Canada-China Relations Committee on June 19th, 2023

[The Chair, Liberal, Ken Hardie]

You have five minutes.

[Stéphanie Émond]

Thank you, Mr. Chair.

Good evening, ladies and gentlemen of the Special Committee on the Canada–People's Republic of China Relationship. I'd like to thank you for the invitation to join you today.

My name is Stéphanie Émond and I'm vice-president and chief impact officer at FinDev Canada. I'm joined today by my colleague Paulo Martelli, vice-president and chief investment officer.

My responsibilities include oversight of FinDev Canada's environmental and social risk management practices—a topic currently under consideration by the committee. Mr. Martelli's responsibilities include setting the organization's investment strategy and managing a growing portfolio of debt and equity investments across FinDev Canada's priority regions.

By way of introduction, I'd like to take a moment to provide some context about FinDev Canada and its role. FinDev Canada is Canada's bilateral development finance institution established in 2018 as a subsidiary of Export Development Canada to contribute to sustainable and inclusive growth in emerging markets and developing economies. We provide a range of financing and investment solutions to the private sector in alignment with Paris Agreement commitments and the United Nation's Sustainable Development Goals, and in support of Canada's international development priorities.

We prioritize investments in three sectors: agribusiness and forestry, sustainable infrastructure, and the financial industry. We seek opportunities that advance our three development impact objectives in climate mitigation and adaptation, women's economic empowerment, and local job creation and economic development.

To complement its investment activities, FinDev Canada provides technical assistance—that is, targeted grant support—to private sector clients that enables them to strengthen their operations and address knowledge and capacity gaps to ultimately make them more inclusive and sustainable.

In terms of geography, to date FinDev Canada's operations have focused on Latin America and the Caribbean and sub-Saharan Africa. While the Government of Canada has announced an expansion of our operations in the Indo-Pacific region, this has not yet commenced, and we're not currently supporting any transactions there.

In terms of our performance, after five years of operation we have a portfolio totalling some $750 million U.S. and private sector investment for 40 clients that generates positive impacts in terms of economic development, job creation, climate action and women's empowerment. Twenty-five per cent of our total commitments are in climate finance, contributing to climate mitigation and adaptation. Two-thirds of our investments qualify for the 2X Challenge, meaning they aim to advance women's economic empowerment through better access to finance, leadership opportunities, quality employment and economic participation. Seventeen per cent of our investments are in the least developed countries.

To date, the clients we finance and invest in support more than 61,000 jobs in low- and middle-income countries and provide over 3.5 million people with access to energy, technology and financial services. Our clients also finance over 900,000 microenterprises and small- and medium-sized businesses in emerging markets and developing countries. Thanks to our investments in sustainable forestry and our targeting of low-carbon sectors from the start, our portfolio has sequestered or avoided more GHG emissions than it has generated.

The committee is reviewing investments in emerging markets and best practices in terms of environmental and social impact assessment and management. While FinDev Canada invests to support positive development impacts, we are confronted with many of the environmental and social risks this committee has been considering. This is not surprising and is an experience that is shared by any financial institution that is active in emerging markets and developing economies. This is the space in which we work.

This work is informed and supported by our systems and practices related to environmental, social and governance risk assessment. Before entering a transaction, FinDev Canada aims to understand, manage and mitigate the environmental, social—including human rights—and governance risks that are related to that transaction.

[The Chair, Liberal, Ken Hardie]

Ms. Émond, your five minutes have gone by. They always go by very quickly.

If you have further points, perhaps you can work them into some of the answers to questions, if you wouldn't mind.

[Stéphanie Émond]

With pleasure.

[The Chair, Liberal, Ken Hardie]

Thank you very much.

We'll now go to Ms. Meyerhoffer for five minutes or less.

[Sheri Meyerhoffer, Ombudsperson, Office of the Canadian Ombudsperson for Responsible Enterprise]

Thank you very much, Mr. Chair and the honourable members of this committee, for your invitation.

I am joining you today from the traditional, ancestral and unceded territory of the Algonquin Anishinabe people.

The Canadian ombudsperson for responsible enterprise, or the CORE, as my office is referred to, has a mandate to promote respect for human rights and responsible business conduct by Canadian garment, mining, and oil and gas companies operating abroad. My office also provides a complaint mechanism for those who believe their human rights are negatively impacted by those companies.

My remarks today will cover the following: first, the CORE's assessment of forced labour and other human rights abuses in China; second, the expectation of companies and investors operating in high-risk contexts like China; and third, recommendations for government action related to Canadian public pension fund investment in China.

First, with respect to the CORE's assessment of forced labour in China, at present it is not possible to conduct in-country investigations into Uyghur forced labour. However, reports published by the Office of the United Nations High Commissioner for Human Rights and Global Affairs Canada, among others, are resolute. They indicate that Uyghur and other Muslim ethnic minorities are subjected to serious human rights abuses in the Xinjiang area. This includes forced labour, repressive surveillance, mass arbitrary detention, sexual violence, torture and other ill treatment.

