For decades, Export Development Canada (EDC) has been subject to minimal public scrutiny, with media and Parliament rarely asking questions about the social and environmental costs of the business it supports. But recently, with some of the agency’s highest-profile clients facing charges of wrongdoing, that’s started to change.
A whistleblower’s allegation that SNC-Lavalin earmarked loans from Export Development Canada for bribery in countries around the world is just the latest in a string of events that have prompted reporters and lawmakers to question EDC’s screening practices.
EDC’s backing of a Bombardier jet sale to South Africa’s Gupta family came under heavy scrutiny last year when media reported that the Guptas faced arrest warrants related to a massive corruption scandal, and had gone missing along with the jet.
Before that, Canadian senators raised concerns about EDC’s decision to help an Ontario company sell Internet censorship technology to the government of Bahrain, which is widely criticized for systematic repression and human rights abuse.
These and other cases have elicited growing public concern about the types of companies Canada does business with via its export credit agency. Civil society groups, MPs and senators have called for stricter oversight of EDC.
With the law that governs EDC under review, the time for reform is now. The government must impose rules on this Crown corporation to ensure it does not support unethical or harmful practices.
Big money, high stakes
Export Development Canada is one of the largest export credit agencies in the world. It provides roughly $100 billion in loans, insurance and other financial services to Canadian and foreign companies every year. It facilitates business in nearly every sector, including those widely recognized as high-risk for corruption, human rights abuse and environmental harm.
Last year over 40 percent of EDC’s support went to companies involved in oil and gas, mining, construction and infrastructure. Without strong oversight of EDC’s operations, the government runs the risk of facilitating harmful and illegal activities that are too often present in these industries. It also risks putting Canada in breach of its international obligations, such as its duty to avoid contributing to human rights abuse.
“The extractive sector is unique because no other sector has so enormous and intrusive a social and environmental footprint.”
– John Ruggie, author of the UN Guiding Principles on Business and Human Rights
“What’s the most corrupt industry in the world; what’s the riskiest industry to be doing business in or with? (…) [T]hat’s the construction industry. But if you’re in energy and resources, you’re doing construction work.”
– Peter Dent, past chair of Transparency International Canada
While it has until recently gone unremarked in Parliament, EDC’s track record of questionable business deals goes back decades. The agency says it has strong procedures in place to make sure the business it supports is “environmentally and socially responsible.” But in recent years its clients have included:
- a Mexican oil company that’s reportedly seen more than 190 workers and contractors killed in accidents at its facilities since 2009
- a Colombian company developing a massive hydro dam that nearly ruptured in 2018, forcing the evacuation of 25,000 people
- a Canadian mining company that’s earned record-breaking environmental fines in British Colombia, and another whose actions led to the “elimination of an ethnic community” in Brazil
In some of these cases, EDC issued new loans to the company after the harms came to light or charges were laid.
A deficit in accountability
Canadian law grants EDC broad discretion to handle social, ethical and environmental risks as it sees fit. The agency’s governing legislation is silent on human rights and corruption, and provides no meaningful oversight relating to the environment.
|Systemic weaknesses in risk management|
The auditor general assessed EDC’s overall risk management framework for 2016-2017 and found “weaknesses in how the Corporation managed risk. (…) Combined, these weaknesses amounted to a significant deficiency. The Corporation did not keep up with evolving industry practices in risk management.”
The law also gives EDC discretion to withhold information about its risk management practices. The agency chooses to disclose very little. It does not publish a full list of the companies it supports.1EDC proactively discloses deals for financing, equity and political risk insurance, but not for other types of support. Only in the rarest cases does it release information about its assessment or monitoring of any particular client. Even when a client is charged with illegal activity, EDC doesn’t publish information about whether it takes disciplinary measures.
As a result, it is largely unclear how EDC manages social and environmental risks in practice. More importantly, the public has no effective means of holding the Crown corporation to account for failures in this process.
Time for Parliament to step in
The government is reviewing EDC’s governing legislation, as it is required by law to do every ten years. Parliament should seize this opportunity to adopt meaningful reforms to the Export Development Act.
The law must bar EDC from supporting companies engaged in corruption, human rights abuse or environmental harm. With such a prohibition in place, Canadian courts would be empowered to review EDC’s decision-making when allegations of harmful or unethical activity emerge.
The Export Development Act should also state that EDC owes a legal duty of care to people who may be harmed by the business it supports. This would allow victims to seek justice in Canadian courts when EDC fails to prevent foreseeable harm caused by its clients.
To align the agency’s operations with Canada’s climate commitments and the growing urgency of the climate crisis, the law should prohibit EDC from supporting fossil fuel companies.
It should also mandate the auditor general to regularly audit and report on how well EDC is managing human rights, environmental and corruption risks.
Above Ground and over a dozen other civil society groups are calling for these and other reforms. Our recommendations are outlined in detail in these submissions to the government:
- Bringing Accountability and Transparency to Export Development Canada’s Practices
- Decarbonizing the Business Portfolio of Export Development Canada
Only once EDC is legally accountable for the social and environmental costs of its decisions can Canadians be assured that our government is not profiting from harm.
Published July 15, 2019