Wednesday, October 27, 2010
Indian companies, and foreign companies operating in India, have by and large failed to demonstrate respect for responsible business practices. Their inaction, and often irresponsible behaviour, is a result of the fact that India lacks a robust stakeholder community. A good chunk of NGOs in India are only too happy to receive donations than to press them to adopt responsible business practices. No wonder, most companies get away with PR-ish charity in the name of CSR.
Multinational companies operating in India have also found it convenient to join the charity-CSR bandwagon rather than setting leadership examples. Many of them have respectable CR initiatives in their home country but in India their CR fails to rise above charity.
Industry's apathy prompted the government last year to introduce voluntary CSR guidelines for listed companies. Though the CSR guidelines are quite impressive in the sense that they include several key issues such as care for stakeholders, workers rights, human rights, environment and inclusive development, the industry does not seem to be obliging. The industry actually started lobbying for incentives such as tax breaks if it were to spend on CSR.
Government officials are divided. India's corporate affairs minister has been quoted saying that companies may be provided fiscal incentives for participating in CSR activities. But a senior official in his ministry recently said that companies should adopt CSR as a corporate culture rather than asking for incentives. He even indicated that if companies fail to adopt CSR, the government may even make CSR-spend mandatory.
Now the perverse piece here is that CSR is being interpreted as philanthropy. Unfortunately, India Inc needs to include larger issues that have become more pronounced with breakneck economic development. These issues include climate change/carbon emission, environmental protection, anti-pollution measures, working conditions, human rights, customer protection, privacy and bribery.
India is even pushing for a bill in parliament that would require companies to spend at least 2% of their profit on CSR activities.
Most likely, companies will have to deal with local politicians and legislators who would want companies to spend on their pet projects. The legislation will also give rise to potential accounting fraud where companies will falsely claim expenditure on CSR.
But this is what happens when the private sector does not take voluntary action. Legislative action then appears as the only alternative. But legislative CSR is compliance, not CSR. Did we not teach all these years that CSR is when companies go beyond compliance?
Wednesday, October 20, 2010
I recently had the privilege of developing national competency framework standards for sustainable fashion for Singapore's textile and fashion industry. Based on the competency standards then I helped develop a three-day course on sustainable fashion value chain complete with an assessment plan. The course will be run by the Textile and Fashion Industry Training Centre, the training arm of the Textile and Fashion federation of Singapore. The course will be generously subsidised by the government which is keen to build sustainable fashion capabilities for the industry.
The Singapore industry is also hosting an international conference on sustainable fashion to be held on the 24th Nov 2010. I will be one of the speakers at the conference speaking on "Establishing the Industry Standards for Sustainable Fashion." Other key speakers include Adidas, M&S, Organic Exchange, IFC / World Bank Group, and Brandix-Sri Lanka.
See here for more detailed programme, or here.
To register for the seminar, see here, or get in touch with Textile & Fashion Industry Training Centre Pte Ltd, 2 Leng Kee Road, #02-09 Thye Hong Centre, Singapore 159086, Tel +65 64759897 Fax (65) 74753583 E-mail: email@example.com
Sunday, October 17, 2010
- Voluntary sustainability reporting guidelines by the Singapore Stock Exchange
- Hang Seng Corporate Sustainability Index by the Hong Kong Stock Exchange
- Voluntary CSR guidelines by the ministry of corporate affairs in India (comprehensive, core elements include care for stakeholders, ethical functioning, workers rights, human rights, environment and social development; includes need for policy, strategy, clear goals, measurement and reporting)
- India pushing for legislation to impose CSR Tax on companies
- Philanthropy in China: Tycoons pledging their wealth for charitable causes
- Asian businesses making headlines for the wrong reasons:
Foxconn, the Apple Computers supplier in China for working conditions and workers suicides, a bunch of palm oil companies for environmental destruction and human rights issues, Vedanta Resources, a mining company, for controversial mining projects in the state of Orissa in India.
Friday, October 15, 2010
In the last couple of days, I have shared some points on "What is driving CSR in Asia" and "Types of favourite CSR activities in Asia" on this blog. These are the points that I made during my speech including a the panel discussion at the International Singapore Compact CSR Conference 2010 held in Singapore on 6-7 October.
As promised, today I am sharing a few thoughts on the real and potential challenges that face corporate responsibility in Asia. Here they are:
- Absence of strong and mature stakeholders means companies are under no pressure or scrutiny to do the right thing.
- In fact, green-washing is going to be one of the biggest problems in the coming months as more and more companies start writing annual sustainability reports to meet government guidelines.
- In the absence of a robust stakeholder community, green-washers will more likely have a free run.
- Green-washing is also going to be a big problem for those companies which are genuinely doing good work. Their work will be undermined by the Green-washers.
- Capability is going to be a major challenge. Companies will need to hire competent sustainability experts if they are to drive a genuine sustainability programme. And such talent is in short supply.
Lack of pressure from activists is actually an opportunity for businesses here. They can formulate a well thought out sustainability plan.
Most western companies did not have the luxury of planning out a well rounded sustainability programme. For most of them, it was a knee jerk reaction. When they were hit by a crisis, they reacted by taking one small step necessary to address the crisis. So every new criticism brought a new action. Only now some of them have started to take a more holistic approach toward sustainability.
Tomorrow, will be writing about the recent developments in Asia that will potentially influence of course of CSR in the region.
Thursday, October 14, 2010
Further to my blog post "CSR drivers in Asia" yesterday, here are what I find three broad categories of CSR activities in being pursued by companies in Asia:
- Compliance driven initiatives, mostly in the global supply chain
- PR-led initiatives, glossy reports and tall claims but no real work on the ground, mostly philanthropy
- PR-led initiatives, some initiatives on non-threatening issues such as environment but total silence on the core issues that are really material to their business
- Companies genuinely trying to embrace sustainability or corporate responsibility; this group is in minority
Your views or suggestions to improve/expand this list are welcome! Please leave your comment.
Tomorrow, will be talking about the key challenges facing corporate responsibility in Asia.
Tuesday, October 12, 2010
Compliance was the first key driver in Asia when multinational retailers introduced social responsibility code of conduct for their suppliers. And compliance still remains a major driver.
