Commission on Sustainable Development Background Paper No.8 Sixth Session 20 April - 1 May 1998 Corporate Management Tools for Sustainable Development Department for Economic and Social Affairs (DESA) United Nations Conference for Trade and Development (UNCTAD) United Nations Environment Programme (UNEP) I. CORPORATE SOCIAL RESPONSIBILITY A. Introduction 1. Business and societies all over the world are confronted with new challenges and demands. Globalization, deregulation and new technologies are creating more trade and intensifying competition, especially in communication and information. Broader deregulation and liberalization have also given enterprises more freedom to make their investment decisions and to operate, both at home and abroad. Enterprises have become more vulnerable to global competition and are therefore increasing their efforts to achieve competitive advantage. To win in an intensified competition and to have more freedom to invest, enterprises need to be socially responsible. 2. As a follow-up of the World Summit for Social Development, the Programme of Action encourages business enterprises to pursue investment and other polices, including non-commercial activities, that will contribute to social development, especially in relation to the generation of work opportunities, social support services at the workplace, access to productive resources and construction of infrastructure. 3. The business leaders of today and tomorrow must not only adapt to the dynamic global changes and challenges, they must also help shape them in a way that promotes social progress and development. The main focus of this section is business social responsibility and the role of partnership for social cohesiveness. B. Social responsibility and the role of business 4. The awareness of the social responsibility of the firm goes back to the birth of the corporative and mutualist movement of the XIX century. The topic appeared in the United States at the end of the 1960s when pollution risks, employment security, accident prevention, minority promotion and social usefulness of products began to be taken into consideration. A great debate took place on this issue in the 1970's in France, and it has recently resurged in many European countries. This new concept of corporate social responsibility is based in companies■ concerns for the protection of their social and physical environment, and responsibility for the destiny and stability of the community. 5. The concern for social responsibility has been given a new thrust from the agitation of some employers in the face of the increased social exclusion menacing society and firms. A firm is generally considered socially responsible when it seeks to reduce social disintegration or when it contributes to social cohesion. 6. A broader concept of corporate social responsibility suggests that firms should also consider their impact on a range of stakeholders, i.e., parties that affect or are affected by a corporation■s action. This approach reaches beyond shareholders to include other groups such as employees, managers, suppliers, customers and even competitors, local communities and governments. The nature and degree of corporate social responsibility that an individual firm may have toward these various groups depend on an examination of the characteristics that relate an enterprise to a specific issue. Among such characteristics are an enterprise■s capability, proximity, awareness, knowledge and impact on the issue. The size and power of large modern corporations give them an enormous potential impact on the societies around them. 7. Development is a social responsibility. Government, business and industry, including transnational organizations, share this social responsibility. The threats to social cohesion in different parts of the world vary, but the threat of social exclusion exists everywhere. New pressures to social cohesion emerging from the structural changes of economies include widespread poverty, unemployment, ethnic conflicts, the spread of HIV/AIDS, organized crime, drug abuse and illicit trafficking, etc., which are major obstacles to business activities locally and globally. The purpose of enhanced social responsibility of enterprises is to make social policy more productive in order to achieve social cohesion at the lowest costs to society. 8. It is widely recognized that social cohesion is in the interest of business in the long run. The business sector will also benefit from more cost efficient solutions to social problems that may be obtained when enterprises participate. Each corporate facility is an integral part of the community in which it operates. Like an individual, it benefits from character building, health, welfare, education, and cultural activities. And like an individual, it also has citizen responsibility to support such activities. 9. In developing countries and in countries with economies in transition, in which social guidance and protection mechanisms are not fully effective, international corporations have a greater corporate social responsibility for self-regulation to assure they do not harm, and do positively benefit, the people of those societies. For instance, where fair market practices are not enforced, corporate social responsibility standards should still call for firms to behave in a responsible manner rather than seek to extract exploitative profits to the society■s detriment. Social responsibilies do not give a transnational corporation a right to make political or social choices for a society. Instead, it calls for greater transnational corporation sensitivity to the corporation■s capability and impact on a country■s social conditions as well as its economic productivity goals. Cooperation with governmental authorities and other local leaders is essential to help guide appropriate corporate responses to the society■s need. 10. It is widely recognized that transnational corporations can play an important role in human resources development and industrial relations in the countries they operate. Corporate social responsibility should exceed corporations■ legal requirements, drawing on their international experience to assist and advance local practices. Issues of appropriateness and choice may be raised where foreign methods and standards are introduced into different cultural and socio-economic settings. Under these circumstances, the concept of corporate social responsibility could suggest principles and processes to maximize the benefits and minimize possible disruptions related to the impact of foreign affiliates. 