Standing Senate Committee on Human Rights
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Proceedings of the Standing Senate Committee on
Human Rights

Issue No. 16 - Evidence - March 29, 2017


OTTAWA, Wednesday, March 29, 2017

The Standing Senate Committee on Human Rights met this day at 11:35 a.m. to study issues relating to human rights and, inter alia, to review the machinery of government dealing with Canada's international and national human rights obligations; and to study issues relating to the human rights of prisoners in the correctional system (consideration of a draft budget).

Senator Jim Munson (Chair) in the chair.

[English]

The Chair: Good afternoon to the public. This is the Standing Senate Committee on Human Rights. We're back after a break. We have a number of studies on the go, and of course one is the study dealing with Canadian prisoners in Canadian prisons, but we're taking a break today to get back to a study that we've been doing for some time on the initiative of Senator Ngo, and that has to do with the imports exports protection act. Senator Ngo and a few other senators felt that we needed it tidied up a bit before we have a report before the end of March. Well, it's pretty close.

Today we have before us, from EDC, Export Development Canada, Christopher Pullen. Before we call upon him, we'll have the senators introduce themselves. We'll start on my right.

Senator Bernard: Wanda Thomas Bernard from Nova Scotia.

Senator Martin: Yonah Martin from British Columbia.

Senator Ngo: Thanh Hai Ngo from Ontario.

Senator Omidvar: Ratna Omidvar from Ontario.

Senator Hartling: Nancy Hartling from New Brunswick.

Senator Pate: Kim Pate from Ontario.

Senator McPhedran: Marilou McPhedran from Manitoba.

The Chair: I'm Jim Munson, from Ontario.

Welcome, Mr. Pullen. The floor is yours. There will be a few questions for you.

Christopher Pullen, Director, Environmental Advisory Services, Export Development Canada: Thank you, Mr. Chairman and honourable senators, for inviting Export Development Canada, that's EDC, to appear before this committee to discuss EDC's environmental, social and human rights assessment procedures and policies.

My name is Chris Pullen and I'm the director of the Environmental Advisory Services at EDC, and I'm here today to speak to the committee about how EDC undertakes our assessments of environmental and social risks related to our business activities and those of our customers.

It is my hope that some of my testimony today can be of use to you in your study of economic levers to enhance human rights internationally.

By way of background, EDC is an arm's-length Crown corporation mandated to help Canadian companies export internationally. As Canada's export credit agency, we provide financing, insurance and expert advice to Canadian companies as they seek to grow their business internationally. EDC operates on commercial principles. It is financially self-sustaining, does not receive annual funding from the Government of Canada and, in fact, regularly pays a dividend back to the government. In 2016, we partnered with over 7,100 companies, 80 per cent of which were small- to medium-sized businesses.

Conducting business in a responsible manner is a corporate priority and something EDC takes extremely seriously. Our environmental and social risk management framework guides all of our business activity and is underpinned by various international agreements and standards to which we are party. We evaluate these standards regularly and adjust our framework to respond to changes in global best practice.

As part of our commitment to doing business in a responsible manner, all transactions EDC considers are screened under a standardized risk management framework. This framework provides guidance on how we evaluate the transaction and a potential customer system for managing their environmental and social risk, which includes human rights.

In my role, I'm responsible for the environmental and social risk advisory team at EDC, which is a group of experts who specialize in areas related to environmental management, biodiversity, community engagement, occupational health and safety, labour, human rights and climate change. My team is responsible for evaluating and providing guidance to our business teams on the environmental and social risks of the transactions that come in to EDC for consideration.

For each transaction request, EDC has a process to evaluate a company's track record; their corporate, environmental and social risk management policies; their commitments to various domestic and international standards; the guidelines they observe; and how they address Canadian law, as well as the laws of the importing countries in which they're planning to operate.

The outcome of our assessments provide guidance to EDC on the potential customer's performance in these areas, as well as the overarching country risks, and we make recommendations on whether we should proceed with providing support.

EDC is considered an international leader amongst export credit agencies and commercial banks in how we undertake our assessments, and we are often sought out by other financial institutions for advice and consultation.

In the case of support for large infrastructure projects, which fall under our project finance program, EDC follows strict requirements that are outlined in what is called our environmental and social review directive. Under this directive, for a project to be considered for support, it is required to meet international standards, which include the IFC performance standards on environmental and social sustainability, the OECD's common approaches and the Equator Principles, the latter two being risk management frameworks used by ECAs — export credits agencies — and international commercial banks for assessing and mitigating environmental, social and human rights risk.

The OECD common approaches, which form the foundation of EDC's policies, are an agreement among OECD countries on the approach to take when assessing environmental and social risks related to officially supported export credits. The most recent revision of the common approaches includes specific guidance for export credit agencies for addressing human rights risks, including those outside of project scenarios. EDC was a key member of the working group that made those recommendations.

The Equator Principles are an environmental and social risk management framework developed by international commercial banks that assess and manage environmental and social risks, including human rights, for project financing. Some export credit agencies are now members of the Equator Principles, including EDC. EDC is also the first Canadian member of the steering committee of the Equator Principles and we have played a lead role in strengthening these standards over our involvement of the past six to eight years.

