CSR and transparency
It is no surprise that corporate social responsibility (CSR) necessitates a certain degree of openness and transparency with corporate stakeholders – be they local communities, civil society, employees, shareholders or even governments. Nowadays, these transparency obligations are driven by voluntary best practices, financing requirements and law – all of which tie CSR to corporate governance practices.
Of importance from a legal perspective, on June 1, 2015, the Extractive Sector Transparency Measures Act (the “ESTMA”) of the Government of Canada came into force with the objective of deterring and detecting corruption relating to payments by extractive sector companies to government entities. This legislation, mirrored in other jurisdictions like the United Kingdom and United States, reflects a movement to legislate transparency that was once viewed as purely voluntary. Transparency best practices promoted by Transparency International or the Extractive Industry Transparency Initiative have informed these legal requirements to a great extent – showing how quickly “non-law” can become “law” in the world of CSR. The ESTMA applies to a range of companies involved in the exploration and extraction of oil, gas and minerals. Under the new legislation, annual public reports will be required on payments (such as royalties, taxes and other payments exceeding a threshold of $100,000) to domestic and foreign governments, or other entities tied to governments, including aboriginal governments in Canada in 2017. The legislation is explicit that reports under the ESTMA must be disclosed publicly (for a period of five years) to allow for their use by interested stakeholders. In other words, the transparency required by the ESTMA is not simply in relation to government, but rather to interested stakeholders more broadly. This would include civil society, shareholders and communities in which companies operate.
Transparency has been a critical part of CSR well before governments got into the game with legislation. International standards such as the IFC Performance Standards on Environmental & Social Sustainability (endorsed by the Government of Canada in the Enhanced CSR Strategy for the Extractive Sector) have encouraged stakeholder engagement and grievance mechanisms to include transparency towards affected communities, including reporting to affected communities at the project level at least annually. Transparency topics include activities of grievance mechanisms, reporting on greenhouse gas emissions, reporting on environmental and social management issues, and actions taken by companies to resolve local concerns. This reporting is designed to initiate discussions with local communities and create a feedback mechanism for project proponents.
In project financing contexts, the IFC performance standards are often applied alongside the Equator Principles (“EP”), a voluntary commitment of 80 of the world’s private sector financial institutions. The EP have specific transparency requirements for both financial institution signatories, as well as the companies whose projects they finance. These include a requirement that, for certain higher-risk projects, recipients of loans post summaries of environmental and social impact assessments on their websites, as well as regular monitoring and public reporting where greenhouse gas emissions of a financed project exceed certain thresholds. These transparency obligations will become legal obligations through conditions of financing included in contractual documentation.
Transparency is also critical to implemenating guiding principles on business and human rights. Reporting is discussed in Principle 21, which encourages a measure of transparency and accountability by companies vis-à-vis individuals or groups who may be impacted by corporate operations, as well as to other relevant stakeholders, including investors. These expectations do not require an enterprise to publicly reveal all the issues identified in its ongoing assessments of human rights impacts, but where there are significant human rights risks, there is an impetus for disclosure. Clear exceptions are also provided, particularly where disclosure would create risks to affected stakeholders, personnel or impinge upon legitimate requirements of commercial confidentiality. Disclosure under the guiding principles can occur in a variety of forms, including in-person meetings, online dialogues, consultation with affected stakeholders and formal public reports.
Similarly the Global Compact requires communication on progress (COP) reports regarding implementation, published annually on the Global Compact website. The COP must include a description of practical actions (i.e., disclosure of any relevant policies, procedures, activities) that the company has taken (or plans to undertake) to implement the Global Compact principles in each of the four issue areas (human rights, labour, environment and anti-corruption) and applying a “report or explain” methodology.
As these laws and standards illustrate, transparency reporting is widely viewed as critical to embedding a CSR culture and building trust with stakeholders.
Michael Torrance is a lawyer in Northern Rose Fulbright’s Toronto office.
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