Environmental and social transparency under the ... - ClientEarth

54 | Environmental and social transparency under the Companies Act 2006Chapter 3: Environmental and social issues: Business issues | 55As well as being economically expensive, their extraction is also extremelycontroversial, primarily due to environmental impacts such as: significantlyhigher greenhouse gas emissions than conventional sources (by someestimates production from tar sands generates an average of three timesmore GHG emissions than conventional crude); 167 associated land and ecosystemdamage from strip mining; 168 extremely high water use and riverdiversion; 169 and potentially considerable issues relating to pollution fromextraction tailings. 170 There are also considerable social issues regardingthe impacts that the rush of activity has had on local infrastructure and thequality of life in areas of intensive speculation and operations. 171Tougher regulation now looms on account of the social and environmentalimpacts of the activity, and the companies stand to lose significantly, withcapital-intensive assets likely to be left stranded in a regulatory environmentwhich cannot necessarily yield the projected profits which justifiedinvestment.Three key sources of pressure for regulatory intervention in Canada:- Local discontent with the impacts of operations on social infrastructurein the locality. 172- Specific international pressure on Canada due to the environmentalimpacts of tar sands operations, induced by the high profile operationsof major companies. In the USA, the key market place for the product,discomfort with tar sands production is becoming more and morevisible, 173 and protests have been proliferating. 174- Broad international pressure and movement on climate change,which is likely to lead to stronger emissions reduction commitments inCanada. As tar sands projects play a huge role in Canada’s emissionsgrowth, they will become the focus of tighter regulation as the urgencysurrounding climate change deepens. 175There is also an additional indirect regulatory risk, in that fuel derived fromtar sands faces emissions regulation in California, a major market, whichtakes account of the entire lifecycle of transport fuels. Florida, Ontario,British Columbia and the European Union are all developing similar legislationto California, while Oregon and Washington are also exploring theissue. 176 This has the potential to make tar sands operations less and lessprofitable.In February 2009, a U.S. coalition representing institutional investors managinga total of $1.9 trillion in assets drew attention to a number of thelarge energy companies extensively involved in the tar sands, arguing thatthey are not adequately dealing with climate-related business impacts fromphysical changes and emerging regulation. They called for greater disclosurefrom the companies on their financial exposure and response strategiesto climate-related business trends. 177Furthermore, corporations that demonstrate high standards of practiceand transparency in relation to social, environmental, ethical, and health& safety risk management will find themselves receiving much less scrutinyfrom regulatory agencies. This can result in quicker approvals forpermits, fewer inspections, and greater strategic flexibility. 178There is also increasingly potential for an international dimension to ‘regulatoryrisk’. An example of this is where international tribunals have recognisedand upheld the human rights of indigenous peoples (which havenot been protected by the State), forcing host states to secure those rightsand thereby precipitating regulatory change. This, again as above, canlead to unexpected restrictions on company activity, leaving companieswith significant operational disruption or even the need to cease operationsentirely, having invested considerable funds in the development andestablishment of operations in a given area.The Mayanga Awas Tingni community: internationalenforcement of human rightsMayanga Awas Tingni Community v Nicaragua 179 – On 31 August 2001,the Inter-American Court of Human Rights ruled to uphold the land rightsof the Awas Tingni people, where the Nicaraguan state had failed to do so,holding that the state must secure the effective enjoyment of those rights.The Court ordered Nicaragua to: demarcate and title the lands in accordancewith traditional land and resource tenure patterns; refrain from anyaction that might undermine the Awas Tingni’s interests in those lands;and establish an adequate mechanism to secure the land rights of all indigenouscommunities of the country. It strengthened a contemporary trend ininternational law that empowers indigenous peoples as distinct groups withsecure territorial rights. 180This was a legally binding decision by an international tribunal. The Statewas therefore forced to bring in regulatory changes or enforce existing lawsthat would have major implications for any company operations in thearea.