Legislative Developments and Corporate Social Responsibility Trends & Initiatives in the Mining Industry
Michael Bourassa -
Mining has been the focus of legislative developments worldwide in the past year. With several governments enacting legislation limiting development, the UK focused on new anti-bribery legislation, affecting all industry sectors, including mining and the US enacted legislation with respect to conflict minerals and transparency.
Michael Bourassa
Mining industry associations have also been actively promoting and producing corporate social responsibility “best practices” guidelines. Debate continues within the industry and within civil society concerning mineral development, community engagement and social licence. The year to come could prove even more interesting.
Recent Legislative Developments
Australia
The Mineral Resource Rent Tax (MRRT) proposes a tax on profits generated from the exploitation of non-renewable resources in Australia. It replaces the previously proposed Resource Super Profit Tax (RSPT), which was to be levied at 40 per cent on the entire extractive industry, including gold, nickel and uranium mining, as well as sand and quarrying activities. On 2 July 2010, it was announced that the RSPT was dead and to be replaced with the MRRT, which will come into effect in 2012. It will impose a tax levy of 22.5 per cent on 320 of the country’s biggest iron ore and coal miners, but will exempt nickel, gold, copper and uranium. The MRRT continues to face opposition from some mining companies in Australia.
Argentina
On 30 September 2010, Argentina’s senate narrowly passed the new “Glacier Law” that restricts mining and oil and gas exploration activity on mountain glaciers, including an outright ban on development around glaciers at low and middle elevations. Barrick’s Pascua Lama project straddles the Argentine-Chilean border in the high Andes, but the ore body, which it has permission to mine, does not lie under a glacier. By defining glaciers as “a public good”, Argentina’s federal government wrestled authority from the provinces. Mining-friendly provincial governments, such as northern San Juan, may challenge the law in the Supreme Court, arguing it is their responsibility to decide how to manage their natural resources.
South Africa
The Minerals Act of 1991 permitted the mining and sale of minerals that were mined “out of necessity” (associated minerals) together with the minerals covered by a licence. But the subsequent Minerals and Petroleum Resources Development Act, 2002 (MPRDA), was silent on this issue. Taking note of this loophole in summer 2010, the Department of Mineral Resources (DMR) prohibited Lonmin from selling minerals associated with its platinum mining activities. Lonmin maintained that the associated minerals are inextricably linked to the ore body and DMR eventually relented. Other South African mining companies are auditing their mining rights to ensure they cover associated minerals.
On 13 September 2010, the Department of Mineral Resources unveiled the amended Broad-Based
Socio-Economic Empowerment Charter for the South African Mining Industry (Mining Charter). The government asserts that the Mining Charter will achieve a globally competitive mining industry that can benefit all South Africans and “facilitate transformation, growth and development of the mining industry”. Regulatory challenges not addressed by the Mining Charter may require amendments to the MPRDA.
United States
In addition to financial industry reform, the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in July 2010, also creates new disclosure obligations for resource extraction reporting issuers who are subject to the rules of the Securities and Exchange Commission (SEC), namely:
- Conflict minerals provisions mandating an audit process in the chain of custody of “conflict minerals” (columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives) and any other mineral or its derivatives determined by the US secretary of state to be financing conflict in or near the Democratic Republic of the Congo (DRC). Any US reporting issuer that uses conflict minerals in its products must now determine whether the minerals originated in the DRC or any country bordering the DRC and, if so, must file a report with the SEC including a description of the due diligence measures taken by the issuer on the source and chain of custody of the minerals.
- Disclosure of payments made to governments by issuers involved in the commercial development of oil, natural gas or minerals. The Act specifies that the payments will include taxes, royalties, fees (including licence fees), production entitlements, bonuses, and other material benefits determined by the SEC, consistent with the Extractive Industries Transparency Initiative, to be part of the commonly recognised revenue stream for the commercial development of oil, natural gas, or minerals. US reporting issuers must now disclose in their annual reports any payment made to any non-US government or to the US federal government for commercial development of oil, natural gas or minerals.
- Safety matters and violations included under the Federal Mine Safety and Health Act of 1977, as well as certain enforcement actions taken by the Mine Safety and Health Administration, must now be reported in SEC filings by all reporting issuers who operate a coal or other mine in the US (or who have a subsidiary that is an operator).
India
To attract domestic and foreign mining investment, India’s Mines and Minerals (Development and Regulation) Act, 2010 (MMDRA) proposed to make the process of granting mining concessions transparent and expeditious for industry. The controversial part of the MMDRA relates to a proposal to grant 26 per cent equity participation to local interests. In July 2010, a 10-member group of ministers met to discuss some of the proposed changes but it is not clear yet whether the proposal will provide for 26 per cent equity or 26 per cent profit. From a mining industry perspective, there is concern that the 26 per cent interest is not a full participating interest but rather a free-carried interest. Indian officials argue it would bring development and prosperity to long-neglected areas and would help meet India’s fast-growing demand for minerals and energy. But the Federation of Indian Mineral Industries called the draft legislation “negative” and said “not a single dollar of private investment will come to India” if it is implemented.
