Environmental and social governance for the extractive industry in Canada

The historic Canmore Engine Bridge is a truss bridge over the Bow River in the Canadian Rockies of Alberta. The bridge was built by the Canadian Pacific Railway in 1891 to serve a coal mine. The concept of environmental and social governance (ESG) has become much more complex and less defined since its original implementation from the 2006 United Nations’ (UN) Principles for Responsible Investment (PRI) report. This report first contained the “Who Cares Wins” concept initiated by the UN Secretary-General and UN Global Compact. The second component was the Freshfields Bruckhaus Deringer Report, requested by the UN Environmental Programme Finance Initiative’s (UNEP FI) Asset Management Working Group (AMWG), which examines the legal framework for integrating issues of ESG into institutional investment. Both are excellent reads to begin a baseline for this topic. As can be seen on the standard communication mediums currently available, we are overloaded with contradictions of how ESG currently could, should and can function. The difficulty from a technical perspective is that there are many conflicting concepts. One example is that many ESG guidance principles view the extraction of minerals as contradictory to ESG principles and therefore the companies that conduct mineral extraction should not be encouraged by receiving investment. However, renewable-energy projects rely on the minerals for their construction. Many believe that this is the wrong model, and companies focused on mining and oil and gas extraction can be classified as having “responsible” or “nonresponsible” values. By using this classification, it allows the more advanced extractive companies access to cash flow to manage and mitigate the issues that are being considered and that need to be discussed with them. The question for us in the extractive industry is how we should conduct ourselves in reasonable ways where overlying principles of business apply, while still receiving social license to do business. There are many elements to the question. Engineers are trained on how to have a “third-party neutrality” mentality, and we should use this on some of the parameters that need to be covered in our process of roaming the ESG world. The easiest way to present an ESG methodology being practiced in Canada is through risk-assessment-based parameters used in the consultation responsibilities for due diligence. These are required of a project proponent to get a project fully permitted through environmental assessment (EA). In Canada, ESG issues involve a project proponent as well as external stakeholders, permitting bodies, various levels of government, and the public. The ESG components can be defined as: Communication protocols.Community enhancement methods.Economic issues.Employment issues.Environmental issues.Operational considerations.Social and governance issues (Aboriginal treaty rights). Rules-based tasks have special influence from additional indigenous peoples, generally called First Nations, and are a legal requirement in both federal and provincial EAs. A key component to keep in mind is the concept of the “mining risk universe,” created by Ernst and Young in 2007, to obtain a perspective on how the values or sustainability of a company applies. By looking at the parameters of ESG in a similar way, it can relate to our understanding of the topics that extractive companies must understand. The influences of the diverse people required and the influence of individuals go from the board-of-directors or chief-executive-officer levels down to everyday engineers. As most major issues of ESG in Canada deal with First Nations groups and actual governance, a description of First Nations is needed. Figure 1 Mining risk universe for enterprise risk management. Figure 2 A map of Canada. Overall spatial scope perspective of governance Canada. Canada is a Westminsterstyle parliamentary democracy under the current head of state King Charles III. The Prime Minister is Justin Trudeau. A House of Commons gives confidence to the party with the most elected seats to form a government. The functioning government, referred to as the Crown, is the highest power associated with conversations involving First Nations groups. The negotiation of First Nations Treaties first began in 1701 before the formation of Canada, with the Royal Proclamation of 1763 solidifying the formal process. As time progressed, First Nations Treaty rights have been formally placed within the Constitution of Canada (transferred from British control in 1982), which was created in 1867. A common term used for these rights is a result of Section 35 of the Constitution, where they are formally located. A key document that the government of Canada produced is the Aboriginal Consultation and Accommodation Guidelines for Federal Officials to Fulfill the Duty to Consult — this document is of enormous value to any extractive company dealing with First Nations groups to begin understanding the process. Provinces and territories. Within Canada, there are 10 provinces and three territorial governments. These governments have many responsibilities deferred to them, such as healthcare implementation, education and provincial taxes. The distribution to First Nations groups of any royalties from the provincial level is a constant risk item, depending on the status of the First Nations group. Provincial and territorial governments have powers to make decisions relating to areas of law that affect their province or territory directly, but there are sometimes gray areas when it comes to Section 35 impacts on provincially approved projects (permitting bodies) for the extractive industry. This confusion traditionally can lead to disputes and risk associated with these projects, but it must be remembered that ultimately the duty to consult is a federally mandated activity (https://digitalcommons.schulichlaw.dal.ca/dlj/ vol22/iss1/5/). Figure 3 Canadian treaties. Types of First