Saturday, March 8, 2008
Corporate Social Restriction: How The UN & EU Governments Compel Private Industry To Fulfill Government Obligations
Corporate Social Restriction
April 4, 2006
In recent years Corporate Social Responsibility (CSR) has become a mantra. A complex movement has been campaigning throughout Europe for high labor, environmental, and human rights standards, even though it is not quite clear what 'is meant by "high". The movement comprises Western trade unions, environmental non-governmental organizations (ENGOs), and human rights activists who have little faith in the ability of private companies and free markets to generate wealth and improve living conditions for all workers. In fact, these groups believe that there exists a threshold beyond which a company's profits become too high, inequitable, and even immoral.
The CSR movement has grown to become a potent regional political force, and has thus far succeeded in causing many companies to "voluntarily" adopt or develop programs that have nothing at all to do with their core businesses. They range from special commitments to environmental and labor conditions, to aid initiatives in developing countries that are often accompanied by information and education-based campaigns. Notwithstanding the costs incurred and distractions suffered by such companies in pursuit of CSR, many critics within the CSR movement are still not satisfied.
Sensing that companies are employing CSR disingenuously as a mere advertising façade to cover up their otherwise socially bereft conduct, CSR activists have sought to raise the level of "public accountability". They now want the current voluntary benchmarks converted into something more concrete: mandatory requirements. Their goal, simply, is to impose upon companies third-party monitoring and enforcement systems, thus providing themselves with an ample source of future employment, to ensure that pure and unadulterated CSR is practiced company- and region-wide. And they have enlisted none other than national governments and international organizations, including the United Nations, which endorse public "naming and shaming" campaigns in order to "smoke out" (expose and extinguish) corporations' heretical practices. The movement is especially strong in the European Union, where the Commission is expected to and often does embrace every request.
If you combine the political agenda of the CSR movement and the political power of the European Commission, the result may well be explosive. In fact, Europe's business climate is already less-than-welcoming. There continues to be a persistently low rate of economic growth and technological innovation, and a dramatic rise in the number of costly regulations that require strict company compliance. It is no surprise, then, that European companies have chosen to invest significantly less on local research & development than their American and Asian counterparts.
If recent media reports are any indication, perhaps the Commission has finally awakened from its largely self-imposed stupor, and has discovered the distinctly negative influence that the movement has had on European corporate performance. Indeed, Enterprise and Industry Commissioner Günther Verheugen might have been so startled by what he found when he actually took the trouble to look, that he "moved [the Commission] towards a more pro-business view on CSR over the past year." This change of heart has resulted in last month's launch of the "European Alliance for CSR". The alliance focuses on enterprises as the "primary actors in CSR". This is an elegant way of signaling that, at least for the time being, CSR is and should be the business of companies, and not the business of NGOs or the Commission. "The Commission has opted for a voluntary approach which is more effective and less bureaucratic," Verheugen said. "Since CSR is about voluntary business behavior, we can only encourage it if we work with business."
CSR proponents, such as the European Trade Union Confederation and Friends of the Earth, attacked Verheugen as a hijacker of CSR. Despite his attempt to implement a soft move from the old to a new concept of CSR, however, one must seriously question the Commission's ability to stay the course in the face of rabid NGO opposition. No matter how one "packages" CSR the problem of unmasking its true identity will remain, as long as the core issue underlying CSR is left unresolved: what is the social responsibility of a business? According to renowned economist and Nobel laureate, Milton Friedman, "there is one and only one social responsibility of business -- to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." Although this makes perfect sense in the increasingly competitive and low-margin global marketplace in which companies operate, regionally-focused and regulatory-minded NGOs and EU bureaucrats abhor it.
If a business has any "social" corporate responsibility at all, it is owed to the shareholders and debt-holders who keep it going. Plus, in order to survive and flourish another day so that it might later consider redeploying excess profits to "social philanthropic causes", a business must also competently serve its market constituents. If Jean Q. Consumer is different from Jean Q. Citizen, then the products and services a company offers for sale may also need to be different. For instance, Jean Q. Consumer may only want high quality and performance-driven goods and services at an affordable price, while Jean Q. Citizen might not be so concerned. He might instead demand only goods and services with a "high" level of environmental, labor and human rights protections, for which she would be willing to pay a higher price, even though she does not quite know what those protections really mean. Is it substantively different than "low" standards? How is this measured? Who makes such a determination? Is it verifiable and truthful?
In the end, the decision to purchase one rather than the other of these types of products or services is part personal and part market-driven. And, despite what the NGO community often claims, there exists no moral difference between the companies that respond to these different demands. Indeed, one may argue that each such company is socially responsible.
EU bureaucrats and European NGOs recognize the truth about market influences, and have developed ways to distort it. One such way is to identify artificial distinctions between products and services, such as "low" and "high" environment, worker, and human rights content, and to falsely claim that the former are not socially responsible because they pose unacceptable health and environmental hazards to the public. When this distortion rises to the political sphere as the result of well-organized and funded NGO public fear campaigns, it is usually doomed to turn into anti-business regulations that raise costs to all businesses, harming both shareholders and consumers. Firms that suffer from harmed reputations become fearful, risk averse, less competitive, and protectionist in nature. As Professor David Henderson, formerly head of the Economics and Statistics Department of the Organization for Economic Cooperation and Development Organization, has said, "insofar as this trend weakens enterprise performance, limits economic freedom and restricts competition, the effect is not only to reduce welfare: it is to deprive private business of its distinctive virtues and rationale".
Mr. Kogan is CEO of The Institute for Trade, Standards and Sustainable Development, Inc. Mr. Stagnaro is Free Market Environmentalism Director of Istituto Bruno Leoni.
Tuesday, February 19, 2008
EU & UN Warning to US Multinationals: Adopt & Conform to Our CSR Mandates Or Be Disparaged and Diminished in Value
The following has been extracted from an article appearing within the International Journal on Economic Development entitled,
Precautionary Preference: How Europe Employs Disguised Regulatory Protectionism To Weaken American Free Enterprise
The article is accessible at: http://www.itssd.org/White%20Papers/ijed-7-2-3-kogan.pdf .
...U.S. companies have increasingly fallen subject to the relatively new but growing ENGO discipline of ‘supply-chain management’, which is an outgrowth of the global corporate social responsibility (‘CSR’) movement. With guidance and assistance from the EU and the United Nations Global Compact Office, Environment Program, and Commission on Sustainable Development, European-based ENGOs and social groups have developed and imposed on U.S. multinational companies and their small and medium-sized suppliers the duty/obligation to comply with Euro-style CSR standards. These standards generally demand that companies act in a socially and environmentally responsible manner consistent with the precautionary principle, in excess of legal requirements, no matter where they conduct their business. These standards also require that multinational companies and their suppliers submit to audits and verification by private third parties – ‘global stakeholders’ (ENGOs and social groups, not stockholders or debt-holders) – and that they publicly report their CSR activities annually.
