On September 9, 2008, Norway’s Ministry of Finance decided to exclude a global mining company from its national “Government Pension Fund - Global” (the “Global Fund”). As a result, the Global Fund divested over $800 million worth of the company’s shares. The reason? The Global Fund was not persuaded by the company that its environmental practices, or those of its business partners, were consistent with internationally accepted standards. For that reason the Global Fund was unwilling to “…run an unacceptable risk of contributing to grossly unethical conduct.”
With assets of over $375 billion, the Global Fund is the second largest investment fund in the world. The blacklisting of a global leader in the mining sector from their portfolio was a dramatic move that was noticed by corporate and financial communities around the world.
The Global Fund is managed in accordance with “Ethical Guidelines” considering environmental, labour and employment, human rights, and governance issues, in addition to traditional financial metrics. Applying such considerations, the Global Fund has previously divested shares of companies for various “unethical” behaviours including alleged violations of “workers rights”, and participation in nuclear weapons manufacturing.
The decision making process of the Global Fund is similar to an administrative decision making process. Companies identified as having questionable practices are requested to make formal submissions. These submissions are evaluated in relation to internationally accepted rules, which could be categorized as either “hard” or “soft” law, and include:
- the domestic law of so-called “Highly Developed Countries”
- international instruments such as the Universal Declaration of Human Rights
- the “core” Conventions of the International Labour Organization
- the “best practice” guidelines for sustainability set by entities such as the International Finance Corporation, the Organization of Economic Cooperation and Development and the United Nations Global Compact
If the Global Fund is satisfied that these standards have been met, the company will remain a viable investment recipient. If the standards are found to not have been met adequately, the company is de-listed.
If the recently tabled Private Member’s Bill C-300, An Act respecting Corporate Accountability for the Activities of Mining, Oil or Gas in Developing Countries (Bill C-300), is passed by the Parliament of Canada, a regulated approach to “ethical” institutional investment may be coming to Canada.
How Would Bill C-300 Affect Your Business
Bill C-300 is an opposition party private member’s bill that was introduced in response to perceived inadequacies in the Canadian Government’s new proposals for promoting corporate social responsibility (“CSR”) best practices in Canada’s mining and extractive sector. In response to criticisms of the Canadian mining sector by human rights and environmental watchdog groups, the Government of Canada has proposed the creation of an “Office of the Extractive Sector Corporate Social Responsibility Counsellor”, which would provide an ombudsman role designed to assist in resolving social and environmental issues relating to Canadian companies operating abroad in this field. Critics of the plan suggest that it lacks “teeth”. Bill C-300 has been tabled by the opposition in response, with the aim of imposing “hard” consequences for Canadian businesses that are found to not be meeting international CSR expectations.
If enacted, Bill C-300 would allow any Canadian citizen or permanent resident or any resident or citizen of a developing country in which a Canadian mining, oil and gas company operates, to bring a complaint alleging human rights violations against such companies. The standing that would be given to non-Canadian nationals to bring such complaints would be the first of its kind in Canada and would resemble the standing provided to foreign national provided in the United States Alien Tort Claims Act. Complaints would be investigated, and a determination would be made on the compliance or non-compliance of the company with “Guidelines” that would incorporate “hard” and “soft” law human rights provisions that ensure corporations operate in a manner that is consistent with international human rights standards. A finding of non-compliance by the Minister would disentitle a company from being the recipient of support or investment from either the Canadian Pension Plan Investment Board (“CPPIB”) or the Canadian Export Development Corporation (“EDC”) – effectively nullifying such transactions.
The CPPIB, like the Global Fund, has already pledged to use its proxy voting rights to advocate for such issues with the management of companies in which it invests. The CPPIB’s approach has differed from the Global Fund, and such issues have been addressed through direct consultations with management. If Bill C-300 is passed, the approach will likely become more adjudicative, in a manner similar to the Global Fund, and less purely consultative. Quite likely, such legislation would also add to the complexity of the investment review process employed by the CPPIB and EDC.
These developments will undoubtedly increase the potential of reputation damaging and costly human rights related litigation for Canadian companies with overseas operations, particularly those in the mining and natural resources sector. For companies alleged to have committed human rights violations, defending corporate practices will be a lengthy and adversarial process.
What Will the Future Hold?
At the present time, the fate of Bill C-300 is very uncertain. Private Member’s bills often do not pass in the Canadian Parliament. It is worth noting however that the Member of Parliament that has introduced Bill C-300, John McKay, has introduced two previous private Member’s bills that have become law.
Regardless of the outcome of Bill C-300, what is certain is that businesses must be increasingly prepared to not only implement socially responsible business practices, but also to defend them in both judicial and non-judicial contexts. Even in the absence of Bill C-300, the establishment of the new “Office of the Extractive Sector Corporate Social Responsibility Counsellor” may result in increased scrutiny of the CSR practices of Canadian mining and oil & gas companies at home and abroad. Moreover, in light of the legal and other “soft law” standards that apply to businesses in their operations across the globe, it is clear that defending “social responsibility” practices is increasingly not merely a public relations exercise, but instead an act of legal advocacy.
To prepare for such eventualities, business people should consider taking the following steps to develop a strategy and understand corporate strengths, weaknesses, opportunities and threats when it comes to sustainability issues:
- Consult legal counsel: It is essential to understand the frameworks and rules against which corporate performance will be assessed. This is a role for legal counsel knowledgeable in the area of corporate social responsibility, sustainability, human rights, labour and employment, environment, and corporate governance.
- Develop Policies, Processes and Procedures: Determine “how” the company will implement its sustainability strategy. Ensure policies and processes apply not just internally, but also externally to business partners as appropriate;
- Communications Strategy: Recognize that communicating with stakeholders about sustainability issues is not always a public relations exercise, it may have real legal and business ramifications;
- Training: Ensure that the organization, its members, and business partners, understand the corporation’s sustainability goals and are culturally and practically able to achieve them;
- Measure Impacts and Outcomes: Establish auditing procedures to ensure corporate goals are being met;
- Consider Sustainability Reporting and Associated Risks: Consider whether to engage in corporate reporting on non-financial sustainability metrics. Where such reporting is undertaken, work closely with legal and other counsel to minimize risks while meeting transparency expectations.