The IFC performance standards, which are the benchmark standards for many organizations, including EDC, the Equator Principles and those common approaches were developed for clients of the IFC, which is the financing arm of the World Bank. These standards outline the requirements for projects, including things like environmental protection through the lifetime of the project, labour and working conditions, biodiversity, pollution prevention, community engagement, community safety and security and grievance mechanisms. These standards are recognized as industry best practices and followed by progressive and world-leading financial institutions.

To speak specifically to human rights, EDC takes seriously the role it has in ensuring human rights are protected in the business it supports. This means both working internally to ensure our processes and procedures are constantly being re-evaluated and updated to align with current best practice and emerging issues, and working with Canadian companies to ensure they understand the risks and responsibilities they take on when exporting internationally.

The evolution of EDC's approach to human rights predates the work of John Ruggie, whose principles have become the benchmark for business and financial institutions for their activities abroad. These principles resulted in the development of the UN Guiding Principles on Business and Human Rights and they have become a key element in influencing and informing our approach.

EDC has a publicly available statement on human rights, and this statement, coupled with our internal policies, the common approaches, the Equator Principles and the IFC performance standards, guides our practices in assessing the human rights implications of our business.

This was a high-level summary of the work EDC does in assessing and mitigating the environmental and social and human rights impacts and effects of its business around the world. Our processes are always evolving. We actively monitor and participate in international discussions in the areas of corporate social responsibility, which include human rights, the environment and society to ensure that we are keeping pace with leading financial institutions, academia, NGOs and think tanks.

I'm happy to delve further into detail in answering any questions you have regarding EDC's policies and practices.

The Chair: Thank you very much. As I mentioned before, this study that we're on now was at the initiative of Senator Ngo. Senator Ngo, you have the floor.

Senator Ngo: Thank you for your presentation. As you know, this committee has received some concerns about Netsweeper and its filtering software. We heard testimony last November that Netsweeper filtering software has been used in Bahrain to quell legitimate dissent. Furthermore, the committee received a letter from Above Ground last January stating that EDC has granted financial support to the Canadian-based company for its activities in Bahrain.

My question to you is this: Did EDC consider the human rights risks involved in guaranteeing a loan that permitted Netsweeper to sell software to Bahrain, a country with an authoritarian government that restricts Internet freedom and monitors individual online activities?

Mr. Pullen: In response to that, I can't speak specifically about the structure of a particular transaction in which EDC provided support to a bank, which is what a guarantee is in this case. What I can say is in any transaction that we look at, we definitely evaluate the nature of the product, the performance of the company and the countries in which they operate. I can say that when EDC identifies specific risks related to countries' operations abroad, or particular risks within a country, we can structure our support so that the company's activities do not benefit from EDC support in those contexts.

Further, I can confirm that, at this point, the guarantee that is the subject of the complaint is no longer in place, nor is the company a customer of EDC.

Senator Ngo: Could you summarize the conclusion of the review, and also what human rights issues were evaluated?

Mr. Pullen: Again, because the specifics of our assessment are directly tied to the nature of the support, I can't go into full detail. However, what I can speak to is in evaluating countries which we consider to have high-risk circumstances, we will take the nature of those circumstances into account, the nature of the product of the company that is seeking support or, in the case of guarantees, when they're seeking to benefit from a loan from a bank to which EDC is being requested to provide a guarantee to that bank. In this case, the customer is not the exporter, but the bank.

All those factors are taken into account, and my team may make recommendations to the underwriters to take on to the bank that there may be certain markets to which EDC support cannot be directed. However, the activities of the company may be such that they are operating in lower risks or North American markets, and they are a company that could benefit from support domestically, and that may be a situation where support is directed.

Senator Ngo: If that's the case, let's take on technology groups which have ties with the Communist Party in China, for example. They received the green light by the camera to allow China to purchase ITF Technologies in Montreal, a leader in fibre laser technology. Knowing China's human rights record, the Chinese government continues to lead the world in the number of people executed. Would that pass EDC's due diligence test? If so, why?

Mr. Pullen: In terms of summarizing the question, are you asking if that particular company came to EDC for support, how would they get past our test?

Senator Ngo: That's right.

Mr. Pullen: I can't speak specifically to government policies. EDC responds and uses those in our procedures. It's the same scenario that would be undertaken if, in our evaluation, the nature of the product is such that it could result in use to counter human rights, liberties or freedoms. That would be taken into our consideration.

I can say that one of the objectives that EDC tries to undertake is when exporters are seeking to work abroad and getting into markets that are new to them, we are able to provide support and guidance. Part of our evaluation is to take a decision of whether EDC's participation could help bolster a company's capacity by providing advice and guidance and awareness of the risks of the markets that they're entering, in addition to any financial support they may receive.

But if the company is unwilling to participate with us in those discussions or, as I mentioned before, certain risks are above the threshold that we consider acceptable for EDC's position, we may make the decision to not proceed with support, even in markets that are not currently considered higher risk.

