FINANCIAL INSTITUTIONS ENERGY INFRASTRUCTURE, MINING AND COMMODITIES TRANSPORT TECHNOLOGY AND INNOVATION PHARMACEUTICALS AND LIFE SCIENCES

Corporate Social Responsibility

A Business Imperative with Legal Implications

Michael Torrance Norton Rose Group, Toronto

416.216.1908

michael.torrance@nortonrose.com

Corporate Social Responsibility: Self-Regulation in the Shadow of the Law

• Goal: – To introduce the day’s topic with emphasis on the inter-

relationship between CSR and law – Understand CSR as self-regulation that occurs with the

actual or potential oversight of legal institutions – Layout basic principles of CSR and their relationship to

legal norms – Show how this intersection permeates CSR strategy for

the entire life cycle of a mining project

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Mining Project Life Cycle

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Mining Project Life Cycle - Risks

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CSR as Risk Management Strategy •  CSR accepts that mining companies are embedded in social expectations –

including legal expectations and non-legal stakeholder expectations

•  CSR allows companies to integrate human, social, economic and environmental factors into mining operations through corporate vision, mission, ethics and culture to meet legitimate expectations

•  Permeates organization through corporate governance and management

•  Necessitates effective self-regulation for successful implementation

•  Interrelates with legal obligations –  “Self-regulation in the shadow of the law” –  Requires integration with legal risk management to be effective

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The Crossroads Between CSR & Law

•  Seven CSR risk management principles that give rise to legal implications 1.  Sustainable Corporate Governance 2.  Stakeholder Engagement 3.  Transparency 4.  Consistent Best Practices 5.  Precautionary Approach 6.  Accountability 7.  Community Investment

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Seven CSR Principles with Legal Implications

•  Sustainable Corporate Governance: Corporate decision makers consider environmental and social issues, in addition to economic considerations, when carrying out their duties and responsibilities

•  Stakeholder Engagement: Corporations engage not only with shareholders, but also with stakeholders generally, on environmental and social issues within the corporate sphere of influence

•  Transparency: Corporations provide periodic public reports on their environmental and social performance and disclose material information relating to environmental and social matters within their sphere of influence

•  Consistent Best Practices: Whether at home or abroad, corporations seek to apply the highest environmental and social standards throughout their operations and with business partners

•  Precautionary Approach: Taking responsibility for risk assessments and implementation of cost-effective precautionary procedures to manage environmental, health & safety and human rights risks associated with projects

•  Accountability: Corporations participate in good faith with legitimate accountability processes and establish or cooperate with mechanisms to address legitimate grievances or failures to meet corporation’s proclaimed standards of conduct

•  Community Investment: Corporations undertake programs and initiatives that contribute to the social, cultural, economic or environmental enrichments of the communities in which they operate.

[Kerr, Janda, Pitts, CSR: A Legal Analysis (Lexis-Nexis: 2009)]

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Role of Legal Counsel •  To be “at the table” in implementing a CSR risk management strategy

•  Team approach

•  Integration of CSR strategy with legal risk management

•  Applying legal reasoning skills to identify and manage expectations (internal and external)

•  Leveraging specialist knowledge of external counsel

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Adding Depth of Subject Matter Expertise for CSR Strategy

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Sustainable Corporate Governance •  Integrating environmental and social management systems (ESMS) into corporate

governance policies, procedures and training, throughout project lifecycle

•  Environmental & Social considerations consistent with fiduciary duty of Directors and Management

–  Peoples v. Wise; BCE v. 1976 Debentureholders

•  Risk Mitigation Objective –  Access to capital –  Fiduciary duties of Investment Managers require diligence with regard to Environmental and Social

risks –  Lending Standards (Equator Principles; World Bank Sustainability Framework)

•  Avoidance of Legal liability –  Corruption of Foreign Public Officials Act; Foreign Corrupt Practices Act; Bribery Act (UK) –  Environmental, OHS, regulations and compliance

•  Avoiding Reputational Risks –  Human rights and security issues –  Management of business partner risks –  Entrench due diligence regarding environmental & social issues into governance framework

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Sustainable Corporate Governance •  Industry Best Practices

–  ICMM Principles for Sustainable Development •  Develop policies, procedures and training on sustainable development; diligence of business partners

-  Mining Association of Canada •  Mandatory for MAC members, facility level reporting, Performance Indicators

