CORPORATE SOCIAL RESPONSIBILITY IN GENERAL
Canada ranked highly (behind Finland, but well ahead of Japan and the USA) in the recent National Corporate Responsibility (NCR) Index, which compares the performance of 51 countries in providing an enabling environment for responsible business practices. However, Canada will have to continue to work hard in order to keep earning high grades. Endowed with natural resources but constrained in its capability to compete as a low-wage economy, Canada’s focus on sustainability, productivity and innovation will remain a critical cornerstone of public policy and private sector leadership.
The NCR Index provides insights into the link between corporate responsibility and the competitive advantage of nations (and firms). Like other initiatives described in this chapter and elsewhere in this book, the Index offers a useful tool in measuring how countries, as well as private enterprises, are doing to improve their position. In Canada, much remains to be done. Two key challenges are (i) to broaden the scope of materiality when measuring business performance and (ii) to reconceptualise our notions of investor ownership and responsibility.
While the volume and credibility of non-financial performance information has grown, there remain as many legal barriers as incentives. Regulatory initiatives, such as the Sarbanes-Oxley Act and recent Canadian corporate governance reforms, reinforce the requirement for companies to disclose social and environmental performance material to future business performance. This is in contrast to conventional legal definitions of materiality, which tend to focus on short-term financial risks as reflected in market value and other quantitative thresholds. Canada has taken a lead role in exploring new ways of redefining materiality and subjecting such tests to external assurance. For example, the Canadian Institute of Chartered Accountants (CICA) released a guidance document in 2002 advising Canadian companies on appropriate levels of reporting and disclosure in a number of areas, including their record on environmental and social responsibility.
Likewise, many investment managers (and, in particular, pension trustees) continue to focus on short-term financial results rather than taking into account longer-term social, environmental and economic impacts. This stands in sharp contrast to the duration of their liabilities and to a growing body of knowledge concerning the role of long-term variables in determining corporate value. For example, the investment banking firm Goldman Sachs, introducing its Energy Environmental and Social Index last year, provided an analysis which suggested that 60 per cent of company value is determined by its long-run or sustainable returns; the next 20 per cent by secular or cyclical change observed in the coming 12 months; and the remainder by longer-term growth or other issues. Recent initiatives by some European (eg the Enhanced Analytics Initiative) and US investment funds to direct brokerage commissions to firms providing the best analysis of extra-financial performance (such as governance, human capital and environmental risks) have not yet been replicated in Canada.
As with reporting on corporate responsibility, a set of standards needs to emerge to shift the focus and capacity of pension trustees (and managers of other long-term investments) to embrace the assessment of social, environmental and economic issues. Increased transparency and accountability of such trustees, in relation to their investment policies, is required. There are several Canadian initiatives, such as the Shareholder Association for Research and Education (SHARE), that collaborate with institutional investors to promote responsible investment practices. Finally, there are many unrealised opportunities for governments and international agencies to promote corporate responsibility and ensure its alignment with national and regional trade, investment, and competition policies. Here again, as noted below, Canada plays a leading role.
1. CSR values and practices, including levels of support from government, business and the general public
In Canada, public policy initiatives relating to CSR have been undertaken at the federal, provincial, territorial and municipal levels. The federal government has adopted a comprehensive policy approach to CSR, including voluntary, economic and regulatory initiatives. There is no single federal department in charge of CSR. Rather, corporate social responsibility concerns are typically addressed in specific policy areas, such as health and safety, labour relations, environmental protection and sustainable development. Some participating departments and agencies include: the Canadian International Development Agency, the Department of Finance, Environment Canada, Foreign Affairs Canada, Health Canada, Industry Canada, International Trade Canada, and Natural Resources Canada. A range of provincial and municipal initiatives are described below.
There is considerable public interest and support for CSR. A recent survey by GlobeScan, a public opinion and stakeholder research firm, reveals that 83 per cent of Canadians believe that corporations should operate beyond their traditional economic role. Although 51 per cent of Canadians surveyed state that they have punished a socially irresponsible company over the past year, 43 per cent of Canadians are unable to identify one socially responsible company. In 2001, Stratos conducted the first comprehensive study of corporate sustainability reporting in Canada, which examined the extent to which Canadian companies publish sustainability information. Stratos has conducted a recent interim review to survey key developments in sustainability reporting practices. The studies reveal that there has been a significant improvement in the number of Canadian companies reporting sustainability information. In 2000, 57 Canadian companies in nine sectors published environmental, social or sustainability reports; this number rose in 2001 to 79 reporting companies in 11 sectors and in 2002 to 100 reporting companies.
According to a CSR survey carried out in 2002 by the accounting firm KPMG, Canada ranks in the middle internationally in terms of private sector sustainability reporting. Although Canada ranked lower than countries such as the United Kingdom and United States, it ranked higher than countries such as Australia, France, Italy and Belgium. It is interesting to note the apparent lack of correlation between reporting practices and enabling policy frameworks on CSR as measured by the NCR Index.
