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Social vs environmental management instruments: convergence or divergence?

Date
Time (GMT +00) 13:00 14:30

Speakers:
Simon Zadek, Chief Executive, AccountAbility
Patricia Feeney, Director, Rights and Accountability in Development
Chair:
Chris Marsden
, Chairman, Business Group, Amnesty International

1. Chris Marsden described how the social dimensions of business practice have followed in the wake of environment practice and have a lot to learn from it, for example, in how to measure outcomes and performance. But to what extent should social standards follow environmental?

2. Simon Zadek noted that talking about standards can be a "nerdy subject", not least because what has happened in the last ten years has been focused on compliance. There are many and a growing range of standards. Some, like the OECD MNE Guidelines have a high profile, others, such as those more directly associated with business and organisational performance may be equally influential but less celebrated. The large number of standards is generating confusion.

3. Types of standards include: (i) 'Aspirational principles' (such as the Global Compact and Natural Step) - these drive adherence to aspire, but don't drill down to a level of detail that is codified and can be used for day-to-day management; (ii) Codes of Conduct/certification standards go much deeper down into what the company does and include Fund Management codes and criteria and the new generation of standards related to SRI screening and indexes that try to link financial performance to social and environmental performance; (iii) 'End-of-pipeline' reporting standards (such as the Global Reporting Initiative - GRI) look at what happened at the end of the day, and is often where NGOs concentrate their work; (iv) Enablers - aspects and capabilities of an organisation that promote success, such as people, financial assets, social capital, organ culture, systems and processes. Many of the standards that have emerged out of the quality movement don't focus on 'End-of-pipeline', but on Enablers - things that NGOs are normally uninterested in. Enablers are upstream and 'End-of-pipeline' is downstream.

4. It is important to understand how different standards bring about change. Focusing on compliance and the mitigation of adverse impacts gives us a 'policing' understanding of how standards work. But this is only one way in which they induce change. Non-compliance standards may bring greater change.

5. There is competition between the different types of standard. Perhaps we need to "clear the decks", let most standards fall away leaving just one or two to do the job. But, if different standards do different things, then perhaps we do need them all. Or perhaps the answer lies in more complementarity and alignment. For example, AA1000 is the Assurance Standard developed by AccountAbility, and is designed to be consistent with the GRI. Similarly the GRI is consistent with SA8000 in that they both incorporate ILO conventions on labour standards. There are needs for different standards, but there is also a need for better complementarity.

6. So how do standards really bring about change? With 'reporting' standards there is an assumption that communication with the outside world of the fact that you did or didn't do something is in itself a driver for change. But change in corporate behaviour has little to do with external communications. "There is far more of a lifeworld within a company than those of us outside the business community believe or understand". There is more potential for generating change with standards that are 'internal' to a business that the NGO community might think.

7. We need also to understand that Corporate Social Responsibility (CSR) standards are not only about an individual organisation, although they might appear that way. The OECD MNE guidelines, for example, are part of a new set of rules within which markets function. Such standards are actually part of a mosaic that influences the macro dynamics of market operation.

8. I want to touch on the question of reporting. "I have been party to many social and sustainability reports and I can say that most of them are not very useful. We've recently done some research with CSR Europe, partly funded by the EC, which looks at the impact of social and sustainability reporting. The news is very bad. Very few reports are read, very few reports inform external stakeholders to drive decision-making and behaviuor, and most reports disappear into the dust". We must look at what change it is that standards bring about, rather than continuing to just look at the mechanisims of how you build standards themselves.

9. On the issue of whether businesses 'learn' to do things differently through the adherence to standards, we are beginning to understand that real change comes when there is a dramatic shift in learning or understanding which leads to a systems shift, which in turn leads to different approaches to doing business. We assume too often that multi-national enterprises are so large that they 'must' see the advantage of working in a different way. What we fail to appreciate however is the complexity of learning that drives change within such enormous, complex companies. "If I was to give you one litmus test to any type of standard at all, it would be to ask whether the standard helps organisations to learn", to enable them to develop new ways of operating and produce new products.

