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Hard law

Hard law. Disclosure regulations (transparency). TRANSPARENCY LAWS Driver for good governance (in developing countries). Dodd-Frank Act (US) (2010) The Wall Street Reform and Consumer Protection Act Section 1502 (conflict minerals) Section 1504 (payments by extractive industries).

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Hard law

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  1. Hard law Disclosure regulations (transparency)

  2. TRANSPARENCY LAWS Driver for good governance (in developing countries)

  3. Dodd-Frank Act (US) (2010) The Wall Street Reform and Consumer Protection Act • Section 1502 (conflict minerals) • Section 1504 (payments by extractive industries)

  4. 1. Dodd-Frank Act - Section 1502 on CONFLICT MINERALS ‘It is the sense of Congress that the exploitation and trade of conflict minerals originating in the Democratic Republic of the Congo is helping to finance conflict characterized by extreme levels of violence in the eastern Democratic Republic of the Congo, particularly sexual- and gender-based violence, and contributing to an emergency humanitarian situation therein’ Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)

  5. Section 1502 Obligation to disclose annually whether minerals did originate in the DRC and, in cases in which such conflict minerals did originate in DRC, submit – to the Commission (SEC) and on the website for the public – a reportcontaining: • a description of the measures taken by the person to exercise due diligence on the source and chain of custody of such minerals + independent private sector audit of such report • a description of the productsthat are not DRC conflict-free, of the independent auditor, of the facilities used to process the conflict minerals, and of the efforts to determine the mine or location of origin with the greatest possible specificity http://www.sec.gov/about/laws/wallstreetreform-cpa.pdf

  6. Legal challenge to Section 1502 Suit by National Association of Manufacturers, the US Chamber of Commerce, and the Business Roundtable District Court (District of Columbia) dismissed the case and sided with SEC (2013). Charges were: • the SEC’s rulemaking proceeding was ‘arbitrary and capricious’, • the public disclosures was ‘compelled speech’ in violation of the First Amendment. http://www.steptoe.com/publications-8990.html

  7. Section 1502 – effects • Unintended effects in DRC: US companies topped sourcing from DRC since 2010 EU: ‘Experience in the Great Lakes region since 2010 shows that due to risk aversive business decisions, EU and US operators prefer to source these four minerals elsewhere. The practical consequence on the ground is that local mining jobs are lost, trade has partly gone underground and where formal markets are used, the minerals are not fetching the best price due to low global demand.’ • Effects in EU: Proposal from the Commission regarding Responsible sourcing of minerals originating conflict-affected areas (2013) ‘we want to avoid companies disengaging from such regions as an easy way to comply with the Regulation. This could have unintended socio-economic consequences for the people who need to be protected most in these regions – civilians who need paid work to offer opportunities to themselves and their families.’ http://europa.eu/rapid/press-release_MEMO-14-157_en.htm

  8. EC’s proposal on responsible sourcing of minerals (2014) • Objective: ‘break the link between minerals extraction, minerals trading, and the financing of armed conflicts.’ • Objective: compliance with ‘existing due diligence frameworks. The current situation is highly fragmented with the bulk of efforts taking place at the downstream level. For this reason, the EU proposes an approach that stimulates a better flow of information from upstream to downstream.’ http://europa.eu/rapid/press-release_MEMO-14-157_en.htm

  9. Voluntary, opt-in system of certification Importers of raw materials (400) choose to certify themselves as responsible importers. -> voluntary DD and voluntary reporting EU importers opting for self-certification should: (i) set up a management system to track the origin of minerals, (ii) apply risk management to address adverse impacts (iii) carry out third-part audit and disclose info to downstream purchasers and the public

  10. ‘Supply chain due diligence self-certification system’ of importers • Importersto certify (voluntarily) that they exercise 'due diligence' by monitoring and administering their purchases and sales in line with OECD standards. • Importers to pass on informationacquired through due diligence to downstream purchasers. • EU and OECD to publish an annual list of EU and global responsible smelters and refiners.

  11. 2. Dodd-Frank Act - Section 1504 on PAYMENTS BY EXTRACTIVE INDUSTRIES Aim: to increase transparency and allow the citizens of resource rich countries to hold their governments accountable for resource extraction payments. Disclose ‘payment’ = taxes, royalties, fees, bonuses that ‘the Commission, consistent with the guidelines of the Extractive Industries Transparency Initiative(to the extent practicable), determines are part of the commonly recognized revenue stream for the commercial development of oil, natural gas, or minerals’ (Dodd-Frank Act) Publish What You Pay campaign (since 1999) Extractive Industries Transparency Initiative (since 2002)

  12. Legal challenge to Section 1504 U.S. District Court for the District of Columbia (2013): the SEC’s rule is in part “arbitrary and capricious”. Rule returned to the SEC for further consideration and restatement -> Rule to be re-issued later. • SEC’s failure to accept exemptions when a country's local laws prohibited disclosure • Public disclosure only if not compromising commercially sensitive information and impose high costs on shareholders and investors http://www.nortonrosefulbright.com/knowledge/publications/100839/court-vacates-dodd-frank-section-1504-resource-extraction-rule

  13. EU’s Accounting Directive (2013) • Large extractive and logging companies to report the payments to governments (country by country and on a project by project reporting) • for EU companies and other companies listed on EU markets • for payments over 100.000 euro/year • Aim: ‘Such disclosure will provide civil society in resource-rich countries with the information needed to hold governments to account for any income made through the exploitation of natural resources, and also to promote the adoption of the Extractive Industries Transparency Initiative (EITI) in these same countries.’

