1. Potential and limitations of investor engagement in the extractive sector: case analysis of Goldcorp’s Marlin Mine By: Hugues Létourneau Master Student in International Affairs UNPRI- Sept 26th 2011

2. Potential and limitations of institutional investor engagement in the extractive sector: Why be interested in the extractive sector? Extractives play prominent role in the field of CSR for three reasons (Pegg, 2006): – Enclave operations – Extractive corps involved in cases responsible for bringing CSR to the fore in 1990s – Initiatives developed and applicable specifically for extractive: EITI, Look at responsible investing and situate investors within framework of global governance. Investors making inroads into processes which are inherently political thus raising need to assess role of public and private actors in governance of issues such as human rights in a context of blurring between public and private authority Important to understand how issue comes to be taken up by investors. Global governance & constructivist lens allows to go beyond rationalist approach: – Rationalist approach would hypothesize that actors change strategies as a result of transformation in the international environment BUT do not explain WHEN & WHY particular strategies become reasonable

3. Argument Investors grouping through ad-hoc networks occupy an increasingly important role in the business and human rights agenda in the extractive sector by acting as a form of global governor which “sets agendas” to guide corporations through instruction on appropriate norms of behaviour. Further, I will argue that this form of governance, which constitutes a self- regulation arrangement, faces a legitimacy deficit which thus points to its limits in advancing norms related to human rights.  use global governance framework where rationalist and normative approaches will be used to inform the analysis Methodology: case study of the Marlin Mine operated by Goldcorp in Guatemala. Information was gathered through publically available sources in addition to semi-structured interviews with NGOs, investors, corporate actors and consultants closely involved with the Marlin Mine.

4. Global Governance Framework Global governance is “the sum of organisations, policy instruments, financing mechanisms, rules, procedures and norms”. Actors in global governance are active agents who want to solve problems, change outcome and transform international life. Actors in global governance are engaged in processes that are political and dynamic. “Global governors are authorities who exercise power across borders for purposes of affecting policy. Governors thus create issues, set agendas, establish and implement rules or programs, and evaluate and/or adjudicate outcomes…almost all governing in contemporary global politics seems to be the result of governor interactions of various kinds…governors can gain acceptance from those they seek to lead by offering attractive new ideas, fomulating new strategies and persuading people of the importance of new goals (last part, p.9)” (Avant el al., 2008 p.2-9) Structural changes in global governance which explain the WHEN & WHY investors are increasingly advocating strategies with regards to HR in developing countries (Haufler, 2004): – Privatisation & deregulation (neoliberal paradigm) has increased number of MNCs operating in fragile countries and zones of weak governance – International HR regime whereby rights of specific groups (ex: indigenous) have become entrenched in world politics – Emergence of transnational advocacy networks: local political sistuation is now visible and of interest to interests abroad. Local activism thus becomes transnational activism.

5. Responsible Investors and Global Governance Authority: – Global governors are sources of authority: Authority is the ability to induce deference in others. – How do investors approach extractive companies on HR issues? Institutional authority: shareholder have a stake in well being of company Principled authority: legitimated by service to “widely accepted set of principles”. However, this notion is problematic with investors because they are profit-driven, people assume utilitarian motives making principled authority harder (NGOs benefit from moral authority because of perceived altruism) (Avant et al, 2009, p.13) Character of relationship between investors and corporations favours a favorable response by corporation to investor demands because of their mutual profit making motive.

6. Situating responsible investment within rationalist and normative approaches Rationalism: actors maximize their utilities by acting according to their capacities and preferences. Efficiency is at the core of this approach. (Cutler, Haufler, Porter, 1999) RI & rationality: “RI has progressively shifted from a marginal movement led by shareholder activists which advocates risk reduction as a driver for profit maximisation and which is increasingly embraced by mainstream investors” (UNEP FI 2009) Constructivism: emphasis on norms – What is a norm: “standard of appropriate behavior for actors with a given identity” (Finnemore and Sikkink, 1999) – Embody a quality of oughtness and prompt justification for action – Link between rationality and norms: intimately connected  “actors make means-ends calculations to maximize their utilities, but the utilities they want to maximize involve changing the other player’s utility fcu in ways to reflect normative commitment” (Finnemore and Sikkink, 1999) RI & Constructivism: “Investors increasingly active in transmitting new norms of behaviour for another sector of actors-and doing so through collective action” (Macleod, 2008)

7. Interested in ad-hoc networks because from the evidence available, they have engaged with corporations on bolder and path-breaking initiatives Type of Cooperation Nature of ArrangementExamples Investor governance networks (Macleod, 2010): -relatively institutionalized (not yet regimes) -multi actor, single/multi issue -diffuse engagement Interfaith Center on Corp. Responsibility, Ceres, CDP… Ad-hoc networks -pressure specific corporate targets in specific countries -smaller number of actors -narrowly focused engagement Goldcorp case, Newmont and Human rights, Chevron and Burlington in Ecuador, Talisman & FPIC policy Responsible Investor Cooperation Models

8. Self-Regulation: Legitimacy vs. Rationality and Efficiency Ad-hoc networks generally deal with limited number of companies because of the limited resources available for engagement. They attempt to set agendas by resorting to existing norms which are not applied by specific actors, ex: FPIC, environmental norms, indigenous community rights, labour rights. Corporate engagement over human rights issues qualifies as self-regulation because pressure is applied by a private actor (financial over another private party (corporation) over another. Issue with self-regulation of investors over extractive corporation suffer from lack of accountability: investors do not need to be responsive to public interest of activities they undertake over social issues. When investors get involved over social issues, make decisions on the allocation of scarce resources for public purposes – opposition to democratic political theory (Ougaard, 2006: 243) Alliance of acting in a socially responsible way and the efficiency doctrine tied to self- regulation suggests a limit to the extent that this form of regulation can imposed on corporations, ex: in mining, are investors ready to go as far as to require the suspension of mining activities IF it is in the public interest?

