The Halifax Initiative is a coalition of human rights, environmental, faith-based, developmental, and labour organizations. Our objective is to transform the public international financial institutions to achieve poverty eradication, environmental sustainability, and the full realization of universal human rights.
My work focuses on the operations of public institutions that provide support to the private sector—in particular, the International Finance Corporation of the World Bank group and Export Development Canada. The latter, a crown corporation, is Canada's export credit agency and will be the focus of my comments this morning.
The extractive sector is the greatest recipient of support from Export Development Canada, and the crown corporation has plans to expand its assistance to extractive companies. Export Development Canada does not have a good record in this area. The agency has provided support to a number of mining projects that have generated serious environmental and social impacts for which affected individuals and communities have been unable to access compensation and other remedies.
Perhaps the most infamous case concerns the massive tailings dam failure that occurred at the Omai gold mine in Guyana in 1995. Three years following the disaster, a lawsuit was initiated in Canada by indigenous people affected by the spill. The Canadian court refused to hear the complaint, arguing that Guyana was the appropriate forum for the action. A subsequent case brought in Guyana was also dismissed, leaving the victims without recourse. Several other EDC-supported projects merit attention, including the Bulyanhulu gold mine in Tanzania. Local residents allege that over 50 artisanal miners were killed by Tanzanian troops in order to clear the mining concession to make way for commercial operations.
Indigenous people affected by the PT Inco nickel mine and smelter in Indonesia complain that they have lost prime agricultural land, that the local environment has been contaminated, and that they suffer threats and intimidation by the police.
In 1998 a large cyanide spill took place at the EDC-supported Kumtor mine in Kyrgyzstan. EDC also funded the Marcopper mine on Marinduque Island in the Philippines, where environmental contamination destroyed the source livelihood for local fishing villages. I understand this committee heard testimony earlier this week about that case.
More recently, the EDC-supported Veladero mine in Argentina was the subject of complaint before that country's national ombudsman. The office of the national ombudsman, which is independent of government, is mandated to protect legally sanctioned rights and freedoms, including human rights. Local actors who lodged the complaint regarding Barrick's mine were concerned about its impacts on the San Guillermo UNESCO biosphere reserve. The ombudsman accepted the complaint and in 2008 reported that the mine concession violates several national laws. He called for an immediate halt to mining activity in the reserve.
This year, an Argentinian environmental organization filed a complaint regarding the mine with the Supreme Court. The complainants, who expressed concern that mining operations are causing irreversible damage to local glaciers, asked the court to issue an order for an audit that would assess whether the company is in compliance with national laws.
Intense debate continues among Argentinian parliamentarians concerning the future of that country's glaciers. Last year, President Fernández de Kirchner vetoed legislation designed to protect glacial deposits. The law, which prohibits mining, oil, and gas operations in or around glaciers, received the unanimous approval of Congress.
EDC continues to provide support for Canadian extractive companies that invest in countries with weak regulatory frameworks, inadequate institutional capacity, and poor law enforcement. The crown corporation is currently considering support for a major mining project in the Democratic Republic of Congo, a country plagued by negligible governance capacity, widespread human rights abuse, and brutal conflicts associated with mined materials.
Moreover, EDC recently opened a new office in Lima, Peru, from which it plans to expand support for Canadian extractive companies operating in that country. According to the Peruvian national ombudsman, extractive investments constitute the most important source of social conflict in that country. Community members who resist the entry of foreign extractive companies on their lands are intimidated, beaten, and in some cases killed.
Earlier this year, indigenous people in Peru mounted a major protest regarding the adoption of new legislative provisions that further facilitate extractive operations in their territories. On June 5, the national police attacked the protestors, triggering a violent confrontation that ended with the deaths of over 30 people. The prime minister was forced to resign over the government's handling of the incident, and Congress repealed a number of the contested decrees.
To avoid complicity in the environmental and human rights abuses that are common in these contexts, Export Development Canada must apply robust and transparent environmental, social, and human rights standards to its clients. Currently EDC relies on the International Finance Corporation's performance standards and the Equator Principles. The latter instrument, which was developed by private banks, is largely based on the performance standards. The performance standards are widely recognized as the de facto standards set for multinational companies that invest in developing and emerging markets. However, they suffer from several important debilities. They are weak on human rights. With the exception of labour rights, the performance standards neither reflect nor reference international human rights norms.