Much of CSR in Asia is still limited to philanthropy. Last month, India’s leading industry federation Assocham published a report on CSR by Indian companies. The report said the companies’ primary focus is on community welfare.
PR is becoming an important driver. So you can expect to see more and more companies releasing glossy annual CSR reports, largely assembled by their spin doctors, low on substance and high on rhetoric and tall claims.
Reputational risk is becoming a driver in some of the sectors such as the palm oil industry.
More recently, governments have started driving sustainability. Sustainability reporting guidelines by the Singapore Stock exchange, CSR guidelines by the ministry of corporate affairs in India, and CSR reporting guidelines by Bursa Malaysia are some of the examples.
In Singapore, the Green Mark Scheme is another example where it is mandatory for property developers to achieve at least the Green Mark for all new developments.
Singapore has recently approved a national competency framework for sustainable fashion value chain which I help developed. The initiative is aimed at developing sustainable fashion and retail industry in Singapore. And Singapore will be organizing the first international sustainable fashion conference on the 24th of November this year. The sustainable fashion framework will be launched in that conference.
If you have other thoughts, will be happy to know. Please comment.
Tomorrow I will share the three broad types of of CSR initiatives in Asia, and the key challenges ahead. So, please return to this blog tomorrow!
Tuesday, October 05, 2010
A study by the Associated Chamber of Commerce and Industry in India, a top industry federation in the country, says that community welfare is the primary focus of CSR initiatives by Indian companies. Education for the underprivileged and rural development are the other CSR priorities listed by the surveyed companies.
FMCG companies are at the forefront of CSR (actually philanthropy) followed by chemicals companies and IT companies.
There is no mention of workers' rights, human rights, child labour, tribal rights, bribery and ethics, governance, responsible supply chain, fair wages, workplace health and safety, discrimination, carbon reduction, product safety, consumer rights, stakeholder engagement, protecting natural resources etc.
Though there is no talk of moving toward a low carbon economy or committing to voluntary reduction of carbon emission, the report indicates that making money through carbon credits is catching the attention of companies. "The big corporate houses are now going for the carbon credits which have been a good attempt to prevent the global warming," says the Assocham press release on the report.
In most companies, CSR is being driven by PR executives who see philanthropy as a good photo-op. Many of these companies go on to win CSR awards and get invited (ok, they buy these speaking slots by way of sponsorships) to CSR conferences to lecture on CSR.
Actually, Indian companies have no pressure to embrace corporate responsibility in their operations. An enlightened civil society is missing and media is equally illiterate about corporate responsibility.
Ironically, development NGOs love these companies which are proving to be their new source of funding for philanthropic projects and saving their own jobs.
See here for more on the Assocham report.
Saturday, October 02, 2010
I will be speaking at the conference on Asia's Successful CSR Strategies on Day-1, Plenary Session 2 (1:30:3:00 pm). Here is the session detail:
Plenary Session 2
Asia’s Successful CSR Strategies
· What are the regional drivers for CSR?
· How significant is CSR for businesses in ASEAN and Asia?
· What are the latest developments on CSR in the region?
Dr Filemon Uriarte,Executive Director, The ASEAN Foundation
Rajesh Chhabara, Asia Editor, Ethical Corporation Magazine
Professor Richard Welford, Co-Founder & Chairman, CSR Asia
Mr. Tay Kay Luan, President, Business Council for Sustainable Development Malaysia
Chief Executive, Institute of Bankers Malaysia
The conference will also see the launch of "Socially Responsible and Sustainable-Company perspectives and experiences," a book on sustainability stories from Singapore. I am one of the co-authors of the book, published by Singapore Compact.
For more information on the conference, please see here.
Wednesday, September 08, 2010
Last month, Sinar Mas unsuccessfully tried to use an audit report to clear itself from the allegations. That attempt backfired when BSI, one of the audit firms involved, came out saying that the report was misrepresented.
We did our bit of coverage on this blog and on Ethical Corporation website and also in Ethical Corporation magazine. See here.
Now Burger King has cited the same audit report in its decision to stop buying palm oil from Sinar Mas group companies.
A statement by Burger King reads: "After completing a thorough review of the independent verification report conducted by Control Union Certification (CUC) and BSI Group, we believe the report has raised valid concerns about some of the sustainability practices of Sinar Mas' palm oil production and its impact on the rainforest. These practices are inconsistent with our corporate responsibility commitments."
"As a result, we have decided we will no longer purchase palm oil from Sinar Mas or its subsidiaries."
By the way, Sinar Mas Group walked away with no so coveted title of Greenwasher of the Year at the Ethical Corporation Responsible Business 2010 Awards earlier this year.
The problem with many of the palm oil companies is that they really don't get it. They also continue to rely on half-baked self-certified corporate responsibility consultants and incompetent PR executives to address the issue. It is not working. And will not work. It's time for them to get some sound advice from sound minded professionals.
EJF says "contrary to promises by Karimov’s regime not to force children into the fields to pick their billion dollar crop, it sounds like it will be business as usual, unless urgent action is taken."
EJF has long campaigned against the government practice of forced child labour on cotton fields in Uzbekistan. The NGO is seeking international support to boycott cotton from Uzbekistan and put pressure on the rulers of Uzbekistan to take corrective measures.
Should we hope that hundreds of thousands of Uzbek children will be in school this autumn and not toiling in a cotton field?
We have covered the issue in Ethical Corporation several times. See some of them here. And here. Also a podcast here.
Just to mention, EJF was awarded the Highly Commended Effective Campaigner award at Ethical Corporation 2010 Responsible Business Awards.
Wednesday, September 01, 2010
See also here for the critics are saying.
In an interesting development, the Indonesian government has said that it will reject any loan offers from the World Bank/IFC for the palm oil industry. The government says it does not need loans from the World Bank/IFC. The government officials say the industry should continue to rely on loans from commercial banks.
Are they saying this as they don't want their companies to be subjected to more demanding World Bank/IFC framework?
Industry players on the other hand are hoping for that the World Bank will lift the financing ban and loans will start flowing again.
The Exchange is seeking feedback from the public and market players on the policy statement.
