Minding Our Business:

The Role of Corporate Accountability
in Sustainable Development

An NGO report to the UN Commission on Sustainable Development

Revised March 28, 1997

This statement reflects a deepening concern shared by a growing number of people and organizations around the world. Their concern focuses on the need for government to make greater efforts to ensure accountability of corporations to society. In assessing progress since the 1992 U.N. Conference on Environment and Development, the undersigned NGOs agree on two important points:

1. the need to recognize that corporate responsibility and accountability are essential elements of sustainable development
2. the importance of acknowledging and remedying the neglect by the UN and members states of corporate accountability in their follow-up to the Earth Summit.

Both Responsibility and Accountability Are Necessary

A great deal of discussion has taken place on the topic of corporate responsibility, on companies recognizing their own interests within the framework of sustainable development. A significant number of companies have indeed made impressive efforts to operate and develop products according to ethical and environmental principles, a fact deserving widespread recognition and appreciation. Whether this trend toward corporate responsibility is due to enlightened management, customer demand, or public pressure, the basic idea is for a company to voluntarily "do the right thing." The aim of the concept is to convince companies -- from small, family businesses to transnational corporations -- that sustainability and ethical conduct are in the interests of business.

The concept of corporate accountability, on the other hand, refers to the legal obligation of a company to do the right thing. The aim of corporate accountability is to be sure a company's products and operations are in the interests of society and are not harmful. This concept addresses the problem of those companies which refuse to act responsibly; it also addresses those situations in which companies and employees are held prisoner by the competitive demands of the economic system and forced to choose the bottom line.

Corporate accountability is especially relevant to the current situation of increasing economic globalization and the unique position of transnational corporations, which in many cases are legally accountable to no one. Just as individuals in society require both morals and laws to guide their behavior, responsibility and accountability are both necessary to guide corporate conduct. While corporate responsibility is behavior that is encouraged, corporate accountability is behavior that is required. Thus, corporate responsibility is a choice of business; corporate accountability is an obligation of government and civil society.

Who Pays for Unsustainable Development?

One ongoing question about implementing Agenda 21 highlights the costs of sustainable development and who will pay. Stubbornly chanting "no new resources," many governments, the G7 in particular, have shifted responsibility for the costs of sustainable development to corporate investors and financial institutions. In today's world, however, corporate investment activities are too frequently subsidized by non-monetary "external" costs paid by the environment, the poor, children and the elderly, women, indigenous peoples, workers and the unemployed, local communities and the earth at large.

Despite efforts to integrate social and environmental costs and assets, the bottom line of public corporations continues to be its financial return to shareholders. Whereas government is accountable to its citizens, corporations are too often only accountable to their shareholders. While government and industry negotiate the financial price of sustainable development, the world is forced to pay the full costs of environmental devastation, poverty and illness.

The Limits to Self-Regulation

Some businesses, recognizing they are members of a global community, are indeed moving towards greater social and environmental responsibility and sincerely attempting to follow voluntary codes of conduct; however, this is only part of what is needed. There remains a critical need for governments and communities to monitor, assess and, when necessary, hold liable companies neglecting or ignoring the social and environmental consequences of their behavior. Such liability is not only important to society and environment, but also helps provide a level playing field for those companies sincerely trying to be responsible -- discouraging "free riders." Even among companies embracing voluntary social and environmental codes, transparent public reporting is minimal, with best practices publicized and bad practices shrouded in silence.

One important issue is double standards, whereby companies act responsibly in countries where this is required, and behave quite differently elsewhere. Without full transparent reporting on company practices, the public cannot easily distinguish between responsible practices and manipulative public relations. Communities deserve full information as well as the means to respond to the impacts of business activities affecting their health, safety, and environment.

Corporate Accountability Is Essential

Unless corporations are accountable to governments and citizens, answerable for social and environmental costs and benefits beyond the monetary bottom line, we will not make much progress overcoming the crises which Agenda 21 and similar efforts attempt to address. We NGOs urge our government representatives and the CSD Secretariat to acknowledge the essential role of corporate accountability in sustainable development and to address the challenge of ensuring this accountability. In the spirit of partnership, we offer the following recommendations for meeting this challenge.

Seven Steps Toward Corporate Accountability

1. Acknowledge the Importance of Corporate Accountability

We urge the United Nations and member states to acknowledge: a) that corporate accountability is an element of sustainable development, that business and industry must be accountable to the society which it should ultimately serve; and b) the need to develop or improve governmental and citizen-based mechanisms designed to ensure greater accountability of business and industry.

2. Establish the Mechanisms to Monitor and Assess Corporate Practices

No central body yet exists to review the various claims of best and worst practices by business and industry, especially transnational corporations. Because of the tremendous impact of investment and business activities, such a body is needed to review and evaluate these impacts and to enable the voice of those affected by these impacts to be heard.

