Canada: Canada Launches Enhanced CSR Strategy For Extractive Sector Companies Operating Abroad

On November 14, 2014, Canada's Minister of International Trade announced an enhanced corporate social responsibility ("CSR") strategy, "Doing Business the Canadian Way: A Strategy to Advance CSR in Canada's Extractive Sector Abroad" (the "CSR Strategy"), with implications for Canada's extractive sector companies with foreign operations, making, for the first time, Canada's "economic diplomacy" assistance in foreign jurisdictions conditional on the company's adherence to the new CSR Strategy.

Background

The CSR Strategy builds on the original CSR strategy introduced in 2009 (the "Initial Strategy") through the government's review of the Initial Strategy and cross-country consultations. The Initial Strategy first outlined Canada's commitment to promoting CSR, defined as the voluntary activities undertaken by a company in the mining, oil and natural gas industries, over and above legal requirements, to operate in an economically, socially and environmentally sustainable manner. The CSR Counsellor's Office was first established as part of the Initial Strategy to (1) offer guidance to Canadian extractive sector companies operating abroad on implementing CSR performance guidelines, and (2) offer a non-judicial review process to review the CSR practices of Canadian extractive sector companies operating abroad. The CSR Counsellor review process under the Initial Strategy, however, has yielded little success due to its voluntary nature. The CSR Strategy seeks, for one, to improve the effectiveness of the CSR Counsellor's Office.

Implications for Resource Companies

Under the CSR Strategy, companies are expected to participate in the dispute resolution mechanisms of the CSR Counsellor's Office or Canada's National Contact Point ("NCP") for the Organisation for Economic Co-operation and Development ("OECD") Guidelines for Multinational Enterprises and to align with widely recognized CSR-related guidelines. Participating companies will be recognized by the CSR Counsellor's Office as eligible for enhanced economic diplomacy by the Government of Canada. Companies found not to be embodying CSR best practices, and those that refuse to participate in the dispute resolution mechanisms, will no longer have access to the Trade Commissioner services and other Government of Canada services. These services include the issuance of letters of support, advocacy efforts in foreign markets and participation in Government of Canada trade missions. A designation of non-compliance will also be taken into account in the CSR-related evaluation by the Government of Canada's financing crown corporation, Export Development Canada, in its consideration of financing or other support.

As set out in both the Initial Strategy and the CSR Strategy, disputes involving Canadian extractive sector companies with foreign operations may be referred to the CSR Counsellor's Office or the NCP. Under the CSR Strategy, however, the CSR Counsellor will refer disputes requiring formal mediation to the NCP, a non-judicial dispute resolution mechanism that is more robust than that of the CSR Counsellor's Office. While the Government of Canada maintains that participation remains voluntary, a decision by affected companies to not participate in these dispute resolution mechanisms will be made public. The Government of Canada will also withdraw support in foreign markets if a company chooses not to participate.

The CSR Strategy raises the bar for what the Government of Canada considers CSR best practices, endorsing additional international standards released since the Initial Strategy. Of note are the endorsements of two new fundamental guidelines: the United Nations' Guiding Principles on Business and Human Rights (the "UN GP") and the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (the "OECD Guide"). The UN GP indentifies the responsibilities of companies and governments regarding human rights through three guiding principles: 1) the state's duty to protect against human rights abuses by third parties, including business; 2) the corporate responsibility to respect human rights through due diligence; and 3) ensuring greater access to effective remedies for victims. The OECD Guide provides for how multinational mineral extraction companies can avoid fuelling conflict and responsibly source and trade minerals in conflict-affected and high-risk areas.

Conclusion

Canadian extractive sector companies account for almost half of the world's mining and mineral exploration activity. With this level of exposure in the global market, Canada is committed to ensuring that Canadian companies continue to exhibit the highest CSR standards and best practices while operating abroad. To qualify for economic and diplomatic support from the Government of Canada, Canadian extractive sector companies must now participate in the dispute resolution process set out in the CSR Strategy and be vigilant in understanding and adhering to international CSR standards, which go beyond host country legal obligations. While it is in the best interest of Canadian extractive companies to comply, the enhancements to the CSR Strategy make for a more rigorous standard that companies may find more difficult to achieve. The CSR Strategy is set be reviewed again in 2019 to examine its relevancy in upholding international standards and its effectiveness in enhancing the CSR performance of Canadian extractive sector companies operating abroad.

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2014