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Social vs environmental management instruments:
convergence or divergence?
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Wednesday
30 October Meeting Report
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sponsored
by
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Speakers: Simon Zadek, Chief Executive,
AccountAbility and
Patricia Feeney, Director, Rights and Accountability
in Development
Chair: Chris Marsden, Chairman, Business
Group, Amnesty International
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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
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