We recommend that the UN and member states:

a) review, assess and report on current national and international legislation, treaties and other mechanisms which address corporate accountability;

b) (1) organize national and international public hearings and panels on the issue of corporate accountability, (2) establish within the United Nations an ongoing Subcommittee on Corporate Accountability, involving participation by governmental, nongovernmental, and industry representatives to examine and define the range of government responsibilities necessary to ensure accountability by business and industry, especially by transnational and multinational corporations; to delineate the proper role of government and the appropriate international instruments and mechanisms that are needed;

c) for a body of the UN to be designated and responsible for developing and using appropriate criteria and indicators to track trends and identify conflicts, abuses and needs; and to provide national and local channels to obtain and review reports by NGOs, local communities and community-based organizations on their experience and concerns about the impacts of transnational corporate practices and plans; and

d) for UNCTAD to play a key role in a revived process of clarifying the obligations of TNCs to host countries, and to social, economic, and environmental sustainability; this role might involve reinstating the Centre for Transnational Corporations to its former status and activity.

3. Strengthen Public Access to Information

In order for government and civil society to effectively evaluate the positive and negative impacts of different corporate decisions and practices on society and environment, the public as well as government needs to have access to information about such impacts. A serious vacuum continues to exist regarding information available to local communities and the general public about corporate decisions and practices which could or do negatively affect their health, well-being and environment. For civil society and government to ensure that specific business decisions and practices are indeed in the interests of society --

We recommend that each national government:

a) develop public education programs to empower citizens and employees with knowledge of the kinds and sources of information available about corporate decisions and practices which may affect them and their communities and to which they have a basic right to know. Such programs should teach citizens how they can access and interpret this information, including how they can pinpoint potential or actual impacts in and on their communities. Part of this education should include skills in developing community-based indicators for community assessments;

b) enact and enforce Community Right-to-Know legislation and programs whereby citizens and employees are legally empowered with the right to know about the potentially dangerous or destructive substances (such as toxic chemicals, radioactive materials, and genetically engineered organisms) transported, stored, used and released by industries and individual companies within their communities, and about other potential or actual impacts on their environment, health, and safety;

c) establish and enforce laws requiring regular company reports on their releases, use and storage of potentially dangerous substances and to make this information available to consumers and employees. Examples of such laws include the OECD's Pollutant Release and Transfer Registers (PRTRs) and the USA's Toxic Release Inventory (TRI). Information on toxics, radioactive materials, and genetically engineered organisms must also be made available to citizens and company employees in an understandable format. Countries which do not have the resources to establish such comprehensive systems should receive help from UN organizations and development aid donors;

d) enact full product labeling as one type of consumer education, in which all materials and their energy intensity are identified for each product, with particular attention to inclusion of toxic substances and genetically modified organisms;

e) require TNCs and financial institutions to make public the same information as required in their home country to those countries in which they are operating or investing, particularly in countries with lower environmental, health and safety standards and workplace requirements;

f) make available to the public lists of direct and indirect subsidies, tax breaks, and other government incentives to corporations and industries, particularly where there is a question about possible negative environmental or social impacts;

g) obtain and provide to the public information on financial and other contributions made by companies to political campaigns, parties and lobbying groups; and

h) for the UN and member states to collect and help disseminate relevant information from and about TNCs on their operations in each country, with inputs from NGOs and community organizations, making this information available internationally, especially to citizen-based organizations and representatives.

4. Send the Right Message: Reform Unsustainable Subsidies and Tax Breaks; Make Wrong-Doers Liable

In discussions about financing sustainable development, the trend has been for the governments of developed countries to reject the need for "new resources," passing on this responsibility to the private sector. Furthermore, many countries have been reducing both foreign aid and individual aid. On the other hand, insufficient attention and reform efforts are directed to the system of national and local governments' financial aid given to corporations through subsidies and tax breaks, sometimes known as "corporate welfare." In far too many cases, this form of state assistance contributes to unsustainable development.

Recommended actions are for each government to:

a) identify those subsidies, tax breaks and other forms of government incentives to corporations which are undeserved, ineffective, or encourage practices or products having negative environmental or social impacts;

b) eliminate such negative subsidies and tax breaks and institute reforms preventing their reoccurrence;

c) enact ecological tax reform, implementing the most appropriate program for shifting taxes away from environmentally and socially sustainable behavior (which should be encouraged) towards those practices that are unsustainable, unjust, and inefficient (which should be discouraged). The UN should host an international forum in which all countries can address the issue of enacting ecotax reform and moving towards full-cost accounting; and

d) develop and enforce appropriate liability laws. Deregulation should end where human rights abuses and environmental destruction begin. Appropriate regulations are necessary for corporations to successfully operate, discouraging unfair competition from "free riders" by providing a level playing field. Furthermore, citizens and public interest groups depend upon the instrument of liability laws to hold specific corporations legally accountable for their actions - particularly companies abusing society's trust and engaging in irresponsible conduct or double standards. Furthermore, evidence shows that companies are more likely to solve environmental and other problems where liability claims are high.

