On August 22, 2012, the US Securities and Exchange Commission released its long-anticipated rules requiring the disclosure of company payments to governments. Europe will follow suit with similar legislation in the fall. Both initiatives have significant implications for many Canadian mining companies – and should have significant implications for how Canadian securities’ regulators carry on their work in the future.
Amendment 1504 of the Dodd Frank Act requires mining, oil and gas companies listed on US-based stock exchanges to disclose payments to governments on a country-by-country and project-by-project basis. These rules will dramatically increase transparency in the extractive sectors, affecting more than 100 of Canada’s largest oil, gas and mining companies.
This is no small matter for Canadian extractive companies whose ability to have a positive impact on improving financial transparency on a global-scale is enormous. About 60 per cent of the world’s mining companies and over a third of the world’s oil and gas companies are listed in Canada. There are also approximately 1,000 Canadian exploration companies active in more than 100 countries. In the past five years, the Toronto Stock Exchange handled a whopping 83 per cent of the world’s public mine financings. Clearly, Canada is a global mining leader.
Improvements to Canadian disclosure are critical if global transparency efforts are to be effective.
Recognizing Canada’s prominent role in the extractive sector, alongside the benefits of transparency, industry and civil society have united to announce a ground-breaking collaboration – the Extractive Resource Revenue Transparency Working Group. Formed by the Mining Association of Canada, the Prospectors and Developers Association of Canada, Publish What You Pay-Canada, and the Revenue Watch Institute, this group aims to collaboratively develop a framework for the mandatory disclosure of extractive company payments to governments that can be implemented in Canada.
The framework will require that companies report a variety of payments useful to governments, investors, and communities, such as taxes and royalties. Building upon existing regulations and drawing upon experiences in other jurisdictions, information will be disclosed on a country-by-country and project-by-project basis in a clear, usable format that aims to minimize additional reporting burdens.
The focus on disclosure stems from a recognition that one of the key reasons that some countries struggle to turn domestic resources into economic growth is the lack of transparency surrounding payments companies make to governments. In many countries, monitoring mining and oil revenues is nearly impossible given that citizens do not know how much is owed to their governments or how much is collected. This gap can lead to the mismanagement, loss and outright theft of resource revenues that are critically necessary for development. For communities, resource revenue transparency can empower citizens to hold their governments accountable for how revenues are managed. For host governments, disclosure can not only improve resource revenue management, but also encourage development and reduce corruption.
The benefits do not stop there. Increased transparency is not just about doing the right thing; it is also good business. For companies, disclosure clarifies the economic contributions of resource extraction, helps to support industry’s social license to operate, and contributes to more stable, productive operating environments. Meanwhile, better access to information can help investors assess risk and, in some cases, enhance returns on investment. Our Canadian advantage in the mining sector stems not only from our expertise and technology, alongside our ability to raise capital, but also from our willingness to embrace initiatives that empower citizens and governments to use resource revenues to support sustained economic growth and poverty reduction.
Finding common ground between industry and civil society organizations can sometimes be a challenge. However, on this particular issue, the four members of the Working Group share the common belief that revenue transparency is a necessary step toward a world where resource revenues contribute positively to sustainable economic development. As a result of improved transparency, citizens will be equipped with the information they need to hold their leaders accountable, and leaders with the information they need to make informed decisions about resource management.
For the 1.5 billion people that live on less than $2 a day in countries considered to be ‘rich’ in natural resources, translating resource development into sustainable economic development is critical.