40763 A Corporate Social Responsibility (CSR) Diagnosis Module for Application in Value Chain Analysis (VCA) Foreign Investment Advisory Service World Bank/International Finance Corporation April 2006 A Corporate Social Responsibility (CSR) Diagnosis Module for Application in Value Chain Analysis (VCA) April 2006 Foreign Investment Advisory Service World Bank/International Finance Corporation programme on Business and Development Performance Overseas Development Institute email: m.warner@odi.org.uk tel: +44 (0)20 7922 0300 www.odi.org.uk ii World Bank Foreign Investment Advisory Services CONTENTS Background ........................................................................................................................1 1. Introduction ................................................................................................................2 2. CSR and VCA ­ An Overview....................................................................................3 2.1 Defining Corporate Social Responsibility..........................................................3 2.2 Value Chain Analysis........................................................................................3 2.3 CSR Categories, Standards and Codes...........................................................3 2.4 CSR within Value Chain Analysis.....................................................................4 3. Value Chain Analysis ­ CSR Module........................................................................7 3.1 Step 1: Value Chain Mapping...............................................................................8 3.2 Step 2: Value Drivers..........................................................................................11 3.3 Step 3: Demand-Side factors .............................................................................14 3.4 Step 4: Supply-Side Constraints.........................................................................17 3.5 Step 5: Strategies...............................................................................................19 3.6 Step 6: Costs and Benefits.................................................................................20 4. Quick Reference Checklist......................................................................................26 Annex A1...........................................................................................................................29 Annex A2...........................................................................................................................31 Annex B.............................................................................................................................35 Annex C.............................................................................................................................46 Annex D.............................................................................................................................72 Box 1 Categories of CSR Standards, Codes and Practices.........................................................4 Box 2 Incorporating CSR Factors within Value Chain Analysis for Textile and Clothing Sector ­ a hypothetical illustration .....................................................................................6 Box 3 Leverage over the Value Chain..........................................................................................9 Box 4 Types of CSR Standards, Codes and Practices ..............................................................15 Box 5 Hypothetical case-study from the tea production and export sector ............................20 Figure 1 CSR Module for application in Value Chain Analysis ­ Overview .....................................7 Figure 2 A Global Value Chain Map for Apparel (clothing industry) ..............................................10 Figure 3 A Global Value Chain for Tea...........................................................................................10 Figure 4 Framework for an Initial Investigation of the Potential for CSR to Contribute to Value Drivers in the Private and Public Sector...........................................................................13 Figure 5 Value Comparison of Different CSR-based Competitiveness and Investment Strategies: An Illustration for Large-scale Tea Producers..........................................24 Table 1 Calculating the costs of implementing a three year strategy to achieve CSR benchmark standards: An Illustration for Tea Producers implementing the Ethical Trading Initiative (ETI) Base Code ...................................................................................23 Table 2 Calculating the gross benefits of implementing a three-year strategy to achieve CSR benchmark standards: A Hypothetical Illustration of Tea Producers implementing the Ethical Trading Initiative `Base Code'...............................................................................24 Table 3 Calculating the net present benefit of implementing strategies to achieve CSR benchmark standards: An Illustration for Tea Producers implementing the Ethical Trading Initiative Base Code ............................................................................................24 World Bank Foreign Investment Advisory Services iii iv World Bank Foreign Investment Advisory Services Background This report has been prepared by the Foreign Investment Advisory Services (FIAS). FIAS is a joint facility of the International Finance Corporation and the World Bank. The facility provides advice to developing country governments on competitiveness and investment promotion. In 2003 FIAS absorbed the work of the World Bank Group's program Strengthening developing country governments' engagement with Corporate Social Responsibility. Part of this work involved development and application of a framework for CSR diagnosisi, designed to identify public sector roles for strengthening CSR in ways aligned with public policy and responsibilities. More recently, FIAS has engaged in developing methodology for global Value Chain Analysis. This methodology identifies demand-side, market-driven, opportunities for industrial sectors at the country level, and benchmarks the required performance (eg to access new markets or derive competitive differentiation). The analysis then identifies supply-side constraints to realizing these opportunities. This leads to recommendations for enhanced competitiveness and inwards investment, aimed at either the firm, industry, sub-sector or public policy levels. This report develops the original CSR diagnostic to be used as a stand-alone analysis or in conjunction with a full value chain analysis. For example, the module presented in this report can be used along with the Manual on the Value Chain Approach: Analysis to Solution Design (World Bank 2006). World Bank Foreign Investment Advisory Services 1 1. Introduction This paper provides guidance to FIAS staff, consultants and others working on Corporate Social Responsibility (CSR) projects and global Value Chain Analysis (VCA). It is targeted at the industry sector (or sub-sector) level in emerging economies and regions, in relation to international export markets. The guidance enables users to conduct a diagnosis, design solutions and quantify the implementation of CSR initiatives, with the aim of enhancing international competitiveness and promoting inward investment. As well as functioning as a module within broader value chain analysis, the guidance can be used as a free-standing methodology for investigating the contribution of CSR practices to sector competitiveness and inward investment. Section 2 provides an overview of CSR in the context of VCA. In Section 3 guidance on CSR and VCA corresponds to a series of methodological steps, as follows: mapping the value chain and defining the parameters of the study; identifying the value drivers for the analysis and scoping the potential for different CSR practices to contribute to these drivers; assessing the demand-side factors driving CSR through the value chain, benchmarking required performance to gain competitive advantage or enhance investment, and measuring current CSR performance; identifying supply-side constraints to reach the benchmarks, both a government failure and market failure perspective; Identifying viable CSR-based strategies and the division of responsibilities for execution; calculating the costs and benefits of implementing the strategies and developing performance monitoring metrics. The checklist in Section 4 is a quick reference guide to applying the methodology. 2 World Bank Foreign Investment Advisory Services 2. CSR and VCA ­ An Overview This section provides an overview of CSR in the context of VCA. Users already familiar with the material are advised to progress directly to Section 3. 2.1 Defining Corporate Social Responsibility We consider Corporate Social Responsibility (CSR) to be the commitment of business to contribute to sustainable economic development - working with employees, their families, the local community and society at large to improve the quality of life, in ways that are both good for business and good for development. 2.2 Value Chain Analysis Under the influence of globalization, the nature of production processes is changing. In the case of domestic companies producing for export markets, whereas in the past the value added in creating a manufacturing product was built around investments in materials, labor, technology and capital costs, today just as much value, if not more, is added through information, finance, quality control and orientation to customer needs, eg through research, design, quality management, relationship marketing, branding, advertising, product `fit' (eg `made to stock' vs `made to order') and product-based financial services, such as warrantees and maintenance contracts. On a global scale, the geographic configuration of investment and trade has changed too. For example, some East Asian countries ­ Malaysia, Thailand - have become original equipment manufacturers (OEM) and/or original brand manufacturers (OBM). This has been possible due in part to `triangle manufacturing' where buyers from the United and European States place orders within these East Asian's newly industrializing countries (NICs), who in turn shift part of their production to regional low-wage countries, such as China, Indonesia or Viet Nam. Finished goods are then shipped directly from the third country to the United States or Europe under the quota systems which apply to the exporting country.ii Improving the competitiveness of a firm or an industry within a country now means far more than just the efficiency of production and cost reduction. Value Chain Analysis (VCA), or more accurately `global' VCA, is about better positioning a firm or sector within the context of the global markets - finding a competitive or investment `niche' within the full range of production and informational activities that lead a product or service from conception, through intermediary phases of production, export and distribution, to retailers, end-users and consumers, and to its disposal after use.iii It is also about identifying strategic interventions that the public sector can make to strengthen local business infrastructure and re-position regulations so that they act as a competitive advantage rather than a hindrance. CSR standards, codes and practices offer one set sub-set of opportunities for finding this type of competitive investment `niche' within global value chains. 2.3 CSR Categories, Standards and Codes CSR issues generally fall within one of four categories: environmental, social, economic and corporate governance. Box 1 lists some of the common categories under these headings. CSR standards, codes and practices may be individual company quality requirements (such as those expressed in purchasing and sourcing agreements), driven by consumer expectations and shareholder reputational concerns. Alternatively they may be importer codes and standards, for example, those driven by concerns over liabilities for food safety. There are also CSR codes developed by NGOs, driven by ethical principles, and adopted by mainstream buyers, such as the UK Fairtrade scheme. In recent years, due to weaknesses in both business and NGO-led codes, consensus-based (often multi-stakeholder-driven) codes and certification schemes have developed. The ILO labour standards, ISO environmental standards, the Ethical World Bank Foreign Investment Advisory Services 3 Trading Initiative Base Code (see Box 1), Forest Stewardship Council and Social Accountability SA 8000 are examples. Box 1 Categories of CSR Standards, Codes and Practices Economic Social Corporate Governance Monetary flows to the public sector Health and safety of employees Rights and treatment of Employment and human resource Labour standards and working shareholder development conditions Governance policies and business Procurement and supply chain Corruption and bribery principles management Human rights Information disclosure and Technology transfer and Violence and conflict reporting intellectual property rights Social impact assessment and Responsibilities of the Board management Customer/end-user care Environment Community and stakeholder Environmentally safe production, engagement (non-commercial) products and services Charitable giving Resource and energy efficiency Social/community investment Environmental impact assessment Social reporting and management and management systems Environmental reporting and management systems Further layers of CSR standards and codes are industry-based, such as the EUREPGAP code developed by European retailers for food safety and good labour practices, or the `Kimberly process' for diamonds. Others are driven by an industry or sector within a specific country, such as the Zambia Export Growers Association (ZEGA), which covers labour rights, working conditions and worker housing. There are also legal and regulatory CSR standards and voluntary codes exercised within importer countries, eg on food health and safety and product labeling, and within export countries, eg national requirements for environmental protection and workers rights. CSR standards and codes may also be included as part of government investment and competitiveness incentive policies and programmes, such as the requirements for increased vocational training and labour standards linked to financial grants, fiscal/tax holidays, regulatory exemptions and participation in Export Processing Zones (EPZs). Some financial institutions such as stock-market listings and commercial and `development' banks also carry their own CSR requirements, and these can influence inward investments and competitiveness. Finally, there are internationally recognized principles and CSR standards to which exporter and importer countries may be signatory, such as the OECD Multi-National Enterprise Guidelines, 2.4 CSR within Value Chain Analysis In the context of broader global value chain analysis, consideration of CSR factors is likely to fall within the following areas of investigation: (i) market entry for developing country firms into global value chains dominated by firms in developed countries, (ii) quality enhancement of production and (iii) consumer-orientation to create new `niche' markets. There may also be some linkage with productivity efficiency, for example in relation to worker health, skills and recruitment, and quality enhancement. In order to assess the opportunities and costs of adopting CSR as a pathway to improved competitiveness and/or inward investment, it is necessary to look closely at which stakeholders are most influential in the value chain. Who governs the chain and sets the CSR rules? This could be stakeholders both internal and external to the industry on question. Internal stakeholders might include retailers, buyers, distributors, importers, exporters, producers, export/producer associations, local traders, raw material producers. External stakeholders include exporter country regulators, importer country regulators, policy makers (exporter or importer country), worker organisations, NGOs and the media. 4 World Bank Foreign Investment Advisory Services International buyers, importers, distributors (and some large-scale producers) are increasingly influential across global value chains. This is either because of their own requirements for continuous improvements in the service and quality of suppliers (of which CSR standards and codes may form part), or because they have signed up to a voluntary set of CSR standards or codes developed by others (NGOs, governments, multi-stakeholder forma etc.). The value chain for coffee illustrates the importance of unilateral CSR requirements. This industry has undergone a shift in recent years from governance by the large producer countries, based on quotas, to governance by importing countries, driven by individual multinational buyers.iv Examples of buyers adopting CSR codes developed by others includes the certification of `blood' diamonds under the `Kimberly process', and multinational tea packers who have agreed to require their suppliers to adhere to a code of conduct developed by the Ethical Tea Partnership. In each of these cases, the competitiveness and investment case for developing country supplier firms and sectors in meeting CSR standards is built around the desire to either access new markets or maintain (or extend) existing contracts. Yet many markets and commodities are not yet covered by such `blanket' CSR standards or codes of conduct. For example, some commodities are unidentifiable in the end product, ie are not `traceable', and therefore are not easy to monitor in terms of the environmental or labour standards used by individual suppliers. Vegetables in ready-made food is a case in point. Likewise, the labour standards of small-scale producers and micro-enterprises are rarely covered by existing codes, for example, in cases where a multitude of micro enterprises and small family firms provide ancillary services to manufacturing or agri-processing units. This is due primarily to the costs involved of implementing compliance measures and a lack of capacity for CSR monitoring, auditing, recording and communicating compliance at this micro level. It is also a consequence of the sometimes poor fit of `factory-driven' standards and codes with the realities of micro and small enterprises, where, for example, compliance with child labour standards may mean prohibiting a key input to the livelihood of a household. These gaps and constraints in CSR coverage offer an alternative set of competitiveness and investment opportunities. Countries, producers or producer associations may be able to use CSR practices as a means to differentiate themselves from their competitors and position themselves as `preferred suppliers'. For example, in South Africa, in the forestry sector, local firms unable to prevent global buyers such as IKEA from switching to Asia suppliers, have (with support from government) shifted to certified wood, enabling them to access the growing sustainable wood market. Likewise, the Kenya Flower Council, following international scrutiny for labor practices in the cut flower export business, is positioning itself within Dutch Auctions `niche' markets. The Dutch Auctions in the Netherlands do not require labour or environmental codes. This allows Kenyan producers (with 66% of the country's exports going to the auctions)v to promote their voluntary adoption of the `MPS' environmental and labour standards as a competitive advantage.1 Further, new levels of awareness by consumers in the developed economies on issues of bio- diversity, global warming, human rights and poverty reduction (and the reputational risks this poses for branded multi-national companies) offer firms and government agencies opportunities to build or catalyze entirely new markets. For example, some tea firms have their own code, such as the Premier Beverages label based on the labour standards of the Ethical Trading Initiative, which then allows the firm to command a price premium. Likewise, a group of coffee producers are now differentiating themselves by marketing `eco-friendly, shade-grown' coffee. In the extractive industries sector, domestic engineering companies are pro-actively seeking to help their international oil company clients find solutions to reduce carbon emissions. Those that do may well find themselves in an uncontested market space. 1 MPS ­ Floriculture Environmental Protection certification, a combined environmental and labour code, initially based on environmental standards for pesticide and water use, but later expanded to include core ILO standards and parts of the Universal Declaration of Human Rights. World Bank Foreign Investment Advisory Services 5 These types of CSR opportunities are also relevant where buyers are the public sector, rather than private sector: international development assistance agencies and government ministries. In many low-income countries and regions, for example, the local private engineering company that is the first to develop commercially viable water or energy supply technologies for peri- urban and rural households, may also find itself in uncontested market space, able to attract public sector contracts and subsidized finance ahead of its competitors. CSR regulations, standards and codes are also adopted or promoted by governments as part of policy to increase inward investment. One example is the role of CSR in Export Processing Zones (EPZs). EPZs are industrial zones offering free trade conditions, quality infrastructure, a liberal regulatory framework and other incentives, sometimes to compensate for bad fundamentals elsewhere in the country. In some cases, building labour standards into the terms of EPZ participation serves to attract more inward investment.vi An illustration of how CSR factors might be incorporated into Value Chain Analysis is given in Box 2. Box 2 Incorporating CSR Factors within Value Chain Analysis for Textile and Clothing Sector ­ a hypothetical illustration A major branded buyer in a textile and clothing value chain has sufficient commercial incentive to ensure that the products it sells fulfils a range of voluntary environmental and labour standards. Without these standards the buyer might not be able to sell its products, or if it does, carry substantial brand reputation risks. In other words, the market driver for the CSR standards is `strong'. The buyer searches for efficient suppliers, including those operating in developing countries. The search is for supplies with the right type of quality garments, able to deliver within the right time frame, `and' those who can fulfil the buyer's CSR requirements. Local firms that do not meet these CSR standards may lose out on business, and countries supporting a garment sector may lose out on the opportunity to attract investment and generate employment. The main questions that will need to be asked by firms, the industry/sector and the government include: how much the current practices are deviating from the required CSR standards? why there is a gap between current and required standards buyers? how to close the gap, either through the actions or government or the firm, or both? whether it is efficient to close this gap, ie the net benefit of investment in higher standards, both for the firm and for achieving public policy. This focus on net benefit is important. In some cases garment assembly firms may, for example, work with governments to invest in introducing labour standards and thereby improve competitiveness and attractive foreign direct investment. In other cases, the cost benefit calculation of meeting the new standards may yield a net negative return. In these circumstances the firm may elect simply to keep on producing for its current markets. Alternatively, a positive cost benefit ratio (ie a positive Internal Rate of Return) may arise because CSR standards assure that a firm has access to new markets though the global value chain (e.g. firms in China), or because engaging with global value chains will raise output quality or productivity (ie a simple order for certain types of garments may in itself involve learning on the side of the assembler). 6 World Bank Foreign Investment Advisory Services 3. Value Chain Analysis ­ CSR Module The following guidance is aimed at specific industry sectors in emerging economies and regions, in relation to international markets. The guidance can be used both as a module within a broader Value Chain Analysis, or a free-standing methodology for investigating the contribution of CSR practices to sector competitiveness and inward investment. This module is divided into the following methodological steps: Step 1 map the value chain and define the parameters of the study Step 2 identify the value drivers for the analysis and conduct an initial investigation into the potential for different CSR categories to add value. . Step 3 detail the demand-side factors driving CSR through the value chain, benchmark required performance to gain competitive advantage or enhance investment, and measure current CSR performance. Step 4 identify supply-side constraints to reaching the benchmarks, from both a government failure and market failure perspective. Step 5 identify viable CSR-based strategies that overcome these constraints and the division of responsibilities for execution. Step 6 calculate the costs and benefits of implementing the strategies and put in place performance monitoring metrics. These steps are described in Sections 3.1 to 3.9, and illustrated in Figure 1.. Each Section begins with the stated objective of this phase of the methodology, and is followed by a description of the key tasks that need to be undertaken. Illustrations are provided. Figure 1 CSR Module for application in Value Chain Analysis ­ Overview Strategies to overcome Supply-side supply-side constraints Strategies to overcome constraints to the Supply-side Parameters of Demand-side factors supply-side constraints Parameters of Demand-side factors and enable CSR to sector reaching the constraints to the analysis promoting CSR in contribute to the Value and enable CSR to analysis the Value Chain promoting CSR in CSR benchmarks sector reaching the the Value Chain contribute to the Value CSR benchmarks Drivers Drivers Value Drivers of Value Drivers of Costs and Benefits analysis Costs and Benefits analysis Market failures Market failures ofofproposed strategies proposed strategies Benchmarking existing CSR Benchmarking existing CSR practice practice Initial Investigation ofofpotential for CSR Initial Investigation Government Government Performance monitoring Performance totodeliver the Value potential for CSR failures deliver the Value failures monitoring Drivers Drivers World Bank Foreign Investment Advisory Services 7 3.1 Step 1: Value Chain Mapping2 Objectives Develop a value chain map Establish the parameters of the analysis Tasks 1. Define which industrial sector or sub-sector is to be the unit of analysis. 