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, President Asian 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 liberalization Intense competition for FDI Finance & corporate activity is global– norms & regulation are local Environmental 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 ) 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 campaigns No obvious forum for NGO-company dialogue Opportunity: 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 protection ECA insurance & guarantees Co-financing Lobbying 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 citizen Going 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 (

Some internationally recognized guidelines for CSR Universal Declaration of Human Rights ILO core labor standards OECD guidelines on multinational enterprises WB pollution prevention standards US OPIC categorical prohibitions ISO Global Sullivan Principles World Commission on Dams final report Social 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 IFIs in 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 For questions or comments, please contact: Sandy Buffett Senior Program Officer The Nautilus Institute for Security & Sustainable Development Berkeley, CA USA p