2. Laws, statutes, government publications or other significant framework documents
In Canada, mandatory reporting requirements concerning environmental impacts tend to be limited to pollutant releases and transfers. Federal regulations require companies that emit more than the prescribed level of pollutants to report annually to the National Pollutant Release Inventory. The Canadian Environmental Protection Act also requires companies in certain industries to report on specific environmental conditions. Mandatory social reporting requirements for Canadian companies are limited to the financial services sector. Recent amendments to the Bank Act require federally regulated financial institutions with at least C$1 billion in equity to publish annually a Public Accountability Statement describing their community development activities.
In Canada, public companies must include a section on ‘Management Discussion and Analysis’ in their annual financial reports, which is intended to inform investors of financial and operational performance and future prospects. As previously noted, CICA released a guidance document on the preparation of the ‘Management Discussion and Analysis’ section in November 2002. The CICA document advises companies on appropriate levels of reporting and disclosure and encourages companies to disclose their record on environmental and social responsibility. Fiscal instruments, such as tax credits for corporate (and individual) charitable giving are also in place to encourage CSR. The federal government has collaborated with the voluntary sector in recent years to develop a more comprehensive set of policies to promote the sector.
In addition to the sustainability reports that all federal departments are required to table in Parliament every three years, there are numerous more specific government publications on CSR. For example, the Department of Natural Resources Canada conducted a recent study documenting the experience of companies that have developed CSR programmes (see www.nrcan-rncan.gc.ca/sd-dd/csr-rse/cs_e.html). Industry Canada also recently issued a report tracking the environmental performance of Canadian businesses in three defined areas: environmental management practices, eco-efficiency, and environmental protection (see http://strategis.ic.gc.ca/epic/internet/incsr-rse.nsf/en/h_rs00018e.html).
In Canada, standards are developed on a voluntary basis by both governmental and nongovernmental organisations. Overseeing the national standards system is the Standards Council of Canada, a Crown corporation, established by the Standards Council of Canada Act, which reports to the Minister of Industry. As part of its responsibilities, the Standards Council of Canada accredits non-governmental organisations that promote standards development, such as the Canadian Standards Association. Internationally, the Standards Council of Canada works in collaboration with the International Organisation for Standardisation (ISO), which has published over 13,000 standards and works with standard-setting bodies in 145 countries. The Standards Council of Canada endorses the ISO 14001 standard, which is part of the family of standards for creating environmental management systems. Once a company has successfully undergone an ISO 14001 audit by a trained auditor, it receives an ISO 14001 certificate.
3. International treaties, conventions or standards
There are several emerging international standards on sustainability reporting. For example, the Global Reporting Initiative (GRI) is an international framework designed to provide guidance on sustainability reporting (www.globalreporting.org). The second version of the GRI Guidelines was published in 2002. The number of Canadian companies using these Guidelines to inform the content of their reports increased from four reporting companies in 2001 to 13 reporting companies in 2002. Another emerging standard used by Canadian companies is ISO 14001. More than 45 reporting companies in Canada referenced the ISO 14001 certification standard in their reports in 2002. AccountAbility’s AA1000 Assurance Standard is a process standard for social and ethical accounting and reporting (www.accountability.org.uk). As of 2002, VanCity Savings and Credit Union was the only identified Canadian company that references adoption to the standard in its sustainability report. The SA 8000 Standard is an internationally recognised standard relating to child and forced labour, discrimination, and freedom of association. Although companies in 24 other countries have achieved SA 8000 certification, to date no identified Canadian reporting company references certification to this standard.
Canada has actively participated and supported international initiatives on CSR. Canada was a party to the 1992 Rio Declaration on Environment and Development, including Agenda 21. Canadian government representatives have also attended the 1992 UN Conference on Environment and Development in Rio de Janeiro and the 2002 World Summit on Sustainable Development in Johannesburg. From 2001-2003, Canada’s Environment Minister sat as President of the Governing Council of the UN Environment Programme. The federal government has ratified a large number of international treaties and conventions. For example, in June 2000 Canada endorsed the OECD Guidelines for Multinational Enterprises, which sets out recommendations to businesses on responsible corporate conduct. The government of Canada has established a National Contact Point to help ensure the implementation and promotion of the Guidelines.
Regionally, Environment Canada and Health Canada co-chair the Health and Environment Ministers of the Americas Task Force to prioritise health and environment sustainability initiatives in the Americas. Other priority areas include expanding the Sustainable Cities Initiative (led by Industry Canada) and the Canadian-based Secretariat of the International Model Forests Network (led by the Departments of Foreign Affairs and International Trade).
4. Non-statutory sources of liability for companies
Under the common law of torts and contracts (and equivalents in Quebec, which is a civil law jurisdiction), companies and their officers or directors are subject to a number of sources of potential liability for CSR-related offences. For example, officers of a corporation can be held liable for the company’s offences if they have sufficient seniority and responsibility to qualify as the ‘directing mind’ of the corporation in the commission of the offence. In addition to tort and contractual liability, there are federal and provincial laws prohibiting firms from engaging in deceptive or misleading business practices (eg the Competition Act; the Ontario Business Practices Act).
