Corporate Social Responsibility and the Environment

1. Corporate Social Responsibility and the Environment Alexandra R. Harrington Doctor of Civil Law Candidate, McGill University Senior Manager & Associate Fellow, CISDL

2. Course Introduction • I. Corporate Law Background • II. What is Corporate Social Responsibility (CSR)? How does it relate to environmental concerns? • II. International regimes • III. Regional measures • IV. State measures • V. Industry measures • VI. Examples • VII. Conclusion

3. Background – Corporate Liability • Generally, corporations do not, as a matter of law, exist as a person for purposes of criminal and civil law, and thus cannot be held liable for their actions. • However, corporate liability is created at law through the designation of a corporate entity as a “legal person.” • This status is very important in CSR instruments because using it gives CSR instruments a wider scope of application and jurisdiction.

4. Background – jurisdiction/extraterritoriality • Jurisdiction of a state over the conduct of an actor is very important in CSR.

5. Background – Contracting/Procurement Practices • Internationally (and domestically) some corporations engage in contracting for goods or services with states, regional entities/banks, and international organizations. • In the contracting system, the term debarment is used when a contractor is removed from eligibility or otherwise sanctioned – this can occur for many reasons, including corruption. • Debarment can result in a contractor losing an already awarded contract. • Debarment usually results in the imposition of a period during which the contractor is not allowed to bid for or otherwise seek contracts or sub-contracts with or related to the debarring institution.

6. Background - CSR • What is CSR? • How does CSR relate to environmental matters?

7. International Environmental Regimes • Rio Declaration • Overall, the Rio Declaration stresses the need to protect the environment and health of all peoples, especially when in relationship to development. • This was also stressed regarding trade and national legislation to create and implement liability for environmental degradation.

8. International Environmental Regimes • Agenda 21 • Created as a wide-ranging, worldwide policy statement, addressing the following areas in relationship to the environment, sustainable development, and economic growth.

9. International Environmental Regimes • Kyoto Protocol • The Kyoto Protocol, which will expire in 2012 unless extended by State Parties, created the framework for carbon markets – international, regional or national – and their functioning. • Included in the carbon market framework were the Clean Development Mechanism and Joint Implementation, which provides ways for developed countries to fund emissions reducing projects in both the developing and developed worlds and receive credits that could be used in the carbon market system.

10. International Environmental Regimes • The regulations that have been promulgated to govern CDM & JI projects in part ensure that the projects that have been contracted for are actually completed in a sustainable way that meets the asserted emissions reductions targets. • This is an important consideration for corporate social responsibility in that the CDM and JI rules will ensure that these projects are undertaken in a responsible way that does actually result in emissions reductions at the project site.

11. International Regimes • It should also be noted that, if there is an act of bribery or corruption that involves circumventing environmental laws/regulations, for example the completion of a meaningful environmental impact assessment, there are international – and regional – corruption regimes that are related to CSR. • UN Convention Against Corruption • OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions • Uniform Framework for Preventing and Combating Fraud & Corruption • Asian Development Bank, OAS Inter-American Convention Against Corruption, Council of Europe & EU,

12. European Union • The European Union has identified corporate social responsibility as being key to sustainability and economic growth. • In Europe, corporate social responsibility has been extended to small and medium enterprises as well as the large corporate entities with which it is usually associated. This has been done through an EU-wide education campaign, creating awareness and stressing the importance of good business practices.

13. European Union • Corporate social responsibility has also been identified by the EU as important to the development of business competitiveness.

14. European Union • Liability & Polluter Pays & Precautionary Principle • Under EU Directives, corporate entities are required to make restitution for environmental damages incurred as a result of their actions/fault.

15. European Union • SixthEnvironment Action Programme, 2010 • States that efforts to ensure corporate compliance with environmental regulations and voluntary commitments regarding environmental protection are a key part of the EU’s strategy to combat environmental problems.

16. United States • USEPA – Compliance mechanisms • The USEPA provides businesses and other regulated entities assistance in complying with the terms of US environmental laws and regulations. • Compliance mechanisms are non-punitive and generally consist of voluntary EPA inspections, and auditing/self-disclosure policies.

17. United States • USEPA – enforcement mechanisms • There are several mechanisms through which the USEPA enforces the compliance of businesses. • One mechanism is through civil sanctions, such as financial penalties. • Another mechanism is through the enforcement of cleanup provisions in the event that there has been a form of spill. • Finally, criminal mechanisms are available against corporate entities, for example in the event of illegal dumping.

18. United States • CERCLA responsibility provisions • Under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) businesses which currently are polluting or who have polluted. • Based on CERCLA’s responsibility provisions, it is possible for the current owner of a property on which a toxic substance was spilled to sue up the chain of owners to get to the owner(s) responsible for the actual pollution.

