone to understand.

But another big piece of it is the ability to work with a company. This bill requires us to exit if a determination is made, even if we might come to a different decision, or even if other lenders or independent engineers, or anyone else, comes to a different decision. We don't think the international marketplace can live with that.

So if EDC is in a deal and has $100 million on the table as part of a $500 million facility, and we're required to exit, the lenders would then be in a situation where the company would not be fully funded. They would never let that happen: they would make that decision right at the very beginning, so EDC would not be able to get to the table because of the fact that we would have to add the requirement that we could get out if the government made a determination. So that's why we believe our ability to actually play a role will be severely compromised. Companies will just not come to us and ask for help, because their other lenders won't let them and their company won't let them. There will just be too much uncertainty.

But we do support the evolution in this area. As I say, we're going to a meeting next week and we have been a participant in the dialogue. As I mentioned, I think it is going to evolve. When it does, we will be one of the leaders in applying the new standards that have been reached on a consensus basis, just as we have in many, many other areas, including the environment, anti-corruption, and anti-terrorism.

[Bob Rae, Liberal, Toronto Centre, ON]

Thank you.

[The Chair, Conservative, Kevin Sorenson]

Mr. Patry, I'll give you 20 seconds, and that's it.

[Bernard Patry, Liberal, Pierrefonds—Dollard, QC]

That's great.

Mr. McArdle, you mentioned in one of your answers to Mr. Rae that you're looking at a file on a country's record. I just want to know if you can elaborate a little bit more on a country's record. Does the mean you have a blacklist of countries in EDC?

[Jim McArdle]

We don't have a blacklist. The Government of Canada gives us guidance on the sort of human rights approach that Canada will take. We obviously follow that. However, also we believe we have a social licence and we have to operate in a manner that lives up to all of our stakeholders' expectations. So we also do our own assessments on a project basis and on a country basis. Sometimes in advance of projects we'll actually take steps to try to understand the country more.

For example, three years ago we had our first round table in connection with the Democratic Republic of Congo, where we brought in NGOs, local government, companies, people from all spheres, and had a discussion as to whether it is possible—and if so, how is it possible—to actually do business in that country and live up to a social licence. We recognized it was a very difficult country, post-conflict, etc. We concluded at the end of it and started to coalesce around a set of criteria that we would look for. In addition, the country was going through a World Bank review of all concessions, so we decided at that point we would not do anything in the DRC until that was clarified.

We will probably hold another round table—next year possibly—to discuss the country again, because we think it has progressed to a point where we now could identify projects that could be done in a manner that is sustainable and would not harm the people and would live up to the obligations people would expect.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. McArdle.

Madame Lalonde.

[Francine Lalonde, Bloc, La Pointe-de-l'Île, QC]

Thank you, Mr. Chairman; I have something to tell our witness.

At the end of the French version of your text, there's an expression which, I would point out, is insulting to women. In English, you say—

[The Chair, Conservative, Kevin Sorenson]

In the report it notes, “We believe there is a big difference between being a leader and a cheerleader”.

[Francine Lalonde, Bloc, La Pointe-de-l'Île, QC]

“A leader is on the playing field, working with the team and using their skills and resources to reach their goal.”

In French, it's translated by “le capitaine”.

“A cheerleader is on the sidelines, hoping for the best.”

In French, it's: “une meneuse de claque”, a woman who leads a claque. I can't accept that.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Madam Lalonde. You're a great grammar teacher.

[Francine Lalonde, Bloc, La Pointe-de-l'Île, QC]

That wasn't my question, so you'll allow me my time.

Mr. McArdle, you said you study a company's capacity before determining whether you are going to help it. When you determine a company's capacity to be helped, what is that capacity based on? Of course, there are management capacities, but can that be linked to the processes it uses? We're mainly talking about mining companies. Are these dangerous processes? Are the health and integrity of workers jeopardized? Is that because of the excessive use of chemicals, without regard for safety or fatigue, physical dangers? Do you take into account all those conditions and, of course, the way workers are treated? Does that have something to do with the capacity of a business to be helped by your agency?

[Jim McArdle]

Thank you for your question. I would like to answer it in French, but I'm going to speak in English.

[Francine Lalonde, Bloc, La Pointe-de-l'Île, QC]

If you answer in English and don't demean women, that's fine.

[Jim McArdle]

We look at quite a lot of different things, and each situation is somewhat different. One of the things we look at is the track record of the company. Some companies have a well-developed track record and a well-developed CSR program, and they're a lot easier to work with, obviously, because they understand it all. But in some situations we're dealing with companies that are newer. This might be their first venture.

We're obviously trying to develop exports. So we'll look at many things specific to the project, specific to the country. There's the environmental situation in terms of their usage of water, placement of a tailing stem, whether or not it's affecting biodiversity. Those are all tested against the IFC performance standards. Those are not perfect, but they're clear enough that a consensus has been reached that you can make a determination as to whether or not the project can meet those standards. If they do, then we would proceed on the environmental basis.

