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Conceptual Framework for a Regulation Under the Canadian Environmental Assessment Act for Business Development Bank of Canada and Farm Credit Canada

Introduction

The Canadian Environmental Assessment Agency (the Agency) proposes the creation of a regulation under the Canadian Environmental Assessment Act (the Act) specific to Business Development Bank of Canada (BDC) and Farm Credit Canada (FCC), both of which are federal parent Crown corporations.

The proposed regulation would tailor the public notification requirements for the environmental assessment process. These changes address the challenges BDC and FCC would face in complying directly with the legislation, by balancing their environmental assessment obligations under the Act with their client confidentiality requirements and their ability to deliver services in a timely manner. The remaining procedures and requirements of the Act would apply to BDC and FCC.

This document explains why the Agency has determined that a regulatory variation to the Act is necessary for BDC and FCC, and outlines what the content of that regulation could be.

Public comment is invited on this proposal.

Background

The purpose of the Act is to ensure that projects are considered in a careful manner before federal decision makers take action in connection with them, in order that such projects do not cause significant adverse environmental effects. In addition, the Act encourages the promotion of sustainable development in federal decision making, and public participation in the environmental assessment process. (For more information about environmental assessment and the Act, please consult the Agency Web site.)

In June 2003, Parliament passed Bill C-9, An Act to amend the Canadian Environmental Assessment Act. The bill made a number of changes to the Act, including modifying the definition of "federal authority" (the federal body that may have expertise or a mandate relevant to a proposed project) to include federal parent Crown corporations, effective June 2006. The bill also added new regulatory authorities to the Act to allow for the development, where appropriate, of a tailored process for individual or classes of Crown corporations.

Under the renewed Act, therefore, parent Crown corporations will be required to conduct environmental assessments of projects either by direct compliance with the Act or through a modified environmental assessment process set in regulations.

Although the bill was proclaimed in October 2003, the new definition of federal authority will not come into effect until June 2006. This provides time to develop any necessary regulations, and to deliver training to Crown corporations to assist them in implementing their new obligations.

Business Environment of BDC and FCC

BDC:

BDC is a national financial institution whose activities are focused on small- and medium-sized enterprises, with an emphasis on technology, exporting, manufacturing and services. To ensure that BDC operates on a commercial basis, it is required to earn a return on equity that is at least equal to the Government's average long-term cost of capital. Since 1995, BDC has paid $81 million in dividends to the Government of Canada.

BDC delivers joint financial services in partnership with financial institutions and government agencies. BDC does not provide retail banking services; rather, it offers a variety of commercial products including loans, venture capital, and consulting services. The corporation provides loans for a broad range of activities, including the purchase of land, building, machinery and equipment, construction or renovation of buildings, acquisition of businesses, and refinancing and working capital. BDC serves close to 24,000 Canadian companies through a network of 85 branches. Its decentralized approach allows for 95% of credit decisions to be made at the local level.

BDC approved over 7,500 loans in fiscal year 2004-2005, fulfilling a role complementary to private-sector financial institutions. Fifty percent of its loans are for amounts less than $250,000.

For more information about BDC, please consult their Web site.

FCC:

FCC is a national financial institution whose activities are focused on the agricultural sector. This includes primary agricultural producers, ranchers, growers and the full agriculture value chain including suppliers and processors. FCC offers a variety of commercial loan products and venture capital. FCC also delivers joint management programs and services in partnership with government agencies and other financial institutions.

The corporation issues loans for a large variety of purposes, including the construction of farm buildings, the purchase of land, equipment and livestock, and the operation of feedlots and greenhouses.

FCC approved over 24,000 new loans in fiscal year 2004-2005, in competition with private-sector financial institutions.

For more information about FCC, please consult their Web site.

Current Environmental Practices of BDC and FCC

The current environmental policies of BDC and FCC focus on the existing environmental conditions of land offered as security for loans and on the operations of the businesses receiving the loans. Their lending policies support a commitment to investing in environmentally sound enterprises by taking all reasonable care in the execution of their business to safeguard the environment.

Like other financial institutions, BDC and FCC seek to avoid holding contaminated property in the event that a loan is defaulted upon. To this end, both require that all loan applicants offering real property as security complete an environmental and risk management practices questionnaire. This form asks a number of questions about the property; for example, whether storage tanks or chemical waste are present.

Site inspections of the property in question are always required at BDC. FCC conducts site inspections depending on the loan type and the value of the security involved. In certain situations, environmental site assessments (using standards developed by the Canadian Standards Association) of property are mandatory. These are conducted by outside consultants. Environmental site assessments do not examine the impact of the project on the environment.

