Business Responsibility for Sustainable Development (United Nations Research Institute for Social Development , 2000, 63 p.): I. Boarding the Bandwagon

Business Responsibility for Sustainable Development (United Nations Research Institute for Social Development , 2000, 63 p.)

		(introduction...)
		Acknowledgements
		Acronyms
		Summary/Résumé/Resumen
		Introduction
		I. Boarding the Bandwagon
		II. Meaningful Change?
		III. The Forces of Change
		IV. Limits to Change
		V. Moving Forward
		Bibliography

I. Boarding the Bandwagon

There have been various periods throughout the history of corporate capitalism when big business has adopted policies and reforms associated with environmental and social responsibility. During the early decades of this century, for example, a few large industrialists in the United States, such as Ford and Carnegie, not only engaged in corporate charity, but also took some measures to improve the conditions of workers and the communities where their factories were located. Scaling up the corporate social response occurred to some extent following World War II when social democracy and welfare state legislation took root. The effects of such trends were far weaker in most developing countries, although some African parastatals and large family enterprises in East Asia developed significant social policies.

The contemporary wave of corporate responsibility is different in various respects. Its effects can be felt in many more countries, the forces driving it are more varied, the dominant policy approaches and institutional arrangements for promoting business responsibility are different, and - until quite recently - environmental aspects have been more visible than social ones.

Box 2: Corporate Responsibility Lingo

With the increasing attention to issues of corporate environmental and social responsibility, a variety of terms have been invented or popularized:

Certification: an evaluation system intended to provide proof of a company or product’s environmental or social performance. Questions arise concerning the degree of independence of the verifier and the rigour of the standards and indicators used to measure performance. Certain schemes associated, for example, with the labelling of products as “environmentally friendly” (eco-labelling), sometimes have the effect of restricting the access of Southern products to Northern markets and have been criticized as a disguised form of protectionism.

Code of conduct: a set of ethical principles and standards that attempt to guide a firm’s environmental and social performance. The formulation of codes of conduct by companies and industry or business associations has escalated sharply during the 1990s. This suggests that business may be crafting a new relationship to the environment and society. Codes are often criticized, however, for being strong on rhetoric and weak on implementation, not including provisions for independent monitoring and verification and marginalizing the legitimate role of government and trade unions in regulatory processes.

Corporate social responsibility: “... is the ethical behaviour of a company towards society. [It involves] management acting responsibly in its relationship with other stakeholders who have a legitimate interest in the business - not just the shareholders” (Schmidheiny et al., 1997:3). The concept may also embrace values associated with environmental protection. While often used in a broad sense, strictly speaking, the notion of responsibility is restricted to the realm of ethics and principles and not concrete actions or outcomes. For this reason there is considerable interest in the concept of corporate social performance, which includes not only motivating principles, but also processes (for example, the adaptation of management systems and technologies), and observable outcomes or impacts on stakeholders (Hopkins, 1997; Wood, 1991).

Eco-efficiency: “a process of adding ever more value while steadily decreasing resource use, waste, and pollution” (Schmidheiny and Zorraqu 1996:5). Eco-efficiency is the dominant model of environmental management reform promoted by the World Business Council for Sustainable Development (WBCSD), whose membership includes some of the largest transnational corporations. As a model for change, eco-efficiency has been criticized as promoting technical fixes that do not fundamentally alter an economic system that continues to generate environmental degradation and social exclusion. It is as much an approach to promote economic growth and competitive advantage as it is to encourage environmental responsibility.

Greenwash: “Disinformation disseminated by an organisation so as to present an environmentally responsible public image” (The Concise Oxford English Dictionary, 1999), or the attempt by corporations to hide the unpleasant environmental facts of their activities by adopting an environmental discourse or specific policies and practices that appear to be environment-friendly but do little, if anything, to change the relationship of business to the environment (Greer and Bruno, 1996). Exposure of greenwash has done much to demystify the superficial and rhetorical nature of many corporate initiatives associated with environmental and social responsibility and to keep the spotlight on offending corporations. Many of the critics who accuse companies of greenwash underestimate, however, not only the extent of corporate responsiveness to environmental concerns, but also the fact that there are some powerful economic and political forces that encourage environmental management reform.

ISO; ISO 14000: The International Organization for Standardization is the international association of national standard-setting bodies. These may be governmental, quasi-governmental or private industry organizations (Krut and Gleckman, 1998:7). The ISO 14000 series is a set of standards on environmental management, established by the ISO in 1996. The specific standard, ISO 14001, “specifies the requirements for an EMS [environmental management system] that may be objectively audited for self-declaration or third-party certification/registration purposes” (ISO, 1998). Concerns have arisen regarding the fact that what is measured is not whether a company is actually reducing its negative environmental impact but whether it is utilizing an environmental management system. There is also concern that the ISO process for developing environmental standards was heavily influenced by business interests and that there was little participation from developing countries and NGOs.

