Canada still has a long way to go in reconciling relationships with its Indigenous peoples and recognizing their land rights. Attempts to address these issues over recent decades have resulted in a complex and often inconsistent legal landscape that has led to lasting discord between Indigenous communities, regulators and industry.

This has posed a challenge for Canadian resource and infrastructure development. Although Canada has plentiful natural resources that the global economy demands, governance frictions and legal difficulties create significant risks to project development.

In recent years though there has been a significant shift: a new approach that sees Indigenous engagement not as a regulatory hurdle but as a foundation for long-term project stability and investor confidence.

That new approach was the focus of “First Nations Engagement as a Competitive Advantage,” a February 19 event hosted by the CCCJ Energy Committee at the Canadian Embassy’s Oscar Peterson Theatre. It brought together Indigenous and non-Indigenous Canadians, Japanese businesspeople, legal and policy experts and government officials from both countries. The agenda was to explore how new approaches to Indigenous engagement in resource and infrastructure development are reshaping investment risk and long-term project stability.

What makes Canada different is our history

One panel featured McMillan LLP legal experts Michael D. Briggs, KC, Melissa Stoesser Young, Robin Junger and Richard Mahoney, who discussed how evolving models of engagement are reshaping how investors understand and manage project risks in Canada.

“The biggest risk for a Japanese company investing in Canada is thinking you understand the risks,” said Junger. That observation prefaced a key theme of the panel: “What makes Canada different is our history.” And that was the focus of the event’s discussion.

A significant turning point came in 1982 when Canada constitutionally recognized aboriginal and treaty rights. What this meant in practice was not specifically legislated, however. It was largely left up to the courts to interpret. This led to the “duty to consult, and, where appropriate, accommodate Indigenous groups when (a proposed action) might adversely impact potential or established aboriginal or treaty rights.”

While this duty does not give Indigenous communities the means to legally veto a project, it does establish that projects must fulfill a set of requirements in order to move forward. The issue, as Junger noted, is that, in practice, what those requirements are can vary from project-to-project and case-to-case, making it difficult to plan projects, assess risks, calculate costs and establish project timelines.

A major reason why the duty to consult plays out this way in practice is that resource and infrastructure projects often involve competing interests. Project stakeholders assume financial and operational risks while Indigenous communities often bear the immediate environmental, economic and social impacts of development on their lands.

The duty to consult was meant to help negotiate these competing interests. And while it is still a critical legal obligation, it has often resulted in tensions between Indigenous communities, regulators and industry. This is seen especially in cases where Indigenous communities view projects as not aligned with local priorities or decision-making processes. On the other hand, project stakeholders worry that the duty to consult will turn into a costly prolonged negotiation over impact mitigation.

As a result, legitimate rights protections become entangled with material uncertainties. At times this has led investors to hesitate to invest in Canadian resource developments, even projects that are otherwise highly attractive. As Mahoney summed up: “If there’s one thing businesses anywhere in the world understand, it’s risk.”

An owner’s interest

While Indigenous engagement has largely been defined by the duty to consult for many years, Indigenous leaders Mark Podlasly and Jacob Albertson described a new model that has emerged in recent years: “Indigenous equity ownership.”

“Strong, fair, practical agreements are beneficial for both First Nations and companies,” said Podlasly, CEO of the First Nations Major Projects Coalition. This model sees Indigenous partners given “a share in the ownership and a share in the profits” as co-investors. He added that the recent appearance of loan-guarantee programs, a greater number of institutional financing mechanisms, changing investor approaches and better-defined laws have expanded the potential for Indigenous partnership in resource and infrastructure projects.

“The 186 Nations that I represent have chosen a different path” Podlasly said. “We want development,” noting that projects with Indigenous partners “face fewer delays, fewer legal challenges and fewer risks to investors.”

Why is that? Mainly it’s a shift in incentives. By having Indigenous partners with ownership stakes, those partners gain “an owner’s interest to complete the project,” as Podlasly put it. Indigenous communities go from negotiating competing interests with project stakeholders to becoming project stakeholders working towards shared interests. No longer reacting to development solely as consultees but being proactive as developers in ways suitable for their communities.

This alignment of interests significantly reduces the likelihood that Indigenous community relations become a recurring source of uncertainty. “Consent is a competitive advantage. First Nations involvement means a project will face less risk, and risk is what business understands,” Podlasly said.

With this new model of Indigenous equity ownership, engagement is no longer solely defined by consultation obligations, negotiation and material uncertainty, but rather represents a competitive advantage for project stakeholders.

Walk before you run

Panelists from both the McMillan LLP panel and the panel featuring legal experts from Cassels Brock & Blackwell LLP (Jeremy Baretto, Thomas Isaac and Marco Mendicino) as well as Shannon Joseph, Chair of the Energy for a Secure Future initiative, were careful to stress that Indigenous equity participation is not a catch-all solution to the legal or political complexities associated with resource and infrastructure development in Canada.

While the model is promising in many ways, it is not without problems. Among other considerations, communities that lack development potential on their territory will not have the same opportunities to participate. Equity stakes can also expose communities to commodity price volatility. These issues reflect an important nuance: Indigenous partnership models redistribute responsibility alongside profit.

Still, it is this same redistribution of responsibility that is the source of this model’s strengths. Risk can never be eliminated entirely, but it is precisely because it is shared between government, industry and host communities that all three groups share the common goal of managing risks and seeing projects succeed.

The model remains imperfect, it should be applied with care, and it involves many issues to consider. But as law, finance and investor expectations continue to converge, it remains a promising option for constitutional rights and commercial stability to reinforce rather than undermine one another.

Consider an example cited by the McMillan LLP panel: the LNG Canada Project in Kitimat, B.C., developed in partnership with the Haisla Nation on whose traditional territory the facility is located.

The Haisla Nation and other First Nations that partnered with the LNG Canada project, and related components including the Coastal GasLink Pipeline, assumed roles connected to governance, financing and long-term project outcomes. Young noted that contractors with Indigenous equity agreements had far fewer challenges from Indigenous communities than those that did not, and that the experience from these agreements “set the stage for First Nations as partners in energy and other projects.”

While controversy that surrounded the Coastal GasLink Pipeline shows that the model cannot completely eliminate disagreement, the project still illustrates how broadly, where it was applied, it reshaped incentives towards enduring collaboration and fewer challenges to development.

Trusted partners

How is this new model for Indigenous engagement relevant to Japan? The answer is that Japan and Canada are natural partners: Canada has the resources Japan needs; Japan is the customer Canada needs – especially now that diversifying trading relationships has become a high priority.

The movement towards Indigenous equity ownership stands to open greater potential for Japanese resource buyers and investors to participate in Canadian resource development. Reducing project uncertainty addresses a major concern for Japanese investors that typically prioritize stability and long-term reliability over short-term returns. Project delays from prolonged consultation processes can significantly affect returns, costs and long-term planning. As multiple panelists stressed, such uncertainties weigh heavily on Japanese investors.

Indigenous equity participation can potentially reduce the kinds of risks to which Japanese investors are strongly averse. And the predictability that comes with these arrangements can make Canadian projects much more attractive to Japanese investors.

Ultimately, Canada’s recent experience suggests that reconciliation and investor confidence need not be antithetical. When Indigenous communities are engaged as partners, long-term prosperity becomes less dependent on negotiating competing interests and more about building durable partnerships through aligning interests.

As such, the future competitiveness of Canadian natural resource and infrastructure development may rest not only with what lies beneath the ground, but equally in the strength of the relationships that sustain efforts above it. It is about creating relationships aligned towards shared successes under our common sky.