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opinion

Fred Pinto is chief executive officer of Oceanrock Investments. Peter Chapman is executive director of the Shareholder Association for Research and Education (SHARE).

The sale of Canadian military vehicles to Saudi Arabia has once again raised the age-old debate over whether Canada should do business with countries that have dubious human-rights records or in conflict-torn regions.

But it's not just a question for governments to address. Companies also need to understand the human-rights risks they face in overseas operations and supply chains. And, increasingly, their investors do, too.

New international instruments such as the United Nations Guiding Principles on Business and Human Rights as well as new reporting requirements under securities regulations are increasingly emphasizing the need for global businesses to assess their own human-rights risks, and to take steps to ensure that they are not contributing to rights violations.

In a globalized operation, failure to assess those risks in a trustworthy, transparent and effective manner is ultimately a failure of due diligence. And for a company's investors, a failure of due diligence may lead to regulatory, legal, operational and reputational problems that could and should have been avoided.

That's why, as shareholders in Potash Corp. of Saskatchewan Inc., Oceanrock Investments' Meritas Jantzi Social Index mutual fund was concerned when the Saskatoon-based company began sourcing phosphate rock from the non-self-governing territory of Western Sahara. As responsible investors, when our fund perceives environmental, social or governance risks in a company's operations, we work with the Shareholder Association for Research and Education to engage with those companies to address those issues. Filing a shareholder proposal asking the company to commission and publish an independent human-rights assessment of its sourcing from Western Sahara was the next step in that process.

That resolution will be put to a vote Tuesday at the company's annual general meeting.

Most of Western Sahara is occupied by Morocco, whose claim of sovereignty over the territory is not recognized by either the International Court of Justice or the United Nations. It is sometimes called "Africa's last colony." The Moroccan government is cited regularly for rights abuses directed at the territory's residents, and has banned observers such as Human Rights Watch from monitoring the situation.

Although its political status is unresolved and a military conflict has driven a sizable portion of its original population into refugee camps outside the territory, a Moroccan state-owned company is mining the territory for phosphate rock, a mineral used to produce fertilizer, food-grade phosphoric acid and other products.

That rock is sold to international buyers such as Potash Corp. And, as other international buyers have gradually ended their relationship with the Moroccan company in part owing to the conflict, Potash Corp. has become the single largest buyer.

Although Potash Corp. is neither the occupying government nor the miner operating in the territory, its sizable business relationship with a company accused of "plunder" by international human-rights experts has been controversial.

The UN Guiding Principles on Business and Human Rights require companies to conduct due diligence to ensure that they are not negatively affecting the rights of others. We think the company needs to take that responsibility more seriously, and the first part of due diligence in this case should be to conduct an independent human-rights assessment.

Potash Corp. has responded to our proposal, saying that its purchases provide economic benefits to the local people and that, as a company, it is not in a position to fix the political situation.

Of course, no one is asking Potash Corp. to fix the political situation. The question is not "How can the company fix the situation in the Western Sahara?" but "What is the potential impact of our business operations on people's human rights?" This is what the UN standards require companies to ask themselves. It's what investors need to ask of their company.

We believe that an independent and transparent assessment is warranted given the increasing legal, operational and reputational risk facing the company. As the federal government is finding, it's no longer acceptable for governments to carry on business as usual without considering our responsibility to protect human rights. It's no less acceptable for Canadian companies to proceed without considering their own responsibility to respect those same rights.