United Kingdom
The UK’s Bribery Act 2010, introduced in April 2010, includes a range of offences that will apply to UK nationals (wherever resident) and to foreign nationals resident in the UK. It poses new challenges to business by creating risks that are alarmingly open-ended. To be liable for bribery of a foreign official, all that must be shown is that an advantage was offered to influence an official in a manner intended to obtain or retain business. An intention to corrupt need not be shown. There is no exception for “facilitation payments” or corporate gifts or entertainment and no procedure for pre-clearance. Instead the authorities will determine the motive for the payment and the public interest in each case. The Act has broad provisions including liability of directors and senior officers if the foreign offence was committed with their “consent or connivance”.
Following the introduction of the far-reaching US Foreign Corrupt Practices Act (FCPA) in 1977, most countries now have domestic anti-corruption legislation and more than 100 countries have signed onto various international anti-bribery or corruption conventions. Mining companies will need to consider the Bribery Act when operating globally.
Corporate Social Responsibility Trends
The subject of corporate social responsibility (CSR) continues to grow in prominence worldwide, particularly in the mining industry. Once focused on environmental compliance and stewardship activities and the protection of human rights, it has now broadened to include meaningful community engagement and consultation. As focus shifts toward a discussion of social licence – operating with the explicit permission and support of the local community– finding workable mechanisms for enforcement and dispute resolution becomes more critical. Some governments and activists favour punitive measures, but there is a growing appetite for a more collaborative approach.
Global Leadership from Industry
ICMM good practice guide on Indigenous Peoples
The International Council on Mining and Metals (ICMM), an industry group of mining and metals companies and related organisations, released a new guide in October 2010 to help mining companies address the complex issues associated with mining near indigenous communities. The guide focuses on engagement and participation, agreements, impact management, benefits sharing and dealing with grievances.
It discusses the challenges of implementing industry good practices and offers real-world examples from existing mining projects.
Model Mining Development Agreement (MMDA)
The International Bar Association’s Mining Law Committee consulted with industry, civil society and university-based groups on the MMDA for use by mining companies and host governments. Envisioned primarily as a tool for use in developing countries, particularly where a mature mining code is not in place or effective, it may also be used where the mining code must be supplemented by private agreement, or as a template for agreements with state-owned mining enterprises.
The MMDA recognises that mining developments must be commercially viable to proceed while also seeking a broader and integrated look at the relationship between a proponent of a proposed project, the state and local communities. It also considers the natural, social and economic environments around mining projects. It is not “prescriptive” with one standard form; rather it provides an agenda for negotiations based on a common sustainable development objective that will lead to better structured negotiations and better lasting results in mining projects. The final MMDA is expected to be publicly accessible in 2011 (www.mmdaproject.org).
UN “Guiding Principles” Report
John Ruggie, the special representative of the UN secretary-general for business and human rights, is nearing completion of a six-year study to “identify and clarify standards of corporate responsibility and accountability for transnational corporations”. After extensive consultations worldwide with stakeholders representing a myriad of perspectives, Ruggie’s report focuses on three core principles of “sustainable progress”, namely, the protection of human rights by governments, respect for human rights by corporations and access to remedies where things go awry. Ruggie focused on the “distinctive responsibilities of companies in relation to human rights”. His draft report was released in November 2010 for a final consultation phase.
Canada
As home to more than three-quarters of the world’s exploration and mining companies, Canada is taking a leading role in the development of corporate social responsibility matters in the mining industry.
Building the Canadian Advantage (the CSR Counsellor’s Office)
In February 2009, Canada’s federal government implemented the Building the Canadian Advantage strategy to enhance the capacities of developing countries and to promote widely recognised international CSR performance guidelines with Canadian extractive companies operating abroad. To provide guidance in these goals, the strategy also called for creation of a CSR counsellor and a non-governmental CSR Centre of Excellence.
The Canadian Institute of Mining, Metallurgy and Petroleum (CIM) officially launched the CSR Centre for Excellence on 13 January 2010, with the support of the federal Department of Foreign Affairs and International Trade. The goal is to encourage the Canadian international extractive sector to comply with CSR performance guidelines by developing and disseminating high-quality CSR information, training and tools (www.cim.org/csr/).
