Second Letter from EDC to HI Re: "Dirty Business, Dirty Practices" - November 5, 2007

November 5, 2007

Ms. Karyn Keenan
Program Officer
Halifax Initiative
104-153 Chapel Street
Ottawa ON KIN 1H5

Dear Ms. Keenan:

This is in response to your letter of September 17. Your letter contains many questions and comments which I will answer by focusing on the key issues that you raise.

The first issue raised refers to Export Development Canada’s practices related to public consultations and whether this is a requirement of our environmental review process.

Until recently, this has not been a requirement, but it has been a practice that EDC has followed. As you are aware, the Organization for Economic Cooperation and Development (OECD) Common Approaches on Environment document was revised in June of this year, and as Canada’s Export Credit Agency, we are committed to implementing the provisions therein. These commitments include assessing projects against the relevant World Bank Safeguard Policies, which include public consultation. The OECD Common Approaches also references the International Finance Corporation (IFC) Performance Standards for Social and Environmental Sustainability for limited or non-recourse project finance transactions. As you are aware, EDC recently adopted the Equator Principles which commits EDC to use the IFC Performance Standards when reviewing limited or non-recourse project finance transactions.

Public consultation and disclosure are complex processes. Consultation can take various forms depending on the political, cultural and legal norms of the host country. EDC’s requirements are based upon practical experience from the World Bank Group and other examples of international good practice for public involvement and consultation in private sector projects. EDC takes guidance from internationally recognized good practice manuals such as IFC’s Doing Better Business Through Effective Public Consultation and Disclosure: A Good Practice Manual and the more recent IFC Stakeholder Engagement: A Good Practice Handbook for Companies Doing Business in Emerging Markets.

As part of its review of environmental assessment documentation, EDC evaluates the level of public consultation that took place with respect to the project. EDC first looks to ensure that the sponsor’s public consultation is conducted in accordance with the requirements of the host country. We also look at the level and intensity of public consultation. EDC then reviews the project against international standards, notably World Bank standards although we also use other international standards as contained in our Environmental Review Directive. There may be projects where host-country requirements are equal to, or more stringent than, international standards. That is the case in many high-income OECD countries.

To make a final point on public consultations, EDC views public consultation as two-way communication between the project sponsor and the public. The objective is to improve decision-making and build understanding by actively involving individuals, groups and organizations with a stake in the project. EDC views this involvement as increasing a project’s long-term viability and enhancing its benefits to locally affected people and other stakeholders. Additionally, consulting with the public makes good business sense for companies. Public consultation can lead to reduced financial risk (from delays caused by civil action, legal disputes, and negative publicity) and enhanced social benefits to local communities.

In response to the overall issues you raise about EDC’s analysis of human rights, firstly let me point out that whether one takes a political risk perspective or a rights-based approach, abusive human rights situations create conditions unacceptable to both the affected communities and to a financier. Such conditions are not in anyone’s interests, and we do not want to support situations where human rights abuses are extant.

Secondly, let me explain in more detail our human rights assessment process. We use a three stage assessment process when evaluating a proposed transaction or project for human rights issues. As a first step, we use policy-level guidance provided by the Government of Canada with respect to Canada’s international obligations, such as those elaborated in the United Nations’ Universal Declaration of Human Rights.

In the second stage of the assessment process, we conduct country-level political risk assessments that include an analysis of political and civil rights using a wide variety of open and closed source material, and in many cases augmented by field experience. Our proprietary methodology ensures a degree of objectivity in the analysis of politically and culturally diverse countries.

Finally, at the transactional level for projects in markets where there are known human rights sensitivities, EDC undertakes a more detailed human rights assessment that includes an examination of social, economic and cultural issues. We not only look at whether the human rights situation will impact the project, but we also examine the impact of the project on the local human rights situation. At this stage, our analysts review project-level documentation whenever possible, and are increasingly able to draw on first-hand experience gained during site or project visits. This additional information facilitates an objective evaluation of risks based on the cost/benefit to the local community, involvement of civil society in the project or the sponsor’s track record with similar projects or in similar markets.

Additional factors that are considered at the project level include whether project sponsors are developing the project in accordance with international frameworks such as the Equator Principles, the IFC Performance Standards, and the Voluntary Principles on Security and Human Rights.

EDC recognizes the evolutionary nature of work in this field. In particular, we follow closely the work of Professor John Ruggie, the UN Secretary-General’s Special Representative on Business and Human Rights. We also monitor the ongoing development of analytical tools such as the IFC’s (pilot) Guide to Human Rights Impact Assessment and Management as well as recent efforts from civil society organizations such as Rights and Democracy and the Danish Institute for Human Rights.

Rather than amend your report, I would ask that you post this reply on your website. These are complex issues that are best considered through ongoing dialogue. I re-iterate my invitation to you and the co-authors of the report to meet to continue our engagement on these matters.

Yours sincerely,

Rosemarie Boyle