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August 18, 2005
Most Canadian Extractive Companies Behind the Curve on Human Rights Policies
    by William Baue

Ethical Funds surveys Canadian energy and mining companies and finds less than a handful with comprehensive human rights policies, management systems, and disclosure mechanisms.

International human rights law is changing faster than companies can keep up. In order to stay ahead of the curve, companies should have comprehensive human rights policies implemented, recommends a recent report on Canadian energy and mining companies conducted by Vancouver-based socially responsible investment (SRI) firm Ethical Funds. However, a survey that forms the basis of the report finds only a very few have taken this proactive step. Most companies surveyed are therefore exposed to legal as well as financial and reputational risks from operating in countries where human rights violations and violent conflict are endemic.

"These risks are relatively new," writes Ethical Funds Vice President for Sustainability Bob Walker in the report, which is entitled Canadian Energy and Mining Companies: Navigating International Humanitarian Law in the 21st Century. The International Legal Resources Centre (ILRC) provided legal expertise in the development of the report. "The rapid evolution and increasingly energetic enforcement of international law during the 1990s means that companies are exposed to legal risks that did not exist 15 years ago."

"Canadian companies without the safeguards to mitigate the risk are overly exposed to human rights violations," adds Mr. Walker. "Energy and mining companies need to understand this evolution and take steps to protect human rights and corporate interests."

To conduct the survey, Ethical Funds first performed a global risk assessment of 152 countries. Looking for human rights violations including crimes against humanity, war crimes, and genocide, Ethical Funds identified nine "extreme-risk" countries and 25 "high-risk" countries. Information sources for the assessment included the Transparency International Corruption Perception Index, the Freedom House Annual Survey of Political Rights and Civil Liberties, and the Conflict Barometer from the Heidelberg Institute on International Conflict Research (HIIK) of the University of Heidelberg.

Ethical Funds then surveyed the S&P/TSX Composite Index, finding 24 Canadian companies active in six extreme-risk countries (including Colombia and Burma) and 11 high-risk countries (including China, Indonesia, Nigeria, and Russia).

"In our view, four companies adequately disclosed policies and management systems in 2004 compared to their peers--specific commitments and disclosure practices overall need to improve and metrics need to evolve, especially in the areas of free, prior, and informed consent and measuring direct and indirect economic benefits," Mr. Walker told

These companies are Talisman Energy (ticker: TLM), Nexen (NXY), Enbridge (ENB), and Alcan (AL).

"Alcan is participating in a controversial bauxite mine and alumina refinery project in India, with an environmental assessment expected this fall and a "go" or "no-go" project decision early in 2006," said Mr. Walker.

A fifth company, Petro-Canada (PCZ), has a policy in place but not a credible management system, according to Mr. Walker. Unlike other companies in this same boat, Petro-Canada is actively working to remedy the situation

"Its disclosure was inadequate last year, but we have been in dialogue with the company on this issue since October 2004 and, as of February 2005, we knew that system development and future reporting were underway," said Mr. Walker.

This year, Ethical Funds has begun asking more companies in its portfolios to develop human rights policies and management systems and to disclose more information on human rights to stakeholders.

The report provides the necessary contextualization, sketching the international human right law landscape. The report looks back at how the Nuremberg Military Tribunals and the Charter of the Military Tribunal for the Far East set precedent after World War II on how international law would try human rights abuses. For example, the IG Farben case (which tried the makers of Zyklon B, a delousing agent used by the Nazis in concentration camp gas chambers) represents the first time corporate officers and directors were prosecuted of war crimes.

Jumping closer to the present, the report focuses on the Rome Statute of the International Criminal Court (ICC) and Canada's Crimes Against Humanity and War Crimes Act. (CAHWCA), which has more bite. ICC only covers crimes committed after its July 2002 establishment, whereas CAHWCA is retroactive. Furthermore, ICC exposes corporate officers, directors, and employees to criminal prosecution as individuals, whereas under CAHWCA, corporations are liable.

The report also addresses the Alien Tort Claims Act (ATCA), a 1789 law against piracy resurrected in 1980 to confront international human rights abuses that applies to Canadian corporations doing business in the US--for example in the Presbyterian Church of Sudan v. Talisman Energy case that prompted the company to adopt a human rights policy.

The report examines the implications of the International Criminal Tribunals for Rwanda (ICTR) and the former Yugoslavia (ICTY), which do not have jurisdiction over corporations as legal persons but are nevertheless setting definitional precedents on how human rights cases are tried.

"Tribunal rulings are shaping legal definitions of complicity and have helped to erode the concepts of diplomatic immunity and national sovereignty as protections against prosecution for human rights violations," states Mr. Walker.

Most corporate human rights violations involve not direct involvement but rather complicity, which the report defines as "practical assistance, encouragement, or moral support that has a significant effect on the perpetration of the crime, and the knowledge that these acts aid and abet the perpetrator."

The report makes several recommendations (in addition to implementing human rights policies) for companies to avoid entanglements in complicity. Recommendations include adopting the Voluntary Principles on Security and Human Rights in the US and UK, disclosing royalty and tax payments to host country governments as well as encouraging governments to do the same by participating in the Extractive Industry Transparency Initiative (EITI).


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