The Legal Structure Behind CSR: Is this still a “voluntary” concept? Kevin O’Callaghan Risk...

The Legal Structure Behind CSR:Is this still a “voluntary” concept?

Kevin O’CallaghanRisk Mitigation & Corporate Social Responsibility (CSR) April 28, 2011

Introduction

• International Mining today• Complex and demanding environment for political risk

• Increasing demands - social license and corporate responsibility• Investment Communities• Local Communities • International NGOs• Governments

• Variety of factors:• increasing demands for resources• increased attention to environmental threats• gap between the poor and rich• human rights concerns• Multiplying international fora for bringing disputes• Involvement of civil society, NGOs

Introduction

• In response, evolving patchwork of CSR related treaties, legislation, voluntary norm, best practices.• Patchwork is complex and inter-related

• Best practices → voluntary norms → international conventions

• Although CSR started as a voluntary concept, the interrelatedness of the patchwork has changed the complexion such that some aspects of CSR are becoming mandatory

• Understanding of the structure of this patchwork is essential for navigating the new CSR environment

Legal Structure

1. Treaties & Conventions

2. Legislation & Regulations

3. Finance Related Obligations

4. International Guides

5. Voluntary Standards

6. Industry Norms and Best Practice

Treaties & Conventions

• Treaties and Conventions are among States and not generally directly applicable to corporations

• Only a few treaties relating to CSR issues directly

• Of those that are relevant, but tangential, most are:

• rights based

• aspirational rather than binding


International Labour Organization – ILO 169• Indigenous and Tribal Peoples Convention, 1989• Canada, US and UK not signatories

UN Declaration on the Rights of Indigenous Peoples (2007)• Non-binding aspirational declaration• Can, US, Australia – late adopters of the declaration (with

explanations of interpretation)• Incorporates Free Prior Informed Consent (FPIC)

• Controversially using “consult to obtain FPIC”:• Before legislative and administrative measures• Before exploiting mineral, water or other resources


Organization for Economic Co-operation and Development (OECD) - Guidelines for Multinational Enterprises (1976)• Non-binding recommendations providing voluntary

principles and standards for responsible business conduct for multinational corporations operating in or from OECD countries

• Covers: employment and industrial relations, human rights, environment, information disclosure, combating bribery, consumer interests, science and technology, competition, and taxation.

OECD - International Convention on Combating Bribery of Foreign Officials (1997)• Antecedent to many domestic anti-bribery acts

Legislation & Regulations

• Although a relatively recent development, some States have begun legislating in respect of CSR principles

• If CSR continues to be seen as an unregulated issue, States will be tempted to fill the void with extra-territorial legislation

• Here in Canada, Bill C-300, was defeated last year – but made it to 3rd Reading – is evidence of this tendency

• Additionally, there are often domestic laws in subsets of CSR: anti-corruption, environment, social equality and human rights


• Legislation that applies extra-territorially:

• Corruption of Foreign Public Officials Act (Canada)• Payments to a foreign officials for the purpose of obtaining business • Needs to be a "real and substantial" link to Canada - a portion of the

illegal activities will have to have been committed in Canada

• Bribery Act (UK)• In addition to a number of other bribery related offences, it prohibits

offering a financial or other advantage to a foreign public official

• Foreign Corrupt Practices Act (US)• Payments to a foreign officials for the purpose of obtaining business• Applies to any US Company or issuers of securities in the US

• Alien Tort Claims Act (US)• Allows US courts to hear human rights cases brought by foreign

citizens for conduct committed outside the US


• Must also consider local laws in relation to CSR, for example South Africa:• Mine Health and Safety Act• National Waters Act• Atmospheric Pollution Act• Environmental Conservation Act• National Environmental Management Act

• Environmental Assessment

• Black Economic Empowerment Act• Social equality

• Mining Charter between gov and industry• Mineral and Petroleum Resources Development Act

• Title to minerals, environmental, social equality

Finance Related Obligations

• Large amounts of capital needed for mining projects

• Access challenging in the aftermath of the credit crunch

• Need worldwide access to lenders – export credit agencies, commercial banks and insurance companies

• Reputable international and national financial institutions require compliance with international standards or guidelines:• environmental impacts• social performance

• Mitigate risk through demanding evidence of “social license” to operate


International Finance Corporation (IFC) – Performance Standards on Social and Environmental Sustainability

• The result of workshops around the world - published in 2006

• Have become the benchmark for developing and financing responsible extractive projects in emerging markets

• Applied by most major public and private financial institutions

• The Standard include strong social considerations: • resettlement practices• management of labour rights• working conditions• impacts on indigenous culture• community health• safety and security issues

• Revised through 2010 - to be approved in 2011 • strengthening of Free Prior Informed Consent language


World Bank – Environmental, Health, and Safety (EHS) Guidelines

• The EHS Guidelines are technical reference documents with general and industry-specific examples of Good International Industry Practice

• Referred to in IFC's Performance Standard 3 on Pollution Prevention and Abatement

• There is a guideline specifically for Mining and Milling


Equator Principles (2003)• 10 Principles:

• “Voluntary” set of standards for determining, assessing and managing social and environmental risk in project financing

• The members agree to only provide funding if the project conforms to the first 9 principles (including an audit)

• The 10th principle is that the members themselves agree to report on their performance regarding this commitment

• Developed by financial institutions in consultation with the IFC and parallels those Standards, referencing them in a number of the Principles

• 80% of the project finance market, including most Canadian banks adhere


Export Development Canada (EDC)

• EDC’s CSR screening mechanisms, pre-signing due diligence and ongoing project monitoring help ensure that Canadian companies conduct their international operations to universally acceptable standards.

