More transparency in natural resources sectors: G8 Chairman David Cameron wants a global standard

The G8 summit kicks off today in Lough Erne, Northern Ireland.

As chairman of the G8 summit in Lough Erne that starts today (June 18) the United Kingdom has put ‘transparency’ on the agenda. Earlier, François Hollande and David Cameron announced that their counties will comply with the requirements of the Extractives Industries Transparency Initiative (EITI). This week, Stephen Harper, Prime Minister of Canada, home country to many oil, gas and mining companies, followed suit by committing to tightening transparency legislation. The same day, the European Parliament voted in favour of its own new rules. A global standard seems to be within reach. Companies operating in the exploration, extraction and processing of natural resources form a very important industry. The market capitalization of European companies alone exceeds EUR 2,000 billion. The revenues involved for countries with rich natural resources are enormous. For example, last year Nigeria exported oil to the tune of $100 billion, more than all the net development aid given to the countries in the south of Africa combined. There is good reason why Gabon is now trying to force companies to stop circumventing tax payments. Hard measures like expropriation lie around the corner. As responsible investors we do not want multinational companies and their financiers to be the only ones to profit from extraction. After all, roughly half the global population lives in countries that are rich with resources. Most of them are poor, and we believe they should benefit as well. The impact on local economic development can be significant; there is a significant risk of corruption, social unrest and conflict. To ensure that the extractives industry does not create a negative impact, transparency, accountability and good governance are key. Only then will the local population in host countries be able to learn whether their government is receiving a fair price for the resources and how the money is used. As David Cameron said recently: “Open business is good business, delivering sustainable returns for the long term.”Together with NGOs, large companies, governments and other investors we engage with countries and industries in the Extractives Industries Transparency Initiative (EITI) to discuss transparency of revenue flows between companies and government bodies. SNS AM recently became an (alternate) board member of EITI. Together with Allianz Global Investors, it represents 80 other asset managers and owners that jointly invest approximately $19 trillion. Outside EITI, co-operation between professional investors remains important. Together with a UK pension fund, we sent a letter to EU Commissioner Michel Barnier, urging him to follow the American example and create strict transparency legislation. When we noted that the powerful American oil lobby was trying to undermine the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) with regard to payment transparency, we wrote to the chairman of the American securities watchdog, the U.S. Securities and Exchange Commission. We encouraged her to apply the law strictly. Both our wishes came true and we hope that our efforts helped to bring that about. Under the Dodd-Frank Act, companies with a listing in the United States will be required to publish how much money they pay to the government of every country in which they operate, without exception, and broken down per project. The European Commission recently proposed similar directives, approved by the European Parliament on 12 June. The EU is even going further than the US by including logging and (larger) un-listed companies. David Cameron put transparency in the extractives industries on the agenda of the G8 summit. Now that the US and Europe, as the largest capital markets in the world, have drafted similar regulations, Cameron is looking to achieve a global standard. If he succeeds, it would be an important step forward in achieving a situation in which the extractives industries respect all stakeholders in all countries and divide the profits in a balanced manner. We call upon the leaders of the G8 to make that happen. Given recent momentum, a global standard seems to be feasible.
Manuel Adamini is Head of ESG-research at SNS Asset Management.