11. Some of the issues that constitute core topics for business social responsibility regarding human resource management include employment, conditions of work, wages and fringe benefits, safety, training, closures and adjustment. Non-discrimination should be a widespread principle of corporate social responsibility standards on employment. Both in hiring practices and in the treatment of individuals once employed, corporate social responsibility standards should be expected to prohibit discrimination on the basis of distinctions such as race, gender, religion or ethnicity. Enhancing social protection, reducing vulnerability and strengthening employment opportunities for groups with specific needs are major aspects of corporate social responsibility. 12. Personal and societal advancement can come from worker and management training programmes that are self-interest corporate goals increasingly vital to maintaining competitiveness in a dynamic global economy. Sharing skills and knowledge with local employees can be an expression of a corporate social responsibility to fill a role when governments cannot. Transnational corporations can work with local governments, labour unions and other societal representatives in exploring cooperative links between public and private sector programmes to benefit the socio-economic needs of particular host societies. C. Partnership for social progress and development 13. Partnership initiatives are based on voluntary participation by both business and government. Partnership may be established at different levels: local, regional, national or international. The concept of voluntary responsible interaction between business, government and the rest of society first attracted international attention at the World Summit for Social Development in March 1995. In its resolution 1996/97, the Economic and Social Council reaffirmed the need to ensure an effective partnership and cooperation between Governments and the relevant actors of civil society, the social partners and the major groups as defined in Agenda 21, including non- governmental organizations and the private sector, in the implementation of and follow-up to the Copenhagen Declaration and Programme of Action. 14. It is of utmost importance to encourage the establishment of mechanisms to facilitate partnership for social progress and development both at the national and international levels among government, the private sector and organizations of civil society. The idea of partnership is to unite efforts for social cohesion rather than shifting burdens. Partnership of this kind can only be based on voluntary commitments in areas where business and public authorities have or can develop mutual interest. It provides a framework for joint efforts of businesses, governments and social partners to develop a more productive, more flexible and more capacious labour market. 15. The potential scale and scope of partnerships cannot be assessed in advance, but have to be explored in practice. That will depend, for example, on the extent of legislation and collective bargaining making demands and constraints on social behaviour of business, the traditions for interaction between governments and businesses in different parts of the world, and on the capacity and flexibility of public authorities. D. Mechanisms to further social responsibility of corporations 16. Social responsibility extends beyond donations or charitable actions. It assumes a thorough reformation of business, its functions and its decision-making in order to incorporate methods and attitudes able to measure the consequences of its decisions upon society. Mechanisms and measures for corporations in formulating and implementing social policies include a variety of possibilities. These include -Codes of Conduct■ in accordance with the social commitment of the enterprise; dialogue with relevant stakeholders; social auditing and motivating and mobilizing employees to take part in social initiatives in order to strengthen a supportive workplace culture. 17. The main task of governments is to support and stimulate this development by committing themselves through partnerships, and by providing an appropriate framework for development. Extensive social challenges and the speed of change in societies are forcing national and local governments to develop a capacity for flexible responses which they have to develop in partnership with the private sector as well as with other agents in society such as the social partners. 18. One of the toughest political issues stemming from privatization is the loss of public-employee jobs. This problem can be mitigated, however, if government and its private-sector partners work together to ensure the least pain and the most gain for those individuals who have been displaced by efficiency efforts. The loss of jobs is a serious issue that must be dealt with openly, compassionately, and comprehensively. II. ENVIRONMENTAL MANAGEMENT TOOLS FOR SUSTAINABLE DEVELOPMENT 19. Due to increasing regulatory pressure from governments and public demand for a better environment, industry has needed to develop tools to successfully manage the environmental impacts of its operations. Such tools can be used internally by companies to better design and manage their operations, and to monitor their results. They can also be used by governments to lead industry towards environmental improvement and Cleaner Production. 