Business Case for Transparency
CCSI strongly supports the transparency of contracts and tax flows. CCSI shares the belief of many stakeholders that transparency is essential to leverage extractive industries for sustainable development and is in the mutual interest of all stakeholders. However, some industry players continue to voice the concern that increased transparency would be harmful for their business. Therefore, CCSI is working to also establish the business case for transparency.
In one such case, some industry players have been lobbying against the regulations developed by the Security and Exchange Commission (SEC) to implement the mandatory disclosure provisions of the Dodd Frank Wall Street Reform and Consumer Protection Act; section 1504 of that act requires all US listed companies to report detailed payments to governments on a project-by-project basis in all countries of operation. To support the SEC’s mandate in implementing the regulations, and to respond to some of the concerns of industry, CCSI identified the publicly listed extractive industry companies that disclose tax payments on a country-by-country basis and showed the correlation of this reporting practice with both higher financial performance and fewer reported incidences of human and environmental rights violations in the communities where they operate. In December 2011, these results were submitted to the US Securities & Exchange Commission to inform the regulatory deliberations of the Dodd Frank Wall Street Reform and Consumer Protection Act. A paper presenting the complete findings of the analysis is available here.
A longer paper inviting companies to strive for a global transparency regime rather than try to defeat mandatory disclosure rules was also published and is available here.
As implementation regulations of Section 1504 were still pending as of October 2015, CCSI consulted with the Publish What You Pay Network and a number of investors and submitted a second letter to the SEC. Recognizing the SEC’s mandate to protect investors, this letter provides 7 reasons why it is of utmost importance to maintain company-specific, project-level payment disclosure when issuing the new rules of Section 1504 in order to create improved efficiency in the capital markets. A summary of CCSI’s letter to the SEC is available here. In its ruling, the SEC cited CCSI’s argument that the new rule could help investors better assess the risks faced by resource extraction issuers. In November 2017, CCSI submitted the same argument to the UK government as they reviewed the UK extractive sector transparency law.
To show how data available from increased revenue transparency can be used, CCSI in collaboration with PWYP-US and the Quantitative Methods in Social Sciences Program at Columbia University held a two-day data dive event on November 17-18, 2017. At the event students explored newly available data to test the relationship between transparency, company performance, government revenue collection and governance indicators. The questions and datasets used for the data dive are available on the event website. The findings will inform future research of CCSI and PWYP-US.
Alongside growing revenue and contract transparency, increasing model transparency is needed. Only with financial model transparency can relevant actors better assess whether contracts are balanced in terms of fiscal returns and understand when revenues start flowing to the government. CCSI strongly supports financial model transparency and has developed two open fiscal models.