Canadian businesses can not use voluntary code arrangements as a mask for anti-competitive behaviour. However, the Competition Act provides a number of defences, including where company arrangements deal with the definition of product standards or the protection of the environment. Companies considering entering into voluntary code-type arrangements may approach the Competition Bureau for an advisory opinion as to whether the proposal is likely to attract liability under the Competition Act. Many Canadian companies and associations have utilised the Competition Bureau’s advisory services. For example, the Canadian Chemical Producers’ Association has sought and received approval for their Responsible Care programme on a number of occasions.
The Canadian government has also co-ordinated its regulatory regimes prohibiting deceptive business practices with voluntary code programmes. In 2002, the Competition Bureau announced that it was considering adopting a voluntary standard on environmental claims developed through the ISO 14021 as a guideline in interpreting the deceptive advertising provisions in the Competition Act in cases that involve environmental claims.
A recent Supreme Court of Canada decision (Peoples Department Stores Inc (Trustee of) v. Wise, decision released on 29 October 2004) explicitly affirms that in determining whether directors are acting in the best interests of the corporation it may be legitimate to consider, inter alia, the interests of shareholders, employees, suppliers, creditors, consumers, governments, and the environment.
5. Principal institutions, government agencies and/or major non-governmental organisations (NGOs)
Under Canadian constitutional law, the federal government has exclusive power to ratify international treaties. Although the federal government does not need the approval of any other jurisdiction in Canada to ratify international treaties, the federal government does not have the power to legislate in matters of provincial jurisdiction. Hence, in order to fully implement most international treaties and conventions, provinces and territories must cooperate willingly with the federal government. Co-operation occurs at many levels. For example, the federal government will often oversee climate change initiatives, while provincial governments will often take the lead in CSR areas relating to healthcare and the environment. Municipal governments have taken the lead on issues relating to urbanisation.
In 1995, the Auditor General Act was amended to create the position of the Commissioner of the Environment and Sustainable Development. As a result of the amendments, federal departments are required to produce sustainable development strategies and submit them to Parliament every three years. The federal government has made significant advances in sustainable development initiatives since the legislative reform in 1995. One of the first co-ordinated efforts was the Leaders Forum on Sustainable Development in 2000. Senior federal government officials and representatives from various sectors of Canadian society were brought together to discuss opportunities for federal collaboration on sustainable development. More recent collaborative initiatives include Canada’s Oceans Strategy (2002) and the Agricultural Policy Framework (2002).
There are numerous Canadian NGOs and consultancies involved in the promotion and oversight of CSR, and most graduate business schools in Canada have developed targetted curricula in the area of CSR. The NGOs and consultancies include:
Imagine Canada, a national programme developed by the now merged Canadian Centre for Philanthropy and the Coalition of National Voluntary Organisations, is designed to promote public and corporate giving and community volunteering. It is the only programme in Canada specifically designed to encourage and promote partnerships between the corporate and charitable sectors. Imagine develops standards for corporate citizenship and philanthropy for both corporations and community organisations (www.imagine.ca). Over 580 corporations have made Imagine’s ‘corporate citizenship’ commitment (although this includes only 12 per cent of Canada’s top 1000 companies).
The Shareholder Association for Research and Education (SHARE), a non-profit organisation that works with institutional investors to promote responsible investment practices through research, educational activities, and advocacy (www.share.ca).
The Social Investment Organisation, a member-based organisation that includes investment firms, financial institutions, and financial advisors and investors. The members serve more than half a million depositors and investors in Canada. Their mandate is to promote socially responsible investing, which includes social and environmental issue screening, shareholder advocacy, and community investment (www.socialinvestment.ca).
SPECIFIC AREAS OF CORPORATE SOCIAL RESPONSIBILITY
6. Human rights
Canada has ratified many international treaties and conventions relating to human rights, and direct corporate liability is often established through the incorporation of international treaties into domestic law. Since Canada is a federation, this has occurred both at the federal and provincial levels of government. In 1975, at the Federal-Provincial Conference of Ministers Responsible for Human Rights, the ministers formally agreed to establish procedures for the ratification and implementation of international human rights instruments into domestic law.
Canada’s first general law prohibiting discrimination was passed in the province of Saskatchewan in 1947. At the federal level, Canada’s commitment to human rights was first recognised with the passing of the Canadian Bill of Rights in 1960. At the time, both the Saskatchewan and federal Bill of Rights Acts affirmed the existence of certain rights, but lacked adequate enforcement and compliance mechanisms. The first comprehensive human rights code was established in Ontario in 1962, when the province repealed most of its human rights laws in order to establish the Ontario Human Rights Code. The Code set up a Human Rights Commission to administer the law and ensure compliance. In 1977, the federal government passed the Canadian Human Rights Act, and joined the provinces in creating a single unified law dealing with discrimination.