Upon being appointed as Canada’s first Extractive Sector CSR counsellor on 2 October 2009, Dr Marketa Evans immediately began nearly a year of extensive outreach, dialogue and consultation with over 300 individuals and organisations in Canada and overseas. The goal was to develop a fair, credible and useful process to help stakeholders resolve CSR issues pertaining to the activities of Canadian mining, and oil and gas companies abroad. The overwhelming response was to implement a process that encourages constructive dialogue, improves CSR performance and supports tangible results on the ground. The CSR counsellor formally announced the launch of the new process on 20 October 2010 (www.international.gc.ca/csr-counsellor). It is grounded in the government of Canada’s endorsed performance standards: the IFC Performance Standards, the Voluntary Principles on Security and Human Rights, The Global Reporting Initiative and the OECD Guidelines for Multinational Enterprises.
The Prospectors and Developers Association of Canada (PDAC) developed “e3 Plus - A Framework for Responsible Exploration” (www.pdac.ca/e3plus/) to help exploration companies continuously improve their social, environmental, and health and safety performance and to integrate these aspects into their exploration programmes. The intended audience for this voluntary guideline includes the exploration sector, local communities, government organisations, non-governmental organisations, civil society, academia or any interested party. The first phase of e3 Plus includes principles, guidance and three internet-based toolkits. The second phase will generate performance objectives, reporting criteria and verification processes.
Mining Association of Canada’s Toward Sustainable Mining Program
The Mining Association of Canada’s initiative to improve the industry’s performance, Towards Sustainable Mining (TSM), is based on a set of guiding principles that are in turn supported by performance elements and indicators. TSM helps companies through performance improvement, managing risk, improving access to capital, building trust and assisting with social licence concerns, assisting in recruitment and retention of talented and diverse workforces, and stimulating innovation. In June 2009, the Canadian Business of Social Responsibility (CBSR) identified TSM as a leading programme for the extractive industries, according to the degree of prescription, guidance and compliance. The report found TSM provides “a practical and tangible system of continuous improvement of social and environmental management”. The Mining Association of Canada also set up a “Community of Interest” panel with members representing First Nations, labour (steelworkers union) and the Canadian Environment Network to review the TSM programme’s progress and performance.
Bill C-300
Private Member’s Bill C-300, which proposed the Corporate Accountability of Mining, Oil and Gas Corporations in Developing Countries Act, was defeated in its third reading in parliament on 27 October 2010. Introduced in parliament in February 2009, it passed through two readings in the House of Commons and was subject to hearings and submissions before a parliamentary sub-committee before the final vote. Written in haste without input from Canada’s resource and extraction companies, it was sharply criticised as a threat to Canada’s minerals industry.
Not only did Bill C-300 duplicate other CSR initiatives, it was extra-territorial and retroactive in scope, lacked due process for complaints and would have opened the floodgates to frivolous complaints, provided no remedial provisions and was punitive instead of collaborative, and it would have adversely affected the competitiveness of Canadian companies. The proposed complaints regime would have allowed anyone, anywhere to lodge a complaint regarding Canadian companies engaged in mining, oil or gas activities in developing countries. The minister of foreign affairs and the minister of international trade would then have had to conduct an examination, including gathering evidence from witnesses outside of Canada. Violations (ie, activities that are “inconsistent with” the government’s best practices guidelines) would have resulted in economic sanctions related to Canada’s Export Development Corporation (EDC), Foreign Affairs and International Trade Canada, and the Canada Pension Plan Investment Board.
The vote to defeat Bill C-300 was applauded by the mineral industry. Yet dialogue will continue in Canada on appropriate dispute resolution mechanisms regarding CSR.
Far North Act in Ontario
In an attempt to reconcile the competing interests of industry, the environment and First Nations, Ontario’s provincial government passed the Far North Act in September 2010. The Act requires First Nations’ approval of community-based land use plans prior to any resource development taking place in a vast area (larger than France) of Northern Ontario that includes the famed “Ring of Fire” with its world-class chromite deposits. The mining industry opposed the legislation. First Nations groups also opposed it because the Act requires 50 per cent of land use planning areas to be set aside from development.
What's Next?
There is universal agreement in the mineral industry that CSR is an essential part of any company’s business model today. But even with responsible behaviour and best intentions, disputes will inevitably arise between industry and communities. In addition to good will, workable mechanisms are needed to bring parties together to find solutions and resolve differences. There are encouraging initiatives by governments and industry alike aimed at balancing the needs of local communities and mining companies. The new MMDA template for mining agreements and the ICMM guidelines on best practices have received widespread support for their potential to create fair deals and encourage responsible operations worldwide.
Penalty-based systems are not the answer. They will serve only to damage resource development and local communities. Development of mining resources is a proven way to raise the economic prospects of people living in developing countries. Robbing them of this opportunity with well-intentioned but punitive legislation like the defeated Bill C-300 in Canada and similar legislation elsewhere would be unfair and unwarranted. Mining can be a force for prosperity and good.