On November 14, 2014, the Government of Canada quietly announced important new "enhancements" to the Corporate Social Responsibility Strategy for Canada’s extractive sector (the CSR Strategy). The CSR Strategy now includes two more CSR “best practice guidelines” and, for the first time, provides actual consequences for adherence to the guidelines and the CSR Counsellor’s dispute resolution process for human rights complaints with local communities.

This bulletin reviews how these enhancements came to pass and what they mean for Canadian mining and oil & gas companies who operate globally.

Canada’s Brief CSR History

Canada’s original CSR Strategy was released in 2009 in part as a reaction to the near passage of private member’s Bill C-300. Bill C-300 would have mandated the removal of any federal financial support (including the Canadian Pension Plan Investment Board) for any Canadian extractive companies found to have violated CSR guidelines, including a refusal to meaningfully participate in a non-judicial CSR dispute resolution mediation.

While Bill C-300 was seen by industry as too harsh, the CSR Strategy was seen by many Bill C-300 supporters as ineffective, as there were no mechanisms to force companies to adhere to CSR guidelines or engage with the newly created Office of the Extractive Sector CSR Counsellor. As a compromise, the CSR Strategy included a commitment that it be reviewed after five years. This first review was recently conducted and resulted in the CSR Strategy changes announced last week.

Benefits and Consequences of Compliance

With its changes, the 2014 CSR Strategy ironically has more in common with the failed Bill C-300 than the original 2009 CSR Strategy. This is largely due to the real costs and benefits that have been added for compliance by extractive companies. For example, companies that align with now six established CSR guidelines (discussed below) will be recognized by the CSR Counsellor’s Office as eligible for “enhanced Government of Canada economic diplomacy”. This diplomacy promises to include the issuance of letters of support, advocacy efforts in foreign markets and participation in Government of Canada trade missions.

On the other hand, extractive companies will now face actual consequences if the CSR Counsellor deems them to have failed to comply with the CSR guidelines or the CSR Counsellor’s dispute resolution process with aggrieved local communities. These consequences include revoked eligibility for enhanced economic diplomacy and, potentially even more seriously, encouraging Export Development Canada (EDC) to consider a company’s designation as non-CSR compliant in whether it will provide any financing or other support.

Compliance Assessments For Highest Standard Possible

Given the new consequences for non-compliance with CSR Guidelines, extractive companies with foreign operations—and especially those who benefit from EDC or diplomatic support—should ensure their operations are aligned with international best practices. However, this is not a straightforward task. It first requires an assessment of what the applicable best practices are, since the CSR Strategy requires compliance with the highest standard possible, whether that standard is the host country’s law or one of the following international standards:

  1. OECD Guidelines for Multinational Enterprises, which provide recommendations for responsible conduct on a broad range of business activities across all sectors and were updated in 2011 to include chapters related to human rights and due diligence;
  2. The UN Guiding Principles on Business and Human Rights, which incorporate the “Respect, Protect and Remedy” framework established by Professor John Ruggie and highlight the corporate responsibility to respect human rights through enhanced due diligence;
  3. The Voluntary Principles on Security and Human Rights, which were designed to help extractive sector corporate actors anticipate and mitigate risks, such as human rights abuses, related to the deployment of public and private security;
  4. The International Finance Corporation’s (IFC) Performance Standards on Social & Environmental Sustainability. The Performance Standards are now a requirement for any company receiving IFC support and have been incorporated into the Equator Principles, to which all five of Canada’s chartered banks are signatories. These financial institutions use the Equator Principles as the benchmark for assessing environmental and social risks in project financing;
  5. The OECD Due Diligence Guidance on Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, which set out rules for how businesses sourcing gold, tin, tantalum, and tungsten can avoid fuelling conflict and responsibly source and trade minerals; and
  6. The Global Reporting Initiative, which is a broadly recognized international reporting standard for organizations of all sizes and sectors that aims to enhance transparency and encourage market-based rewards for good CSR performance.

With six potential CSR standards that could be applicable (and possibly found to be non-compliant with by the CSR Counsellor), extractive companies will likely benefit from the advice of experienced legal counsel to assess what standards will apply to them and whether their internal compliance policies and training are sufficient to meet such obligations.