TRENDS IN CORPORATE ENGAGEMENT PROJECT-BASED APPROACH, BEST PRACTICE FOCUSED THREE CASES IN THE PIPELINE Lise Parent - Analyste-conseil – Responsabilité sociale et durabilité Regroupement pour la responsabilité sociale et l’équité (RRSE) parcohen @ sympatico.ca
<ul><li>The RRSE in a nutshell </li></ul><ul><li>Project-based Approach – what it consists of; why we use it; examples from projects in the pipeline </li></ul><ul><li>Best-practices focused – what it consists of; why we use it; how it is defined; interrelation of BP; examples from projects in the pipeline </li></ul><ul><li>Risks linked to outdated practices </li></ul><ul><li>Conclusion – advantages of a project-based, best- practice focused approach </li></ul>Agenda
<ul><li>Founded by institutional investors from religious communities; open to other ethical shareholders </li></ul><ul><li>2) Independent from any public, corporate or NGO funding </li></ul><ul><li>3) Researching material information not included in financial reports under current practices, in order to advise its members in the performance of their duties as portfolio managers or shareholders </li></ul><ul><li>Develop corporate engagement program for its members </li></ul><ul><li>Focused on social justice and the integration of environmental, social and governance (ESG) factors in the management of business enterprises </li></ul>The RRSE in a nutshell
A global approach is focused on a portfolio, while a single project illustrates how risks and opportunities are linked to practices applied daily in search of development. It involves: <ul><li>People in their daily life whether opposed to or in favour of the project, and illustrates on what basis a social license to operate can be obtained </li></ul><ul><li>Competition for resources (water, land, minerals, forest) and how conflict over resources may be resolved </li></ul><ul><li>The environment, and illustrates the dependency of people and resources on sustainable development </li></ul><ul><li>Disclosure rules and transparency to shareholders concerned with risk management </li></ul>Why Project-based (vs global) approach?
<ul><li>Projects identified by our religious members missions – compared to information from stock analysts, NGOs and newspapers for "information triangulation" </li></ul><ul><li>- Magnitude of the project VS the Company portfolio </li></ul><ul><li>- Disclosure of information on risks and obligations by the Company (Management Discussion & Analysis [MDA] section and Financial Statements - Asset Retirement Obligations [ARO]) </li></ul><ul><li>Distinctiveness of issues – working conditions, engagement and partnership, water, global warming, indigenous land, etc. </li></ul><ul><li>Risks involved – project cancellation, on-going controversy, economic, environmental and social impacts of accident or mishap </li></ul>What projects do we choose and how ?
Example - Three cases in the pipeline In process No disaggregated data in MDA and relative to ARO Disclosure Main source of the Company virgin fibers (soft wood) 23% of Barrick’s gold mineral reserves; 25% of total long-lived assets in C & A 1/5th to 1/3rd of Alcan’s alumina production Magnitude Largest tenures in Canadian boreal forest supporting mono-industrial villages and First Nations Unprecedented open-pit cyanide leaching mining in a high altitude seismic zone, water source of inhabited valleys Bauxite and alumina project in a ‘’failing society’’, tribal land and vulnerable communities Project Abitibi-Consol QC & ON tenures Barrick Gold – Pascua-Lama/Veladero Alcan - Utkal
Three cases in the pipeline (continued) <ul><li>On-going controversy </li></ul><ul><li>Lost of market shares </li></ul><ul><li>Environmental and social impacts of accident or mishap </li></ul><ul><li>- Long-term rehabilitation costs </li></ul><ul><li>On-going controversy </li></ul><ul><li>Project cancellation </li></ul>Risks involved - Forest Product Certification - Indigenous Rights - Right to Water - Precautionary Approach - Transparency - Free, Prior and Informed Consent (FPIC) Distinctive issue Abitibi-Consol QC & ON tenures Barrick Gold – Pascua-Lama/Veladero Alcan - Utkal
<ul><li>Best practices are policies, guidelines, standards, rules, programs, initiatives or activities which are considered leading edge. A commitment to using best practices in any field is a commitment to using all knowledge, standards and technology available to ensure a project sustainability and success. </li></ul><ul><li>Best practices are not localized but universal; a form of auto-regulation; the alternative would be international regulation </li></ul><ul><li>Generally speaking, BP apply to the assessment of a project’s economic, social and environmental impacts, the adjustment of the project design to minimize negative impacts, and the disclosure and mitigation of or compensation for any residual impacts. </li></ul>Best-practices focused - What are BP?
<ul><li>Ongoing adherence to best practices assure that there are no double standards, for instance a set of practices in the OECD countries, and another set for developing countries. </li></ul><ul><li>From a shareholder standpoint, BP ensure that stakeholders (including shareholders) will not have to support risks in one country they would not support in another country. (Ex., DRC vs Canada in same portfolio) </li></ul><ul><li>Best practices are precautionary: although their application may not be regulated, they are not optional for enterprises committed to CSR as they ensure the best of risk management, from a social, environmental and economic point of view. </li></ul>Why Best-practice focused?
