Commission on Sustainable Development Background Paper No. 4 Sixth Session 2- April - 1 May 1998 RESPONSIBLE ENTREPRENEURSHIP United Nations Environment Programme (UNEP) 1/ (1/ This paper was prepared by the United Nations Environment Programme - Industry and Environment, Tour Mirabeau, 39-43 quai Andre Citroen, 75739 Paris Cedex 15, France. Telephone: (33-01) 4437-1450; Facsimile: (33-01) 4437-1474. E-mail: email@example.com . Homepage: http://www.unepie.org) I. INTRODUCTION 1. In 1997, Mr Kofi Annan, Secretary General of the UN stated during an address in India: -...the overall message is clear: nationally and internationally, the key to growth is with the private sector. The role of government is increasingly shifting to one in which its primary task is to create an enabling environment for individual energies and initiatives to flourish. This partnership between the public and private sector is now the key to development and prosperity." 2. This increasingly central role of the private sector calls for companies to manage their operations in a manner which will enhance economic growth, ensure environmental protection, and promote social justice. This is what is now meant by ■responsible entrepreneurship■, a concept which has evolved considerably since originally put forward in 1992 in Chapter 30 of Agenda 21. 3. Responsible entrepreneurship is therefore a business strategy to achieve sustainable development. It is a strategy which companies themselves and their industry associations will need to further develop and implement. Other stakeholders - in particular NGOs and labour which have presented their views in other papers on responsible entrepreneurship - have a critical role to play in fostering the evolution of responsible entrepreneurship. 4. Governments have a crucial role to play in setting long-term goals for sustainable development and the corresponding clear objectives and targets that companies must meet. These should lead companies not only to abide by laws and regulations to protect human health and the environment, but also to innovate and take a proactive approach, and work in partnership to achieve sustainability objectives. 5. This paper discusses: (a) responsible entrepreneurship in practice: progress and gaps; (b) responsible entrepreneurship: an evolving concept; (c) the role of industry associations in fostering responsible entrepreneurship; (d) the role of governments in fostering responsible entrepreneurship; and, (e) the role of international organizations in fostering responsible entrepreneurship. II. RESPONSIBLE ENTREPRENEURSHIP SINCE RIO: PROGRESS AND GAPS 6. Responsible entrepreneurship is a concept in evolution. This is in part a result of the changing ethics and values of society. It is also because countries do not share the same situations or cultures - what is seen to be relevant in one context may not be in another. It is also in part due to different stakeholder perspectives of the key issues and their responses. These differences in emphasis can be brought together to obtain common ground, but they could also lead to conflicting goals if not effectively understood. 7. It is thus helpful to review what responsible entrepreneurship meant in 1992 when governments adopted Agenda 21 and to evaluate the current situation. This will help to obtain a clearer understanding of the concept in practice in order to determine the policy implications for governments. A. Responsible Entrepreneurship in Agenda 21 8. Chapter 30 "Strengthening the Role of Business and Industry" states that: "Responsible entrepreneurship can play a major role in improving the efficiency of resource use, reducing risks and hazards, minimizing wastes and safeguarding environmental qualities." 9. The objectives of the "promoting responsible entrepreneurship" section of Chapter 30 of Agenda 21 were to encourage the concept of stewardship in the management and utilization of natural resources by entrepreneurs, and to increase the number of entrepreneurs engaged in enterprises that subscribe to and implement sustainable development policies. 10. There are a number of activities listed in Chapter 30 of Agenda 21 that business and industry, including transnational corporations, were encouraged to undertake to promote responsible entrepreneurship: (a) establish world-wide corporate polices on sustainable development; (b) arrange for environmentally sound technology transfer; (c) establish partnership schemes with small- and medium-sized enterprises; (d) establish national councils for sustainable development; (e) increase research and development of environmentally sound technologies and environmental management systems; (f) ensure responsible and ethical management of products and processes from the point of view of health, safety and environmental aspects; (g) increase self-regulation, guided by appropriate codes, charters and initiatives integrated into all elements of business planning and decision-making; and, (h) foster openness and dialogue with employees and the public. 11. Governments were called upon to: (a) encourage the establishment and operations of sustainably managed enterprises through a mix of regulatory measures, economic incentives, advice and assistance with information, infrastructural support and stewardship responsibilities; (b) encourage the establishment of venture capital funds for sustainable development projects and programmes; (c) support training in the environmental aspects of enterprise management. 