Mandatory Reporting Standards for Extractive Sector - What We Heard

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Mandatory Reporting Engagement Report (March-May 2014)

Since July 2013, the Government of Canada has engaged provinces and territories as well as Aboriginal governments and stakeholders (e.g., industry and civil society organizations) in the development and establishment of the reporting requirements.

Between March and May 2014, senior officials of Natural Resources Canada (NRCan) held cross-Canada engagement sessions on mandatory reporting standards. The sessions, held in 11 cities, were attended by approximately 70 industry representatives, over 20 civil society representatives, and more than 40 Aboriginal governments and national Aboriginal organizations. These sessions aimed to better understand views on the proposed standards and followed those undertaken in 2013. NRCan also received a number of written submissions. The feedback received during these sessions and in the written submissions has helped inform the development of the reporting standards.

There was broad support for the principles underlying the standards, including anti-corruption and increased transparency in the extractive sector. The sessions provided an opportunity to discuss specific issues related to the implementation of the standards, such as timing, equivalency, content of report, definitions, and reporting of payments made to Aboriginal governments. Further details on key issues discussed can be found in the Comments received section.

Provinces and territories have also recognized the importance of developing reporting standards for the extractive sector. Most recently, provinces and territories expressed their support for Canada’s approach to mandatory reporting standards at the Energy and Mines Ministers Conference (EMMC) held in Sudbury, Ontario, from August 24 – 26. This was reflected in the 2014 EMMC communiqué as follows:

“All Provinces and Territories support the principle of mandatory reporting standards for the extractive sector on payments to governments. With this support, the Government of Canada intends to enact legislation.”

Key Issues

During the Government of Canada’s engagement sessions with industry, Aboriginal governments and civil society organizations to discuss mandatory reporting standards (March to May 2014) there was broad support from participants for the principles underlying the initiative.  The engagement sessions allowed participants to seek clarity on the proposed reporting requirements and offer their views and suggestions on how the Government should develop the standards.  The sessions informed the Government’s approach to the standards.  Key issues raised included:

  • Substitutability –the Government was encouraged to continue working towards reporting standards that would be substitutable with those of other jurisdictions (e.g., the U.S. and the EU);
  • Alignment with the United States –Canada was encouraged to ensure that its standards were aligned the U.S., given the need for substitutability with other jurisdictions;
  • Timing – some suggested that there may not be sufficient time to establish the standards by June 2015. It was suggested that more time be taken to understand the implications for foreign investment and the cost of implementation;
  • Auditing/Verification – CFO/CEO attestation of reports or “third party assurance reporting” was suggested as it would allow companies to demonstrate the effectiveness of internal controls;
  • Compliance/Penalties – support for a clear compliance mechanism and appropriate incentives to ensure that reporting is complete and accurate. It was noted that penalties should be sufficient to ensure compliance, while proportional to the violation and its impact;
  • Approach – clarification was sought on a variety of issues, for example: how Aboriginal governments will be defined; what is meant by a social payment; and whether foreign enterprises will be required to report;
  • Domestic reporting – certain participants considered current municipal and provincial data sufficiently transparent, and did not believe that domestic subnational reporting should be required;
  • Exemptions –participants expressed mixed views on exemptions; while some cited the need for exemptions to allow for flexibility and exceptional circumstances (e.g., conflicts of law), others believed that exemptions could provide a loophole and undermine the initiative;
  • Venue for implementation – it was suggested that the standards be implemented through provincial and territorial securities commissions, as in the U.S. where disclosure is to be supported through the U.S. Securities and Exchange Commission;
  • Reporting threshold – some suggested a two-tiered reporting threshold that would include a $10,000 threshold for junior exploration companies, and a $100,000 threshold for larger companies to ensure that the standards would include all extractive companies in Canada;
  • ‘Project’ definition – it was suggested that ‘project’ be clearly defined to ensure sufficient guidance and clarity for companies.  Some recommended a detailed description rather than allow companies to define the parameters,  while others proposed an approach based on product, method and location (i.e., what, how and where the resource is being extracted);
  • Centralized public database – it was suggested that a centralized database and archive of reports be developed to help communities access the information necessary to hold governments to account;
  • Reporting template – Canada was encouraged to work with the U.S. and EU to develop a common reporting template that would be accepted by all jurisdictions. It was suggested that open data parameters be used to ensure data is easily accessible and used effectively by stakeholders;
  • Inclusion of Aboriginal Governments – some participants suggested that payments made to Aboriginal governments be excluded from the standards. Others supported an approach that allowed for additional time to better understand the implications of industry reporting on payments to Aboriginal governments; 
  • Impact Benefit Agreements (IBA) – some suggested that IBAs should be exempt as they primarily address social issues related to resource development and are considered commercial, confidential agreements. It was noted that disclosure of these payments could affect relationships and negotiations between Aboriginal governments and industry;
  • Formal consultations with Aboriginal groups – it was suggested that the Government should undertake formal  consultations with Aboriginal governments and organizations;
  • Benefit for Aboriginal groups – some noted that there appeared to be no clear benefits for Aboriginal governments, given the transparency and accountability mechanisms already in place;
  • Payments of a social nature – many participants remarked that payments of a social nature made by industry to Aboriginal governments related to resource development (e.g., building of schools, contributions to social programming) should be excluded from the reporting standards;
  • Federal financial transfers – concerns were expressed that information revealed through the standards could be used to reduce funding to Aboriginal communities or withhold financial assistance through reformulation of federal transfer payments (i.e., own source revenues);
  • Misuse or misinterpretation of information – concerns were also expressed that the information disclosed could be misinterpreted, taken out of context or somehow used against Aboriginal communities; and
  • Capacity – some remarked that some Aboriginal communities lack capacity to analyze the potential impact of the reporting requirements.