...[R]einsurers like Swiss Re perceive climate change, namely, as a risk management (and a business reputation) issue that boards must address as a matter of corporate governance. 192 This view is not too dissimilar from the view taken by corporate social responsibility and environmental advocacy groups such as the Rose Foundation. According to the NGO Corporate Sunshine Working Group, ‘While the Sarbanes-Oxley Act did not create any specific new environmental or social disclosure obligations, the increased care and attention now given to SEC reporting may increase the quality of reporting generally, and thus indirectly promote better environmental and social disclosure.”193
...X. IMPOSING PRECAUTIONARY PRINCIPLE-BASED SUPPLY CHAIN MANAGEMENT648 STANDARDS – THE GROWTH OF ‘SOFT’ LAW 649
Whether U.S. small and medium-sized businesses export their U.S. manufactures to Europe, source and import their products from China, or are engaged exclusively in a domestic business, they are all likely to be affected by global supply chain management programs.650 These programs, which incorporate the precautionary principle, are being promoted by the EU Commission and prominent international environmental groups such as Greenpeace, Friends of the Earth, the World Wildlife Fund, the Natural Resources Defense Council, the Basel Action Network, the Rainforest Action Network, and the Sierra Club. In addition, these programs are championed by corporate governance and corporate social responsibility groups such as Business for Social Responsibility, Prince of Wales Business Leaders’ Forum , and the World Business Council for Sustainable Development, and the Rose Foundation.
Indeed, the EU institutions and these civil society groups have a symbiotic relationship. Pursuant to one or more alternative EU governance instruments, such as coregulation651
or self-regulation652, Brussels financially underwrites, facilitates and promotes many environmental and corporate accountability campaigns that are consistent with and effectively implement EU policy frameworks.653 And, precaution-based regulations and product standards increasingly reflect the political influence wielded by such groups within the European Parliament and Commission and now the International Organization for Standardization (ISO).654
These groups, together with international labor groups such as the International Labor Organization (ILO) and the Fair Labor Association in the United States, have continued to wage campaigns of intimidation (‘naming and shaming’) against U.S. multinationals and their key suppliers, in order to shape public opinion against them. And, as these groups have become better recognized within the growing global civil society, their role and influence within the United Nations’ programs and agencies and national governments has expanded commensurately.
...B. The EU and the United Nations as Protagonists
The UN Global Compact Office and the UN Environment Program have convened several public-private partnership meetings and global business dialogues 655 organized and promoted by EU representatives that have focused on the issue of global supply chain management. An overarching theme within these ostensibly ‘voluntary’ initiatives has been the promotion of global corporate social responsibility (CSR) standards that require companies, wherever they operate, to adopt a ‘precautionary approach’ (effectively, the ‘wingspread’ version of the precautionary principle) to environmental challenges in all product and service sectors. This, in effect, involves employing an EU-style life cycle (‘cradle-to-grave’ or ‘design-to-disposal’) approach that evaluates the potential social and environmental impacts of their design, manufacturing processes, technologies and products.
Whether they like it or not, U.S. companies are subjected to the demands of ‘green investors’ and civil society ‘experts’ (European socialists as well as American liberals) who are critical of industry’s motivations and objectives. They discourage companies from investing in process and production methods that are deemed ‘unsustainable’, or that are otherwise considered to deplete natural resources and degrade the environment. And they encourage companies to utilize expensive and unproven technologies as a proactive and preventive measure, in order to avoid the potential that their current technologies, processes and products might cause irreversible environmental damage sometime in the future. In some cases, they have even pressured companies to stop their economic activities altogether if the companies cannot find what these groups consider more environment-friendly alternatives (substitutes).
The corporate social responsibility work of the Global Compact Office and the environmental work of UNEP is further supported by the activities of the U.N. Commission on Sustainable Development (CSD), which organized the 2002 World Summit on Sustainable Development (WSSD).656 CSD reports to the U.N. Economic and Social Council (ECOSOC), which functions under the authority of the U.N. General Assembly. Not surprisingly, most funding to support these agencies/organizations is derived from the European Union and EU member states. It is this last aspect that needs to be urgently addressed by the Bush Administration if the creeping impact of the precautionary principle is to be arrested.
1. Threatening Company Brand Reputation and Shareholder Value
While environmental NGOs are at the forefront of these public pressure campaigns, the EU and the United Nations are the catharsis behind them. Indeed, they continue to encourage ENGOs to employ these pressure tactics against public-image sensitive U.S. multinational corporations in order to reach their small and medium-sized suppliers. A recent paper prepared by the Chief of the UN Treaty Section demonstrates what the EU Commission and the United Nations have in mind:
In particular, European Community directives and legislation in individual countries have played a major role in influencing the attitudes of private sector corporations. In some instances, corporations have responded to public pressure even in the absence of legislative rules. Increasingly, such legislation is being enforced, sometimes through action undertaken by civil society. Noncompliance with environmental legislation could lead to costly litigation and adverse publicity which corporations would very much like to avoid. Compliance with environmental standards also makes them less susceptible to public criticism…Not only would these assist in avoiding conflict with legal requirements in the target markets, it would help to avoid damaging protests by vigilant civil society groups…
The reasons for the gradual conversion of the decision makers of some private sector institutions to adopting environmental friendly policy approaches are interesting given their traditional focus on profits and the obsession with year end bonuses. The message that civil society groups and academics have been preaching for some time, that non-compliance with global environmental standards carries financially negative consequences, may be getting through finally. In fact, non-compliance with global environmental standards may actually result in the loss of profits and bonuses and this has been a powerful element in focusing the minds of those making critical corporate decisions…
The continuing pressure exerted by civil society lobby groups has had a significant impact. Groups such as Greenpeace, WWF, Rainforest Action Network (RAN) and Sierra have continued to highlight corporate shortcomings and attract public attention to these. The naming and shaming approach adopted by such pressure groups has had a critical impact in some cases. It could be assumed that the negative publicity would harm not only the image of a company, but also its earnings. Television images of prominent individuals cutting up their credit cards issued by Citibank at the instigation of RAN may have had an impact on this bank‘s decision to enter into a ‘common understanding of key global sustainable development issues’. Home Depot changed its wood sourcing policies following a campaign carried out by environmental groups including RAN (emphasis added).657
2. U.S. Manufacturing Sectors Affected
Environmental and labor groups have continued to utilize global supply chain management to publicly compel U.S.-based multinationals commanding significant U.S. market share to adopt EU precautionary principle-based labor, environmental and CSR standards.658 As in Europe,659 these standards are then passed downstream to their many small and medium-sized suppliers. 660 Some of the best known examples of this program involve the retail buying groups formed among large supermarket chains. Others involve large mass home-improvement retailers such as Home Depot and Lowe661, which have curtailed their purchases of Indonesian tropical forest-based wood products and adopted ENGO-consistent policies to affirmatively promote sustainable forestry in response to such pressures.662 In the case of Home Depot, for instance,