9. Marlin Mine Project in Guatemala Project controversial since inception in 2005 (Glamis gold was operator at the time-Goldcorp purchased in 2006): – Indigenous communities have formally complained that the project violated ILO Convention 169 –prior CONSULTATION – the irreversible environmental damage of the project, labour right violations – Criticism on the Mine’s protection of workers and support toward the development of worker’s associations. – episodes of violence which have caused deaths (CIFP 2007) Inter-American Commission on Human Rights called on the government of Guatemala in June 2010 to suspend mining activity at the Marlin Mine and take steps to protect the health of the surrounding indigenous communities ILO also called for suspension of the mining activities until the consultation required by the ILO convention No. 169 are conducted. Request for examination sent to Canada’s National Contact Point for OECD Guidelines UN Special Rapporteur on Indigenous Issues: “Regardless of the intentions of the company to conduct a process consultation with affected communities, it is apparent that it could not achieve understanding or stability among communities about the project before the start and has not been able to adequately address the concerns of the communities directly affected by it. Also it is clear that the Government was not sufficiently involved in process of dialogue with affected communities conducted by the company.”

10. Timeline of Investor Action After 2 years of dialogue, PSAC Pension Fund, NEI & AP Funds conducted a field trip in Feb 2008 Culminates in shareholder proposal which is retreated when company agrees to an independent HRIA March 08: Original MOU: “the primary objective of the HRIA is to improve opportunities for Goldcorp to operate profitably in Guatemala Nov 08: Revised terms: “ the primary objective is to provide independent assessment of the potential for HR impacts from the presence and activities of the Marlin Mine…and how practices affect the HR of the population in the area of the mine. May 2009: revised scope of the assessment: “necessary conditions to engage local communities and orgs in open dialogue do not exist in current circumstances” March 2008: original MOU Feb 2008: Investor field trip Nov 2008: revised HRIA objectives March 2009: PSAC Withdraws May 2009: Revised scope of the HRIA May 2010: publication of HRIA

11. Investor identities Transnational civil society/ DC & Western (value driven) Investors (profit driven & partially value driven) Corporation (Goldcorp) Host communities (San Miguel/ Sipacapa About the investors: – PSAC Pension Funds: Union pension fund: labour values of social solidarity, SRI mandate & Social Justice Fund for “elimination of poverty and social injustice”. Funds the activities of Mining Watch consider ESG in investments and engage with companies – NEI: Canadian mutual fund company with an explicit focus on socially responsible investing via shareholder engagement on ESG with goal of bringing higher risk adjusted returns – AP Funds Ethical Council: Four Swedish National Public Pension Funds which administer US$120B. Assigned by the Parliament to “take ethical and environmental consideration, but without compromising the overall objective of attaining high returns”. Divestment in extreme cases

12. Investors, global governance and the advancement of business and human rights norms in Marlin Mine Transnational civil society information conveyed by Mining Watch & Rights Action made way to media which made way to PSAC Pension Fund Pressure Goldcorp into commissioning HRIA paid for by corp. Rationalism vs. norms (PSAC, NEI, AP) Concrete Results: – Established CSR framework tied to due dilligence mecanism developed by John Ruggie (PROTECT  states, RESPECT  companies respect HR, REMEDY  states & corps ) – Led to the establishment of 2 tables of consultation (in San Miguel and Sipacapa) led by Guatemalan VPs office where community reps, Governmental agenicies & corp sit. Goal of addressing short terms issues (petition at IACHR) & long term (community dev.) – Has joined UN Global Compact – Unprecedented exposure to social issues by senior corporate staff Investors were key in “setting the agenda” of human rights norms

13. Downside of ad-hoc network led engagement over human rights Not a systematic & institutionalised process  attention on cases where most noise is made Profit seeking actors get involved into inherently political issues which actually “appeared to be escalating tensions aand increasing polarization both among and between the communities” (HRIA, 2010:8)  Political issues dealt with in a marketised form Shareholders have no accountability toward those who would be affected by HRIA. Appeal to the greater collective – public good – not shared by each shareholder to same extent. Balance between financial returns and the goal of “protecting human right and addressing community concerns” had to be balanced with the (initial) objective of the HRIA: “

14. Conclusion Social issues are of a qualitative nature, something which “market actors (corps, investors)” are not well equipped for Among E & S, environmental has been easier to deal with since some of these concerns can be quantified. Not the case with qualitative social issues Reality of global economic paradigm  RIs dealing with social issues are not solely “principle-led” actors, corporate “power” will persist but if investors can elevate corporate action with regards to building state capacity (detain legitimacy toward the people), can serve a useful purpose