18 September 2003CSR Practice - Private Sector Development Vice Presidency1 Public Policy, CSR & El Salvador The World Bank Corporate Social Responsibility Practice Presentation by Nigel Twose, Manager Foreign Investment Advisory Service

18 September 2003CSR Practice - Private Sector Development Vice Presidency2 Definition of CSR “The commitment of business to contribute to sustainable economic development, working with employees and their representatives, their families, the local community, and society at large to improve their quality of life, in ways that are both good for business and good for development.” Preferred Customer: In this definition, we take compliance with the law as a starting point. For example, there would be no logic in making large voluntary contributions to local schools or offering workplace training opportunities to students or teachers, if you were not also paying the taxes with which the Ministry of Education has to ensure the quality of those same schools. Preferred Customer: In this definition, we take compliance with the law as a starting point. For example, there would be no logic in making large voluntary contributions to local schools or offering workplace training opportunities to students or teachers, if you were not also paying the taxes with which the Ministry of Education has to ensure the quality of those same schools.

18 September 2003CSR Practice - Private Sector Development Vice Presidency3 Business Drivers of CSR 1) Global supply chains: CSR measures undertaken as a condition of contract between supplier and buyer. 2) National firm undertakes CSR activities unilaterally as a step to distinguish themselves in the marketplace: a reputable partner. 3) Industry sectors take CSR measures together: socially useful for their country, plus necessary for industry in the long term Preferred Customer: The business drivers of CSR are the mix of incentives and risks directed at firms to improve standards. These drivers are market-based, usually beginning when a firm anticipates or responds to a risk associated with the social, labor or environmental impact of a specific business practice. Let me give you three simple categories: 1)The first category is in global supply chains, where CSR measures in the workplace are undertaken as a condition of contract between the supplier and the multinational buyer. In this category, the buyers face risks – consumer boycotts, activist pressures – and exert pressure on their suppliers, monitor suppliers’ implementation of the agreed standards, and require regular external audit of these requirements. Failure to comply has market sanctions: the buyer can require remediation measures or can cancel contracts. Compliance can have many benefits: new contracts, as well as productivity gains. 2)The second category is when a national firm undertakes CSR activities unilaterally as a step to distinguish themselves in the marketplace as a firm that takes standards seriously and is therefore a reputable partner. The national firm is not undertaking these measures because buyers are insisting on them, but instead is taking the market risk that being seen as a good employer will be good for business. In El Salvador, for example, many apparel firms have chosen to get themselves CSR certified by WRAP; in other countries, firms have chosen the higher CSR standard of SA8000; these are individual, market- based decisions. 3)The third category is when CSR measures are undertaken by industry sectors together because they know that as well as being socially useful for their country, these measures are necessary if their industry is going to prosper in the long term. Education-focused CSR, which we will be exploring today, is an excellent example of this third category, which is steadily increasing. In all three categories, we can see that there are clear business drivers: Preferred Customer: The business drivers of CSR are the mix of incentives and risks directed at firms to improve standards. These drivers are market-based, usually beginning when a firm anticipates or responds to a risk associated with the social, labor or environmental impact of a specific business practice. Let me give you three simple categories: 1)The first category is in global supply chains, where CSR measures in the workplace are undertaken as a condition of contract between the supplier and the multinational buyer. In this category, the buyers face risks – consumer boycotts, activist pressures – and exert pressure on their suppliers, monitor suppliers’ implementation of the agreed standards, and require regular external audit of these requirements. Failure to comply has market sanctions: the buyer can require remediation measures or can cancel contracts. Compliance can have many benefits: new contracts, as well as productivity gains. 2)The second category is when a national firm undertakes CSR activities unilaterally as a step to distinguish themselves in the marketplace as a firm that takes standards seriously and is therefore a reputable partner. The national firm is not undertaking these measures because buyers are insisting on them, but instead is taking the market risk that being seen as a good employer will be good for business. In El Salvador, for example, many apparel firms have chosen to get themselves CSR certified by WRAP; in other countries, firms have chosen the higher CSR standard of SA8000; these are individual, market- based decisions. 3)The third category is when CSR measures are undertaken by industry sectors together because they know that as well as being socially useful for their country, these measures are necessary if their industry is going to prosper in the long term. Education-focused CSR, which we will be exploring today, is an excellent example of this third category, which is steadily increasing. In all three categories, we can see that there are clear business drivers:

18 September 2003CSR Practice - Private Sector Development Vice Presidency4 CSR Approach A CSR-based approach relies on market-based drivers Preferred Customer: We can also see that when CSR activities are successfully implemented, they complement national legislative processes, and help a country achieve growth with poverty reduction. I stress these two factors (good for business and good for development) because firms should never be encouraged, or strong-armed, into undertaking CSR activities that they cannot justify in business terms. We should not confuse corporate philanthropy – which I define as a firm’s socially beneficial use of its downstream profits – with CSR, which should always make business sense. Preferred Customer: We can also see that when CSR activities are successfully implemented, they complement national legislative processes, and help a country achieve growth with poverty reduction. I stress these two factors (good for business and good for development) because firms should never be encouraged, or strong-armed, into undertaking CSR activities that they cannot justify in business terms. We should not confuse corporate philanthropy – which I define as a firm’s socially beneficial use of its downstream profits – with CSR, which should always make business sense.

18 September 2003CSR Practice - Private Sector Development Vice Presidency5 Industry Trends Preferred Customer: 92% of respondents indicate an increase in resources devoted to CSR in the last five years: Preferred Customer: 92% of respondents indicate an increase in resources devoted to CSR in the last five years:

18 September 2003CSR Practice - Private Sector Development Vice Presidency6 Industry Trends Preferred Customer: MNEs don’t just examine CSR performance among new partners and new locations. Many report it has influenced their selection US-headquartered MNEs in the survey were more likely to have chosen locations and partners based on CSR issues than MNEs headquartered in any other part of the world: Preferred Customer: MNEs don’t just examine CSR performance among new partners and new locations. Many report it has influenced their selection US-headquartered MNEs in the survey were more likely to have chosen locations and partners based on CSR issues than MNEs headquartered in any other part of the world:

18 September 2003CSR Practice - Private Sector Development Vice Presidency7 Industry Trends Preferred Customer: Respondents also indicated that the importance of CSR in new venture assessment has been growing markedly over the last five years Preferred Customer: Respondents also indicated that the importance of CSR in new venture assessment has been growing markedly over the last five years

18 September 2003CSR Practice - Private Sector Development Vice Presidency8 Industry Trends

18 September 2003CSR Practice - Private Sector Development Vice Presidency9 CSR & Public Policy

18 September 2003CSR Practice - Private Sector Development Vice Presidency10 CSR Implementation Challenges Preferred Customer: So this does not appear to be the public sector trying to interfere with a business responsibility, but instead it appears to be business and its stakeholders seeking an improved partnership with the public sector: improved collaboration, and more systematic approaches. Preferred Customer: So this does not appear to be the public sector trying to interfere with a business responsibility, but instead it appears to be business and its stakeholders seeking an improved partnership with the public sector: improved collaboration, and more systematic approaches. “Virtually all participants in this study noted that the absence of action by local governments presented a significant barrier.”

18 September 2003CSR Practice - Private Sector Development Vice Presidency11 Education-focused CSR Preferred Customer: Education experts at the conference will speak about this in more detail for the rest of the day, and business people will explain why they consider improved business engagement with the education system to be necessary for the country’s success, as well as for the success of their own firm. I will just make three points: Preferred Customer: Education experts at the conference will speak about this in more detail for the rest of the day, and business people will explain why they consider improved business engagement with the education system to be necessary for the country’s success, as well as for the success of their own firm. I will just make three points: Assumptions: A business perspective can contribute toward the enhancement of curriculum design A business perspective can help the education sector better focus on the skills and attitudes needed for El Salvador to compete in the global marketplace

18 September 2003CSR Practice - Private Sector Development Vice Presidency12 Education-focused CSR Preferred Customer: 2) Categories for collaboration: Strengthening the education system; Strengthening local schools; Supporting teachers and students through special opportunities offered at the workplace.

18 September 2003CSR Practice - Private Sector Development Vice Presidency13 Education-focused CSR Preferred Customer: 3) Business’ contribution optimized when: Private sector has a set of competencies that can help improve delivery. Private sector designs support to build on these competencies. Ministry of Education gives clear guidance on the ways firms can engage. Ministry of Education supports move toward systemic, sector- wide approach. Mechanisms are in place to support partnership-based approaches.