2. Identify the principal functions (stages, nodes etc.) in the value chain for the sector or sub- sector, both domestic and cross-boarders. Examples include: materials (eg land ownership, growing, mining) collection, local trading processing, production packaging, assembly, fabrication exporting importing, distribution product research and development product design marketing (commodity markets, market research, relationship-marketing, branding, advertising) stocking, wholesale retail (sales, sales `experience', supporting financial products, warrantees, maintenance and service contracts etc) consumption by end-users disposal and recycling 3. Quantify the routes (ie flows of goods and services) within the value chain map, for example by volume (actual, proportion etc.) or by value (revenues, profit etc.). (see Figure 2). 4. Overlay on the map the principal stakeholders who influence each stage or node in the chain, both those internal and external to the value chain. Internal stakeholders may include: end users and customers retailers distributors importers/trading companies producers export/producer associations local traders/collectors raw material producers key competitors (throughout chain) External stakeholders may include: exporter country regulators importer country regulators public policy makers (exporter or importer country) worker organisations NGOs and the media development assistance agencies 2This step may be skipped if already completed under a broader Value Chain Analysis. 8 World Bank Foreign Investment Advisory Services export promotion agencies science and technology institutions local government 5. Categorise and prioritise stakeholders in terms of their level of governance and co- ordination over the value chain. For example, divide stakeholders into: who makes the rules that govern business practice; how influential the rules are across the whole value chain, ie how interconnected is the chain and who controls the main points of leverage (see Box 3) who manages implementation of the rule; and who ensures conformity with the rules Box 3 Leverage over the Value Chainvii The leverage of stakeholders over a chain depend on a number of factors. Generally chains tend to be more integrated (or have the potential to be more integrated), with greater influence of buyers and large producers where: 1. chains are short, ie where there is little separation between producers, distributors and retailers; 2. it is possible to trace the source of raw materials; 3. a commodity is clearly identifiable within an end-product; 4. a small number of retailers dominate the sector; 5. for commercial or legal reasons businesses must work closely together (such as in the case of quality or premium products). 6. Grade the influence of each stakeholder in terms of high (H), moderate (M) or low (L) level of governance. 7. Based on this mapping, define the parameters of the analysis for investigating the role of CSR in the value chain in terms of the sector (sub-sector), geography, number of links and nodes and priority stakeholders. 8. Where necessary, condense and simplify the map to foster a manageable process of value chain analysis. World Bank Foreign Investment Advisory Services 9 Figure 2 A Global Value Chain Map for Apparel (clothing industry)viii Materials Processes End-uses HOUSEHOLD GOODS (HS 63) furnishings, carpets, DISTRIBUTION C32% Natural Fibres TEXTILE CLOTHING INDUSTRY C46% INDUSTRY Raw FABRIC DISTRIBUTION cotton, YARN MANUFACTURE DESIGN Retail/ wool, etc PREPARATION weaving/knitting, PREPARATION wholesale SPINNING finishing PRODUCTION operations Standardised Fashion garments garments Chemical Fibres c22% Oil, Chemical PRODUCTION OF natural gas plants & Man-made FIBRES petrochemical a. cellulosics INDUSTRIAL GOODS refineries b. synthetics Belting, upholstery for auto industry, etc Figure 3 A Global Value Chain for Tea Small Large producers producers International Domestic Customs Consumption Retail Blending 30% 30% by end-user Large retailers Multi-national buyers Consumption by end-user Retail Distribution/ Exporting Auctioning Factory Growing importing /Brokerage 40% Plantations Blending Multi-national buyers and producers 10 World Bank Foreign Investment Advisory Services 3.2 Step 2: Value Drivers3 Objectives Identify the competitiveness and investment `value drivers' for undertaking the analysis Undertake investigation of the potential for different CSR categories to play a material role in supporting the value drivers. Tasks 1. Identify the broader value propositions driving analysis of the chain. Critically, what aspects of competitiveness or investment is the government agency, industry association or firm interested in achieving? Consider both private sector and public sector value drivers, and where there might be potential alignment between to the two, ie such that the public sector could justify playing a value-enhancing role. Examples of value drivers for a sector-sub sector or other component of the value chain include the following: Business value drivers Government value drivers business expansion macro economic and fiscal objectives, upgrading (expanding operations including tax revenue into new parts of the value chain) higher volumes or quality of foreign direct improved operational risk investment management employment creation improved productivity efficiencies employment quality reduced human resource costs improved business infrastructure access to new markets meeting of commitments to productive public continued access to existing investment markets enterprise development creating new markets human, vocational and skills development new branding & marketing improved pro-poor earning opportunities strategies improved access for the poor to public exploiting new PPP opportunities services free-up government resources to devote elsewhere improved environmental standards/targets 2. Prioritise the main value drivers. 3. Undertake an initial investigation of the potential for different categories and sub- categories of CSR to play a material role in supporting these value drivers. Figure 4 provides a framework for guiding the investigation and summarising the results. Some examples of the role of CSR in improving competitiveness and/or investment include the following: complying with new CSR standards might enable firms to access to markets or sustain access to existing markets; 3If this module is being applied as part of a broader value chain analysis, the key value propositions for the study may have already been identified. World Bank Foreign Investment Advisory Services 11 certain CSR practices might reduce risk-related insurance premiums (most commonly by reducing the number or amount of claims); energy efficiency might introduce savings on overheads; higher labour and working standards might contribute to reduced staff turnover, injuries and worker disputes; certain local procurement policies might allow for brands to be repositioned and new `niche' markets be developed; improved stakeholder engagement processes and pro-poor products and services might improve competitive differentiation when bidding for public procurement contracts or engaging in public-private partnerships 4. Prompts to use in the investigation include: Which CSR standards, codes or practices already adopted in the value chain might be strengthened (ie `raising the bar')? Which aspects of existing CSR standards, codes or practices in the value chain could be achieved more cost-effectively, or could be eliminated? Which wholly new CSR standards, codes or practices could be introduced into the value chain (see Annexes A and B)? What other modifications to production processes etc. are likely to contribute greater net benefits than implementing these new CSR standards, codes or practices? Caution: this initial investigation is an important step. Without it there is the danger that analysis of CSR standards, codes and practices will be limited to those already known to have influence in the value chain, principally standards that foster, or sustain, market assess. Omitted will be a creative search for how a raising of CSR standards, or creation of new types of standards and codes, might enable export sectors and sub-sectors to (i) improve their productivity, (ii) find new `niche' markets, (iii) create wholly new markets, or (iv) attract new investment. 12 World Bank Foreign Investment Advisory Services Figure 4 Framework for an Initial Investigation of the Potential for CSR to Contribute to Value Drivers in the Private and Public Sector CSR Categories Private Sector drivers Pubilc Sector drivers improved improved reduced access to continued creating new new PPP macro higher employment improved meeting of enterprise human, improved pro- improved operational risk productivity human new access to new branding & opportunities economic volumes creation business commitments development vocational and poor earning access for management efficiencies resource markets existing markets marketing and fiscal or quality infrastructure to productive skills opportunities the poor to costs markets strategies objectives of foreign public development public direct investment services investment Weightings for Drivers (High; Moderate; Low) Economic Monetary flows to the public sector Employment and human resource development Procurement and supply chain management Technology transfer and intellectual property rights Environment Environmentally safe production, products and service Resource and energy efficiency Environmental impact assessment and management Environmental reporting and management systems Social Health and safety of employees Labour standards and working conditions Corruption and bribery Human Rights Violence and Conflict Social impact assessment and management Community and stakeholder engagement (non-commercial) Charitable giving Social/communty investment Social reporting and management systems Corporate Governance Rights and treatment of shareholder Governance policies and business principles Information disclosure and reporting Responsibilities of the Board Customer/end-user care World Bank Foreign Investment Advisory Services 13 3.3 Step 3: Demand-Side factors Objectives Develop a value chain map Establish the demand-side factors promoting CSR in the value chain Benchmark the CSR performance required to access, maintain or create new markets or attract inward investment Measure current CSR performance in the sector against the benchmarks Tasks 1. Drawing on the results of the initial investigation, identify the specific international, national and market CSR standards, codes, principles, regulations, practices etc relevant to the analysis. A typology of CSR standards, codes and practices are given in Box 4. CSR standards specifically relevant to value chains in the apparel, agri-business and tourism sectors are given in Annexes A1, 2 and 3. 2. Once the relevant specific CSR standards, codes or practices are identified, determine the relevant benchmark. Benchmark standards are those CSR performance thresholds at which sectors, sub-sectors or individual firms secure material and measurable progress against the value drivers prioritised in Step 2. 3. As far as practicable, identify the key elements that comprise the benchmark, and quantify. These may include: quantitative thresholds, eg ambient environmental levels from production processes, toxin levels in exported produce, percentage of national workers employed, working hours, number of inspections per year qualitative thresholds, eg no discrimination in hiring on basis of gender or political affiliation, no sexual harassment management thresholds, eg, independent auditors accredited by particular institutions 4. Measure the current performance of the sector, sub-sector or other defined component of the value chain against the benchmark. 5. Classify the sector, sub-sector or other component of the value chain in relation to the extent to which both the benchmark standards and nationally recognised standards are currently being met. If time or resources are limited, bring together a panel of relevant experts to inform the categorisation. Rn ­ resisting ­ sectors/sub-sectors consistently and knowingly failing to meet minimal legal and regulatory CSR compliance requirements. Dn ­ deficient national compliance ­ sectors/sub-sectors consistently, but unintentionally, failing to meet minimum legal and regulatory requirements for CSR performance, for reasons either due to a lack of awareness, lack of in-house capability or resources, or weaknesses in the regulatory inspection and enforcement regimes. Sn ­ successful national compliance ­ sectors/sub-sectors that generally limit their corporate and social responsibilities to meeting the minimum legal and regulatory requirements of the host country, but which demonstrably succeed in meeting these standards. 14 World Bank Foreign Investment Advisory Services Db ­ deficient benchmark compliance ­ sectors/sub-sectors that generally meet national CSR standards, but are failing to meet benchmark standards relevant to securing advantage in the value chain. Sb ­ successful benchmark compliance ­ sectors demonstrably succeeding in meeting benchmark standards relevant to securing advantage in the value chain. I ­ innovation ­ sectors experimenting with novel approaches to exercising social responsibilities to advantage in the value chain. 6. Quantify the gap between the current performance and the benchmark standards. Note that for Dn ­ deficient national compliance, the `gap' may be calculated as `zero', but a CSR strategy will still needed to enable the firm or sector to meet the required standard. Box 4 Types of CSR Standards, Codes and Practices National CSR standards National legislation ­ frequently the environmental and social standards required by markets, are the same or similar to those already required by national laws, which in many cases are not being met or enforced. This includes: occupational health and safety legislation in the workplace, labour standards, anti-corruption and bribery laws, tax breaks for charitable giving, product and consumer safety and duty of care, environmental protection legislation, environmental impact assessment requirements, export and excise requirements, rights and treatment of shareholders, requirements for disclosure of company information etc. Business start-up CSR standards ­ these are the minimum national environmental, social and corporate governance standards that newly established firms would need to meet to operate within a country and to enter domestic markets. Business expansion CSR standards ­ firms that wish to grow may come up against new national CSR standards that were not applicable when smaller. Specific thresholds may apply, such as the need for a formal Health and Safety policy if shifting from contract to permanent employees. Alternatively, it may be that growth means taking on new assets or processes that carry certain environmental or safety requirements. Investment promotion ­ in some jurisdictions, firm eligibility for the benefits of locating within enterprise zones or Export Processing Zones, or receiving tax credits etc, may include compliance with certain regulatory CSR standards or codes. International CSR standards Trade-related CSR standard ­ the eligibility criteria for joining quota and other preferential trade schemes may involve CSR standards. For example, in June 2005 the EU adopted the special incentive arrangements for sustainable development and good governance within its Generalised System of Preferences (known as the "GSP Plus").ix This provides additional benefits for countries implementing certain international standards in human and labour rights, environmental protection (Reg No. 980/2005). GSP plus will apply 27 key international conventions on sustainable development and good governance (including the Kyoto Protocol on global warming, Cartagena Protocol on GMOs). Stock market listing requirements ­ the growth strategy of some larger firms in emerging markets is to achieve a listing on the domestic, or on other country's, public stock market. Increasingly, stock markets require the periodic publication of CSR information around social and environmental risks and performance. Socially responsible investment (SRI) funds ­ the investment criteria of some large pension funds and insurers now include environmental, social and corporate governance standards. For example, pension funds and insurers now own 70% of the top 1000 US companies, pushing higher corporate responsibility standards in global sourcing and investment. World Bank Foreign Investment Advisory Services 15 International Principles ­ many countries are now signatories to international conventions, codes and principles on environmental, social, economic and corporate governance, or are exporting to countries who are signatories. Examples include: UN Heritage (which can affect tourism sector), ILO conventions (which can affect the apparel sector) and the Extractive Industries Transparency Initiative (EITI) principles for transparency in payments and receipts of non-renewable natural resource revenues. Market-based CSR standards Buyer CSR sourcing criteria ­ CSR standards and practices.of buyers and purchases on environmental quality and labour rights are frequently incorporated into purchasing agreements. For example, in the early 1990s, sweatshop allegations lead to branded manufacturers in the apparel industry revamping their labor and environmental standards to avoid worldwide consumer boycotts and media attention. Tendering criteria ­ more generally, public sector and private sector clients may include CSR standards as part of tender pre-qualification requirements, within in tender documents, as criteria for evaluating competing bids, or as terms of contract. Project finance requirements ­ CSR standards may be required of firms seeking project or corporate financing or insurance from commercial and development banks. For example, in June 2003, the IFC developed the Equator Principles, a voluntary set of guidelines for commercial banks to manage environmental and social issues in project finance lending. The principles have now been adopted by 34 financial institutions, representing 80% of project finance to emerging markets. CSR standards in joint ventures ­ part of the competitiveness or growth strategy of smaller, junior firms, may be to enter into joint equity ventures with larger domestic or international companies. For the principal partner/s, the joint venture may carry reputational and operational risks if the junior firm has lower CSR standards. Meeting these higher CSR standards may thus form part of JV agreements. Local community expectations for CSR ­ moving into new countries or regions may offer firms a competitive advantage, eg to extract lower cost minerals, or access cheap labour. However, the communities resident in the area, especially if rural and economically deprived areas, may have very different expectations of what constitutes acceptable social responsibility by the relocating firm. This may include expectations around employment opportunities, security arrangements and environmental pollution. Though these standards may not be so directly relevant to international buyers, they may be relevant to the firm staying in business. End Customers and the media ­ the purchasing decisions of end customers (and the way in which these decisions are influenced by the media) may not exactly match the sourcing criteria applied by large buyers or distributors. Understanding the CSR priorities of the very end users may be one way to access new markets, or influence buyers to change or raise their CSR standards so creating opportunities for competitive advantage. 16 World Bank Foreign Investment Advisory Services 3.4 Step 4: Supply-Side Constraints Objective Identify key supply-side constraints to reach the benchmark standards Tasks 1. For those CSR standards considered material to competitiveness or investment aims, identify the key supply side constraints to the sector either achieving the benchmark standard or innovating to develop competitive differentiation. Consider both market failures and government/public sector failures. 2. For constraints from a market failure perspective, key lines of enquiry include the following: To what extent are firms in the sector fully aware of the potential value of improving CSR standards and practices on firm performance? What key market information is missing, and where is the constraint (eg within firms, between firms, within industry associations)? Are there common weaknesses in firm policy and policy execution across the sector? How effective are the CSR management systems within the sector; can they be trusted by buyers, financers and end users to deliver the benchmark standards? If the nature of the sector is fragmented and/or highly competitive, how much of a barrier is this to co-ordinating a unified response across the sector? If the nature of the domestic sector or sub-sector is highly monopolistic (eg with a handful of key producers, exporters or family firms, and captured domestic markets) how much of a barrier is this to raising CSR standards to access new international markets? To what extent are certain firms in the sector holding back the rest of the sector. What specific resource, organizational or skill constraints exist within the sector with respect to meeting the CSR benchmark standards: - affordability to implement the standard or code, eg raising wages to a `living wage' - communicating the requirements for meeting standards to suppliers - monitoring and recording compliance - paying for auditing - communicating compliance to the relevant parties up and down the value chain (including customers, media, investors etc.) What is the availability of accredited, private sector, auditors within the country? What weaknesses exist in the capacity of civil society and the media to play a credible oversight role in CSR implementation and monitoring? 3. For constraints from a government and pubic sector/public policy failure, key lines of enquiry include the following: Are current national CSR regulatory requirements adequate to meet benchmarks, and implemented efficiently and ubiquitously across the sector, eg are permitting requirements for health and safety or environmental clearance prohibitively time World Bank Foreign Investment Advisory Services 17 consuming and/or outdated. In essence, can national CSR standards be trusted by buyers, financers, end users to deliver market requirements? Are there regulatory inefficiencies, such as under-staffed or under-resourced government inspectorates and (public or private) auditors; What are the current investment, human resource and technology policies for this sector, and are they designed to assist the sector to improve its CSR performance towards the benchmarks? Are trade policies (e.g. tariffs, quotas) working against firms meeting the benchmark standards? Are there inappropriate domestic competition and investment policies at work that introduce perverse incentives, constraining progress towards benchmark standards, eg relaxed regulatory regimes in Export Processing Zones? Are there infrastructure deficiencies that constrain efforts to meet benchmarks, eg water quality in food processing, or road transport to support eco-tourism? What non-regulatory institutional capacity constraints are material? 18 World Bank Foreign Investment Advisory Services 3.5 Step 5: Strategies Objective Identify strategies to overcome the constraints and achieve value-enhancing CSR benchmarks Tasks Knowing the demand-side requirements and the supply-side constraints allows new CSR- based competitiveness and investment strategies to be considered, which deliver on the value drivers for business and government identified in Step 2. 1. Identify strategies for how CSR practices might be changed to enhance competitiveness or investment. Consider bringing together panels of experts to explore different strategies. 2. Assess the strategies in terms of their contribution to the original value drivers and propositions, both for the private and public sectors. 3. Strategies may comprise actions by one set of stakeholders, eg producers; or may require coordinated actions by a number of parties, eg producers, producer association and government export promotion agency. Identify the key actions and the relevant resourcing and implementing parties. 4. Examples of strategies for governments and public agencies to adopt in supporting improvements in different aspects of CSR are given in Annex C. These comprise four basic types: Mandating ­ laws, by-laws, regulations and penalties pertaining to the control of some aspect of business investment or operations Facilitating ­ incentives, non-binding guidance and codes, endorsements and deterrents, such as market stimulation, tax incentives, awareness raising, processes of stakeholder dialogue and publicity and praise (the public sector will not always be the lead agency in executing these activities) Partnering ­ combing public resources with those of business to leverage complementary resources, realise economies of scale and cross-fertilise best practices Endorsing ­ showing public political support for CSR performing companies and facilitating civil society organisations in the form of publicised praise or awards; involving leadership companies in the public policy arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' (demonstrating) through public sector procurement practices. 5. Assess the unintended consequences and risks of implementing the strategy, and mitigate where appropriate. For example: closing-off other current or future markets, eg due to higher production costs; reducing the available resources from government or donors to support those producers not involved in the scheme or strategy; and increasing international media attention on those parts of the sector not able to reach the new standards. World Bank Foreign Investment Advisory Services 19 3.6 Step 6: Costs and Benefits Objectives Reach a decision on the costs and benefit of implementing the strategies Put in place performance monitoring metrics This section is illustrated by a hypothetical case-study from the value chain for tea production and export (see Box 5). Box 5 Hypothetical case-study from the tea production and export sector A value chain map has been prepared for the tea export sector of a particular country (refer to Figure 1 Section 2.1). Large producers (> 100 employees) account for 50,000 of all those employed in the sector (full-time equivalent). Small producers (<100 employees) for 100,000 employees. The large-producer sub-sector currently generates a combined pre-tax profit of $100 million, of which 60% is derived from international buyers who are members of the Tea Buyers Partnership (TBP). The smaller producer sub-sector generates roughly the same pre-tax profits, but only 30% ($30 million) of this is derived from TBP members. The Tea Buyers Partnership is a not-for-profit organisation based in London supported by a large number of multi-national tea producers and distributors. The government export promotion agency and an industry association are working with both sets of producers to develop and assess different CSR-based strategies to enhance export competitiveness. One of the strategies under consideration is to enhance labour standards across the sector. TBP are planning to raise their labour code to be in alignment with the Base-Code of the Ethical Trading Initiative. All TBP members are committed to implementing the new code.x The challenge, and the opportunity, is for producers in the country to raise their own labour practices to this new benchmark. Without this strategy local produces are likely to lose the current `preferred supplier status' they enjoy with TBP members. It will not always possible to calculate the financial (present value) costs and benefits of implementing CSR strategies. For example, whilst measuring changes in minimum wages is relatively straight forward, calculating the financial effect of cost shifting (ie higher costs of labour practices passed not to buyer but to local suppliers) is problematic without considerable supply chain analysis. A pragmatic approach is needed. Certain rules of thumb apply, as follows: select readily measurable indicators for costs and benefits (financial, monetized, quantitative and/or qualitative). For the financials calculate present value for projections beyond one year. make explicit any assumed proxy indicators and any indirect measurements, eg using shadow pricing, extrapolations etc. provide an indication of the level of dependency of the attributed benefit (eg increased pre tax earnings) on factors lying outside implementation of the proposed CSR strategy, such as meeting other quality requirements of buyers. identify the level of confidence in the results of the calculations. Key tasks in calculating the costs and benefits of CSR strategies are as follows: 1. Establish the `without strategy' (baseline) scenario, and quantify, eg what is the Discounted Cash Flow of the firm, sector or sub-sector if the CSR project does not go ahead; and what non-financial (eg reputational) benefits will be secured? 