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Getting to Net Zero Requires Action on Indigenous Reconciliation

November 9, 2023

Canadian investors must proactively encourage industry policies and practices that deepen historical understanding, honour Indigenous rights and ensure equitable distribution of economic gains. The risks of not doing so: human rights abuses, project litigation, delays and cancellations.

Human-accelerated climate change threatens the livability of our planet. To fulfill Canada’s legal commitment1 to limit global warming to within 1.5 degrees Celsius of pre-Industrial levels, we need to reduce carbon emissions by 45% by 20302 and to Net Zero by 2050.3

Access to a stable supply of sustainably sourced critical minerals to support this transition and power our future economies is a tall order and a material concern for investors. Given our abundant resources, Canada has an immense opportunity to meet both domestic and global demand. Despite this, Canadian capital is not flowing where it is needed.4 In their 2023 business risks and opportunities outlook, Ernst & Young consultants cite the lack of investment as the second biggest risk for the metals and mining sector after ESG concerns.5

Institutional investors not only have a responsibility to a growing base of Indigenous clients to invest in a way that is aligned with their socio-economic interests, but more broadly are required to understand and manage risks, including a stable supply of clean energy. Being proactive on integrating respect for Indigenous rights through advocacy and supporting innovative investment structures can help create greater certainty in reaching Net Zero goals by reducing litigation risk, project delays and cancellations.

Below we review:

  • How Canada’s ability to lead the energy transition depends on reconciliation action
  • How recent court decisions show why governments and industry must be proactive in demonstrating respect for Indigenous rights
  • What institutional investors can do to manage risk and advance faster progress towards reconciliation and Net Zero goals

The Energy Transition & Reconciliation

Critical minerals are the building blocks of the energy transition. They are defined as being essential to the economy and national security, but in many cases are in unstable or questionable supply.

Countries around the world are in a race to secure reliable access through re-shoring and “friend-shoring” as geopolitical tensions rise. Given abundant resources, this presents an opportunity for Canada to be a supplier of responsibly sourced critical minerals6 through massive growth in mineral exploration, extraction, and processing. At the same time, Canada has committed to upholding the United Nations Declaration on the Rights of Indigenous Peoples.7 As such, this growth will only be achieved through greater collaboration and demonstration of respect for inherent and treaty rights of Indigenous peoples given the extent to which critical minerals are located on or near their traditional lands.

Accessing Net Zero Minerals Relies on Reconciliation

  • Wind turbines require manganese, platinum, and rare earth magnets.
  • Solar panels use indium and tellurium.
  • EV battery parts consist of lithium, cobalt, nickel and magnets.
  • Nuclear power generators run on uranium.
  • Copper wiring is the primary means through which electricity will be transmitted wherever it is needed.

Recent Court Decisions Show Need for Proactivity

Despite mining being a multi-billion-dollar industry in Canada8 and Indigenous peoples holding rights and title to some of the most mineral rich lands in the country, they have historically not received equitable economic benefits while being at greater risk from adverse social and environmental impacts from mining activities. Recent federal and provincial court rulings show more proactive government and industry policies are needed to reduce risk and accelerate progress towards development of critical mineral supply chains. While defendants in the cases highlighted below are all governments, industry also impacts, and is impacted by, such disputes.

The Robinson Huron and Robinson Superior Treaties Cases

In 1850, Crown representatives signed the Robinson-Huron and Robinson Superior Treaties with Anishinaabe leaders along the northern shores of Lake Huron and Lake Superior, establishing legal nation-to-nation contracts to share resources.
One of the original clauses in these treaties was a Crown commitment to make annual payments (annuities) to the respective First Nations, based on wealth generated through resource extraction. In 1874, annuities increased from $1.50 to $4 per person—the first and only increase to occur, despite the region generating hundreds of billions of dollars in profits in the decades afterward, mainly from mining, forestry, and fishing.9 After lengthy litigation, the court recently ruled the Crown has an obligation to increase annuity payments as per the original treaty agreement. In June 2023, the federal and provincial governments and the Robinson-Huron Treaty Nations arrived at a settlement of $10 billion in retroactive payments.10 Future annuity payments have yet to be determined, and despite the settlement agreement Ontario continues to appeal. Another hearing is scheduled before the Supreme Court of Canada in late 2023.11