Senator Ngo: I'll come back on the second round. I'll leave space for the other senators.

Senator Hubley: Thank you for your presentation this morning. My apologies for being a little late.

When a company approaches Export Development Canada for support, at which point does the EDC assess the potential human rights implications of the proposed project, and how long would an assessment usually take?

Mr. Pullen: I'm going to break this into two parts and characterize two broad buckets in which EDC undertakes business. One is what we call general corporate support, supporting companies in their day-to-day business, providing insurance, guarantees, financing essential to their day-to-day operations. Then there are other types of support that I referred to earlier, which is project support, a very structured type of financing that is going to a very specific activity on the ground in some country around the world.

Our process is evolving and developing to engage in the discussion with customers throughout the process of what we would call "onboarding'' towards coming to a decision that we have a product they could support. Any company that comes in for consideration will undergo an early flagging system. If there are specific activities or countries in which that company undertakes business that are already flagged in our system as high-risk circumstances, it would immediately come to a team like mine for evaluation, in which case we would be able to provide early indication to a business team of whether there are flags or obstacles that might preclude our ability to proceed with support.

EDC does receive comments that, based on our disclosure page, we appear to support every company that comes to us. What we don't disclose are all the companies that come in for discussion and where issues are identified and we indicate to them that we either cannot proceed with support or gaps we've identified. We will make recommendations that should they be able to go and address those gaps, they can come back for consideration. Most companies don't want to be on the list that did not make it through our screening process. We appreciate that, but there is a significant conversation around that.

The same process would be undertaken for that very specific project finance scenario, where it is a very specific activity tied to a specific project on the ground, where we can clearly identify tangible risks and impacts of that development. And that is a very rigorous process. I can say that depending on the scope of the project, whether it's a small manufacturing facility all the way to a large mining infrastructure project, those specific types of reviews that involve benchmarking to international standards can take anywhere from three months to two years, depending on the discussion and the issues that we've identified, and engagement with the company.

I should also point out in conclusion that EDC, for a lot of these facilities, is partnered with other financial institutions, so we are required to work with them in partnership. With our policies and procedures, we try to align them as best we can, but there's also that discussion going on in terms of screening and identifying issues.

Senator Andreychuk: I just want a little background. EDC, you've indicated, is an arm's-length Crown corporation mandated to help Canadian companies export internationally. That I understand and know. Originally, we were looking at financial risks going into other countries, and of course with the backing of the Canadian government, we want to be sure that they're not undue risks. So there were all kinds of mandates.

While it's arm's length, and while you get a mandate through your corporation, what discussions do you have with the Canadian government, more particularly the foreign affairs portion of it, about how to do business in another country? Do you have annual discussions? Do you have sporadic, ad hoc discussions about what level of risk you should take, and in that risk, what risk do you take that there may be some human rights consequences, et cetera, that Canada may not wish to live with?

Mr. Pullen: To frame the question for my response, you're specifically asking the level of engagement we have with Global Affairs in terms of discussions around country risk, the nature of EDC's activities and the discussion that goes on between the two departments in terms of coming to a decision on what type of risk we might take versus what Global Affairs might.

We have a specific group within EDC that is actively engaged in discussions with Global Affairs and other government partners. That occurs both within Canada and through the Canadian delegation to the OECD. In terms of the formality of those discussions, they are frequent and usually in response to discussion or informing each other of changes, activities or specific information that we might want to share.

In the context of specific country risk, it is not unusual for us to reach out to understand what their views are of a particular market, and we are also engaged through the Trade Commissioner Service for that type of exchange. We share views on risk and understanding of a country context, and by and large we seek to find alignment on the views in relation to certain country risks, but we each have independent factors we also take into account. From a financial perspective, EDC brings that to the table, and then with Global Affairs, the view of their department.

Senator Andreychuk: On the one hand, we want companies to export. That's our survival in Canada. On the other hand, we want to adhere to standards that we have confidence in and that we want to put forward, like human rights and environmental standards, et cetera.

Right now, most of the corporate social responsibility factors internationally are business driven. In other words, they're not mandatory; they're discretionary. You've pointed out Canadians sometimes wish that you were bound by certain standards that perhaps lead to consequences. Right now, it's simply you join when you want and those standards are discretionary. Do you think they need to be enforced by the government more strongly?

Canada is now assisting some countries in developing corporate social responsibility monitors within their countries. Do you think that's a benefit to Canadian companies or not? The push-back I hear from companies is: Well, you want us to live by these standards, but your like-minded countries are not so we're at a disadvantage. How do we grow, how do we work, when the standards are not equal for all companies competing? We know which countries we're talking about.

Mr. Pullen: It's an interesting topic. What I can say is EDC is not a policy-developing institution. We look to the government. As policies are developed that might impact our business, we will look to incorporate that into our business and act upon that. In terms of providing commentary on policy direction, it's not something specifically I can speak to.

However, in terms of your comment about the challenges of companies operating abroad and what they might need to adhere to versus voluntary standards versus obligations under regulation — I'll frame this. For EDC, our overarching priority is that the companies we support meet the standards that we have. The standards that we have are a reflection of guidance coming out through the OECD, the commercial areas in which we operate and the legislation of the countries that they operate in.