The multi-stakeholder advisory group to the national round tables on corporate social responsibility and the extractive industry in developing countries, of which I was a member, recognized this important shortcoming. The advisory group used the performance standards as the basis of the Canadian CSR standards that were proposed for adoption by the Canadian government, but supplemented those standards with international human rights norms.
The second problem with the performance standards and the Equator Principles is that they are discretionary. Export Development Canada is under no obligation to apply them, to enforce them, or to sanction clients who fail to comply. EDC adopted the performance standards through an OECD recommendation that explicitly permits signatories to derogate, at their discretion, from the standards set. Compliance with the Equator Principles is also optional. Under the Equator Principles, companies are required to comply with the performance standards to the satisfaction of the implementing financial institution. Moreover, non-compliance is permitted as long as any derivation from the standards is justified.
No guidance is provided regarding the acceptable threshold for satisfactory levels of compliance or justified derivations from the standards. Bill remedies these shortcomings. It ensures that EDC's existing standards are consistently applied and supplements them with international human rights norms, to which Canada is a signatory.
This will strengthen EDC's due diligence, steering it away from projects that carry a high risk of generating negative human rights impacts. It will provide EDC clients with valuable guidance regarding their expected standard of operation. Finally, it will ensure that Canada is in compliance with its international human rights obligations in the provision of export credit.
As an agency of the Canadian government, Export Development Canada is bound by Canada's international human rights commitments. Currently there is no mechanism to ensure that its operations are consistent with those commitments. Bill will also bring EDC in line with recommendations on export credit agencies made by the UN Secretary General's special representative for business and human rights, John Ruggie.
In a report to the Human Rights Council, Mr. Ruggie argues that export credit agencies should require that their clients perform adequate due diligence regarding their potential human rights impacts. According to the special representative, such due diligence will allow these agencies to identify investments that require greater oversight and those where the risk is too great for state involvement.
Following the release of the special representative's report, EDC published a five-paragraph statement on human rights. EDC describes the statement as an articulation of principles. The statement does not provide for the level of due diligence that Mr. Ruggie advocates. It is silent on the issue of whether and how EDC assesses the potential for adverse human rights outcomes from client operations, on what it expects of clients in the area of human rights, and on how it ensures that clients meet those expectations over the life of a project.
I'd now like to speak for a moment about the investigation of complaints concerning EDC client operations. EDC is one of few export credit agencies that has a complaints mechanism. However, the office of the compliance officer has processed just two complaints since it was created in 2001.
Affected communities and some civil society organizations have chosen not to use this mechanism because it lacks independence, transparency, and power. The office is maintained and staffed by EDC. Compliance audits, when undertaken, are internal. Scant information is provided to complainants to explain the officer's findings. Moreover, the crown corporation is under no obligation to adopt any recommendations the officer may make at the conclusion of an audit.
The complaint mechanism established under Bill remedies these problems. The mechanism is independent of EDC and involves public reporting. Moreover, findings of non-compliance bring consequences. While the complaint mechanism will not provide individuals and communities who are affected by EDC-supported extractive projects with access to legal remedies, which is an issue that deserves the attention of this legislature, it will afford them the opportunity to have their case investigated and may result in a shift in corporate behaviour.
Moreover, the complaints mechanism under Bill is consistent with the recommendation of the advisory group to the round table process regarding the appointment of an ombudsman. As with Bill C-300, this office was to receive and investigate complaints regarding the overseas operations of Canadian extractive companies.
To conclude, Bill addresses shortcomings in EDC's due diligence policies and practices and weaknesses in its complaints mechanism. Moreover, the legislation is consistent with consensus recommendations regarding these issues made by the advisory group to the round table process.
The reforms contained in Bill will help to ensure that EDC no longer funds extractive projects that result in serious environmental and social harm.
One of the complaints that I referred to was lodged by my organization. It was before I started working for the Halifax Initiative, but I'm aware of the case. It concerned a nuclear energy facility, and it was concerned with the review of that project. So it was Export Development Canada's due diligence when it reviewed the project and was making a decision about whether to support it or not.
The reason my organization was discouraged then from launching other complaints, or advising our colleagues who are impacted by EDC projects to launch further complaints, was because of the problems that I enumerated in my comments. That is, it's a very closed, internal process. In fact, I don't believe my colleagues were entirely clear on what the process was. At the end of the process, when we received a response, which was that the corporation was in compliance with its internal policies, that was the only answer we received. We did not receive information that explained how the officer had come to that determination, how they had made that determination, what the investigation consisted of, and so on.