20. Cleaner Production means a preventative strategy applied to processes, products and services to prevent waste at source, to make efficient use of raw materials, and to reduce risks for humans and the environment. In order to implement the Cleaner Production strategy and eco-efficiency, government decision-makers and industry managers need two types of "tools": cleaner and leaner technologies - the hardware; and environmental management tools - the software. 21. Environmental Management Systems (EMS) is an increasingly popular set of basic environmental management tools, as it can be implemented to fit the needs of an individual company. EMS is part of the company's overall management system. It includes strategic planning, organizational structure and implementation of the environmental policy as an integrated part of the manufacturing process. An attractive element of EMS for many companies is that a company does not have to adopt a complete EMS at once: an EMS can be introduced step by step. The process of implementing an EMS catalyzes companies to begin thinking about the environmental impacts of production. 22. EMS voluntary standards are a useful tool to enhance the environmental performance of an organization, as well as to reduce costs through a more efficient use of resources. However, voluntary standards on EMS are a complement to and not a substitute for regulatory measures. The development of international standards, such as the ISO 14000 series on environmental management systems (EMS) and the European Union's Eco-Management Audit Scheme (EMAS), has been key in promoting the use of some environmental management tools 23. International standards in general can make an important contribution to facilitate international trade and the development process of developing countries. However, while compliance with the ISO 14001 standard may enable certain companies to strengthen market positions, the standard could act as a barrier to trade for companies that find it difficult or costly to comply with the standard. In this regard, it is necessary to pay appropriate attention to national implementation issues as well as to international cooperation to facilitate EMS implementation in developing countries. Governments can play an important role in providing an enabling environment for the implementation of EMS, particularly in developing countries, for example by promoting the creation of necessary infrastructure and legislation, as well as appropriate incentives. 24. SMEs in both developed and developing countries may face significant constraints in setting up and maintaining an EMS. Positive incentives, including technical assistance are need in this respect. Cooperation between large firms and SMEs as well as cooperation between SMEs, particularly those in the same sector and geographical area, could help to reduce the costs of EMS implementation. Similarly, companies in developed countries should establish a supportive cooperation with their suppliers in developing countries in the area of EMS implementation. Transnational corporations (TNCs) could play an important role in this regard. 25. Certification and accreditation must be fair and rigorous to safeguard the credibility of international standards on environment management systems. Developing countries should be assisted in developing the necessary infrastructure to allow conformity assessment, certification and accreditation. In doing so, they should follow the relevant international standards and guides. A key element is the creation of an internationally recognized certification and accreditation system and the work of the Quality System Assessment and Recognition (QSAR) and the International Accreditation Forum (IAF) can be highlighted in this respect. Developing countries should be assisted in identifying the possibilities of increasing their share in the domestic and external markets for certification bodies and consultants, including through South-South cooperation. 26. The UNCTAD■s Commission on Trade in Goods and Services, and Commodities, convened an Expert Meeting on Trade and Investment Impacts of Environmental Management Standards, particularly the ISO 14000 series, on Developing Countries, which was held from 29 to 31 October 1997. 1/ At this meeting, experts identified a number of needs of developing countries with regard to national implementation of the ISO 14001 standard. They recommended that actions aimed at facilitating EMS implementation in developing countries should focus on: (a) awareness-building among the concerned stakeholders; (b) identification of sources and dissemination of information; (c) creation of infrastructure, training auditors and consultants; (d) access to and transfer of environmentally sound technology; (e) assistance in developing and implementing related legislation; (f) support for participation in relevant forums and for sharing experiences with the implementation of EMS. The Experts also urged the need for special financial and technical assistance for least developed countries (LDCs) in implementation of the ISO 14001 standard at their national levels. 