Stakeholder accountability: a stakeholder is “any group or individual who can affect or is affected by the achievement of the organization’s objectives” (Freeman, 1984:46). Corporate stakeholders include not only “employees and stockholders [but also] neighbours, public interest groups, customers, suppliers, governments and the general public.” (Schmidheiny, 1992:10). Stakeholder accountability refers to the need for companies to be responsive to the needs and concerns of their different stakeholders. In reality only some stakeholders are taken into account. This reflects not only the practical limits of corporate responsiveness and variations in the legitimate claims of different stakeholders on a company, but also their relative power to exert influence and pressure.

Triple bottom line: the notion that companies should be concerned with not only the traditional bottom-line associated with profitability, but also goals related to environmental protection and meeting social needs. Adherence to this notion suggests that companies are seriously attempting to address the negative environmental and social effects of their operations and move beyond compliance with government regulation. There is concern, however, that companies are using this concept in situations where the goal of profit maximization or “business-as-usual” far outweighs any other company objective.

Voluntary initiatives: these encompass a wide range of initiatives that go beyond existing laws and legislation related to environmental and social protection. They may be unilaterally developed by industry, designed and run by government, jointly developed by government and industry, or developed and run by non-governmental organizations (UNEP, 1998). An increasing number of companies are engaging in voluntary initiatives. Many such initiatives, however, lack substance, are not effectively implemented, lack credibility because they are not subject to independent verification, and are often promoted as alternatives to what may be more powerful drivers of corporate responsibility, such as government or international regulation.

Win-win strategy: a corporate strategy that enables a company to simultaneously improve its environmental or social record while reducing costs and/or increasing competitiveness and productivity. The possibility of a win-win scenario seems to suggest that companies should adopt relevant management reforms as part of a rational business response (Murphy and Bendell, 1999), and that there is less need for so-called “command-and-control” regulation. The “win-win” notion has been criticized for not only marginalizing the role of governmental regulation and civil society pressure as key drivers of change, but also exaggerating the proposition that environmental management reform is necessarily good for profits.

A key event in the contemporary corporate responsibility calendar was the Earth Summit of June 1992. This event focused both public and corporate minds on the issue of environmental degradation and sustainable development. The Summit’s programme of action, Agenda 21, contained some 32 provisions relating to TNC activities (UNCTAD, 1996:3). It called on the world’s governments, business, international development agencies and non-governmental organizations (NGOs) to work together to minimize the tradeoff between economic growth and environmental protection. The confrontational politics of earlier decades, which had pitted a pro-regulation and redistributive lobby against TNCs, lost momentum as governments, business and multilateral organizations alike, as well as an increasing number of NGOs, embraced ideas of “partnership” and “co-regulation” in which different actors or stakeholders would work together to find ways of minimizing the environmental and social costs of economic growth and modernization. The hands-on, regulatory role of the state ceded ground to “corporate self-regulation” and voluntary initiatives as the best approach for promoting the adoption of instruments and processes associated with corporate environmental responsibility. These included, for example, codes of conduct, the use of cleaner technology, life-cycle analysis,⁵ environmental reporting and certification.

⁵ Life-cycle analysis examines the environmental impact of a particular product or service throughout all the stages associated with its production, marketing and disposal.

During the 1990s some important institutional developments have taken place to promote corporate environmental and social responsibility. The Rio Declaration urged the business community to support the “precautionary principle”⁶ in relation to environmental challenges, undertake initiatives to promote greater environmental responsibility and encourage the development and diffusion of environmentally friendly technologies (Annan, 1999). An important sector of the business community, led by a small group of very large TNCs, explicitly acknowledged the need for firms to clean up their act and take a more proactive role in promoting environmental protection and sustainable development. One association of TNCs, the Business Council for Sustainable Development (BCSD), played a particularly prominent role in influencing the UNCED process. Through publications such as Changing Course (Schmidheiny, 1992), this sector called for a rethinking of corporate strategy in relation to natural resource use and management and proffered a solution in the shape and form of eco-efficiency. The International Chamber of Commerce (ICC), which in 1991 had laid out 16 environmental principles in the Business Charter for Sustainable Development, was also active at Rio, arguing that the business community had now embarked on a sustainable development path (Schmidheiny et al., 1997).

⁶ According to this principle it is valid to take action to protect the environment even in situations where scientific evidence regarding the cause and effects of environmental degradation is inconclusive.

Since Rio, the process of promoting improved standards of corporate environmental management was accelerated with the formation of numerous business associations - so-called “green business networks” - with explicit environmental objectives (Tomorrow, 1994). The latter half of the 1990s has seen the consolidation of some of these associations, the most prominent being the merger, in 1995, of the BCSD and the World Industry Council for the Environment (WICE) to form the World Business Council for Sustainable Development (WBCSD) (Hansen, 1999b). In the following year, the International Organization for Standardization (ISO) agreed on a set of generic standards for corporate environmental management systems. Known as the ISO 14000 series, this set of standards is gaining international recognition as a benchmark and basis for certification to facilitate international trade (UNCTAD, 1996).

New regional institutions are also influencing corporate policy and practice. The European Union’s Eco-Management and Audit Scheme (EMAS), for example, was launched in 1993 to promote good environmental management by manufacturers and constitutes a more rigorous set of standards than ISO 14001. NAFTA’s Commission for Environmental Cooperation oversees environmental affairs in Canada, the United States and Mexico. The Central American Council for Sustainable Development, established by the region’s presidents in 1989, is actively promoting sustainable development planning and projects in seven countries, affecting sectors such as forestry and tourism where business has a strong interest.