The Canadian Environmental Assessment Act focuses on proposed projects and their potential impact on the environment. This of course includes existing site conditions but also looks at the future effects that the project will have on the environment. In order to meet their new obligations under the Act, BDC and FCC will adapt their existing policies to include the examination of the impact of projects on the environment.

Applying the Act to the Loan Portfolios of BDC and FCC

Anticipated number of environmental assessments

The Agency has researched each of the forty-one Crown corporations subject to the renewed Act. The objective of that research was to determine the impact, if any, of applying the Act to each Crown corporation's business.

Both BDC and FCC issue a substantial number of loans per year, presently close to 8,000 for BDC and 24,000 for FCC. However, the Agency's research determined that both corporations would have environmental assessment obligations for only a portion of these, because many of their loan applications do not contain "projects" as defined under the Act (for example, purchasing livestock, quota, or equipment; refinancing; and providing venture or working capital).

Within this portion of each corporation's loan portfolio, it is expected that a further number of projects will not require environmental assessments, because they appear in the Exclusion List Regulations under the Act. Projects appearing in the Exclusion List Regulations are known to have insignificant environmental effects and therefore do not require an environmental assessment.

Beyond these general conclusions, it is difficult to accurately predict the number of projects for which BDC and FCC will be required to conduct environmental assessments.

Anticipated types of environmental assessments

The Act describes four different types of environmental assessments that may be required: screenings, comprehensive studies, mediations, and panel reviews.

The Act is based on the principle of self assessment; that is, the federal body that has a decision to make about a proposed project is also responsible for ensuring an environmental assessment is conducted. The results of the assessment must be considered before final decisions are made.

As federal authorities (beginning in June 2006), BDC and FCC will be responsible for conducting environmental assessments. The vast majority of assessments conducted under the Act are screenings, and it is expected that virtually all of the environmental assessments conducted by BDC and FCC will be of this type. Screenings allow the federal authority flexibility in determining the level of rigor of the assessment, and whether or not public participation is appropriate.

Projects likely to have significant adverse environmental effects are described in Comprehensive Study List Regulations. These tend to be large projects, such as dams and reservoirs; oil and gas pipelines; and metal and uranium mines. A comprehensive study of a project must consider factors beyond those included in a screening assessment. Public participation, which would be at the discretion of the Corporations for a screening assessment, is mandatory in a comprehensive study. FCC does not anticipate loan requests for projects appearing in the Comprehensive Study List Regulations. BDC anticipates rare requests for such projects.

Under the Act, the Minister of the Environment has the authority to refer a project to a panel review when it is uncertain whether a project is likely to cause significant adverse environmental effects, when a project is likely to cause significant adverse environmental effects that may be justified or where public concern warrants. Neither BDC nor FCC anticipates issuing loans for the types of projects that have undergone panel reviews to date under the Act.

Challenges for BDC and FCC of Complying Directly with the Act

During its background research, Agency officials indicated to Crown corporations that a regulatory variation to the Act might be appropriate for a Crown corporation or class of Crown corporations where:

  1. it would be unable to comply with specific elements of the Act;
  2. implementing the Act would significantly impact its competitiveness; or
  3. implementing the Act would limit its ability to conduct its core business.

Applying these criteria, BDC and FCC could comply with almost every requirement of the Act, but would face some significant challenges relating to the Canadian Environmental Assessment Registry Internet Site.

The Registry is a government-wide mechanism to facilitate public access to records related to environmental assessments conducted under the Act. The Registry was created as a means of ensuring more meaningful public participation in the federal environmental assessment process. It consists of two complementary components: an Internet site and a project file.

The Internet site is an electronic registry administered by the Agency. The responsible authority (BDC or FCC) or the Agency contributes specific records to the site relating to an environmental assessment.

The project file is a file maintained by a responsible authority or the Agency during an environmental assessment, and made available to the public in a convenient manner. The project file includes all records produced, collected or submitted with respect to the environmental assessment of the project (including all records on the Internet site).

BDC and FCC would be unable to comply with the existing Registry provisions of the Act.

  • If required to meet the existing Registry provisions of the Act, it would be impossible for BDC and FCC to maintain the necessary confidentiality of their clients and loan applications.
    As noted, responsible authorities are obligated to post certain information on the Registry Internet Site during the period that an assessment is underway. For screenings, this information includes a notice of commencement of an environmental assessment, a description of the scope of the project, and a record of decision on the environmental effects of the project. Posting these documents therefore would result in details of the BDC and FCC's loans being made publicly available during the loan application process.
    The protection of client confidentiality is of paramount importance to BDC and FCC and their clients. As federal institutions, both are subject to the Access to Information Act and the Privacy Act, and are obliged to protect commercially sensitive and personal information.
    In addition, BDC has a statutory obligation under its legislation (s. 37) to withhold client information unless the client grants written consent to release it.
  • If BDC and FCC are unable to meet the posting requirements described above, they are further unable to meet the requirement of subsection 20(4), which is related to the Registry Internet Site provisions.
    Subsection 20(4) of the Act requires that a decision following a screening assessment may only occur fifteen days after (at minimum) a notice of commencement and a description of the scope of the project are posted on the Registry Internet Site.