Those are the indicators that we use, and the fact that they are voluntary in some manner does present some challenges with respect to optics in terms of being voluntary; you can opt out. However, as financial institutions, at EDC, including other ECAs and other commercial banks, we're fairly specific about the lines that we have in terms of the standards that we require companies to meet. We're trying to be as transparent as possible as to what those are and are willing to engage in discussion with either industry and/or governments in terms of where the intersection is.

Senator Andreychuk: Can I follow up or should I go on a second round?

The Chair: Do you want to follow on that thought? That's fine.

Senator Andreychuk: You say that you have some discussion with the government. So is it the government that sets the standards of corporate social responsibility with you, or are these driven by the international community that you work in? If it is the international community, do you believe that EDC standards are equal to the other lending institutions that you have to compete with, or at least business has to compete with, like the Americans, like the Germans?

Mr. Pullen: I would say that as a Crown corporation receiving our mandate from our minister and through our interactions with Global Affairs, we seek to align and get a certain amount of direction from Global Affairs in terms of we seek guidance from the M&E guidelines, from multinational enterprises. That comes in and is incorporated into our thinking.

Because of the nature of EDC's business, it serves us to align with commercial banks in terms of their evolution in terms of implementing standards. There is an ongoing evolution in the financial sector of meeting specific bars or levels of implementation of standards, and there is variation in that industry. Those who are very active in certain sectors, such as EDC and other commercial banks and other ECAs, work hard to not only align our standards with each other but also best practice that is either coming out of international thinking or the UN or other elements so that we can stay as progressive as possible, and we feel that does align with certain positions that national governments take in terms of best practices.

Senator Omidvar: I will follow that line of questioning around standards and indicators that you use. So far, you have mentioned largely institutional standards from the OECD, Global Affairs, national governments, et cetera, but we do have very telling information from international NGOs, like Human Rights Watch, Amnesty International, Care Canada, et cetera. Can you describe to me how you tap into that wisdom, which sometimes is complementary and sometimes is contradictory to what you hear from the OECD, et cetera, and how do you ensure that the knowledge of our highly respected NGOs is taken into account as you advise your clients?

Mr. Pullen: You're right. We have standards that we draw on from the IFC and the OECD, but part of the thinking and part of the working groups within the practitioners group within the OECD or the Equator Principles is to seek out and draw upon the guidance of international NGOs, UN forums and consultants who are leads in the field whose ideas may be different from the standards that we apply or other international frameworks. That all gets incorporated into our thinking as we try to constantly move this bar to understand the role of a financial institution in managing this risk. How do we play our part in ensuring that we are operating within the bounds, what is considered appropriate within the human rights discussion, which is the topic of today? It is a constant intake of information. So while we represent we have specific standards that are our baseline benchmark, the objective is to constantly absorb best practice, and we are very open to any forum in which that is discussed.

Senator Omidvar: Should we assume that you are getting regular country updates from these NGOs to update your understanding of the human rights situations in export-destined countries? Is it completely responsive — there's a client, there's a customer, there's a country — or do you make a systematic institutional effort to stay up to date on trends and findings and reports?

Mr. Pullen: I can answer that in the affirmative. EDC has groups that I'm not a part of but that actively monitor country situations. We develop and constantly update our internal databases, which are informed by external think tanks and institutions, to help keep that as current as possible. We provide the organization with continual updates from both the political and country risk context, which gets absorbed by all aspects of EDC's business, both from the financial side and it's extremely relevant for my group as well.

Senator Omidvar: Thank you. That's very good to know.

Senator McPhedran: I have an observation and then I'll move to a question. My observation is that it's really helpful to have acronyms explained at the beginning of a presentation. Could you tell me, please, what IFC stands for?

Mr. Pullen: The IFC is the International Finance Corporation, and it's the commercial arm of the World Bank Group.

Senator McPhedran: Thank you.

I want to build on some of the inquiry from Senator Andreychuk and be a little more specific. Senator Andreychuk said we all know what companies we're talking about, but I'd actually like to be more specific than that and ask you: Among your clients or your collaborators in the corporate sector, how many produce arms and how many are companies in the extractive industry?

Mr. Pullen: For full transparency, I don't have the list of all our customers. Any interactions we have with companies that may operate in the arms sector are governed by EDC's military guidelines. I don't have them with me, but if that's something of interest to you, we can get that information to you.

In terms of the number of companies in the extractive sector, I'm not sure I have the full list of companies, but as Canada's export credit agency I can say that we do support and work with many Canadian companies in the extractive sector. Again, if you need that information, we can get it to you.

Senator McPhedran: Thank you. Mr. Chair, I would appreciate receiving that information, please.

The Chair: Yes, we would like to have that, and as soon as possible.

Mr. Pullen: Sure.

