CSR and Greenhouse gases: Considerations for projects in Canada and abroad
When it comes to management of greenhouse gases, Canadian mining companies are faced with a number of regulatory and legal requirements from host countries in which they operate. In addition to these requirements, key Corporate Social Responsibility (“CSR”) standards may also create additional requirements that go beyond law. Companies should keep these standards in mind, particularly when preparing for financing activity or anticipating potential challenges to the project from external stakeholders.
CSR best practice is often encapsulated by international standards including those endorsed by the Government of Canada’s enhanced CSR Strategy for the Extractive Sector (the “CSR Strategy”). The CSR Strategy endorses the IFC Performance Standards on Environmental & Social Sustainability (the “IFC Performance Standards”), which provide a very detailed set of expectations for the management of environmental and social impacts. In the area of pollution prevention, as in other areas, the approach of the IFC Performance Standards is to first identify impacts and then apply a mitigation hierarchy to avoid, minimize or remediate unavoidable impacts. In the case of greenhouse gas emissions, this approach is applied in Performance Standard Three of the IFC Performance Standards (“PS 3”).
PS 3 requires that both direct and indirect emissions associated with the project will be quantified for projects expected to produce more than 25,000 tonnes of CO2 or equivalent annually. Direct emissions, also referred to as “scope 1” emissions, generally refer to emissions from facilities within the project boundary. “Scope 2” emissions involve indirect emissions associated with the project’s use of energy, occurring outside of the project boundary. While not a direct requirement, the IFC Performance Standards also encourages disclosure of greenhouse gas emissions annually through corporate reports or other voluntary disclosure mechanisms. Along with quantification, the IFC Performance Standards require the consideration of alternatives and implement technically and financially feasible and cost-efficient options to reduce greenhouse gas emissions during the design and operation of the project.
These expectations, endorsed in the CSR Strategy of the Canadian Government, have their counterpart in the environmental and social standards applied by 80 of the world’s most prominent financial institutions, set out in the Equator Principles (the “EP”). The third iteration of the EP, released in 2013, make reference to the IFC Performance Standards and adopt requirements that mirror the IFC Performance Standards in some respects. For example, the EP requires quantification of “scope 1” and “scope 2” emissions and provision of evidence of “technically and financially feasible and cost-effective options” to reduce such emissions during the design, construction and operation of certain higher risk projects. There may also be requirements under the EP to report greenhouse gas emission levels during the operational phase for projects emitting over 100,000 tonnes of CO2 equivalent annually. Like the IFC Performance Standards, this requirement can be satisfied by regulatory requirements or voluntary reporting mechanisms like the Carbon Disclosure Project.
A key distinction from the IFC Performance Standards is that the EP requires project proponents to undertake an “alternatives assessment” wherever greenhouse gas emissions for such projects are anticipated to emit more than 100,000 tonnes of CO2 equivalent per annum (rather than 25,000 under the IFC Performance Standards). Unlike many of the requirements of the EP, this requirement for an alternatives analysis applies even in highly developed countries like Canada. In other words, where a financing in Canada is being undertaken by an EP financial institution, or Export Credit Agency subject to the OECD Common Approaches, alternatives analysis requirements may be a condition of financing.
It is important to note that these requirements may be satisfied by compliance with regulatory requirements addressing the same issues. However, where regulatory requirements fall below the standards set by the IFC Performance Standards or EP, the higher standard may need to be applied. This illustrates that CSR standards are not just relevant for operations in developing countries, but can also affect projects here at home.