12. UN agencies, international organizations, multi lateral and bilateral financial aid institutions were called upon to: (a) improve mechanisms to ensure that the environmental aspects are strengthened in foreign investment; (b) increase support for research and development on improving the technological and management requirements for sustainable development, in particular for small- and medium-scale entrepreneurs (SMEs) in developing countries; (c) encourage and support SMEs engaged in sustainable development activities. B. Responsible Entrepreneurship in Practice: noteworthy progress and notable gaps 13. When looking back at these targets set out in 1992, it is clear that considerable progress has been made by business and governments in moving towards responsible entrepreneurship as defined in Chapter 30 of Agenda 21. However, notable gaps remain. In addition, new responsible entrepreneurship challenges have emerged since Agenda 21 was adopted in 1992. 1. Business and Industry 14. An increasing number of multinational corporations have now established corporate environmental policies, in particular as this is a basic requirement of environmental management systems (EMS) such as ISO 14001. The implementation of EMS has also driven "supply chain management" where larger companies work more closely with their suppliers - often SMEs - to reach common environmental objectives. In addition, approaches such as cleaner production and eco-efficiency have begun to lead to the development of clean technologies and a preventative approach to improve resource productivity. 15. However: (a) while improved environmental management practices might be applied by multinationals operating in OECD countries, it is not always the case when the same multinationals operate in developing countries. (b) a growing number of multinationals based in rapidly growing economies are operating in other developing countries without taking environmental requirements into account. (c) in many parts of the world, EMS remains to be implemented, in particular by SMEs, and new environmental management tools - such as environmental accounting - still need to be further developed. Many 'environmentally sound' technologies are end-of-pipe - they treat an environmental problem after it has occurred rather than preventing it from occurring, and outdated technologies continue to be widely exported. (d) while policies and strategies developed by business and industry have made notable progress in addressing the environmental dimension of sustainability, the social dimension is just beginning to be addressed by most companies. Sustainability demands, among other things, social justice, the alleviation of poverty, the provision of meaningful employment, the observance of human rights, the empowerment of diverse groups, and due regard for animal welfare. 16. A number of "green business networks" have emerged which bring together companies and other organizations to achieve tasks that go beyond the resources of their individual members. The Global Environmental Management Initiative (GEMI), the Prince of Wales Business Leaders Forum (PWBLF), the World Business Council for Sustainable Development (WBCSD) and its regional affiliates, the International Network for Environmental Management (INEM), the Natural Step, the Social Venture Network (SVN), and many others are such examples. Other academic and/or research institutes are also working with business and industry to further develop corporate sustainable development tools and strategies. These include the Coalition for Environmental Responsible Economies (CERES), the International Institute for Environment and Development (IIED), the International Institute for Sustainable Development (IISD), the World Resources Institute (WRI), the Wu"ppertal Institute, the Greening of Industry Network, and many others. 17. However, though most of these networks try to actively involve partners from developing countries, developing country representation remains limited. In addition, these networks include a limited number of companies. SMEs and other sectors - such as the service industry, consulting or construction - are not usually involved in such networks. 18. Voluntary codes of conduct - developed by industry for industry - have been developed by a number of business organizations and industry associations around the world. These codes of conduct can be an important tool to foster changes in business management and encourage openness and dialogue with stakeholders. 19. However: (a) many codes of conduct often remain just words on paper as effective and transparent monitoring and follow-up programmes to measure results are not always developed. The implementation of such codes by business and industry can also be hindered by obstacles such as lack of training and adequate information. The few codes of conduct which are supported by successful monitoring programmes are hampered by the ■free-riders■ in the industry sector. (b) a number of important business and industry sectors - such as petroleum, construction and consulting - have not yet developed a sectoral code of conduct. In addition, many voluntary codes of conduct currently developed by industry associations focus on the environmental aspects of sustainable development and do not pay expressed attention to social issues. (c) while a notable few among the commercial banking, investment and insurance sector have made strides in promoting more sustainable practices - in part spearheaded by the UNEP Banking and Insurance Codes of Conduct - much needs to be done to shift from traditional investments to cleaner production investments. 