5 chapter i introduction - setting the stage

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CHAPTER I
INTRODUCTION: SETTING THE STAGE
A. BUSINESS AS UNUSUAL: OUTCOME OF THE UNITED NATIONS
CONFERENCE ON SUSTAINABLE DEVELOPMENT (RIO+20)
The concept of corporate social responsibility (CSR) has evolved. This was clear when
the United Nations convened the United Nations Conference on Sustainable Development
(Rio+20) in Rio de Janeiro in June 2012. The outcome document, “The future we want” makes
references to the role of the private sector in promoting inclusive and sustainable development in
various paragraphs. For instance, paragraph 46 states:
“… We recognize that the active participation of the private sector can contribute to the
achievement of sustainable development, including through the important tool of public-private
partnerships. We support national regulatory and policy frameworks that enable business and
industry to advance sustainable development initiatives, taking into account the importance of
corporate social responsibility. We call upon the private sector to engage in responsible business
practices, such as those promoted by the United Nations Global Compact.”1
Paragraph 47 recognizes the importance of business reporting on sustainability:
“We acknowledge the importance of corporate sustainability reporting, and encourage
companies, where appropriate, especially publicly listed and large companies, to consider
integrating sustainability information into their reporting cycle. We encourage industry,
interested governments and relevant stakeholders, with the support of the United Nations system,
as appropriate, to develop models for best practice and facilitate action for the integration of
sustainability reporting, taking into account experiences from already existing frameworks and
paying particular attention to the needs of developing countries, including for capacity-building”.
2
Paragraph 268 recognizes the role of the private sector in the implementation of the
Outcome document:
“We recognize that a dynamic, inclusive, well-functioning and socially and
environmentally responsible private sector is a valuable instrument that can offer a crucial
contribution to economic growth and reducing poverty and promoting sustainable development.
In order to foster private sector development, we shall continue to pursue appropriate national
policy and regulatory frameworks in a manner consistent with national laws to encourage public
and private initiatives, including at the local level, to foster a dynamic and well-functioning
1 General Assembly resolution 66/288: the future we want (A/RES/66/288), 11 September 2012. Available from
http://sustainabledevelopment.un.org/futurewewant.html.
2 Ibid.

business sector, and to facilitate entrepreneurship and innovation, including among women, the
poor and the vulnerable. …”.3
Prior to the Rio+20, the Global Compact Office organized the Corporate Sustainability
Forum in cooperation with the Rio+20 Secretariat, the United Nations System and the Global
Compact Network Brazil from 15 to 18 June 2012. The Forum brought together 2,700 business
leaders, investors, academics, government officials, environmentalists and grassroots activists.
At the Forum, 200 voluntary private sector commitments to the Rio+20 process were made
covering areas ranging from low- or no-carbon footprints to re-forestation, business plans for
subsistence farmers and renewal of clean, fresh water sources. 4 After the Rio+20, these
commitments had surged to over 700 out of which some 181 were from business. The criteria for
commitments are (1) advance one or more United Nations goal/issue; (2) include time-bound
target(s) that can be measured for success; and (3) include an agreement to publicly disclose, on
an annual basis, progress made to realize the commitment, throughout its duration.
Sustainability is defined to consist of three pillars: (1) economic; (2) environmental; and
(3) social. Delegates discussed sustainability in 120 separate sessions in the following
substantive areas: (1) energy and climate; (2) water and eco-systems; (3) agriculture and food;
(4) economics and finance; (5) social development; (6) urbanization and cities; (7) education for
sustainable development and responsible management education. In all these areas issues related
to innovation and collaboration were discussed.