“From 1997-1999, environmental groups organized protests against [Home Depot], charging it was failing to ensure that its wood didn‘t co m e fro m endangered forests. Activists picketed hundreds of Home Depot stores, hung banners at its corporate headquarters in Atlanta and demonstrated at shareholder meetings. Home Depot was afraid the protests might lead to a consumer backlash and sliding sales… So the company agreed to stop using products from endangered forests… In bowing to the environmentalists’ demands, Home Depot agreed to give preference to wood that have been logged in an environmentally friendly way… usi[ng] guidelines from the Forest Stewardship Council, a body now based in Bonn, Germany, that certifies trees as properly harvested.” 663
Such pressures seem to have paid off. During 2003, “Home Depot, Inc…used its purchasing clout to get two of Chile's biggest loggers to quit buying land that was being deforested,” even though the land was being re-cultivated with plantation forests.664 Apparently, the Forest Stewardship Council‘s environmental preference for natural forests had something to do with this.665
U.S. Office-supply giant Office Depot suffered a similar fate. “[A]fter an activist’s campaign against it, [the company] canceled purchases from an Indonesian paper supplier that activists say was using trees from the country‘s endangered forests.”666 Apparently, that campaign had been launched by the San Francisco-based environmental group, Forest Ethics, whose “successful campaign against the [entire] office supply industry resulted in a groundbreaking environmental policy by Staples, (and later Office Depot and Office Max).” 667
In January, the same group focused its contempt on Limited Brands, Inc., the owner of the Victoria‘s Secret chain of women’s lingerie, in an effort to change its product procurement practices. In particular, the group alleged that the company had used non-recycled paper to print 398 million catalogues annually harvested largely from old growth and endangered forests in the Canadian Boreal (“the third largest forest wilderness in the world and a critical regulator of global climate”) and in the Southern U.S. Multiple means were employed to achieve this desired change. They included, most recently, a full page advertisement in The New York Times entitled “Victoria‘s Dirty Secret” featuring “a sultry model wearing fluffy wings and carrying a chainsaw.” They also included over one hundred demonstrations at Victoria Secret stores, an outdoor advertising campaign waged in cities across the U.S., and the construction of a disparaging website – http://www.victoriasdirtysecret.net/ .668 Predictably, Victoria’s Secret pointed out that it uses some recycled paper already, and “will try much harder [to do so] in the future,” regardless of the impact on its suppliers.669
Other examples involve U.S. mass retailers and specialty store chains that sell clothing and footwear, such as the Gap, Inc.670, Wet Seal, Disney Stores and Walmart Stores 671. Each of these companies ultimately adopted stringent procurement and/or factory reporting policies in order to mollify environmental and labor rights activists and thereby protect its stock value. 672
As additional evidence of the pressure being applied against industry by environmental and labor activists, one should consider the recent lawsuit instituted against Nike. Nike, a Global Compact member that dutifully published its Corporate Social Responsibility Report for 2003 on the Internet, was sued by a California activist under that state‘s false advertising statute for allegedly misleading consumers and potential customers in communications about its labor standards. “The communications were made in defense to a torrent of criticism in the U.S. media about conditions in factories in Indonesia and Vietnam.” The litigant (a representative of the Fair Labor Association, an U.S.-based NGO) alleged that “Nike was not a responsible corporate citizen [and] that the communications were basically lies to maintain the brand image, whilst Nike knew and allowed ‘sweatshop labor’ to exist in its supplier factories” (emphasis added).673
In each case, as the result of ENGO public pressures, large manufacturers and retailers have agreed to purchase only those products that are certified environment-friendly or otherwise bear an environment-friendly eco-label attesting that the product was manufactured consistent will all relevant international environment or labor standards. As a precondition to doing business, or as a condition to remaining on a retailer‘s vendor matrix, these retailers then typically require that their suppliers and their suppliers’ suppliers employ a life-cycle approach to product development that reflects these values. Even large international trading companies based in manufacturing countries such as China (e.g., Li and Fung) have succumbed to supply chain management principles to retain their supplier status in both Europe and the U.S.674 Considering how quickly these Global Compact -promoted practices have spread across product sectors and throughout the many levels of the global supply chains, unless U.S. small and medium-sized businesses remain vigilant in monitoring and slowing their progress, such practices will eventually catch up with them.675
3. U.S. Service Sectors Affected
Furthermore, ENGOs have also imposed precautionary principle-based supply chain management obligations upon international companies operating within the financial services sector. On January 22, 2004, as the result of several years of public disparagement campaigns employed by the Rainforest Action Network, a U.S.-based group of environmental activists676, U.S.-based Citigroup, Inc., the world’ largest bank, was compelled to enter into an environmental pledge agreement with that organization. The ostensibly ‘voluntary’ agreement, was based on the ‘Equator Principles’, which were embraced originally by the World Bank‘s International Finance Corporation (IFC)677 and later adopted by mostly European banks.678 Private banks have been targeted because “[t]he Equator Principles only apply to direct lending for project finance [generally the province of development banks]. [They do not apply to] [m]any sensitive transactions, such as mining and forestry activities, [which] are more likely to be funded through lines of credit or corporate loans [extended by private banks]…”679
The agreement obliges Citigroup to scrutinize and consider refusal of all lending projects that potentially have an impact on sensitive biodiversity areas, referred to as ‘critical natural habitats’ (e.g., tropical rain forests).680 The term ‘critical natural habitats’ is synonymous with the term ‘high conservation value’ tropical rain forests, as defined by the Forest Stewardship Council, an international environmental group that has sought to establish the Precautionary Principle as an international legal requirement in the area of sustainable forest management. 681 The agreement also subjects Citibank‘s activities to oversight by environmental and social group third-party verifiers.682
On May 17, 2004, Bank of America, the second largest U.S. bank, announced with the Rainforest Action Network (‘RAN’) that it had joined Citigroup Inc. in tightening lending standards for project financing to address potential environmental hazards. “Bank of America agreed not to provide funding for [projects involving] resource extraction from old-growth forests, and lending proceeds will not go to logging operations in intact forests as defined by the World Resource Institute…”683 According to RAN, “Bank of America will also support forest protection by banning all financing for logging operations…creating strict ‘No-Go Zones’ off limits to destructive industrial activity.
Additionally, all resource extraction (e.g., oil and gas, mining and logging) in all forests must be verified by an independent third party audit” (i.e., by environmentalists) (emphasis added).684 As in the case of Citibank, the rules concerning which forests must be protected and how have been defined by the Forest Stewardship Council, an ENGO devoted to establishing the Precautionary Principle as an international legal standard in the area of sustainable forest management. It would appear that Bank of America may have gone further than Citigroup, however, in committing itself “to finance further mapping of intact [natural] forests around the world, and research methods to measure and reduce financial investments in greenhouse gas emitting industries.”685
It would appear, based on the above, that Friends of the Earth and RAN have utilized the same playbook and rationale to entrap American banks and investment brokerages underwriting natural resource extraction and construction activities that they have successfully employed against U.S. manufacturing and retail industries. In each case, ‘first mover’ (mostly European) companies tend to benefit from the more ‘level economic playing field’ established by the transatlantic (global) economic ‘burden sharing’ imposed by their civil society agents.