20. As responsibility must go hand-in-hand with accountability, an increasing number of companies, in particular multinationals, are now voluntarily disclosing information on their environmental activities and emissions data through a company environmental report (CER). The growing quantity and quality of corporate environmental reports, and the increasing trend to have CERs externally verified is encouraging. Some companies now seek NGO input in their attempts to communicate complex issues to an often diverse public. 21. However: (a) corporate environmental reporting is certainly not a wide- spread practice. In addition, many corporations who do prepare CERs - notably from Europe or North America - do not report on their operations in developing countries. (b) more standardized reporting to facilitate comparison between companies in the same sector and to measure effective progress is necessary. Performance indicators need to be developed from which to measure the environmental performance and sustainability of business and industry. 2. Governments 22. There is increasing experience in developed country governments in designing policy instruments which include a broader mix of regulatory and non-regulatory measures to encourage responsible entrepreneurship. 23. However: (a) a number of governments still focus primarily on strict regulatory approaches. This command-and control approach can bring important environmental and health improvements, however emission standards with short term objectives also tend to encourage end-of-pipe controls rather than eco- innovation. As a complement to (not a replacement of) command-and control regulations, new approaches to bring about greater flexibility in implementing environmental policy are needed. These approaches can encourage industry to innovate their technologies, services and management approaches while meeting sustainable development requirements. (b) only a few governments have promoted the development of voluntary initiatives. (c) other experiences, in particular in the Netherlands, include "covenants", agreements negotiated with industry sectors which set quantified targets and time frames. (d) additional support is urgently required for SMEs which contribute significantly to the economic fabric of virtually all countries. Venture capital funds for sustainable development projects and programmes, specifically called for in Chapter 30 or Agenda 21, have not been developed to any notable degree. 24. There is also a marked if gradual shift from a confrontational to a more collaborative relationship with government and the private sector. National consultations and regional roundtables which bring together diverse stakeholders are increasingly taking place. The goals of such roundtables are broadly speaking, to improve dialogue, build consensus on sustainable development goals, and identify appropriate solutions. Effective partnerships are also developed at the international level. For example, the European Partners for the Environment (EPE) aims to foster social dialogue and brings together public authorities (including UN agencies), environmental citizens organizations, business and industry, trade unions, and consumer and professional organizations. UNEP and the International Chamber of Commerce (ICC) have also held a series of high-level consultations between Environment Ministers, Chief Executive Officers and Non- Governmental Organizations. These panel meetings are designed to discuss the implications of international environmental priorities for business and industry, and to build consensus on implementation activities and partnerships. 25. However, such "partnerships" are not always easy. They require openness and respect, trust and confidence building, and a willingness to listen and to change. 3. UN agencies, international organizations, multilateral and bilateral financial aid institutions 26. United Nations agencies and international organizations are increasingly developing support programmes to assist business and industry, in particular SMEs, to put responsible entrepreneurship into practice. UNEP, UNIDO, UNCTAD and others, have developed practical and easy-to-use materials, and encourage information exchange, to facilitate the adoption of cleaner, eco-efficient technologies and management tools. Some multi-lateral institutions have begun to integrate environmental criteria into conditions of loans, and further action should be taken to develop criteria for this purpose. 27. However, much remains to be done to ensure that environmental aspects are strengthened in foreign investment. In particular, concerted action is required to ensure that sustainable development is clearly recognized in the Multilateral Agreement on Investment currently being negotiated by OECD nations. III. RESPONSIBLE ENTREPRENEURSHIP: AN EVOLVING CONCEPT 28. The concept of responsible entrepreneurship has evolved since Agenda 21 was adopted in 1992 and will certainly continue to evolve over time to meet the changing expectations, needs and demands of society. In 1992, as seen in Chapter 30 of Agenda 21, responsible entrepreneurship focused on the environmental aspects of business operations. It is now increasingly taking into account social considerations. Likewise, the focus of "who" should implement responsible entrepreneurship has expanded. Since 1992, most external pressure for responsible entrepreneurship has been directed at multinational companies usually from OECD countries. More recently however, SMEs from developed countries and multinationals from rapidly industrializing countries are increasingly expected to incorporate responsible entrepreneurship principles into their business operations. 