How are best practices defined? - Covenants regarding fundamental rights applicable to development, such as the right to water or indigenous rights - Principles such as FPIC or the Precautionary Principle (RIO) By the UN or under UN auspices The United Nations - Safeguard policies on Environmental and Social Impact Assessment (ESIA, including baseline data collection and independent auditing), indigenous people, resettlement, consultation including NGOs, etc - Disclosure and disaggregation of data re material information - World Bank Group (WB) - International Accounting Standards Board’s International bodies Ten Principles for sustainable development, “i.e. that meets the needs of the present without compromising the ability of future generations to meet their own needs” International Council on Mining & Metals (ICMM) The Industry Defined by
How are best practices defined? (continued) <ul><li>Interrelation of best practices </li></ul><ul><li>Ex.: International Cyanide Management Code (ICMM + UNEP) </li></ul><ul><li>Transportation, usage and storage of cyanide during operations </li></ul><ul><li>No standards on mining effluents, design / construction of tailings impoundments or closure and long-term rehabilitation </li></ul><ul><li>Not sufficient to adhere to the ICMC. Latest standards on mining effluents, design, project insurance to be in place to. </li></ul><ul><li>Best practices are interrelated to better manage risks which evolve with technologies and global public scrutiny </li></ul><ul><li>THE CHALLENGE FOR INVESTORS IS TO IMPLEMENT A MULTIPRACTICES EVALUATION APPROACH </li></ul>Best mining codes, best conceptual design standards, etc. Governmental agencies National bodies - Triple bottom line reporting - Workers’ rights - GRI - ILO Multilateral bodies
Example - Two cases in the pipeline - Without disclosure of ESIA, there can’t be FPIC - Criminalization of dissent Claimed Project Affected People acceptance – 60% Tribal FPIC/ acceptance, as per WB safeguard policies, ILO 169, and UN declaration on Indigenous Rights Never disclosed to stakeholders and obsolete (over 10 years) ESIA disclosed to the authorities Transparency as per WB safeguard policies on ESIA and ICMM principle 4 on Risk Management Alcan - Utkal Comments Company Statement Targeted Best Practice Project
Two cases in the pipeline (continued) Fast recession of glaciers and prolonged droughts would demand inclusion of those factors in the conceptual design and mitigation measures Projections regarding climate warming rates and impact of mining on glaciers missing as per UN Covenants and Rio Declaration Impossible to compare to best mining codes Mining effluent standards not disclosed Right to Water and Precautionary Approach Barrick Pascua-Lama/ Veladero Comments Barrick Pascua- Report Company Statement as per Lama Shareholder Targeted Best Practice Project
Two cases in the pipeline (continued) Ancestral lands without titles. Falls under Indigenous rights defined by UN No mention of acceptance or litigations from Indigenous People Essential to shareholders and stakeholders. Serve as yardstick for responsibilities and liabilities in case of litigations No mention of Water Base Line Data disclosure to all stakeholders Population information and consultation in line with WB safeguard policies Barrick Gold – Pascua-Lama/ Veladero Comments Barrick Pascua- Report Company Statement as per Lama Shareholder Targeted Best Practice Project
Corporate engagement program <ul><li>Two modes (private vs public) in four phases – Dialogue, Partnering, Intervention and Follow-up </li></ul><ul><li>Dialogue is private and consists of letters to and meetings/ conference with management and Board as well as fostering awareness of other shareholders </li></ul><ul><li>Partnering is private and consists in developing enduring partnership with experts and other shareholders for multilateral engagement </li></ul><ul><li>Intervention is public and consists of questions at AGM, filing of proposals, press releases and coalitions </li></ul>Dialogue Barrick’s feedback on our review of their report to shareholders, following up on our proposal filing Follow-up – conditionality for withdrawal Status Abitibi-Consol -QC & ON tenures Barrick Gold – Pascua-Lama / Veladero Alcan - Utkal
<ul><li>Enduring opposition or controversy leading to delays, confrontation, additional costs, withdrawal, etc. </li></ul><ul><li>Global reputation – financing and insurance costs, stock valuation </li></ul><ul><li>Local regulation changes – La Rioja Province (Argentina), Peru – Yanacocha (no water base line data) – fed by anti- mining sentiment </li></ul><ul><li>People are more and more knowledgeable about international standards and practices and want to be treated no differently than Canadians or Americans </li></ul>Risks linked to double standards or outdated practices
<ul><li>Concrete illustration of best practices re social and environmental impacts, of risks linked to obsolete practices and governance, and how practices and risks are interrelated in ‘’real life’’ and for responsible long-term investment </li></ul><ul><li>Lead to multipractice evaluation which allows us to: </li></ul>Conclusion: advantages of a project-based, best-practices focused approach <ul><li>Get support from experts in their own field (single project = single technical issue – conceptual design, hydrology, geochemistry, etc.) </li></ul><ul><li>Get support from other institutional investors (multifactor research supported by technical experts) </li></ul>