Implementing the existing Registry provisions of the Act would significantly impact the competitiveness of FCC or core business of BDC and FCC.

  • If required to meet the existing Registry provisions of the Act, BDC and FCC would be obligated to wait fifteen days after the posting of the notice of commencement of the environmental assessment and the description of the scope of the project before making a loan decision, as required under ss. 20(4) of the Act.
    BDC and FCC must frequently make loan decisions quickly. A mandatory fifteen-day waiting period could discourage potential clients from seeking the services of either institution.
  • Were BDC and FCC required to post the particulars of loan applications on the Registry Internet Site, these disclosure requirements might discourage potential clients from seeking the services of either institution.
  • More significantly, other financial institutions would be able to access (through the Registry Internet Site) details of the loan activities of BDC and FCC before final loan decisions are made. The ability of these institutions to acquire details of the person(s) to whom loans were being considered, for what purposes, and their geographic location would offer a window into the business of BDC and FCC that is not reciprocated.
  • For FCC, the impacts of this information being made available on the Registry Internet Site could lead to their clients being approached directly by private-sector financial institutions in an attempt to underbid FCC on the terms of a loan.

Proposed BDC/FCC Regulation

Given these challenges, it is proposed that a regulation be developed for BDC and FCC to vary the public notification requirements of the environmental assessment process. With this regulation in place, conducting environmental assessments will not impact the competitiveness of FCC or the complementary mandate of BDC, or limit their ability to conduct their core business. The details of the regulation are as follows:

  • The regulation would remove the obligation for BDC and FCC to post, on a project-by-project basis, detailed information on the Registry Internet Site for each project it is considering funding that requires an environmental assessment under the Act.
  • In its place, both corporations would be required to post at least every three months on the Registry Internet Site a statement of projects assessed. The statement of projects would include a title of the project, the date that a decision was made on the assessment, and the geographic location in which the project was located.
  • The regulation would remove the obligation for BDC and FCC to comply with subsection 20(4) of the Act, which requires that the public have fifteen days to access information about a project before BDC and FCC take a decision on its environmental assessment. The removal of the project-by-project posting obligations, described above, makes ss. 20(4) impossible to meet.
  • The regulation will require that BDC and FCC's environmental assessment policies and procedure documents (including any forms used in the assessment of projects) be posted on the Registry Internet Site. This approach is borrowed from the class screening process under the Act. There will be an opportunity for public comment on these documents.

The remaining procedures and requirements of the Act would apply to BDC and FCC, including the definitions, the triggers, the factors to be considered, the decisions to be taken following an assessment, the powers of the Minister of the Environment, and the potential for comprehensive studies and panel review or mediation.

Conclusion

The varied environmental assessment process created by the regulation outlined above would fulfill the requirements of the Act while addressing the challenges that BDC and FCC would have with complying directly with the Act.

The Agency recognizes that the proposed removal of project-by-project postings to the Registry Internet Site represents a departure from existing notification requirements. This is offset, however, by the requirement for BDC and FCC to post their environmental assessment policies and procedures to the Registry Internet Site, and to consult on these. The regulation would also require that quarterly statements of projects be posted to the Registry Internet Site. These will provide additional transparency to the environmental assessment activities of the BDC and FCC.

In addition, the Agency is implementing a quality assurance program. This will provide ongoing feedback to the Agency, federal authorities and other regulated entities to assist them in identifying actions for improvement in compliance and the quality of assessments conducted under the Act.

The varied environmental assessment process created by the regulation would not create any unnecessary administrative burdens for BDC and FCC. Both expect that a simple and efficient process can be built upon their existing environmental policies and procedures.

Next Steps

The Agency will review comments received on this document, and use them to inform the drafting of the proposed regulation for BDC and FCC.

The public will have an opportunity to comment on the draft regulation when it appears in the Canada Gazette.

Public Comment

Comments received by May 20, 2005 will be considered. Comments can be submitted to:

Al Vachon
Policy Advisor - Crown Corporation Unit
Canadian Environmental Assessment Agency
Place Bell Canada, 22nd Floor
160 Elgin Street
Ottawa, ON K1A 0H3
Tel: 613-957-0663
Fax: 613-957-0897
E-mail: al.vachon@ceaa-acee.gc.ca