Recommended actions:

For governments to impose on companies strict liability -- extending to every country in which they invest or operate -- for personal injury or loss of life, property damage, and damage to the environment, in order to hold them accountable for their decisions. Corporate polluters should be held liable for environmental damage and transboundary pollution whether or not this damage or pollution results from negligence. Corporations guilty of past damage, even going back one or two decades, should also be held liable for their actions. Citizens and communities should be provided the legal resources where this is needed.

5. Empower Local Communities, Not TNCs

One NGO criticism of the current emphasis on free trade (e.g., in the WTO and Multilateral Agreement on Investment) is that the economic playing field is being unfairly stacked against small local businesses and farmers and the economies of local communities in favor of greater power and advantages to large transnational corporations. Parallel to the growth of world trade and the size and influence of TNCs is the public perception of governments held hostage by corporate power. To maintain legitimacy as stewards of the public interest, governments need to demonstrate that the health and well-being of local communities has a higher priority than corporate profits.

Recommended actions are for national governments to:

a) promote international agreements and mechanisms which protect local communities from what might be called "corporate blackmail," i.e., situations in which communities or nations are forced to bid against each other in a downward spiral of give-away incentives to foreign businesses or chains in order to win jobs, undercutting the ability to acquire appropriate tax revenue, protect the environment and workers' safety; WTO, NAFTA and other such multilateral agreements need to be modified to prevent, not facilitate, such abuse;

b) encourage "good neighbor" practices, in which companies, especially foreign companies or national chains:

1. establish meaningful dialogues and negotiations with the communities in which they locate,
2. make adequate information and independent technical expertise available on those processes and practices which may have negative environmental or social impacts, and
3. provide mechanisms for meaningful public participation in company decisions that could impact the community's health and well-being;

c) support and help create mechanisms by which the public can more actively participate in decision-making processes which may affect them and their communities; one set of recommendations is in the UNECE Convention on Public Participation;

d) promote national dialogues with local authorities and citizen organizations on economic strategies to promote sustainable community development and local self-reliance. Special attention should be given to the value of local consumption of locally produced goods and services; and

e) provide support to local authorities and citizen organizations in developing community-based criteria and indicators for sustainable community development, including full-cost measures of local consumption, production and investment.

6. Make Clean Production the Required Standard

One of the ways in which businesses should be accountable to society is how they produce their products and provide their services. "Clean production" is a concept sometimes reduced to mean only ecoefficiency; however, efficiency is just one aspect of clean production.

Major questions arise as to whether or not a company's production process or products result in harm to society or environment. Since society should expect companies to engage in clean production processes and produce clean products, government and civil society need mechanisms to resolve questions as to what kind of production and products are clean and ecologically sustainable.

Recommended actions are for governments to:

a) adopt and implement the Precautionary Principle as part of industrial policy, putting the burden of proof of safety on potential polluters instead of communities having to prove otherwise;

b) adopt and implement the Preventative Approach in industrial policy, regulating and evaluating company practices with an emphasis on clean processes and products rather than end-of-pipe clean-up technologies;

c) adopt and implement the principle of Extended Producer Responsibility (EPR), in which producers are from the start held accountable for the environmental and health impacts of their products throughout the product life-cycle. EPR would obligate producers to prevent pollution and reduce resource and energy use in each stage of the product life-cycle through changes in product design and process technology. Product take-back programs, promoting reduction of waste and use of fewer and safer materials, should be implemented. The UN should host an international forum in which all countries are able to develop and adopt strategies to implement EPR;

d) establish and enforce legislation instituting industry- and company-wide targets to reduce pollution, toxic use and energy consumption;

e) provide sufficient funding and support to government agencies and community-based monitoring efforts to properly check and enforce progress in meeting pollution, toxics, and energy reduction targets; and

f) require annual, independently verified reports from all companies regarding their progress towards clean production goals. These reports should include community impact statements or environmental and social audits, not only for each location in which a company has factories or production operations but also regarding the impacts of the products and extraction of raw materials used in making these products.

7. Reduce Political Influence of Corporations on Government

Reform the mechanisms by which corporations, including TNCs, possess and exercise undue political influence over government policy and decision-making, especially in cases where corporate sovereignty and well-being is given higher priority than the health and well-being of local communities and their environment.

Recommended actions are:

a) for governments to review and implement appropriate reforms to end financial contributions by corporations to political campaigns and lobbying of public representatives; and

b) for the UN to convene an international panel examining and recommending reforms of the global political influence of TNCs on government policy-making. Examples of such influence include financial contributions to political parties and candidates, and investments by corporations in advertising and public relations campaigns to influence government decisions.