In light of this, the Canadian government requires the importers to sign an integrity declaration on doing business with Xinjiang entities prior to receiving services and support from the trade commissioner service.

To summarize this point, there is no question that China is a high-risk context for forced labour, particularly in the Xinjiang region.

Second, with respect to companies and investors operating in high-risk contexts such as China, Canada's strategy on responsible business conduct abroad is quite clear. Our government expects Canadian companies, including investors, to respect Canadian standards for human rights and environmental protection when they operate overseas.

We also expect them to operate in a manner that is consistent with the United Nations “Guiding Principles on Business and Human Rights”. When operating in high-risk contexts like China, companies and investors are expected to carry out enhanced due diligence in line with the UN guiding principles. Investors should assess whether investee companies are connected with adverse human rights impacts and use their leverage to encourage appropriate action. If companies are unable to prevent or mitigate identified harms, then investors should take steps to end business relationships responsibly.

Third and finally, regarding Canadian public pension fund investments in companies in China, the CORE, in line with the UN working group on business and human rights' guidance for investors, recommends that the Canadian government do three things: first, put in place guidance for investors on respecting human rights throughout investment activities, which includes public pension funds; second, integrate respect for human rights into the mandate, operations and investment activities of institutions involved in issuing and managing government pension funds; third, introduce mandatory human rights and environmental due diligence legislation, requiring companies to take steps to identify, prevent, address and remedy all human rights abuses, including forced labour. This would support investors' efforts to assess and address human rights risks in investment portfolios.

In closing, I would like to provide two updates on the CORE's work.

First, my office is currently handling 13 complaints regarding the use of Uyghur forced labour in the supply chains of Canadian companies. Of these complaints, 11 focus on the garment sector and two focus on the mining sector. We will start publishing initial assessment reports in July and look forward to working with all parties to find solutions. However, I would like to point out that while some companies are engaging in our complaints process, others have opted not to participate.

Second, the CORE published a study in February that assessed Canadian garment company approaches to addressing the risk of child labour in their global supply chains. The study revealed that of the 10 Canadian companies that participated anonymously, all have suppliers based in China. Few, however, have robust measures in place to identify and remediate human rights risks, like child labour and forced labour, in their overseas supply chains. Also, while the study profiled 10 companies, we suspect that others likely face similar challenges.

I wish to conclude by thanking you for providing me with the opportunity to share the CORE's perspective. I welcome your questions and reflections.

[The Chair, Liberal, Ken Hardie]

Thank you, Ms. Meyerhoffer.

We'll now go to Mr. Chong.

[Michael Chong, Conservative, Wellington—Halton Hills, ON]

Thank you, Mr. Chair.

My first question is for Madam Meyerhoffer. It's about the continued importation of products that are banned under article 23.6, I believe, of the Canada-U.S.-Mexico trade agreement, which was brought into force in June 2021 through an act of Parliament. It's now been two years since it's been banned in Canadian law to import these products, but to my knowledge, not one shipment has been blocked from entering Canada. I believe there was a shipment that entered into a Canadian port in the province of Quebec that was temporarily halted but then later released.

My understanding is that not a single shipment has actually been blocked or interdicted by the CBSA. Is that your understanding as well, Madam Meyerhoffer?

[Sheri Meyerhoffer]

That information sounds accurate to me.

[Michael Chong, Conservative, Wellington—Halton Hills, ON]

You know, the United States is one of the three signatories to the Canada-U.S.-Mexico trade agreement. They brought article 23.6 of that agreement into force through legislation adopted by the U.S. Congress. Last year alone, they interdicted 3,605 shipments, worth $816 million U.S.—which is over $1 billion Canadian since our dollar has depreciated so much—due to Uyghur forced labour. Just in the first two months of this year, according to an announcement made this past March by U.S. Customs and Border Protection, they blocked 1,910 shipments, worth $496 million U.S., from entering the United States due to Uyghur forced labour.

I don't understand why we can't seem to do the same thing here, even though Parliament has adopted laws to bring the same article 23.6 of the CUSMA into force. Do you have any comment on that, Madam Meyerhoffer? Why are we so lax in enforcing the laws that Parliament has adopted?

[Sheri Meyerhoffer]

I would say the CORE believes that Canada should strengthen its legislation to prohibit forced-labour imports. My office has not conducted extensive research or developed specific recommendations on how to strengthen that, but it has noted, as the honourable member has noted, that forced-labour prevention legislation in the U.S. has resulted in the blocking of more imports due to suspected forced labour.

As such, we know that the Canadian legislation could be strengthened, and we urge the government to look into options to this end.

[Michael Chong, Conservative, Wellington—Halton Hills, ON]

I guess I would disagree with that, Mr. Chair.

We have legislation. I believe it was in 2021 that there were amendments to the Customs Tariff act that brought article 23.6 of the CUSMA into force, so it's currently Canadian law that these products are not to come into Canada. However, they continue to pour into Canada.

