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

1. The Legal Structure Behind CSR:Is this still a “voluntary” concept? Kevin O’Callaghan Risk Mitigation & Corporate Social Responsibility (CSR) April 28, 2011

2. 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

3. 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

4. Legal Structure • Treaties & Conventions • Legislation & Regulations • Finance Related Obligations • International Guides • Voluntary Standards • Industry Norms and Best Practice

5. 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

6. Treaties & Conventions 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

7. Treaties & Conventions 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

8. 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

9. Legislation & Regulations • 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

10. Legislation & Regulations • 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

11. 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

12. Finance Related Obligations 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

13. Finance Related Obligations 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

14. Finance Related Obligations 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

15. Finance Related Obligations 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.

16. 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

17. 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

18. 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

19. International Guides/Initiatives 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

20. International Guides/Initiatives Ruggie’s “Guiding Principles for the Implementation of the 'Protect, Respect, Remedy' Framework” • UN Special Representative Ruggie originally produced the Framework in 2008: • State: protect against human rights abuses by third parties • Business: respect human rights • 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

21. International Guides/Initiatives 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

22. International Guides/Initiatives 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

23. 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

24. Industry Norms and Best Practice 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

25. Industry Norms and Best Practice 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

26. 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

27. Kevin O’Callaghan • (604) 631-4839 • kocallaghan@fasken.com