The policy statement says the sustainability reporting guidelines are voluntary at the moment. But there is a hint that the reporting may become mandatory in future. The policy statement says: "SGX is of the view that as more companies become inspired to adopt sustainability reporting, it will be natural to take the next step on guidelines and standards leading to rules."
These are the key points of the SGX policy statement and the reporting guidelines:
- The Board is responsible for matters of sustainability as it leads and directs the company.
- Environmental, social and governance considerations are important for the long term performance of the company.
- No single standard is advocated, but the Global Reporting Initiative’s Sustainability Reporting Guidelines which are linked to the UN Compact principles, are among the globally recognised standards.
- Applying global standards is important for cross-jurisdictional comparability and to give confidence that SGX-listed companies aim to achieve global best practices.
- The reporting guide says that sustainability reporting is particularly relevant for companies that operate in industries that are susceptible to environmental risks e.g. oil & gas, mining & metals, raw material processing; industries that produce significant environmental pollutants such as chemical and apparel industries; heavy users of natural resources such as palm oil producers, forestry companies, etc.; or part of a supply chain where end customers demand that suppliers behave responsibly.
- The guideline also emphasises the importance of independent assurance of the report from credible assurance firms.
The SGX policy for encouraging sustainability reporting is likely to result in more Singapore-listed companies reporting on their social and environmental impacts. Currently, Singapore companies lag behind in sustainability performance and disclosure from their peers in other developed countries.
The last date for the submission of feedback is on the 29th Oct 2010.
The full policy statement and the guide are available here.
Monday, August 23, 2010
In a report, Greenpeace had accused PT SMART of destroying forests to raise oil palm plantations. The report prompted several of PT SMART customers including Unilever, Kraft and Nestle to terminate their sourcing agreements with the company.
PT SMART which has all along denied Greenpeace allegations then said it would commission an independent audit of its palm oil plantations to prove it has done no wrong.
Two weeks ago, PT SMART executives, armed with the "independent audit report" and advised by a UK-based PR firm Bell Pottinger, arrived in the UK to hold a press conference to claim that Greenpeace allegations were found to be untrue.
A fine spin work ensured worldwide headlines implying that an independent audit had cleared PT SMART of all wrongdoing and making Greenpeace look like a nuisance maker.
Greenpeace accused the company of misreporting the audit findings and selectively ignoring parts of the report. Ethical Corporation published comments from Greenpeace on the matter and invited PT SMART to respond. But nothing heard from the company yet.
Within three days of the press conference, BSI-one of the two audit firms involved in the audit- came out saying that PT SMART had misreported the audit findings. Well, this is what we call "a gun backfiring."
Greenpeace has ceased the opportunity and has written to the Singapore Stock Exchange seeking action against Golden Agri Resources for making factually incorrect claims.
PT SMART still insists it has not misreported the findings. Is this the advice they are getting from Bell Pottinger? And whoever are their sustainability advisers. They appear to in the wrong hands.
In the meantime, Golden Agri plans to expand into Liberia. The company is investing in private equity fund Verdant that is the sole shareholder of a Liberia-based firm in the process of being granted a government concession to develop 220,000 hectares for 20 years.
Sunday, August 22, 2010
But an American nuclear power company will have to pay a maximum of 322 million dollars for a nuclear disaster in India which can potentially kill hundreds of thousands of people and leave behind contamination affecting future generations with birth defects and severe health problems.
Indian Cabinet has finally approved the controversial Nuclear Liability Bill (Civil Liability for Nuclear Damage Bill) which caps the liability for a civilian nuclear power power plant disaster to a maximum of $322 million. This amount is three times higher than the original proposed by the ruling Congress party regime. They increased the amount in the face of intense opposition and criticism from other parties and activists.
The American nuclear industry lobby wanted the liability cap before they start investing in India's civilian nuclear sector which has recently been opened up for private investment. They have succeeded. US company General Electric will be the biggest beneficiary of the liability cap as the company will now be able to look for nuclear deals in India without much worries about the potential liability.
By contrast, a nuclear power plant operator's liability in the US under the US legislation is $12.5 billion dollars.
German, Russian and French nuclear power companies had already started signing deals in India as they were not seeking any liability cap. The reason is that their respective governments underwrite their nuclear disaster liability.
But the US government does not take any such responsibility for the US companies' actions abroad. As a result, the US companies were not bidding for nuclear plant contracts in India. Rather they relied on an intensive lobbying with the reported support of the Obama administration to influence the legislation.
The bill needs to be passed by the parliament where it is likely to meet protests by the main opposition party BJP which want more stringent supplier liability clause in the bill.
It may be mentioned that the infamous Bhopal Gas disaster took place when the currently ruling Congress party was in power. And the disaster happened in a chemical plant owned by Union Carbide, a US company. So they have not learnt any lessons. See here a feature we did in Ethical Corporation on this.
Tuesday, August 17, 2010
Robert Goodland, a reader of my blog, has sent me his comments on the Framework that he has submitted to the World Bank Group. His comments are interesting and I am reproducing them here:
“WBG Framework for Palm Oil”
(undated) Draft for Consultation
Comments for the consultation by R. Goodland (RbtGoodland@gmail.org) respectfully submitted on:17 August 2010
[Note: Pagination refers to the page numbers in the 46-page WBG Framework. The text of the Framework has been italicized. My comments are in bold.]
P.3: The World Bank Group, with its primary mission of poverty reduction, sees the palm oil sector as an important contributor to furthering economic development in many developing countries.
The Framework needs to make the case that palm oil projects reduce poverty more than a similar investment elsewhere. That case has not yet been made convincingly in the current draft.
P.3: The World Bank Group is aware of the sector’s negative environmental and social impacts, including deforestation, biodiversity loss, greenhouse gas emissions, land use conflicts, and questions over land tenure and human rights.
Such awareness must be very recent as IFC denied the sector’s negative impacts by categorizing the Wilmar, Bertin industrial cattle ranching, monoculture Maggi soy and other damaging projects as ESA Category “B” until brought to book by CAO and others.
P.3: Recent civil society organization complaints to the Office of the Compliance Advisor/Ombudsman in relation to IFC’s handling of four downstream investments (in a palm oil trader and a refinery), as well as a complaint to the Inspection Panel regarding a World Bank smallholder oil palm program have raised concerns about sustainability issues. The World Bank Group recognized the legitimacy of these concerns and in response temporarily suspended any new investments in the palm oil sector.