One of the most significant human rights developments in Canada was the passing of the Charter of Rights and Freedoms in 1982. As part of the constitution, the Charter has the power to expand human rights protection in Canada. The rights are not absolute, as there are two built-in exceptions, and the courts have tested the limits of the Charter in recent years. Under section 1 of the Charter, limits on rights are acceptable if those limits can be justified in a ‘free and democratic society’. Under section 33 of the Charter, the federal or provincial government may declare a law or part of a law to apply temporarily, notwithstanding that it violates certain sections of the Charter. In 1989, the Premier of Quebec employed the ‘notwithstanding clause’ to pass Bill 101, Quebec’s language law which restricted posting any commercial signs in languages other than French, after sections of that law were found unconstitutional by the Supreme Court of Canada (Forget v. Quebec (AG) [1988] 2 SCR 90). In 1993, after the law was criticised by the United Nations Human Rights Committee, Quebec’s provincial government rewrote the law and the use of the ‘notwithstanding clause’ was removed. To date, there are no laws in Canada that have been issued invoking the ‘notwithstanding clause’.
Many Canadian NGOs have a predominantly international agenda, such as the Canadian Centre for International Justice, Canadian Human Rights Foundation (www.chrf.ca), and the International Centre for Human Rights and Democratic Development (www.ichrdd.ca). Other Canadian NGOs have focused their efforts on a more domestic agenda, such as the Women’s Legal Education and Action Fund (www.leaf.ca) and the Canadian HIV/AIDS Legal Network (www.aidslaw.ca). In the private sector, many Canadian companies have incorporated antidiscrimination provisions in corporate ethics codes. According to an EthicScan survey in 2004, 42 per cent of Canada’s 650 largest corporations have a written ethics code, which increased from 38 per cent in 1999. Ethics codes are most common in the financial and natural resources sectors.
7. Corruption
Canada ranked 12th overall in Transparency International’s Corruption Perceptions Index 2004, just behind the United Kingdom (which ranked 11th) and well ahead of Germany, France, and the United States. Canada has played an active role in combating corruption internationally. In particular, Canada has participated in initiatives led by the United Nations (UN), the Organisation for Economic Co-operation and Development (OECD), the Organisation for Security and Co-operation in Europe (OSCE) and the Organisation of American States (OAS). In 1998, Canada ratified the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. To implement the Convention domestically, Canada passed the Corruption of Foreign Public Officials Act in 1998. Canada also ratified the OAS’s Inter-American Convention Against Corruption in June 2000 and played a key role in the successful completion of the UN Convention against Transnational Organised Crime, which includes a section on law enforcement strategies to combat corruption. At the G8 Ministerial meeting of Justice and Interior Ministers in October 1999, Canada committed to align money-laundering regimes and develop international money laundering standards. In 2000, the federal government adopted the Proceeds of Crime (Money Laundering) and Terrorist Financing Act in support of these efforts. Canada is also a member of the Financial Action Task Force, which conducts reviews of member countries anti-money laundering efforts and advises on measures to combat money laundering and promote adherence to its 40 recommendations.
8. Corporate governance and business ethics
The OECD Principles on Corporate Governance, the first initiative by any intergovernmental organisation to develop guiding principles in the field of corporate governance, were endorsed by the OECD in 1999 and restated in April 2004. Canada has endorsed the OECD Principles, which are substantially reflected in domestic corporate and securities laws.
Federal and provincial governments (as well as securities regulators) share responsibility for enforcing laws dealing with corporate and securities activities. Federal and provincial regulators recently announced the creation of the Canadian Public Accountability Board, which is designed to oversee auditors of Canada’s public companies. An independent public body has also been established to oversee the Assurance Standards Board and provide input into the development of auditing and assurance standards in Canada. Provincial governments have improved the enforcement framework for securities laws. For example, Ontario has enacted new legislation and the Ontario Securities Commission has prepared draft rules that deal with the role of audit committees, certification of financial statements by CEOs and CFOs, and audit requirements for financial statements of publicly traded companies.
At the federal level, the September 2002 Throne Speech recognised that efforts need to be made to increase confidence in Canadian capital markets. Following on this commitment, the government pledged in the 2003 federal Budget that it would “introduce new legislation to modernise offences, permit targeted evidence-gathering, and signal the seriousness of corporate fraud offences through tailored sentencing structures”. Bill C-13, An Act to Amend the Criminal Code (Capital Market Fraud and Evidence Gathering), is part of the federal government’s efforts to strengthen corporate governance standards and improve enforcement laws governing capital market activities. Bill C-13 creates a new Criminal Code offence for improper insider trading, provides whistleblower protection to employees who report unlawful conduct, increases the maximum sentences for existing fraud offences, and establishes concurrent federal jurisdiction to prosecute certain capital market fraud cases. Along with these legislative measures, the federal government announced that it would also create a number of Integrated Market Enforcement Teams composed of Royal Canadian Mounted Police officers, federal lawyers, and other investigators to deal with capital markets fraud cases. Located in four major Canadian cities, these teams are now operational and working with securities regulators as well as provincial and local police forces.
The federal Department of Finance is reviewing corporate governance provisions that apply to policyholders under the Insurance Companies Act. The review is focusing on the issue of policyholders who are entitled to participate in the profits of the company. This review was sparked by recent developments including the demutualisation of five of Canada’s largest mutual life insurance companies and the increased sale of non-par policies. In 1992, federal legislation was passed requiring conduct review committees to be established at each insurance company’s board. These committees were established to oversee business ethics, including the use of confidential information and conflicts of interest. Most insurers today have both a conduct review committee and a corporate governance committee of their board. The National Financial Services Ombudservice was established in 2002 for the financial sector to deal with consumer complaints.
