Managing risk by showing support

ast month in this column I noted the incredible increase in cumulative Canadian mining investment abroad, which has mushroomed from $30 billion in 2002 to over $110 billion. Now comes the latest update from Natural Resources Canada, who compiles these statistics from public reports. As of 2010, the asset total for mining investment outside of Canada now stands at around $129 billion, with virtually all of the growth since 2002 coming from Africa and Latin America.

As Prime Minister Harper noted in Tanzania in November 2007, the government encourages and expects Canadian companies to meet high standards of corporate social responsibility. The Prime Minister also noted that Canadian investment in the extractive sectors abroad can result in win-win outcomes both for the economy of Canada and those of resource-rich developing countries, but that the extractive sectors face unique operating challenges abroad. If anything, these complex challenges have intensified since 2007. Just last week, Deloitte identified “the demand for heightened corporate social responsibility” as one of the top 10 trends facing the mining industry (see “Tracking the Trends 2012”). With greater global visibility, the report notes, comes industry’s “greater responsibility.”

Many of the countries where investment has flowed in recent years have limited experience with modern mining. Some are very poor, or emerging from conflict, with attendant complex social problems. Faced with these social and environmental challenges, Canadian companies are increasingly engaging in CSR initiatives, generally defined as voluntary activities undertaken by a company to operate in an economically, socially, and environmentally sustainable manner. CSR is important for Canadian business abroad because it helps manage risks, improve access to capital, enhance employee relations, build social license to operate, and improve reputation.

Canadian industry associations and extractive companies have been recognized for their leadership on these issues. However, more can be done. Many companies look to the Canadian government for guidance and support in managing the risks of operating in complex environments abroad.

My office, the Office of the Extractive Sector CSR Counsellor, is a new entity and is part of a larger Government of Canada CSR Strategy for Canadian mining, oil and gas companies operating abroad, called “Building the Canadian Advantage.” This relatively new CSR strategy aims, through a variety of integrated elements, to boost the competitiveness of Canadian extractive companies by enhancing their ability to manage dynamic social and environmental risks. The Strategy, announced by the Minister of International Trade in March 2009, is based on four complementary pillars, with the participation of three Government of Canada departments: Trade, CIDA and Natural Resources Canada. The pillars are to:

• Support host-country initiatives to enhance resource management capacity, and to benefit from these resources to reduce poverty. To that end, Minister Bev Oda recently announced initiatives for Africa and South America, and the Prime Minister announced the creation of the Canadian International Institute for Extractive Industries and Development. These undertakings reinforce Canada’s commitment to support initiatives in developing countries that promote sustainable economic growth, create jobs and reduce long-term poverty.
• Promote widely recognized international CSR performance guidelines, which include the OECD Guidelines for Multinational Enterprises, the IFC Performance Standards, the Voluntary Principles on Security and Human Rights, and the Global Reporting Initiative. These are the voluntary standards which underpin the mandate of my Office.
• Support the development of a CSR Centre for Excellence, which was launched in January 2010 and is supported by a Secretariat housed at CIM.
• Set up the Office of the Extractive Sector CSR Counsellor.

The CSR Strategy is, to my knowledge, path breaking in the world today. It recognizes the good work that Canadian companies have done in meeting the challenges of new operating environments, while noting that stakeholder expectations about social and environmental issues are dynamic and intensifying. The Strategy also appreciates that good CSR outcomes are a shared responsibility – governments, civil society and companies all have important roles to play.

Next month, I will have more to say about the role of the Office itself.