Comments received in response to the Consultation on Mandatory Reporting Standards for the Extractive Sector

Feedback consisted of the following submissions:

User comments

 

We are convinced that the Government of Canada's mandatory reporting standards could be strengthened if they:

  1. Ensure that the location and formatting of reporting data is accessible to local communities and end users. The current framework proposes that companies would post reports annually on their corporate websites. Due to far slower internet connectivity in developing countries, forcing people to scour websites of multiple companies for relevant data will be extraordinarily inconvenient, and this approach may make information inaccessible and unusable (e.g., online links can break when websites are reorganized). Instead, we recommend that the government create a central repository for all disclosure data. Moreover, to ensure that information is directly comparable between companies, there should be a universal reporting template in a user friendly format.
  2. Require a lower payment threshold to capture all significant payments. The uniqueness of the Canadian resource extraction sector is that it is predominantly composed of smaller companies engaged in exploration. In order to capture payments made by these companies, a threshold of $10,000 rather than $100,000 should be mandatory. Without knowing which payments—even relatively small ones—are associated with specific projects, local communities will not have the tools they need to shine a light on corruption and mismanagement.
  3. Remove payments made to Aboriginal entities from the mandatory reporting standards. It will require close collaboration with Indigenous communities—and considerable time and resources—in order to contemplate extending transparency requirements into this realm. At this point in time there are just too many concerns and uncertainties about the impact of such a move. Given the complexity of such an undertaking, including payments to Aboriginal entities jeopardizes the prospect of establishing mandatory reporting standards by the government's own target date of June 2015.
 
 

L'initiative du gouvernement du Canada sur les normes de déclaration obligatoire pour le secteur de l'extraction va améliorer la transparence et la reddition de comptes au sein de ce secteur. Ma suggestion serait d'y inclure une clause de déclaration de conformité aux standards ou normes minimales de respect de l'environnement dans les activités du secteur de l'extraction. Les entreprises extractives basées au Canada ou ayant des activités à l'extérieur du pays incluraient dans leur déclaration obligatoire un bref rapport dans lequel elles admettent qu'elles se conforment aux normes minimales environnementales selon les lois canadiennes ou équivalentes étrangères…

 
 

Good governance

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