•  “Regulation by Disclosure” –  Aside from self-regulation, some jurisdictions have established codes of sustainable governance

•  Not mandatory, but companies required to disclose extent of compliance for securities listing purposes −  King Code (South Africa)

•  Requires system to manage and control risks and behave responsibly towards stakeholders •  Report annually on ethical, environmental & social practices •  Engage with stakeholders and establish Code of Ethics

– ASX Governance Principles •  Companies required to report on Includes CSR consideration •  Companies should consider reasonable expectations of all stakeholders

•  Dodd-Frank Act (United States) –  All oil and mining companies listed in the US must publish what they pay by way of taxes, royalties,

fees etc. to foreign governments as early as 2013

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Stakeholder Engagement •  Stakeholders extend beyond shareholders to include: workers,

local communities, governments, NGOs –  Supreme Court of Canada: BCE v. 1976 Debentureholders

•  Environmental Assessment Consultation Requirements –  Canadian Environmental Assessment Act; provincial statutes –  Public participation is a cornerstone of EA process in Canada

•  Recent proposed changes by Harper government to narrow stakeholder scope

•  Labour and OHS Workplace Engagement –  Labour Relations Act; Occupational Health & Safety Act –  ILO standards for worker engagement

•  Incorporated into contractual agreements through IFC Environmental & Social Performance Standards

–  Termination and severance, mass terminations, closure plans (termination, incentives, mine plan safety, pension wind-up issues)

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Stakeholder Engagement •  Contractually Required Engagement Processes

–  World Bank/IFC Environmental & Social Performance Standards –  Grievance Mechanisms

•  Aboriginal and Community Engagement –  Free prior and informed consent or consultation

•  Shareholder Proposals –  Canadian corporate law permits shareholders to require companies to put certain matters of business

before annual shareholders’ meetings –  Many relate to corporate governance, human rights and environmental concerns –  Example: Goldcorp 2012 Management Information Circular requesting more transparency on mine

closure and related risks –  Management must be ready to respond to shareholder proposals

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Transparency •  90% of all global mining equity financings were done on the TSX and TSXV

in 2011 –  39% of all equity capital raised globally in 2011 was raised on TSX and TSXV – So…Canadian Securities rules matter a great deal to miners globally

•  These include rules on disclosure which affects sustainability related disclosure •  Some important elements of disclosure for mining companies:

– Continuous Disclosure Obligations (NI 51-102) •  Specific disclosure of environmental and social policies fundamental to operations •  Are environmental & social risks material risks that must be disclosed? •  Question of what is material?

– Standards of Disclosure for Mineral Projects (NI 43-101) •  Controls disclosure to prohibit misleading information

– Environmental Disclosure (Staff Notice 51-716) – CIM best practice standards

•  Preliminary Feasibility study – includes financial analysis considering legal, environmental, social and governmental considerations affecting project

•  Feasibility Study – includes detailed assessments of legal, environmental, social and governmental considerations affecting project

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Transparency •  Sustainability Disclosure

– Again, characterized by multiple (sometimes competing) transnational normative frameworks Ø Global Reporting Initiative Ø Carbon Disclosure Project Ø Extractive Industry Transparency Initiative

•  Must consider: – Method of reporting – Frequency of reporting – Content of reports – Quality of reports – Assurance and verification of information

•  Importantly: – Must consider whether disclosure is consistent with securities rules, creates legal risks,

and is otherwise consistent with legally required disclosure – Role of legal counsel is essential

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Consistent Best Practices •  Transnational norms aimed at corporate legitimation (i.e. maintenance

of “social license to operate”) –  Many competing standards: Ø  OHS standards; IFC Environmental & Social Performance Standards; ISO 26000;

PDAC E3 Framework; Voluntary Principles on Security & Human Rights; Ruggie Framework; GRI, etc. etc.

•  Why so many? Because there is no centralized authority to determine what is the CSR standard for all times and places –  This is a challenging concept for business people and lawyers –  Each standard has to be evaluated for its applicability in a given circumstance

•  All standards require legal compliance as the starting point to building legitimacy -  But recognize that the complete set of norms which must be adhered to in order to

achieve legitimacy are not found only within legal systems

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Consistent Best Practices •  Importantly, each standard incorporates processes of stakeholder

engagement to identify the parameters of acceptable conduct necessary to operate legitimately

•  Once commitments are made to follow certain rules, they will be applied like laws and regulations (i.e. “self-regulation”), as part of a corporation’s governance

–  Legal reasoning helps in doing this, especially when dealing with tough circumstances (i.e. are we doing the right thing? What are the rules? How do we apply them?)