It should not need CAO reports, massive outcries and complaints for the WBG to ‘recognize the legitimacy of these concerns’. The Knowledge Bank should be aware of such basic facts in advance, especially if it is to offer advisory services. These negative impacts are all too well known worldwide, and have been known inside the WBG at least since US Congress (led by Rep. Henry Reuss) pressured WBG President Robert McNamara on Malaysia’s massive Jengka Triangle oil palm projects in the 1970s.
P.4: A Common Approach …. In particular, IFC will only invest in plantation operations that are certified for sustainable palm oil production according to an internationally-recognized certification scheme, or have a time-bound action plan to achieve such certification.
This is too risky. It is well known that development agencies have highest leverage up to and just before Board approval. Once approved, such pari passu leverage and interest wanes fast. Time-bound action plans to achieve certain standards usually fail in such cases. Only part of the action plan is divulged. How the client is progressing to meet action plans is never divulged by IFC.
P.5: World Bank Group Commitments Key actions could include: working with governments to implement land registration systems, build capacity for environmental and social impact assessment and regulation, strengthen forest and land governance and administration and increase productivity.
Commitments and key actions could include a lot of good stuff. That is inadequate at this stage. IFC has been caught violating its own policies. The time has come to clarify what specifics IFC will firmly commit to in order to prevent such social and environmental damage and violations in the future.
P.6: Concerns about sustainability-related issues in the sector were highlighted by the IFC’s Office of the Compliance Advisor, the World Bank’s inspection panel, and civil society organizations and prompted a temporary moratorium in November 2009 on new World Bank Group investments in the palm oil sector pending development of a more strategic approach to
engagement in the sector.
(a) Is this “Framework” document supposed to be the strategic approach mandated by President Zoellick, and fostered by the unprecedented moratorium? The document is entitled Framework, but in places a strategy is hinted at. The e-mail address for comments on the Framework is “Strategy”. Clearly a strategy or even a policy is required if the recent massive impacts of IFCs investments leading to the moratorium are to be prevented in the future.
(b) IFC’s Compliance Adviser’s evaluation of IFC’s oil palm investments was kept secret for months before they were only partially released. CAO convincingly showed that corporate pressures had repeatedly trumped social and environmental concerns, starting with what is commonly IFCs weakest point, miscategorization for the Environmental and Social Assessment (ESA). Categorization as the ESA Category “B” of any project a priori likely to impact fairly intact tropical forest, likely to impact Indigenous Peoples, likely to emit significant GHG from forest removal, burning or peats, involuntary displacement—all should be systematically categorized as “A”. IFC’s AMaggi soy monoculture investment in the Amazon forest region, IFC’s Bertin industrial cattle ranching in Amazon forest region, and most, if not all oil palm projects, should routinely be classified as “A”. IFC categorized them all as “B” and refused to categorize them prudently without prolonged pressures, complaints, CAO investigations etc. All branches of the WBG should be enhancing prudentiary measures, rather than struggling to lower the standards.
(c) In addition, the CAO’s reports, the Inspection Panels reports and the complaints need to be included in full in the new oil palm Framework as annexes, or at least with easy-to-use links.
(d) CAOs findings -- that IFC systematically violated its own standards and policies -- need to rectified and stringently prevented in the future. Therefore, this Framework needs to specify precisely how the CAO-identified policy violations will be prevented in future.
P.6: The World Bank Group’s engagement in the palm oil sector is consistent with its mission to fight poverty without compromising economic, environmental and social sustainability.
Clearly not, or not yet. This claim is worrying. The Framework seeks to make WBG’s engagement consistent etc., but it’s a long way from achieving that as yet. The moratorium was commendably imposed on IFC precisely because IFC was refusing to follow its own standards and normal precautions. The CAO, IP and other evaluations showed that IFCs projects were exacerbating poverty and wreaking much environmental damage.
P.15: Table 1: A Summary of Possible World Bank Group Interventions under the Four Themes and Their Relation to Feedback from Consultations.
A menu of possible options is not what is needed at this stage. This Framework has been drafted precisely because IFC has been caught violating its own policies and standards. At this stage, firm commitments are needed, not “possible interventions.”
P.18: IFC may invest in oil palm plantation operations and other palm oil sector companies even if the public sector legal/regulatory enabling environment is less than ideal, if IFC is convinced that the project will have strong and measurable development impacts and that any risks can be mitigated through other governmental or non-governmental programs, including other World Bank Group operations, if present.
This has been tried by IFC and has failed. Post-approval leverage to foster compliance with pari passu action plans is weak at best. IFC needs to ensure that the design of projects it supports is as prudent as possible in advance, and that it has reduced all possible risks to a low or acceptable state. See comment on P.4 (above) on the risks of resorting to such pari passu aspirations.
P. 18: ….any risks can be mitigated through other governmental or non-governmental programs, including other World Bank Group operations, if present.
Up until now this statement is false. IFC has failed to mitigate risks such as destruction of forest, impacts in Indigenous and other poor people, harming GHG sequestration and forest fires etc, that’s why the moratorium was imposed on IFC. The moratorium is IBRD/IDA’s way of stopping IFC from creating more damage until their procedures are upgraded, fully agreed upon and conscientiously implemented by IFC, preferably with independent third party verification. The Framework as currently drafted could reduce risks further, but that would be insufficient. At this stage, in view of IFCs violations and irreversible damage as exposed by the CAO and others, the new strategy must ensure that: (a) no more forest is destroyed; (b) no more Indigenous People or poor re harmed; (c) no more GHG sequestration is impaired; (d) no more water is polluted. Clarifications and emphases on these basic priorities must be added to the next draft.
P.18: Last para: For the World Bank, the final selection of indicators will follow as activities are selected.
Despite all the Framework’s rhetoric about enhanced coordination between IFC and the rest of the WBG, this para suggests IFC prepared this Framework mainly on their own, but hopes IBRD/IDA will come in later.
P.23: Issue regarding how companies and government agencies obtained consent for land use changes was a strong theme. ….. Full adherence to the concept of Free Prior Informed Consent by investors in the palm oil sector was seen as essential by many of the stakeholders.