Nations groups created by treaties. Since the signing of treaties in 1701, there have been many types of classifications and levels of powers given to First Nations groups. There are officially 617 First Nations groups in Canada, including 364 Treaty Nations. The powers vary from document to document, and the remaining First Nations groups without treaties can still assert or have their Section 35 rights. We will quickly go over a three-tier classification of Canadian First Nations groups, and this will serve as the baseline for the Aboriginal treaty rights components of ESG and EA risk. Treaty Nations. Treaty Nations are generally the most commonly known and referred-to type of First Nations classification. The treaty defines the boundaries, but there is a gray area when it comes to the term “traditional territory.” These boundaries tend to not be official, but characteristics of traditional land use and knowledge are key to determining what these lines are. This loose definition can lead to many issues over who has jurisdiction over these lands as well as how much input and authority the local First Nations groups have on an EA process. Treaty rights are a function of how a potential project may directly interfere with First Nations lands. For example, there are many disputes over the possible downstream impacts on water quality to First Nations groups or to the wildlife they were promised they would be able to harvest forever. The Alberta oil sands projects are a prime example of this, due to their known downstream impacts on the First Nations groups in Treaties 6 and 8 (https://www.greenparty. ca/sites/default/files/a_comprehensive_guide_ to_the_alberta_oil_sands_-_may_2011_-_last_ revised_march_2012.pdf). Unceded First Nations. These First Nations groups are on territories that either were never signed or are being disputed on the topic of full rights and privileges to the land. There are many individual First Nations groups with this status, but the Maritimes, nearly all of British Columbia and a large swath of eastern Ontario and Quebec fall into this group. The risks involved vary widely as there are no defined terms for reference beyond Section 35. Conflicts between these First Nations groups and the federal, provincial and other First Nations governments are common. Depending on whom the exact conflict is with, values associated with ESG are often tested in these cases. Modern and self-governing First Nations. As the difficulties of having unceded First Nations groups are a substantial source of uncertainty, the treaty process is still active and the newest classification of treaties began to be signed in 1977 with the James Bay area Cree First Nations group. The remaining self-governing First Nations groups are in British Columbia, Manitoba, Northwest Territories, all of Nunavut and most of the Yukon. The powers and abilities of these treaties cannot be overstated, as contained within most of them are clauses stating for EA processes that the First Nations groups themselves are permitting bodies (similar to the principles of the UN Declaration on the Rights of Indigenous Peoples). The modern-treaty First Nations powers can include the creation of laws (on heritage, taxation, land use and planning, permits for extraction of minerals/oil and gas) that apply to all individuals within a First Nations group’s well-defined traditional territory and are completely entrenched within the Canadian Constitution. These laws also take precedence over asserted or unproven unceded rights. The ideas of cogovernance of their areas are also included along with input on wildlife controls, timber harvesting and other key parameters. Generally, these are by far the most powerful First Nations groups on their traditional territory, and conditions of the treaties ensure that Canada (the federal government) must defend these rights by maintaining the law in the event of transboundary conditions such as international borders. Figure 4 Modern treaties and self-government agreements. First Nations issues in risk assessment/ESG evaluation Now that the basic spatial scope has been described, we can review the more direct First Nations issues that are covered in a risk assessment or ESG evaluation. They are the technical side of issues in which First Nations generally have an interest when making a direct agreement with a project proponent, known as an impact benefit agreement (IBA), which are the premise of real ESG. Communication protocols. Communication protocols relate to different levels and methods of communication between a company or government and a First Nations group. Communication procedures and sets of guidelines make up the fundamentals of how negotiations, as well as the due diligence necessary for stated consultation procedures from the government, are conducted. For example, the basic principles of announcing acknowledgment of where a meeting is taking place comes into play. It should be noted that both provincial and federal governments now always mention at the beginning of a meeting where they are. This has become formal policy and should be acknowledged by extractive companies as well (https://www.csps-efpc.gc.ca/tools/blogs/insights/ indigenous-territory-eng.aspx). There are major variances between First Nations communities on this topic. Some First Nations protocols are highly developed and comprehensive, while others are not developed and should be established and agreed between the extractive company and the First Nations groups. Community enhancement methods. Part of the core fundamental principles of ESG aims to set out what a community requires the extractive company to provide as a condition of social consent for development and operations. This may include improving local services and infrastructure such as roads, and the development of trade and technical abilities in the community to meet both company and community needs. The specific compositions of these elements vary from site to site, depending on the status and economic condition of the