Among the major results of the Forum were the following5: (1) the launch of a new
corporate policy framework to assist companies in the development, implementation and
disclosure of policies and practices related to ecosystems and biodiversity; (2) the launch of a
social enterprise investment framework, designed for large corporations, institutional investors
and Governments interested in incubating and scaling up for-profit startups and small enterprises
with social and environmental missions; (3) an offer by business leaders to be part of the creation
and promotion of new Sustainable Development Goals; (4) a communiqué signed by 45 CEOs of
major corporations outlining ways of how Governments can do better on water management and
can set frameworks that will help business to scale up its own role in reducing usage and
restoring natural sources; (5) a plan endorsed by nearly 300 institutions of higher learning to
place sustainable development at the heart of college and university curricula; (6) an
announcement by 16 companies and other stakeholders in the food and agriculture sector
committed to lead the development of global voluntary business principles on good practice and
policy for sustainable agriculture – to develop a common understanding and agreement on what
resources and impacts are needed to transform markets and agricultural supply systems; (7)
endorsement by over 70 businesses, Governments and international organizations of the Green
Industry Platform, an initiative to mainstream environmental and social considerations into
corporate operations through efficient use of energy and raw materials, innovative practices and
applications of new green technologies; (8) the launch of a new platform to advance transparency
and disclosure on gender equality issues in business by the Women's Empowerment Principles
3 Ibid.
4 UNGC, Rio+20 Corporate Sustainability Forum: Overview and Outcome – Summary Report (New York, 2012).
Available from http://www.unglobalcompact.org/docs/news_events/2012_CSF/Rio_CSF_Overview_Outcomes.pdf.
5 Ibid.
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(WEPs), which are now endorsed by over 400 chief executives worldwide.6 In another recent
development, a group of nine corporate titans, i.e. the Coca-Cola Company, Exxon Mobil
Corporation, Delta Air Lines, Inc., ManpowerGroup Inc., Carlson, LexisNexis Group, NXP
Semiconductors, Microsoft Corporation and Travelport, have decided to take action against
human trafficking by forming the Global Business Coalition Against Human Trafficking
(gBCAT).7
ESCAP co-organized a session at the Forum entitled “A Changing World: Business as
Unusual”. The session contained two panel discussions which discussed the ways business has to
change their operations to address sustainable development. The principal outcomes of the
session are reflective of the outcomes of the Forum in general and include the following: (1)
businesses are part of the solution to sustainable development and need to shift their CSR
attention from how to spend their money (on charity) to how they make their money (i.e. in a
sustainable and socially responsible manner; (2) businesses have to move from traditional CSR
to corporate sustainability and move from focus on shareholder to focus on stakeholder; (3)
Governments have responsibilities too and should provide an enabling environment for business
to allow them to adequately address sustainability issues, including enforcement and
implementation of laws and regulations and curbing corruption; (4) CSR efforts have to be
visible and recognized to provide incentives to businesses to practice corporate sustainable
principles; (5) There is an urgent need to move from talk to action. Time is running out; (6)
Businesses need to adopt mandatory plans on the mitigation of adverse effects of their operations
on environment and communities; (7) Partnerships are necessary at all levels, including between
global organizations and local governments and institutions; (8) The tone of dialogue between
Government and private sector has to change towards a language businesses understand and
which creates mutual trust and cooperation; (9) Engaging all stakeholders is the best way
forward to promote the concept of corporate sustainability; (10) Businesses have to be more
aware of the impact of disasters on their operations and play an active role in the reduction of
disaster risk and mitigation of disaster impacts on local communities. Business engagement in
disasters needs to be properly coordinated.
The results and recommendations from the Forum are welcome and show increasing
commitments and engagement of the private sector in the “Future we want”, the theme of
Rio+20, which would be impossible to achieve without the active participation of the business
sector. Only two decades ago when the United Nations hosted the Earth Summit in Rio, few
companies were exploring the notion of sustainable business and the long-term impacts of their
operations on the environment and society. Today, there are thousands of companies advancing
corporate sustainability through a number of global initiatives. Most of these initiatives are led
by the world’s leading transnational corporations (TNCs)8 which operate extensive global supply
chains, including in the Asia-Pacific region.
6 Ibid.
7 See, for instance: http://thecnnfreedomproject.blogs.cnn.com/2012/09/25/global-brands-team-up-to-fight-slavery.;
and http://www.odysseymediagroup.com/csan/Editorial-People.asp?ReportID=549816. For more information on
gBCAT, please visit: http://www.gbcat.org.
8 In this publication the terms transnational corporations (TNCs) and multinational enterprises (MNEs) are used
interchangeably and refer to the same group of enterprises that engage in foreign direct investment.