  14. EU’s Accounting Directive • Aim: ‘complement the EITI efforts by legally requiring companies … to disclose payments to governments along the same lines as EITI.’ (Law – CSR/voluntarism interaction) • ‘The Commission responded to international developments in this field, in particular the inclusion of a requirement to report payments to governments in the Dodd Frank Act in the United States.’ (effects of 2010 Dodd Frank Act) • ‘Given that some extractive industry multi-nationals have already voluntarily decided to disclose some payments to governments, the Commission considers that the effect on the competitiveness of EU extractive and logging companies will be limited.’ (competitive dis/advantage implications) (PWYP: Canada will adopt similar regulations) http://europa.eu/rapid/press-release_MEMO-13-541_en.htm

  15. TRANSPARENCY LAWS Ethical investment

  16. UK: Occupational Pension Schemes Regulations (1999) Statement of investment principles must state: (a) ‘the extent (if at all) to which social, environmental or ethical considerations are taken into account in the selection, retention and realisation of investments; and (b) their policy (if any) in relation to the exercise of the rights (including voting rights) attaching to investments.’

  17. Australia: Corporations Act (2001) The Product Disclosure Statement (PDS) should mention whether the product issuer does, or does not, take into account labour standards or environmental, social or ethical considerations in the selection, retention or realisation of an investment. If yes, the statement has to outline the standards/considerations that the product issuer considers to be labour standards, respectively environmental, social or ethical considerations. It also has to outline the extent to which the product issuer takes those standards/considerations into account.

  18. Australian Securities & Investments Commission (1) • “Because this is a new area of disclosure we have deliberately adopted a non-prescriptive, principles-based approach.” We do not intend to “specify the labour standards or environmental, social or ethical considerations that may be taken account of, or the methodologies that should be used”. • ‘you must disclose whichof these standards and considerations you take into account and how… The more a product is marketed on the basis that such standards and considerations are taken into account, the more detail is required.’

  19. Australian Securities & Investments Commission (2) • “If you have no predetermined view about how far labour standards or environmental, social or ethical considerations will be taken into account (i.e. you have no specific methodology), this must be clearly stated.” • “These guidelines do not apply to products where these standards or considerations are not taken into account.”

  20. TRANSPARENCY LAWSEthical consumption

  21. Belgium: social label law (2002) (FAILED) Modelled after eco-labels (from eco- to social labels) • Social label covers the four fundamental social rights of the ILO. • Label is awarded to products, not to a company. • Compliance with labour standards throughout entire production line, both in Europe and in developing countries. • The state accredits monitors/auditors(SA8000 ok) • Having the social label is not a condition for selling products on the Belgian market (ok with WTO). • Multi-stakeholder committee oversees the label • Cheating -> penalties up to 2.5 million Euro

  22. Transparency laws Reporting in itself does not require any change in corporate conduct. How do these laws count? • Strengthens the ability of stakeholders to act against the company, • Company goes through an internal process of finding, analysing and reporting information, • Places a topic on the public agenda (legitimising force) and opens the way for more stringent law/policy. • Enforcement – both private and public • Codification– bothpublic and private • Dangers: ”boiler-platereporting”, ”paper compliance”

  23. Global Reporting Initiative (GRI) • 1997 - UNEP & CERES (Coalition for Environmentally Responsible Economies) • Sustainability Reporting Guidelines, G4 (version 4) • ‘a global multi-stakeholder process involving representatives from business, labor, civil society, and financial markets, as well as auditors and experts in various fields; and in close dialogue with regulators and governmental agencies…’ (G4)

  24. GRI principles of reporting (G4) Principles for Defining Report Content • Stakeholder Inclusiveness Principle: identify and respond to stakeholders • Sustainability Context Principle: Info be placed in context • Materiality Principle: info reflects impacts; or influence the assessments of stakeholders. Topics that are important (a threshold). -> GRI Implementation Manual • Completeness Principle: scope, boundary, and time Principles for Defining Report Quality • Balance Principle: reflect positive and negative aspects • Comparability Principle: changes over time and relative to other organizations • Accuracy Principle: accurate and detailed, qualitative and quantitative measurements • Timeliness Principle: regularity of reporting and proximity to actual events. • Clarity Principle: understandable and accessible to stakeholders. • Reliability Principle: gather, record, compile, analyze and disclose info in a way that can be examined

  25. Materiality in the UNGPs ‘In the context of formal public reporting, the concept of “materiality” is used to identify issues that are significant enough to require disclosure. In financial reporting, “materiality” has traditionally been defined in terms of information that may affect the decisions of a “reasonable investor”. Definitions of materiality in the context of non-financial reporting – including the Global Reporting Initiative’s reporting standards – incorporate the perspective of other stakeholders as well by requiring the disclosure of information that would substantively influence their decisions. The Guiding Principles do not offer a particular definition of materiality in the context of human rights reporting. What matters is that it should be informed by both the severity of impacts (actual or potential) and the perspective of stakeholders, including potentially affected stakeholders.’ Oil and Gas Sector Guide on Implementing the UNGPs (2013) http://www.ihrb.org/pdf/eu-sector-guidance/EC-Guides/O&G/EC-Guide_O&G.pdf

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