20 World Bank Foreign Investment Advisory Services 2. Calculate the costs of implementing the strategy to deliver the required CSR benchmark standards. Costs may be financial or monetised. Keep these separate. Financial costs should be discounted to present day value, based on a defined accounting period. A simplified set of cost variables for each stakeholder are: Exceptional (non-capital) costs, eg awareness raising of the new CSR requirements Capital costs of CSR initiative, eg equipment, infrastructure Recurrent costs of monitoring and recording compliance Recurrent verification costs (eg firm, inspectorate or 3rd-party auditing) Recurrent costs of communicating compliance Indirect costs and costs of unintended consequences Costs may be born by different stakeholders in the value chain, and internal and external to it, including: Firm level stakeholders - real direct costs, eg increased minimum wage - real indirect costs, eg lost or improved productivity - monetised costs, eg lost management time/opportunity costs Country level/sector stakeholders - cost shifting, eg higher costs of labour practices passed not to buyer but to local suppliers - eroding comparative advantage, eg higher costs of labour practices reduces attractiveness of whole sector within the country to buyers - rationalisation, eg once one firm reaches higher labour standards, buyers press for rationalisation of industry to assure economies of scale Public sector stakeholders - direct costs, eg increased cost of inspections - indirect costs, reduced budget for other sectors - monetised costs, eg transaction costs Table 1 is a hypothetical illustration of some of the costs involved in enabling tea producers to adhere to the labour requirements of supermarket buyers who are members of the Tea Sourcing Partnership (whose CSR standards are derived in part from the Ethical Trading Initiative base code). 3. Identify indicators for calculating the benefit (outcomes) of adopting both the proposed strategy and conducting business-as-usual. The same set of indicators must be relevant to both scenarios. Indicators may be financial, monetised, quantified and/or qualitative. They might include:xi Firm level benefits (private sector benefits) ­ eg cost of labour; staff turnover; insurance costs; annual ROI on CSR-based marketing campaigns; annual number of positive media articles; results of investor or customer satisfaction surveys etc. Pubic sector net benefits (public goods) ­ eg current progress against public policy or development targets (eg MDGs); available skill levels across a sector; corporate tax revenues from the sector World Bank Foreign Investment Advisory Services 21 4. Predict the gross benefits (present value for financials) of implementing the strategy, over a defined accounting period. (see Table 2 for illustration) 5. Calculate the anticipated cost-benefit (net benefit) of each strategy. (see Table 3) 6. Incorporate an indication of `level of confidence' in calculation of net benefit (quantified if possible, qualitative where not). 7. Incorporate an indication of the extent to which the anticipated net benefit is dependent on the effective implementation of complementary strategies (quantified if possible, qualitative where not). 8. Compare net benefit of different CSR strategies to determine priorities (see illustration in Figure 5.). 9. If conducting full value chain analysis, compare the most favourable CSR-based strategies to other (non-CSR) market and factor strategies to improve competitiveness or inward investment. 10. Develop a detail case or proposal for implementation of preferred CSR-based strategies. 11. Establish targets and milestones for the physical implementation of the strategy. 12. On a periodic basis, monitor performance of CSR-based strategies against the without strategy scenario, based on the same indicators used to calculate costs and benefits. 22 World Bank Foreign Investment Advisory Services Table 1 Calculating the costs of implementing a three year strategy to achieve CSR benchmark standards: An Illustration for Tea Producers implementing the Ethical Trading Initiative (ETI) Base Code Types of costs Activities Stakeholders Export Industry Large Small producers Promotion association producers (less than 100 Agency within country (greater than permanent 100 permanent employees) employees) Exceptional Sector-wide 8 hours lost 8 hours lost worker (non-capital) dissemination (eg worker time / time / employee costs seminars and training employee etc.) on TSP and ETI $50,000 $25,000 Awareness base code (yr1) raising of requirements Capital costs Improvements in $20 / employee $30/ employee hygiene and water $100,000 Implementation quality (yr1) (grants for (50,000 (100,000 of Strategy small employees in employees in producers) sector) sector) = $100,000 = $3million Recurrent costs Costs of raising wages no costs average increase of to industry benchmark (industry $30 / employee / yr Implementation (yr1-3) benchmark of Strategy already reached) PV4 = $9.93million Recurrent costs New management New CSR 20% increase in responsibilities for outreach staff time of monitoring (yr1-3) managers existing HSE Monitoring and taken on to mangers recording support small- scale (no financial producers (5 cost) managers @ $2000 / yr) PV = $33,100 Recurrent costs Costs of annual $500 / 3rd-party independent auditing Verification verification (firm, (yr1-3) (30 per year) inspectorate or 3rd-party PV = $49,650 auditing) Recurrent costs Communication $10,000/yr $10,000/y $3,000/y support programme on support for support for for Communication compliance to combined communication communication of compliance individual buyers and government- campaign campaign (from international trade association each of the 10 media. communication largest (yr1-3) campaign producers) PV = $33,100 PV = $33,100 PV = $99,300 Costs (discounted to present value) PV = $216,200 PV = $107,750 PV= $299,300 PV = $12,930,000 4 Present value (PV) based on 10% discount rate World Bank Foreign Investment Advisory Services 23 Table 2 Calculating the gross benefits of implementing a three-year strategy to achieve CSR benchmark standards: A Hypothetical Illustration of Tea Producers implementing the Ethical Trading Initiative `Base Code' Details Large producers Small producers (greater than 100 permanent (less than 100 permanent employees) employees) Annual pre-tax profits of sector $100 million $100 million in country Proportion of annual pre-tax $60 million $30 million profit currently derived from TSP members (less sales to TSP buyers, more sold domestically) `Without' strategy scenario (ie Current suppliers lose `preferred Current suppliers lose `preferred if labour standards remain as supplier status' of TSP buyers supplier status' they are) (yr1-3) Estimated 20% fall in annual pre-tax Estimated 50% fall in annual pre-tax profits profits to TSP members PV = ($32.8 million) PV = ($41.0 million) No other viable markets available No other viable markets available `With' strategy (if labour One of a number of minimum quality One of a number of minimum quality standards compliance with requirements to retain `preferred requirements to retain `preferred TSP criteria) (yr1-3) supplier' status supplier' status If all requirements achieved, suppliers If all requirements achieved, suppliers will secure three-year purchasing will secure three-year purchasing agreement and increased orders worth agreement and increased orders an additional 10% per annum on pre- worth an additional 10% per annum on tax profits pre-tax profits PV = $16.4 million PV = $8.21 million Gross benefit (assuming all other TSP and PV = $49.2 million PV = $ 49.2 million buyer quality standards are achieved) (yr1-3) Table 3 Calculating the net present benefit of implementing strategies to achieve CSR benchmark standards: An Illustration for Tea Producers implementing the Ethical Trading Initiative Base Code Details Large producers Small producers (greater than 100 permanent (less than 100 permanent employees) employees) Costs of Strategy (yr1-3) PV = ($0.3 million) PV = ($12.9 million) Dependent costs (yr1-3) PV = ($3.2 million) PV = ($20.5 million) (costs of reaching other TSP and Buyer quality standards)5 Gross costs PV = ($3.5 million) PV = ($33.4 million) Gross benefit (yr1-3) (assuming all other TSP and buyer PV = $49.2 million PV = $49.2 million quality standards are achieved) Net Present Benefit (yr1-3) NPV = $45.7 million NPV = $15.80 million Confidence in results of calculations high moderate Dependency on other actions high high 5 Brought in from other aspects of Value Chain Analysis 24 World Bank Foreign Investment Advisory Services To assist the review and discussion of different CSR competitiveness and investment strategies, each can be plotted as illustrated below. If quantified information on net benefit (present day) is available, this should be used, but care should be taken to distinguish these from strategies based on qualitative measures. Figure 5 Value Comparison of Different CSR-based Competitiveness and Investment Strategies: An Illustration for Large-scale Tea Producers (>100 permanent employees per firm) $ million gross benefit (prevent value, yrs 1-3) $ million net benefit (present value, yrs 1-3) X $40 Compliance with other TBP $40 and buyer quality standards Effective distribution to Depends on strength of coming into force at same time low-income consumer marketing strategy $20 X $20 X $0 X $0 X -$20 -$20 Extension of supplier Reduced Reduced Creation of new Brand differentiation Value Driver contract with overhead insurance costs `niche' domestic in export markets international buyers costs markets Compliance with Energy efficiency Industry Association Production and marketing of new Increased range of TBP labour through insulation and Unions agree low-cost tea for domestic (low- `fair-trade' goods CSR strategy standards and recycling ( to on workers forum income) consumers, distributed offset energy price to reduce number through strategic alliance with increases) of strike days large national retailor Business as usual With strategy (`without' strategy) Dependency on complementary strategies: high moderate low World Bank Foreign Investment Advisory Services 25 4. Quick Reference Checklist The checklist below is a quick reference guide to the details in Section 3. Which sector or sub-sector? Parameters of What geography? (cross-border trade or product stays local) analysis Which links and nodes in the value chain map? (materials, production, assembly, distribution, retail) Which stakeholders make, manage or enforce the governance rules in the chain? How interconnected is this governance across nodes? Business value drivers for the industrial sector: Value Drivers of analysis improved operational risk management improved productivity efficiencies reduced human resource costs access to new markets continued access to existing markets creating new markets new branding & marketing strategies new PPP opportunities Government value drivers for the industrial sector: macro economic and fiscal objectives higher volumes or quality of foreign direct investment employment creation improved business infrastructure meeting of commitments to productive public investment enterprise development human, vocational and skills development improved pro-poor earning opportunities improved access for the poor to public services Investigate the Investigate the potential for different categories and sub-categories of CSR potential of CSR to (environmental, economic, social and corporate governance) to contribute deliver the Value positively to these value drivers. Drivers 26 World Bank Foreign Investment Advisory Services Demand-side Identify the specific international, national and market CSR standards, codes, factors promoting principles, regulations and policies relevant to the priority value drivers. CSR in the Value Chain Types of CSR standards, and sector specific standards and codes are given in the guidance (Annexes A and B). Identify the benchmark standard, ie the quantitative or qualitative thresholds that need to achieved to secure the competitive advantage or investment promotion. Categorise the sector or sub-sector in relation to the benchmark standard as Benchmarking follows: existing CSR Rn ­ resisting practice Dn ­ deficient national compliance Sn - successful national compliance Db ­ deficient benchmark compliance Sb - successful benchmark compliance I ­ Innovation Examine whether the sector or sub-sector already meets the benchmark standards ­ and if not quantify the `gap'. Supply-side Government failure constraints to the sector reaching What are the current investment, human resource and technology policy for the CSR this sector, and do they help firms to improve CSR standards? benchmarks Are trade policies (e.g. tariffs, quotas) working against firms meeting the benchmark standards? Are current national CSR regulatory requirements: adequate to meet benchmarks? implemented efficiently and ubiquitously across the sector (can implementation be trusted by buyers, financers, end users etc?) Are there infrastructure deficiencies that constrain efforts to meet benchmarks? What non-regulatory institutional capacity constraints are material? Are there perverse incentives at work constraining the meeting of benchmark standards, eg within Export Processing Zones? Market failure: Is the firm aware of the potential value of improving CSR standards and practices on firm performance? What key market information is missing? Are there weaknesses in firm policy and policy execution? How effective are the firm's CSR management systems? Do the firms CSR management systems command the trust of buyers, financiers, end users etc? What organizational and staff skill constraints exist? How strong is the `public good excludability' case for not increasing CSR standards? Is the fragmented and competitive nature of competition too great to lead on co-ordination amongst firm to advance CSR opportunities World Bank Foreign Investment Advisory Services 27 Strategies to Identify strategies for how CSR practices might be changed to enhance overcome supply- competitiveness or investment in alignment with the value drivers. side constraints enable CSR to Assess the strategies in terms of their contribution to the original value drivers contribute to the and propositions, both for the private and public sectors Value Drivers Who might need to be involved in realising the opportunity ­ the lead buyer, the supplier firm, business/trade associations, regulatory body, export promotion agency, government department, international donor agency etc? What needs to be done to achieve these outcomes, and by whom, options include: Mandating Facilitating Partnering Endorsing An inventory of strategies for the pubic sector to intervene to raise CSR standards is given in Annex C. Establish the `business-as-usual' scenario, and quantify. Costs and Benefits of proposed Identify the costs of implementing the proposed CSR-based strategies strategies Identify indicators for calculating the benefit (outcomes) of adopting the proposed strategy and conducting business-as-usual. Predict the gross benefits of the initiative (ie the outcome of each CSR-based strategy less the `business-as-usual' scenario). Calculate the anticipated net benefit (gross benefit ­ costs) of each strategy. Incorporate an indication of `level of confidence' in calculation of net benefit (quantified if possible, qualitative where not). Incorporate an indication of the extent to which the anticipated net benefit is `dependent' on the effective implementation of complementary strategies (quantified if possible, qualitative where not). Compare net benefit of different CSR-based strategies Compare most favourable CSR-based strategies to other non-CSR market and market factor strategies (ie if conducting full value chain analysis) Develop detail case or proposal for implementation of preferred CSR-based strategies Establish targets and milestones for the physical implementation of Performance the strategy. monitoring On a periodic basis, monitor performance of CSR-based strategies against the without strategy scenario, based on the same indicators used to calculate costs and benefits. 28 World Bank Foreign Investment Advisory Services Annex A1 CSR Standards, Codes and Practices in Apparel Value Chains The user of this Module is strongly advised to refer to the following publication for an inventory and comparison of internationally-recognised and company and country-driven CSR standards, codes and practices in the Apparel sector: World Bank (2003) Company Codes of Conduct and International Standards: An Analytical Comparison, Part I: Washington DC: World Bank, Foreign Investment Advisory Services: http://www-wds.worldbank.org/servlet/WDS_IBank_Servlet?pcont=details&eid=000160016_20051214170210 The codes in this publication include: Adidas-Salomon AG Organization for Economic Cooperation and Clean Clothes Campaign Development ­ Guidelines for Multinational Ethical Trading Initiative Enterprises Fair Labor Association Pentland Group plc Gap Inc. Phillips-Van Heusen Corporation H&M Hennes & Mauritz AB Pou Yuen Vietnam Enterprise, Ltd. IKEA Services AB Reebok International, Ltd. International Confederation of Free Trade Social Accountability International ­ SA8000 Unions Timberland Company (The) LEGO Company Worker Rights Consortium Levi Strauss & Co. World Federation of the Sporting Goods Liz Claiborne Inc. Industry Marks & Spencer Group p.l.c. Worldwide Responsible Apparel Production New Balance Athletic Shoe, Inc. NIKE, Inc. A sample of relevant codes are described below.xii Code Comments Worldwide Responsible In 1998, the American Apparel and Footwear Association (AAFMA), with Apparel Production over 700 members representing about 85 percent of sewn clothes sold (WRAP) at wholesale in the U.S., created a non-profit organization called Worldwide Responsible Apparel Production. WRAP has a very strong industry representation, but includes in its Board of Directors five (out of eight) members not directly associated with the industry. WRAP is based on 12 basic principles, covering the standard employment issues as well as requirements regarding customs compliance and tight security controls. Based on these principles, WRAP monitors and certifies individual factories upon their request. The actual monitoring is conducted with the help of external monitoring agents that are listed on its website that have to be accredited by WRAP in a separate process. Certification is a three-step process, consisting of: Submission of self-assessment, registration form and US$750 application fee valid for 6 months; Request for on-site compliance evaluation from an accredited independent monitor and implementation of any corrective measures deemed necessary. Review of the independent monitoring report by the WRAP Certification Board and granting of certification. FLA. The Fair Labor The Fair Labor Association is the successor of the Apparel Industry Association Partnership convened by President Clinton in 1996 with the objective improving the working conditions in apparel and footwear factories in the U.S. and abroad. At present, the FLA includes 11 major companies with World Bank Foreign Investment Advisory Services 29 Code Comments over 3,000 facilities in 80 countries and is supported by close to 180 U.S. colleges and universities. The FLA has developed a "Workplace Code of Conduct and Principles of Monitoring" based on the ILO principles, accredits monitors, reviews audits and reports on audit results. Different from other certification programs, the FLA focuses on companies rather than individual facilities. Thus, companies receive certification for their worldwide production and have to bear all costs associated with the monitoring requirements. To obtain the one-year certification, FLA companies must: First submit an application including intentions for implementation of the CoC and monitoring protocol. Submit a monitoring plan for the FLA Code and the company's internal compliance. Retain FLA accredited monitors to audit 30 percent of their suppliers within three years through unannounced visits. Submit monitoring reports and listings of suppliers. FLA also considers itself a source of information and for that reason FLA requires the publication of any facility auditing reports. In addition, the FLA provides a mechanism through which workers, unions, civic groups or private individuals may inform the FLA of perceived violations of one of its member companies. SA8000 In 1997, the non-profit NGO Social Accountability International (SAI) introduced SA8000 as a uniform auditable standard that should apply to all industries worldwide. The standard is modelled after the ISO9000 and ISO14000 standards for quality and environmental management and implemented through third-party verification based on external auditing through accredited auditing firms or groups. At present, there are 310 facilities SA8000 certified in 38 countries worldwide. Of these 17 percent are in the apparel industry. SAI presents the SA8000 standard as a marketing mechanism for companies to demonstrate appropriate employment and human rights conditions at these workplaces. While it does not make individual audit reports publicly available, the SAI website lists individual companies that have been certified. To obtain an SA8000 certification, a company must: Submit an application with supporting documentation showing compliance with relevant national and local regulations, and commit to apply for a certification audit within one year by placing a non- refundable deposit for auditing fees. Participate in initial assessment audit and complete subsequent corrective measures. Contract a full certification audit and address take any further remediation steps and develop a plan for addressing non- compliance issues. An SA8000 certification is valid for a period of three years, after which the process needs to be repeated in order to renew the certification. During the certification period, SAI auditors ­ who are trained and accredited by SAI, but selected and paid for by the requesting company ­ conduct surveillance audits every six months. Additional audits can be required in cases of complaints or identification of particular risks. 