29. The UNEP Industry and Environment office has held regular consultations with industry and industry associations on their implementation of Agenda 21 and has twice surveyed industry interpretations and applications of Chapter 30 of Agenda 21. UNEP IE has also developed a framework for the development, use and monitoring of voluntary codes of conduct, and regularly reports on progress in environmental reporting. On this basis, UNEP has identified the following three broad stages in the practical implementation of responsible entrepreneurship by business and industry. A. 3 Broad Stages of Responsible Entrepreneurship for Business and Industry 30. The following stages of responsible entrepreneurship are meant to demonstrate the ■continual improvement■ process within business and industry in moving toward responsible entrepreneurship and ultimately sustainable development. They are not intended to be exhaustive but are outlined to generate interest and dialogue. Stage 1: compliance to national law (a) compliance to national environmental, health and safety standards and regulations (b) public disclosure, when required, of regulated emissions (c) adoption of voluntary charters or codes of conduct promoted by industry associations but with little monitoring/reporting of implementation (d) environmental issues seen as an expense rather than an opportunity (e) ad-hoc reaction to environmental accidents and risks (f) social considerations not recognized (g) active lobbying to avoid any new regulation Stage 2: compliance and cleaner production/eco-efficiency (a) proactive approach to sustainable development typically demonstrated through activities which are economically viable (eco-efficiency) (b) setting of quantified objectives and targets for environmental performance, usually set within the continual improvement framework of an environmental management system (c) monitoring and reporting of implementation of voluntary codes of conduct by industry associations (d) operating standards similar in all parts of the world (e) begin to work with suppliers to improve environmental performance (supply chain management) (f) publication of environmental reports with quantified data, limited reporting on social issues (g) openness to dialogue with governments and NGOs Stage 3: compliance, cleaner production/eco-efficiency, and strategic redefinition of business (a) redefinition of company strategies and policies to include the "triple bottom line" of sustainable development - economic prosperity, environmental quality and social equity. This is applied in all divisions of the company (marketing, purchasing, product design, advertising...), and in all operations worldwide (b) corresponding redesign of process, products and services to integrate the "triple bottom line" (c) active partners in the development/implementation of international agreements/conventions (d) full recognition of the "public right to know" and "precautionary principle" (e) development of sustainability indicators, in consultation with stakeholders, used for bench marking performance (environmental, economic and social) within and between industry sectors (f) sustainable development reporting including reporting against global operating standards (g) social audits (h) transparency, openness, and active contribution to unbiased dialogue with all stakeholders 31. Clearly, responsible entrepreneurship is a long-term challenge for companies. The few companies that have started to progress though these broad stages of responsible entrepreneurship should be congratulated, encouraged and supported. What is also of primary importance is that more companies, of all sizes, in all countries start to operate responsibility and begin to develop or revise their business to integrate the "triple bottom line" of sustainable development. B. The Role of Industry Associations 32. As the concept of responsible entrepreneurship evolves with time and poses increasing challenges for companies, the role of industry associations must evolve as well. Some industry associations have begun to make the transition from reactive - driven by the slowest members and active defensive lobbying - to proactively servicing the sustainable development needs of their members. 