Press Responses: July 9, 2008

EDC Gives Nod to Human Rights Considerations
But the Jury is still out on whether the Crown Corporation has gone far enough.

By Lee Berthiaume

With an eye on a recent report tabled by the UN’s special representative on corporate social responsibility, Export Development Canada has adopted a policy of considering potential human rights impacts before approving transactions in developing countries.

Yet one EDC official acknowledged there will be little immediate change in the way EDC does business, while Amnesty International criticized the move for being more lip service than actual action.

In April, John Ruggie, the UN secretary general’s special representative on human rights and business, presented his third report to the UN Human Rights Council. The report included a framework that highlighted many of the complexities and challenges surrounding the growing movement towards improved corporate social responsibility.

“The root cause of the business and human rights predicament today lies in the governance gaps created by globalization— between the scope and impact of economic forces and actors, and the capacity of societies to manage their adverse consequences,” Mr. Ruggie’s report reads. “These governance gaps provide the permissive environment for wrongful acts by companies of all kinds without adequate sanctioning or reparation. How to narrow and ultimately bridge the gaps in relation to human rights is our fundamental challenge.”

Mr. Ruggie found that one of the major problems is that the debate doesn’t have a focal point, with a confusing mix of allegations and counter-allegations that have no positive effect, but allow “laggards—States as well as companies—[to] continue to fly below the radar.”

To that end, the special representative, who has held his position since 2005, laid out three principles, namely that governments have a duty to protect against human rights abuses by third parties, including business; that companies have a responsibility to respect human rights; and that more remedies for disputes and conflicts need to be devised.

Mr. Ruggie acknowledged a great division of opinion on whether countries should be responsible for monitoring the actions of companies headquartered in their territory but operating abroad, which has been the focus of much debate in Canada, culminating in several recommendations that came out of a series of national roundtables in 2006 and 2007.

However, the special representative wrote that “Governments should not assume they are helping business by failing to provide adequate guidance for, or regulation of, the human rights impact of corporate activities. On the contrary, the less governments do, the more they increase reputational and other risks to business.”

At the same time, Mr. Ruggie found that most companies don’t have systems in place to determine whether they are respecting human rights or not, including export credit agencies (ECAs) like EDC, which finance or guarantee exports and investments in developing countries and, in his opinion, are a logical place to start with such requirements.

“On policy grounds alone, a strong case can be made that ECAs, representing not only commercial interests but also the broader public interest, should require clients to perform adequate due diligence on their potential human rights impacts,” Mr. Ruggie’s report reads. “This would enable ECAs to flag up where serious human rights concerns would require greater oversight—and possibly indicate where state support should not proceed or continue.”

Mr. Ruggie went further by recommending countries’ export credit agencies like EDC and development agencies like CIDA work closer together in the future.

“A development agency may view the arrival of an ECA-supported private investment in a particular region of a country as reason to focus its own efforts elsewhere,” he wrote. “But if the investment has a large physical and social footprint, the chances are that it will generate pressures that local authorities may need help in managing— and which the home country development agency might be able to provide.”

When it came to businesses, Mr. Ruggie offered a number of recommendations, including the adoption of a human rights policy that provides specific guidance on issues of relevance; the use of human rights impact assessments; and the integration of human rights policies into the company’s overall operations.

‘No Light Switch’
On April 30, EDC adopted a policy statement designed to guide how it considers potential human rights impacts when weighing whether to get involved in specific transactions.

In announcing the statement’s adoption, EDC acknowledged the growing importance of corporate social responsibility in Canada and internationally, and linked the decision to move ahead with Mr. Ruggie’s report, adding that some of its officials participated in consultations with the special representative in Geneva and Copenhagen.

“Investment projects may have potentially significant impacts on the human rights of individuals,” the statement reads.  “EDC recognizes that financial institutions must endeavour to assess the potential for adverse human rights outcomes for individuals directly affected by such projects.”

It goes on to note that, as a wholly-owned arm of the Canadian government, the credit agency is obliged to operate according to government policies, including adherence to international human rights conventions.

While EDC’s Political Risk Assessment Department already conducts political risk assessments—which include examining the human rights situation—on the country and project levels, the agency will now take a close look at potential human rights impacts. This will be done using reports like World Bank and Freedom House data and other information.

At the same time, EDC will actively monitor the international discussion of human rights issues “to identify emerging best practices and to incorporate into its due diligence those practices that are relevant to the mandate of a financial institution.”

Greg Radford, chief CSR adviser at EDC, said the credit agency has been increasingly aware of the bearing human rights has on its operations, and has been working to align its policies with those principles. And while EDC’s political assessments included human rights, he said, the policy statement’s strength is that companies and foreign governments will know those are key aspects of the approval process.

“The idea for EDC to come out with a statement was really to come out and have more of a public position on what our procedures and what our policies and practices are,” he said. “We deemed it necessary and desirable to put out a public policy statement.

“I think it sends a clear message to Canadian companies and foreign markets where EDC operates that here’s the type of issue or risk that is taken into account when you’re approaching EDC, and you have to take this into account.”

However, Mr. Radford said the policy statement does not mean immediate changes in how the credit agency does its business.

“In our statement, we have a commitment to follow best practices for financial institutions in the area of human rights,” he said. “And as we’re seeing internationally, this is an area that’s evolving at a fairly fast pace.

“From a human rights point of view, there’s work being done on coming up with what they would call human rights impact assessment methodology. There really isn’t an international model for human rights impact assessments.”

He noted that it has taken 40 years for environmental impact assessments and issues to reach internationally accepted standards, and it will take time for their human rights counterparts to get to the same level.

“What we’re committing to in our statement, for example, is following those and as those evolve, we will evolve as well,” Mr. Radford said. “The real strength of this statement is being more transparent and public about how we approach the issue of human rights and what our processes are.”

Fiona Koza, campaigner for business and human rights at Amnesty International Canada, said the human rights organization takes heart in EDC’s promise to continue strengthening its human rights policies, but criticized the policy statement as vague and “a pretty tiny first step.”

“We welcome that they are recognizing the importance of human rights and the many underlying problems inherent in project financing,” she said. “But the statement falls far short of what is required. I think it’s largely restating their measures that are already in place, which are entirely voluntary and not very transparent.”

Ms. Koza said what’s needed are changes to the Export Development Act that would mandate human rights assessments and policies. As things stand now, she said, human rights considerations are entirely voluntary.

In addition, Amnesty would like to see EDC disclose its human rights assessments, and build in third-party monitoring and procedures that must be followed when projects don’t comply with human rights.

“As a public institution and an entity of the Canadian government, EDC does share the responsibility of Canada’s international human rights obligations.”

However, Errol Mendes, a law professor at the University of Ottawa who specializes on human rights and has been enlisted to review EDC’s practices in the past, commended the agency for its move.

“What they’ve done is set down a clearer definition” of how they will assess human rights impacts in projects, he said, “which is, in some degrees, a precedent…. This is a good interim step.”