10. Patricia Feeney - Before becoming director of Rights and Accountability in Development, a small NGO, I worked for Amnesty International in their research department and more recently for Oxfam in the policy department. My knowledge of the OECD Multi-national Enterprise (MNE) guidelines comes from the revision of the guidelines from 1998-2000, where I played the part of an NGO focal point.

11. The OECD MNE guidelines were adopted by the OECD governments in 1976. They were set up to protect MNEs from discriminatory treatment and to provide incentives for investment. The guidelines form part of a package called the Declaration on International Investment and MNEs. They came about at a time of international disquiet concerning the power of MNEs, especially after the toppling of the regime in Chile which allegedly involved several US MNEs.

12. Between 1976 and 1998, 30 cases were brought against MNE's with respect to compliance. Most of these were presented by Trade Unions. At this time NGOs were not part of this process and could not present cases. By the time of the aforementioned review in 1998 there were 24 contact points across the OECD countries, many of whom were fairly ineffective. The guidelines gained notoriety more recently because of the failed negotiations around the multilateral agreement on investment (MAI). The OECD MNE Guidelines were originally to be 'tacked on' to the agreement as voluntary standards. This is what spurred on the need for a review.

13. The subsequent 1998 revised version of the Guidelines saw the OECD governments trying to be more inclusive, not least with regard to Unions and NGOs. Because of subsequent Trade Union activism, the chapter in the Guidelines on employment and industrial relations is more detailed and specific than what exists with the ILO. A specific prohibition on child labour is an illustration. The revised Guidelines also responded to the Clean Clothes Campaign and are now directed at encouraging MNEs to look at their whole supply chain. There is also a new chapter on corruption and bribery. Some of the main additions were in the General Policy chapter. For example, one provision, which may sound weak, says that MNEs are to "Respect the human rights of those affected by their activities consistent with the host government's international obligations and commitments". Since all countries are members of the United Nations, all MNEs in all countries should abide by the Universal Declaration of Human Rights and related international law. So this simple provision commits companies to respecting a wide range of human rights standards.

14. The OECD MNE Guidelines are not meant to be 'aspirational', although it might take some time for companies to meet them. The Guidelines should be seen as representing the firm expectations of OECD governments, whether companies are operating within or outside the OECD. Unlike sector-specific codes, the Guidelines appear to be broad-brush provisions. But the provisions of the Guidelines will have to be interpreted by reference to the more specific sectoral codes. We must, however, check that our governments are serious about enforcing these guidelines.

15. With regard to their implementation, by which we mean in part the raising of 'specific instances' (ie complaints of non-compliance), the Trade Unions have been systematically testing the influence of the National Contact points in each of the OECD countries. These contact points are the officials responsible for making people aware of the guidelines and following up complaints. Their function, like that of most UN Human Rights mechanisms, are to both (i) promote and (ii) uphold the standards. So far, very few NGOs have presented cases. Oxfam Canada brought a case against a mining company in Zambia. This deterred the company from calling in the army to remove settlers. The Canadian NCP provided an immediate, if short-term solution. But other cases have been less successful.

16. Often national contact points are located in the trade department of a national government, and thus play a dual role as watchdog but also 'friend' of MNEs with respect to encouraging investment. This duality may explain why many cases have not made it through. Tony Blair has declared his support for the OECD guidelines, but you will find it hard to identify the official in the DTI who is responsible for them. We have to push to get these cases taken seriously. Currently, there is no time-line for hearing complaints, so they often disappear into a black hole. There needs to be some kind of cut-off point to prevent it appearing to be a token operation.

17. Chris Marsden - how might the OECD MNE Guidelines and the others standards and CSR reporting mechanism actually help improve company performance?