9. Corporate responsibility to employees
Canada is a party to several international agreements and conventions which contain provisions with respect to maternity and parental leave. Article 10(2) of the International Covenant on Economic, Social and Cultural Rights provides that mothers should be accorded special protection during a reasonable period before and after childbirth. The Convention on the Elimination of All Forms of Discrimination Against Women also provides that women shall have appropriate services in connection with pregnancy and breastfeeding. Canada has endorsed the principle that working mothers should be given paid leave or leave with adequate social security benefits. In support of these efforts, both the federal and provincial governments provide employment insurance benefits during maternity and parental leave. In Ontario, for example, the Employment Standards Act sets the standard regarding a woman’s right to pregnancy and parental leave.
Canadian law protects collective bargaining, although there are limitations for some public sector workers, which vary from province to province. Canadian law also prohibits anti-union discrimination and requires employers to reinstate employees fired for union activities. Trade unions operate independently from government and approximately 29.5 per cent of the civilian labour force is unionised. Labour unions have full access to mediation, arbitration, and the judicial system. Child labour legislation exists, but varies from province to province. The federal government will not employ youth under the age of 17 while school is in session, and most provinces prohibit children under the age of 15 or 16 from working without parental consent, at night, or in hazardous occupations.
Employers are under a legal obligation to ensure safety in the workplace. In Ontario, for example, the Occupational Health and Safety Act requires directors to take all reasonable care to ensure that their corporation complies with the provisions of the Act and the orders of the Minister of Labour. The Act imposes strict liability on corporations and their directors. Offences may be committed without the existence of a corresponding intent to break the law. If a corporation is convicted, directors may also be held liable for failing to comply with their statutory duty to take all reasonable care to ensure corporate compliance.
Many Canadian companies have taken a lead on labour relations issues in specific industries. For example, the Canadian food and beverage industry promotes labour relations issues related to working conditions, health, and safety, although competition from the US has put downward pressure on wages, benefits, and job security. Many companies have implemented formal anti-harassment policies. Employment equity programmes are common, as are discretionary days for family or personal business, which range between five to 17 days a year. Some companies have on-site day care, and managements have also set targets for progress of visible minorities including First Nations peoples.
10. Corporate responsibility towards the environment
The North American Agreement on Environmental Co-operation, the environmental side agreement to NAFTA, was signed in 1994 by Canada, Mexico and the US. It creates a framework to improve conservation efforts in North America through co-operation and effective enforcement of environmental laws. Canada signed the Kyoto Protocol in April 1998 and ratified the Protocol in 2004, although it is not yet in force. Under the Kyoto Protocol, developed countries are required to reduce overall greenhouse gas emissions by
5.2 per cent between 2008 and 2012. Canada has committed to reduce net greenhouse gas emissions to six per cent below 1990 levels between 2008 and 2012. In support of these efforts, the prime minister stated in the 2004 Speech from the Throne that the government “will respect its commitments to the Kyoto accord on climate change in a way that produces long-term and enduring results while maintaining a strong and growing economy”, and do so “by developing an equitable national plan in partnership with provincial and territorial governments and other stakeholders”.
The federal government also ratified the UN Framework Convention on Climate Change in December 2002 and released two Climate Change Plans to implement the Convention domestically (in 2000 and 2002 respectively). The federal government has committed to reduce greenhouse gas emissions by 65 megatonnes per year, provide emissions data on an annual basis and monitor progress in transferring financial and technological resources to developing countries to assist them in their climate change efforts. In the federal budget of February 2003, the Canadian government allocated a further C$1.7 billion over five years in support of these implementation efforts.
Both the provinces and federal government have environmental laws in place. In Ontario, for example, the legislature passed the Environmental Protection Act in 1999. The Act imposes a positive duty on directors and officers of a corporation to take all reasonable care to ensure that the corporation complies with the Act and its accompanying regulations. Corporations and their directors and officers may be subject to statutory penalties and fines, and may also be ordered responsible for expensive remediation measures. The federal government has similar provisions in its environmental legislation.
There are several voluntary industry standards in relation to the environment, including:
There are several examples of industry practice in promoting environmental sustainability. In the Canadian food and beverage industry, progress is being made in the areas of product packaging and emission reductions. Canadian brewers have been successful at recycling product packaging. In Ontario, for example, the Brewer’s Retail distribution monopoly recovers 98 per cent of packaging and 83 per cent of cans. The soft drink industry is facing greater challenges, as it has shifted away from aluminium cans and returnable bottles towards plastic containers, which are more difficult to recycle and have a lower recovery value.
In the forestry industry, most companies follow voluntary industry standards to differing degrees. While some companies are committed to the stringent Forest Stewardship Council codes of conduct, most companies still choose to meet looser standards developed by the Canadian Standards Association and the US Timber Trade Association. Progress is being made, as several companies have begun to certify their forests and mills under the Forest Stewardship Council standards.