[T]he EPs [Equator Principles] represent an industry approach, in which several banks are working together. This collaboration helps level the playing field among banks, and reduces the ability for corporate clients to shop around for a bank that has lower environmental and social standards (emphasis added).686
At Bank of America… w e are committing to a higher standard of environmental awareness in our business and financing practices, and will encourage others in corporate America to do the same” (emphasis added).687
Indeed, the Rainforest Action Network next turned its sights upon J.P. Morgan Chase. During December 2004, RAN induced a suburban Connecticut elementary school teacher to transport second-graders to New York City to protest against J.P. Morgan lending practices. According to the New York Sun,
“Apparently, the 7-year-olds objected to the bank‘s lending practices in developing
nations…The children were lured to J.P. Morgan under the pretext of a poster contest… J.P . Morgan was targeted… because it balked at RAN’s initial…demands… ‘to stop lending money to projects that destroy endangered forests and cause global warming’”.688
While J.P. Morgan did not, early on, officially disclose whether it would satisfy RAN’s demands, it went to certain lengths to publicly reaffirm its commitment “to develop a [company] policy that would address these issues.”689
Unfortunately, the lack of a definite time frame was not suitable to RAN. During the week of March 14, 2005, RAN activists traveled to the home of J.P . Morgan Chase’s CEO, William Harrison and proceeded to turn up the pressure. They “put up old-fashioned Wild West-type “Wanted” posters featuring Mr. Harrison and calling him “Billy the Kid”. The posters criticized the bank for ‗reckless investment in environmentally and socially destructive projects in dozens of countries‘, and urged Mr. Harrison’s neighbors and friends to “ask him to do the right thing”.690 Following the incident, “a J.P . Morgan Chase spokesman told The New York Times… that the bank w as ‘on track for A pril’ in terms of a review of its lending practices.”691
On April 25, 2005, the Wall Street Journal reported that J.P . Morgan Chase had finally capitulated to “ecological activist and shareholder group” demands by agreeing to “adopt sweeping guidelines that restrict its lending and underwriting practices for industrial projects that are likely to have an environmental impact.”692 According to the
"The New York banking giant -- third largest in assets in the U.S. -- is expected to issue a 10-page environmental policy today that takes an aggressive stance on global warming, including tying carbon-dioxide emissions to its loan-review process for power plants and other large polluters. The bank also plans to calculate in loan reviews the financial cost of greenhouse-gas emissions, such as the risk of a company losing business to a competitor with lower emissions because it has a betterpublic standing.693And J.P. Morgan plans to lobby the U.S. government to adopt a national policy on greenhouse-gas emissions, becoming the first big American bank to pledge that kind of activism on such a contentious issue, according to shareholder activists 694… In giving in to the protesters, J.P. Morgan is ‘guilty of political correctness and cowardice,’ says Niger Innis, spokesman for the Congress of Racial Equality, a civil-rights group in New York that advocates more investment in the developing world. ‘A lot of these projects that banks finance have real health benefits” (emphasis added). 695
Apparently, J.P. Morgan‘s grandiose pledge reveals that it had not only been pressured by protest groups such as RAN. According to the WSJ, even “[b]efore the RAN campaign began last spring, J.P. Morgan had already promised socially oriented shareholder groups, including Trillium and Christian Brothers Investment Services Inc., to draft a new environmental policy.” 696 Thus, J.P. Morgan’s rather quick surrender was most likely the result of the ‘whipsawing’ it had received at the hands of both social investors and environmentalists.
Hence, to the extent other US financial services companies (banks, insurance, reinsurance, capital leasing, investment brokerages, etc.) finance or otherwise underwrite the producers or users of products, substances or activities (e.g., capital equipment and/or extraction, excavation, manufacturing or construction) that might potentially threaten sensitive forest areas in developing countries , even by emitting carbon dioxide, they and their suppliers are also likely to fall subject to such harassment. As RAN’s executive director has warned, RAN will next target these institutions’ large manufacturing clients, the American automakers.697
It is most likely because of incidents such as these that a number of American companies from different industry sectors have formed a non-profit organization named GEMI (the Global Environmental Management Initiative). GEMI is devoted to demonstrating good governance and corporate social responsibility in furtherance of promoting environment, health and safety consistent with U.N. notions of sustainable development.698 According to one of its recent reports,699 GEMI companies employ supply-chain management principles to ensure that their suppliers follow suit. 700 701
What this means, in effect, is that the supply-chain management disciplines practiced by GEMI members do not focus primarily on ‘hard’ supply-chain issues such as logistics and operations, product design economics and manufacturing quality, product performance or even distribution efficiencies, which can serve to reduce costs, ensure satisfaction of ‘just-in-time’ inventory requirements, drive profitability and meet customer needs. Instead, GEMI companies focus on the ‘soft’ supply-chain issues that are important to politically influential civil society members and the United Nations, but which have little bearing on the corporate ‘bottom line’ or on actual consumer needs.
Unfortunately, the small and medium-sized suppliers of such companies have little or no say in deciding whether or not to appease these constituencies. They are only told that it is the ‘right thing to do’,702 can uncover “hidden sources of business value” and can “enhance supply chain performance” (emphasis added).703 In the case of most small and medium-sized companies, however, EHS/sustainable development initiatives, by themselves, will do nothing at all to reduce costs or generate profits, regardless of whether such value is hidden.
Monday, February 18, 2008
Is Corporate Social Responsibility Responsible?
Betsy Atkins Directorship 11.28.06, 12:00 PM ET
The concept of corporate social responsibility deserves to be challenged. It seems that political correctness has obfuscated the important business points. It is absolutely correct to expect that corporations should be “responsible” by creating quality products and marketing them in an ethical manner, in compliance with laws and regulations and with financials represented in an honest, transparent way to shareholders. However, the notion that the corporation should apply its assets for social purposes, rather than for the profit of its owners, the shareholders, is irresponsible.
The corporation’s goal is to act on behalf of its owners. The company’s owners--its shareholders--can certainly donate their own assets to charities that promote causes they believe in. They can buy hybrid cars to cut back on fossil fuel consumption or support organizations that train the hard-core unemployed. But it would be irresponsible for the management and directors of a company, whose stock these investors purchased, to deploy corporate assets for social causes.
It would be very easy to carry out a litmus test of the market for corporate social responsibility. For example, Apple Computer could sell one iPod for $99 and another for $125. The company could announce that the extra $26 from the more expensive iPod would be spent to promote specific social causes, such as education, environmentalism, etc. Such a test would account clearly and honestly for how shareholders’ money was being used and would allow the market to drive the outcome. If consumers wanted to pay the extra $26, voting with their wallets for a cause they believe in, they could.
Interestingly, such a litmus test already exists, albeit not in the private sector. Beginning in tax year 2002, the state of Massachusetts gave taxpayers the option of checking a box on their 1040s to pay a higher rate, with the extra funds going to social services. Out of the $16 billion that Massachusetts residents paid in taxes that year, only $100 million came from people who volunteered to pay extra. That’s less than 1% of the market--sobering when one considers that Massachusetts is a state with a high degree of social consciousness. (See: America's Most Generous States.) In point of fact, when it comes to actually voting with their wallets, consumers prefer not to be directed to do so. They like to contribute individually, to charities they believe in and wish to support as individuals, not as part of a huge pool. They certainly do not expect the for-profit corporations in which they invest to deploy corporate assets for social causes.
Thus, it would be a questionable use of corporate assets for a company to invest its shareholders’ money in a “green” headquarters that cost an extra $100 million. The goal of reducing pollution by building an environmentally friendly headquarters may be a worthy one--but the corporation hasn’t asked shareholders whether they want their assets spent that way. In fact, it would be not only irresponsible but deceptive.
Management is charged with making informed decisions to invest corporate assets for uses that will efficiently achieve corporate goals. These include growth, profitability, product innovation, and anything else that drives the shareholders’ return on investment as measured by the stock price. What quantifiable outcome could a green headquarters produce? How could the corporation justify, in a quantifiable way, the use of shareholder assets?
There are practical reasons why corporations should cloak themselves in the politically correct rhetoric of social responsibility. But marketing should not be confused with significant deployments of corporate assets. For example, British Petroleum's marketing campaign, which is all about looking for alternative energy sources, makes the consuming public feel good about purchasing BP products. But if BP had redeployed billions of dollars into environmental investments that yielded no profits, and its stock plummeted, one would certainly expect the investing public to transfer its money to a competitor.