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A few examples, as revealed by the United Nations Global Compact (UNGC), may
illustrate this trend. As data centres eat up an increasing share of energy output, Microsoft
Corporation says it will achieve carbon neutrality through offsetting actions. Unilever is
launching a drive to halve the greenhouse gas impact of their products, and Nike, Inc.’s target is
zero discharge of hazardous chemicals along its entire supply chain, both by 2020. With the
world facing a need to double food production by 2050, DuPont pledged $10 billion in R&D for
increasing productivity, scaling up nutrition and cutting back on food waste. DuPont will
develop 4,000 new products along these lines by 2020. Also looking to product development, the
Proctor & Gamble Company promises $50 billion in sales of “sustainable innovation products”
by the end of 2012, and H&M will upgrade to 100 per cent sustainable cotton – either organic,
recycled, or certified – in its cotton garments. Groups of companies are engaging in shared
efforts. Forty-five companies, including Levi Strauss & Co., PepsiCo Inc. and the Coca-Cola
Company are extending their commitments to water management and 23 companies pledged to
transparency and disclosure on their impact on climate change. And numerous companies are
taking action on the United Nations Secretary-General’s campaign for Sustainable Energy for
All.9
Since the Rio+20, 20 private companies from 14 ESCAP regional member countries
made just over 23 commitments in various areas which is just below 13 per cent of all
commitments made by private business worldwide. Some examples are ITC Limited of India
which pledged to remain committed to carbon, water and waste recycling; Socentix of Indonesia
which has committed to develop and to maintain an Internet-based investment platform to
promote, profile, monitor, report and manage Socially Responsible Investing Funds. Other
examples are SK Holdings of the Republic of Korea which has committed to enter into a
partnership with the Global Compact Office towards the development of a Global Action Hub
for social enterprises. Infosys Limited of India has committed to become carbon neutral by
reducing energy consumption by 50 per cent and sourcing 100 per cent of electricity from
renewables. Sime Darby of Malaysia has pledged to improve food security and sustainable
agriculture.
Despite these excellent examples, corporate sustainability has not penetrated the majority
of companies around the world, in particular the small and medium-sized enterprises (SMEs)
which make up the vast majority of all companies, nor have we seen the depth of action needed
to address the most pressing challenges. Another disturbing trend is the delisting of over 3,000
companies from the Global Compact since 2005, whose total membership is currently about
5,300 worldwide, with about a third comprising Asia-Pacific public and private business entities
from both developed and developing countries, with no members from the Pacific islands and
very few from Central Asia. Most companies and Governments simply are not doing enough to
achieve the global acceptance of sustainability as a value proposition. To reach scale, economic
incentive structures must be realigned so that sustainability is valued and profitable. This issue is
of particular importance in the Asia-Pacific region. Companies in this region often do not have a
good record in ensuring sustainability, putting growth and profits first. Only 16 per cent of the
participants in the Rio Forum were from the region of which two thirds were from business. Of
course, it is understood that the priority of business is profits and growth. Without such growth,
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9 UNGC, “Rio+20: action pledges by business kick off Rio drive for sustainability solutions”, 18 June 2012.
Available from http://www.unglobalcompact.org/news/246-06-18-2012.

many developing countries of the region would not have been able to develop fast and lift
millions of people out of poverty. However, unsustainable growth will lead to massive costs and
problems later. The air quality and traffic jams in Asia’s leading cities already clearly
demonstrate the predicament of the region. There are some exceptions and major enterprises of.
Japan and the Republic of Korea have taken the lead in the region with the adoption of
sustainability programmes. The challenge is to expand these programmes as part of strategic
management of all companies, large and small, and integrate them as the new “business as usual”
throughout the whole supply chain.
With this background in mind, the current publication aims to advance the CSR agenda to
the next level. In chapter II, Masato Abe provides a brief overview of historical and recent trends
in CSR and presents a conceptual model which helps Governments and businesses alike to
understand CSR and incorporate and mainstream sustainability practices and elements in all their
policies and strategies rather than treat CSR as an isolated area.
