5 “Legal” Reasons Why Natural Resource Companies Should Care About Corporate Social Responsibility (CSR)

“Corporate Social Responsibility” (CSR) as a concept has been floating around in business-speak for years – but stakeholders in the mining and other natural resource industries are increasingly focussing on it. It’s safe to say that CSR is part of the “new normal” in the natural resource sector.

CSR has many definitions, but the common thread is that it relates to voluntary actions beyond legal obligations and contractual requirements that companies take to operate in a sustainable manner. Although CSR has its critics, a growing volume of research and commentary suggests – quite convincingly – that it has many benefits and supporters too. For example, CSR proponents say:

• Risk Management & Mitigation. CSR helps manage and mitigate many of the social and environmental risks associated with natural resources, and provides a compensation mechanism for the impacts of natural resource extraction.
• Better Performance. CSR activities can lead to increased employee productivity, innovation and recruitment and retention rates, with a positive bottom-line impact. More directly, Professor Flammer (University of Western Ontario Ivey Business School)  found the adoption of CSR proposals leads to positive announcement returns and superior accounting performance and the London Business School and Harvard Business School found that sell-side analysts progressively assessed US publicly traded companies with high CSR ratings more optimistically over time.
• Competitive Advantage. CSR can differentiate a company from its competition, particularly vis-à-vis socially and environmentally conscious customers and investors.
• Enhanced Stakeholder Relations. CSR engages stakeholders by providing a way to be involved in the natural resource project, building positive relations with them – and for this purpose, “stakeholders” includes shareholders and investors and also employees, governments and regulators, non-governmental organizations and the community at large.

If you’re still not convinced of the value of CSR, maybe this will persuade you: although CSR isn’t about the law in the usual sense, CSR activities may arise as a result of, or interact with, laws and legal obligations. Here are 5 “legal” reasons why natural resource companies should care about CSR:

1. Corporate Law. Under Canadian corporate laws, a corporation’s directors owe the corporations they serve a legal duty of loyalty and good faith, requiring them to act with a view to the corporation’s best interests. Traditional corporate law concepts focus on maximizing shareholder wealth, but recent court decisions have expanded the scope of the traditional approach. A board’s business decisions must still fall within a range of reasonable alternatives (the “business judgment rule”), but directors may also look to the broader interests of stakeholders in determining the corporation’s best interests. These stakeholders may include shareholders and investors, employees, the environment and the community at large –  all of which can be impacted by a company’s CSR activities.
2. Securities Law. CSR can impact the continuous disclosure requirements of public companies under securities laws. The Canadian Securities Administrators (CSA) Staff Notice 51-333, Environmental Reporting Guidance, gives reporting issuers guidance on disclosure relating to environmental matters pursuant to such requirements by clarifying existing obligations and discussing the various levels of company oversight of environmental disclosure. TSX-listed issuers can also find guidance in the TSX and CPA Canada “A Primer for Environmental and Social Disclosure”.
3. Aboriginal Law. Governments have a legal duty to consult with affected aboriginal groups when governmental actions might adversely impact existing aboriginal or treaty rights. You might expect adverse physical effects to give rise to the duty to consult, but high-level management decisions or structural changes to a resource’s management may also adversely affect Aboriginal claims or rights, even if they don’t immediately impact the lands and resources. Where natural resource company’s operations may impact on aboriginal rights, this duty to consult could inform the company’s appropriate level of engagement with the aboriginal community under its CSR programs.
4. Environmental Law. Corporations may face liability for environmental harm under environmental laws, so environmental regulations can significantly impact CSR activities. Federal and provincial governments can not only impose liability under environmental laws, they can also require environmental assessments for certain projects – a cornerstone of which is public consultation. One of the express purposes of the Canadian Environmental Assessment Act  is “to ensure that there are opportunities for timely and meaningful public participation throughout the environmental assessment process”.
5. Anti-bribery and Anti-corruption Laws. Canada’s anti-bribery and anti-corruption laws (and those of the US and the UK) are aimed at curbing corrupt behaviour by nationals in foreign countries. The Canadian Corruption of Foreign Public Officials Act (CFPOA) prohibits the bribing (including non-monetary bribes) of “foreign officials”, which includes people who hold a legislative, administrative or judicial position of a foreign state and employees of boards, commissions or corporations established to perform a duty or function on behalf of the foreign state. “Facilitation payments” (payments made “to expedite or secure the performance by a foreign public official of any act of a routine nature that is part of the foreign public official’s duties or functions”) are currently exempted from the bribery prohibition. However, the federal Cabinet has approved the repeal of that exemption effective at a future date the Cabinet determines; notably, the analogous US laws still exempt these payments.

On October 23, 2014, the federal government also introduced Bill C-43 which will create the Extractive Sector Transparency Measures Act. This Act would create mandatory reporting for certain entities engaged in (or in control of other entities engaged in) the commercial development of oil, gas or minerals in Canada or elsewhere, and that are listed on a Canadian stock exchange or meet certain asset, revenue or employment thresholds. These entities would have to report specified payments made to both domestic and international government at all levels (including to aboriginal governments) in relation to the commercial development of oil, gas or minerals during a fiscal year. The reporting would only apply to payments (both monetary and “in-kind”) exceeding an amount set by regulation (one is not yet set) or, if there is no set amount, $100,000.

Please contact your McInnes Cooper lawyer or any member of our McInnes Cooper Corporate Governance and Compliance Team or our Energy and Natural Resources Team to discuss this topic or any other legal issue.

McInnes Cooper has prepared this document for information only; it is not intended to be legal advice.  You should consult McInnes Cooper about your unique circumstances before acting on this information. McInnes Cooper excludes all liability for anything contained in this document and any use you make of it.

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