B.C. Supreme Court Ruling on B.C. Mineral Tenures Act

On September 26, 2023, the B.C. Supreme Court ruled in support of the Gitxaala and the Ehattesaht First Nations against the B.C. government over lack of consultation on mineral claims staked on their territories. B.C.’s ‘free entry system’ effectively allows explorers to stake a claim on Indigenous lands without any prior consultation. The court decided implementation of the B.C. Mineral Tenure Act, which regulates this practice, requires updating as it puts the province in violation of its Crown duty to meaningfully consult with Indigenous peoples on any projects that could impact their rights. The court ruling did not go so far as to say that Free, Prior and Informed Consent (FPIC, a key principle set out in UNDRIP) must be obtained before a claim can be staked. The decision granted the province 18 months to work with Indigenous groups to modernize the Act. This development could influence claim staking regimes in Ontario, Alberta, Saskatchewan, Manitoba, Yukon, and New Brunswick, where there are currently no policies to restrict claims without first consulting with the landowner. Several First Nations in Northern Ontario have also recently expressed concern over violation of their constitutionally protected rights in this context and are demanding the principle of FPIC be honoured.12

Blueberry River First Nation Ruling on Cumulative Impacts

A 2021 ruling won by the Blueberry River First Nation (BBFN) against the government of B.C. is another recent and important decision relevant to the metals and mining sector.13 After years of failed negotiations culminating in litigation, the B.C Supreme Court ordered the province to pay the Nation’s legal costs, ruling that it had encouraged and authorized too many permits for industrial activity related to mining, forestry, oil and gas, agriculture, and hydroelectric development within Treaty 8 territory. The cumulative effect of these separate industrial activities was determined by the court to have violated the First Nation’s treaty rights and several industry permits were suspended. The Court allowed time for the province and BBFN to co-develop a regulatory regime for permitting industrial activity in the territory, and in January 2023, an agreement was reached: a commitment for government and industry to work with BBFN to remediate and protect wildlife, old growth forests and water. A $200 million restoration fund was established as well as limits put on new oil and gas development projects. Another $87.5 million was awarded to the BBFN as a share of legacy oil and gas revenues.

What Investors Can Do

Close the education gap

Participants in the 2023 First Nations Major Projects Coalition roundtable discussions on critical mineral supply chain development in Canada identified lack of industry knowledge of the values and interests of Indigenous peoples, UNDRIP and FPIC as a significant barrier to developing critical mineral supply chains.14 Education can enable more intuitive decision making and behaviour by industry and government that is conducive to developing more respectful relationships with Indigenous peoples. The Truth and Reconciliation Commission identified this years ago in its 92nd Call to Action,15 where it asked the corporate sector to train management and staff on the history of Indigenous peoples, intercultural competency, conflict resolution, anti-racism, and human rights.

Understanding treaty history and Indigenous rights will enable more sophisticated risk insight and assessment of investee company and sector practices for asset allocation decisions. It can also support more effective advocacy with investee companies to adopt best practices in respecting Indigenous rights in the context of their operations, including through engagements that encourage company fulfillment of Call to Action #92.

Resources:
  • Indigenous Canada, a 12-lesson open course by the University of Alberta covering Canada’s early history with Indigenous peoples, land claims and environmental impacts, Indigenous legal rights, and contemporary Indigenous cultural practices across Canada.
  • Nisitohtamowin ᓂᓯᑐᐦᑕᒧᐃᐧᐣ, An Introduction to Understanding Indigenous Perspectives in Canada developed by First Nations University of Canada, Reconciliation Education and BMO Financial Group

Integrate FPIC at the exploration stage

The recent B.C. Supreme Court ruling on modernization of B.C.’s Mineral Tenure Act illustrates the need for collaboration with Indigenous nations through meaningful consultation prior to staking a mineral claim. While the ruling did not call for FPIC to be established, it would be proactive and risk mitigating for mineral explorers to do so. In the event a deposit is found on or near traditional lands and deemed worthy of developing, FPIC would be required to ensure project certainty. Establishing FPIC at the very earliest stages, before a claim has even been staked, could help drive much needed investor capital into more exploration projects. Investors can encourage wider industry adoption of meaningful pre-claim staking consultation as demanded by many First Nations, by communicating their expectations for FPIC to industry and requesting more detailed disclosures on Indigenous engagement at the earliest stages (e.g. through the National Reporting Instrument 43-10116 that is a technical report junior mining firms must file prior to issuing shares for a viable mineral asset).