What the investing and consuming public really means by “social responsibility” is:
--Be transparent in your financial reporting. --Produce a quality product, and don’t misrepresent it.--If you know something about the product that endangers the consumer, be forthright and let the public know.
--Do not use predatory practices in offshore manufacturing, such as child labor.
--Do not pollute your environment or other environments, and adhere to laws and regulations.
--Be respectful, fair and open in your employment practices.
In other words, corporate social responsibility actually refers largely to what the company does not do. I think this is a clarification that should be understood by all constituencies.
Betsy Atkins is CEO of Baja Ventures, a VC firm focused on technology and life sciences. She serves on the boards of Reynolds American, Polycom, Chico’s FAS, SunPower and several private companies.
European & U.S. Companies Should Consider Regulatory & Reputational Risks Posed to their Key Business Assets and Operations
15 Mar 2007
European companies fail to deal with regulation threats
Major companies throughout Europe are increasingly worried about the threat from regulators - so much so that 40% believe they will be investigated within the next 12 months.
The findings, from a survey of 250 leading European firms for the global legal services organisation DLA Piper, show that companies consider regulatory risk management important to their business strategy, but are failing to manage the risk effectively.
The survey also shows that a large number are failing to put adequate measures in place to protect themselves. Companies also have a huge blind spot when it comes to putting in place mechanisms to protect their reputations in the event of investigation.
In a business climate where high profile investigations into European companies have become commonplace, the survey examines the approach to risk management and compliance, the powers and sanctions of domestic and international regulators, and crisis management among leading European companies operating internationally .
Offences for which companies face investigation by regulators (such as the Financial Services Authority, Serious Fraud Office, Office of Fair Trading, Health and Safety Executive and others) include corruption, price-fixing, abuse of dominant market position, tax and accounting irregularities.
The survey was carried out for DLA Piper by the international market research organisation TNS.
The findings include:
40% of respondents believe their own company will be investigated by a regulator over the next 12 months 57% believe that their industry is "likely" to be investigated in the next year 75% of the companies surveyed believe that company directors’ personal exposure to the punitive consequences of regulatory breaches is likely to grow over the next five years 76% of respondents believe that the risk of criminal penalties for regulatory breaches will continue to grow over the next five years 25% of the major European companies surveyed do not have any procedures at all in place to deal with a regulatory investigation.
Contrary to companies' beliefs that they are managing their risk, the survey reveals substantial gaps in European companies’ understanding of the powers of regulators.
67% of respondents are not aware that their competition regulator has the power to enter by force 63% of respondents do not know that their competition regulator can suspend or cease their company trading at will.
European companies are behind their US-listed counterparts when it comes to managing their regulatory risk, but US-listed companies are also falling short of the mark since only 52% can claim to have a structured compliance plan in place and only 71% can effectively deal with a regulatory crisis, meaning 29% would be unable to cope if investigated or raided.
Whether listed in the US or not, when it comes to the long arm of the US regulator, 32% of respondents are not aware of the US Sarbanes-Oxley Act (which deals with US accounting irregularities post-Enron), and 61% have not heard of the Foreign Corrupt Practices Act (which deals with bribery and corruption in relation to government officials). This is surprising since both pieces of legislation have set the standard against which companies are being measured.
Neil Gerrard, Global Head of the Regulatory and Government Affairs Group at DLA Piper, said: "Regulation is on the increase and the consequences are more real than ever before. Companies are facing huge fines. Directors are facing extradition, imprisonment and/or fines. Companies need to be aware of and manage this risk. They owe it to themselves and their shareholders.
"It is clear that businesses are starting to take the threat they face from regulators more seriously. However, they are still largely unprepared for the consequences of serious regulatory breaches.
"Companies need to be able to manage and respond to domestic and EU regulation and, increasingly, the long-arm of the US authorities. However, our survey clearly shows that they are failing to put in place a comprehensive response to managing these risks. They are putting themselves in grave danger by failing to address these problems."
Businesses across Europe recognize the danger to their brand. However, they are failing to put in place the means to protect it. Less than 30% of those drawing up a risk management plan consult a communications specialist.
The survey further shows that where companies have crisis management plans they are not comprehensive and do not deal with the wide range of risks that corporates face.
The survey shows that 51% of the companies surveyed have no crisis management plan at all and 47% of respondents with crisis management plans in place do not include procedures to deal with a Competition Authority investigation.
Neil Gerrard added: "The statistics on the lack of crisis management plans are shocking. An investigation by a competition authority, for example, can result in fines worth 10% of a company's turnover. The company can also be forced to sell off parts of its business. Such events can, without careful handling, irreparably damage a company's reputation and financial position.
"Firms across Europe need to address all potential areas of risk in order to manage that risk as effectively as possible.
"Breaches are inevitable. The best run companies will, from time to time, get it wrong. What is important is having good compliance programmes and managing the breaches as and when they occur.
"Our survey reveals that European businesses must work harder to ensure they have the key elements in place to ensure effective regulatory risk management: dedicated teams, compliance programmes, investigation procedures and crisis management plans that are regularly tested."
THIS REPORT CLEARLY REFLECTS HOW CREATIVE CONSULTANTS WITHIN THE BUSINESS COMMUNITY MAY BE OPPORTUNISTICALLY ENDEAVORING TO SHAPE/CONSTRAIN CORPORATE MINDSET & BEHAVIOR IN ORDER TO SELL NEW CLIMATE CHANGE MITIGATION 'PRODUCTS'.
WHILE THERE IS A GENUINE NEED FOR GLOBALLY-FOCUSED COMPANIES TO IDENTIFY, ASSESS and MANAGE THE EXISTENCE OF EMERGING FOREIGN and INTERNATIONAL REGULATORY & REPUTATIONAL RISKS POSED TO THEIR KEY BUSINESS ASSETS AND OPERATIONS, IT IS ALSO IMPORTANT FOR THEM TO DISTINGUISH BETWEEN REAL & PERCEIVED RISKS.
FOR EXAMPLE, MANY SUCH RISKS MAY NOT HAVE MATURED, WHILE OTHERS MAY ACTUALLY BE SMALLER THAN THEY APPEAR. COMPANIES MUST BE ESPECIALLY VIGILANT IN TRACKING PROPOSED LAWS/REGULATIONS, ESPECIALLY THOSE IN EUROPE, CHINA , BRAZIL, THAILAND, INDIA and THE U.S., INTRODUCED BY LEGISLATION/REGULATION-HAPPY BUREAUCRATS AND CHAMPIONED BY IDEOLOGICALLY-BASED NON-GOVERNMENTAL ACTIVIST GROUPS.
CONSULTANTS SHOULD TAKE CARE NOT TO INJECT THEIR OWN OR THEIR FIRM'S SUBJECTIVE POSITIONS ON POLICY DEBATES WHEN OFFERING THESE 'PRODUCTS' & 'SERVICES' TO POTENTIAL CLIENTS.
CONSULTANTS SHOULD ALSO TAKE CARE NOT TO OVERSTATE and/ or MISREPRESENT THE BENEFITS SUCH 'PRODUCTS' & 'SERVICES' MAY PROVIDE - i.e., THE EXTENT TO WHICH COSTS MAY BE REDUCED AND REVENUES ENHANCED].
