Business rules

Saving the world may depend on getting business on board, but will we even get safely to first base without better regulation? Polly Ghazi brings out the tough talking in a new report.

At the global level, there is no shortage of arguments about ethics and equity (or the absence of it). But they seem to share little or no common ground with arguments about corporate social responsibility, framed in terms of a hard commercial model of corporate purpose. Even within the ‘developed’ world, as governments have embraced a strongly pro-market world-view and renounced old corporatist habits (though not that of generous and often perverse subsidy for key sectors), so the social and cultural influence of business has risen.

Companies find themselves as a result in prominent roles in fundamental areas of policy previously the terrain of government – such as utility management – and their impact on environment and society seems all the greater to the citizen. In many areas, there is a poor fit, or even no link at all, between what makes good commercial sense and what citizens and NGOs might regard as the common good, locally and globally. Certainly the notion of values-driven businesses, blazing new trails to sustainability, gets scant credence in World Resources 2002-4, the latest in a series of influential biennial reports on the state of the planet.

Published in July by the World Resources Institute in Washington DC and funded by the World Bank, UNEP and UNDP, the report’s focus is environmental governance and how to improve it. And while conceding that “better environmental governance simply isn’t possible without business on board”, its chapter on business accountability does not see corporations as any kind of knights in shining armour. Rather it focuses largely on the familiar issue of how to get big business to comply with and support such minimum standards of responsible, accountable behaviour as green reporting, open decision-making and meaningful codes of conduct.

And it marshals evidence (if anyone is so starry-eyed as to need reminding) that this is by no means a done deal. Industry or company codes of conduct, the report states, often lack clear targets, measurable outcomes or deadlines for improvement. Only in Japan, it reveals, do more than half of the top 100 companies produce an environmental report, with 70% exposing their record to public scrutiny. The UK is the only other country that comes close to a 50% reporting standard (with 48%) in 18 industrialised nations, with the US a poor third at 36%.

The explanation, according to the authors, is that rather than being bitten by the sustainability bug, many CEOs and boards simply are not convinced that green pioneerdom will help their bottom line. “Some companies have become ‘best reporters’, seeing value in building their names as leaders in transparency and corporate citizenship. But many more have resisted the disclosure trend, unconvinced that it will benefit them now or in the long run.” They quote a 2001 survey which found not a single corporate effort to quantify the links between corporate environmental actions and the value of the company’s brand. Their conclusion? “Effective government regulation…is behind all effective business disclosure - mandatory or voluntary."

As the report points out, the extent of corporate coyness is surprising, given that the benefits of environmentally responsible behaviour are well documented. Many companies that invest in an environmental report identify ways of saving significant sums in areas such as energy use or transport. Others find that forced public disclosure of pollution emissions (now a practice in use or under development in 60 countries) spurs them to take clean-up action which cuts costs. As an example, the authors cite the Haartz Corporation, a US manufacturer which introduced a solvent-reducing chemical recycling system in response to the US Toxics Release Inventory and now saves $200,000 a year.

So how to improve corporate environmental governance? Recommendations in World Resources 2002-4 include:

• Businesses must more fully embrace the business rationale for public disclosure of its activities, which in turn will drive improved practice. To do this, they need to pay more attention to quantifying the benefits of transparency to the bottom line.
• Businesses need to engage more with their neighbours and with other stakeholders such as environmental NGOs, through community advisory panels.
• Governments must, if anything, become more active in providing baseline environmental standards which businesses must meet; ensuring effective oversight by government agencies that corporations meet these standards; providing credible threats of tougher regulation if voluntary actions are insufficient; and promoting cross-border regional pollution registers.

12 October 2003

Polly Ghazi