If FPIC is considered essential, where is IFC’s response? As FPIC is so important to RSPO and many other stakeholders, does the WBG propose to follow the United Nations Declaration (UNDRIP) and accept FPIC, or will it persist in debasing the UN Declaration into FPIConsultation? IFC is supposed to be a member of RSPO in good standing. As IFC apparently does not accept FPIC, it is violating RSPO’s membership criteria of accepting FPIC.
P.31 & 32: These projects are not discussed in the review because at the time of the research, the projects were missing from the Bank’s information depository (Business Warehouse) due to a problem with the internal sector coding system.
I respectfully suggest the missing projects be found and their lessons learned be integrated into this Framework while still in draft. I suspect the comment on P.3 (above) refers to these or similar projects.
P.44: All World Bank projects are categorized on the basis of the environmental and social risks associated with the project. Depending on the assessment of environmental and social
impacts and risks, projects may require Environmental Assessments and/or Environmental Management Plans to be prepared and implemented.
In fact, as already mentioned, IFC rarely finds a project worthy of an ESA Category “A”. IFC classifies practically all of its forest-, Indigenous Peoples- and GHG emitting projects as Category “B” at least until the CAO or others show how imprudent IFCs classification is. If IFC wants to promote sustainability and prudence, while reducing risks to environment or humans, it will classify any proposed project as a Category “A” that may impact or otherwise affect Indigenous Peoples, forest or GHG sequestration capacity, or any projects needing involuntary resettlement.
Conclusion: Three Gaps in the Draft Framework
1. Definition of ‘degraded’ sites: The Strategy or Framework should emphasize clearly that the WBG will decline to finance (or otherwise encourage) destruction of tropical, high conservation value, critical natural habitat, old-growth forest, secondary forest, hi-graded or selectively logged forest or other ecosystems, and impacts on Indigenous People. Further, that human displacement will be avoided or minimized, and that GHG emissions will be fully accounted beforehand, compensated for, and minimized.
The sites on which oil palm, soy or other projects may be located must be scrupulously defined. Brazil’s commendable policy is to select ‘abandoned’ or ‘degraded’ sites only. That’s a good first step. In the WBG’s case how a proposed site was found to be suitably abandoned or sufficiently degraded needs to be explicitly described. There have been far too many cases in which nomadic ethnic groups have hidden from development officials or are in another part of their customary ambits during a visit. Similarly, some officials may opine that a forest from which some mature trees of one species have been removed – selective logging -- is sufficiently altered to be called ‘degraded’. The basic premise, now that climate risks have intensified, is that most forest still standing is providing GHG sequestration services which are more valuable than more oil palm.
2. Use of Vegetable Oils: This is a tricky one akin to claiming: “guns don’t kill people.” On the one hand, IFC will garner much support if they can show that oil palm investments directly reduce poverty, create jobs for the poor etc, while not causing environmental and social damage. On the other hand, if the main benefit of oil palm production is to fuel vehicles, IFC won’t get much support. Between these two extremes, if oil palm production makes corporations more profitable and a fraction of this profit eventually trickles down to the poor, support for IFC also is likely to be weak (except from multinationals). If oil palm based industries are created in-country, thus diversifying products and expanding refining and processing benefits to the producing country, that would be a benefit. IFC should encourage domestic processing and value-added to the fullest extent possible. Indonesia rejected WBG advice a few years ago by thoughtfully imposing a ban on the export of crude undressed logs. As a result, Indonesia now has a thriving plywood, veneer, particle-board and finished wood products industry, along with massive wood processing jobs. As an ecologist, I haven’t a ready solution, but the problems are real and should be tackled.
3. Water Use and Pollution: Now that fresh water has become scarcer than at any time in history, its conservation has risen in priority. It may have been understandable in the 1950s and 1960s for palm oil producers to dispose of their extremely high BOD oil palm wastewater into the nearest creek. That era has long gone. Now even untreated sewage outfalls from coastal cities into the ocean are increasingly being banned. The time has come for IFC to lead palm oil producers into closed-cycle water management. This would conserve the supplies of water, while preventing the pollution of waterways below the oil palm factory. In addition, it would create secondary industries in recycling and use of waste products regained form wastewaters.
Monday, August 09, 2010
REDD is yet to be approved by the UN Framework Convention on Climate Change.
If REDD is approved, the Indonesian government's plan to include palm oil plantations in the scheme would generate billions of dollars revenue for the palm oil companies as they will be able to claim carbon emission reduction units or carbon credits and sell them in the market!
Here is more on this.
Activists are for sure going to see red.
Thursday, August 05, 2010
Unilever says the company is on track to meet its target of 100% palm oil from sustainable sources by 2015. The company will have 35% of its palm oil coming from certified sustainable sources by the end of this year.
The company has recently signed an agreement with commodities trader Cargill to supply 10,000 tonnes of RSPO-certified sustainable palm oil for its European operations. About the same time, Unilever also signed a long term supply agreement with IOI-Loders Croklaan to source fully segregated RSPO-certified palm oil.
Cargill, a major player in the global palm oil trade, has announced a goal of 60% of its total crude palm oil from RSPO-certified producers by the end of 2010. The company eventually wants to buy 100% of its palm oil from RSPO-certified producers.
A partnership between the two giants- Unilever and Cargill- is a positive sign. Will other food majors follow suit?
Wednesday, August 04, 2010
Under pressure, Nike had to agree to pay $1.54 million after two of its suppliers in Honduras closed factories without paying severance compensation to workers.
A New York Times report says that "Nike agreed to the payment after several universities and a nationwide group, United Students Against Sweatshops, pressed it to pay some $2 million in severance that the two subcontractors had failed to pay."
The report says that the "the University of Wisconsin, Madison terminated its licensing agreement with Nike over the Honduran dispute, and Cornell warned that it would do the same unless Nike resolved the matter."
Nike however explains that the payment is for a "worker relief fund" and not for severance. But the point is that campaigners for the first time have succeeded in extracting a payment from a brand after a supplier has failed to pay to workers. This may the beginning of a new trend, no matter how unfair it may seem to some.