Deloitte – Enterprise Risk Services
Managing greenhouse gas emissions: Mitigating risks and uncovering opportunities A survey of Canadian emitters
Climate change has become a strategic imperative
With each passing month, the issues of greenhouse gas (GHG) emissions and climate change attract increased public and media attention. No longer just for the activists, climate change issues are quickly becoming critical factors for corporate strategy and business competition. The investment community is requesting increased disclosure, and employees and other stakeholders are demanding action on organizations’ environmental impact. Climate change issues will affect future performance results and even how companies do business.
GHG emitting companies are under scrutiny by institutional investors, banks, rating agencies, and other financial parties demanding improved disclosure on how a company is adapting to climate change and addressing their risks and opportunities. They are exerting pressure through vehicles like the Carbon Disclosure Project and shareholder resolutions. In 2007, the Carbon Disclosure Project represented 315 signatory investors with $41 trillion of assets under management. The respondents included 30 Canadian firms, representing nearly 70% of the total market capitalization of the 200 largest TSX companies. A review of 306 shareholder proposals made in 2006 and 2007 showed that nearly half of all resolutions were related to sustainability and climate change.¹ [Shareholder proposals were found in a database compiled by Interfaith Center for Corporate Responsibility. www.iccr.org/ethvest.php ]. And, the voting success on these proposals is capturing the attention of boards of directors.
Younger and older workers increasingly want to work for companies that take environmental and social issues seriously. In addition to attracting and retaining talent, organizations that implement sound environmental policies are being publicly recognized for their commitment and achievements. Many leading workplace ranking programs in Canada and the United States are asking specific questions related to a company’s environmental practices.
From operational to regulatory to financial, the business risks inherent in climate change are highly interdependent. They cover a broad range of risk types that have implications across an enterprise’s global operations, impacting many business units. Risk Intelligent Enterprises™ know that risk walks hand-in-hand with opportunity. They are searching to fi nd an effective means to identify and exploit opportunities while managing and mitigating unrewarded risks.
Forward thinking, Risk Intelligent Enterprises are recognizing and acting on the potential financial consequences of a future carbon constrained economy. Resource constraints of any type drive innovation, and while some companies face increasing operating costs and asset devaluations, leading organizations may find opportunity in being part of the solution. They will develop new processes or technologies and drive increased profitability through new revenue streams or increased efficiencies.
Companies that take early action can position themselves to realize competitive advantages resulting from their climate change strategies. Managing GHG emissions is a key component of a climate change strategy for emitting organizations. To address climate change related risks and capitalize on opportunities, Risk Intelligent Enterprises take steps to integrate their GHG emissions management efforts with their business strategy. (p.1)
How are Canadian companies responding?
Despite an increased awareness, climate change is still predominantly considered an environmental management issue.
Although the impact of climate change cuts across business areas, 50% of corporations rely predominantly on their head of environment or sustainability to develop GHG policies. With only 18% of companies having secured executive level involvement, the situation remains virtually unchanged from last year. Boards of directors are involved in GHG emissions management issues at only half of the companies, 49% this year, similar to the 53% reported in last year’s survey. Notably, 40% of companies consider the lack of executive accountability to be a significant or somewhat of a barrier in developing a comprehensive GHG emissions management strategy. (p.3)
Companies remain in the early stages of response.
Lack of executive accountability, along with ongoing regulatory uncertainty, may be responsible for confining many companies to early stage response strategies. For instance, this year’s survey showed that 94% of respondents possess a general awareness of GHG emissions issues, 75% have completed an emissions inventory, 57% have evaluated their emissions reduction options and 55% have publicly released the results of their emissions management programs. Yet organizations do not yet appear to be pursuing later-stage responses, such as establishing budgets for acquiring offset credits or setting emissions management targets and schedules. In fact, only 24% of respondents have even established budgets for reducing their GHG emissions. (p.4)
GHG management plans are not connected to corporate strategies.
Lack of senior executive leadership may also contribute to the challenge of integrating emissions management with the rest of the enterprise’s activities. To wit, only 43% of companies surveyed believe their climate change plan reflects or aligns with their overall risk management strategy. Similarly, only 28% of respondents have successfully integrated their emissions management efforts with their business strategy. (p.5)
Companies are starting to listen to [activist] investors about climate change.
Increased shareholder involvement is having an impact, prompting companies to more clearly articulate their stances on climate change. While only 26% of companies have had shareholders raise GHG-related concerns at shareholder meetings, 62% of respondents received disclosure requests regarding their GHG management from the investment community. These calls to action have prompted management-level response at 41% of companies and may have contributed to this year’s 67% participation rate in voluntary carbon disclosure initiatives.
Regulatory uncertainty remains the primary barrier to the development of a GHG emissions management plan.
While several factors hinder the ability to develop a GHG emissions management strategy, the most frequently identified obstacle is regulatory uncertainty. Corporate interest in the regulatory debate is demonstrated by the finding that 61% of companies are actively or periodically involved in public policy development. Almost three-quarters (72%) of respondents stated a preference for international or national regulations – a result that may reflect a corporate desire to have harmonized regulations across the jurisdictions in which they operate. (p.6)
Companies are seeking a range of public policy tools to guide their responses to climate change.
When asked what types of public policies might help guide corporate response, respondents expressed preference for a range of policy tools. For instance, 76% of respondents favoured enticement-based policies, such as tax incentives. Approximately 70% of companies were interested in energy efficiency standards, a result that may be related to widespread anticipation of cost reductions through energy efficiency.
Other preferred policy options included market-based mechanisms such as emissions trading with intensity-based caps (56%) and emissions limits (58%). Given the respondents’ stated desire for increased regulatory certainty, only 37% favoured voluntary targets as a policy tool.
A majority of organizations see potential opportunities in climate change.
Most notably, 56% of companies see climate change as an overall opportunity from cost savings to innovation, most notably in the areas of energy efficiency (73%), emissions trading (47%) and new technologies (41%).
Strategies for leveraging opportunities
Gain executive and board-level support.
The results of Deloitte’s 2007 GHG Emissions Management Survey show that, while most companies are actively addressing GHG emissions management, the approach within a single company, remains fragmented.
For instance, a majority of respondents monitor GHG emissions issues, have completed an emissions survey and have developed protocols for performing an emissions inventory. Yet, by and large, organizations are not addressing later stage response strategies, such as establishing a budget for reducing GHG emissions.
This focus on less comprehensive responses may be due, in part, to the ongoing lack of executive-level involvement. For most organizations, the head of environment or sustainability remains predominantly responsible for developing GHG policies. Ultimately, a company’s response to climate change can affect its reputation, its operations and its profitability.
Given these repercussions, the time has come for companies to task senior level executives with key responsibilities for climate change oversight. Although the specifics will vary depending on a company’s size and resources, the people who are assigned this responsibility should also have the authority to delegate risk management duties to the appropriate business units. The Risk Intelligent Enterprise™ embeds responsibility for risk oversight in the board of directors. They must ensure a company’s enterprise-wide risk management program includes components that address both GHG emissions management in particular and climate change in general.
Integrate climate change responses into enterprise risk management strategies.
Risk Intelligent Enterprises take advantage of the opportunities presented by an effective climate change strategy, such as uncovering new revenue streams from emission offset projects, enhancing productivity thanks to technology improvements and increasing energy efficiency to reduce costs.
