Sustainability

A Report Card on Canada's New Extractive Sector Transparency Measures Act

At the 2013 G8 leaders’ summit in Northern Ireland, Canada announced that it would take action to enhance the transparency of payments to governments made by Canadian extractive companies by introducing mandatory reporting. The resulting legislation came into force on 1 June 2015.

Canada has committed to becoming a leader in the international movement to promote ethical business practices and fight corruption. At the 2013 G8 leaders’ summit in Northern Ireland, Canada announced that it would take action to enhance the transparency of payments to governments made by Canadian extractive companies by introducing mandatory reporting. The resulting legislation, the Extractive Sector Transparency Measures Act (ESTMA), came into force on 1 June 2015.

With all companies subject to ESTMA now having been required to submit their first report of government payments related to the extraction of oil, gas, or minerals, the federal Department of Natural Resources (NRCan), which is responsible for administering ESTMA, is now analyzing the first reporting cycle with an eye to increasing uniformity in reporting and to address feedback from stakeholders regarding reporting challenges and uncertainties. NRCan is expected to provide updated guidance in early 2018.

As of 14 November 2017, NRCan’s website had published reports from a total of 729 companies. Of these companies, 421 are listed as submitting consolidated reports and 51 as submitting substitute reports that have been prepared under another jurisdiction’s equivalent reporting rules.

International Transparency Movement
While the international movement promoting the disclosure of government payments in the resource extraction sector goes back more than 20 years, the Extractive Industries Transparency Initiative (EITI) first launched as a voluntary program in 2003. Under the initiative, countries and companies in the extractive sector voluntarily disclose payments.

In the years since EITI was introduced, a number of jurisdictions have enacted legislation requiring reporting of certain payments to governments. Norway first required disclosure of payments to governments starting 1 January 2014, and the United Kingdom was the first in the European Union to implement the disclosure rules in the EU’s Accounting and Transparency Directive starting 1 January 2015. Notably, unlike ESTMA, the EU disclosure rules also apply to the logging of primary forests.

While the US Securities and Exchange Commission (SEC) first introduced reporting rules in 2012, they were vacated by a US District Court shortly afterward, and replacement rules subsequently adopted by the SEC in 2016 were nullified by Congress and President Donald Trump early this year. A bill for equivalent legislation in Australia lapsed in 2016 and has not been reintroduced.

Overview of ESTMA
ESTMA requires that entities listed on a stock exchange in Canada—as well as large private entities with a place of business in Canada or assets in Canada that are involved in the commercial development of oil, gas, or minerals in Canada or abroad—prepare and publish annual reports disclosing certain specified categories of payments to governments (subject to a de minimis threshold). In Canada, an officer, director, or independent auditor must attest to the accuracy of all reports submitted to NRCan, including consolidated and substituted reports. Entities, as well as individual directors and officers, who violate ESTMA may be fined up to $250,000 per day, subject to a due diligence defence.

Quebec has adopted equivalent legislation that applies to entities listed on a stock exchange in Canada with their head office in Quebec and large private entities with an establishment in Quebec or with activities or assets in the province. Reports prepared under ESTMA have been specified in the regulations as acceptable substitutes.

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