30 World Bank Foreign Investment Advisory Services Annex A2 CSR Standards, Codes and Practices in Agri-Business Value Chains The user of this Module is strongly advised to refer to the following publication for an inventory and comparison of internationally-recognised and company and country-driven CSR standards, codes and practices in the Apparel sector: World Bank (2003) Company Codes of Conduct and International Standards: An Analytical Comparison, Part I: Washington DC: World Bank, Foreign Investment Advisory Services: http://www-wds.worldbank.org/servlet/WDS_IBank_Servlet?pcont=details&eid=000160016_20051214170210 The codes in this publication include: Banana Group (The) ­ UK Banana Industry Fresh Del Monte Produce, Inc. Code of Best Practice International Code of Conduct for Production Chiquita Brands International, Inc. of Cut-Flowers Dole Food Company, Inc. McDonald's Corporation European Federation of Food, Agriculture Nestlé S.A. (Brands include Hills Brothers, and Tourism Trade Unions/European Taster's Choice, and Nescafe) Sugar Manufacturers' Committee ­ Procter & Gamble Company (The) (Brands Corporate Social Responsibility in the include Folgers) European Rainforest Alliance ­ Better Banana Project Sugar Industry Rainforest Alliance ­ Generic Coffee Fairtrade Labeling Organizations Standards International ­ Fair Trade Standards for Hired Starbucks Coffee Company Labor Tate & Lyle p.l.c. Flower Label Program International Standards A sample of relevant codes are described below.xiii Code Sub-sector Comments World Cocoa Cocoa 2001 protocol committing the industry to develop standards to Foundation deal with working practices problems, particularly in West Africa. Standards due to be completed in July 2005, are being developed by industry representatives working with the International Labour Organization (ILO), and West African governments. Verification system also being developed. Utz Kapeh Coffee The Utz Kapeh code for `Certified Responsible Coffee' was set up with the support of the global retailer Ahold. It is based on EUREPGAP, but with more detail on worker welfare. It recommends that buyers pay a Sustainability Differential to producers when market prices are low. These are not fixed and at present it is not clear if this is monitored. Large estates and cooperatives of smallholders can be certified. Common Code Coffee Programme funded by German government, managed by the for the Coffee donor agency GTZ and the German coffee industry Community association. It has broad stakeholder membership in its advisory board In late 2004 it produced a code that aims to cover the whole of World Bank Foreign Investment Advisory Services 31 Code Sub-sector Comments the coffee chain. Currently 4C is developing pilot projects to test the code in different contexts over the next two years. Kenya Flower Cut flowers The KFC was formed in 1994. The code originated as a Council technical standard addressing primarily environmental and pesticide related issues, but recent editions of the code have been much more comprehensive in their coverage of social issues. Members of the KFC account for the majority of Kenya's total cut flower exports. Member farms are regularly audited by KFC auditors and the auditing system is externally verified by a professional auditing firms. MPS Cut flowers The Floriculture Environmental Project (MPS) originated as a technical standard to reduce the environmental impact of cut flower production but added an optional social chapter based on the Universal Declaration of Human Rights and ILO Conventions in 2001. The MPS environmental standard, which focuses on pesticide and water use, leads to grading as MPS-A, B, or C The MPS Social Chapter (known as MPS ­SQ) has been benchmarked against the multi-stakeholder International Code of Conduct for Cut Flowers Ethical Trading General Not in itself a defined auditable standard but members are Initiative Base (but has been required to base their own code on the nine principles in the Code applied to ETI Base Code which are based on ILO Conventions. agricultural commodities) The ETI has established a number of pilot projects with the aim of experimenting with different multi-stakeholder approaches to monitoring or to deal with specific implementation issues (e.g. definition of living wage, smallholder sector) The ETI has a tri-partite structures whose members are drawn from NGOs, trade unions and companies. It has had some funding from the British government. SA8000 General Established by Social Accountability International. Its principles Limited are essentially the same as those of the ETI, with the addition application in of a management system. agriculture to date It is an auditable standard, for which there are accredited auditors. It was developed in consultation with multiple stakeholders (including NGOs, trade unions and private companies), representatives of whom sit on the SAI board. Zambian Export Horticulture All major growers of vegetables and roses for export are Growers members of the Zambian Export Growers' Association, formed Association in 1984. The ZEGA code was developed in the late 1990s. code All members are required to implement the code but (as of 2003) members were not systematically audited for compliance. The code has been promoted in a step-by-step manner, starting with the pesticides sections, followed by 32 World Bank Foreign Investment Advisory Services Code Sub-sector Comments worker welfare, environment and finally the due diligence sections. The code is presented as a developmental tool for good management. EUREP GAP Initially fresh EUREPGAP began in 1997 as an initiative of the Euro-Retailer produce but Produce Working Group with the aim of harmonising supply scope widening chain standards worldwide for good agricultural practice (GAP). The main focus of the EUREPGAP Protocol 2000 is standards for food safety and traceability designed to meet consumer concerns about pesticides and food hygiene, with environment and worker welfare issues as a secondary concern. Growers receive EUREPGAP approval through independent verification from an approved certification body. EUREP has developed an accreditation scheme that recognises certification by local or regional schemes. However to date there as been only one auditing scheme accredited in a developing country, ChileGAP in September 2004. Ethical Tea Tea The code focuses on terms and conditions of employment, Partnership health and safety, maternity, education, housing and basic (formerly the rights. It is working towards all of the ETI principles (one Tea Sourcing significant gap is that is refers to local minimum wages rather Partnership) than a living wage and in general defers to national legal requirements rather than ILO Core Standards). Members originally were just UK tea packers and blenders, with multi-national companies only using the code with respect to products sold in the UK market. However in the past year most members e.g. Unilever (Europe) have extended their scope to products sold in Europe. In addition companies from Australasia have joined. To date the scheme operates in seven of the seventeen countries from which members source tea, accounting for 65% of supply. ETP members pay for supplier audits, which are undertaken by PricewaterhouseCoopers on a biannual basis. Wine Industry Wine WIETA was established in 2004 by the South African wine Ethical Trade industry partly as a result of an ETI pilot project. Association code Now an autonomous organisation. The code is based on the ETI base code. World Bank Foreign Investment Advisory Services 33 Annex A3 CSR Standards, Codes and Practices in Tourism Value Chains The user of this Module is strongly advised to refer to the following publication for an inventory and comparison of internationally-recognised and company and country-driven CSR standards, codes and practices in the Apparel sector: World Bank (2003) Company Codes of Conduct and International Standards: An Analytical Comparison, Part I: Washington DC: World Bank, Foreign Investment Advisory Services: http://www-wds.worldbank.org/servlet/WDS_IBank_Servlet?pcont=details&eid=000160016_20051214170210 The codes in this publication include: Coalition for Environmentally Responsible InterContinental Hotels Group p.l.c. (Brands Economies, Inc. ­ CERES Principles include InterContinental, Crowne Plaza, Commonwealth of Australia ­ National Holiday Ecotourism Strategy Inn, and Britivic Soft Drinks) Foundation for Environmental Education ­ British Airways p.l.c. Blue Flag Campaign International Ecotourism Standard Government of Brazil ­ Guidelines for an Lindblad Expeditions, Inc. Ecotourism Policy Royal Caribbean Cruises Ltd. Government of Costa Rica ­ Certification for World Tourism Organization ­ Global Code Sustainable Development of Ethics for Tourism GREEN GLOBE 21 Hilton Group p.l.c. (Brands include Hilton, Scandic, Livingwell, Conrad, and Ladbrokes) Existing codes of conduct and ethical guidelines in the tourism industry are not as developed or recognised as for many other industrial and investment sectors. To date relevant codes are more thorough on the question of environmental management and much so less detailed on questions of labor and human rights. Very few reference the ILO core conventions on labor rights.xiv An illustration is given below.xv Code Comments ACCOR In 2002, ACCOR group established a Sustainable Development Division that Environmental reviews all aspects of operations, oversees environmental management and tries to Sustainabilityxvi integrate international policies with local hotel actions. ACCOR operates 3,829 hotels and 440,807 rooms in 90 countries. The group has an Environmental Charter posted in all participating hotels, that it uses as a training tool for hotel employees. Hotels use Consumption and Environmental Charter indicators to measure environmental performance with relation to waste management and recycling, technical controls, architecture and landscape, and awareness and training. As of February 2003, it applied the principles of its Environmental Charter to 2048 hotels in 28 countries. The main aim of the program is to find pragmatic ways to optimize both water and energy consumption and enhance the application of the Environmental Charter. Results are communicated through corporate annual reports in the Sustainable Development section, as well as on the internet. In addition, there is an annual global report of the Environmental Charter which allows hotel managers to compare their environmental performance on each of the 15 actions monitored. 34 World Bank Foreign Investment Advisory Services Annex B Inventory of International CSR Practices, Standards, Instruments and Codes Economic 1. Monetary flows to the public sector 2. Employment and human resource development 3. Procurement and supply chain management 4. Technology transfer and intellectual property rights Environment 5. Environmentally safe production, products and services 6. Environmental impact assessment and management 7. Environmental reporting and management systems Social 8. Health and safety of employees 9. Labour standards 10. Corruption and bribery 11. Human Rights 12. Violence and Conflict 13. Social impact assessment and management 14. Community and stakeholder engagement (non-commercial) 15. Charitable giving 16. Social investment 17. Social reporting and management systems Corporate Governance 18. Rights and treatment of shareholder 19. Governance policies and business principles 20. Information disclosure and reporting 21. Responsibilities of the Board 22. Customer/end-user care World Bank Foreign Investment Advisory Services 35 ECONOMIC 1. Monetary flows to the public sector · Disclosure of corporate income tax and royalty payments · Disclosure of government subsidies (tax breaks, grants, etc.) · Disclosure of all payments to government officials and third parties · No seeking or accepting exemptions not contemplated in the statutory or regulatory framework relating to taxation and financial incentives 2. Employment and human resource development · Level of wages consistent with industry average and livelihood needs of employees and their families · Reasonable employee benefits: e.g. access to health care and medicines; accident insurance; pensions; meals or food allowance; housing; travel allowance; performance bonuses etc. · Encouragement of human capital formation through employment opportunities, on-the- job training and life-long learning · Within legal and international constraints, preference to employing local personnel and incorporation of such terms into procurement and supplier contracts · Fair and adequate redundancy terms, including compensation management 3. Procurement and supply chain management · Development of databases on local business capabilities and business development and support/facilitation service requirements · Within legal and international constraints, incorporation of a proportion of national content in procurement and supplier contracts · Adoption of fair competition practices for purchase and service contracts, e.g., transparent competitive tendering and transparency in call-down contractor lists · Contracts paid in accordance with agreed terms and legal requirements · Facilitation of access to working capital and credit for local suppliers, contractors and licensees · Provision of information on quality standards (technical, environmental etc.) for suppliers and contractors, and proactive training where this is in the business interest, eg for reliability or speed of suppliers · Purchase of equipment for use by resource-poor suppliers, contractors and licensees, and provision of associated training in equipment operation, maintenance and safety, and consideration of arrangements for eventual transfer of ownership · Horizontal strategic business alliances between domestic goods and service contractors and suppliers to reduce operating and investment costs and improve the efficient transfer of technology · Promotion of social and environmental codes and standards through the total value chain, accompanied by training and other support and facilitation necessary to prevent standards becoming a barrier to market entry 4. Technology transfer and intellectual property rights · Operational and R&D activities compatible with public policies and plans for science and technology · Practices that permit the transfer and rapid diffusion of technologies and know-how, with due regard to the protection of intellectual property rights · Operational technology, products and services that address local market needs · Employment of host country personnel in a science and technology capacity · In granting licences for the use of intellectual property rights or when transferring technology, application of reasonable terms and conditions and in a manner that contributes to the long-term development prospects of the host country · Development of links and collaborative research projects between local universities and other public research institutions, and local industry, industry associations and/or the R&D facilities of domestic and foreign corporations 36 World Bank Foreign Investment Advisory Services ENVIRONMENT 5. Environmentally safe production, products and services · Development of policy and guidelines for promoting end-user health and safety during production and/or during use of products and services pursuant to domestic laws and regulations and international obligations, including monitoring system (e.g. customer satisfaction) and performance disclosure · Adoption of product (environmental) life-cycle analysis into product and service research and development, e.g. ISO 14040-49, and ISO 14062 (R&D) · Development of voluntary codes for product labelling, e.g. ISO 14021 · Optimal use of operational wastes (processed and unprocessed) from internal and external sources and including both consumer and industrial wastes · Optimal use of renewable energy sources · Optimal use of energy-intensive materials · Promotion of levels of awareness among customers and end-users of the environmental implications and risks of products and services · Compliance with all relevant domestic legislation and international obligations pertaining to environmental hazards management, for production, transportation, import and export and disposal of materials and wastes · Incorporation into risk assessments, analysis of environmental risks at each stage of the production process or each stage of a project life-cycle, including both isolated and cumulative risks, e.g. application of risk matrices · Education and training of employees in environmental health and safety, including handling of hazardous materials and the prevention of environmental accidents and risk realization · Implementation and monitoring the effectiveness of environmental risk mitigation plans and preparation of risk/accident contingency plans, including contingency fund for uninsured environmental risks · Consultation with potentially affected parties to enhance risk mitigation and contingency measures · Disclosure in a timely manner information on environmental risks to key stakeholders · Development of effective procedures for redressing injuries caused to customers, others persons or property from use of products or services · Development of effective procedures for redressing damage to environmental resources 6. Environmental impact assessment and management · Compliance with spirit (as well as letter) of law and regulations pertaining to the preparation of environmental (impact) assessment studies, including requirements for stakeholder engagement and impact and mitigation monitoring · Independent preparation of impact assessment studies, free from `conflicts of interest' e.g. `streamed' contracts · Environmental impacts of proposed operations and facilities assessed not only to secure environmental clearance permits, but also to secure the informal social license to operate of local communities · Environmental impacts assessed over the life of the project or operation, including site/route/plant selection, construction and development, operations, and decommissioning and closure · Indirect environmental impacts assessed over the total value chain (both formal and informal) and including distribution networks · Potentially significant environmental impacts systematically assess and mitigation/management plans prepared and implemented, for issues that include: protection of terrestrial, fresh-water and marine ecosystems and habitats protection of open spaces and wilderness protection and enhancement of bio-diversity sustainable use of renewable natural resources ­ surface and ground water, soils, forests reduction and safe disposal of non-hazardous and hazardous wastes energy conservation World Bank Foreign Investment Advisory Services 37 mitigation of adverse changes in air quality mitigation of noise and vibration mitigation of visual and landscape impacts · Environmental impact assessment studies to include assessment of adverse social impacts and to identify socio-economic opportunities linked to the investment · Integration of environmental, social and health impact assessments into single environmental assessment with aim of sharing logistics costs and better targeting mitigation and risk management measures 7. Environmental reporting and management systems · Disclosure of timely, regular and reliable information on environmental performance to Supervisory Board, Executive Management, shareholders, employees, trade unions and non-commercial stakeholders (government departments and agencies, affected communities, NGOs, community groups) · Commercial and non-commercial stakeholder participation in target setting and performance evaluation including: Supervisory Board, Executive Management, key shareholders, employees or their representatives and noncommercial stakeholders (government departments and agencies, affected communities, NGOs, other community groups etc.) · Environmental reporting to include aggregated data across operations on environmental performance against set targets, including: materials used; energy use; water use; landtake from conservation-worthy environment; greenhouse gas emissions (C02, CH4, N20, HFCs, PFCs, SF6); use and emission of ozone-depleting substances; other emissions to air (NOx, SOx etc.); method of waste treatment; significant discharge to surface and ground water; significant spills and pollution incidents; reclaimable/recyclable products; significant environmental impacts (and risks) of principal operations, products and services; incidents of and fines for non-compliance with all applicable international declarations/conventions/treaties, and national, sub-national, regional and local regulations associated with environmental issues · Regular evaluation of stakeholder satisfaction with environmental performance (commercial and non-commercial) · Establishment of formal Environmental Management Systems (EMSs) that promote continuous improvement based on targets and periodic review of performance against these targets and their continuing relevance, and with independent expert assurance of annual environmental reports, i.e. certification (through audits) of individual operational businesses and facilities, e.g. ISO14001 certified · EMSs that record and report changes and innovation in organizational structures, management responsibilities, processes and resourcing as a result of improved environmental practices · Integration of environmental management plans generated through Environmental Impact Assessment studies with Environmental Management Systems (i.e. integrate EIA with EMS). · Systematic adoption of a precautionary approach to environmental challenges made explicit within the procedures of EMSs, i.e. refrain from using lack of full scientific certainty to postpone impact mitigation measures or technology · EMSs that calculate scientifically the optimal level of recycling, product remanufacture, raw material substitution and resource efficiency and report on this as part of company performance · Annual environmental reporting to make explicit linkage between environmental performance and commercial performance, e.g. in reduced operating and insurance costs, improved energy and resource efficient, reduced compliance and liability charges, improved access to capital, improve customer/buyer satisfaction, and improved community and public relations. 38 World Bank Foreign Investment Advisory Services SOCIAL 8. Health and safety of employees · Development of policies and guidelines for health and safety pursuant to the framework of domestic laws and regulations and international obligations (such as ILO 176), and that includes management and employee training, a monitoring system and performance/results disclosure · Effective management structure for promoting health and safety at all levels of the organization · Disclosure to employees and other relevant third-parties parties of occupational accidents and diseases and any associated risks · Joint health and safety committees comprising management and workers · Formal agreements with trade unions or other employee representatives covering health and safety · Specific policies for HIV/AIDS and STDs and where applicable integration with government programs · Life-long training in health and safety standards, with particular emphasis on new employees, job transfer, hazardous jobs, and the introduction or modification of equipment and procedures 9. Labour standards · Participatory development of policies and guidelines to deal with labor standards and industrial relations pursuant to the framework of laws, regulations and international obligations and takes into account established public policies; and that includes management and employee training, a monitoring system and performance disclosure. · Philanthropic contributions to employer welfare, e.g. bonuses, recreational activities, staff outings etc. · Compensation at a rate to meet legal requirements, and/or prevailing industry wage, and/or sufficient to meet basic need workers and their families (no disciplinary deductions) · Voluntary overtime paid at a premium rate and not to exceed a maximum period, e.g. 12 hours per week, 300 hours per year etc. (overtime may be mandatory if part of a collective bargaining agreement) · Establishment of reasonable working hours that meet legal requirements and/or prevailing industry wage, e.g. no more than 48 hours per week with at least one day off per seven day period. · Elimination of all forms of forced, bonded and compulsory labor, including debt bondage and no lodging of deposits or identify papers by employers or recruitment agents · Abolition of child labor ­ no employment of young persons below a certain age, or younger than the age for completing compulsory education in the country (in contradiction to human rights law if it does not include proactive measures for already employed children) · Equal opportunities for gaining and retaining employment regardless of gender, race, disability, race, caste, religion, sexual orientation, political affiliation or age · No corporal punishment, mental or physical coercion or verbal abuse · Recognition of maternity rights, e.g. prohibition of women 7 months pregnant or those raising children under 1 to undertake overtime or night working · Reasonable notice to, and consultation with, employees in the case of closure involving layoffs or dismissals, and minimization of effects of layoffs on livelihoods of employees · Managed home work, to support women with young children and discourage child labor · Promotion of employee diversity to address historical patterns of discrimination · Facilitation of employee freedom of association and effective recognition of the right to collective bargaining · Recognition of the right of employees to be represented, e.g. by trade unions or other associations and provision of facilities to employee representatives needed for the development of effective collective agreements and meaningful negotiations on conditions of employment World Bank Foreign Investment Advisory Services 39 · Systems for communicating with employee and accessible mechanisms for employees to seek redress for grievances/breaches of policy and standards, including appeal procedures · Strategic alliances between purchaser companies and possibly principal contractors to align best practice labor codes and management systems · Promotion of labor standards in supply chain and contractors, e.g. through procurement practices, and welfare of under aged workers if in supply chain · Promotion of life-long learning for adults 10. Corruption and bribery · Development of policies and guidelines on anti-corruption and bribery that takes into account established public policies; and that includes management and employee training, a monitoring system and performance disclosure · Refrain from offering bribes or other undue advantage to public officials and regulators or the employees of business partners to obtain or retain business · Refrain from yielding to demands or extortion · Procurement/contracting free from facilitation payments · Refrain from using sub-contracts, purchase orders or consulting agreements as a means of channelling payments to public officials or employees of business partners · Maintain a list of agents employed in connection with the negotiation or execution of transactions with public bodies and state-owned enterprises · Disclose the company policy on funding political parties or individual elected representatives or candidates for public office and party lobbying · Full transparency in relation to payments to candidates for public office, e.g., disclosed and updated registry of payments · Foster openness and dialogue with the public and government so as to promote awareness and co-operation in the fight against corruption · Adopt financial and tax accounting and auditing practices that prevent the establishment of `off-the-books' or secret accounts or the creation of documents that which do not properly and fairly record the transactions to which they relate 11. Human rights · Development of policies and guidelines to deal with human right violations pursuant to the framework of domestic laws and regulations and international obligations, and that takes into account established public policies; and that includes management and employee training, a monitoring system and performance disclosure · Company security policy and practices take into account the risks of complicity or abetting human rights violations and abuse (e.g. harassment, denial or freedom of assembly, arbitrary arrest and detention, hostage taking, disappearances, torture, extra- judicial killing) · Where involuntary resettlement/displacement (forced relocation) is unavoidable, all relevant laws (e.g. for compensation) stringently applied and consideration given to international best practice for achieving full livelihood restoration · Compliance with indigenous peoples' (legal) rights · Respect for broader human rights of individuals in accordance with the United Nations Declaration of Human Rights, e.g., extent to which procurement practices and use of natural resources · Procurement screening of suppliers for human rights compliance 12. Conflict and violence · Development of policies and guidelines to deal with conflict that take into account established public policies, and that include management and employee training, a monitoring system and performance disclosure · assessment of non-commercial risks of conflict and violence on operational performance · assessment of risks that operational activities might fuel or trigger conflict and violence · training for employees and contractors working in conflict zones (security and conflict prevention/management) 40 World Bank Foreign Investment Advisory Services · good stakeholder and community engagement acting to prevent conflict and/or act as a `social fence' for the operation · partnerships with government agencies and civil society on community development projects to open channels of communication of value in preventing disputes escalating into, or fuelling, violence and conflict 13. Social impact assessment and management · Development of policies and guidelines for social assessment and management pursuant to the framework of domestic laws and regulations and international obligations, and that takes into account established public policies; and that includes management and employee training, a monitoring system and performance/results disclosure · Independent preparation of assessment studies, free from `conflicts of interest', e.g., `streamed' contracts · Impact assessed over supply chain and distribution networks · Preparation, implementation and monitoring of Social Management Plans incorporating, where applicable, sub-plans to manage continuous Stakeholder Engagement and Information Disclosure, Resettlement and Displacement, impacts on Indigenous Peoples, and Community Development opportunities · Social Management Plans developed either free-standing or integrated with Environmental Management and Mitigation Plans · Key issues for social assessment and mitigation (see annex A for list) · Development of standards and procedures for ensuring adequate and fair compensation for loss of land, assets and disturbance, and that delivers livelihood security and opportunities commensurate