If the project is located in a country where there are also human rights issues, they can range from all kinds of things. They can range from the government using the property of the mine for security forces to launch things that would be bad. But it could also be things like artisanal mining and how to deal with locals who have been picking away at the side of a cliff and making a tiny living out of it. Some countries encourage it and some companies see it as a way to resettle everybody. We would have to look at that and ask if that's the best method, is there compensation, or are there other ways of dealing with the artisanal mining.

For example, there's one situation where the company has actually provided some more tools and training to the local miners, who will then continue to pick away at it, but under much safer conditions. They then sell their ore to the mine itself instead of having to sneak it off the property and across a border or to some other place where they can sell it.

Each situation is very different, and we have a team that deals with the environmental side; we have a team that deals with the human rights side. Unfortunately with the human rights side, there aren't yet standards that we can say have to be met. So each case is on its own, and we have to see what the issues are and how they will be dealt with.

[Francine Lalonde, Bloc, La Pointe-de-l'Île, QC]

In that case, wouldn't it be an advantage to have an act or standards—even if it's not through Bill C-300—with which you could comply? You say you're already using this practice for certain other situations. If this kind of act were adopted, it would be an advantage for you, for human rights and all that entails in terms of health and safety.

[Jim McArdle]

The issue we see is that certain standards in this bill are internationally recognized and well established. For example, there are the IFC performance standards, and three of those do deal with some aspects of human rights. If I recall correctly, indigenous people and the right of the people to be living where they are, health and safety, and the behaviour of security forces--those three things we do measure. If those are involved in the project, we do measure against benchmarks and make them meet those standards.

The problem is that there are many international “kind of” obligations that people believe are human rights. The world is still trying to decide if that's a company's responsibility, a financial institution's responsibility, an export credit agency's responsibility, or the government of the host country's responsibility, or for example, Canada's, in saying we're going to extraterritorially require our companies to act in a certain way.

We don't think those standards are clear enough yet. We're working with people to try to develop them. I truly believe they are going to arrive, but there is a reason this bill is unique to Canada. The standards are not clear enough for other countries to have taken the same step as we're trying to take here. We think it's premature for Canada to do that in this way and force us to step back from it in a situation where we won't really be able to tell. We won't be able to be sure up front, or even during the process, whether or not these standards are met, because the standards aren't clear.

[Francine Lalonde, Bloc, La Pointe-de-l'Île, QC]

I very much hope this bill is passed because it isn't, let's say, demanding. If it is passed, it will encourage other countries to do the same because this is a necessity. The globalization of these senseless situations in a number of mining companies will make it so that countries will have to set rules for themselves. It would be an advantage if Canada already had some.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Madam Lalonde, for that statement.

We'll move to the government side, Mr. Obhrai.

[Deepak Obhrai, Conservative, Calgary East, AB]

Thank you very much, Mr. Chair, and thank you very much to EDC for coming.

I would like to raise two points that I would like your expertise on.

The previous speakers who came before us brought along their expertise in development and human rights. Although I was very concerned about Mr. Alex Neve saying “I don't really care whether there is something...” when they said this is the approach Canada takes. Canada takes, as you rightly pointed out...to work together. But their expertise is in this, and your expertise is in business.

I want to go on to what Bob Rae said about the investment process and the business that you've been doing, which is giving money, and the impact, which you rightly pointed out, of the mining industry in Canada. But we seem to have forgotten one serious factor. My colleague from the NDP keeps talking about DRC because he made a trip to DRC. I made a trip to Tanzania and to Zambia, where the copper industry is going on, and to Papua New Guinea and all these places, and as my colleague said about Mongolia, a tremendous investment is being done and impacting the local economy. Papua New Guinea's ambassador to the UN said 12,000 people in Papua New Guinea are not living on dollars a day, which he's talking about, but are actually making a fantastic living out there. So we have this whole economic factor out there.

I have two points on the issue you brought out here. One, what impact, which you're already talking about, will it have on the Canadian companies moving out? For example, we know China is going out to Africa and signing all these deals out there, and there are no standards as far as China or other countries are concerned. They are moving right in there. Now, I'm not saying that Canada should not have standards. That is why we were at this year's round table conference, and we came out with very good suggestions with every stakeholder there. It was very good. The companies, the NGOs, and everybody took part in that. That should be the first stepping stone.

The second factor is the international standards that you're talking about—human rights. As you rightly pointed out, the three environmental ones that came out of the World Bank are applicable to everyone across the world. Why can we not then, at that given time, wait for those international standards to develop through the pressure that the NGOs are talking about, going to their members and going to all these things, using the same pressure to come out so that there is an international standard out there, so that everybody has a level playing field, including China and everyone? Nobody is talking about China. My friend talked about Talisman out there. Let's go to Africa and see what is happening with the investment that China is making out there, in absolute disregard of everything here.

My question here would be about the impact of Bill C-300, the chilling factor on investment, not here but abroad, as well as on the international standards, which are not a level playing field.

[The Chair, Conservative, Kevin Sorenson]

Thank you, Mr. Obhrai.

Mr. McArdle.