Senator McPhedran: Thank you. You referenced John Ruggie and the UN business principles that have been developed over the past 10 years or so. I wanted to ask specifically about the extent to which you as a company integrate the UN Declaration on the Rights of Indigenous Peoples, which are specifically referenced by Ruggie and specifically adopted in the annual business and human rights meeting that's held in Geneva sponsored by the Office of the High Commissioner for Human Rights.

Could you give a sense, please, of the extent to which, in your decision making and implementation of policies, this is kept in mind and whether you actually ask for reports from the companies you support on the extent to which they incorporate the UN Declaration on the Rights of Indigenous Peoples into their business?

Mr. Pullen: In short, the declaration is something that we consider. It is also one of the references, and I imagine the committee is becoming fatigued to my references to standards that EDC uses. However, those standards have many openings for, depending on the situation, the context in which you're considering providing support. You are to reach out and use the most relevant information to help guide your decision-making process and inform the companies that you seek to support.

To your specific question about indigenous peoples, it is a very relevant topic for EDC. There are specific standards that speak specifically to how to consider the engagement with vulnerable and indigenous peoples within the business.

Further to that, if we are considering support to a company that has a direct interface or is operating in an environment where indigenous peoples, First Nations people, tribal lands need to be factored in, we will seek specific reference from them of how they are addressing their engagement, their interaction and what policies and procedures they have to manage and inform them of that engagement.

Senator McPhedran: To that, I wonder if I might ask to you be a little more specific and if you could identify the locus of expertise within your organization in terms of the UN Declaration on the Rights of Indigenous Peoples and whether you also use established international expertise, Canadians who are very well known. For example, Chief Wilton Littlechild has chaired for many years the indigenous advisory group to the Office of the High Commissioner for Human Rights in terms of the business in human rights guidelines. Do you have expertise within the EDC, or do you reach out beyond the EDC to actually have the expertise needed to evaluate this kind of reporting to actually know if it's substantial?

Mr. Pullen: I will speak in broad terms. On my team, we have three individuals who spend most of their day on social and human rights matters. We also actively participate in external working groups on these topics, including human rights, indigenous peoples and interactions with First Nations. In those forums, to address the development of guidance or specific questions, we will reach out to whatever expertise helps us get information on those topics. It is driven by the issue of the day, a specific transaction or more broadly as we move forward in the development of our policies and procedures.

Senator Martin: My colleagues have asked some very good questions. There are some questions that I have, which are sort of exceptional cases but I'm sure that they are no longer the exception in this world of continuing interconnectedness and larger global projects.

In the case of supporting larger infrastructure projects, let's say that among the Canadian companies, your clients have met the standards and they are approved. What happens if they are involved in a project with other companies from other countries and there is information regarding these companies that would cause them to not meet those standards? In a complex project where there's more than one partner, what would happen to the Canadian company in terms of the support that they would get from EDC?

Mr. Pullen: Just to briefly frame that, if a company is involved in — I'm trying to remember the term — a conglomerate that is seeking to develop a large project that could include companies from multiple countries around the world, that gets factored into our assessment. We have to take into consideration the role of the Canadian company.

If they have a prime responsibility or a key influence over the development, management and overall implementation of a project, our expectation is that they will work with their business partners and be able to represent that the other companies are seeking to adopt or meet the standard that we are applying to that project. In cases where there are gaps, that will be taken into our decision-making process in terms of seeking other options to frame the agreement to require that to happen and if not, we may make a decision not to proceed.

In cases where the Canadian company does not have that role, it will elevate our consideration of the risk of participation and if there is any opportunity of EDC's support potentially helping that company then influence the other companies. I know that's a fairly lofty statement but that is one of the objectives that we would seek to do in our evaluation. Again, if we determine that it is just too much of an issue that we cannot resolve, it may impact our decision to be able to support.

Senator Martin: Before approval, or at the pre-approval stage, would you have all of that information in front of you as to what companies would be involved and how much impact the Canadian company would have on the overall project?

Mr. Pullen: We strive to have all the information available to us at the time of our assessment and take into account gaps and information at that time. It's a fluid world with lots of different stages of project development and we try and account for that in our monitoring of project support.

Senator Martin: I would like to see an example. However, in terms of monitoring a project from beginning to end, how closely do you follow? If there were significant changes in the acceptability of a project that made it less acceptable, how would you approach such a situation? How closely do you monitor projects?

Mr. Pullen: In the case of project finance or direct support to a project development, we are very active. It is one of our key priorities, in that particular case, to actively monitor projects. We call it throughout life of the loan, and it's particularly active through the construction phase.

So this not only includes EDC's oversight from here, but we also undertake visits to the site. We engage independent experts to advise the lenders — because remember that EDC is usually part of a group of lenders in these cases — on the project's conformance to the international standards that we apply.

In terms of how EDC implements our ability to have a say when issues go awry, that will be structured right into the loan agreement through covenants, reps and warranties. What we typically call the environmental and social action plan becomes a schedule to a loan agreement, and it actually becomes a default mechanism.

So if a company does have an issue that they cannot resolve or goes beyond what we deem acceptable standards and they are unable to bring the project back into compliance, for lack of a better term, they would be in a situation of a potential call of default.

