Remarks by: Jim McArdle
Senior Vice-President, Legal Services & Secretary
To the: GLOBE Conference Panel
Vancouver - March 25, 2010 

Good afternoon ladies and gentlemen.

The need for companies to have a “social licence, that is, to gain support of the communities where they operate, is integral to doing business today.

Let me give you an example of what I’m talking about, from a Brazilian pipeline company with whom I shared a panel in Rio de Janeiro last fall.

Before the company started construction, it spent years learning about the land and the people who lived on the planned pipeline route.

They had countless meetings and detailed discussions with indigenous groups.

Once they got started, the inevitable happened – something went wrong.  Huge flooding damaged the pipeline and caused  negative repercussions in several communities.

But what could have turned into a flood of negative media and “scape-goating” of the company, turned into local support and speedy rebuilding of the pipeline.

The trust the company had built at the front end of the project paid off many times over.

As this example shows, firms need to gain community support to mitigate social impacts.

This will minimize business risks if something goes wrong—because at some point, something will.  And companies don’t want that first call of concern to be from their bank!

So let me tell you how up to 80 per cent of lenders to major projects, including EDC, strive to ensure resource companies have a “social licence” and can maintain it when challenges arise.

Why do we care? Because financial institutions, especially a public one like EDC, have a “social licence” too -- in the form of high expectations from the Canadian public.

Our reputation can be damaged if a client doesn’t manage its social issues properly—this often comes with serious financial impacts, which no bank or business wants.

Corporate social responsibility is a familiar subject for me, since I have been working on the front lines of CSR  for a large part of my career as corporate counsel.

And EDC provides a good example of the guidelines that financial institutions use when they are assessing a company’s social performance or “licence.”

For those of you who don’t know EDC, we’re Canada’s export credit agency; we were established just over 65 years ago to help Canadian firms do business internationally.

Our services include export credit insurance, financing, bonding guarantees and more.

Last year, we facilitated some $83 billion in exports and investments abroad by nearly 8,500 Canadian companies, a record number for EDC.

We also partner with world’s major banks, insurers and ECAs in providing financial services.

To make our financial participation contingent on a company’s social performance, we have to be socially responsible ourselves. We’re not asking clients any more than we ask of ourselves.

CSR is integrated into decision-making across EDC; it is one component of a broad set of due diligence practices.

CSR is not a quick fix—we have developed and refined our formal policies and practices over more than 10 years.

Our CSR process is still evolving.  In other words, we continue to improve our practices as environmental and social issues evolve.

CSR has many components: I will concentrate on human rights, other social impacts and transparency; these elements all contribute to a company’s “social licence.”

In 2008, EDC worked with John Ruggie, Special Representative of UN Secretary-General on Business and  Human Rights, to develop a Statement of Commitment on Human Rights.

The Statement says, in part:  “EDC recognizes that financial institutions must endeavour to assess the potential for adverse human rights outcomes for individuals directly affected by [investment] projects.”

When assessing a company’s social performance, EDC has a comprehensive environmental review process, which also covers social impacts.

We adhere to legal and policy requirements, plus international agreements, including:

• Common Approaches to the Environment -  this applies to all ECAs.
• Equator Principles, accepted by most major banks and other financial institutions.

The Equator Principles require companies seeking project financing to have social assessment plans in place and to consult with affected communities.
We also follow the World Bank’s International Financial Corporation (IFC)  Performance Standards on social and environmental issues.  These include:  review of resettlement practices, management of labour rights, working conditions, impacts on indigenous peoples, and community health, safety and security issues.

For example, EDC examines if company has the capacity to manage social aspects of project, such as staffing resources, and/or expert consultants.
Biggest gaps we see are in labour management and community engagement:

• For example, some companies have limited mechanisms for employees to raise workplace concerns;
• Others lack ongoing consultation or disclosure about the project to local communities.
  When seeking EDC financing, our environmental advisors can help companies better understand the social guidelines and requirements.

For starters, it’s important to disclose a company’s plans to stakeholders and engage in dialogue with them before a major project, to build trust and community support.

This kind of transparency is one of the pillars of EDC’s own CSR strategy.
EDC can help companies engage with stakeholders including customers, communities and NGOs.

For instance: EDC organized several roundtables within last couple of years to bring perspectives from all these types of stakeholders to mining issues in DRC and Peru; all parties left with greater understanding of the social impacts.

In addition, I just came back from a fact-finding mission in Peru.  I met with government officials, local and Canadian companies and NGOs, to better understand how to manage CSR issues there and in other emerging markets—especially in the mining sector.

Talking about mining, we can’t ignore the proposed Bill C-300.

As you may be aware: Bill C-300 deals with Corporate Accountability for Activities of Mining, Oil or Gas Corporations in Developing Countries and is currently being reviewed by Parliament. It aims to ensure that Canadian extractive companies follow human rights and environmental best practices when they operate overseas.

The Bill also proposes that EDC’s lending and insurance to an extractive company be withheld or withdrawn, if a company violates the human rights and environmental guidelines in Bill C-300.

As I have  indicated throughout these remarks, EDC already carefully monitors that Canadian companies conduct their business in a socially responsible manner.

EDC is also continues to work with the UN’s Dr. Ruggie to further address human rights issues.

At this time, including EDC in Bill C-300 would put Canadian companies at a competitive disadvantage against those in other countries, who do not impose the same guidelines.

We believe the best way to promote better social conduct is by helping companies build their capacity to operate in a responsible manner.
For example:  EDC was asked to support a junior mining company that had not handled the necessary re-settlement process properly.  What did we do?

• We helped bring company up-to-date on IFC Performance Standards;
• We required that they re-conduct their community consultations; 
• We recommended they develop internal processes to protect the human rights of the local population; and
• We suggested they involve an NGO to help them monitor the local situation.

All this has led to a delay in the project, but it better ensures the mine will be developed to accepted standards, and the community will be properly compensated and re-settled.

The current process lets us work with companies to help them, but under Bill C-300 some firms wouldn’t come to us out of concern we could pull out our financing—this could reduce the company’s and Canada’s international competitiveness.

What does this all mean?

If a company needs international financing for a project—and which resource company doesn’t?—it will be held to high social responsibility standards.

Companies should include social impact assessments early in project planning and can benefit from consulting with their financial institution in this process.

They should talk to the communities where projects will take place at the earliest planning stages and throughout the project lifecycle.

They can then adjust project plans to ensure community concerns are addressed. All these steps are part of obtaining a “social licence” to operate.

In the long run, a “social licence” is a competitive advantage that enhances a company’s brand and enduring value.

Thank you for your attention.