To optimize these benefits, however, companies will need to integrate their climate change responses into their overall risk management and business strategy frameworks. To succeed in this effort, Risk Intelligent Enterprises explore strategies for adopting an integrated enterprise-wide approach to climate change. This includes identifying the full range of risks and opportunities presented by climate change and assessing strategies for mitigating those risks and leveraging the opportunities.
These are just some of the risk types that might be identified:
Risk type Characterization
Regulatory • Policies have been proposed at the federal level
but regulations have not been drafted
• Provincial regulations exist in only some provinces
• Enterprises that operate globally face the risk of
different regulation in different countries
Technological • Climate change concern may accelerate
investment in alternative forms of energy
• Timing, cost and effectiveness of mitigation
technologies is uncertain (e.g., carbon capture and
Price/Market • Carbon prices have been extremely volatile,
ranging from 31 € /tonne to less than 1 € /tonne in
• Lack of historical data makes forecasting difficult
• Lack of liquidity has hampered carbon markets
Physical Operations • Severe weather may present physical risks to
• Changing weather patterns can hamper operational
Volume • Changes in temperature patterns may result in
changes in energy demand
• Changes in precipitation patterns may affect
availability of water
Take steps to deal with uncertainty.
Companies must be prepared to move forward and develop a strategy that allows them to manage in the face of uncertainty (e.g., regulatory, technology, carbon pricing and physical environment). Scenario planning is a tool that can help address these uncertainties, and allow businesses to prepare for plausible future situations. Scenario planning helps put strategic options on the table before making decisions, and helps organizations frame uncertainty for possible competitive advantage. This planning approach involves four stages.
1. Businesses need to identify the key drivers of uncertainty
These drivers will be company specific, but as an illustration, a company may determine that the following four key conditions create the greatest risk, as well as the greatest opportunity:
• Regulatory uncertainty: The final nature and extent of government limits on greenhouse gas (GHG) emissions and their intensity is still unknown.
• Technological uncertainty: There are currently no commercially available technologies to mitigate carbon emissions. No one knows how fast technology will move or what the cost of any advances might be.
• Carbon pricing: Even companies that don’t participate actively in traded markets will be affected by the price of carbon because it will impact the price of energy.
• Physical environment: Scientists are identifying a large number of potential changes in the physical environment that may result from climate change, such as more intense storms and rising water levels.
2. Use limits and reason to develop plausible scenarios
For each key driver of uncertainty, planners then identify the lowest and highest values they might have in the future. How low or how high might carbon prices be? How restrictive will regulations on GHG emissions be? By assigning two values to each of the four drivers, planners create 16 scenarios – too many to be effectively considered in strategic planning. The smart planner will eliminate some combinations that have a low probability or don’t make sense. For example, it’s safe to assume that a scenario of low regulatory requirements, early technology advances and high carbon prices is improbable. The next step is to cast the fewer remaining but more plausible scenarios as compelling stories, which can then be used to drive strategic planning.
Companies that take early action can position themselves to realize competitive advantages resulting from their climate change strategies. [??? - THIS IS NOT NECESSARILY TRUE - ACTUALLY THE OPPOSITE CAN OCCUR - FIRST-MOVERS CAN INCUR SIGNIFICANT NONRECOVERABLE COSTS]
3. Build a strategy by asking and answering fundamental questions
As management answers fundamental strategic questions about their current situation, future goals and strategic options, they will begin to develop strategies in response to scenario outcomes. Scenario-driven action plans include both:
• Core strategy elements: These elements are not scenario-specific, and should be implemented regardless of which scenario is realized.
• Contingent strategy elements: Contingent strategies are scenario-specific, and should be developed simultaneously with core strategy elements. However, companies should commit to them only if and when they perceive a specific scenario unfolding. These elements often incorporate action options, in which companies invest upfront and have the right but not the obligation to execute if the scenario unfolds.
4. Revisit and revise the strategy
Managers then implement the core strategy elements and any applicable contingent strategy elements, based on actual scenario unfolding. Management should set a schedule for periodic reviews of the scenarios and identify key events that will trigger scenario reassessment, such as new legislation or specific carbon pricing levels.
For companies implementing a proactive climate change strategy, scenario planning can be a powerful tool. By thinking in terms of scenarios or “stories,” companies can stand ready to rewrite the stories as time unfolds, new scenarios emerge and the plausibility of events changes.
Sunday, February 17, 2008
EU Promotes Top-Down Centralized Oversight of CSR ala Government Procurement Policies: A Guise to 'Level Economic Playing Field' For EU Industries??
On March 13th, 2007, a majority of the MEPs in the Committee on Employment and Social Affairs adopted an initiative report on corporate social responsibility. The Parliament asks for a regulated social, environmental and financial reporting, a Corporate Social Responsibility (CSR), a reinforced corporate accountability, the appointment of an EU ombudsman on CSR. Public procurement shall be more closely linked to social and environmental standards. For more information:
– having regard to the Commission communication implementing the partnership for growth and jobs: making Europe a pole of excellence on corporate social responsibility (COM(2006)0136) (Commission communication on CSR),
– having regard to the two most authoritative internationally agreed sets of standards for corporate conduct: the Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy by the International Labour Organization (ILO), last revised in 2001, and the Guidelines for Multinational Enterprises by the Organisation for Economic Co-operation and Development (OECD), last revised in 2000 and having regard to codes of conduct agreed under the aegis of other international organisations such as the UN Food and Agriculture Organization, the World Health Organization and the World Bank and to efforts under the auspices of UN Conference on Trade and Development with regard to the activities of enterprises in developing countries,
– having regard to the ILO Declaration on Fundamental Principles and Rights at Work, adopted in 1998, and ILO conventions establishing universal core labour standards with regard to the abolition of forced labour, C29 (1930) and C105 (1957); freedom of association and the right to bargain collectively, C87 (1948) and C98 (1949); the abolition of child labour, C138 (1973) and C182 (1999); and non-discrimination in employment, C100 (1951) and C111 (1958),
– having regard to the United Nations' 1948 Universal Declaration of Human Rights and in particular the proclamation that every individual and every organ of society is called upon to play its part in securing universal observance of human rights; its 1966 International Covenant on Civil and Political Rights; its 1966 Covenant on Economic, Social and Cultural Rights; its 1979 Convention of the Elimination of All Forms of Discrimination Against Women; its 1989 Convention on the Rights of the Child; and its 1994 Draft Declaration on the Rights of Indigenous Peoples,
– having regard to the OECD's 1997 Anti-Bribery Convention,
– having regard to the UN Global Compact, launched in July 2000,
– having regard to the announcement on 6 October 2006 that Global Compact and the Global Reporting Initiative formed a "strategic alliance",
– having regard to the outcome of the 2002 Johannesburg World Summit on Sustainable Development, in particular the call for intergovernmental initiatives on the question of corporate accountability and the Council conclusions of 3 December 2002 on the follow-up to the Summit,
– having regard to its resolution of 15 January 1999 on EU standards for European enterprises operating in developing countries: towards a European Code of Conduct(1) , which recommends creating a European Model Code of Conduct supported by a European Monitoring Platform,
– having regard to Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters(2) , which superseded the 1968 Brussels Convention save as regards relations between Denmark and other Member States,