19. International CSR agreements – OECD • Guidelines for Multinational Enterprises • General Principles • Stresses that good corporate governance and corporate profit are not exclusive; • Stresses the need for corporate operations to be aware of environmental and social factors of operations; • Ch. V – Environment

20. International CSR agreements – OECD • OECD Risk Assessment Awareness Tool for Multinational Enterprises in Weak Government Zones • Provides corporations in these situations with questions that they might face and realistic answers, including questions relating to the application of laws and environmental standards.

21. International CSR agreements – Uniform Framework • Uniform Framework for Preventing and Combating Fraud & Corruption • Signed by the World Bank, African Development Bank, ADB, EBRD, EIB, IMF, IADB. • Creates Joint International Financial Institute on Anti-Corruption Task Force. • Also provides basic agreement on the actions of these banks regarding financing and lending • Strengthens cooperation and coordination between institutions regarding fraud and corruption.

22. International CSR agreements – Uniform Framework • Uniform Framework for Preventing and Combating Fraud & Corruption • Requires that member entities ensure that they are involved in transactions and relationships where laws, including environmental laws, are followed.

23. International CSR agreements – World Bank • Lending policies & project design/Environmental Assessment • The World Bank now requires that potential funding projects undergo significant and meaningful Environmental Impact Assessments for the communities in which the project would be located and/or effect. • The World Bank’s lending policies include requirements that the environment be included in the consideration of the project overall.

24. International CSR agreements – World Bank • Compliance assurance departments within the World Bank • In order to self-monitor, as well as to monitor the outside entities that are involved in the World Bank’s projects, as well as their internal procurement departments, there are compliance assurance departments. • Among the considerations of these departments is whether the project/contractor is fulfilling its environmental requirements.

25. International CSR agreements – Paris Declaration • Paris Declaration – emphasises the importance of environmental impact assessments for both donor and partner countries.

26. Regional CSR Agreements - ADB • ADB/OECD Anti-Corruption Initiative for Asia Pacific • Emphasizes the importance of Corporate Responsibility and Accountability

27. Regional CSR Agreements - ADB • Lending practices/requirements • Among the ADB’s lending requirements is the requirement that the project to be funded does not cause environmental damage.

28. Regional CSR agreements - IADB • Lending principles and guidelines • Among theIADB’slending requirements is the requirement that the project to be funded does not cause environmental damage.

29. Regional CSR agreements – African Development Bank • Lending practices/requirements • Among the African Development Bank’s lending requirements is the requirement that the project to be funded does not cause environmental damage.

30. Regional CSR Agreements – European Development Bank • Environmental Impact Assessments – are required for projects that are to be undertaken by the European Development Bank. These must be thorough and convincing, and examine the impacts on the affected communities.

31. Regional CSR Agreements – European Investment Bank • Incorporation of environmental consideration and protection as part of the internal and lending considerations of the EIB.

32. The UN Global Compact • The UN Global Compact offers businesses a way to adhere to the MDGs and international principles of sustainability by pledging to abide by 10 Principles. • Key among the 10 Principles are: • Principle 7: “Businesses should support a precautionary approach to environmental challenges.” Recommended ways of implementing this at a business level involve the promulgation of corporate codes of conduct and standards for business practices related to the environment.

33. The UN Global Compact • Principle 8 – “Undertake initiatives to promote greater environmental responsibility.” Recommended methods of implementing this include ensuring transparency with local suppliers and contractors. • Principle 9 – “Encourage the development and diffusion of environmentally friendly technologies.” Recommended methods of implementing this include reviewing corporate investment policies in order to ensure that they promote the development of environmentally friendly technologies.

34. Industry Practices • Forestry Stewardship Council • An independent NGO founded over 15 years ago with the goal of promoting sustainable and responsible forestry practices within the industry. • Uses rules, certification, trademark assurances and accredition services to ensure the industry and consumers that participating entities adhere to sustainable and responsible forestry practices and forestry management.

35. Industry Practices • Kimberley Process • In response to growing public concerns and NGO campaigns regarding “conflict” or “blood” diamonds, the diamond industry, together with interested states, came together and adopted the Kimberley Process, which is a certification scheme for diamonds that involves all levels of public and private involvement in the diamond mining and trading process. • This involves not only the conflict but, necessarily, the environment in which mining practices are carried out, especially in times of conflict.

36. Industry Practices • GIA draft standards • The Gemological Institute of America is examining the enactment of standards for gold and other mining practices, which would allow the customer to be assured that they have purchased an item that was not made in harmful labour practice situations. • Like the Kimberley Process, this necessarily implicates the environmental practices of the mine.

37. Industry Practices • Extractive Industries Transparency Initiative (EITI) • An initiative that uses principles to certify the transparency of oil, gas and mining operations.

