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ENERGY & SUSTAINABILITY

Analysis, Thoughts and Conversations by Dan Zilnk

Extreme Transparency is the New Normal

Dan Zilnik

1. Increased transparency is the new normal, everywhere. President Obama calls it among “the smartest investments…in our own future”. The UN meeting held on September 25th 2015 has had politicians, donors and aid workers buzzing as they unveil the Sustainable Development Goals (SDGs) that aim to shape development for the next 15 years. A critical question is what do these 17 SDGs and the whopping 169 “associated targets” mean in practice? For Canada’s extractive sectors it means further strengthening a global trend toward transparency.

SDGs and associated targets related to transparency are early easy-wins since transparency is growing globally. The Open Society Foundations, founded and funded by American financier George Soros, work to make governments and firms open about their dealings with one another. In 2002 his foundations helped set up Publish What You Pay, now a global coalition of 800-plus independent watchdogs, and in 2013 it launched a Transparency Champions Challenge. Another monitor with clout is the Open Budget Index, launched in 2006 by the Centre on Budget and Policy Priorities, a Washington think-tank. The Berlin based and World Bank affiliated Transparency International, founded in 1993 by Peter Eigen a former World Banker himself, has become a strong force for uncovering corruption, including in the financing of aid. The UK based CDP works with shareholders and corporations to disclose the greenhouse gas emissions of major corporations.

Leading the global charge for transparency in oil, gas and mining is the Extractive Industries Transparency Initiative (EITI). EITI is run by Clare Short, a former British minister for aid, and has 48 governments and over 90 multi-national companies promising to open up payments and revenue to public scrutiny. The British and American governments have signed up; Canada has not.  

2. Canada’s federal government is creating its own transparency requirements for the extractive sector. Two federal acts are increasing the transparency of the natural resource extractive sectors in Canada. Both have unique implications for how business interacts with First Nations.

The First Nations Fiscal Transparency Act (First Nations TA) came into force in 2014 and requires each First Nation to publish the compensation paid to chief and council. More than 90 per cent of First Nations have complied but three are suing to have the legislation declared unconstitutional. In addition to the First Nations TA, the Extractive Sector Transparency Measures Act (Extractive TA) received royal assent in December 2014, and requires companies in the resource extraction business to disclose payments greater than $100,000 they make to foreign and domestic governments. Many in the extractive industry have been surprised to find that Extractive TA applies to payments made to First Nations within Canada. Together, the First Nations TA and the Extractive TA mean a new level of transparency, and possible scrutiny, for Canada’s extractive sectors and First Nations.

Compliance guidance for the extractive sectors is emerging. In August 2015, Natural Resources Canada posted a notice on its website seeking public input on draft implementation tools it has developed for the Extractive TA. The current implementation tools consist of the following:

  • A guidance document, which provides general information on who is subject to the Extractive TA, which entities must report payments under the Extractive TA, and what payments should be reported;
  • A technical reporting specifications document, which provides information on the mechanics of reporting under the Extractive TA (including specifying accounting methods, reporting currency, and reporting in-kind payments); and
  • A template for reports under the Extractive TA.

3. Transparency for the extractive sectors in Canada has distinctive, but manageable challenges. The implementation tools will assist a company in satisfying its obligations under the Extractive TA, but each company remains responsible for determining whether and how the Act’s provisions apply to them. The first annual reports under the Extractive TA are expected to be related to the financial years ending after June 1, 2016 and will be due 150 days after a financial year. There is some time left to plan, implement and ensure that submissions against the Extractive TA are strategically aligned to the business need and compliant with the final version of the Extractive Sector Transparency Measures Act and associated guidance documents.  

The momentum toward increased transparency globally is growing and Canada’s requirements, while unique, are in-line with the global trend. Oil & Gas Sustainability Ltd. supports extractive companies in their transparency strategies and reporting under the CDM and Extractive TA.  We'd love to discuss how we can help you with your sustainability performance and reporting.