B. THE EMERGENCE OF SOCIAL ENTERPRISES AND IMPACT INVESTMENT
In some cases the demand to incorporate sustainability into the strategic management of
an enterprise is taken even a step further, as illustrated by the emergence of social enterprises, a
concept which took centre stage at the discussions in Rio. Contrasting business enterprises and
social enterprises, the former are created with the primary goal to create profits and growth,
while the latter ones exist to create social value and sustainable change while operating in a
financially sustainable manner. Having sustainability built into its organizational DNA, regular
business enterprises may very well benefit from studying social enterprise business models, as
business enterprises are pursuing their own path to streamline sustainability into all their
dimensions of work.
In parallel with the emergence of an increasing number of sustainable businesses, the
sustainable investment sector is also gradually moving towards centre stage. Sustainable
investment can be defined as investment with the goal of creating positive impact on society and
the environment in addition to financial returns and has significant potential to contribute to the
sustainable development agenda. While sustainable investment should not be understood as one
particular kind of investment approach, it serves as an umbrella concept, capturing several
investment models. Under this umbrella, socially responsible investment, social venture capital
and impact investment are all examples of investment models which differ with respect to the
degree to which they focus on contributing to development, by the types of investors that engage
in the model, by the risk level the investments take, by the nature of enterprises that the model
seeks to invest in, and by how much emphasis is put on financial and impact goals. However, all
of them are aiming to minimize negative effects, or create positive effects, on society and the
environment.
Already back in 2008, the Monitor Group estimated that the sustainable investment
sector could grow to $500 billion within the next 5 to 10 years, which equaled an estimated 1 per
cent of global assets under management in 2008.10 Newer figures from a joint research initiative
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10 Monitor Institute,Investing for Social and Environmental Impact: a Design for Catalyzing an Emerging Industry
(2009). Available from http://www.gbn.com/consulting/article_details.php?id=88.

between J.P. Morgan and the Rockefeller Foundation from 2010 forecast a market size of profit
potential ranging from $183 billion to $667 billion, and invested capital in the range of $400
billion to nearly $1 trillion.11
The actors in the field of sustainable investment who put this money to work range from
family and corporate foundations, high net-worth individuals, government development agencies,
development finance organizations, SME funds, institutional investors to private equity and
venture capital funds. And while acknowledging that there are and always will be social and
environmental problems that cannot be addressed through market based models, sustainable
investing is now mostly focusing on a few selected sectors such as microfinance, clean energy,
food and agriculture, affordable housing, education and water and sanitation.
While the emergence of social enterprises and sustainable investing clearly illustrates
how far certain entrepreneurs and investors have come in furthering the sustainable development
agenda, expectations, particularly with regard to financial returns need to be managed in order to
avoid grand disillusions and expectations which could lead to a withdrawal from investors and
severely hurt the development of this promising industry.
In chapter III, Jana Svedova takes a closer look at trends and issues related to impact
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investment and its importance in the Asia-Pacific region.
C. TOWARDS A CONVERGENCE OF GLOBAL CSR INSTRUMENTS
In the meantime, while the sustainable investment field will without doubt develop
further, changes on a different front need to take place as well. Against the backdrop of taking a
more active rather than reactive approach when it comes to the role of business and the private
sector in development, a shift away from the traditional concept of CSR is necessary. Too many
times, CSR has been simply a charity programme of leading businesses which made them look
good, a marketing ploy rather than a systematic and integrated part of strategic management. As
a result, new terms have emerged, such as corporate sustainability (CS), corporate responsibility
(CR) or responsible business practices (RBPs). The idea behind this new terminology is to
emphasize a shift from a mindset based on charity to a mindset which focuses on a new way of
doing business, i.e. a way which incorporates sustainability criteria (linked to due reporting) as
an essential part of corporate strategy on which the long-term survival of the business depends.
There are multiple international instruments to evaluate corporate sustainability or
responsibility, including the Global Reporting Initiative (GRI) Sustainability Reporting
Guidelines, the ISO 26000 standard on Social Responsibility, the United Nations Guiding
Principles for Business and Human Rights, the OECD Guidelines for Multinational Enterprises,
the IFC Sustainability Performance Standards and UNGC. There is a need for convergence of
these instruments to reduce reporting requirements and provide the right incentive for businesses
to take sustainability serious and make it easier and affordable for them to report on their
progress in this area.