38. Industry Practices • EITI Principles • We share a belief that the prudent use of natural resource wealth should be an important engine for sustainable economic growth that contributes to sustainable development and poverty reduction, but if not managed properly, can create negative economic and social impacts. • We affirm that management of natural resource wealth for the benefit of a country’s citizens is in the domain of sovereign governments to be exercised in the interests of their national development. • We recognise that the benefits of resource extraction occur as revenue streams over many years and can be highly price dependent.

39. Industry Practices • EITI Principles • We recognise that a public understanding of government revenues and expenditure over time could help public debate and inform choice of appropriate and realistic options for sustainable development. • We underline the importance of transparency by governments and companies in the extractive industries and the need to enhance public financial management and accountability. • We recognise that achievement of greater transparency must be set in the context of respect for contracts and laws. • We recognise the enhanced environment for domestic and foreign direct investment that financial transparency may bring.

40. Industry Practices • EITI Principles • We believe in the principle and practice of accountability by government to all citizens for the stewardship of revenue streams and public expenditure. • We are committed to encouraging high standards of transparency and accountability in public life, government operations and in business, • We believe that a broadly consistent and workable approach to the disclosure of payments and revenues is required, which is simple to undertake and to use.

41. Industry Practices • EITI Principles • We believe that payments’ disclosure in a given country should involve all extractive industry companies operating in that country. • In seeking solutions, we believe that all stakeholders have important and relevant contributions to make – including governments and their agencies, extractive industry companies, service companies, multilateral organisations, financial organisations, investors, and non-governmental organisations.

42. Industry Practices • EITI Criteria • Regular publication of all material oil, gas and mining payments by companies to governments (“payments”) and all material revenues received by governments from oil, gas and mining companies (“revenues”) to a wide audience in a publicly accessible, comprehensive and comprehensible manner. • Where such audits do not already exist, payments and revenues are the subject of a credible, independent audit, applying international auditing standards. • Payments and revenues are reconciled by a credible, independent administrator, applying international auditing standards and with publication of the administrator’s opinion regarding that reconciliation including discrepancies, should any be identified.

43. Industry Practices • EITI Criteria • This approach is extended to all companies including state-owned enterprises. • Civil society is actively engaged as a participant in the design, monitoring and evaluation of this process and contributes towards public debate. • A public, financially sustainable work plan for all the above is developed by the host government, with assistance from the international financial institutions where required, including measurable targets, a timetable for implementation, and an assessment of potential capacity constraints.

44. Industry Practices • International Council on Mining & Metals • 10 Principles for Sustainable Development • implement and maintain ethical business practices and sound systems of corporate governance. • Integrate sustainable development considerations within the corporate decision-making process. • Uphold fundamental human rights and respect cultures, customs and values in dealings with employees and others who are affected by our activities. • Implement risk management strategies based on valid data and sound science. • Seek continual improvement of our health and safety performance

45. Industry Practices • 10 Principles for Sustainable Development • Seek continual improvement of our environmental performance • Contribute to conservation of biodiversity and integrated approaches to land use planning • Facilitate and encourage responsible product design, use, re-use, recycling and disposal of our products • Contribute to the social, economic and institutional development of the communities in which we operate • Implement effective and transparent engagement, communication and independently verified reporting arrangements with our stakeholders

46. Industry Practices – International Association of Oil & Gas Producers • Promotion of environmental protection as part of members’ operations and business practices.

47. Industry Practices – Better Cotton Initiative • Seeks to improve the environmental and social conditions in which cotton is grown and cotton products are produced. • The long term objectives of the Better Cotton Initiative are: • To demonstrate the inherent benefits of Better Cotton production, particularly the financial profitability for farmers • To reduce the impact of water and pesticide use on human and environmental health • To improve soil health and biodiversity • To promote Decent Work for farming communities and cotton farm workers • To facilitate global knowledge exchange on more sustainable cotton production • To increase the traceability along the cotton supply chain

48. Industry Practices – Better Cotton Initiative • Production Principles: • Better Cotton is produced by farmers who minimise the harmful impact of crop protection practices • Better Cotton is produced by farmers who use water efficiently and care for the availability of water • Better Cotton is produced by farmers who care for the health of the soil • Better Cotton is produced by farmers who conserve natural habitats • Better Cotton is produced by farmers who care for and preserve the quality of the fibre • Better Cotton is produced by farmers who promote decent work

49. Industry Practices – Global e-Sustainability Initiative • Emphasis on the use of environmental standards throughout the communications industry supply chain (which is very broadly defined).

50. Industry Practices – Electronic Industry Citizenship Coalition • EICC Code, which stresses environmental responsibility as a key platform for the industry and its members.