33. The key roles for industry associations in this transition are to: (a) develop substantive voluntary codes of conduct and build the commitment of the membership to the voluntary code of conduct; (b) provide guidance, support and training to assist members in implementing the voluntary code of conduct and to translate responsible entrepreneurship into action; (c) monitor results and facilitate bench marking between members; (d) publish regular consolidated reports on the environmental performance of the industry sector; (e) track members so as to reduce ■free riders■; (f) facilitate dialogue with stakeholders, including the public. IV. RESPONSIBLE ENTREPRENEURSHIP AND THE ROLE OF GOVERNMENTS A. The Benefits of Responsible Entrepreneurship 34. Governments stand to gain enormously from the potential of responsible entrepreneurship. The benefits for government include: (a) maximizing industry■s innovative capacity to respond to sustainable development challenges that lie beyond the scope of traditional regulations; (b) enabling governments to focus inspectorate and enforcement resources on "free-riders" or companies which do not take voluntary commitments seriously; (c) catalyzing synergies resulting from dialogue between various partners to improve the cost efficiency of environmental measures; (d) channeling growing public interest in ways that encourage responsible entrepreneurship and motivate poor performers; (e) gaining experience with new collaborative relationships with industry and public needed to meet current and future sustainable development challenges. 35. To capitalize on these benefits however, governments need to be prepared to take measures to set the appropriate enabling framework and to minimize the drawbacks of responsible entrepreneurship which can include "free-riders", "green-washing" and others. B. Creating a Conducive Environment 36. Governments have a key role to play in creating a conducive environment to foster responsible entrepreneurship in industry. Corresponding actions include: (a) setting clear goals and objectives based on societal consensus; (b) defining the appropriate combination of regulation, economic instruments and institutional measures that will promote industry responsibility, and give adequate market signals to promote the internalization of externalities; (c) developing a dialogue with industry to facilitate the development of voluntary initiatives and programmes to reach set objectives. Such initiatives can take many forms, starting with unilateral commitment from a company or an industry sector to reach targets beyond regulatory requirements, or ■covenants■ negotiated between industry sectors and governments or local authorities. Such negotiated agreements, which specify quantified goals and time frames, are usually supported by regulations and economic incentives to facilitate implementation. Some covenants between industry and non-governmental organizations, with the government acting as the facilitator, have also been undertaken.; (d) developing various support programmes in particular for SMEs. Innovative investment vehicles, such as venture capital funds and social funds should be encouraged. Public awareness campaigns and increasing the use of information and communication technology and tools would facilitate the exchange of experience. Reward schemes for responsible entrepreneurs would also facilitate a change in behaviour of industry managers; (e) developing credible monitoring systems to measure and demonstrate actual results, to ensure that the goals and objectives are met. In partnership with business and industry, and international organizations, governments should promote the development of performance indicators to facilitate the quantification and comparison of companies environmental performance. A similar activity should be undertaken to develop criteria to ensure transparency, credibility and comparability of company environmental reporting, preferably on a sector by sector basis; (f) encouraging competent bodies to make the disclosure of environmental performance a requirement for being listed on national stock exchanges. C. Governments as Consumers and Investors 37. Governments can stimulate the market for more environmentally sound products and services by: (a) taking sustainability factors into account in purchasing policies; (b) implementing environmental management systems in their own operations; (c) ensuring that home based companies invest in 'sustainable activities' in foreign countries; (d) ensuring that publicly owned companies also implement the principles of responsible entrepreneurship. V. THE ROLE OF INTERNATIONAL ORGANIZATIONS 38. Responsible entrepreneurship is above all a global need in particular in an increasingly globalized economy. The UN provides an impartial platform for developing a common understanding of various aspects of responsible entrepreneurship. Differences in regional situations and priorities also need to be taken into account if responsible entrepreneurship is not to become marginalized in times of regional or economic difficulty. 39. The adoption, under UN auspices, of an 'International Declaration on Cleaner Production■ could be a useful tool to promote responsible entrepreneurship. Signatories would thereby voluntarily commit themselves to: (a) making the preventative strategy of cleaner production their preferred option; (b) integrating preventative strategies into all relevant units of their organization; (c) developing cleaner production action plans and programmes as a key element of commitment to continuous improvement; (d) openly sharing experiences; (e) setting clear, quantifiable targets and time frames and monitor and report annually on progress. 40. UNEP will develop a self-assessment guide that converts the principles into measurable objectives and will collect and disseminate the successes and difficulties in implementing the International Declaration on Cleaner Production in a databank. 