In recent years, incidents of sudden factory closures have significantly increased in the garment industry in what are called "shut and run" cases. In many cases, the factories were owned by foreign vendors who fled the country overnight leaving behind sewing machines in the closed factory. In most cases, workers are not paid even the legal severance.
So far brands have audited and monitored working conditions in their supplier factories. Now it may make sense that brands also evaluate the financial conditions of their suppliers to prevent such incidents. Brands may consider requiring their suppliers to maintain certain fund, enough to cover severance pay, in a separate account at all times. Or buy an appropriate insurance cover. This however will increase the cost of doing business and suppliers will not like it.
How else can they protect the rights of workers in the event a supplier shuts shop all of a sudden without any severance pay? Ideas welcome.
But garment manufacturing is more than just an industry in Bangladesh. The garment industry is the largest employer in the impoverished nation and accounts for over 80% of the export earnings totalling over $12 billion a year.
Though there are 400 garment factories in Bangladesh, a good chunk of them is owned by politically influential families. As a result, the minimum wage stayed the same for 12 years until 2006 when the wage was revised, only after months of violent labour protests threatened the future of the industry.
But the 2006 raise -revised from Taka 900 ($13) to Taka 1662 ($23) a month- was much below what the workers asked for and many factory owners took a long time to implement the new wage.
Sporadic labour protests have continued since then. Five years on, the same scene is being replayed. The government has revised the monthly minimum wage to 3000 Taka ($43) only after workers resorted to violence by burning down factories and vehicles. The increase is significantly lower than the 5000 Taka ($71) demanded by the labour groups.
Even at 5000 Taka a month, the minimum wage will still be the one of the lowest in the world.
Retail brands though recognise the labour risk of low wage in Bangladesh, they have been frustratingly slow to find a solution. The popular excuse is that the wage is set by the government and therefore it is for the government to address the issue.
But the low wage is the very reason these brands love Bangladesh. Many of them will be the first to flee the country if wages are increased. This very fear discourages the government to raise wage levels.
The labour protests in the meanwhile have turned violent again. A large number of factories are shut down. Workers have learnt that violence is the only language the industry association and the government understands. This does not reflect good on retail brands' corporate responsibility claims.
Here are some of the local stories on the ongoing labour violence:
RMG sector still in grip of violence
Sunday's tripartite meeting 'a farce'
Thousands of workers continue protests
Business leaders for stern action against RMG troublemakers
And here is a video
Tuesday, July 27, 2010
IFC/World Bank last year suspended lending to palm oil sector after a series of complaints against a few large palm oil producers lodged by civil society organisations.
"The World Bank Group recognized the legitimacy of these concerns and in response temporarily suspended any new investments in the palm oil sector," reads the executive summary of the draft framework.
The framework says that "the World Bank Group is aware of the sector’s negative environmental and social impacts, including deforestation, biodiversity loss, greenhouse gas emissions, land use conflicts, and questions over land tenure and human rights."
But the framework also adds that "the palm oil sector has played a significant role in advancing development and accelerating poverty reduction in the many tropical countries in which it grows. It often forms an important basis for national economies, both as a source of jobs, an export and a raw material for local industry."
The draft says that "the World Bank Group’s engagement in the palm oil sector is consistent with its mission to fight poverty without compromising economic, environmental and social sustainability."
"Adoption of this framework, coupled with compliance with environmental and social policies (the IFC’s Performance Standards and the World Bank’s Safeguard Policies), will enable the World Bank Group to play a catalytic role in moving the palm oil sector to a more sustainable footing."
The World Bank Group has defined four key themes that will frame its future engagement in the sector. These are:
• Supporting the development of an enabling policy and regulatory environment
• Mobilizing socially and environmentally sustainable private sector investment
• Encouraging benefit sharing with smallholders and communities
• Supporting sustainability codes of practice.
Here is the link to the draft framework document.
He has recently started teaching ethics in a few business schools in India.
This is the e-mail that I received from him :
"Last week I was taking a workshop on Ethics at A reputed B School in Mumbai and came across many students who held the view that the only responsibility of business is to maximise shareholder value and nothing else. And there I remembered your comment on MBA education in India and how it is biased towards shareholder value and not stakeholder value.
I tried to convince them with the discussion on Necessary condition and sufficient condition based on the HBR article What’s a Business For.
I just thought to check with you if there is a better or alternate way to explain this which you may be aware of."
And this is what I wrote to him:
Thanks for the mail. I am used to coming across skeptics. So your experience with the students does not surprise me. Though the situation is changing. Recently, I made a presentation to executive MBA students at INSEAD Singapore. None of them thought corporate responsibility was not important. Many in the class actually said that corporate responsibility was strategically important for companies which want to grow in a globalised economy.
The general misconception is that responsible business works against shareholder interests. In fact, the opposite is true. Running business responsibly actually protects, and increases shareholder value in the medium to long term. Irresponsible business practices on the other hand can diminish, and sometimes dramatically destroy, shareholder value. That is why more and more investors are making corporate responsibility a key criteria in their investment decisions.
The key challenge for companies is to find the right business case most suitable for their kind of operations. Most companies fail on this count. You can blame it on the lack of seasoned CR professionals. Indeed, there are more incompetent corporate responsibility consultants than the good ones.
When companies are not able to identify or articulate the business case for CR, they obviously fail to see how CR can create value for their shareholders.
Short-termism and short-sightedness are also to be blamed. Most managers have a 2-3 years time horizon in a company. But shareholder value is built over a longer term and needs to be sustained over a long term.
Another major problem is that a very large number of companies, and executives, do not understand what business responsibility actually means. I routinely run into managers, many of them in senior roles, who still believe corporate responsibility means philanthropy or charity.
MBA students who think corporate responsibility conflicts with shareholder value will not make it to the top in their career in any respectable company if they continue to hold the same view. Harsh this may sound. But the price of ignoring business responsibility is going to be severe. For companies as well as for managers.
In India, business schools need to reboot the curriculum and align with the current global thinking and realities. Otherwise, they will be producing MBAs who will not be equipped with the right knowledge to effectively serve their shareholders.
I can understand your frustration. I no more argue with the skeptics. Let them learn at their own cost. Not sure if this helps:)
If working on skeptics is something you do, your comments and tips are welcome.