Numerous industry associations and individual companies are promoting so-called “voluntary initiatives” that encourage business to engage in corporate self-regulation or co-operate with government in negotiating and implementing mutually agreed standards. Prominent among voluntary initiatives is a variety of codes of conduct or guiding principles established by international and national industry associations. These include, for example, the numerous Responsible Care initiatives of national chemical associations that commit member companies to continually improve aspects related to health, safety and environment (ILO, 1999),⁷ and the Keidanren Global Environment Charter, established in 1991, which urges business enterprises in Japan to work towards healthy human, ecological and economic development (UNCTAD, 1996:148). The ICC Charter, referred to above, had been adopted by 2,300 companies - nearly one third of the organization’s membership - by mid-1999.⁸

⁷ By 1996, approximately 40 national chemical manufacturers’ associations, whose members accounted for 86 per cent of the volume of world production, had adopted the Responsible Care initiative.
⁸ Personal communication with ICC official, 17 August 1999.

During the latter half of the 1990s the attention of big business has focused increasingly on issues of corporate social responsibility. In 1995 the Business Association for the World Social Summit (BUSCO) presented a statement of principles and a 16-point action programme to the Copenhagen conference which corporations were called upon to implement in order “to intensify their contribution to social progress” (BUSCO, 1995). Organizations like the WBCSD also diversified their activities by engaging more directly with issues of corporate social responsibility (Watts and Holme, 1999). In 1997, international industry bodies such as the World Federation of the Sporting Goods Industry and the International Council of Toy Industries adopted codes dealing in particular with working conditions and child labour (Wild, 1998). In recent years, some private sector entities have also broadened their codes or guidelines to include commitments to human rights. In 1997, for example, Shell revised its Statement of General Business Principles to endorse the UN’s Universal Declaration of Human Rights (UNCTAD, 1999). Business also participated in the drafting of “Social Accountability (SA) 8000”, an international standard developed by the Council on Economic Priorities Accreditation Agency (CEPAA) in 1998. Based on several ILO and UN standards related to labour conditions and human rights, SA8000 aims to improve the living and working conditions of business stakeholders in both developing and industrialized countries (Wild, 1998).

The changing attitude of business is also reflected in the phenomenon of “partnerships”. The past decade has seen a considerable rapprochement between big business and certain actors, including governments, United Nations agencies and some NGOs, which previously sought to influence corporate activities through directive-based measures, international codes of conduct and the politics of confrontation. Today, many such actors are attempting to collaborate more with business.

Some of the world’s leading corporations are actively seeking out partnerships with NGOs and United Nations organizations. As a review of the state of green business in 1998 notes, for forward-thinking businesses “partnership... quickly established itself as the strategy of choice” (Frankel, 1999:11). A number of high-profile partnerships have emerged in recent years. For example, in 1996, WWF-International launched a partnership with Unilever Corporation, the world’s largest buyer of frozen fish, to create economic incentives within the seafood industry for “sustainable fishing” throughout the world. The Marine Stewardship Council (MSC) is the result of their endeavours. The Fairtrade Foundation - a coalition of international development, consumer and fair trade organizations - has launched a pilot project to work with British companies to develop codes of practice to guide relationships with their Southern suppliers. In 1998 British Petroleum allied itself with the Environmental Defense Fund, as did General Motors with the World Resources Institute. By the end of 1998, some 17 Fortune 500 companies were supporting the Pew Center on Global Climate Change (Frankel, 1999).

Whereas in the past, NGO-business collaborations were often based on corporate charity, today many NGOs are assisting business with internal operational issues (Murphy and Bendell, 1999) - for example, in drawing up codes of conduct, developing systems of environmental reporting or carrying out independent social audits. These NGO relationships with business involve what has been called “civil regulation” - through which business comes under pressure to comply not only with its own standards (corporate self-regulation) or those of government (legal compliance), but also with norms and standards defined to some extent by civil society institutions (Murphy and Bendell, 1999).

The number of partnerships involving business and United Nations organizations, such as UNCTAD, UNEP, UNIDO and WHO, has also increased sharply in recent years. In 1999 some 15 TNCs participated in the preliminary phase of a project of the United Nations Development Programme (UNDP) to establish the Global Sustainable Development Facility - an attempt “to find new and additional ways to promote sustainable human development in partnership with the global corporate sector which has heretofore had limited contact with the UN System”⁹ (UNDP, 1999b:5). That same year, the ICC endorsed the call by UN Secretary-General, Kofi Annan, for a compact between the United Nations and business in which corporations would voluntarily comply with United Nations standards associated with environmental protection, labour conditions and human rights and work with UN agencies towards that end.¹⁰

⁹ This partnership has the goal of developing a framework for co-operation between UNDP and the corporate sector which will provide market access to 2 billion poor people in poor countries by the year 2020 (UNDP, 1999a).
¹⁰ See United Nations, 1999b.