It's very closed, it's difficult to access information, and, as I said earlier, even in the case of an audit that finds there's non-compliance, there's no obligation on the part of EDC to then take that up and make changes. Again, effective community civil society organizations have scant resources, human and otherwise, to take the time and energy to make a complaint before this kind of body, and knowing the chances of there being some impact at the end of the day, on balance it's not a worthwhile endeavour.
That's why we're excited about the mechanism under , because it's more transparent, because it's independent, because the process will be known and understood, the results will be released publicly, and there will be some consequence if there is a finding of non-compliance.
Then let me ask a question.
My question, which arises from all of this, and especially maybe out of our meeting on Tuesday, is about the political risk. I know you aren't here in any capacity as an elected official, but it seems when I read through this—“the Ministers shall receive complaints regarding Canadian companies”—that politically, corporate social responsibility is one of those banner principles that everybody expects.
In some respects, when you ask the average Canadian, the fear is that we can never do enough to guarantee corporate social responsibility. When a complaint is lodged with a minister, whether it's in this government or any other that may come along, the minister has a huge responsibility to show that he has done his due diligence in the matter.
On Tuesday, we heard that questions were asked of police forces in other countries, and they said there was nothing substantiating the charge that was put forward on certain committees. You have a politician, a minister, who recognizes sovereignty of other countries; he questions the government, the police force, and all those involved in that country, and the report comes back that there is nothing to substantiate this. But we still have an individual or an NGO who comes with this complaint, and it's in the media and the news. The minister is always going to be pushed that extra degree.
How big do we have to make a department to do this investigation? How much risk do you feel that this minister would have to undertake to prove that he's taken his share of the responsibility in following up these complaints? To dismiss a charge as being frivolous can have huge political consequences.
Thank you very much, Mr. Chairman.
I am pleased to have the opportunity to describe to the standing committee CIDA's role in the Government of Canada's CSR strategy, to provide some background information on the importance of the extractive sector to developing countries, and to give you an idea of the type of programming that CIDA has been doing and is planning to do.
As you've mentioned, my name is Chris MacLennan; I'm director general of thematic and sectoral policy. With me is Madame Hélène Giroux, who is the director general for South America; and Bill Singleton, who is CIDA's internal focal point on CSR. As members of the committee may recall, the government's CSR strategy required CIDA to create an internal focal point on extractive sector development issues, and Bill is currently serving in that capacity on an interim basis.
Before describing CIDA's role in the government's CSR strategy, I wish to draw the attention of the committee to one item in Bill . In the interpretation section of the bill, subclause 2(1), there is reference to “the list of countries and territories eligible for Canadian development assistance established by the Minister of International Cooperation.” Such a list no longer exists. CIDA publishes in its annual report to Parliament the list of countries in which CIDA has actually made disbursements, but this is not the same as a list of countries that are actually eligible for development assistance.
That said, of course, the government, in February 2009, announced that as part of its aid effectiveness agenda, CIDA would concentrate 80% of its bilateral programming spending in 20 countries of focus. That is also not a list of eligible countries but simply where CIDA will be concentrating its efforts under the aid effectiveness agenda.
With this exception, Bill makes no direct reference to CIDA or its activities. However, because Bill C-300 is addressing issues in the same area as the government's CSR strategy for the Canadian international extractive sector, I would like to describe to the committee what CIDA is doing in relation to the extractive sector in developing countries.
As members of the committee will recall, the government's CSR strategy has four elements. One of these is entitled “Host Country Capacity-Building”, and it is this part of the strategy with which CIDA is directly concerned.
A large number of studies have been carried out about why mineral and hydrocarbon resources are all too often more of a problem than an opportunity for many developing countries. This is in contrast to the economic history of countries such as Canada, the United States, and Australia, which have been able to make productive use of natural resources as a source of economic growth, employment, and export earnings.
The common conclusion at which the various studies have arrived is that the most important single factor is the transparency and effectiveness of host countries' resource governance and management regimes. This includes the establishment of stable legal and fiscal regulatory frameworks to ensure sustainable resource management and development, and regulatory institutions and agencies responsible for regulating and overseeing sector activities.
