IFC performance standards: A benchmark for CSR

In May 2009, the Government of Canada established the Office of the Extractive Sector Corporate Social Responsibility (CSR) Counsellor. It also explicitly endorsed the International Finance Corporation (IFC) Performance Standards on Environmental & Social Sustainability as a primary part of the CSR expectations for the Canadian mining industry.

The government’s CSR strategy for the Canadian extractive sector operating overseas promotes “performance guidelines” for mining companies. These include: (1) the IFC Performance Standards (2006 version), (2) the Voluntary Principles on Human Rights and Security, and (3) the non-financial reporting frameworks of the Global Reporting Initiative (GRI).

 Of these three frameworks, the most comprehensive set of guidelines for CSR performance are the eight IFC Performance Standards. They require companies to go beyond minimum compliance with the local laws of emerging jurisdictions and reflect and embody the concept of “sustainable development.” The Standards are:

• Assessment and management of environmental and social risks and impacts
• Labour and working conditions
• Resource efficiency and pollution  prevention
• Community health, safety, and security
• Land acquisition and involuntary  resettlement
• Biodiversity conservation and sustainable management of living natural resources
• Indigenous peoples
• Cultural heritage

IFC Performance Standards as private international regulation

For years, the IFC Performance Standards has functioned as a system of private regulation, used in the management of the environmental and social risks of international commercial projects, including mining. Through the internal risk management processes of many banks and financial institutions and mechanisms such as the Equator Principles, the IFC Performance Standards are regularly incorporated into investment agreements and financing contracts. The Equator Principles have been adopted by 77 of the world’s leading financial institutions, including Canada’s biggest banks.

Where applied, failure to comply with the IFC Performance Standards can result in suspension or cancellation of a loan, disinvestment, or a decision by a financial institution not to invest. Reference to the IFC Performance Standards in contractual documentation creates legal obligation for the contracting parties. In this way, adherence to the IFC Performance Standards can operate as a threshold qualifier for access to capital, particularly in emerging markets where so much mineral potential exists.

Legal implications for international trade

Neither government endorsement nor generalized use by private actors makes the IFC Performance Standards “legal” per se. However, these facts do give the IFC Performance Standards a heightened legal significance in the context of international trade involving Canadian mining companies.

 The international trade law regime overseen by the World Trade Organization (WTO) has been established to eliminate barriers to trade, including non-tariff barriers. An exception to this was carved out by the 1994 Technical Barriers to Trade Agreement, which permits and requires member states to base their domestic “technical regulations” (referring to any topical regulation, including such things as safety, environmental regulations, etc.) on “existing voluntary standards developed by international standardization bodies.”

 Similarly, recent bilateral trade treaties of the Canadian government, including the Canada-Peru Free Trade Agreement (FTA), have explicitly permitted and encouraged the promotion and enforcement of “internationally recognized standards of corporate social responsibility,” as an exception to the economic trade liberalization aspects of the FTA.

Conclusions and looking ahead

When defining what CSR means, Canadian mining companies operating in emerging markets should first look to the contents of the IFC Performance Standards. There may indeed be other frameworks, private or public, legal or best practice in nature, which may be important in defining the full extent of corporate expectations, but there is little doubt that the IFC Performance Standards are emerging as the de facto benchmark for CSR and sustainable business practices. The importance of the IFC Performance Standards will only grow in the context of international trade and investment law—creating new opportunities and risks for Canadian miners and other businesses operating abroad.