41. UN organizations also provide an impartial forum for assessing and disseminating best practice in responsible entrepreneurship, in cooperation with industry, governments and nongovernmental organizations from all over the world. Relevant UN organizations, with appropriate partners, should then strengthen their focus on the following activities: (a) monitoring the use of and results achieved by voluntary initiatives, including negotiated environmental agreements; (b) further developing corporate sustainability reporting as a key environmental management tool in particular focusing on reliability and comparability; (c) preparing guidelines of the fundamentals of responsible entrepreneurship, in particular on an industry sector basis and disseminate corresponding best practice case studies; (d) increasing technical assistance and training activities to translate guidelines into practice and multiply best practices globally; (e) further developing indicators of corporate environmental/social performance, ensuring the link is made between public policy indicators being developed at the international and national levels and corporate micro indicators. VI. CONCLUSIONS 42. While noticeable progress has been made in the development of "responsible entrepreneurship" as a business strategy, much remains to be done. Companies that have taken the lead should be acknowledged for doing so, and the experience and lessons learned should be widely disseminated. 43. The focus now should, building on steps taken by a number of industry leaders, be put on those companies who have not taken any steps at all to integrate responsible entrepreneurship into their daily business practice. SMEs which represent a considerable amount of world productive capacity must urgently be supported in this regard. 44. Governments need to create an enabling framework which defines the rules of the game and sets clear goals and targets for business and industry. This includes selecting the appropriate mix of policies, legal and regulatory frameworks, market-based instruments and voluntary programmes, supported by systems for measuring and monitoring implementation. 45. The international community as a whole needs to continue to push forward a better understanding of the responsible entrepreneurship concept to build consensus of how to price common goods to ensure resource productivity, as well as environmental protection and social equity. The international community should continue to develop, assess and disseminate best practice, and to monitor results achieved. A concerted effort by all governments and all industries - both large and small - to respond and to act - is now required. Selected References 1. Voluntary Initiatives for Responsible Entrepreneurship, Industry & Environment review, UNEP IE, 1988 2. UNEP IE Guidelines on Voluntary Industry Codes of Conduct for the Environment, Technical Report N°40, UNEP IE, 1988 3. Company Environmental Reporting: Engaging Stakeholders a) Third International Progress Report on Company Environmental Reporting, SustainAbility/UNEP, 1997 b) The Benchmark Survey, SustainAbility/UNEP, 1996 c) Case Studies: Twelve users respond to company environmental reporting, SustainAbility/UNEP, 1996 d) Company Environmental Reporting, Technical Report N°24, UNEP IE, 1994 4. Reducing Greenhouse Gas Emissions: The Role of Voluntary Programmes, a joint UNEP IE/ US EPA publication, 1997 5. Partnerships for Sustainable Development: the Role of Business and Industry, a joint UNEP/PWBLF/Tufts University publication, 1994 6. UNEP/ICC/FIDIC Environmental Management System Training Resource Kit, 1997 7. Environmental Codes of Conduct on Tourism, Technical Report N°29, UNEP IE 1994 8. Implementation of Agenda 21 by Industry Associations, UNEP IE reports, 1996, 1995 9. UNEP IE Consultation with Industry and Trade Associations, UNEP IE annual reports. 10. Creating the Enabling Environment, Prince of Wales Business Leaders Forum in Collaboration with the World Bank and UNDP, 1997 11. Business as Partners in Development - Creating Wealth for countries, companies and communities, Prince of Wales Business Leaders Forum in Collaboration with the World Bank and UNDP, 1997 About UNEP IE UNEP established its Industry and Environment office (UNEP IE) in 1975 to bring industry and government together to promote environmentally - sound industrial development. UNEP IE is located in Paris. Its goals are: * To encourage the incorporation of environment criteria in industrial development plans; * To facilitate the implementation of procedures and principles for the protection of the environment; * To promote preventive environmental protection through the cleaner production and other pro-active approaches; and * To stimulate the exchange of information and experience throughout the world. To achieve these goals, UNEP IE has developed the following main programmes: Accident Prevention (APELL), Cleaner Production, Energy, OzonAction, Industrial Pollution Management and Tourism. UNEP IE organizes conferences and seminars, and undertakes training and co- operative activities backed by regular follow-up and assessment. To facilitate the sharing of knowledge and experience, topical technical reports, the quarterly Industry and Environment review and a technical query/response service are available. Full list of publications available upon request.
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Date last posted: 8 December 1999 15:15:30