11 J.P. Morgan Global Research, Impact Investments: An Emerging Asset Class (2010). Available from
http://www.socialfinance.org.uk/sites/default/files/JP%20Morgan.pdf. See chapter IV.

An OECD-ESCAP Conference on this issue was organized as part of the Asia-Pacific
Business Forum (APBF) 2012 which was organized by ESCAP in Kuala Lumpur, Malaysia on
15 and 16 October 2012. The objectives of the Conference were: (1) to highlight the new
features of the recently transformed landscape of leading international CR instruments; (2) to
show how this new landscape has resulted in a more convergent and coherent CR framework for
companies operating in Asia and the Pacific; (3) to highlight the key features of the increasingly
convergent management paradigm for CR: risk-based due diligence, reporting, stakeholder
engagement; and discuss how business in Asia and the Pacific can implement and benefit from
it; (4) to increase understanding of CR tools and provide examples of good practices by business
in Asia and the Pacific; (5) to demonstrate how social dialogue and access to consensual and
non-adversarial means such as mediation and conciliation can contribute to the resolution of
societal issues linked to company operations; (6) to explore how “good offices” mechanisms
such as that provided by OECD National Contact Points can play a constructive role in resolving
corporate responsibility challenges in Asia.
The Conference concluded that convergence of CR instruments was useful as it reduced
confusion, achieved more alignment and less deviance, contributed to more and deeper
collaboration between stakeholders and cut costs in trying to comply with many different
instruments. However it was also noted that proliferation of instruments is not always a bad thing
as long as it does not confuse users and leads to greater CSR implementation. The Conference
observed that there is not enough adoption of CR instruments in Asia and the Pacific and that
there was a need for scaling up of these instruments. It was also observed that there were too
many audits related to CR for the supply chains and that such audits do not necessarily indicate
the true status at the supply chain and may actually be seen as non-tariff barriers to trade.
It was also observed that local instruments are important and may have more impact than
international instruments. For example, the Singapore Exchange Ltd. guidelines have been very
effective as companies “feel closer” to them. Other examples include the BCA Green Mark label
in Singapore and also the China Social Compliance 9000 for the Textile and Apparel Industry
(CSC 9000 T) management system and CSR Gate (reporting system with 201 indicators).
Other observations of the Conference included the following: (1) The priorities of
companies remain financial and companies are often not convinced that there is a return on
investment from engaging in CSR, in particular as CSR is expensive and requires a lot of
investment and efforts; (2) Cultural differences hamper the adoption of CR instruments,
especially in Asia where transparent reporting conflicts with some aspects of the local culture;
(3) Interest in compliance remained low as the requirements were not compulsory by law; (4)
Social dialogue was important but local cultures tended to avoid conflict and therefore there was
not enough dialogue among concerned stakeholders on CR; (5) There was often a mismatch
between local government and central government policies.
The Conference suggested that there was a need to simplify the CSR concept; help
organizations make it easier for them to embed CSR; get instruments into action; and recognize
the importance of the role of the Government. The Government can and should influence
outcomes positively, e.g. in the way licenses and contracts are awarded. In particular, the
Conference called for a mega linkage document for convergence, the need to develop more local
tools and enforce a certification mechanism for CR. The adoption of international CR
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instruments should be obligatory and not be seen as marketing tools. There should be a shared
social responsibility among all actors in supply chains which included observance to human
rights. Furthermore, the impact of CSR on society should be measured in order to enhance the
visibility of the concept.
With respect to the need for social dialogue, the Conference concluded that capacity-building
in problem solving is essential before actual and effective conflict resolution dialogues
could take place. A shift in the mindset of the people involved in the conflict resolution process
was often necessary. It was important to work towards breaking down stereotypes and greater
understanding of cultures and learning from people about their needs before acting. Finally,
options for processes to prevent conflicts rather than just resolving them should be actively
explored.
In chapter IV, Leena Wokeck provides an elaborate overview of the issues related to
convergence with focus on the Asia-Pacific region. The chapter is the final version of her paper
on this topic which was presented at the OECD-ESCAP Conference during APBF 2012.
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