Thank you very much, Mr. Chairman and honourable members of the committee.
I'm very pleased to be provided time today to address the committee. I believe that Bill C-300....
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There are many voluntary codes for multinational corporations, including the UN's voluntary principles on security and human rights; the Global Reporting Initiative; the Equator Principles; the sustainable development framework of the International Council on Mining and Metals--and we have Tony Hodge from ICMM here; and the Kimberley Process for diamonds--to name just a few. Of course many companies unilaterally adopt corporate guidelines but strive to meet international best practice standards throughout their global operations.
The extractive industries transparency initiative--EITI--has attracted the participation of more than 30 countries and the support of many more. Canada indeed became an EITI-supporting government last year, seven years after the EITI was launched. Forty-nine major petroleum and mining companies actively participate in the disclosure process under EITI, and the initiative has the backing of investors who manage more than $16 trillion of funds.
There are many reasons for this global movement toward new standards for extractive companies. First of all, the people in resource-rich countries no longer remain silent in the face of abuses of their rights. You have seen the protests against abusive labour practices or environmental damage, from Sudan to Peru to Ecuador. Because the people are more aware and more engaged, politicians are more sensitive. In the recent presidential election in Ghana, the strongest theme was perhaps the need for Ghana to set strict environmental and social and transparency standards for the management of its new oil sector.
Large institutional investors such as public pension funds--you can take the sovereign wealth fund of Norway, the California pension fund, and so on--increasingly discriminate against companies with a reputation for social or environmental abuse. The governments of capital-providing countries do not want to appear to or actually condone or support abusive practices, because doing so damages the long-term national economic and political interest.
Thus, OECD countries develop common standards that are then applied statutorily in each member country, for example, outlawing bribery of foreign government officials by their own multinationals that are trying to advance business. A similar process takes place through the EU in setting standards. For example, its raw materials initiative seeks both to secure access to raw materials for Europe and to apply high standards to those investments.
Of course many large multinational corporations recognize that reputation risk is high. Following best practice is in fact better for the bottom line over the long term. It is clear that it's not just American, Canadian, European, or Australian companies that have come to that realization. We see now that Chinese extraction companies are seeking partnerships with top-tier western mining and oil companies. It is not because they need access to capital, but because they certainly want to learn the technology skills of those companies. We have also been told by a number of people that because they seek to enhance their own reputation in the international markets they want to be seen as first-class investors in extractive companies.
One of my legal team members at Revenue Watch just returned this week from an event hosted by the Chinese Academy of Social Sciences in Beijing, where the focus was on corporate social responsibility practices, particularly in extractive industries, and the EITI secretariat was invited to participate in the discussion.
Two weeks ago we were approached by a group of consultants who work in Russia who said that they had been approached by a number of large Russian mineral corporations that wanted to find out how they could do better on the corporate social responsibility front. They asked if we could help with some advice and with perhaps organizing some events.
So these ideas are taking hold, and the recognition that these good practices are essential to successful business is taking hold. Globalization means that the old model of a double standard for business maintaining one set of practices at home and another lower set of standards abroad is no longer viable. As the editor of the Oil & Gas Journal put it in an April 19 speech:
Here's a bedrock reality. For international oil and gas companies and service firms not owned by governments, the licence to operate isn't what it used to be. That condition changed and business as usual won't change it.
Many companies will argue that we should stick with voluntary principles. I believe that's one of the arguments that's been raised against Bill C-300. But that is not where the world is going. Voluntary principles are useful as a stage for developing consensus around what the good practices and standards should be. But once a majority recognizes the value of a public good—and that is what good practices are—a voluntary approach is impractical and inefficient. Moreover, I would argue that governments have both a right and an obligation to set rules for the use of public funds that reflect the norms and principles of their own taxpayers.
Even if you look at existing so-called voluntary initiatives, you will see that they have binding elements. The EITI, for example, is voluntary for countries but mandatory for companies operating in the implementing countries. The EITI has strict rules even for the implementing governments, backed up by a compliance review mechanism and penalities for non-compliance.
Voluntary standards that have been worked out among stakeholders in various fora become the benchmark for mandatory behaviour. The ICMM--International Council on Mining and Metals--sustainability framework is binding on each of its 17 member companies, with reporting and assurance procedures based on the Global Reporting Initiative's G3 sustainability guidelines, for example. This prevents free riding by companies that want the prestige of the ICMM brand but do not want to meet its standards.
The World Bank's investment arm, the IFC--International Finance Corporation--requires that companies with which it co-invests in extractive projects publish their payments to the government according to the EITI model, as well as following the bank's own environmental and social standards, of course. The U.S. government political risk insurance is available only to extractive projects in countries that have adopted EITI-like transparency standards for extractive industries.
The Initiating Foreign Assistance Reform Act of 2009 also requires that OPIC, which has many of the functions of Export Development Canada, adopt a comprehensive set of environmental transparency and internationally recognized work rights and human rights requirements that will be binding on OPIC and on the companies it supports. These standards may be no less rigorous than those of the World Bank, although it is a different standard.
On the transparency front, last week the U.S. Senate considered an amendment to the financial regulatory reform bill that would require all extractive companies listed in the U.S. to publish what they pay to governments, country by country and by type of payment. The amendment had the support of the administration and according to its sponsors had the support of well over half of the members of the U.S. Senate. The amendment was not moved on a technicality, but I expect it to be taken up by the U.S. Congress later this session.
The International Accounting Standards Board is developing a new financial reporting standard for extractive companies. The international financial reporting standards will be binding on companies operating in 110 countries, including China and, indeed, Canada.
Finally, the most recent development on this front: the Hong Kong Stock Exchange has just issued new rules for minerals companies. The new rules require that as part of their listing minerals companies disclose, among other things, project risks arising from environmental, social, and health and safety issues; compliance with host country laws, regulations, and permits; and disclosure of payments made to host country governments in respect of tax, royalties, and other significant payments, on a country by country basis. They have to report that they have sufficient funding plans for remediation, rehabilitation, enclosure, and removal of facilities in a sustainable manner. They have to report on the environmental liabilities of their projects or properties; their historical periods of dealing with the concerns of local governments and communities on the sites of mines, exploration properties, and relevant management arrangements; and any claims that may exist over the land on which exploration or mining activity is being carried out, including any ancestral or native claims. These new rules for the Hong Kong Stock Exchange will take effect on June 3.
I believe that Bill C-300 is fully consistent with this global movement toward setting minimum standards for responsible extraction of non-renewable minerals. I would say that it falls short in only one area, and that has to do with transparency. I'm quite surprised and disappointed, frankly, that Bill C-300 does not address the transparency of payments to government. That is a central feature of many of the initiatives I've mentioned, and is widely recognized as a way to reduce social and political instability and corruption in resource-rich countries. Your government's money is supporting investment with Bill C-300, and its future readings will be amended to address this shortfall.
Overall, I would say that Canada, as the leading provider of capital to extractive industries and home regulator of a large section of the international mining industry, has a responsibility and an opportunity to lead rather than to lag the global movement toward establishing sound standards for extractive industries.
Thank you very much.
