“The power of multinational companies in today’s global economy rivals even the biggest countries.”
– The world’s largest corporations continue to publicise scant information about their global operations, according to new analysis that warns that extractives companies in particular are unprepared for pending disclosure requirements.
The findings come from the global watchdog Transparency International, which looked at 124 of the world’s largest companies. Using publicly available information, the researchers ranked each corporation based on three concerns: anti-corruption measures, transparency around global operations and subsidiaries, and disclosure of country-by-country and project-level finances.
While the level of anti-corruption activities is relatively high and growing, the current state of the latter two metrics is far weaker. Indeed, the average score for country-by-country reporting, seen as a transparency lynchpin, is a dismal six percent – and 50 companies have scored zero.
“With greater economic power comes greater responsibility,” he said. “Bad corporate behaviour creates the corruption that causes poverty and instability.”
In general, British companies fare best in the new index, Chinese and Asian companies more broadly fare worst, and the U.S. technology sector receives special criticism for its lack of transparency. Transparency International has been reporting on corporate governance since 2008, with the last such study being released in 2012.
The weak results for country-by-country reporting, in particular, will worry anti-poverty advocates and proponents of public sector spending. Such disclosure would, for instance, allow governments to efficiently compare crossborder information with the aim of cutting down on tax evasion as well as outright theft of revenues.
Developing countries may have lost an estimated six trillion dollars in the decade before 2011 due to tax evasion and other shady financial dealings, according to the Washington watchdog group Global Financial Integrity.
“Domestic resource mobilisation is seen as key to unlock economic development,” Koen Roovers, the E.U. advisor for the Financial Transparency Coalition, a global network that funded the new Transparency International report, told IPS.
“Publicly available [country-by-country reporting] information would enable citizens of developing nations to determine whether the taxes paid by the transnational companies that trade in their countries is in line with their activities. The apparent absence of this information gives reason for suspicion.”
With the aim of ensuring that lucrative natural resources-related revenues are safeguarded in developing countries, the global extractives industry has been a special focus for disclosure requirements.
The United States, European Union and Canada in recent years have all passed project-by-project disclosure requirements, mandating reporting on all payments made by extractives companies to foreign governments.
And while the U.S. legislation is currently held up in court due to a lawsuit brought by the oil industry, the E.U.’s requirements are set to go into effect by the middle of next year. Canada’s new rules could be implemented even sooner.
Yet Transparency International warns that extractives companies are “not ready” to comply with these new rules.
“Even though country-by-country reporting was first introduced in the extractive sector, the 19 oil and gas companies in the study only scored an average of 10 per cent,” the report states. “Six companies in this industry scored zero.”
Not all of these companies did poorly on country-by-country reporting. For instance, the Norwegian oil company Statoil scored highest of all of the 124 companies on this metric, with a score of 66 percent.
Other strong performers included the Indian companies Oil & Natural Gas Corporation and Reliance, as well as the Australian-headquartered BHP Billiton, by certain calculations the world’s largest mining company.
Yet overall the sector still appears to be biding its time until the new requirements in the U.S., E.U. and Canada go into effect. For supporters of stricter disclosure, the findings underscore just how transformative those new legal regimes will be.
“Industry resistance to this kind of regulation has been pretty strong, so it’s not surprising that companies aren’t voluntarily disclosing this information and instead waiting until they’re forced to do so,” Alexandra Gillies, the head of governance at the Natural Resources Governance Institute (NRGI), a think tank, told IPS.
“While there are a few smaller companies that have taken this step, the big players certainly haven’t. Nonetheless, it will be interesting to see how the same data looks in another two years.”
Indeed, the U.S. and E.U. disclosure requirements alone would cover an estimated 65 percent of the global extractives sector in terms of value, according to Publish What You Pay, a global advocacy group. And the new Canadian rules, formally tabled late last month with the aim of implementation by April, would likewise affect the world’s largest national mining industry.
Further, at a summit next week, the Group of 20 (G20) industrialised countries are expected to approve a new country-by-country reporting standard that would cover all multinational companies. The Financial Transparency Coalition’s Roovers says the new findings from Transparency International will “up the ante” for the G20 discussions.
Still, he notes that, as currently envisioned, the G20 reports would likely not be made public due to concerns over commercial “sensitivities”.
On to contracts
For many advocates, non-public disclosure would defeat an important purpose of stricter transparency requirements: empowering citizens and civil society to engage in local-level oversight.
“The real innovation around project-level data is that citizens or journalists or parliamentarians would be able to understand the deals that their government has entered into. Right now all we have are highly aggregated figures,” NRGI’s Gillies says.
“If someone is dealing with, say, a huge mine in their community, that data can help them to understand how much money the government is collecting for that project – and whether the disruption they’re facing is worthwhile.”
Nonetheless, with country-by-country reporting requirements now on the horizon, Gillies and others are already turning their attention to a corollary data set: contract-level disclosure. Indeed, certain countries – including Liberia, Guinea, the Democratic Republic of Congo and others – as well as some companies are already making all information on contracts related to natural resource extraction publicly available.
“If you have good revenue or payment data, it’s still difficult to understand what those figures mean unless you know what agreements have been signed,” Gillies says.
“But contract disclosure is already becoming more widely accepted, with a few countries and companies taking the lead. It hasn’t yet become standard practice and what is being done remains piecemeal, but it’s enough to show that this activity isn’t commercially dangerous.”
Within a few years, advocates hope to see the disclosure of both payments and agreements signed with foreign governments become standard procedure.
Copyright © 2014 IPS-Inter Press Service. All rights reserved.