with the prior situation 14. Community and stakeholder engagement (non-commercial) · Development of policies and guidelines for community engagement and noncommercial stakeholders (community groups, NGOs, non-shareholding government authorities, universities etc) pursuant to the framework of domestic laws and regulations and international obligations and including management and employee training, monitoring system and performance disclosure · Disclosure of information about project operations and potentially adverse environmental and social impacts sufficiently early in planning of each stage of new operations (conceptual design, feasibility studies, construction, operations and decommissioning) to allow engagement with stakeholders on weighing the trade-offs and contributing to design and impact mitigation measures · Provision of meaningful information that stakeholders to make informed choices, i.e. information in readily understandable formats tailored to the needs of different stakeholder groups · Provision of information that is accessible to those stakeholder most affected by business operations · Identification and informing of all relevant stakeholders, with sufficient time (and where necessary facilitation) the interpretation of the information · Continually engage with and `track' stakeholder engagement, within emphasis on measuring company performance (i.e. stakeholder satisfaction) and `bundling' of different activities that stakeholder would wish to address collectively, e.g. compensation negotiations, employment opportunities and mitigation of adverse socio-economic impacts · Company to maintain oversight of the outcomes of stakeholder engagement undertaken in the name of the company by others, e.g. cases where engagement is undertaken by government (e.g. for asset loss compensation) or contractors (e.g. during Environmental Impact Assessment studies) · Involvement of government agencies and legitimate community groups, NGOs etc. in engagement activities to build trust and mutual understanding · Provision of accessible and safe mechanism for stakeholders to raise and resolve grievances with the company · Special recognition of the need to secure informed consent on decisions affecting indigenous peoples and their domain areas World Bank Foreign Investment Advisory Services 41 · Involvement of community, local government and NGOs in environmental and social monitoring, e.g. of ESIA­ related management plans and on-going social management systems 15. Charitable giving · Making of donations, grants and scholarships, either directly or through foundations and trust · Provision of sponsorship for events and organizations · Establishment of issue-specific philanthropic trusts and endowments · Facilitation of employee giving, e.g., through company payroll · Facilitation of employee volunteering `in the community' either in or out of work time, including secondments · Making in-kind gifts such as product, equipment, vehicles etc. · Offering in-kind loans such as premises, equipment etc. 16. Social investment · Implementation of community development projects (e.g. health clinic, school construction, water supply and sanitation, credit facilities etc.) · Deployment of market research, distribution networks and retail channels to support community-based enterprises · Provision of emergency assistance (e.g. for natural disasters) · Increased use of cause-related marketing · Development of employment policies that secure local labor supply, i.e. that favor local low-income communities · Development of procurement practices that place local businesses on call-down lists, and provide appropriate levels of support to enable them to meet procurement quality standards · Facilitating local access to working capital and vocational training for local businesses to secure supplier reliability · Development and marketing of products and services for low-income consumers · Pooling health care resources with local authorities to improve productivity of workforce (including HIV and STD management) · Sharing capital expenditure costs of operational infrastructure with local authorities (power, water, sanitation, transport, telecommunications) · Engaging principal contractors to act as delivery agents for social investment projects down the supply chain, e.g. through contracts and performance incentives 17. Social reporting and management systems · Establishment of social management system for evaluating, reporting and assuring social performance · Disclosure of timely, regular and reliable information on social performance to Supervisory Board, Executive Management, shareholders, employees, trade unions and non-commercial stakeholders (government departments and agencies, affected communities, NGOs, other community groups etc.) · Stakeholder participation in target setting and performance evaluation including: Supervisory Board, Executive Management, key shareholders, employees or their representatives, and non-commercial stakeholders (government departments and agencies, affected communities, NGOs, other community groups etc.) · Independent expert assurance of social information disclosed, ie certification (through audits) of individual operational businesses and facilities, eg AA1000 · Aggregation of operational-level social performance across corporations and facilities, reflecting balanced view of performance rather than selected highlights, including: health and safety of employees, employee satisfaction, stakeholder engagement (non- commercial), labor policies and performance, human resource development, customer satisfaction, customer safeguards (quality, safety, advertising, privacy etc), organizational learning, interaction with conflict and violence (if applicable), management of human rights, management of bribery and corruption, social and community investment, social performance of supplier and distributors, stakeholder satisfaction with social performance (commercial and noncommercial) 42 World Bank Foreign Investment Advisory Services CORPORATE GOVERNANCE 18. Rights and treatment of shareholders · Basic shareholder rights upheld: A secure method of ownership/shareholder registration the right to convey or transfer of shares right to obtain information on the corporation on a timely and regular basis right to participate and vote in general shareholder meetings elect board members onto the Supervisory and Executive management Boards · Shareholders informed and able to participate in decisions concerning fundamental corporate changes · Disclosure of arrangements enabling certain shareholders to obtain a degree of control disproportionate to their equity ownership · Disclosure of the rules and procedures governing the acquisition or sale or corporate control (through the capital markets, mergers, sale of major assets etc.) · Shareholders (including institutional investors) consider the costs and benefits of exercising their voting rights · All shareholders of the same class receive equal treatment with regard to voting rights · No insider trading or abusive self-dealing 19. Governance policies and business principles · Make publicly available company policy on CSR or Code of Business Principles · Incorporate in company policy a commitment to obey domestic laws and regulations and international obligations of the countries of operation · Incorporate in company policy a commitment to conduct operations in accordance with the principles of fair competition including refraining from making anti-competitive agreements among competitors (e.g. price fixing, collusive tenders, output restrictions, allocating customers, suppliers, territories or lines of commerce) · Develop management systems that continuously improve the extent to which above policies are adopted within business affiliates within which the corporation has an investment or influence · Adopt a zero reprisal policy for compliance with business principles, where an individual's or team's remuneration, bonuses and other benefits, as well as promotion prospects or priority ranking in layoffs, are protected against failing to meet commercial targets for reasons relating to the proper application of business principles. The aim is to reduce the incentives for false information disclosure or facilitation payments arising from competing commercial vs. compliance interests. 20. Information disclosure and reporting · Disclosure of ownership profile, e.g. state, foreign investors, domestic institutional investors, retail investors, important families, holding companies etc. · Provision of timely, regular and reliable information to shareholders, employees and key stakeholders on: operational activities proposed activities financial and operating results of company company objectives major share ownership and voting rights members of Supervisory Board and Executive Management material foreseeable risks material issues regarding employees and stakeholders, e.g. HIV/AIDS, risk of accidents governance structure and policies environmental and social performance · Information internally verified by Supervisory Board and externally audited by independent experts · Establishment of channels for information dissemination fair, timely, cost efficient and meaningful to shareholders, employees and key stakeholders · Disclosure of other information, including: value statements (business principles, governance policies, environmental and social policies, others); management systems for World Bank Foreign Investment Advisory Services 43 managing risks and complying with laws; and information on relationships with employees and stakeholders · Annual financial performance reporting based on reliable sources of information, and describing operating profit, dividends paid, loan preferences, asset sales, interest paid on debt and borrowings etc. · Annual environmental performance reporting based on reliable sources of information and as far as practicable aggregated, quantified, data across companies measured against pre-set targets · Annual social performance reporting based on reliable information and as based on information reflecting a balanced view of performance rather than selected highlights · For all annual reporting, internal verification both by the Management Board and Supervisory (non-executive) Board members · For all annual reporting, expert external verification of information and reporting, free from conflicts of interest 21. Responsibilities of the board · Disclosure by members of the Supervisory Board and all executive managers of material interests in transactions or other matters affecting the corporation · Ensure Supervisory Board and Management Board comprise individuals with experience in corporate governance, and financial, social and environmental management · Board members to act on a fully informed basis, in good faith, with due diligence and care, and in the best interests of the company and shareholders · Key functions of Management Board: Review and guide corporate strategy, risk policy, annual budgets and business plans Set performance objectives Monitor implementation and performance Oversee capital expenditure, acquisitions and divestitures Select, compensate, monitor, and where necessary, replace key management executives Review key executives and board remuneration, and ensure transparent board nomination process Monitor and manage potential conflicts of interest of management, board members and shareholders, including misuse of corporate assets and abuse in transactions Ensure the integrity of accounting, financial, environmental and social reporting, including impartiality of independent auditing Monitor effectiveness of the governance practices and making changes as needed Oversee the process of information disclosure and communication · Key functions of Supervisory Board (or non-executives on Management Board): Exercise objective judgment on corporate affairs independent of management Verify integrity of accounting, financial, environmental and social reporting, including impartiality of independent auditing · Equity partners encouraged to bring experience in investment and business management and social and environmental management · Executive managers responsible for External Affairs, CSR, HSE with adequate experience and of sufficient seniority to discharge duties effectively 22. Customer / End-user care · Compliance with all legally required standards for customer health and safety and include health warnings and product safety and information labels · Development of policy and guidelines for customer care, pursuant to domestic law and regulations and international obligations, including management and employee training, monitoring system and performance disclosure · For goods and services, provision of accurate and clear information regarding the content, safe use, maintenance, storage and disposal sufficient to enable the end-user make informed decisions · Development of disclosure policy and voluntary codes relating to fair marketing and advertising · Respect for consumer privacy and protection of personal data 44 World Bank Foreign Investment Advisory Services · Management of an effective customer complaints procedures and timely resolution of consumer disputes without undue cost or burden · Consideration of consumer diversity in product labelling · Co-operation in a transparent manner with public authorities in the prevention or removal of serious treats to public health and safety deriving from the consumption or use products or services. World Bank Foreign Investment Advisory Services 45 Annex C Inventory of Public Sector Interventions to raise CSR Standards (enabling environment) The body of recent research on the role of `public goods' in supporting industrial development suggests the need to appraise different public sector interventions against three criteria, as follows: whether the intervention is demand driven (so as not to distort the market); the extent of public goods delivered from modifications to CSR practices, as opposed to private goods; and the delivery of international and national development objectives (in the case of FIAS this centres on increased competitiveness in global value chains and inward investment promotion).xvii Economic 1. Monetary flows to the public sector 2. Employment and human resource development 3. Procurement and supply chain management 4. Technology transfer and intellectual property rights Environment 5. Environmentally safe production, products and services 6. Environmental impact assessment and management 7. Environmental reporting and management systems Social 8. Health and safety of employees 9. Labour standards 10. Corruption and bribery 11. Human Rights 12. Violence and Conflict 13. Social impact assessment and management 14. Community and stakeholder engagement (non-commercial) 15. Charitable giving 16. Social investment 17. Social reporting and management systems Corporate Governance 18. Rights and treatment of shareholder 19. Governance policies and business principles 20. Information disclosure and reporting 21. Responsibilities of the Board 22. Customer/end-user care 46 World Bank Foreign Investment Advisory Services ECONOMIC 1. Monetary Flows to the Public Sector Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance Combing public resources with those of Public or political support for penalties pertaining to the and codes, endorsements and business to leverage complementary CSR performing companies control of some aspect of deterrents, such as market resources, realise economies of scale and facilitating civil society business investment or stimulation, tax incentives, and cross-fertilise best practices organisations in the form of operations awareness raising, processes of publicised praise or awards; stakeholder dialogue (the public involving leadership sector will not always be the lead companies in the public policy agency in executing these activities) arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Establish a legal or regulatory Make publicly available a register of Participate in international Public statements from framework for the public payments by companies, or an discussions on private sector government (eg disseminated disclosure of payments by annual publication, with effective disclosure of public sector payments, through investment promotion companies. promotion of the register with a view to identifying and channels) of support for internationally to strengthen the implementing supportive public sector disclosure of payments by Within the framework of confidence of investors and buyers policies foreign investors securities law establish linkage between the disclosure of Instigate a transparent system of Convene in-country multi-stakeholder payments and the requirements tax concessions for companies forums to develop principles for the for publicly listed companies actively promoting the diffusion of management and redistribution of tax on stock exchanges (See investment-friendly CSR activities to revenues EXAMPLE 1) local contractors, such as SME development or technology transfer Integration of discussions on revenue Establish legislation and distribution from sensitive industrial regulatory controls setting out a sectors (eg those in the extractive framework for distribution of industries) with overall policy planning resource rents and taxes from for nation and regional security, with the national to sub-national and local aim of preventing the escalation into levels, including, where violence of community-company appropriate a focus on the disputes in production regions regions of production, for example: Local governments and communities · a minimum percentage of jointly management of local company retained profits community development trust or (eg 1%) to be paid into a local endowment funds (or similar community development trust arrangement) financed through the or endowment fund (or similar distribution of tax revenues or other arrangement), with rents requirements for community- management and credible regulation · a minimum percentage of government revenues from company profits (eg 20 ­ 50%) to be directed to local governments in the regions of operations Augment the regulatory framework for statutory corporate taxation to balance the burden on business of complying with applicable tax laws with the need for tax authorities to have complete, timely and accurate information to enable the law to be enforced. World Bank Foreign Investment Advisory Services 47 ECONOMIC 2. Employment and human resource development Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance Combing public resources with those of Public or political support for penalties pertaining to the and codes, endorsements and business to leverage complementary CSR performing companies control of some aspect of deterrents, such as market resources, realise economies of scale and facilitating civil society business investment or stimulation, tax incentives, and cross-fertilise best practices organisations in the form of operations awareness raising, processes of publicised praise or awards; stakeholder dialogue (the public involving leadership sector will not always be the lead companies in the public policy agency in executing these activities) arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Within company or labour law Within legal and international Relevant government-sponsored In cases of redundancy and establish nationally appropriate constraints, when negotiating educational and training institutions to retrenchment development minimum wage levels (or investment, development or partner with companies that have in- of multi-stakeholder formula) and worker benefits, management agreements with house training activities, with the aim partnering agreements eg health insurance or facilities; investors, operators and contractors, of examining potential for synergies between business Human pensions; redundancy pay require agreement on performance (whilst retaining and exploiting links to Resources Departments, targets for local content private sector `philanthropic' education trade unions, government (employment and supplier activities) manpower and employment preferences). agencies and civil society groups working on livelihood Prepare guidelines or `models' for income and enterprise incorporating criteria and procedures development, eg Placer for local employment content and Dome retrenchment skills development into competitive programme in South Africa tendering and contract design (www.southdeep.co.za) Work with investors and buyers to Endorse, through award build understanding of linkages schemes, companies that between national employment show innovation in skills policies and companies' own development and skills employment policies transfer, eg those who transform conventional Build incentives for companies to go training programmes for `beyond compliance' on upgrading semi-skilled employment and skills transfer workers to more formal initiatives ­ eg through tax rewards, certified apprenticeship public policy statements in training programmes (with appropriate international forums, etc consideration of future market demands) and linked to nationally or internationally recognized standards of excellence Lead-by-example ­ incorporate criteria and procedures for local employment and skills development into competitive tendering and contract design on government contracts 48 World Bank Foreign Investment Advisory Services ECONOMIC 3. Procurement and supply chain management Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance Combing public resources with those of Public or political support for penalties pertaining to the and codes, endorsements and business to leverage complementary CSR performing companies control of some aspect of deterrents, such as market resources, realise economies of scale and facilitating civil society business investment or stimulation, tax incentives, and cross-fertilise best practices organisations in the form of operations awareness raising, processes of publicised praise or awards; stakeholder dialogue (the public involving leadership sector will not always be the lead companies in the public policy agency in executing these activities) arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Establish maximum payment Prepare guidelines or `models' for Promote uptake of ISO 9000 and ISO Lead by example through periods in respect of invoices incorporating criteria and procedures 14000 certification by funding/hosting public procurement practices properly issued by small for local content and local business training or skills centers that showcase that facilitate effective access enterprises development into competitive companies already certified and for small/start-up enterprises tendering and contract design promote business-to-business ­ eg through review of tender Establish mandatory fertilisation. requirements on accounts framework for `local content' Establish simplified, accessible such as meeting certain in public procurement/tendering procedures for small claims for Convene and contribute to local environmental standards (see on contracts above a certain breach of contract enterprise development partnerships EXAMPLE 2), value, backed by penalties for designed to build local SME capacity to abuse Facilitate linkages between large and act as contractors and suppliers. small companies (non-competitors) Partnerships may involve: to build tendering capacity in companies ­ procurement smaller companies ­ eg through departments, quality inspectors and cross-sectoral training sessions, contract managers perhaps hosted by public sector local government - agencies. vocational training agencies, extension services and micro-credit Grant schemes or subsidies for agencies; places on ISO 9000/14000 training NGOs with business courses for SMEs management training capacity, market research and regulatory Promote professionalisation of navigation expertise purchasing and supply practice Banks and development through advocacy for skills agencies ­ working capital and sharing/international exchanges business development expertise etc with international agencies and investors Partner with local trade associations and business-development NGOs to Incorporation of references to build data-base and promote environmental/social issues in awareness among potential buyers and investment promotion literature procuring businesses of local making clear government preference enterprise capacities in different for `pro-CSR' investment and regions and industrial sectors opportunities for showcasing the performance of domestic contractors Work with exporters/trade associations in meeting these standards. and buyers in export markets to build early-warning awareness of new Brokerage of skills transfer through requirements (eg on environmental staff secondment from large-to- issues) likely to affect contracts for small business in areas of key supply of goods and services in key enterprise development need ­ eg in sectors relation to bookkeeping and financial accounting skills. World Bank Foreign Investment Advisory Services 49 ECONOMIC 4. Technology transfer and intellectual property rights Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance Combing public resources with those of Public or political support for penalties pertaining to the and codes, endorsements and business to leverage complementary CSR performing companies control of some aspect of deterrents, such as market resources, realise economies of scale and facilitating civil society business investment or stimulation, tax incentives, and cross-fertilise best practices organisations in the form of operations awareness raising, processes of publicised praise or awards; stakeholder dialogue (the public involving leadership sector will not always be the lead companies in the public policy agency in executing these activities) arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Compulsory licensing of key Prepare guidelines for incorporating Seek business input in the development Political endorsement of products and technologies criteria and procedures for promoting of public policy in key areas of company best practice ­ eg (within limits allowed by technology and skills transfer into industrial policy with the explicit voluntary licensing or international law) that are in the competitive tendering and intention of promoting `leapfrogging' to transfer of key technologies to public interest contracts new (eg environmentally cleaner) local businesses, universities technologies or health centres Legal protection for intellectual Facilitate investor access on fair property rights terms to locally developed Joint business/public sector (university) technologies and work to build local partnerships to fund scholarships in Legal or regulatory framework capacity to conclude mutually areas of key industrial importance to the for companies licensing or beneficial contracts that do not nation with respect to technology selling technologies to ensure exploit the innovating party transfer, and incorporate secondment that terms and conditions are of students to the sponsoring reasonable and allow for on- Fund or seek international donor companies going technology diffusion and support for development of adaptation to local market negotiation skills for technology Joint industry-government development opportunities transfer/licensing and awareness of guiding principles and clauses for of legal aspects technology licensing and purchase contracts Undertake `mapping' exercises to aid potential investors identify Public sector support (eg through commercial opportunities for export credits with bi-lateral donors) to technology transfer at assist companies/investors in supplying national/local level, eg critical `hard' technologies necessary to environmentally clean technologies develop domestic industries and markets Joint industry-business forums to agree public policy in relation to intellectual property rights (eg pharmaceuticals) and to negotiate preferential licenses to meet public policy goals such as poverty reduction 50 World Bank Foreign Investment Advisory Services ENVIRONMENT 5. Environmentally safe production, products and services Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and penalties Incentives, non-binding guidance Combing public resources with Public or political support for pertaining to the control of some aspect of and codes, endorsements and those of business to leverage CSR performing companies business investment or operations deterrents, such as market complementary resources, realise and facilitating civil society stimulation, tax incentives, economies of scale and cross- organisations in the form of awareness raising, processes of fertilise best practices publicised praise or awards; stakeholder dialogue (the public involving leadership sector will not always be the lead companies in the public agency in executing these activities) policy arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Legal framework for environmentally safe Develop business outreach Convene government-industry-civil Promote `green/ethical production, products and services: awareness programmes on society forums to develop `home consumerism' at national - incorporate environmental importance for international market grown' codes and labeling for key level, eg publicity for locally considerations into existing production, access of incorporating certification local products, coupled with produced goods and product and service quality standards, for production and products, eg development of marketing services that meet `fair including `polluter pays' principles environmental management (ISO strategies for these goods in other trade' or other relevant - require fair and quick remediation 14001); product labelling (eg ISO markets, including exports (See criteria (see EXAMPLE 3) for redressing injuries caused to buyers, 14021); product life-cycle analysis EXAMPLE 5 and see EXAMPLE 6) customers and others persons or (eg ISO 14040-49); product Endorse companies (eg property or other acts of non-compliance research and design (R&D), eg ISO Collaborate with research through awards schemes) - redress for damage to valued 14062 institutions and company R&D with environmental environmental resources, eg for affected departments to explore both production, product and communities Establish national certification market-based and regulatory service codes and - legal protection for `whistle blowers' scheme, with subsidies for methods for incentivising recycling practices that go beyond participating companies to contract and the development of recycling legal compliance Improved enforcement of existing auditors technologies, both in production regulatory system for production, products and products & services and services: Conduct overseas diplomatic and - capacity-building for health and trade missions promote exports of Joint government-industry safety and environmental regulators in `green goods' and services in awareness raising among preparing ToRs for site visits, reviewing markets with significant numbers of customers and end-users of the reports and monitoring effectiveness of ethical buyers and consumers measures taken to reduce the environmental risk management and environmental risks of production contingency plans Provide tax incentives for that technologies, products and services - more stringent remediation for proportion of operating costs or with aim of building consumer production or product non-compliance profits re-invested in setting up confidence in the market place for and incidents, eg raise penalties for environmental management goods produced domestically unauthorized release or disposal of systems pollutants or lack of contingency Joint government-business-civil planning Develop environmental society training programmes - regulatory requirements based on management cooperation involving company outreach and use of `best available techniques', or agreements with key industry quality control managers, and civil `best practicable environmental option' to playersxviii (see EXAMPLE 4) society groups working with small- support continuous innovation in scale suppliers, with the aim of industry, eg in energy-intensive Convene standards setting fora to reducing the unintentional production, low pollutant emitting promote uptake of international consequence of the environmental technologies and recycling environmental production, products requirements of buyers acting as a - regulatory product quality and and service standards: barrier to market access for local labeling criteria in accordance with - domestic industry based SMEs standards of potential buyers and consensus; and/or investors - multi-stakeholder based Incorporate teaching of production, - Inspectors reports to include steps forum products and service environmental company is taking to move beyond safety and related management compliance, and credit/endorse Establish a resource centre for systems into university and MBA accordingly (aim is to link voluntary representatives of employees (eg curricula. improvements in environmental risk trade unions) and employer/trade management with legal framework) associations to inform effective labour-company agreements on Establishment of mandatory performance conditions bonds in relation to environmental and/or social issues in key sectors or key developments, eg as a clause in Development Agreements Race to the top ­ adopt best corporate practice and/or best international codes into law, and create culture of ratcheting up environmental standards for production, products and services and related risks World Bank Foreign Investment Advisory Services 51 ENVIRONMENT 6. Environmental impact assessment and management Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and penalties Incentives, non-binding Combing public resources with Public or political support pertaining to the control of some aspect of guidance and codes, those of business to leverage for CSR performing business investment or operations endorsements and deterrents, complementary resources, realise companies and such as market stimulation, economies of scale and cross- facilitating civil society tax incentives, awareness fertilise best practices organisations in the form raising, processes of of publicised praise or stakeholder dialogue (the awards; involving public sector will not always leadership companies in be the lead agency in the public policy arena; executing these activities) endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Legal framework for environmental impact Provide official guidance to Convene multi-stakeholder forums Endorse (eg through assessment (EIA): national, regional and district to cross-fertilise best practices awards schemes) - formal (project-based) Environmental planning authorities to in environmental impact companies applying best Impact Assessment procedures and develop planning assessment, and involving, inter practice environmental requirements (with specific consideration of frameworks that manage the alia: environmental and health impact assessment social, health, resettlement and indigenous impact of business operations, regulators; leadership companies; standards, in particular: peoples issues; community development their facilities, supply chains the principal contractors in the explicit consideration of opportunities; stakeholder engagement and distribution networks country; and civil society groups social, health throughout life of investment; and integrated across the life time of the resettlement and (environmental and social) impact assessment investment in relation to: For controversial projects, indigenous peoples and management) · environmental government environmental issues; community - harmonisation of requirements for protection and regulators partner with impact development environmental clearance between ministries rehabilitation; and assessment teams (company and opportunities; stakeholder and sectors (eg mining and environment · capturing social and contractors/consultants) to: engagement throughout ministries) economic benefits, eg · ensure regulatory life of investment; and - setting or upgrading environmental skills development, local compliance integrated (environmental quality standards (emissions and ambient enterprise development, · promote mitigation and social) impact quality) social and public acceptable to those affected assessment and - instituting a civil liability legal framework infrastructure, employment · facilitate early consultation management for environmental pollution opportunities, chronic with local government - remediation for acts of legal non- poverty reduction etc. authorities Government to lead-by- compliance, and protection for `whistle · review draft environmental example and incorporate blowers' Establishment of accessible, management plans at a time best practice - explicit integration of EIA with the independent and effective when environmental environmental (and development planning system (national and courts, ombudsman, considerations can still affect social) impact regional) and investment decision making tribunal or arbitration strategic design and investment assessment and services staffed by experts in decisions management Improved enforcement of existing regulatory environmental assessment requirements into system for environmental impact assessment: regulations and related laws Joint awareness raising relevant government - capacity building for environmental (eg compensation), and campaigns with industry and trade contracts, competitive regulators in preparing ToRs for impact skilled in alternative dispute associations on the potential cost tendering procedures, studies, negotiating fair compensation, resolution (ADR) savings in engineering and Development, reviewing reports and monitoring effectiveness project/ production management Management or of mitigation/management plans arising from early consideration of Concession agreements, - more stringent remediation for non- environmental impact mitigation and new investment in compliance, eg raise penalties for lack of and technology improvements in state-owned enterprises mitigation monitoring front-end-design - independent preparation of impact assessment studies, free from `conflicts of Joint research with companies interest' eg `streamed' contracts or and civil society groups to tailor commercial or family links between EIA international and corporate best contractors and contracting company practices in environmental (and - EIA reports and statements to include social) impact assessment to the steps company is taking to move beyond local conditions and compliance, and credit/endorse accordingly public/community expectations (aim is to link voluntary improvements in environmental management with legal framework) Development of a regulatory framework and enforcement capability for identifying and resolving liabilities over environmental legacies (especially extractive industries, forestry, and pollution incidents during manufacturing), without outcomes ranging from `zero pollution' to `fit for purpose' 52 World Bank Foreign Investment Advisory Services ENVIRONMENT 7. Environmental reporting and management systems Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and penalties Incentives, non-binding guidance and codes, Combing public resources with Public or political support for pertaining to the control of some aspect endorsements and deterrents, such as market those of business to leverage CSR performing companies of business investment or operations stimulation, tax incentives, awareness raising, complementary resources, and facilitating civil society processes of stakeholder dialogue (the public realise economies of scale organisations in the form of sector will not always be the lead agency in and cross-fertilise best publicised praise or awards; executing these activities) practices involving leadership companies in the public policy arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Establishment of mandatory corporate Develop business outreach programmes on Public sector participation in Annual/biennial environmental reporting integrated importance for international market access of multi-stakeholder processes environmental reporting within company law reporting incorporating environmental certification for for development of `green' awards schemes to requirements, and either attached to production and products, eg environmental international environmental endorse companies that report existing environmental controls on management (ISO 14001); product labelling reporting criteria (eg Global on environmental performance particular emissions, or as stand-alone (eg ISO 14021); product life-cycle analysis (eg Reporting Initiative) and/or instigate EMSs legislation addressing a range of ISO 14040-49); product research and design environmental issues including those that (R&D), eg ISO 14062 (see EXAMPLE 8) Incorporate teaching of are not the subject of pollution control environmental management legislation Publication of best practice guidelines on systems into university and environmental reporting and establishment MBA curricula. Race to the top ­ adopt best corporate of related EMSs, based on broad environmental reporting practices and/or consultations with industry, industry Convene multi-stakeholder best international codes into law where associations, other government departments forums to cross-fertilise best practicable. and civil society groups (and endorsement of practices in environmental these guidelines by national environmental management systems (either Require companies publicly listed on protection agency (or equivalent) and key generalized practice or national stock exchange to comply with political figure ­ eg Environment Minister) industry-specific) involving: minimum environmental management inter alia: environmental and requirements (see EXAMPLE 7), options Establish national certification scheme for health regulators; leadership include: environmental reporting, with subsidies for companies; the principal statement of business principles participating companies to contract auditors contractors in the country; and that incorporates environmental policy civil society groups Provide affordable capital (eg grants, commitment to continuous matched funding, access to low interest debt) improvement in environmental to support companies' efforts to improve performance labour-related management systems and pay commitment to disclose for certification, or to support consultancy firms environmental performance develop auditing/certification capacity commitment to independent verification of performance Provide tax incentives for that proportion of operating costs or profits re-invested in setting commitment to related training for up environmental management systems management and employees commitment to develop a Augment existing regulatory systems to monitoring system endorse companies in their adoption of environmental management systems, eg commitment to the precautionary health and safety (and/or environmental approach in all operations in line with agency) inspectorators' reports to include Principle 15 of the Rio Declaration on summary of steps company is taking to move Environment and Development towards EMSs, and credit/endorse accordingly (aim is to link voluntary EMSs with legal framework) World Bank Foreign Investment Advisory Services 53 SOCIAL 8. Health and safety of employees Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance Combing public resources with those of Public or political support for penalties pertaining to the and codes, endorsements and business to leverage complementary CSR performing companies control of some aspect of deterrents, such as market resources, realise economies of scale and facilitating civil society business investment or stimulation, tax incentives, and cross-fertilise best practices organisations in the form of operations awareness raising, processes of publicised praise or awards; stakeholder dialogue (the public involving leadership sector will not always be the lead companies in the public policy agency in executing these activities) arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Minimum legal requirements on Establish appropriate legal Work in partnership with businesses Political endorsement for health and safety in the incentives for continuous and civil society based organizations ­ legal action seeking redress workplace, including, inter alia: improvement in workplace health eg led through national medical for victims of industrial maximum permitted exposure and safety practice, eg mandatory research agencies - to establish accidents levels of specific substances business contributions to employers' workplace policies on HIV/AIDS that clear establishment of general compensation funds can be are integrated with public policy goals Political endorsement/ duties on employers for graduated in line with the and public sector experience of `best recognition for best provision of a safe working number/frequency of reported practice' on public health and disease performing companies: eg environment incidents, so that `best practice' prevention, taking account of local through an annual `health and prohibition on employer companies are rewarded through cultural norms safety awareness' week `contracting out' lower premiums endorsed by senior political Joint government-industry training figures Mandatory insurance for Build capacity among local programmes in occupational health workers in the event of doctors to identify key occupational and safety, and health and safety risk occupational injury, with effective diseases and hazards assessment anti-avoidance provisions (eg to deal with subcontracted labour) Business health monitoring equipment shared with health safety Mandatory disclosure inspectorates and local hospitals with a requirements in respect of view to facilitating attainment of public reportable incidents/injuries sector health goals and enhancing overall workforce productivity Rights of access to worker information on health records Leadership companies work with held about them government and trade unions to build awareness and best practice in health Whistle-blower protection from and safety and associated management recrimination for workers systems, including the design of training reporting health and safety packs/resources for local SMEs breaches to regulators and/or others (eg NGOs) Effective access to remedies, including meaningful compensation for injured workers Effective legal underpinning for collective bargaining and freedom of association in respect of health and safety issues 54 World Bank Foreign Investment Advisory Services SOCIAL 9. Labour standards Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance and codes, Combing public resources with those of Public or political support penalties pertaining to the control of endorsements and deterrents, such as market business to leverage complementary for CSR performing some aspect of business investment or stimulation, tax incentives, awareness raising, resources, realise economies of scale companies and operations processes of stakeholder dialogue (the public and cross-fertilise best practices facilitating civil society sector will not always be the lead agency in organisations in the form executing these activities) of publicised praise or awards; involving leadership companies in the public policy arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Generic legal framework for minimum Develop business outreach programmes on In cases of redundancy and Government to lead-by- labour standards (eg in company and the importance for international market access retrenchment development of tri- example and incorporate contract law)*, based, for example, on of incorporating statements of principles on sector partnering agreements between best practice labour ILO conventions if country is a Labour Standards and on codes and business Human Resources codes into government signatory): certification options for operations and facilities Departments, trade unions, contracts, competitive - remuneration (minimum wage) (eg SA8000) government manpower and tendering procedures, - hours of work employment agencies and civil society Development, - health and safety Use diplomatic and trade links to promote groups working on livelihood income Management or - child labour (Convention 182) domestic companies that are already and enterprise development, eg Placer Concession agreements, - compulsory labour (Convention compliant with the labour codes of potential Dome retrenchment programme in and the operations of 105) foreign investors and/or or have certified South Africa (www.southdeep.co.za) state-owned enterprises - freedom of association management systems - non-discrimination (Convention With business associations, unions and Publicly endorse labour 111) Provide tax incentives for that proportion of independent civil society groups, codes that go beyond - non-harassment operating costs or profits re-invested in setting establish joint national certification legal compliance, eg in - remediation for acts of non- up or running labour standards-related scheme, with subsidies for policy statements compliance, and protection for management systems participating companies to contract `whistle blowers' auditors - employee participation Capacity-building for legal professionals (Convention 94) (criminal and civil) and adjudicators in relation Undertake joint research with to domestic and international labour rights companies and civil society groups to *Development of industry-specific (especially if signatory of ILO Convention) better understand barriers to legal framework (company and compliance and to monitor the effect of contract law), drawing on above. Capacity-building for trade unions, trade labour standards on business, associations and other employee/ employer economic and social objectives, be Improved enforcement of existing representative organizations and affiliated they positive or negative. regulatory systems for labour NGOs to strengthen non-government standards: enforcement and promotion of labour rights Incorporate teaching of labour - Established or strengthened and codes, and raise awareness of grievance standards and codes into university Labour Commission mechanisms and resources available for and MBA curricula. - More stringent remediation for addressing non-compliance non-compliance, eg raise penalties Collaborate with foreign development - Bias penalties to companies Convene standards setting forum to promote agencies to support NGOs in that have not instituted voluntary uptake and reduce prospect of parallel programmes of managed home systems of management and systems: working with aim of supporting women certification - domestic industry based consensus; and/or with very young children and to - Increases in capacity of labour - multi-stakeholder based forum discourage child labour and health and safety Inspectorate - ID systems for workers on Convert international labour codes (non- Provide grants, matched funding, employee age to prevent perceived binding codes and certification schemes) to be access to low interest debt and other corporate risk of employing minors applicable to all suppliers in a sector. Options forms of affordable capital to support acting as an investment disincentive include: companies' efforts to improve labour- - Inspectorators' reports to - corporate labour codes of main foreign related management systems and pay include summary of steps company investors, buyers or operators for certification, or to support is taking to move beyond - international codes of conduct, eg ETI, consultancy firms develop compliance, and credit/endorse ILO, OECD auditing/certification capacity accordingly (aim is to link promotion of voluntary codes with legal Establish a resource centre for Broker strategic alliances between framework) representatives of employees (eg trade purchaser companies (and possibly unions) and employers (eg trade associations) principal contractors) to align best Race to the top ­ adopt best corporate to inform effective labour-company practice labour codes and management practice and/or best international codes agreements on conditions systems and agree strategies for into law, and create culture of adoption by suppliers (with aim of ratcheting up labour standards Establish accessible, independent and reducing transaction costs and promote effective courts, ombudsman, tribunal or cross-fertilisation) arbitration services, staffed by experts in labour laws, standards and skilled alternative dispute resolution (ADR) World Bank Foreign Investment Advisory Services 55 SOCIAL 10. Corruption and bribery Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance Combing public resources with those of Public or political support for penalties pertaining to the and codes, endorsements and business to leverage complementary CSR performing companies control of some aspect of deterrents, such as market resources, realise economies of scale and facilitating civil society business investment or stimulation, tax incentives, and cross-fertilise best practices organisations in the form of operations awareness raising, processes of publicised praise or awards; stakeholder dialogue (the public involving leadership sector will not always be the lead companies in the public policy agency in executing these activities) arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Establish minimum legal Establish clear corruption Joint government-business-civil Political endorsement of requirements to criminalise complaints mechanism with society forum to negotiate consensus enforcement against corrupt payments. Consider independent governance and a on principles for anti-corruption, corrupt officials, and the boundaries of such power of inquiry and referral to including identification and diagnosis of whistle-blowing by individuals. legislation, and whether there is prosecutors (eg in the form of a institutional weaknesses, ie `hot spots', a case for covering payments Corruption Commission) and Political endorsement of between private sector actors, press freedom backed by whistle blower Disseminate information regarding With regard to extractive industries, protection. access to company-run hotlines for develop multi-stakeholder dialogue to Political endorsement of reporting instances of corruption agree voluntary compensation cross-sectoral multi- Establish legislation and frameworks for communities and stakeholder partnerships appropriate penalties on party Provide anti-corruption training for individuals affected by extractive between business and civil and political finance, with public officials, including, for industry activities society to combat corruption particular reference to corporate example, the provisions of the OECD through greater transparency contributions. (See EXAMPLE 9) Convention on Bribery (Table B1), and