Export Credit Agencies - Human Rights and Resource Sectors

November 4, 2008

Export Credit Agencies and Human Rights

Although ECAs deny special duties on human rights, there is a clear legal nexus to the state, either through direct ownership as in the case of UK or US or through state-control of the private companies acting on behalf of the state as in the case of France, Germany or Italy. States themselves have responsibilities under international law. The Canadian NGO Halifax Initiative did an extensive research paper on ECAs and Human Rights: “Export Credit Agencies and the International Law of Human Rights”.

The author, Karyn Keenan, explains that the International Law Commission, a body to promote the progressive development of international law and its codification, defined in 2001 conditions under which states have a legal responsibility for breaches of their international obligations, which are referred to as ‘wrongful acts’. They clarify that any violation of international law committed by a state organ, or by any person or entity empowered by the law of the state to carry out elements of governmental authority, will be attributable to the state. States are therefore responsible under international law for any wrongful acts committed by their ECAs.

Given that states have the obligation to respect, protect and fulfil human rights, they are as well obliged to take measures to regulate and adjudicate the actions of non-state actors violating the human rights of individuals within the territory of the state. It has been argued that these obligations are valid as well for third parties acting overseas while being under the control of the state. The Committee on Economic, Social and Cultural Rights has given guidance on the nature and content of these obligations with respect to the right to water in its General Comment 15:

“Steps should be taken by States parties to prevent their own citizens and companies from violating the right to water of individuals and communities in other countries. Where States parties can take steps to influence other third parties to respect the right, through legal or political means, such steps should be taken in accordance with the Charter of the United Nations and applicable international law.”

Not only have states obligations to protect human rights, Keenan argues that they can even be complicit with human rights violations. This would be the case where ECA support is crucial for the investment of a corporation in a foreign country and where the foreign state allows the company to operate in such a way that the state breaches its international human rights obligations. The acts of the ECA are attributable to its home state, this could be found to be aiding and assisting the host’s state’s wrongful act.

Keenan gives an example of how ECAs and their host states can become complicit:
“For example, it is not uncommon for extractive investments and large infrastructure projects to require the relocation of entire communities. Some local populations oppose relocation and are moved against their will. These relocations can involve the use of armed forces including the police and/or military, as well as private security companies. An ECA could support such a project in a country where the police and military have poor human rights records. In the event that public officers commit human rights abuses during the relocation, it is highly likely that the host state, as the party responsible for their activities, would be in violation of its human rights obligations. One could argue that if local opposition to relocation was reasonably foreseeable, as it would be by means of a credible ECA due diligence process, and given that the police/military’s behaviour was similarly foreseeable, that the home government, through its ECA, had knowledge of the circumstances of the internationally wrongful act. Arguably, this knowledge, together with the provision of ECA financing, would make the home state complicit in the wrongful act of the host state. This assumes that the home state is bound by the human rights provision that was breached by the host state.”

The way forward for ECAs would be that states adopt legislation that mandates their ECAs to protect against the interference of human rights by third parties. The states should then enforce this legislation by ensuring that the human rights policies and practices are effective in achieving this legislated mandate. One important aspect for the achievement would be the allocation of sufficient human and financial resources to ensure that these tasks are carried out effectively. To be really serious about the human rights protection, states should establish independent investigative and adjudicative procedures, which can address allegations concerning ECA’s interference with human rights. Effective remedies to victims in cases of human rights abuse are a mechanism to show seriousness about human rights protection. ECAs would need human rights policies that identify and clearly explain for example the human rights standards to which a client must conform, performance indicators, exclusions from trade and investment support on the basis of human rights concerns, specific information that clients are required to provide regarding the human rights impacts of proposed projects.

This position has been strongly supported by the Report of the Special Representative of the Secretary-General on the issue of human rights and transnational corporations and other business enterprises, John Ruggie in his report “Protect, Respect and Remedy: a Framework for Business and Human Rights” (pdf).

Ruggie takes the example of ECAs as possible leverage to assure that transnational corporations take human rights into account:

39. Now consider an example from the home State side. It concerns export credit agencies (ECAs), which finance or guarantee exports and investments in regions and sectors that may be too risky for the private sector alone. ECAs may be State agencies or privatized, but all are mandated by the State and perform a public function. Despite this State nexus, however, relatively few ECAs explicitly consider human rights at any stage of their involvement; indeed, in informal discussions, a number indicate they might require authority from their government overseers to do so.

40. On policy grounds alone, a strong case can be made that ECAs, representing not only commercial interests but also the broader public interest, should require clients to perform adequate due diligence on their potential human rights impacts. This would enable ECAs to flag up where serious human rights concerns would require greater oversight – and possibly indicate where State support should not proceed or continue.

41. Closer alignment between a State’s ECA and its official development agency is also desirable. A development agency may view the arrival of an ECA-supported private investment in a particular region of a country as reason to focus its own efforts elsewhere. But if the investment has a large physical and social footprint, the chances are that it will generate pressures that local authorities may need help in managing – and which the home country development agency might be able to provide.