The Insurance Bureau of Canada (IBC), a voluntary association founded in 1964 whose members account for approximately 85 per cent of the property and casualty insurance written in Canada, is encouraging members, through its ‘Statement on Principles Regarding Insurance and the Environment’, to decline pollution insurance coverage to businesses not operating within existing environmental laws and regulations. Although the IBC, which is responsible for collecting statistics and providing actuarial analyses to member companies, does not have strong enforcement mechanisms, it does provide guidelines that companies can follow in implementing the principles.
There are many environmental initiatives in the mining industry. Both domestically and abroad, Canadian companies have been recognised as world leaders in the recycling of aluminium, and have begun to set goals for the reduction of greenhouse gas emissions.
In the oil and gas industry, many companies have ethics guidance and training programmes based on recognised codes of conduct. Although several companies have an ethics ombudsperson, few companies appear to commission independent ethics audits. Many of the companies are members of the self-regulating Canadian Association of Petroleum Producers (CAPP), formed in 1992 and comprising 140 member companies. In 1999, CAPP established an Environment, Health and Safety Stewardship Programme that encourages member companies to improve environmental performance and report publicly. In 2003, member companies were required to commit to the Stewardship programme.
Although only 54 of the 140 member companies report on environmental data, these companies collectively represent 94 per cent of all production. Oil and gas companies also vary in how they address issues like climate change and investment in renewable energy sources. While some companies supported the Kyoto Protocol, others did not. Companies in this sector also vary in their acceptance of voluntary standards. There is support in the industry for voluntary programmes such as the Voluntary Challenge Registry (for companies to register their greenhouse gas emission performance) and the Accelerated Reduction/Elimination of Toxic Programme. In April 2004, two Canadian-based companies won sustainability reporting awards from the Coalition for Environmentally Responsible Economies and the Association of Chartered Certified Accountants.
11. Corporate responsibility to communities
There is considerable support in Canada for corporate responsibility towards communities. Many provinces have instituted programmes to support co-operatives. For example, the Nova Scotia Tax Credit enables investors to receive a non-refundable provincial tax credit of 30 per cent of the amount invested in community development funds. The Nova Scotia Community Economic Development Investment Fund Tax Credit is a programme that expands on the equity tax credit by providing a partial guarantee on the last 20 per cent of an investment for the first four years. If investments are held for four years, investors can receive additional tax-incentive benefits. After two full years of the programme, the Nova Scotia government has realised a cumulative cost benefit of C$180,000, which includes employment benefits, household income, and provincial government revenue (see www.gov.ns.ca/econ/cedif).
In Manitoba, Grow Bonds have been introduced to enable communities to support new business opportunities. Although only Manitoba residents and corporations are eligible to buy Grow Bonds, bondholders have voting rights in the Bond Corporations and the Manitoba government guarantees the bond principle. The Manitoba Community Enterprise Development Tax Credit is a non-refundable 30 per cent personal income tax credit for investors in eligible community development projects. An individual investor can earn a maximum credit based on the eligible investment. Any unused credits can be carried forward for up to seven years and carried back for up to three years, and investors are required to maintain their investments in qualified community enterprises for a prescribed time period in order to fully realise benefits (see www.gov.mb.ca/finance/fedprov/cedc.html).
There are few public indicators of the scope of the private sector’s community investment activities and programmes. One indicator is corporate charitable contributions. Corporate donations as a percentage of corporate pre-tax profits increased from 0.91 per cent in 1990 to 1.03 per cent in 2000. Private sector donations account for approximately one to two per cent of charitable revenues, while over 50 per cent of funding for the charity sector comes from the government. However, only five per cent of Canadian businesses currently report these figures. There are few alternative indicators measuring the scope of private sector support, including the areas of community sponsorship and employee volunteer work.
Despite the lack of systemic reporting, there are many innovative partnerships between community organisations and the private sector across Canada. Most metropolitan community foundations and annual fundraising campaigns (such as the United Way or Centraide) are now targetting and actively supporting corporate involvement in the community. A few examples are listed here:
12. Corporate responsibility for overseas activities
It may be possible in Canada to bring tort actions against companies for alleged abuses in other jurisdictions. The main vehicle for holding companies responsible for the activities of overseas affiliates has been the Alien Torts Claim Act in the US. In 1980, a judge ruled that foreigners could use the Alien Tort Claims Act to sue each other in American courts over violations of the ‘law of nations’ if they could not expect a fair trial in their home countries. Over the past five years, lawyers have attempted to broaden the scope of the Alien Tort Claims Act to apply to multinational companies for alleged corporate abuses abroad. Several lawsuits have been started against multinational corporations, including a class action lawsuit against the Canadian corporation, Talisman Energy Inc., for allegedly abetting genocide by the government of Sudan against non-Muslim Sudanese residents who lived within a 50-mile radius of Talisman’s oil fields and transport systems.
