(August 28, 2013) – It’s not often you’ll hear investors calling for more regulations, but an international consortium of some of the biggest pension funds and asset managers have done just that.
A total of 44 institutions have written to the US Securities and Exchange Commission (SEC) to urge the adoption of a single, consistent global standard for all tax and royalty payments made by oil, gas and mining companies in a drive for greater transparency.
A further 33 institutions (some of which also signed up to the SEC letter) have appealed to Natural Resources Canada with the same demands. The move reflects a growing global trend aimed at deterring corruption in resource-dependent countries, which was started with the passage in 2010 of tough extractive sector transparency provisions within the US Dodd Frank Act.
The EU’s Transparency and Accounting Directives followed in June 2013, while in Canada, Prime Minister Stephen Harper told the G8 Summit he planned to follow suit with similar regulations for Canadian listed extractive companies.
However, a July ruling in a US District Court on a suit filed by the American Petroleum Institute is threatening to block the US regulation, forcing investors to collaborate to highlight the importance of high standards of transparency and consistent global regulation.
Among the major players signed up to the two separate letters are: Swedish pension funds AP1, AP2, AP3, AP4 and AP7; the UK’s Local Authority Pension Fund Forum and RPMI Railpen Investments; the Netherlands’ PGGM, APG, MN Services, and Robeco; as well as tens of asset managers.
Frank Curtiss, head of corporate governance at RPMI Railpen Investments, explained: “From an investor perspective, the key is reducing risk; operating risk for oil, gas and mining companies who face potential unrest—even violence—from a populace that sees little benefit from its mineral wealth; commercial risk from the threat of contracts being torn up on the back of resource nationalism; and market risk from volatility in commodities prices, which is exacerbated by social unrest.
“The less mystery there is behind these resource deals, the fewer unpleasant surprises we can expect.”
Arne Lööw, head of corporate governance at AP4, added: “This move by Canada is critical for achieving a consistent global transparency standard. As one of the world’s top listing venues for mining stocks, it needs to take its rightful place at the top table by setting a meaningful standard in line with the US and EU.
“We don’t want companies evading tough standards by shopping around for the weakest forum and picking Canada. The fact is that Canada’s own mining industry leaders have broken the mould by calling for this: they are the first to recognise the value to industry of transparent business practice, and we agree.”
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