– having regard to Regulation (EC) No 761/2001 of the European Parliament and of the Council of 19 March 2001 allowing voluntary participation by organisations in a Community eco-management and audit scheme (EMAS)(3) ,
– having regard to its resolution of 13 May 2003 on the Communication from the Commission concerning Corporate Social Responsibility: A business contribution to Sustainable Development(6) ,
– having regard to the Commission recommendation of 30 May 2001 on the recognition, measurement and disclosure of environmental issues in the annual accounts and annual reports of companies(7) ,
– having regard to its resolution of 4 July 2002 on the Commission Communication to the Council, the European Parliament and the Economic and Social Committee entitled "Promoting Core Labour Standards and Improving Social governance in the context of globalisation"(8) ,
– having regard to the Commission communication on Governance and development (COM(2003)0615),
– having regard to Directive 2003/51/EC of the European Parliament and of the Council of 18 June 2003 on the annual consolidated accounts of certain types of companies, banks and other financial institutions and insurance undertakings(10),
– having regard to Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts(11) ,
– having regard to the final report of the European Multistakeholder Forum (MSF) on CSR of 29 June 2004, in particular the seventh recommendation, which promotes creating a legal framework for CSR,
– having regard to the Commission communication on the Social Dimension of Globalisation - the EU's policy contribution on extending the benefits to all (COM(2004)0383),
– having regard to the new General System of Preferences (GSP+), in force since 1 January 2006, first implemented by Council Regulation (EC) No 980/2005 of 27 June 2005 applying a scheme of generalised tariff preferences(15) , which grants duty-free access or a tariff reduction for an increased number of products and also includes a new incentive for vulnerable countries faced with specific trade, financial or development needs,
– having regard to the Commission communication "Promoting decent work for all - the EU contribution to the implementation of the decent work agenda in the world" (COM(2006)0249) (Commission communication on decent work),
– having regard to the hearing on 5 October 2006 conducted by its Committee on Employment and Social Affairs, "Corporate Social Responsibility - is there a European approach?",
1. Is convinced that increasing social and environmental responsibility by business, linked to the principle of corporate accountability, represents an essential element of the European social model, Europe's strategy for sustainable development, and for the purposes of meeting the social challenges of economic globalisation;
2. Welcomes the fact that the Commission communication on CSR enables new impetus to be given to the EU debate on corporate social responsibility (CSR) but notes the concerns expressed by some key stakeholders about the lack of transparency and balance of the consultation procedure undertaken before adoption;
The EU debate on CSR
20. Recognises that effective competition rules, inside and outside Europe, are an essential element of ensuring responsible business practice, in particular by enabling the fair treatment of and access for locally-based SMEs;
27. Reminds the Commission of Parliament's invitation to put forward a proposal to amend the Fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies (the Fourth Company Law Directive)(18) so that social and environmental reporting is included alongside financial reporting requirements; considers that it is important to raise awareness of the provisions concerning social and environmental reporting within the 2001 Commission Recommendation 2001/453/EC(19) on environmental disclosure, Directive 2003/51/EC(20) on accounts modernisation, and Directive 2003/71/EC(21) on prospectuses; supports the timely transposition of the Recommendation and Directives in all Member States, and calls for studies into their effective implementation in order to develop such awareness;
Better regulation and CSR
41. Believes that the CSR debate must not be separated from questions of corporate accountability, and that issues of the social and environmental impact of business, relations with stakeholders, the protection of minority shareholders' rights and the duties of company directors in this regard should be fully integrated into the Commission's Corporate Governance Action Plan; points out that these issues should form part of the debate on CSR; asks the Commission to take these particular points into consideration and to advance firm proposals to address them;
49. Asks the Commission to make sure that EU-based transnational companies with production facilities in third countries, in particular those participating in the GSP+ scheme, abide by core ILO standards, social and environmental covenants and international agreements to achieve a worldwide balance between economic growth and higher social and environmental standards;
50. Welcomes the commitment of the European Consensus on Development to support CSR as a priority action; calls for practical action for the Commission's Directorate-General for Development to play an active role in the debate, to examine working conditions and conditions in using natural resources in the developing world, to work with domestic enterprises as well as the overseas operations of EU companies, sub-contracting enterprises and their stakeholders, to tackle abuse and malpractice in supply chains, to combat poverty and to create equitable growth;
55. Recommends that future CSR research go beyond the simple 'business case' for CSR, to focus on the link between competitiveness and sustainable development, at the macro level (the EU and the Member States), the meso level (industry sectors and supply chains) and the micro level (SMEs), and the interrelationship between them, as well as the impact of current CSR initiatives and possible violations of CSR principles; supports the leading role played by the European Academy of Business in Society in this respect; calls on the Commission to publish an authoritative 'Annual State of CSR' drawn up in cooperation with independent experts and researchers collating existing information, describing new trends and providing recommendations for future actions;
57. Calls on the Commission to launch specific research into the impact of CSR policies and to put forward proposals to increase responsible investment by firms and their responsibility;
59. Expresses disappointment that the Commission did not accord greater priority to promoting global initiatives in its communication on CSR and calls on the Commission working with Member States and stakeholders both to develop a strategic vision and to contribute to the development of CSR initiatives at a global level, as well as a major effort significantly to raise participation in such initiatives by EU companies;
64. Encourages the further development of international initiatives for full revenue transparency by European companies on their activities in third countries, to uphold full respect for human rights in their operations in conflict zones and to reject lobbying including 'host-country agreements' drawn up by companies to undermine or evade the regulatory requirements in such countries;
65. Calls on the Commission and the Member States to contribute to supporting and strengthening the OECD Guidelines for Multinational Enterprises, in particular by conducting a review of the functionality of European NCPs and their role in effectively mediating between stakeholders to resolve conflicts; calls for the development of a model for European NCPs including best practices on their institutional set-up, visibility, accessibility for all stakeholders, and handling of complaints; calls for a broad interpretation of the definition of investment in the application of the OECD Guidelines to ensure supply-chain issues are covered under implementation procedures;
69. Instructs its President to forward this resolution to the Council, the Commission and all institutions and organisations named within it.
(1) OJ C 104, 14.4.1999, p. 180.
(2) OJ L 12, 16.1.2001, p. 1.
(3) OJ L 114, 24.4.2001, p. 1.
(4) OJ C 86, 10.4.2002, p. 3.
(5) OJ C 187 E, 7.8.2003, p. 180.
(6) OJ C 67 E, 17.3.2004, p. 73.
(7) OJ L 156, 13.6.2001, p. 33.
(8) OJ C 271 E, 12.11.2003, p. 598.
(9) OJ C 39, 18.2.2003, p. 3.
(10) OJ L 178, 17.7.2003, p. 16.
(11) OJ L 134, 30.4.2004, p. 114.
(12) OJ L 149, 11.6.2005, p. 22.
(13) OJ C 157 E, 6.7.2006, p. 84.
(14) OJ C 46, 24.2.2006, p. 1.
(15) OJ L 169, 30.6.2005, p. 1.
(16) Texts Adopted , P6_TA(2006)0320.
(17) OJ L 39, 14.2.1976, p. 40. Directive amended by Directive 2002/73/EC (OJ L 269, 5.10.2002, p. 15).
(18) OJ L 222, 14.8.1978, p.11, Directive as last amended by Directive 2006/46/EC of the European Parliament and of the Council (OJ L 224, 16.8.2006, p.1).
(19) OJ L 156, 13.6.2001, p.33.
(20) OJ L 178, 17.7.2003, p.16.
(21) OJ L 345, 31.12.2003, p.64.
(22) OJ L 250, 19.9.1984, p.17.