Resources:

Track the success of pioneering agreements

In June 2022, the Tahltan Nation and the Province of B.C. set a precedent in the metals and mining industry by entering into the first consent-based agreement for an environmental assessment required as part of the approval process for the Eskay Creek gold and silver mine project.17 A second similar agreement was established in 2023 between the Yaq̓it ʔa·knuqⱡi ‘it (YQT) B.C. First Nation and NWP Coal Canada Ltd. in which YQT will act as a regulator and reviewer of the Crown Mountain Coking Coal Project.18 These agreements formalize cooperation with and from First Nations at another very early stage, helping to create greater project certainty by better guaranteeing the understanding, prevention and mitigation of potential adverse impacts from mining on local communities.

Advocate for wider access to capital

Due to Indian Act restrictions, First Nations’ can’t use reserve lands as collateral to secure affordable loans thereby making purchased equity stakes in projects far less economically achievable. Provincial Indigenous loan guarantee programs in Ontario, Alberta and Saskatchewan help address this barrier. But Indigenous and non-Indigenous business leaders say there still is not enough capital available for Indigenous participation in critical minerals projects and related infrastructure, and are calling for a federal loan guarantee program to address this gap.19

Canada has a historic opportunity to be a global leader in the clean energy transition while simultaneously advancing beneficial socio-economic outcomes for Indigenous peoples. Through more proactive partnerships with Indigenous rights holders, we can reduce litigation risks, delays and project cancellations as we strive together for Net Zero. Investors can support all the above through asset allocation decisions and advocacy for corporate and government policies that reflect understanding of and respect for Indigenous rights and ensure the economic benefits are equitably shared.

Please contact your BMO Institutional Sales Partner to learn more.

Footnotes

1 Government of Canada, “Canadian Net-Zero Emissions Accountability Act.”

2 Government of Canada, “2030 Emissions Reduction Plan: Clean Air, Strong Economy.”.

3 Government of Canada, “Net-Zero Emissions by 2050.”

4 Niall McGee, “While domestic companies flounder, foreign behemoths have built a dominant position in the Canadian critical minerals sector – and few have benefited more than Australia,” The Globe and Mail, October 13, 2023.

5 EY Canada, “Top miners continue to make progress on a range of ESG, climate change and license to operate risks but are under pressure to do even more,” October 10, 2023.

6 Government of Canada, Natural Resources Canada, “Canada and France Deepen Cooperation on Critical Minerals,” September 28, 2023.

7 Parliament of Canada, “Bill C-15 (Royal Assent),” Statutes of Canada 2021.

8 Government of Canada, “Minerals and the economy.”

9 Aya Dufour, “Ontario is still appealing the Robinson treaties case to the Supreme Court, despite proposed settlement,” CBC, July 3, 2023.

10 Government of Canada: Crown-Indigenous Relations and Northern Affairs Canada, “Robinson Huron Treaty Leadership, Ontario and Canada announce proposed settlement and next steps in Treaty annuities court case,” June 17, 2023.

11 Aya Dufour, “Ontario is still appealing the Robinson treaties case to the Supreme Court, despite proposed settlement,” CBC, July 3, 2023.

12 Sarah Law, “First Nation calls mining stakes ‘unlawful, invalid’ as it challenges Ontario’s free-entry system,” CBC, August 3, 2023; Sarah Law, “First Nations leaders back at Queen’s Park to push Ontario Premier Ford to end mining activity on their land,” CBC, September 26, 2023.

13 Andrew Kurjata, “After landmark court victory, Treaty 8 Nations lay out vision for energy development in northeastern B.C.,” CBC, July 8, 2021.

14 First Nations Major Projects Coalition, “Summary of Participant Discussions and Findings: Critical Minerals,” 2023.

15 Truth and Reconciliation Commission of Canada, “Calls to Action,” 2015.

16 Canadian Securities Administrators, “Canadian securities regulators seek input on disclosure standards for mineral projects,” April 14, 2022.

17 British Columbia Office of the Premier, “Tahltan Central Government, B.C. make history under Declaration Act,” BC Government News, June 6, 2022.

18 Globe Newswire, “Yaq̓it ʔa·knuqⱡi’it (Tobacco Plains Indian Band) and NWP Coal Canada Ltd Sign One-of-a-Kind Agreement for Crown Mountain Coking Coal Project,” January 16, 2023.

19 Business Council of Canada, “Meeting Canada’s clean energy targets must include Indigenous partnerships,” February 27, 2023.

Disclosures:

Not intended for distribution outside of Canada.

BMO Global Asset Management is a brand name that comprises BMO Asset Management Inc. and BMO Investments Inc.

®/™Registered trade-marks/trade-mark of Bank of Montreal, used under licence.

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