In the private sector, there are several voluntary and regulatory initiatives aimed at improving corporate responsibility for overseas activities. In the insurance industry, several companies have become signatories to the UN Global Compact, which was launched in July 2000 to address environmental issues, human rights, and workers’ rights (www.unglobalcompact.org). More Canadian insurance companies have adopted policies restricting investment in repressive regimes. However, some Canadian insurers are still active in China, Indonesia, and Saudi Arabia. Supply chain issues are receiving more attention, as companies are encouraging suppliers to provide evidence of their CSR performance. Canadian banks are required to publish annual accountability statements, including detailed information on charitable giving, accessibility initiatives, support for small businesses, and branch closures. Although not required, most of the banks have reported on environmental practices as well. Banks are not required to disclose their loan portfolios or lending activities to overseas companies with poor social or environmental records.
In the oil and gas sector, some companies have made formal commitments to international practice standards, such as the UN Global Compact and the UN Declaration on Human Rights and Fundamental Freedoms. While codes of conduct may extend to suppliers, companies do not appear to have comprehensive independent audits of foreign operations, or whether they meet human rights or labour standards. For the Canadian retail industry, few policies exist for ensuring that suppliers in developing countries are not employing sweatshop labour. Although many companies do not appear to have policies or monitoring systems in place for suppliers, some companies are beginning to publish annual reports on CSR. Progress is being made in developing labour standards in the international apparel industry. The WTO Technical Barriers to Trade (TBT) Agreement deals with regulation and voluntary standards of products, production methods, and labelling requirements. In November 2001, the Standards Council of Canada notified its acceptance of the TBT Code of Good Practice, and has acknowledged its obligation to meet these requirements.
In February 2001, the Ethical Trading Action Group launched an initiative to support labour standards in the international apparel industry. The initiative proposed that the Canadian government amend the Textile Labelling and Advertising Regulations of the Textile Labelling Act, to require manufacturers to disclose the addresses of all manufacturing sites involved in the production of a garment on the labels of apparel sold in Canada. The Competition Bureau commissioned a study, on behalf of the Minister of Industry, to assess this proposal, which was released in May 2003. The Competition Bureau asked the Public Policy Forum to spearhead a national consultation process on the outcomes of the Conference Board study and identify key recommendations for the government on how to address the issue of fair labour practices in the apparel industry.
13. Procurement
Federal government procurement is supervised by the Department of Public Works and Government Services. In 1995, the Employment Equity Act, which applies to all federally regulated employees, required employers to identify and eliminate unnecessary barriers that limit the employment opportunities of historically disadvantaged groups such as visible minorities, women, and Aboriginal persons. The Act is endorsed through the Legislated Employment Equity Programme. In 1986, the federal government installed the Federal Contractors Programme (FCP), which operates in conjunction with the Legislated Employment Equity Programme. The FCP applies to employers with a Canadian workforce of at least 100 employees and to contractors who receive federal contracts of at least C$200,000. As a condition of bidding on large federal contracts, contractors are required to comply with employment equity guidelines. To ensure compliance with the FCP, Workplace Equity Officers conduct periodic on-site compliance reviews at contractor locations. The federal government has also enlisted the support of EthicScan to provide Customised Partnership Screening Reports, which provide background information on potential government partners. The Reports highlight the potential contractors’ track record on employment equity, environmental responsibility, management, community responsibility, and human rights. Contractors who refuse to honour their commitment to employment equity or are found in non-compliance with the programme may lose their right to bid on further federal government contracts.
In 1995 the federal and provincial governments signed the Agreement on Internal Trade, which applies to all procurement of goods valued at a minimum of C$25,000 and to all procurement of services and construction valued at a minimum of C$100,000, with some exceptions. Federal and provincial governments are required to report annually on procurements that fall outside of the threshold levels specified in the Agreement. The provinces and territories have also installed their own general procurement guidelines. For example, the Nova Scotia procurement policy came into effect in 1996 and was revised in 2004. Under the policy, the Nova Scotia government commits to ensuring that procurement practices are met through an open and fair process. In particular, the government pledges that all bidders will have reasonable notice and opportunity to tender, and out of province bidders will be treated in the same manner as provincial bidders.
14. CSR reporting and socially responsible investing
The Global Reporting Initiative (GRI) guidelines are recognised as the benchmark standard for sustainability reporting. Based on a sample of 708 reports produced in North and South America from 2001 to 2003, Canada accounts for 31 per cent of reports produced while the US accounts for 63 per cent (www.corporateregistrar.com). In Canada, reporting companies tend to be publicly traded, although some privately held companies and Crown corporations also publish environmental and sustainability information. According to a recent Stratos survey, the number of Canadian sustainability reporting companies is growing. In 2000, only ten per cent of the companies listed on the Toronto Stock Exchange published sustainability reports that contained at least five pages of environmental or social information and Canadian-specific performance data. In 2002, 13 per cent of companies listed on the Toronto Stock Exchange published such reports; another four per cent published between two and five pages of environmental or social information in their annual reports, and 29 per cent included less than two pages of information. The remaining companies did not include any environmental or social information in their annual reports.