Those are the mechanisms that EDC and other financial institutions can use to implement environmental and social elements right into loan agreements. I can say that that is a topic that has progressed significantly in the short time period of the last eight to ten years and will continue to evolve as we become more sophisticated in how to incorporate these right into the financial mechanisms governing our support.

Senator Martin: I have one last question on that.

The Chair: I was going to follow up on that. I was curious about the EDC. Do you have a mechanism to simply withdraw your support if this happened? Following up on what Senator Martin was saying, do you have the ability to withdraw? You used the word default.

Mr. Pullen: In straightforward terms, there are mechanisms in agreements for any lender, including EDC, to withdraw if the company is failing to perform financially and, as I said, as we continue to evolve the sophistication of getting environmental and social covenants into loan agreements, they would have the same bearing.

In terms of whether it happens the next day, there are lots of legal elements around loan agreements, but the mechanisms are in place for any lender who deems a default that can be determined to be true to leave and exit a loan agreement. That is either directly or through accelerated repayment, depending on what stage of the project is at.

Senator Martin: My question was actually on monitoring the progress. You say you do that very carefully and proactively.

Mr. Pullen: We do. In brief detail, once EDC signs an agreement and the borrower gets their money to go off and build their project, we have very active engagement, as I said, through the construction phase, and it's all scoped to the scale of the undertaking. For large-scale projects, we have our representatives, through our independent experts, there as much as often as four times a year, and they report back to lenders, and there is obligation on the borrower to report to lenders. So there's very active monitoring. EDC ourselves, through that time period, depending on the scope and scale of the project, will undertake visits as well to verify what we are interpreting both from the company and our independent evaluator. And our engagement will go through the life of the loan. So once the facility is over and the project is off, then EDC's monitoring obligations will step back.

The Chair: Just to follow up on the monitoring and to be clear about this, if you find out through the monitoring that there have been human rights violations, do you have the ability in these contracts to withdraw support to these companies or countries?

Mr. Pullen: There are mechanisms within the facility for any lender to withdraw. If it can be demonstrated that a derogation to the standards that the lenders and the companies have agreed to has happened — and that would include anything from environment through the social spectrum all the way to human rights — there is a process under which to determine whether the issue has occurred, and there are other mechanisms that are also coming in to play if that situation should become apparent.

Senator Ngo: In your country risk quarterly release letter this spring, human rights concerns did not appear to be a major issue. I was happy to read about your concern about ongoing territorial disputes in the South China Sea and terrorism. Do you think that the nature of human rights is a source of volatility that could affect Canadian companies, or is this a factor taken into account that could affect our export and economic confidence?

Mr. Pullen: I'll frame my response within my world of looking at environmental and social performance of companies.

What we do observe — and hopefully companies who are operating internationally are becoming more aware of this — is that environmental and social human rights risks are tangible risks to their operations. There has been much work done to demonstrate that companies who fail to adequately understand the context in which they're operating, and put measures in place to address those, can undergo significant delays in their operations. It is becoming a financial risk for them, and that is definitely something they need to become more aware of.

In the context of our business, that is what we are trying to educate our customers in when they are operating abroad. It is not just the financial agreement between the counterparties that's of importance. They need to clearly understand the context in which they operate because it can be, at the end of the day, a financial risk to their business.

From our perspective, the benefit ensures there is constantly evolution in the area of environmental and social risk management because to perform well in those cases, in this day and age, is of critical importance not only for their ability to operate sustainably financially, but also sustainably in the area of social licence to operate.

In terms of specific issues around the world, I can't speak specifically to an issue at this time, but that is our observation and the context in which we engage with companies and provide advice.

Senator Ngo: I will put you on the spot right there. What country do you consider as a higher risk? And what criteria are used to determine that a country is a high risk?

Mr. Pullen: The development of that list is not within my day-to-day work. I have folks on my team who look at that. But we have very standardized criteria in which we develop high-risk country lists. That list exists and is based on standardized guidance from international experts and forums to inform the development of lists that are considered higher risk countries. That will be taken into account in any undertaking that EDC considers and would trigger a specific risk assessment in terms of our ability to even go forward.

Senator Ngo: Can you tell us if Saudi Arabia, China or Vietnam are on this list?

Mr. Pullen: I don't have the list with me and, with the risk of misquoting it, I won't speak to it specifically here, but we can get you that information.

Senator Ngo: I would like that, Mr. Chair.

The Chair: We'll get that information.

Senator Andreychuk: I'll try to make this short. I didn't think I got the full answer that I was trying to get.

We set discretionary guidelines; that's basically what they are. You work with OECD. You look at the UN guidelines. But the companies are going out and competing. My concern is, how are we going to get some international standards that companies will to have to adhere to and how do we get the receiving countries that are involved to understand the importance of these guidelines? Do I have to go to the Canadian government to get those answers, or are you actively engaged in trying to get more adherence to international standards on human rights and environmental concerns?

When I go out in the field, I get this answer that we're doing it, but company A, B, C from all these other countries — and some of them are OECD countries — are not adhering to them. Then the receiving country that's looking for this development, whether it's in the extractive industries, is saying they only have limited dollars so they took the best deal we could. How do we move the agenda forward?