community. Economic issues. Economic variables relate to how the First Nations group will be compensated for the potential extractive activity. These can be critical components of any ESG program or IBA and may be some of the most fiercely debated issues. These may be critical to securing local community support of the project. ESG does not cover this well and is a function of how much the company is willing to sacrifice for a solid agreement. This is where the value of the social license is taken into account. Employment issues. Employment is invariably a major issue for every community. Many native communities are located in economically deprived areas with no local industry or major sources of employment. Techniques and methods of recruitment are dependent on the evaluation of the First Nations group. While many First Nations groups have high rates of unemployment, in other key areas where resources are plentiful there can be almost no available First Nations employees due to the other activities. Technical environmental issues. Local First Nations communities may be able to substantially assist companies in terms of project development. Environmental regulations for mine permits can be some of the most difficult tasks to complete, with information needed from prefeasibility through to closure. Environmental Assessment Act guidelines state that communities and stakeholders must be consulted as well, and projects can be judged on this consultation. In addition, complete closure plans along with financial guarantees must be provided as part of the permitting process. This serves as a prime point for good-faith relations between a community and extractive companies, and it needs to be an important part of ESG programs or policies. Operational considerations. Operational topics are based on some of the infrastructure parameters of a potential project. These can include operational, procedural and technical issues, such as location of infrastructure and drillrig locations for exploration. Other topics are due to particular legal issues, including that due to reserves (Treaty First Nations lands) being federal lands. The use of provincial guidelines as operational rules instead of federal rules has been written into several agreements due to the former being more stringent. Major infrastructure can become a big topic of dispute, depending on its location, and must be identified early in consultation with First Nations. Social and governance issues. Social issues include factors that affect the community as a whole, which are not company generated, and may become problematic. The risk is that these issues also bring government treaty obligations to bear. These can be critical threats to a potential project and are fundamentally knowledge based on what the type of First Nations group described entails. Why does ESG actually matter? Now that we have the ability to assess the risks of a project and what the ESG parameters are generally, let us put our techniques to the test with a heavy emphasis on the Aboriginal governance theme. The example case is an oil and gas exploration company and a moderntreaty First Nations group (Vuntut Gwitchin) located in the Yukon Territory. The company did not have a proper relationship with the First Nations group, and the project proponent also potentially assumed that the financial benefits of having a project near the community, and the resulting jobs, would be good enough to get through the social side of the EA process. While the technical components were somewhat understood, the location of the project was specifically in areas where migrating caribou herd calving grounds are documented and traditional and cultural activities are confirmed to take place. The local EA office maintained there would be a need for more information during the EA process and upgraded it to a higher level of assessment, specifically in respect to the Porcupine caribou herd (referral report: https:// yesabregistry.ca/projects/ea33a0ac-8a2a-4bd0- b96d-4e7483cba7ac/documents). The company then put in a request for judicial review of the grounds for an upgraded assessment (https:// www.whitehorsestar.com/News/northern-crossseeks- judicial-review-of-yesab-action). As a further complication, the moderntreaty First Nations group and other First Nations groups within the Yukon passed a resolution banning fracking in their respective traditional territories through the Council of Yukon First Nations (https://www.yukon-news. com/news/cyfn-bans-fracking/). This, in part, forced the Yukon Government (Yukon Party, or conservatives) to create a moratorium on fracking in the area in 2015 after many months of hearings and understanding of what the First Nations treaty rights actually are. This case forced thought independently of political opinion and exhibits the power of ESG guidelines and their implementation. The issues and subsequent lawsuits continue to this day. This can be seen as a simple case study as it is on traditional territory within Canada. What if we move on to the next phase, where those same caribou cross international borders in their migration route into the U.S. Arctic National Wildlife Refuge? Canada has treaty obligations to the First Nations groups, and as seen earlier, the local First Nations group has grave concerns about the status of this herd. The direct relationship between the United States and Canada now becomes the theme for how any decisions on changing environmental standards making it easier for companies to lease and permit exploration/future production activities. While the proponents of the activity in the United States may be good partners, the governance side of ESG may be too powerful to stop opposition. The question is how do the rules of Canadian ESG (specifically with First Nations rights) apply to American values, or is there truly separation between them?

Environmental and social governance for the extractive industry in Canada

Authored by:
Sidney Schafrik

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