Promoting Corporate Social Responsibility in a Global Economy:

Opportunities & obligations for IFI private sector development strategies

Sandy Buffett

The Nautilus Institute for Security &

Sustainable Development

2001 US- Japan CSO Forum

May 21-22, 2001 Honolulu

“We aim to catalyze private sector investments and we use our public sector operations to increase opportunities for the private sector.”

-Speech of Tadao Chino, PresidentAsian Development Bank

Honolulu, Hawaii 9 May 2001

International Financial Institutions (IFIs) and

“private sector strategies”IFIs, such as the Asian Development Bank and the

Japan Bank for International Cooperation, have increased their interaction with the market through “private sector development” strategies.

Because of the role corporations now play in international development, IFIs need to develop guidelines & standards that require the corporations with which they interact to be better corporate citizens.

Some background: Globalization & the emergence of “market-driven”

development

While ODA has decreased by 22% in real terms since 1990

Private financial flows to developing economies have increased by more than 500%, $154 billion in 2000

FDI– Foreign Direct Investment of private corporations is the primary source of capital flowing to developing economies

Current conditions of market driven development

Privatization & investment liberalizationIntense competition for FDIFinance & corporate activity is global–

norms & regulation are localEnvironmental regulation, labor &

human rights in “capital recipient” countries often weak/ difficult to monitor

Implications of market-driven development

ODA & IFIs no longer “biggest game in town” in many cases

Global players– Citigroup, BP Amoco, ExxonMobil, GE, Mitsubishi, MSDW…

Market is driven by “bottom line”Accountable to shareholders rather than

stakeholders; no mandate for poverty alleviation or sustainable development

How to promote sustainable development in a private sector

world?Push for reforms by NGOs towards the World

Bank and regional MDBs must now also be fought for in the private sector

However, ECAs still behind on common environmental/ social standards, disclosure (see www.eca-watch.org )

Strategic challenges: lack of transparency; How to monitor? How to engage?

Corporations treading water or lost at sea?

Many companies that want to “do the right thing” at a loss how to implement without losing competitive advantage

Threat to reputation from NGO campaignsNo obvious forum for NGO-company dialogueOpportunity: Asia-Pacific corporations

undergoing significant “corporate governance” reform post-crisis

Business wants certainty

Why do corporations need IFIs?

Private sector IFIs, such as the IFC,“leverage” private capital

Political risk protectionECA insurance & guaranteesCo-financingLobbying influence of WB/ IMF

Proposal for NGO/ IFI collaboration:

Promote the “uptake” of

CORPORATE SOCIAL RESPONSIBILITY

The World Bank and other IFIs now work with NGOs to ensure accountability and transparency (“good governance”) of governments.

IFIs should demand the same level of good governance from corporations through Corporate Social Responsibility.

What is Corporate Social Responsibility (CSR) ?

The integration of ethical values/ sustainability into the business model

The recognition of an obligation beyond shareholder value – responsibility to stakeholders

“Triple bottom line” (financial, social, environmental)

The company as responsible global citizenGoing beyond compliance“Good governance”

The Pillars of CSR

• Information disclosure/ reporting

• Implementation of performance benchmarks/ Environmental Management Systems (EMS)

• Engagement of stakeholders (Stakeholders include communities, shareholders, consumers, employees, & NGOs)

IFI comparative advantages

MDBs, IFIs have relatively more experience on public consultation, info disclosure, environmental due diligence

IFIs can be promote specific projects or sectors I.e. RENEWABLE ENERGY

Provide technical assistance on CSR to domestic SMEs, industry laggards

CSR & IFI private sector strategies

Environment, labor, human rights standards should be part of a company’s business model to gain access to IFI financing mechanisms

Reporting of information (Global Reporting Initiative)-- Client “confidentiality” not an excuse

See also FoE’s “Dubious Development” proposed investment screen for IFI private sector arms (www.foe.org)

Some internationally recognized guidelines for CSR

Universal Declaration of Human RightsILO core labor standardsOECD guidelines on multinational enterprisesWB pollution prevention standardsUS OPIC categorical prohibitionsISO 14001Global Sullivan PrinciplesWorld Commission on Dams final reportSocial Accountability (SA) 8000

CSR = good governance

“Poverty reduction cannot be achieved without good governance. In all of ADBs efforts to support and promote good governance, four key elements are addressed: accountability, participation, predictability, and transparency. There is indeed a strong correlation between good governance and economic growth.”

-ADB President Chino

Challenge to IFIsin preparation for the

World Summit on Sustainable Development, 2002:

Integrate CSR expectations into private sector strategies

Work with private sector to finance commercial-basis renewable energy projects

Convene strategic dialogues among corporate clients and NGOs to discuss hard issues & dilemmas.

Conclusion

The uptake of CSR by IFIs can catalyze private sector operations to meet both the “bottom line” and the sustainable environmental and social development needs of developing economies.

Copyright, no reproduction w/o permission May 2001. For questions or comments, please contact:

Sandy Buffett

Senior Program Officer

The Nautilus Institute for

Security & Sustainable Development

Berkeley, CA USA

p. 1.510.295.6116

Email: sbuffett@nautilus.org