In the absence of strong institutions, natural resources such as minerals, oil, and gas can become what, of course, is known in development as the “resource curse”. The curse can lead to a number of problems, including corruption, conflict, social unrest, and negative economic and environmental impacts. The revenues from the resources are volatile, which makes it difficult for governments to manage their spending. Finally, in some countries, revenues from minerals, oil, and gas have been used as a means of financing conflict, as many of you are aware.
The nature of the choices that developing countries must make are well known to Canadians: whether to extract the resources at all; how quickly to extract; whether to use national companies or rely on the international private sector; how to design the laws, regulations, and contracts that can produce the greatest benefits to the country and its citizens; and how to avoid or mitigate the environmental or social costs of extraction. Developing countries must also decide on policies and mechanisms for dialogue and stakeholder participation in extractive sector development. Each choice will have far-reaching consequences that can shape a country's development path.
CIDA's recent programming in individual countries in the extractive sector has been primarily in the Americas. In line with the principles of aid effectiveness, the orientation of this programming has been to support countries that have themselves set extractive sector resource management as a priority for their development planning.
In Peru, for example, CIDA has worked extensively with the national and regional governments and affected communities to develop and promote regulatory requirements for social and environmental management in the extractive sector. CIDA's support has included the provision of tools and expertise in the mining and hydrocarbon sectors and support for social, environmental, and multi-stakeholder dialogue, community participation, and conflict resolution.
CIDA has assisted Bolivia in establishing a tax collection unit. As a result, from 2004 to 2008, Bolivia realized a fourfold increase in revenue, amounting to well over $2 billion annually. Most of this money has been reinvested in public services and social supports.
In addition, CIDA is developing an Andean regional initiative, which will strengthen regional and local governments as well as community capacity to plan, develop, and implement sustainable development projects. The initiative will increase the well-being of the communities and enhance their capacity for engagement with extractive-sector firms.
At the multilateral level, CIDA is working on the extractive industries transparency initiative, or the EITI, in partnership with the Department of Foreign Affairs and International Trade and with Natural Resources Canada. The objective of the initiative is to introduce greater transparency into financial flows precipitated by natural resources in developing countries, with the objective of reducing corruption. CIDA has provided some of the funding for Canada's participation in the EITI multi-donor trust fund managed by the World Bank.
In addition, as laid out in the government's CSR strategy, CIDA is in the process of identifying an individual who will work with the World Bank on implementation of EITI in a number of countries in Africa.
For the future, CIDA's assistance to developing countries in their natural resource management will be carried out under the thematic priority of sustainable economic growth, which is one of the priorities set for the Government of Canada's international assistance envelope.
I've already described how natural resources can be a source of economic growth. Good resource management, especially in relation to environmental and social impacts, can help make growth sustainable.
We have made contact with our counterpart development agencies in other countries, such as Norway and the United Kingdom, to identify ways in which we might collaborate more effectively. In July, CIDA hosted round tables on CSR with the private sector and with civil society, and we are continuing that dialogue. We are working closely with DFAIT and NRCan on implementation of the other three elements in the government's CSR strategy.
I hope this brief description of CIDA's approach to the extractive sector in developing countries will assist the committee in its consideration of Bill C-300. Hélène, Bill, and I are open to questions you might have about CIDA's experience and how our work is contributing to the achievement of the government's objectives.
There are two parts to the question.
I'll describe the positive impact of Canadian companies operating in developing countries, and then, in a sense, if they were to pull out, it's the converse of that.
First of all, there is the investment. Foreign direct investment is going in to do the exploration and the development of the mines. We'll talk about mines, but oil and gas also come into this. We'll use mines as an example. There's the initial investment. That gives rise to long-term employment for individuals in the community and their families. What is being discussed frequently in the CSR discussions generally, in the positive sense, is that firms also provide health and education and other social services to the communities. In Canada those are the responsibilities of governments. In developing countries, the general practice is that the firm will provide that for the community, particularly in a rural area. The governments don't generally have the capacity. So there is that element to it.
There's also technology transfer. Canadian firms bring in state-of-the-art technology for the mining industry and people get trained. There's also the revenue side. Royalties and taxes are paid. They differ from country to country, but certainly some of the research I've been doing shows just how significant revenue from the sector is to countries. Take the example of Peru. Close to 50% of the revenue at the national government level comes from the extractive sector, from taxes, royalties, and other things such as that.
I won't speculate as to what would happen if the firms were to pull out because my guess is that, first of all, they have a large stake in that, 35 to 50 years for a mine sometimes, and that would be a major decision, but the benefits they have brought would go with them in some respects, yes.