trust. and incorporating international case Develop clear legislation on the studies from `best practice' Lead by example ­ proportion of revenues paid by businesses (with aim of reducing the government departments businesses to central `demand side' of bribery) maintain published registry government that should be of all payments to and from allocated to the local level Maintain publicly available contractors working on information on duties of different government projects, Require mandatory disclosure of public sector departments and business payments to their reporting/accountability lines. In state owned enterprises, government/public sector discourage employee reward officials (see CSR category: Provide clarity, eg public statements, and incentive schemes that Monetary Contributions to the on scope of discretionary powers facilitate dishonesty and Public Sector) held by authorities empowered to mal practice by creating an grant licences/award contracts and unreasonable pressure to intervene with day to day business achieve targets activities Establishment of a free and independent judiciary including transparent appointment processes for judges and training in key areas of law identified as relevant to bribery and corruption 56 World Bank Foreign Investment Advisory Services SOCIAL 11. Human Rights Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance Combing public resources with those of Public or political support for penalties pertaining to the and codes, endorsements and business to leverage complementary CSR performing companies control of some aspect of deterrents, such as market resources, realise economies of scale and facilitating civil society business investment or stimulation, tax incentives, and cross-fertilise best practices organisations in the form of operations awareness raising, processes of publicised praise or awards; stakeholder dialogue (the public involving leadership sector will not always be the lead companies in the public policy agency in executing these activities) arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Constitutional recognition for Establishment or strengthening of a Joint government-industry training and Political commitment to and legal protection against free and independent judiciary policy development on human rights respond to relevant findings of human rights violations including transparent appointment issues involving key public sector national human rights (harassment, denial or freedom processes for judges and training in personnel (eg security forces) and commissions of assembly, arbitrary arrest and key areas of law relevant to human leadership businesses in potentially detention, hostage taking, rights sensitive sectors, eg extractive Clear political denouncement disappearances, torture, extra- industries of human rights violations judicial killing), and penalties for Human rights training for members companies aiding and of the judiciary and other key public Company/state co-funding for human Promotion of the relevance of abetting or complicit in, human sector actors such as security forces rights education in school curricula the Universal Declaration of rights abuses by public sector Human Rights to `all organs agents/bodies Publicly available registers of court of society' including hearings and judgments relating to businesses Legal recognition for traditional human rights violation cases land rights Inclusion of `star performers' Public rights of access to in the private sector in Whistle-blower protection information and direct participation nominations for human rights legislation for employees in decision-making connected to new awards reporting human rights violations developments and other investment decisions Establishment of a constitutional court Clear public policy statements on operational arrangements in relation to provision of security around sensitive business facilities Inclusion of human rights education in national curricula Effective legal assistance for human rights cases, including through legal endorsement of appropriate charging structures for lawyers (eg on a `no-win-no-fee' basis) Support for establishment of independent human rights commissions at national level, with a mandate sufficiently broad to allow consideration of private sector roles and responsibilities World Bank Foreign Investment Advisory Services 57 SOCIAL 12. Violence and Conflict Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance Combing public resources with those of Public or political support for penalties pertaining to the and codes, endorsements and business to leverage complementary CSR performing companies control of some aspect of deterrents, such as market resources, realise economies of scale and facilitating civil society business investment or stimulation, tax incentives, and cross-fertilise best practices organisations in the form of operations awareness raising, processes of publicised praise or awards; stakeholder dialogue (the public involving leadership sector will not always be the lead companies in the public policy agency in executing these activities) arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices A clear, accessible and equitable Clear `conflict minimising' guidelines Where appropriate in the light Political endorsement for the land rights framework, and policies for security personnel of the sources of conflict or violence: principle of legal action by including provisions for working around sensitive business victims for redress in cases mandatory consultation and operations, including clear divisions Establishment of enterprise of human rights violations adequate compensation for of roles between state and company development promotion initiatives in compulsory acquisition of land security forces conflict zones to provide a credible and accessible and independent `alternative' to the economic dispute settlement fora Establishment of a free and advantages gained from violence. independent judiciary including transparent appointment processes Dialogues on the local impacts of for judges and training in key areas security measures around security of law identified as relevant to sensitive investments conflict prevention (eg land rights; freedom from workplace Joint government-company conflict discrimination, etc) prevention training for new public sector recruits to conflict zones focusing on the detailed local context and sensitivities Partnerships with local businesses in post-conflict situations to ensure freedom from discrimination in recruiting new staff and in employment benefits 58 World Bank Foreign Investment Advisory Services SOCIAL 13. Social impact assessment and management Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance and codes, Combing public resources with Public or political support penalties pertaining to the control of endorsements and deterrents, such as market those of business to leverage for CSR performing some aspect of business investment stimulation, tax incentives, awareness raising, complementary resources, companies and facilitating or operations processes of stakeholder dialogue (the public realise economies of scale and civil society organisations in sector will not always be the lead agency in cross-fertilise best practices the form of publicised executing these activities) praise or awards; involving leadership companies in the public policy arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Augmentation of legal framework Develop best practice guidance to assist Convene multi-stakeholder Endorse (eg through for environmental impact national, regional and district planning forums to cross-fertilise best awards schemes) assessment to explicitly encompass authorities to develop planning frameworks practices in social impact companies applying best social and socio-economic factors, that manage the impact of business assessment (either generalized practice social impact including: health impacts, operations, their facilities, supply chains and guidance or industry-specific) assessment standards, in resettlement, indigenous peoples distribution networks across the life time of the involving: inter alia: particular: explicit issues, community development, investment in relation to: environmental and health consideration of health stakeholder engagement. · mitigating and managing adverse social regulators; Ministries for impacts, resettlement, and socio-economic impacts, and Rural/Local Development and indigenous peoples issues, Improved enforcement of existing · capturing the social and economic Employment; leadership community development regulatory system for environmental benefits, eg tax revenue distribution, skills companies; the principal opportunities, and impact assessment to include social development, enterprise development, social contractors in the country; and stakeholder engagement and socio-economic factors (as and public infrastructure, employment civil society groups throughout life of above), in particular: opportunities, chronic poverty reduction etc. investment - capacity building for Undertake joint research with environmental regulators in: Best practice guidance notes (either companies and civil society Government to lead-by- preparing ToRs for social impact generalised for industry specific) aimed at EIA groups to tailor international and example and incorporate assessment studies; negotiating contractors to help them recruit consultants corporate best practices in social best practice social impact fair compensation; reviewing who can focus on social, socio-economic and impact assessment to the local assessment and social impact statements and health impacts. conditions and public/community management requirements management plans; and expectations into relevant government monitoring effectiveness of Developed through broad consultation, clear contracts, competitive mitigation/management plans over statements of economic and social tendering procedures, time development policy in relation to sector- Development, Management - Require independent specific industrial/ enterprise development or Concession agreements, preparation of social impact priorities in different parts of the and new investment in assessment studies, free from country/region. state-owned enterprises `conflicts of interest' eg `streamed' contracts or Clear public policy statements for different commercial or family links industrial sectors on expectations in relation to between EIA contractors and how private sector investments will facilitate contracting company local enterprise development and the - EIA reports and statements development of social infrastructure (the aim to include steps company is taking is to define from the outset the boundaries to move beyond compliance with between public and private sectors in current social requirements (such contributing to public goods) as consulting only at time of final draft report), and credit/ endorse Establishment of accessible, independent and accordingly (aim is to link effective courts, and ombudsman, tribunal voluntary improvements in social or arbitration services staffed by experts in management with legal (new) social assessment regulations and framework) related laws (eg compensation and displacement), and skilled in alternative Development of a regulatory dispute resolution (ADR) framework and enforcement capability for identifying and resolving disputes between companies and communities, eg over compensation for compulsory land acquisition, resettlement and displacement claims, access to employment opportunities or SME contracting Development of a legal framework for negotiation of social responsibility agreements (see EXAMPLE 10) World Bank Foreign Investment Advisory Services 59 SOCIAL 14. Community and stakeholder engagement (non-commercial) Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance Combing public resources with those of Public or political support for penalties pertaining to the and codes, endorsements and business to leverage complementary CSR performing companies control of some aspect of deterrents, such as market resources, realise economies of scale and facilitating civil society business investment or stimulation, tax incentives, and cross-fertilise best practices organisations in the form of operations awareness raising, processes of publicised praise or awards; stakeholder dialogue (the public involving leadership sector will not always be the lead companies in the public policy agency in executing these activities) arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Adopt best corporate practice Establish a clear property rights Joint development of `best practice' Government to lead-by- and/or best international codes framework to reduce potential for guidelines on stakeholder engagement example and incorporate best on aspects of stakeholder disputes in environmental and social impact practice stakeholder consultation, engagement and assessment engagement and consultation information disclosure into the Provide access to information on into relevant government following provisions: consultants or individuals from civil Convene multi-stakeholder forums to contracts, competitive granting of environmental society groups, to advise on locally cross-fertilise best practices in tendering procedures, permits for large projects or appropriate stakeholder stakeholder engagement and Development, Management projects in environmentally consultation processes and ways to consultation (either generalized or Concession agreements, sensitive locations (eg maximize engagement guidance or industry-specific) involving: and new investment in state- through use of EIA inter alia: environmental and health owned enterprises instruments) Support development of professional regulators; Ministries for Rural/Local national poverty reduction associations seeking to enhance Development and Employment; planning and their capacity in stakeholder leadership companies; the principal implementation consultation and engagement contractors in the country; and civil sectoral reform programmes society groups regional development Develop best practice guidance planning notes (either generalised for industry district development specific) aimed at EIA contractors to planning help them adjust to a greater privatisation programmes emphasis on stakeholder large-scale or potentially engagement and consultation. controversial investment and development decisions Establishment of accessible, independent and effective courts, Harmonise standards for ombudsman, tribunal or stakeholder engagement across arbitration services, staffed by different industries to streamline experts in environmental and social regulatory enforcement and performance regulations and related avoid duplication laws (eg compensation), and skilled in alternative dispute resolution Require informed consent of (ADR) and consensus building local government authorities (relevant village, district and regional levels): · prior to exploration or site investigation; and/or · prior to reaching a decision on a development, management or concession agreement 60 World Bank Foreign Investment Advisory Services SOCIAL 15. Charitable giving Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance Combing public resources with those of Public or political support for penalties pertaining to the and codes, endorsements and business to leverage complementary CSR performing companies control of some aspect of deterrents, such as market resources, realise economies of scale and facilitating civil society business investment or stimulation, tax incentives, and cross-fertilise best practices organisations in the form of operations awareness raising, processes of publicised praise or awards; stakeholder dialogue (the public involving leadership sector will not always be the lead companies in the public policy agency in executing these activities) arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Tax incentives for corporate Government-industry joint identification Public praise and awards for donations, eg donations as tax of strategic opportunities for employee companies or CEOs who deductions (see EXAMPLE 11) volunteering and placement to assist have demonstrably government deliver public policy goals contributed to charitable Enabling legislation or regulations to and public goods, eg local business causes encourage corporate sponsorship development of education and vocational training establishments, eg those Joint funding schemes where specializing in skills critical to the government agrees to match corporate development of a particular industrial resources donated to selected sector charitable causes, eg industry related scholarships or research Enabling legislation to protect companies that establish charitable Government-industry placement trust funds or endowment funds trading, with aim of cross-fertilising from liabilities best practices and knowledge World Bank Foreign Investment Advisory Services 61 SOCIAL 16. Social investment Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance Combing public resources with those of Public or political support penalties pertaining to the and codes, endorsements and business to leverage complementary for CSR performing control of some aspect of deterrents, such as market resources, realise economies of scale companies and facilitating business investment or stimulation, tax incentives, and cross-fertilise best practices civil society organisations operations awareness raising, processes of in the form of publicised stakeholder dialogue (the public praise or awards; involving sector will not always be the lead leadership companies in agency in executing these activities) the public policy arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Mandate in law a minimum Develop clear statements of policy Convene and contribute to multi- Publicise (eg through percentage of company on willingness to engage in various stakeholder partnerships that `roll-out' award schemes) retained profits (eg 1%) to be forms of public private partnership the operational infrastructure of companies showing paid into a local community relevant to CSR ­ eg in relation to business operations in alignment with innovation in social development trust or endowment provision of infrastructure incidental the public sector strategic infrastructure investment, in particular fund (or similar arrangement), to new developments plans of regional and district level those investments that with requirements for government. Such partnerships can be combine a strong community-management and Tax incentives for companies built around any type of investment community development credible regulation providing priority community where permanent or temporary benefit with achieving infrastructure and clear statements infrastructure (water supply, sanitation, strategic business Mandate in law a minimum of principles on respective roles and telecommunications, transportation, and objectives percentage of government responsibilities. power generation and/or distribution, revenues from company profits waste disposal, health facilities) is a (eg 20 ­ 50%) to be directed to Clear public policy statements for feature of the development or local governments in the regions different industrial sectors on operational phases. Partnerships may of operations expectations in relation to how involve: investments will facilitate local companies ­ engineering enterprise development and the and design, procurement of development of social infrastructure contractors, project management, (aim is to define from the outset the construction materials; boundaries between public and local government ­ private sectors in contributing to regulatory authorities, infrastructure public goods) development planning, public works departments Support and fund domestic NGOs - with expertise in research institutions that appropriate infrastructure collaborate with the R&D technology and design and departments of companies (either in management of cost-recovery country or overseas) to develop systems for low income user; commercially viable products and development agencies ­ services for low income consumers, low cost finance and/or risk with aim of developing a dynamic guarantees innovation culture in the host country that expands commercial Convene and contribute to multi- opportunities for domestic or foreign stakeholder business development investors partnerships designed to build local SME capacity to act as contractors and suppliers. Partnerships may involve: companies ­ procurement departments, quality inspectors and contract managers local government - vocational training agencies, extension services and micro-credit agencies; NGOs - with business management training capacity, market research and regulatory navigation expertise Banks and development agencies ­ working capital and business development expertise 62 World Bank Foreign Investment Advisory Services SOCIAL 17. Social reporting and management systems Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance Combing public resources with those of Public or political support penalties pertaining to the and codes, endorsements and business to leverage complementary for CSR performing control of some aspect of deterrents, such as market resources, realise economies of scale companies and facilitating business investment or stimulation, tax incentives, and cross-fertilise best practices civil society organisations operations awareness raising, processes of in the form of publicised stakeholder dialogue (the public praise or awards; involving sector will not always be the lead leadership companies in agency in executing these activities) the public policy arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Establishment of mandatory Establish guidelines, codes or policy Participation in multi-stakeholder Lead by example, social management and statements on social processes for development of social incorporate within the performance reporting performance/accountability for reporting criteria (eg Global Reporting requirements for tender integrated within reporting socially sensitive industries Initiative, SA8000) submissions on requirements under company government contracts, law, or as stand-alone legislation Request information on social Joint training programmes with evidence of social addressing a range of social performance issues from potential company outreach and quality control reporting and issues not currently addressed new investors and national managers, and civil society groups management through other legislation companies (eg those with particularly working with small-scale suppliers, to significant impacts or employing reduce unintentional consequence of Publication of guidelines Require companies publicly more than a threshold number of social management systems, eg where on social reporting and listed on national stock employees, or with turnover above a social management requirements of establishment of related exchange to comply with particular threshold) main buyers acts as a barrier to management systems, minimum social performance market access for local SMEs based on broad and management requirements, Develop business outreach consultations with options include: programmes on importance for Incorporate teaching of social industry, industry statement of business international market access of management, performance and associations, other principles that incorporates preparing for certification of social reporting systems into university and government departments social policy performance in the future, eg MBA curricula. and civil society groups dissemination of key social (and endorsement of commitment to continuous standards: SA8000/AA1000 Convene multi-stakeholder forums to these guidelines by key improvement cross-fertilise best practices in political figures). commitment to disclose Subsidised training for local social management systems (either social performance auditors/verifiers and dissemination generalized guidance or industry- commitment to of information on key social specific) involving: inter alia: independent verification standards environmental and health regulators; leadership companies; the principal commitment to related Provide grants, matched funding, contractors in the country; and civil management and employee access to low interest debt and other society groups training forms of affordable capital to commitment to develop a support companies' efforts to monitoring system improve their social management systems and pay for certification, or For socially sensitive industries, to support consultancy firms develop include in reporting guidelines auditing/certification capacity for Environment Agency and/or specific industry inspectorates Provide tax incentives for that a request for information on proportion of operating costs or social management and profits re-invested in setting up social performance (aim is to link management systems promotion of voluntary codes on social performance within current regulatory framework) World Bank Foreign Investment Advisory Services 63 CORPORATE GOVERNANCE 18. Rights and treatment of shareholders Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance Combing public resources with those of Public or political support for penalties pertaining to the and codes, endorsements and business to leverage complementary CSR performing companies control of some aspect of deterrents, such as market resources, realise economies of scale and facilitating civil society business investment or stimulation, tax incentives, and cross-fertilise best practices organisations in the form of operations awareness raising, processes of publicised praise or awards; stakeholder dialogue (the public involving leadership sector will not always be the lead companies in the public policy agency in executing these activities) arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Assuming that basic shareholder Promote multi-country exchange of Initiate dialogue with concerned trade rights (see CSR column) are private sector best practice through associations and enterprises to discuss captured in company and advocacy: eg by promoting the idea options for strengthening securities law, consider specific of best practice exchanges with implementation and enforcement of amendments or changes in the donors, visiting trade missions, securities regulations eg by using regulatory and securities commercial law firms or bar commercial levers such as exploring systems to: associations the potential for enhanced synergies allow shareholder with public policy goals and relevant approval of auditors Preferential trading of shares by professional associations for the establish maximum companies that voluntarily undertake banking, finance, legal and terms for external auditors to abide by key corporate accountancy sectors and protection against governance practices and disclosure conflicts-of-interest requirements beyond those in allow direct legislation, eg allowing pension nomination of board funds to invest a higher percentage members of assets in domestic equities (see afford and ability to EXAMPLE 12) pledge shares afford rights to As an alternative to a legal system of approve the distribution of shareholder redress for corporate profits infringement of ownership rights, prevent insider establish alternative adjudication dealing procedures such as administrative prevent use of anti- hearings or arbitration procedures takeover devices organized by securities