Mr. Pullen: Thank you for that. It's definitely something that I spend a lot of time thinking about. I can only answer from the context in which I operate, which is the financial sector. In that context, EDC is very active in ensuring that the international standards that all the lenders use — who participate together either as members of the OECD within the Export Credit Group or the Equator Principles — are forums in which we strive to ensure that there is consistency in the implementation of the international standards, and in this context it's the International Finance Corporation performance standards, as our benchmark to try and create a level playing field, so at least in the transactions that we are considering, we are all upholding the same standard.

From our lever as a business in the financial sector, that is how we strive to promote consistency amongst the businesses that we operate in. In terms of striving to raise the bar at a more international level, that is out of my purview and other governmental forums would have to provide observations and recommendations on that. But from the context in which EDC operates, that is the approach we take. We actively engage in all the international forums that we can feasibly attend to share ideas and at least exchange our observations of the success and the challenges in areas for evolution of standards that we use, but within that financial space.

I understand what you're saying about the inconsistency and the competitiveness of the market. The objective is that if companies are adhering to the standards, they become more competitive in seeking financing from lenders who use these standards. That is one mechanism in which we can try and move the bar slightly in those areas.

Senator Andreychuk: So we should go to all the governments.

Senator McPhedran: I have what could be considered a three-part question picking up on previous questions to which, if I heard you correctly, you responded by indicating that you have what lawyers would call a boilerplate clause that goes into your agreements that relate to the human rights aspects as well as climate. Would I be correct in understanding this standard clause that goes into your agreements is an EDC customized clause drawing from the various sources of standards that you referenced in your presentation as opposed to repeating each of those three sources verbatim? I'm assuming there's a clause that EDC uses that then allows for effective monitoring. Yes or no? And if so, could we see it, please?

For the second part, you made reference to the existence of this clause as essentially a mechanism that allows action to be taken where there's derogation from the standards. Has it ever been done? Have you ever taken that action and if so, could we have more details on that, please?

The third part of the question is in relation to this concept of monitoring built on the clause and the standards and staffing that links to it, so there is an effective implementation and it's not just window dressing. If I heard you correctly, you have three staff that focus, on a regular basis, on the implementation and respect for these standards among your collaborating client base. Of those staff, do you have anyone of indigenous origin who is working on this and applying the standards that have been accepted by EDC that derive from the United Nations Declaration on the Rights of Indigenous Peoples?

Mr. Pullen: To summarize the three questions that you've asked me, one refers to the clauses that we put in our agreements. The second was if we ever called a loan based on a deviation from the agreement. And you had a question about the composition of my staff.

In terms of the first part, in the project finance scenario, there is standard guidance that we use as a starting point. I can direct you to the Equator Principles' website, and there is a document there on standard loan agreements, clauses, to provide guidance to lending institutions.

There is a bare minimum that we always seek, which is in terms of compliance with host country law. Among other things, it's their management systems, commitments they've made in the environmental and social impact assessment monitoring those things. Beyond that, it does get quite customized down to the specific transactions. To your question of boilerplate, it is not always standard in a project finance scenario that is the same across. The objective is that minimum standard, as well as defining clauses that are specific to that particular undertaking. In my world, that is handled through a specific document called an "Environmental and Social Action Plan,'' where all the commitments and any things that need to be followed up on or represented will get included in a loan agreement.

What I can say is EDC has not specifically called any project finance loan on an environmental and social issue to date, so I'll answer that definitively. In terms of my staff, no one has represented to me that they are of a First Nations origin.

Senator Omidvar: I will follow the elegance of Senator McPhedran. I, too, have a three-part question. That's a very elegant way of getting three questions into one.

My first question is this: Has there ever been an external audit or review of your assessment and monitoring process? Have you conducted that?

My second question is this: What is your liability under Canadian law for international human rights violations by client companies, and have you ever been penalized or named in this manner?

My third question is around your own governance. I've looked on your website at your board of directors. It's a matter of a different concern. I don't think they represent the diversity of this country. Leaving that aside, I want to know whether your board of directors requires you to report on a regular basis on your performance in terms of monitoring and assessing human rights issues, the same way as you probably report to them on how much business you have done. Is there an indicator in your own reporting to the board on this matter?

Mr. Pullen: In terms of your question to external audit, EDC is subject to the Auditor General of Canada, and our environmental and social review policy is audited on a four-year basis, I think is the schedule. That is specifically to come in and audit the implementation of our environmental and social risk management policy, and they report back to Parliament on the findings. In terms of the development and implementation of the policy, that is one of the external audit mechanisms of our performance.

In the area of human rights, EDC, as part of our ongoing process of making sure that we are as up to date as we can be within the financial context of accounting for human rights issues, has brought in a consultant to effectively audit our procedures and took their recommendations to bring forward and continue to evolve our processes, which have undergone yet another step forward in the last number of years.

Senator Omidvar: Consulting on human rights?

Mr. Pullen: Yes.