There have been investigative reports from organizations like the CBC and The Globe and Mail that have highlighted this.

Where is enforcement falling down? Why are our laws not being enforced? We go through second and third reading debates in this House and committee studies of legislation. The Senate does the same thing. It's adopted into law, and then we expect those laws to be upheld, but they're not being upheld. I don't know how many committee meetings we've had on this in the last several years. I can recount at least five or six. We're just trying to understand why the law that Parliament created is not being enforced by the Government of Canada.

[Sheri Meyerhoffer]

If I can just elaborate a little on my previous answer, I would just note that one of the differences between how the U.S. enforces the law and how we enforce the law is that the U.S. does, in fact, provide specific guidance on the evidence required to rebut a presumption of whether or not the imported goods involve forced labour. That evidence can be given through human rights due diligence. If the company has conducted human rights due diligence, that can rebut the evidence, as can their supply chain mapping.

Again, I would just say, as I said in my opening statement, that it would be helpful for Canada to put in place human rights due diligence legislation.

[Michael Chong, Conservative, Wellington—Halton Hills, ON]

Thank you for that.

Switching gears a little, I have a quick question about pension investments in the People's Republic of China.

The Pension Benefits Standards Act of 1985 was amended by last year's budget. Section 39(1)(n.11) says that the Governor in Council may make regulations “respecting the investment of the assets of a pension fund”.

Could any of our witnesses tell us whether they believe this gives the minister the power, through regulation, to ban investments in companies like Hikvision or Huawei, that are engaged in promulgating genocide in Xinjiang?

[The Chair, Liberal, Ken Hardie]

We'd ask for a short answer if you could, please.

[Sheri Meyerhoffer]

I would say, from my end, we haven't done extensive research into that, and I wouldn't be able to answer that question at this time.

[The Chair, Liberal, Ken Hardie]

Thank you, Mr. Chong.

I'll now go to Mr. Sorbara for six minutes or less.

Yes, Mr. Martelli. Use the “raise hand” function if you want to chime in.

Did you have something to offer here, sir?

[Paulo Martelli, Vice-President and Chief Investment Officer, Development Finance Institute Canada (DFIC) Inc.]

No. I just wanted to complete the answer to the question.

For FinDev Canada, we don't have anything to add to that question. I just wanted to be clear.

[The Chair, Liberal, Ken Hardie]

There we go. Clear it is.

We'll go to Mr. Sorbara for six minutes or less.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you, Chair.

This is directed to Ms. Meyerhoffer at CORE.

Ms. Meyerhoffer, I'm on the CORE website, quickly reading a few things.

The first question I wanted to reference is about a policy paper put out by CORE in terms of the EU commitment to introduce legally binding corporate human rights and environmental due diligence, and the implications for Canada. You referenced that in your answer to Mr. Chong.

Can you elaborate on that policy brief at all, please?

[Sheri Meyerhoffer]

Yes. Thank you. I would definitely like to elaborate on human rights due diligence.

I've said many times, and it's on my website also, that we believe the introduction of mandatory human rights and environmental due diligence would go a long way in allowing the Government of Canada to hold Canadian companies responsible, both operating overseas and also in Canada. My mandate and my office's focus is outside of Canada, in three sectors.

If Canadian companies were held accountable through such legislation, then investors would be able to request some evidence to show that their investments met those standards. I think that would go a long way in helping both investors and Canadian companies be responsible. They would have great guidance, because I think what we're lacking right now. It would also help the government to be able to influence behaviour.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

As a follow-up, in terms of the complaints process, I think you mentioned there were 13 complaints, and I think I saw the number 11 on the site.

Due to the inability to actually access the supply chain, or to actually be on the ground in certain jurisdictions, how difficult is it to reach a conclusion in terms of your investigations?

[Sheri Meyerhoffer]

There are numerous reports out there about the Xinjiang region. The UN High Commissioner for Human Rights did a report after a visit to China in 2022. The Helena Kennedy Centre for International Justice at Sheffield Hallam University also has one where it had people on the ground. There is a Global Affairs Canada 2021 study on supply chain risks related to Xinjiang. There is a lot of information out there. Amnesty International and Human Rights Watch have also published reports.

There has been a lot of information garnered from on the ground. There's also technology to determine whether cotton materials with their DNA have come from that region. There is the ability, from outside of China, to do some investigation.

[Francesco Sorbara, Liberal, Vaughan—Woodbridge, ON]

Thank you.

Do I have another minute or two left? Okay.

To the folks over at the development finance institution, you mentioned a proposed $750 million. What's the geographic spread of those investments that you've undertaken?

[Stéphanie Émond]

Right now, it's primarily spread between Latin America, the Caribbean and sub-Saharan Africa. It is generally equally split, with about 60% in Latin America and the Caribbean and the rest in sub-Saharan Africa.