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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:
- the need to recognize that corporate responsibility and
accountability are essential elements of sustainable development
- 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:
- establish meaningful dialogues and negotiations with the
communities in which they locate,
- make adequate information and independent technical
expertise available on those processes and practices which may have negative environmental
or social impacts, and
- 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.
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