Senator Omidvar: Excellent.

Mr. Pullen: Could you repeat the question on liability?

Senator Omidvar: Can you describe your liability under Canadian law for international human rights violations by your client companies? Have you ever been named, penalized or charged for a violation?

Mr. Pullen: For a human rights violation?

Senator Omidvar: By your client company.

Mr. Pullen: In terms of overarching liability, I'll defer that to my legal department. We have had companies who have been named in various reports and, when they are, we follow up.

Senator Omidvar: Have you been named?

Mr. Pullen: Not to my knowledge, and again I will defer to my legal department to say yes or no.

Senator Omidvar: Finally on the governance.

Mr. Pullen: The reporting to our board is on a quarterly basis in terms of what we call our CSR report to the board. Does it currently contain specific indicators on specific areas of our undertaking? Not to that level of detail. But as we go forward, those are the types of things we are considering in terms of increasing our internal transparency and bringing things forward, as well as how we will handle transparency more broadly.

To your specific question, we do not get down to that specific level of detail in our reports to the board, but I'm always available to respond to questions, which the board asks regularly.

Senator Omidvar: Perhaps you'll take a recommendation from an individual senator back to your board, that since you are doing so much business with the rest of the world and human rights is such a big issue, as we know in this country and by the people in Canada, perhaps you should have an indicator that is reported on a quarterly basis on how many companies you dealt with — it's a success indicator, I think — were dropped from your horizon because they did not meet certain standards.

Mr. Pullen: Thank you for that. I will take that recommendation on board. In our CSR reporting, we are continuing to develop the reporting on human rights issues.

Senator Martin: This is more of a statement to put on record than a question, because I'm sure the answer will be yes. Recently the Minister of International Trade, François-Philippe Champagne, told media that this year Canada has enormous interest in markets such as China, Japan, India, Indonesia and Malaysia, and some of these countries are on record for human rights abuses, as we are aware.

Regardless of the government of the day's interest or priorities in countries for Canadian exports, would EDC maintain your very strict standards and assessment for any future projects that may come to light? I know the answer is yes, but I was looking at the list of countries, and there are some countries that will have concerns for Canadians in terms of how they do business in those countries. Like I say, it's a statement for the record more than anything else.

Mr. Pullen: Beyond "yes,'' EDC, under our mandate, is seeking to help Canadian customers export abroad, but underpinning all EDC's activities is a fundamental priority to ensure that we are operating in line with our standards and commitments, which we take extremely seriously and implement across our business as we track our customers as they go abroad.

The Chair: We're curious, and you've been very informative today, but Senator McPhedran wants a clarification, and we would like you to tell us either in writing or verbally today.

Senator McPhedran: I'm feeling somewhat confused, and I am potentially disappointed if indeed there is no substantive obligation on the part of witnesses to report back to us with the information we've requested. I would like to have a clear agreement between us that this is something that you are willing to do and that we will receive information from you following today.

Mr. Pullen: Thank you for that. I'm going to look over my shoulder for a nod.

Senator McPhedran: Terrific.

Building on that, on behalf of Senator Pate and myself, we'd like to make it clear it's not only one senator that's making the request from you to convey a message to the board, but it is all three of us who would very much appreciate it if that would happen, please. If we could get a report when that has happened, and if there's any response from the board, if that would also be shared with us.

Mr. Pullen: I will commit to bringing the recommendation forward and will follow on the ability to report back.

The Chair: Just before we go, I'll throw out a softball question for you. There was a lot of information today, and it is very important for this report. We've learned a lot. If there are any university classes that stay up late at night to watch this program, they should pay attention. They will now know what EDC is all about.

Keeping in mind that this is a human rights committee, what would you consider success at EDC?

Mr. Pullen: From my perspective, sitting as the Director of Environmental and Social Risk Advisory Services, ongoing success is to ensure that we continually keep up to date with the evolution of thinking around human rights and how human rights risk management can be incorporated into financial institutions, and ultimately that we see the bar rise amongst our customers and their customers in terms of how they address and understand human rights risks within their business.

The Chair: With that, we thank you very much, Mr. Pullen. Mr. Pullen is the director, Environmental Advisory Services at Export Development Canada. We appreciate your time here. It's been very important for our study.

Mr. Pullen: Thank you very much, and thank you for your attention.

The Chair: With that, we'll suspend for a moment and come back to the public.

(The committee continued in camera.)

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(The committee resumed in public.)

The Chair: We have a motion on the floor for adoption of a budget, and possible changes could be made by the committee as we take a look at this short trip. The motion is:

That the special study budget application for public hearings and fact finding in the Brockville, Kingston and Montreal Areas, part of the committee's study on issues pertaining to Human Rights of Prisoners, for the fiscal year ending March 31, 2018, be approved, with the changes as we discussed today; and

That the subcommittee on agenda and procedure be authorized to approve the final version of the budget, for the Chair to submit to the Standing Committee on Internal Economy, Budgets and Administration.

All those in favour?

Hon. Senators: Agreed.

The Chair: It's unanimous. That's it.

(The committee adjourned.)