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«Briefing Corporate Accountability Rules for business, rights for people Introduction Environmental organisations like Friends of the Earth have ...»

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April 2005

Briefing

Corporate

Accountability

Rules for business, rights for people

Introduction

Environmental organisations like Friends of the Earth have campaigned against socially and

environmentally destructive practices of companies for as long as we have been in

existence.

The corporate sector’s responses to campaigns by civil society (ethical consumerism and

Corporate Social Responsibility - CSR) have failed to address the unprecedented social and

environmental challenges faced by humanity this century. In particular, it fails to challenge the growth of unregulated corporate power. Friends of the Earth is calling for ‘corporate accountability’ that would legally bind companies to improve their environmental and social standards.

Corporate Accountability Corporate accountability can be defined as the ability of those affected by a corporation to control that corporation’s operations. This concept demands fundamental changes to the legal framework in which companies operate. These include environmental and social duties being placed on directors to counterbalance their existing duties on financial matters and legal rights for local communities to seek compensation when they have suffered as a result of directors failing to uphold those duties.

Human rights, development and environmental organisations, trade unions, progressive think tanks and even some of the more enlightened sections of the corporate sector are now uniting behind the concept of corporate accountability. Instead of urging companies to voluntarily give an account of their activities and impacts, and voluntarily improving their social and environmental performance (if it also happens to make business sense), the corporate accountability “movement” believes corporations must be “held to account” – implying enforceability1. There must be fundamental changes to the legal framework in which companies operate. These include social and environmental duties being placed on directors to counterbalance their existing duties on financial matters, and legal rights for local communities to seek compensation when they have suffered because directors have failed to uphold those duties.

This briefing will briefly review how the concept of corporate accountability has come about and how it is fundamentally different to voluntary CSR. The mechanisms that could help deliver corporate accountability at the International level and European level will be outlined.

Finally, it will explore in some depth how the principles and components of these mechanisms would be transposed and made to work within one jurisdiction in particular the UK.

From corporate campaigning to campaigning for corporate accountability Friends of the Earth’s first campaign action in the UK, shortly after if was established in 1971, was a mass “bottle-drop” outside the offices Schweppes to protest against their plans to start selling drinks in non-returnable plastic bottles.

Over the years, Friends of the Earth and other green groups have fought countless campaigns against companies over specific issues. We have forced companies to abandon plans to build roads, ports, mines, dams and pipelines in protected areas both here and abroad. We have bullied some high street banks into begrudgingly developing some limited expertise in environmental matters after we exposed how investors had been unwittingly financing rainforest clearance, human rights abuses and polluting industries. We have cajoled certain oil and gas companies to withdraw from lobby groups set up specifically to stop governments from taking action on climate change.

Our consumer campaigns have persuaded hundreds of thousands of shoppers to buy recycled paper, peat-free compost, fair trade and organic coffee, tea, chocolate and bananas, GM-free food, timber that has been certified as sustainable by the Forest Stewardship Council (FSC), and so on.

We and other campaign groups have been able to expose the worst examples of corporate behaviour and indicate what kind of behaviour might be better. Green consumerism has shown that it is possible to make and sell products in an ethical way.

–  –  –

The argument put by the CBI, and others, is that green consumerism and CSR have been so successful that a more regulatory approach is not necessary; the solution to environmental problems is the free market. Some, including Ministers, are clearly so content with this neoliberal modus operandi that they have thanked NGOs for acting as the “whistleblowers and enforcers”3 and urged us to continue with our fine work.

While some may seek to perpetuate the view that green consumerism and CSR are somehow going to deliver in an adequate manner, there are very few campaigning organisations that share this perspective.

Ethical Consumerism. The limits to green consumerism should be obvious. Greener products are often more expensive and often represent a niche market compared to those products that are merely produced as cheaply as possible. A more fundamental limit is that even the most ardent, the most caring, the most affluent green consumer, will never possess enough knowledge to buy ethically all the time. The average supermarket contains tens of thousands of product lines. Social and environmental issues are ever more complex and dynamic. How can we possibly expect consumers to keep abreast of all the latest developments and then have the time to work out for themselves what this mean for their shopping basket - in a world where people are increasingly time poor? How is an ethical consumer supposed to boycott a company – such as a mining company – which may be involved in the supply chain of thousands of products but their brand is on none? What if there is no ethical version of the product I need to buy?





CSR and Voluntary Initiatives. CSR involves companies voluntarily choosing to improve their social and environmental standards and so reduce their negative impacts on the environment. CSR has readily been taken up by business and political leaders as a great success towards sustainable development – yet the evidence is not good “…there are only a few cases where [vol. initiatives] have contributed to environmental improvements different to what would have happened anyway” OECD (2003) Voluntary Approaches for Environmental Policy The limits of CSR should also be obvious – by essence it is a voluntary unregulated activity.

There will never be enough NGO capacity to police the corporate world and run effective, inspiring campaigns to counter every type of corporate wrongdoing. The public, let alone the media, will never have the time or appetite for that number of campaigns. And what about those countless companies that are not brand sensitive, either because they are too specialist, or because they sell their products and services to other businesses, rather than to the public? What about those companies that see CSR as just another type of PR?4. Only 3% are currently reporting on their environmental and social impacts – and whether this even actually translates to real change on the ground is another question.