regulators or prevent tactical others. impediments to shareholders exercising Develop best practice guidance or their rights, eg charging codes on employee participation as fees to voting, requiring shareholders (and lead by example personal attendance at in state-owned enterprises), AGMs, or sending proxy including: materials to close to the employee representation on the time of voting etc. board shareholder/creditor employee stock ownership and involvement in insolvency other types of profit sharing proceedings Establishment of laws to protect `whistle-blowers' exposing corporate wrongdoing Develop a legal system that strikes the right balance between allowing investors and shareholder to seek remedies for infringement of ownership rights, but avoiding excessive, drawn- out, litigation 64 World Bank Foreign Investment Advisory Services CORPORATE GOVERNANCE 19. Governance policies and business principles Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance Combing public resources with those of Public or political support penalties pertaining to the and codes, endorsements and business to leverage complementary for CSR performing control of some aspect of deterrents, such as market resources, realise economies of scale companies and facilitating business investment or stimulation, tax incentives, and cross-fertilise best practices civil society organisations operations awareness raising, processes of in the form of publicised stakeholder dialogue (the public praise or awards; involving sector will not always be the lead leadership companies in agency in executing these activities) the public policy arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Establish minimum requirements Government to amend regulations, Joint working parties and consultative Initiative Government- of competition and anti-trust eg on health, safety, human rights, programmes involving industry, backed awards schemes law to prevent price fixing and corruption, labour and environment government regulators and interested for CSR innovators within cartels, rigging bids, competitor to underpin zero reprisal policies civil society groups in the development businesses (including agreements on output of companies aimed at preventing of voluntary codes, policies, regulations SMEs) restrictions and market conflicts of interest between and/or laws relating to various aspects allocations). Incorporate commercial objectives and CSR of CSR. appropriate penalties and related compliance; and provide capacity enforcement framework. building for establishing Convene dialogue with civil society ombudsmen, tribunal and arbitration organizations to develop principles and Prepare regulatory guidance services accordingly arrangements for these organizations to on enforcement of anti- play a constructive role in monitoring competitive practices, making Establish wide rights of access to corporate governance, social and clear the scope for discretion by justice and public access to environmental performance and the regulators in response to information (including duties on exposing bad practice that could pressure from other public companies to consult with undermine investment promotion bodies. stakeholders in defined/priority circumstances) with a view to Develop securities regulation supporting local capacity to hold that links certain good business to account. governance standards to stock exchange listing Development of in-country industry- requirements, for example: wide protocols and principles, · corporate statement of combined with reporting procedures, business principles auditing/verification management · functions and systems and capacity building responsibilities of capabilities for companies agreeing executive and non- to adopt the systems executive board members · specific risks register . · the meeting of core environmental, labour, health and safety standards · audited financial statements that disclose transactions relating to the entire corporate group, including off-balance sheet items World Bank Foreign Investment Advisory Services 65 CORPORATE GOVERNANCE 20. Information disclosure and reporting Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance Combing public resources with those of Public or political support for penalties pertaining to the and codes, endorsements and business to leverage complementary CSR performing companies control of some aspect of deterrents, such as market resources, realise economies of scale and facilitating civil society business investment or stimulation, tax incentives, and cross-fertilise best practices organisations in the form of operations awareness raising, processes of publicised praise or awards; stakeholder dialogue (the public involving leadership sector will not always be the lead companies in the public agency in executing these activities) policy arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Within company and/or Give political support to development Take part in multi-stakeholder process securities law establish minimum of independent professional to develop standards on legal requirements for bodies in the financial/accounting environmental/social reporting that disclosure in annual financial sector who can develop `best reflect the variety of local contexts (eg accounts, and for auditing and practice' standards on an ongoing Global Reporting Initiative) verification basis and effectively contribute to development of international Convene multi-stakeholder fora to Establish minimum legal accounting standards build understanding on most requirements for corporate appropriate balance between public disclosure of environmental or Facilitate participation by sector regulation and professional self- social information attached to professionals within local (non regulation in relation to reporting and environment, health and safety foreign controlled) businesses in the auditing and/or labour legislation and development of standards - eg consider provisions on public through advocacy and encouraging access `partnering' arrangements between multinationals and local companies. Legal and regulatory provision for citizens to access Establish a resource center information in government providing a single point of access for possession on company citizens to information in government governance, financial, social and possession on company environmental performance for governance, financial, social and which there is not a valid and environmental performance. publicly stated reason for non- disclosure Promote linkages between company targets on social and environmental issues and relevant public sector policies and goals ­ eg through discussion forums, leaflets, etc ­ to facilitate voluntary private sector action in areas of synergy 66 World Bank Foreign Investment Advisory Services CORPORATE GOVERNANCE 21. Responsibilities of the Board Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance Combing public resources with those of Public or political support penalties pertaining to the and codes, endorsements and business to leverage complementary for CSR performing control of some aspect of deterrents, such as market resources, realise economies of scale companies and facilitating business investment or stimulation, tax incentives, and cross-fertilise best practices civil society organisations operations awareness raising, processes of in the form of publicised stakeholder dialogue (the public praise or awards; involving sector will not always be the lead leadership companies in agency in executing these activities) the public policy arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Establishment of minimum Commission survey of professional Lead by example on standards of company and needs/requirements for capacity active corporate related law addressing issues of building around auditing/ verification governance, eg through business management and issues promotion of active governance, with special engagement by trustees of consideration of various Consider potential for government civil service pension functions of the management incentives for pension fund funds on key corporate board, including: investment in companies with good governance/corporate corporate strategy, corporate governance practices (see citizenship/ corporate risk policy, EXAMPLE 12) accountability issues annual budgets and business plans, performance objectives, overall performance, capital expenditure, acquisitions and divestitures, management remuneration integrity of accounting, financial, environmental and social reporting, including impartiality of independent auditing, process of information disclosure and communication monitor performance of pension fund and of the Supervisory Board or non-executive board members: verification of the integrity of accounts, and financial, environmental and social reports, including impartiality of independence of external auditing monitoring potential conflicts of interest of Management Board nomination process and remuneration of for executive management board oversight of pension fund World Bank Foreign Investment Advisory Services 67 CORPORATE GOVERNANCE 22. Customer/end-user care Mandating Facilitating Partnering Endorsing Laws, by-laws, regulations and Incentives, non-binding guidance Combing public resources with those of Public or political support for penalties pertaining to the and codes, endorsements and business to leverage complementary CSR performing companies control of some aspect of deterrents, such as market resources, realise economies of scale and facilitating civil society business investment or stimulation, tax incentives, and cross-fertilise best practices organisations in the form of operations awareness raising, processes of publicised praise or awards; stakeholder dialogue (the public involving leadership sector will not always be the lead companies in the public agency in executing these activities) policy arena; endorsing specific metrics, indicators, guidelines and standards; and `leading by example' through public sector procurement practices Establish minimum legal Raise awareness within private Partner with professional bodies/civil requirements to tackle false sector and among citizens of society based groups to develop and and misleading product and obligations in relation to data minimum professional codes of ethics. advertising claims, backed with protection and other relevant appropriate complaints and legislation enforcement mechanisms Joint government industry awareness Support establishment of raising among customers and end- Establish data protection professional regulators in the users of the measures taken to reduce legislation advertising/marketing industry, eg the environmental risks of production through appropriate endorsements of technologies, products and services Establish minimum requirements professional bodies' codes with aim of building consumer for consumer protection confidence in the market place for Protect domestic export markets by goods produced in the country secure technical assistance from bilateral donors or business channels to strengthen capacity for product lab testing, accreditation and certification for internationally traded goods 68 World Bank Foreign Investment Advisory Services Selected Examples of Public Sector Roles in Strengthening CSRxix CSR Themes Examples of Public Sector Roles ECONOMIC Example 1 Publish What You Pay A coalition of NGOs and civil society organisations is calling on governments to take leadership in promoting transparency over resource revenues worldwide. A recent move by the UK government calls for voluntary disclosure of revenues paid to developing country governments by extractive industries. The aim is to encourage the transparency and accountability of the national authorities receiving these payments. However, the coalition argues that regulation linking disclosure to stock exchange listing requirements is required to prevent companies flouting a voluntary agreement. Source: www.publishwhatyoupay.org ECONOMIC Example 2 Public Procurement, Taiwan The Taiwan Environmental Protection Administration (EPA) has run an eco-labelling scheme (Green Mark) since 1992. In 1998 a Government Procurement Act was introduced which included a clause to promote the scheme. This stipulates that products bearing the Green Mark or with comparable characteristics should be given priority in government procurement bids and benefit from a price advantage of 10%. The EPA and the Public Construction Commission have since drawn up Regulations for the Priority Procurement of Eco-Products by Government Organisations. The EPA provides training and guides in green procurement for government procurement staff. By November 2000, the Green Mark programme had drawn up 67 product criteria and awarded the logo to 906 products manufactured by 225 companies, with a combined product value equivalent to the annual turnover of the Taiwanese clothing industry. Source: www.epa.gov.tw ENVIRONMENT Example 3 Proudly South African Proudly South African is a non-profit company set up by the government-led NEDLAC. It involves a campaign to promote South African companies, products and services in order to support job creation and economic growth, but crucially also requires companies to demonstrate their commitment to social responsibility. A logo signifies to consumers that the company satisfies criteria on local content, quality, commitment to fair labour standards and sound environmental practices. By June 2002 two hundred members had been granted membership, and the campaign expects to have around 400 members by the end of 2002. Negotiations are under way to recognise membership status as a factor in government procurement decisions, with the Department for Education so far having committed itself to giving preference to members in awarding tenders. Future plans for the campaign also include international promotions and publicity, and export advice. Source: www.proudlysa.co.za ENVIRONMENT Example 4 Environmental Management Cooperation Agreements, South Africa A key outcome of post-1994 environmental policy debates in South Africa has been a statutory recognition of voluntary agreements or `Environmental Management Co-operation Agreements' (EMCAs) in section 35 of the National Environmental Management Act (NEMA). Influenced by the Dutch experience with environmental covenants, EMCAs are conceived of as a type of administrative agreement between public authorities and `any other person ­ or community' for the purpose of compliance with NEMA (Acutt, 2002). Work within the Department of Environmental Affairs and Tourism to implement EMCAs has met with resistance from some South African NGOs, who argue that the minimum conditions for these kinds of tools to be effective instruments for environmental protection are not present in South Africa. Sources: Acutt, N. (2002), Corporate Environmental Responsibility: The South African Experience with Voluntary Initiatives, paper presented to CEMSA conference, Johannesburg, August 2002 Albertyn, C. and G. Watkins (2002) Partners in Pollution: Voluntary agreements and corporate greenwash, Groundwork and FoE International World Bank Foreign Investment Advisory Services 69 CSR Themes Examples of Public Sector Roles ENVIRONMENT Example 5 Green Markets Program, Colombia The Ministry of the Environment created the Green Markets Program in order to develop instruments and mechanisms that induce the production of "green" goods and services that may be competitive in both national and international markets. The Program will be supported by a voluntary National Eco-labelling Program. The Green Markets Program is in charge of coordinating various related government initiatives, including: · Organic Agricultural Program (Ministry of Agriculture and Rural Development): promoting the production and consumption of organic food in Colombia. · Clean Development Mechanism (Ministry of the Environment): promoting and approving projects oriented to the reduction of Greenhouse Gases. · Industrial Eco-products and Environmental Services Initiative (Ministry of the Environment): promoting the production of environmental friendly goods and services. · Bio-commerce Initiative (developed by the Alexander Von Humboldt Institute): promotes projects and companies that are aware of the ecosystems surrounding them and use them in a sustainable way. Source: www.minambiente.gov.co/mercadosverdes ENVIONMENT Example 6 Kaleen Label, India The Rugmark programme was initiated by civil society groups in response to European consumer awareness of child labour in the South Asian carpet industry. In response to pressure from some carpet exporters, who perceived Rugmark as overly stringent and "unnecessary foreign intervention in Indian commercial affairs" (Hilowitz, 1997), the Indian government introduced its own carpet labelling initiative, Kaleen. This is based on an industry-wide, self-regulated code of conduct administered by the quasi-governmental Carpets Export Promotion Council and a national monitoring committee chaired by a government representative. Source: www.india-carpets.com ENVIRONMENT Example 7 Mandatory sustainability reporting, France In 2001, the French Parliament passed a law requiring mandatory disclosure of social and environmental issues in companies' annual reports and accounts. It requires all French corporations listed on the "premier marché" (those with the largest market capitalisations) to report against a template of social and environmental indicators, including those related to human resources, community issues and engagement, labour standards and key health, safety and environment issues. Source: www.occes.asso.fr/fr/comm/nre.html ENVIRONMENT Example 8 Capacity building on CSR standards, India The Indian Textiles Committee, part of the Ministry of Textiles, has taken up a national campaign to sensitize the textile and clothing industry, particularly in the "decentralised SME sector", to the emerging challenges resulting from the forthcoming liberalisation of the Indian textile and clothing industry. The Committee is working with the Ministry of Commerce, State Governments and local industry & trade associations on the campaign. Approximately 7500 company representatives will have taken part in 25 workshops, titled "Quality and Compliances: Route to Global Competitiveness for Indian Textile & Clothing Industry." The aim is to disseminate information on various standards and compliance mechanisms including ISO 9000 QMS, ISO 14000 EMS and Social Accountability (SA 8000) standards, offering technical assistance to encourage implementation. Source: http://textilescommittee.nic.in/ncompain.htm SOCIAL Example 9 Reforming political financing, Thailand The 1997 Thai Constitution introduced new party, political finance, and election laws, under the Organic Law on Political Parties and the Organic Law on Elections, and empowered an independent Election Commission of Thailand (ECT) with oversight authority. These laws strictly regulate party operations and accounting practices in order to enhance transparency and accountability within the party system. A key objective of the new legislation is also to strengthen parties as ideological bodies and broaden their membership bases, with the aim of reducing the prevalence of patronage and vote buying. Source: NDI/CALD (2002) 70 World Bank Foreign Investment Advisory Services CSR Themes Examples of Public Sector Roles SOCIAL Example 10 Social Responsibility Agreements, Ghana One outcome of the overhaul of forest policy in Ghana in the 1990s was a new regulation stipulating that companies tendering for timber cutting permits would be assessed in terms of their respect for the social and environmental values of local residents. Under the new law, which came into operation in 1998, logging companies are required to secure a `Social Responsibility Agreement' with the customary owners of the land. This agreement follows a standard pattern, to include a code of conduct for a company's operations ­ guiding environmental, employment and cultural practices ­ and a statement of social obligations, which is a pledge of specific contributions to local development. Each agreement must be fully negotiated with the local community. There is a strict procedure for developing an Agreement with local representatives and the district forest office before submission to a central evaluation committee. While these agreements are still in their infancy, the policy itself already provides useful lessons for other countries where high-value timber is logged in community areas, in how to implement a fairly simple, cost-effective, accountable system to support sustainable and socially responsible logging. Source: Mayers, J. and S. Vermeulen (2002), Company-community forestry partnerships: From raw deals to mutual gains? IIED, London SOCIAL Example 11 Tax incentives for corporate donations - Law of Donations, Chile The Chilean government offers a variety of tax credits to corporations for charitable donations. Most are oriented to support for educational activities, such as schools, universities and vocational institutions. Donations may attract tax deductions or be deducted as an expense, thus reducing tax liability. Source: CONAMA (2000) CORPORATE Example 12 Sao Paolo's Novo Mercado GOVERNANCE The Novo Mercado is a listing segment of the Sao Paolo stock exchange designed for the trading of shares issued by companies that voluntarily undertake to abide by key corporate governance practices and disclosure requirements beyond those already required by Brazilian legislation. The national government is supporting the new exchange with a directive that allows pension funds to invest a higher percentage of assets in domestic equities, as long as they are listed on the Novo Mercado. Source: www.bovespa.com.br World Bank Foreign Investment Advisory Services 71 Annex D Terms of Reference 1.1 Objective The objective of this assignment is to develop a user-friendly tool for FIAS staff and consultants working on CSR projects and Value Chain analysis. The tool will align relevant parts of the Diagnostic Framework and Tool and Options Appraisal tool with the FIAS Value Chain Analysis methodology. Within the framework of Value Chain Analysis, the will guide the user (public or private) to conduct a diagnosis, design solutions and quantify the implementation of CSR initiatives that enhance the international competitiveness of firms and industrial sectors and/or promotes inward investment in emerging economies. 1.2 Approach The following approach may change as the project evolves, as agreed jointly between the Client and Contractor: Undertake a general mapping exercise, looking at the demand-side, ie CSR standards and practices of buyers, eligibility for joining quota and other preferential trade schemes (eg GSP plus), efficiency of regulatory and statutory authorities, eg EPAs, H&S inspectors; public listing requirements, project finance requirements, enterprise zone conditions - with reference to production (efficiency), market access (appropriate fit) and enabling environment. Identify their relative contribution to competitiveness and/or investment promotion. Identify benchmark standards amongst these, ie the standards that really matter in terms of competitiveness and investment for the firm or sector, including the value chain governance perspective. Identify supply-side constraints and opportunities to meet the benchmark standards or other critical standards, in terms of (i) firm policy, practices and behaviour (eg training, ISO9001 compliance); and public sector policies and priorities (eg training, environmental protection, competitiveness/investment policy and regulation). Determine metrics for (a) categorising firms in relation to current status in meeting the benchmark standards; and (b) tracking the relative costs and benefits of implementing CSR practices in terms of competitiveness or investment promotion (be that by public or private sector). 1.3 Key Tasks The consultant will be responsible for the following key tasks: Review all relevant FIAS literature and case-studies on (i) Value Chain Analysis and (ii) known linkages between CSR and competitiveness/investment. Consult with external parties as appropriate. Work closely with FIAS' CSR and Value Chain teams to draft the tool, including participation in an inception conference call on 10th November. Submit a draft generic tool (eg map, common questions, scoping protocol) to FIAS by December 10, 2005, along with a rationale for whether the tool should have additional sector-specific questions and metrics, and if so any cost implications. Finalize the tool and submit final product to FIAS by January 13th, 2006. 1.4 Deliverables 72 World Bank Foreign Investment Advisory Services A question-driven, free-standing, CSR diagnostic module applicable in the context of Value Chain analysis, and accounting for both demand and supply side issues; and Accompanying guidance and quantifiable impact (cost, benefit) monitoring metrics (for either, the generic tool, sector-specific tool, or both, as appropriate and as agreed after the 10th. World Bank Foreign Investment Advisory Services 73 End Notes i See: www.ifc.org/ifcext/economics.nsf/Content/CSR-diagnostic ii Gereffi, G. (1999), International trade and industrial upgrading in the apparel commodity chain, Journal of International Economics, 28, pp37-70. iiiKaplinsky, R. (2000), Spreading the gains from globalization: what can be learned from value chain analysis, IDS Working Paper, Brighton, UK: University of Sussex. iv Tallontire, A., and Greenhalgh, P. (2005) Establishing CSR Drivers in Agri-Business: Final Report for Foreign Investment Advisory Service, International Finance Corporation and World Bank, Natural Resources Institute v Tallontire, A., and Greenhalgh, P. (2005), ibid vi There is also the counter fear by some that workers in EPZs are faced with lower labour standards, and that this is a conscious act by government to incentivize investment. vii adapted from Tallontire, A., and Greenhalgh, P. (2005), ibid viiiDicken P, 1998 Global Shift: Transforming the World Economy 3rd edition, London: Paul Chapman ix EU (2005) GSP: The new EU preferential market access system for developing countries. Memo, EU ­ http://europa.eu.int/comm/trade/issues/global/gsp/memo230605_en.htm x Ethical Trading Initiative: The Base Code ­ www.ethicaltrade.org/Z/lib/base/code_en.shtml xi adapted from: CIE (2003) CSR Codes: Benefit-Cost Framework and Application, Canberra: Centre for International Economics xii FIAS (2004) Corporate Social Responsibility, Competitiveness and Foreign Direct Investment in El Salvador, Washington DC: World Bank Group, Foreign Investment Advisory Service xiiiTallontire, A., and Greenhalgh, P. (2005), ibid, Annex 1 xiv Epler, M, and Leray, T. (2005)Corporate Responsibility and the Tourism Sector in Cambodia, Washington DC: World Bank Group, Foreign Investment Advisory Service xv FIAS (2004) Corporate Social Responsibility, Competitiveness and Foreign Direct Investment in El Salvador, Washington DC: World Bank Group, Foreign Investment Advisory Service xvi Epler, M, and Leray, T. (2005) ibid xviiTe Velde, D. and O. Morrissey (2005) Supporting Industrial Development: Overcoming Market Failures and Providing Public Goods, Geneva: UNIDO, COMID xix Fox, T., Ward, H., and B. Howard (2002) The Public Sector's Role in Promoting CSR, Washington DC: Wold Bank, Private Sector Development Department 74 World Bank Foreign Investment Advisory Services