Promoting Corporate Responsibility in Developing Countries: The Potential and Limits of Voluntary Initiatives

Many large corporations now claim to be taking steps to improve their environmental and social performance through the use of voluntary initiatives such as codes of conduct, environmental certification and reporting, social audits, fair trading schemes and social investment programmes. There is much debate about the potential and limits of voluntary initiatives for improving the social and environmental record of big business, as well as their role in developing countries, where companies may not be subjected to the same types of pressures and market opportunities that encourage responsible business in the richer industrialized countries. Under its project on Business Responsibility for Sustainable Development, UNRISD organized a two-day workshop to consider these issues. The meeting was attended by 30 representatives of business and employer associations, trade unions, NGOs, United Nations organizations, and the academic and research community.

International regulation of transnational corporations
One of the most controversial topics in the field of economic development—the regulation of international firms—was examined in the first session of the meeting. In his presentation, E.V.K. FitzGerald argued that the process of developing a multilateral framework for regulation has been slow and lopsided. While some steps taken in areas of investment, taxation and competition strengthen the rights of transnational corporations (TNCs), there has been no attempt to develop a regime that balances property rights with obligations linked to labour and environmental issues. There must be a more balanced “global social contract”, FitzGerald suggested, particularly in view of the limits of both voluntary approaches and regulatory regimes based exclusively on domestic legislation.

While participants agreed that progress has been slow, they identified some positive steps in relation to international regulation. TNCs, for example, are already recognized to some extent by international law. This is apparent in the area of corruption, where international treaties define certain obligations of corporations. There are also norms of customary international law—related, for example, to human rights—as well as intergovernmental codes of conduct related to specific products.

Codes of conduct and certification
The effectiveness of codes of conduct and certification schemes in promoting socially responsible business was examined in the next two sessions of the workshop. Rhys Jenkins identified the major stakeholders and forces promoting codes of conduct, highlighting, in particular, the role of shareholders, NGOs and trade unions. He also noted attempts by large corporations to control global supply (or “value”) chains, as well as the social and environmental prac-tices of their affiliates and suppliers.

Leah Margulies assessed the effectiveness of both intergovernmental codes and certification schemes developed by civil society groups. She made the point that such initiatives have often been more effective than company or industry-led initiatives because they are not purely voluntary. Intergovernmental codes, such as those related to the marketing of infant formula and pesticides, are in fact part of a regulatory process, because national governments are expected to incorporate some or all of their contents in national legislation.

This session also exposed the inherent weakness of various company and industry-led codes, in terms of both content and implementation. Various participants noted the shortcomings of some types of certification schemes, such as ISO 14001. There is little guarantee that the changes in corporate environmental policy and management systems promoted by such schemes actually reduce negative environmental impacts. Other schemes involving independent monitoring, such as forest certification associated with the Forest Stewardship Council, have proved more effective.

The discussions also emphasized the important role of civil society organizations and movements in the process of developing and implementing codes and certification schemes. Some participants argued that it was important to make a distinction between the goals and agendas of the “corporate accountability” movement, and the “corporate responsibility” movement driven largely by corporate interests.

Developing country experiences
Subsequent sessions examined the promotion of corporate environmental and social responsibility in specific developing countries. Referring to Indonesia, Melody Kemp pointed out that while concepts like corporate social responsibility have become more fashionable there, they have essentially been introduced from abroad. Lack of interest within Indonesia is not surprising considering the current context of economic crisis, political turmoil and social deprivation, which generates other priorities. In fact, efforts to promote corporate social and environmental responsibility have remained restricted to a few corporations targeted by Northern consumers. Some of the worst corporate offenders of human rights, labour standards and the environment, such as hotel chains and tobacco companies, have not been targeted by the corporate accountability movement.

This presentation and the discussions that followed stressed the importance of independent monitoring of codes of conduct, but pointed out that the monitors engaged by some companies to assess occupational health and safety standards had only limited capacity.

Martin Perry examined efforts to promote corporate environmental responsibility in two other Asian countries. In Singapore, he explained, some degree of environmental responsibility has been achieved, due as much to the relatively strong capacity of the government to enforce legislation as to purely voluntary initiatives. Nevertheless, low levels of community awareness of environmental issues and a weak environmental movement have mitigated the pressures on corporations to adopt voluntary initiatives. Although he found such pressures more apparent in Malaysia, corporate environmental responsibility there has been limited by weak enforcement of legislation.

In both countries, environmental certification under the ISO 14001 series has become an important indicator of voluntary business commitment to environmental improvement, but its impact has varied. In Singapore, where compliance with environmental legislation is already relatively high, ISO 14001 has not encouraged much additional activity. In Malaysia, however, the adoption of environmental management systems has stimulated improvements, in the absence of resources to ensure regulatory compliance.

The case of the Philippines, presented by Francisco Magno, illustrates the fact that corporate social responsibility is not always externally driven or dependent on the enactment of laws. A movement for corporate responsibility, led by an alliance of business interests and the Catholic church, emerged in the 1970s as an attempt on the part of the business community to encourage a model of development that was neither socially polarizing nor socialist. This movement gathered momentum in the 1990s and diversified to embrace issues of environmental responsibility, largely in response to international pressures and ongoing civil society activism in the Philippines. Despite these developments, corporate social and environmental responsibility has remained weak due to the limited commitment of many firms, the poor regulatory environment in the country, and lack of attention to auditing and monitoring.

The case of South Africa, presented by David Fig, explored the relationship between corporate social responsibility, and social and political change. Under international pressure to distance themselves from the apartheid regime, some firms in South Africa attempted to improve their social performance in the 1970s. More recently, there has been some corporate attention to environmental issues both on the part of individual companies and business and industry associations. Commitment, however, has been fairly limited. Furthermore, it has been undermined by weak government enforcement capacity and impending economic recession, which reduces the resources that companies have available for environmental management. The types of international pressures encouraging corporate social and environmental responsibility in some developing countries appear weaker in South Africa due to the limited extent of production for the global market.

Such pressures are more apparent in Mexico, as a result of the regulatory framework associated with the North Am-erican Free Trade Agreement (NAFTA) and Mexico’s membership in the Organisation for Economic Co-operation and Development (OECD). David Barkin explained how an institutional framework supportive of corporate environmental responsibility has emerged in recent years. Corporate policies to promote responsible environmental behaviour have been increasingly important among foreign-based TNCs. But any advances made by individual firms appear to be outweighed by processes of environmental degradation associated with the expansion of certain economic sectors and the relocation of industrial production to semi-arid regions of the country. Developments in the field of corporate social responsibility have been much less apparent. In fact, the decline of both the union movement and the government’s regulatory role has contributed to a worsening of social conditions in many sectors.

The country presentations and workshop discussions suggested that different patterns of industrial development, social change and globalization have produced very different outcomes in terms of corporate social and environmental responsibility. The forces and actors promoting corporate responsibility vary in different national contexts; and it is important to conduct research to clarify the roles of different stakeholders, as well as the types of pressures and opportunities that might promote corporate social and environmental responsibility. It is also necessary to avoid broad generalizations about the positive or negative effects of voluntary initiatives. Their effectiveness has varied considerably depending on the regulatory context in which they have arisen, the types of stake-holders involved and the motivations of business.

This workshop was funded by the MacArthur Foundation.