• Apply the Equator Principles

• In addition to other standards: OECD Common Approaches to the Environment and Officially Supported Export Credits.

Voluntary Standards

• A number of different non-governmental organizations offer standards that are used as a benchmark for evaluating an enterprises policies and procedures

• Some are management style standards that can be evaluated against and audited

• Others are more guidance documents, without clear metrics

• Companies that subscribe to these programs, link their corporate reputation to the achieving these standards

Voluntary Standards

ISO 26000 – International Organization for Standardization

• Standard providing guidelines for social responsibility released on 1st November 2010

• Offers guidance on socially responsible behavior and possible actions

• it does not contain requirements and, therefore, in contrast to ISO management system standards, is not certifiable

SA8000 - Social Accountability International (1997)

• A global standard-setting non-governmental human rights organization dedicated to improving workplaces and communities

• A management system standard certifiable through affiliate Social Accountability Accreditation Service (SAAS)

• By 2010 had over 1,365,236 workers in 62 countries in operations certified to SA8000

• Programs in Europe, India, China, Vietnam, Central America, Turkey, and others

International Guides/Initiatives

• There have been a number of attempts through the United Nations to try and create momentum around developing core principles of CSR that companies would be willing to sign onto

• Additionally, the UN appointment of John Ruggie as a Special Representative to try to find a way to express a general framework for analysing the interaction between the protection of human rights and the legitimate pursuit of business

• Such attempts had failed in the past, but there have been successes


UN Global Compact• The Global Compact is a principle-based framework for

businesses, stating ten principles in the areas of human rights, labour, the environment and anti-corruption

• Launched with nine Principles in 2000, a 10th dealing with corruption was added in 2004

• Grown to more than 8,000 participants, including over 5300 businesses in 130 countries around the world

• Encourage businesses worldwide to adopt sustainable and socially responsible policies, and to report on their implementation

• Voluntary, although a lack of reporting on progress will result in a change of “status” and may result in expulsion


Ruggie’s “Guiding Principles for the Implementation of the 'Protect, Respect, Remedy' Framework”

• UN Special Representative Ruggie originally produced the Framework in 2008:

1. State: protect against human rights abuses by third parties2. Business: respect human rights3. People: access to effective remedy (judicial and other)

• 2011 Ruggie released final “Guiding Principles” that include a number of practical strategies for business to manage legal and related risks associated with meeting human rights obligations:• preparing a company policy commitment to respecting human rights• carrying out human rights due diligence• implementing operational-level grievance mechanisms to address

potential breaches

• Likely to inform the domestic legal and policy standards applicable in countries across the globe


Principles of Responsible Investment (PRI)

• A 2006 initiative and a set of aspirational and voluntary guidelines for investors

• Linked to the UN Global Compact

• Addresses environmental, social, and corporate governance (ESG) issues

• Over 850 companies have signed up to the principles

• Obligation to report on implementation of the Principles - in 2009 five signatories were delisted for not fulfilling this obligation


Voluntary Principles on Security and Human Rights

• Set of non-binding principles developed in 2000 to address the issue of balancing safety needs while respecting human rights

• Filled a void for companies seeking guidance about managing risks related to their security and human rights practices

• Especially in countries that are often associated with conflict or alleged abuses

• Provide guidance for companies on identifying human rights and security risk, as well as engaging and working with state and private security forces

Industry Norms and Best Practice

• Mining has been at the forefront of CSR controversies from the outset of the concepts

• The mining industry has been one of the most proactive in creating industry norms and best practices in response to the perceived CSR problems attributed to the extractive industries


Prospectors & Developers Association of Canada - E3 Plus• Reference materials to help exploration companies to:

• continuously improve their social, environmental and health and safety performance

• comprehensively integrate these three aspects in to all their exploration programs

• Provides 8 clear principles and then guidance with reference to OECD, Equator Principles and many other guidance documents

Mining Association of Canada (MAC) – Towards Sustainable Mining• Improve the industry’s performance by:

• Finding common ground with communities of interest• Helping mining companies evaluate the quality, comprehensiveness and

robustness of their management systems • Providing four performance elements, with appropriate indicators, scoring and

external verification systems

• Participation is a condition of membership in MAC


International Council on Mining and Metals (ICMM) – Sustainable Development Framework (2003)

• All members have committed to the Framework which has three elements:• a set of 10 Principles (including a set of supporting position

statements)• public reporting• independent assurance (third party auditing of members

regarding the Principles)• The Principles reference elements other principles and guidelines:

OECD, IFC, the Global Compact, and others• In furtherance of this Framework, ICMM created:

• Position Statement on Mining and Indigenous People• Good Practice Guide: Indigenous Peoples and Mining

Conclusions

• “Voluntary” CSR guidelines have become akin to mandatory CSR regulations through a variety of mechanisms:

• Contractual: as a prerequisite to Financing

• Choice: by publicly committing to follow guidelines/principles

• Peer Pressure: by the threat of expulsion from membership

• Corporate Reputation plays a large role in creating a “mandatory” feel to CSR, but the contractual provisions relating to financing could have more direct legal consequences

• Additionally, there is a clear push by some in the NGO community to make the guidelines/principles more formally mandatory (see Bill C-300) – this tendency is likely to increase

Kevin O’Callaghan(604) 631-4839

[email protected]

The Legal Structure Behind CSR: Is this still a “voluntary” concept? Kevin O’Callaghan Risk...

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