Resource Sectors

Mining

In Canada, a country with a strong extractive industry, a national roundtable-process was set up on Corporate Social Responsibility (CSR) and the Canadian Extractive Industry in Developing Countries. The process was accompanied by an Advisory Group including representatives from industry associations, individuals currently or formerly employed by extractive-sector companies active overseas, civil society organisations, labour, academics and the responsible investment sector. The Advisory Group presented a report (pdf) with recommendations in March 2007. One of the recommendations is for the Canadian government to establish and promote a Canadian CSR Framework for all Canadian extractive-sector companies. This Framework should include an initial set of standards, as well as CSR incentives, reporting and compliance mechanisms. The Canadian government is asked as well to endorse the use of the Global Reporting Initiative expecting Canadian extractive companies to use the GRI reporting standards. Especially for the Canadian ECA, the Export Development Canada (EDC), the recommendations demand improved disclosure requirements, including the release of project classification rationales, project assessments, modification and mitigation measures required by EDC as well as project monitoring and evaluation documents generated by EDC, project promoters and consultants throughout project implementation. Another recommendation asks for an independent ombudsman office to provide advisory services, fact finding and reporting regarding complaints with respect to the operations in developing countries of Canadian extractive companies. EDC is asked to utilise the Canadian CSR standards in the development of their policies, practices and in the assessment of proposed extractive-sector projects. EDC should as well ask project promoters to undertake peace and conflict impact assessments when operating in conflict zones. If companies fail seriously to meet the Canadian CSR standards, EDC’s contracts should foresee withdrawal of financial and insurance supports as ultimate action.

NGOs active on this topic:

Forests

ECAs provide a key source of public financing to large projects in many timber-producing countries. Direct ECA support for logging or timber trading is minimal as these are not particularly capital-intensive sectors. However, they have provided significant support for the pulp and paper sector and large infrastructure projects during the last fifteen years, especially to controversial expansion projects in Indonesia. The operators of these projects may not be directly cutting trees illegally, but they have indirectly contributed to illegal logging by increasing the demand for raw timber much above the local legal capacity to produce it. Another problem is that it has been common practice for pulp and paper mills in Indonesia to double their initial production capacity and demand for raw materials within the first years of operating: A major expansion usually happens shortly after mill production is “on stream” as this allows them easier access to commercial financial markets. While these expansions are not always dependent on ECA backing, they are, by large, expansions to projects that benefited from ECA start-up investment or guarantees.

Fern, an NGO working on forest issues, made recommendations towards ECAs how they might improve their performance on forest issues (“Exporting destruction – Export credits, illegal logging and deforestation” Fern, May 2008). These include:

Require any company seeking support to provide credible and independent analysis demonstrating the availability of legal and sustainable wood sources for all raw material. This should include independent information on land conflicts affecting that supply, assumptions about annual growth rates, and expected impacts on natural forests; to be received and approved before an agreement is made to finance a pulp and paper project.
Critically assess the track-record of project operators and companies seeking cover for investments, with a view to refusing support for companies which operate illegally or contravene national or international commitments to forest protection and indigenous rights. Such analysis should also evaluate previous compliance against applicable legal norms regarding financial management.
On the OECD level the ECAs should work together to create an exclusion list that includes projects operating in or in immediate proximity of National Parks and other protected areas identified by national or international law, equally on the exclusion list should be projects in High Conservation Value Forests (including wetlands, forests with high biodiversity value, areas of archaeological or cultural significance and areas of importance for indigenous peoples or other vulnerable groups). Projects on disputed lands or where companies that have been convicted of illegal logging, are in the midst of unresolved land right conflicts, or where it cannot be granted that indigenous peoples have been granted their right to free prior informed consent should be part of the exclusion list.

NGOs active on this topic:

Oil and Gas

Where the national industry consists of oil and gas companies, this is reflected in the ECA portfolio. From 1994 to 1999 ECAs provided more than USD $40B in loans and guarantees to upstream oil and gas development projects without any basic environmental requirements or attempts to promote sustainability. When ECAs provide loans and guarantees for fossil fuel and mining projects they may contribute to economic and environmental imbalances and the inequality of international relations. Fossil fuel and mining projects can endorse environmental destruction, corruption of local governments, long-term fossil fuel dependence, global climate change, human rights violations and further deepen the national debt of already heavily indebted poor countries. One of the largest oil and gas projects in the world backed by ECAs is the Sakhalin II integrated oil and gas project in Russia, the Japanese ECA (Japanese Bank for International Co-operation, JBIC) is largely supporting this project. The Baku-T'bilisi-Ceyhan (BTC) oil pipeline is another major ECA-backed project (involving the ECAs from UK, US, Germany, France).

JBIC, the Japanese ECA is involved as well in the Kashagan oil field in Kazakhstan, which is planned to produce up to 1,5 million barrels per day in 2020, which would make it one of the biggest fields in the world. However, due to the specific chemical composition of Kashagan crude (which contains very high levels of sulphur and other toxic pollutants such as mercaptans) and onerous exploration conditions (including very high oil pressure, a harsh climate and an offshore location) it is likely to result in catastrophic impacts on the fragile ecosystem of the Caspian Sea as well as on the people living in the region. (More in the report “Kashagan oil field development” December 2007)

Another example is the Camisea project: This natural gas project is located in one of the world’s most ecologically prised rainforest in the Peruvian Amazon where indigenous peoples lived in voluntary isolation. The development increased illegal logging in areas which where not previously accessible. The project has been supported by the Brazilian export credit agency BNDES, the Belgian ECA Nationale Delcrederedienst and the US-Exim.

NGOs active on this topic:

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