18. Discussion. A number of points were raised:

a. We seem to be talking as though we all agree that there is no divergence between environmental and social standards. As an example, there are 2 billion people without access to modern energy sources. This poses some important issues. Some NGOs want to prevent poor people from accessing fossil fuels. That seems to me to be socially irresponsible - we may want to cut back fossil fuels, but not by stopping poor people accessing them. The point is that across social and environmental standards there may need to be difficult trade-offs, and that sometimes these will be irreconcilable without considering the political economy of the people who win and the people who lose.

b. The key question regarding reporting indicators must be whether it effects institutional change within the business. But there needs to be a question before this: what is the change that we are aiming for? From the view-point of the Department for International Development this goal is poverty reduction and development. Some more thought is needed about whether convergence of standards encourages companies to contribute to poverty reduction or whether this trade-off creates a tension and reduces pro-poor outcomes.

c. Are voluntary codes and standards enough to guarantee the step-change that we are all after? Is public naming and shaming sufficient, or do these standards really need to be embedded in law rather than monitored by an NGO. If these issues really matter, why aren't we pushing towards law?

d. We hear a lot about standards working because "what gets measured gets done", but the survey mentioned by Zadek seems to be suggesting the opposite. In practice, with business operations on the ground, we don't the application of these standards generating a step-change in outcomes or performance. Perhaps we need to think more about balancing our efforts between (i) reporting standards and (ii) management tools embedded deeper inside the company.

19. Patricia Feeney - Attempts to have binding regulation have been blocked in the past by the US. The Global Compact is the UN trying to gain back ground lost in the 1970s. If you have money and you have a problem with a company, you can go to litigation. If you are poor, you cannot. There are a few landmark cases against corporations, but you need solicitors working pro bono for years. Most international efforts to hold corporations to account through litigation, apart from some high-profile examples, are all stuck (as courts consider procedural points) even if eventually they may result in setting important judicial precedents.

20. Simon Zadek - This is not a trade off between saving the world and making lots of money, it's a trade-off between lots of different ways of saving the world. We shouldn't think that it's profits v. principles. There are many different principles. Standards are really a lightening rod for all of these problems. They should not be seen as the problem themselves. The OECD guidelines, if properly followed, would have a significant effect on businesses and communities around the world. That might be the right price to pay in order to ensure that MNEs toe the line. But there's a complicated matrix of winners and losers.

21. If you're into voluntary standards, it means you're not into regulation. If you're into regulation, it means you don't understand how business works. These are the usual caricatures. But history shows us that voluntary approaches 'can' work and even lead us to regulation. More and more MNEs are beginning to embrace standards, because, essentially, if is a way of beating the competition. If you drive a pro-poor model of business into the top 500 MNEs then this will be a mechanism for a good company to consolidate their hold on the market they operate in. So we need to ask at least two questions (i) what the effect of standards are on an individual company? and (ii) what is the effect on the market as a whole and for global governance?

22. In the words of one senior manager from an Oil Company when asked why they had adopted the UN Declaration of Human Rights, "It's because we're preparing for governance." In the next 5-10 years we will see a small but growing strata of businesses becoming increasingly formally and explicitly integrated into the global governance system. These companies have always influenced governance, but this will become more formal and explicit. The issue is not should we have this or that indicator; it is how these standards will play a role in shaping the larger global governance issues in the years to come, and that is what makes them so important in a development context.

23. Patricia Feeney - The point about trade-offs between different social and environmental standards, is a dilemma. But that debate should take place in a national context, not an NGO context. As for the question about the role of standards in consolidating power in the hands of MNEs, I would argue that the forces that have helped bring about that consolidation of power have more to do with macro economic policies and liberalisation than voluntary codes. While it may be true that some small and medium-sized businesses may find it hard to abide by these standards, it should be possible to implement a sliding scale of standards, or to work harder on capacity building. But it costs money to do these things and it won't happen over-night We need to recognise that. Therefore, it will be good start if the large MNEs abided by the OECD MNE Guidelines and other standards. A lot of companies are quoting such guidelines and claiming to follow them - but the reality is somewhat different.

24. Chris Marsden - There is a real issue of companies filling vacuums left by governments. When there are a lot of non-'win-win' situations the meeting of companies with NGOs will be extremely important.

Jon Fowler and Michael Warner, ODI
4th November, 2002

Description

This event discussed social dimensions of business practice have followed in the wake of environment practice and have a lot to learn from it, for example, in how to measure outcomes and performance. But to what extent should social standards follow environmental?