Most industry sectors realised an overall increase in the number of companies reporting environmental or social information. The largest increase occurred in the financial services sector, where the number of reporting companies increased from four in 2001 to ten in 2002, in part due to recent disclosure amendments to the Bank Act. The mining sector scored the highest number of reporting companies, where the addition of five reporting companies brought the total to 12 in 2002. In the forestry industry, the number of reporting companies increased from eight in 2001 to 11 in 2002. There were also two new reporting companies in the food and beverage industry (see www.stratos-sts.com/pages/publica011.htm). Web-based reporting practices are increasing as well. Six Canadian companies used a web-based format to report CSR initiatives in 2002, and approximately 64 per cent of the Canadian companies surveyed posted supplemental environmental information on their websites, including policy and principle statements. More companies are also having their sustainability reports independently verified (see www.stratos-sts.com/pages/publica011.htm).
There are several different approaches to socially responsible investing in Canada, including investment screening and shareholder advocacy. A growing number of mutual funds are using social and environmental criteria to screen companies that do not meet specified standards. There are also CSR-based indices, which apply investment-screening principles to promote socially responsible investing. For example, the Jantzi Social Index, launched in April 2001, consists of 60 Canadian companies screened on the basis of broad social and environmental factors.
Shareholder advocacy, typically led by institutional investors such as foundations, mutual funds, pension funds, and trusts, is another means of influencing corporations on CSR issues. In 2003, several institutional investors sought specific disclosure on a number of aspects of corporate social responsibility, including disclosure on risk management, credit decisions, and public accountability statements.
In 2001, the federal government introduced a new law removing a clause in the Canada Business Corporations Act, which permitted corporate management to reject resolutions filed “primarily for the purpose of promoting general economic, political, racial, religious, social or similar causes”. According to a government background paper on the new bill, shareholder proposals can now be rejected “only if the corporation can demonstrate that the proposal does not relate significantly to the business or affairs of the corporation, or if the requirements for minimum shareholdings and for the minimum length of time for owning shares are not met”. As a result of the amendments, shareholder resolutions on CSR are becoming more common. In May 2003, at the Annual General Meeting of Canadian steel manufacturer IPSCO, 49.2 per cent of shareholders voted in favour of a resolution requiring the company to report on its greenhouse gas and toxic emissions. Although the resolution was ultimately defeated, the company’s board chair reassured shareholders that the company would heed their concerns. In May 2003, Real Assets Investment Management Inc and its US counterpart Trillium Asset Management Corporation secured enough shareholder votes at the PepsiCo annual meeting to ensure that their proposal for water conservation measures would have to be reconsidered at the 2004 annual meeting. In February 2004, at the Bank of Montreal annual meeting, 90.9 per cent of shareholders voted in favour of a resolution requesting the bank to disclose how it evaluates and manages environmental risks in its business operations. According to the group which filed the resolution (Real Assets Investment Management), the vote represents “one of the strongest majorities ever recorded in Canada” for a social or environmental resolution.
Recent regulatory initiatives have also attempted to reform proxy-voting guidelines and disclosure. In May 2004 the Canadian Securities Administrators released a set of proposed rules requiring mutual finds to develop and disclose proxy-voting guidelines as well as to disclose actual voting records upon investor request. The revised rule proposal, which came into force on 31 December 2004, is closely aligned with those of the US Securities and Exchange Commission, which implemented similar rules in January 2003. Current initiatives by the national pension regulators in Canada include developing a ‘model pension law’, to be used as a guide for the federal and provincial governments in future pension reform in Canada. Although some pension funds currently disclose how they vote in investor companies, one recommendation is to require all pension funds to disclose proxy policies and voting records. The Canadian Securities Administrators (CSA) have also introduced National Policy 51-201, which provides guidance on timely disclosure obligations for reporting companies. In particular, the policy provides interpretive guidance on existing legislative prohibitions against selective disclosure practices, types of information that are material under securities legislation, and lists some disclosure practices that can be adopted by companies to help manage their disclosure obligations. The CSA have also proposed National Instrument 51-102, designed to increase disclosure requirements, shorten filing deadlines for financial statements, and harmonise continuous disclosure obligations of reporting issuers across Canada.
SOURCES
Environment Canada, Sustainable Development Strategy 2004-2006
www.ec.gc.ca/sd-dd_consult/SDS2004/tablecontent_e.htm.
EthicScan Canada Ltd, The Corporate Ethics Monitor
www.ethicscan.ca/products_services/index.html.
GlobeScan, 2004 CSR Monitor www.globescan.com.
The Globe and Mail, Report on Business Vol 20 No 9 (March 2004).
Imagine, Statistics on Corporate Giving in Canada: 1988-2001
www.imagine.ca/content/resource_centre/resource_centre.asp?section=resources.
Industry Canada, Building a 21st Century Economy: Sustainable Development in
Canadian Industry http://strategis.ic.gc.ca/epic/internet/insd-dd.nsf/en/Home.
Public Policy Forum, Towards a New Partnership for Community Building (April 2004)www.ppforum.ca/ii/ii_p.htm.
Stratos Inc, Building Confidence: Corporate Sustainability Reporting in Canada (November 2003) www.stratos-sts.com/pages/publica012.htm.