More importantly, such a focus on the consumer and on the individual company ignores the real issues of social and environmental justice.

–  –  –

Corporate Accountability From a corporate accountability perspective, ethical consumerism and voluntary CSR places a focus on the consumer and on the individual company (all too often located in the global North) and ignores the real issues of social and environmental justice for communities (often located in the global South).

Is it right for workers on banana plantations to suffer if, actually, the majority of western consumers decide that having a cheap banana is more important to them than have a fairlytraded banana? Is it right for western governments to sit back and do nothing when indigenous communities get pushed off their land and rainforests cleared to produce cheap palm oil for British supermarkets? Is it right for social and environmental concerns to be ignored in circumstances where addressing them does not make short-term business sense? Is it right for governments to surrender their responsibilities to govern, and rely instead on NGOs and the free market?

When our society decided it was time to mainstream common standards on health and safety, employee or consumer protection, we did it through changes to the legal framework in which companies operate. We gave company directors new legal duties and gave employees and consumers rights that would allow them to hold companies and directors to account if they failed to uphold those duties.

If we, as a society, are serious about sustainable development, social and environmental justice, the time has surely come to mainstream common standards on social and environmental performance. The way to do it is through equivalent changes to the legal framework that would allow people to hold corporations to account for social and environmental wrongdoing; corporate accountability.

These changes are already being campaigned for at an international, EU and UK level.

These campaigns differ in one crucial respect to those that have preceded them. Whereas, in the past, it was the corporations that were the target of the campaigners’ strategies, the targets now are politicians and governments. This is because only politicians and governments can bring about the kind of legal changes advocated.

International frameworks for corporate accountability The last five years have seen a steady stream of proposals for mechanisms to deliver corporate accountability. As recently summarised by the United Nations Research Institute

for Social Development (UNRISD):

The emerging corporate accountability agenda includes proposals to establish institutional mechanisms that hold corporations to account, rather than simply urging companies to improve standards or to report voluntarily. Corporate accountability initiatives promote complaints procedures, independent monitoring, compliance with national and international law and other agreed standards, mandatory reporting and redress for malpractice.

The corporate accountability movement has put the spotlight on certain issues that have not figured prominently, if at all, in the mainstream CSR agenda but which are fundamental to the role of TNCs in governance and development: corporate power; perverse fiscal, financial and pricing practices; and corporate lobbying for macroeconomic policies that can have negative developmental impacts.5

4 Corporate Accountability

Some of these focus on specific sectors, such as the Framework Convention on Tobacco Control. Others focus on specific aspects of corporate accountability, such as the International Right to Know Campaign’s call for disclosure and transparency. While sector specific mechanisms will undoubtedly play a crucial role in delivering corporate accountability, there is a danger that they will only be developed for a handful of sectors.

In the run up the 2002 World Summit on Sustainable Development (frequently referred to as the “Johannesburg Earth Summit”), Friends of the Earth International (FOEI) published proposals for a new international legally binding convention on corporate accountability and liability that sought to address problems common to the corporate sector as a whole. FOEI is the world’s largest grassroots organisation, with member groups in 69 countries around the world. The proposal, developed involving groups based in the global north, south, east and

west, would require signatory governments to:

1. Duties: Impose duties on publicly traded companies, their directors and board level

officers to:

• report fully on their social and environmental impacts, on significant risks and on breaches of relevant standards (such reports to be independently verified);

• ensure effective prior consultations with affected communities, including the preparation of Environmental Impact Assessments (EIA) for significant activities and full public access to all relevant documentation; and

• take the negative social and environmental impacts of their activities fully into account in their corporate decisions making

2. Liability: Extend legal liability to directors for corporate breaches of national social and environmental laws, and to directors and corporations of corporate breaches of international laws or agreements

3. Rights of redress: Guarantee legal rights of redress for citizens and communities

adversely affected by corporate activities, including:

• access for affected people anywhere in the world to pursue litigation where parent corporations claim a ‘home’, are domiciled, or listed;

• provision for legal challenge to company decisions by those with an interest;

• a legal aid mechanism to provide public funds to support such challenges

4. Rights to resources: Establish human and community rights of access to and control over the resources needed to enjoy a healthy and sustainable life, including rights;

• over common property resources and global commons such as forests, water, fisheries, genetic resources and minerals for indigenous peoples and local communities;

• to prior consultation and veto over corporate projects, against displacement;

• to compensation or reparation for resources expropriated by or for corporations

5Corporate Accountability

5. Standards: Establish (and enforce) high minimum social, environmental, labour and human rights standards for corporate activities based, for example, on existing international agreements and reflecting the desirability of special and differential treatment for developing countries

6. Introduce sanctions: Establish national legal provision for suitable sanctions for companies in breach of these new duties, rights and liabilities (wherever breaches occur)

such as:

• suspending national stock exchange listing;

• withholding access for such companies to public subsidies, guarantees, loans or procurement contracts; and

• in extreme cases the withdrawal of limited liability status



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