Canadian mining, oil and gas companies face unique challenges when operating in developing countries. The environmental and social regulations in these states are perceived to be weak. Governments stand accused of not sharing the economic benefits of resource development equitably among their citizens. Faced with these challenges, many Canadian resource companies have undertaken to go beyond compliance with local laws and have adopted voluntary corporate social responsibility (“CSR”) guidelines.

On March 27, the federal government announced a new initiative that will give the “soft” norms in CSR guidelines a harder edge. The creation of a new Office of the Extractive Sector CSR Counsellor creates both potential risks and rewards for Canadian-based global resource companies. It will do so by facilitating the resolution of disputes between these companies and non-governmental organizations (“NGOs”) regarding compliance with CSR guidelines. While the CSR Counsellor’s Office will not have the power to make legally binding rules and decisions, it will have the power to issue reports that can harm or bolster corporate reputations.

the Government of Canada’s new CSR strategy

The creation of the Counsellor’s Office was announced by Foreign Affairs and International Trade Canada in its publication, Building the Canadian Advantage: A Corporate Social Responsibility Strategy for the Canadian International Extractive Sector. This report wisely rejected NGO demands for new regulations that would violate customary international law rules against the exercise of extraterritorial jurisdiction. Instead, it focused on increasing host country capacity-building through financial assistance, promotion of internationally recognized CSR performance guidelines and the funding of a new CSR Centre of Excellence.

Yet, while avoiding new legislation, the Government of Canada also recognized the need for a mechanism to resolve disputes regarding CSR compliance. It observed that “unresolved disputes directly affect businesses through expensive project delays, damaged reputations, high conflict management costs, investor uncertainty, and, in some cases, the loss of investment capital.” For this reason, the government declared that it would appoint an Extractive Sector CSR Counsellor, reporting directly to the Minister of International Trade.

the CSR dispute resolution process

The Counsellor’s mandate will be to review CSR practices of Canadian extractive sector companies operating outside of Canada and report on the implementation of endorsed CSR guidelines. Requests for reviews may originate either from NGOs or from Canadian extractive sector companies that believe they are the subject of unfounded allegations of corporate misconduct concerning their activities outside of Canada.

As with any alternative dispute resolution (“ADR”) process, the Counsellor will only undertake reviews with the consent of the involved parties. Even then, the Counsellor will not act as a formal mediator or an arbitrator making binding decisions. Instead, he or she will conduct a review consisting of five stages: initial assessment; informal mediation; fact-finding; access to formal mediation; and, reporting.

risks and rewards for Canadian resource companies

Canadian resource companies involved in disputes regarding CSR compliance should carefully consider the risks and rewards of consenting to a review by the new Counsellor’s Office. While the Counsellor’s reports will not be legally binding, any determination of facts by a neutral third party appointed by the government of Canada will have a powerful impact on corporate reputations. In addition, such reports could be introduced as evidence in subsequent legal proceedings in the host state. Many foreign legal systems do not apply common law evidence rules, such as the rule against hearsay, to exclude statements made out of court.

At the same time, vindication of a company’s CSR compliance by the Counsellor may be a powerful tool in disputes with NGOs over natural resource projects. Currently, defamation suits are the only legal option available to corporations seeking to resolve unfounded accusations of misconduct in a neutral forum. These suits are slow, expensive and rarely result in full economic compensation for the harm caused by defamatory statements. Publicity-seeking groups may even benefit from the exposure associated with a law suit.

It remains to be seen whether the new Counsellor will succeed in resolving CSR disputes in a manner that gains the confidence of affected stakeholders. The first challenge will be to adopt a set of procedures that guarantee the parties a minimum standard of procedural fairness while avoiding the costs and delays of formal litigation. The next challenge will be for the Counsellor to apply, in a practical manner, the often ambiguous norms of most international CSR guidelines to the specific facts of a dispute. If the Counsellor meets these challenges, Canada will have made a significant contribution to both international development and the Canadian international extractive sector.