Tuesday, July 13, 2010
In an unrelated development, the British banking giant HSBC has announced that it has sold off its shares in the Indonesian palm oil producer Sinar Mas. Several reports by Greenpeace have accused Sinar Mas of illegal forest clearing.
The palm oil plantation industry is under attack for alleged unsustainable practices that are contributing to massive deforestation in South-east Asia.
Last December, India's corporate affairs ministry issued voluntary CSR guidelines for companies. The ministry has also urged all companies to create a separate fund for their CSR activities. Separately, the ministry also issued a voluntary guideline on corporate governance last year.
The corporate affairs minister Salman Khurshid has even suggested issuing social credits, on the lines of carbon credits, to companies which engage in corporate social responsibility programmes. He says that if needed his ministry will consider making CSR mandatory for companies.
In China,the Ministry of Commerce says it is using CSR indicators like environmental protection and employee welfare to appraise exporters - including domestic- and overseas-funded enterprises - to ensure they meet international standards.
Shanghai Bureau of Quality and Technical Supervision, a government department, introduced Shanghai Municipal Local Standards on CSR in January 2009. The guidelines though voluntary promise a number of incentives to those companies which adopt CSR.
A string of scandals in the recent couple of years ranging from child slavery and product safety to more recent incidents of worker suicides in Foxonn, an electronics manufacturer for Apple and other global brands, has tarnished the image of China-based businesses.
The government understands that a poor corporate responsibility image can dent the competitiveness of Chinese companies in the international markets. More importantly, bad corporate responsibility reputation will increase opposition to Chinese companies' takeover bids to acquire western companies.
Wednesday, July 07, 2010
The report, How Sinar Mas is Pulping the Planet, says: "“It’s time for companies like Burger King, Dunkin’ Donuts and Kentucky Fried Chicken to catch up. We’re calling on companies in this report to stop doing business with Sinar Mas immediately."
Minimum wage increase should at least partially address the problem rising discontent among low wage workers who have resorted to industrial action demanding higher wages.
What should companies do? An emerging trend indicates that companies are tempted to move their manufacturing further deep in the mainland where wages are still low and local governments are eager to roll out a red carpet to attract investment. Some are even planing to move out of the country.
But moving inland also means all the hard work done by multinational companies to improve working conditions in their supplier factories will be undone. They will have to start all over again at the new location. Interior mainland locations are also less accessible and away from the media and NGO glare.
Local governments will be willing to turn a blind eye in order to get investors come and set up operations and add to local economy. This is what happened 20 years ago when the coastal provinces competed with each other to win favours with foreign investors.
Responsible companies therefore need to prepare a blue print clearly identifying the new social and environmental risks that the migration of factories will create.
Migration, by the way, is not a bad thing. Provinces which have not benefited from China's boom can now look forward to new factories which will generate employment and improve the local economy. This is also necessary to reduce the widening income gap in China. But a more responsible handling of such migration by companies will be required to avoid a repeat of exploitation.
The best practice for companies however would be to focus on improving productivity rather than switching to a low wage town. This is an opportunity for companies to invest in human resources to upgrade their skills. Higher productivity will make it possible to pay higher wages.
Companies should also note that China is no more about cheap labour alone. China is now also about a huge market and a well developed supply chain infrastructure which no other city on earth can offer. Not at this time.
Wednesday, June 30, 2010
Foxconn has been hit by a spate of suicides by workers allegedly frustrated by harsh working conditions in the factory. After 13 incidents of suicide this year, the company announced 66% raise in wages. However, reports now say that the company has told workers that only those who shift to the new plant in Tianjin will receive the raise.
Media reports today suggested Foxconn is planning to relocate the main plant from the more expensive Shenzen to Tianjin where labour cost is relatively lower.
Minimum wage in Tianjin is 920 yuan ($132) while the minimum wage in Shenzen, where Foxconn plant is currently located, is 2000 yuan ($295).
Foxconn will shift 300,000 out of the total 420,000 workers in the Shenzen plant to the Tianjin plant.
Foxconn shares are down 44% so far this year. The company has warned that its first-half losses may swell due to weaker pricing.
Wednesday, June 23, 2010
Toyota was affected by strike at one of its suppliers located in Tianjin, near Beijing. The strike has forced Toyota to shut the night shift in its main plant which manufactures the Camry and Yaris.
A series of strikes have been reported at other suppliers for Toyota and Honda.
A key feature of the labour strikes in China in recent weeks is that they are not targeted at western multinational companies' local plants who have relatively better labour practices.
Strikes so far have affected mostly Taiwanese and Japanese companies, both laggards in corporate responsibility. They usually have top down authoritative management styles.
Western automakers however face a different kind of risk. While they may have good industrial relations in their own plants due to better labour policies, their business may suffer due to potential labour unrest at their Chinese business partners. An example is a labour dispute that has broken out at Yanbao, one of the largest BMW dealers in China. Yanbao employees want a pay rise complaining current wages are low.
This means multinational companies now much chose their business partners very carefully and pursuade them to adopt responsible labour practices.
While workers are forcing companies to increase wages, the new Yuan policy is likely to make their exports more expensive. A double whammy.
Wednesday, June 16, 2010
The Toyota You Don't Know, The Race to the Bottom in the Auto Industry from The National Labor Committee, USA.
The report says: "Right now, Toyota and the U.S. auto companies are locked in a race to the bottom, which will inevitably lead them to adopt each others worst practices."
There are worries that the labour unrest can potentially snowball into a major social crisis for the government as well as the industry. The issue has become so hot that China's premier Wen Jiabao has urged better treatment of particularly migrant workers.
Here are some of the stories doing the rounds in the local and international media:
Honda, which was hit by labour strikes in its China plants, says the company was surprised by the strike and that it needs to improve communication with employees. Honda's rival Japanese car maker Toyota says that it regularly talks to workers for better understanding of each other.
This story says that Taiwanese companies which have been at the core of Chinese industrial development over the last 30 years, are not heading home as labour unrest in China heralds an era of rising labour costs.
A New York Times story says that the current labour movement is China is independent of government-controlled unions, a trend with hugely political dimensions in a country where organising labour outside the government-controlled union is prohibited.