–  Role for legal practitioner to play in:

1.  Identifying applicable rules frameworks; 2.  Facilitating application of rules frameworks in particular circumstances; 3.  Advocacy for Corporation and Management when challenged.

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Precautionary Approach •  Emergent international norms and legal concepts:

– Precautionary approach for environmental management – Duty on business to respect human rights – Similar expectations to apply precautionary approach to health, safety and security –  ILO standards regarding freedom of association and non-discrimination in the workplace

requiring precautionary measures

•  Triggers deliberation in the face of uncertainty – Necessitates planning, action to mitigate risks, even if risks are not certain to materialize –  Identify red flags before they materialize (addresses reputational and legal risks)

•  Similar requirements in Canadian legislation –  Legal advisors as subject matter experts in application and satisfaction of precautionary

approach are valuable members of risk assessment and diligence team

•  Inter-Relationship of CSR and Legal Risks –  Legal counsel have vital role to play in risk assessment and due diligence – Such processes will be the best answer to future challenges to a company’s business

practices 18

Precautionary Approach •  Risk Assessment

– EHS risks involving regulatory compliance and potential application of transnational standards like the World Bank EHS Guidelines

– Anti-corruption risk assessments (UK Bribery Act, best practice) – Human rights risk assessments (risk assessment tools of Voluntary Principles on Security

and Human Rights; UN Principles on Use of Force and Firearms by Law Enforcement Officials)

•  Due Diligence – Applied to all corporate activities

•  Selection of business partners •  Entering into new markets, new corporate relationships (i.e. joint ventures) •  Acquisition of other companies (also acquiring their liabilities and reputational risks)

– Ruggie Report specifically includes necessity of human rights due diligence – Due diligence necessary to comply with labour standards expectations of IFC

Environmental & Social Performance Standards

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Accountability •  Judicial Mechanisms

–  Local legal systems •  Consider jurisdictional risks •  Tort Claims

–  International Arbitration clauses – Stability Agreements

•  Contractual remedies against State action – in return for investment commitments – Bilateral Investment Treaties (BIT)

•  Providing for arbitration – Political Risk Insurance – Requires planning

•  Non-Judicial Grievance Mechanisms -  Company level grievance procedures Ø IFC Environmental & Social Performance Standards Ø Corporate whistleblower and community engagement policies and procedures

-  CSR Counselor for the Extractive Sector/World Bank Compliance Advisor Ombudsman -  Tool for CSR Strategy?

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Accountability •  Risks of overlapping and concurrent proceedings

– For example, First Quantum and DRC Ø ICC JV Claim; ICSID mining concession claim; OECD NCP Complaint; CSR

Counsellor Complaint

– Financing Agreements (Equator Principles; IFC Environmental & Social Performance Standards)

– Enforced self-regulation is the new paradigm

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Community Investment •  Impact Benefit Agreements/Community Agreements

– Developed through consultation and accommodation of Aboriginal communities –  Internationally, used to satisfy consultation and consent requirements for contractual and

risk mitigation purposes Ø  IFC Environmental & Social Performance Standards Ø  ICMM “10 Principles”

– Way to build positive relationships, future business partners and human resources –  Legal obligations

Ø  Duty to consult and accommodate; local investment requirements Ø  Nunavut Land Claim Agreement; Canadian Oil and Gas Operations Act; Yukon Oil and Gas Act; Aboriginal Land

Rights Act (Northern Territory) Ø  Black Empowerment Act (South Africa)

•  Legal implications – Duty to consult and accommodate aboriginal persons – Environmental Assessments – Royalty and taxation agreements – Anti-bribery requirements – Human rights and employment law implications of ameliorating local community members

or marginalized groups

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Conclusions

•  CSR and law are overlapping, interrelated and intertwined forms of social expectation –  Legal and non-legal norms together compose the full set of legitimate expectations that

must be met for sustainability •  Implementing CSR may be for business objective but it has legal

implications – CSR as a form of self-regulation operates at all times “in the shadow of the law” –  Legal compliance is a necessary but not sufficient condition for CSR

•  Ensure legal counsel are on your team and able to work with other CSR advisors

•  We hope you enjoy the following presentations which will develop these CSR concepts further

•  Should you have any questions please do not hesitate to contact us

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Our international practice

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