Investors with US$ 5.8 trillion of assets press US and Canada on tax disclosure by extractive companies
August 28, 2013 – A group of 44 international investors representing more than $5.6 trillion in assets under management (AUM) has written to Mary Jo White, Chairman of the U.S. Securities and Exchange Commission (SEC), to voice its support for the SEC and concern at the potential rollback of a key disclosure provision in US law. Known as Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the law requires detailed reporting of tax and royalty payments by extractive companies across their global operations. The law has since prompted the European Union to introduce equivalent legislation through the Transparency and Accounting Directives of June 2013, and is likewise set to be emulated in Canada, where it has won the active support of the country’s two leading mining industry associations.
However, Section 1504 has also spurred opposition from several oil and gas companies who, acting through the American Petroleum Institute (API), have sought through the courts to block the ability of the SEC to implement the law. In early July, the US District Court for the District of Columbia made a ruling in API vs. SEC that forces a delay and compels a review of the Section 1504 rulemaking process.
- Investors depend on the SEC’s deliberate consideration of disclosure requirements that illuminate potential risk, maintain fair, orderly, and efficient markets, and facilitate capital formation, Bennett Freeman, Senior Vice President of Research and Policy at Calvert Investment Management said.
- We commend the Commission on issuing rules for the implementation of Section 1504 that reflect thorough contemplation of these factors and urge it to defend the rules so investors may benefit from these public disclosures.
- From an investor perspective, added Frank Curtiss, Head of Corporate Governance at RPMI Railpen Investments.
- 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.
- The real game-changer is the fact that both the EU and now Canada have embraced the mandatory reporting standard originally introduced by the US in 2010. With this, the transparency genie is now well out of the bottle: to backtrack now on what is swiftly becoming the global standard would not only introduce major uncertainty for corporates, but it would undermine the concerted efforts of investors, civil society as well as many in industry to lift governance standards in the extractives sector, concluded Arne Lööw, Head of Corporate Governance at AP4, the Fourth Swedish National Pension Fund.