Honda workers are even demanding the right to form their own union, an unprecedented situation in China's labour market.
And this report predicts that the days of cheap labour in China are numbered now.
And this report suggests that rising labour costs will ultimately force factories to move closer to labour sources, and working conditions will become more humane. The report quotes a local expert as saying: "The biggest losers will be coastal governments that side with the factories to protect their revenues, if they refuse to change."
And this newspaper report in India hopes that China's loss will be India's gain.
Wall Street Journal reports that rising labor costs in China are forcing U.S. apparel and accessories retailers, such as AnnTaylor Stores Corp. and Coach Inc., to consider relocating at least some of their production to countries with cheaper work forces.
Wednesday, June 09, 2010
A local magistrate court in Bhopal convicted seven former executives of Union Carbide India Ltd after a trial that lasted 25 years. The convicts include now 85 year old Keshub Mahindra, former Union Carbide India chairman and the patriarch of India's one of the most influential business families that owns automobile maker Mahindra & Mahindra. He is currently the chairman of Mahindra & Mahindra. One of the guilty has already died.
But what has angered public is the lightness of punishment meted out to the convicts. The judgement awards two years imprisonment and Rs. 100,000 ($2000) fine each. All convicted executives were immediately granted bail so that they can file appeals in a higher court (sessions court) against the judgement. The appeal may take another quarter of a century before any outcome.
Even if the higher court finally upholds the lower court's judgement, the convicts will still be able to file two more appeals in the high court and then in the supreme court. Should we say that these appeals may take another quarter or half of a century before the appeals are exhausted?
There is a strong possibility that eventually none of the convicts will serve time in jail or not even pay a single cent in fine.
The current court order has also fined the company, which does not exist anymore, a meagre sum of Rs. 500,000 (about $10,000) for the disaster that killed over 4000 people immediately and over 20,000 people in the aftermath.
The victims' lawyer commented: "The worst industrial disaster in the history has been reduced to a traffic accident."
The case has once again highlighted the serious flaws in India's already notorious legal system, corrupt political establishment and rotten bureaucracy.
The judgement sends a wrong signal to the business community in India and to multinationals operating in India. In a way, it implies that even if a company's irresponsible actions kill thousands of people, it will take 25 years to get the first verdict out and hopefully another 50 years for appeals. It also signals that the punishment finally may not be any significant. The judgement then is in no way a deterrent judgement.
The court found these executives guilty for causing death by negligence, culpable homicide not amounting to murder and gross negligence under the Indian Penal Code. These sections of IPC do not warrant severe punishment. So the prosecution failed to bring more serious charges against the company executives. There is a widely held suspicion that the charges were diluted on instructions from senior politicians over the years.
Nevertheless, the judgement is a key milestone in a way. It is the first time a court has found the company and its executives guilty in the case. Union Carbide chairman Warren Anderson who has avoided appearing in Indian courts would perhaps have been found guilty too. India's half-hearted efforts to get him extradited from US have failed. The court has announced him an absconder and his arrest warrants have been gathering dust. There are other court cases pending where he finally may be convicted ex-parte.
The public outrage over the judgement which many called a "mockery" may however force the government to take some tough measures to hold rogue companies accountable. This can also potentially trigger a closer scrutiny of companies' behaviour in India where corporate responsibility does not exist on the agenda.
The backlash will also make it more difficult for the ruling politicians who are desperately trying to pass a nuclear disaster liability bill in parliament that aims at putting a cap on the maximum liability for nuclear plant operators and their equipment suppliers in case of a disaster. The international nuclear lobby has been pushing for such legislation before they start selling equipment to India or bid for nuclear plants. There is already a strong NGO campaign in India against such attempts.
Nervous politicians are already trying to play to the gallery. Even the law minister has said he is disappointed by the judgement. The environmental minister has said he wants the first of the proposed green courts to be set up in Bhopal.
But the government has acted with greater irresponsibility than Union Carbide over the past 25 years. Union Carbide paid $470 million to the Indian government in a settlement to cover compensation to victims. Only a fraction of that money has been disbursed so far. Victims' families and survivors complain that government officials want bribes to entertain their claims. As a result, a large number of survivors who suffer from diseases resulting from the exposure to the poisonous gas leak continue to rely on relief and treatment provided by NGOs.
See a comprehensive story on the Bhopal Gas Disaster that we published in the current issue of Ethical Corporation magazine.
And if you like, listen to my brief interview on the Bhopal judgement on Radio Australia here.
Thursday, June 03, 2010
Then I asked the tree outside my house. From my childhood, I remember having read about a wise tree which had all the answers. But the tree I spoke to seemed quite dumb. No response.
Then I noticed a crow sitting on a branch of the tree. Crows are considered stupid as I remember from my childhood story of a crow and a cunning fox. Still thought no harm in trying luck, for BP's sake. I asked the crow if it had any idea how to stop the oil leak. The crow looked at me suspiciously and flew away.
I have heard BP has already asked Steven Spielberg if he can help in stopping the leak. Wondering if they have asked Mr. Bean. He may have an idea or two for BP.
How about asking Stephenie Meyer? She might know some secret community of vampires who feed on oil rather than blood? With any luck, these vampires could be potentially deployed.
Or perhaps they should ask a couple of fortune tellers in India. A tantric may even help by sending an army of ghosts or demons to the gulf of Mexico to stop the leak instantly.
So here we have a master stroke by BP's public relations machine. By asking the public to give ideas on how to stop the gushing oil, BP is trying to create an impression that managing this disaster is beyond currently known scientific knowledge and that the company can not be blamed for whatever is happening. They are also giving an impression that this disaster is an unfathomable accident, beyond humble humans' understanding.
And they are right. Even my guinea pigs don't know how to stop this damn leak. How on earth BP scientists and engineers would know the solution?
The real question is where is the copy of the risk assessment BP carried out (I hope they did) for this rig. And what were the risks they identified? And what was done to manage those risks?
BP has not yet said that they will not contest the penalties imposed by the US authorities whether civil or criminal. They have not said that they will not use the might of expensive lawyers to drag the court proceedings to delay or deny paying the penalties (as Exxon did so successfully after the Valdez oil spill disaster).