Promoting revenue transparency in the extractives sectors
Introduction
As a large institutional investor, Insight has significant stakes in European extractive companies. The majority of these companies operate in one or more of the fifty countries often described as suffering from the ‘resource curse’. The resource curse means that despite – or as many argue, because of – the enormous resource revenues they receive, such countries are often plagued by weak governance, poor transparency, low levels of economic development, crippling corruption and devastating conflict. Poor transparency means that it is not possible for citizens to hold their governments to account for the revenues they receive.
Operating in these countries therefore presents extractives companies with particularly tough challenges. This is compounded by the fact that their exposure to these countries is predicted to increase in the coming years. In order to prosper, investors and companies alike need stable, transparent operating environments, where the rule of law and accountability prevail.
In 2002, the Extractive Industries Transparency Initiative (EITI) was established to make progress on all of these fronts. The EITI’s development was led by the UK Department for International Development (DFID) until the end of 2006 with the secretariat role passing to Norway in 2007. The EITI is an international multi-stakeholder initiative involving developed and developing country governments, companies and non-governmental organisations (NGOs). Its goal is to establish an international revenue disclosure mechanism that can be adopted by the governments of resource-dependent developing countries and supported by extractives companies.
Insight has been working to promote revenue transparency in the extractives sector since 2002. We aim to encourage governments to create more conducive operating environments in resource rich countries for companies, and to encourage companies to adopt policies and management systems to promote revenue transparency throughout their operations. Our activities have included:
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Supporting the EITI
Insight has actively supported the EITI since October 2002. We support the EITI because we believe it is likely to improve the operating environment for the companies in which we invest, by promoting better governance, combating bribery and corruption in the extractives sectors and creating greater revenue transparency.
We attended the first and second EITI plenary conferences in London in 2003 and 2005, respectively. We have continued to demonstrate our support by backing the Statement of Outcomes of the third EITI plenary Conference, held in October 2006.
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Investor statement
On 16 May 2003, a group of 10 investors, including Insight, representing £466 billion under management, issued a statement of support for the EITI, calling on extractive companies to be more transparent about the payments they make to governments. Investor support has grown since then; over 70 investment managers representing £12.3 trillion of assets under management, now support the statement.
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Engagement
During 2004 and 2005, we met with companies in the extractives and banking sectors. We discussed their stances on revenue transparency and encouraged them to become signatories to the EITI and to play an active role in supporting the development of national EITI processes within the countries in which they operate.
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Research
During 2004, Insight supported and participated in a steering group for a project run by Save the Children UK (STC). STC set up an analytical framework against which it evaluated the world's largest oil and gas companies' performance on reporting publicly the revenues they paid to governments in the countries in which they operated.
In December 2005, Insight published the report "A Discussion Paper on Revenue Transparency" with an executive summary that sets out the current state of play with respect to the revenue transparency debate. The report explains why we believe it is in the best interests of institutional investors and the extractives companies in which they invest to support efforts to achieve greater revenue transparency in resource-dependent developing countries. The report also discusses some of emerging technical and policy issues around revenue transparency and sets out a series of recommendations for companies regarding the governance, policies and actions they should adopt to enable greater revenue transparency in their business operations.
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Publications
Reports
"A Discussion Paper on Revenue Transparency"
"Statement of Support"
Briefings
"Revenue transparency in the extractives sector: the state of play"
"Revenue transparency and the resource curse", Pages 10 - 11
"International support for revenue transparency gains momentum", Pages 10 - 11
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