27. Experts recommended that empirical analyses be carried out, including in UNCTAD, of the trade implications of ISO 14000 standards as well as on national implementation issues that may have a bearing on international trade. UNCTAD and UNDP■s Public Private Partnership Programme are now initiating a joint technical cooperation project in this area. 28. To aid companies in implementing an EMS, UNEP, the International Chamber of Commerce (ICC), and the International Federation of Consulting Engineers (FIDIC) produced "The Environmental Management System Training Resource Kit". This kit is a comprehensive tool to help managers in private and public companies design and implement an EMS specific to their needs and conditions. The EMS kit is modular so the sections can be used one at a time in a continuous training process. Moreover, it is designed to support the implementation of the international standard ISO 14001. Although implementation of an EMS does not guarantee certification, it does help companies formulate a systematic approach to environmental care in all aspects of business. The demand for the UNEP/ICC/FIDIC publication and its translation into at least 9 languages illustrates the increasing interest and belief of companies that a step by step approach to environmental care is good business. 29. But this is not the end of the story: the ISO 14000 series is only the "Swiss Army knife" in the tool box, regrouping a number of tools in a standardized form that industry can use. But the box contains other tools that will need future development in the coming years. A. What are environmental management tools? 30. Environmental management tools are designed to help improve decision-making or information management, or to effect changes in the behaviour of others, with the overall aim of improving the environmental performance of industry. Thus, environmental management tools can be used by companies to monitor, better manage or improve their environmental performance, and by governments to influence the environmental performance of groups of companies, whether they are sectoral, regional, national or international. 31. Environmental management tools discussed here cannot be rigidly classified into different groups; there are overlaps between many of them, and most are still evolving. As the use of environment management tools is still in its infancy, it will continue to evolve. Moreover, much work still needs to be done in the development of both concepts and terminology. For example, eco-audits, environmental audits, waste and emission audits, and Cleaner Production assessment are conceptually similar, but these terms are used in different parts of the world in different ways for different purposes. B. History of environmental management tools 32. In parallel with the adoption by governments of emission standards for industrial facilities, environmental impact assessment (EIA) was one of the first specific environmental management tools to be developed and used. EIA enables decision-makers to predict the impacts of a new industrial plant or an infrastructure project on the local environment, and therefore, to take measures necessary to prevent such impacts. However, the limitations of EIA soon became clear. Industry managers discovered that a wider range of tools were needed to support internal decision-making, and to communicate better with the government and public at large. 33. For these reasons, the "environmental management systems" toolbox grew increasingly, and now includes specific tools that enables companies to: -- evaluate and improve their processes and applications such as environmental audits, Cleaner Production assessments, safety and energy audits; -- design environmentally-sound products, using tools such as life cycle analysis and risk assessment; -- communicate with their stakeholders, employees, shareholders, customers, and suppliers through mission statements, environmental reporting and environmental purchasing and procurement; and -- monitor their progress and compare it with that of other companies, through benchmarking, cost accounting and performance indicators. C. Why use environmental management tools? 34. It is clear that industry's adoption of more systematic approaches to environmental management can have both environmental and economic benefits. Cleaner Production assessments, for example, highlight opportunities for efficient use of raw materials and pollution prevention, leading to cost savings. Thousands of firms are already benefiting from this approach and many examples have been documented, as reported in particular in the UNEP International Cleaner Production Information Clearinghouse (ICPIC). More broadly, better environmental management is being seen as a key source of competitive advantage for industrial companies. A whole range of benefits can accrue from improved environmental performance, ranging from reduced effluent charges to better community relations. As environmental protection plays a more central role in companies' operations, it is also being recognized that better environmental management and better management are the same thing: a company that manages its impacts on the environment well is a well-managed company. 35. There are also a number of more general advantages. Environmental management tools are supporting a needed change in government-industry relationships to one of mutual support and partnership. Environmental management tools are also providing the framework needed for continuous improvement, proactive action by industry and creative partnerships to yield real and sustainable improvements in environmental performance. D. Examples of Environmental Management Tools and their Contribution to Sustainability 36. Even though the following might seem somehow arbitrary, environmental management tools can roughly be divided into three groups: 1) tools for analysis and evaluation; 2) tools for action; and 3) tools for communication 37. Following is a brief description of a few tools from each of the three groups, to illustrate how environmental management tools can contribute to Sustainability in industry. Tools for analysis and evaluation 38. Many ecotools fall in this cluster: Environmental Impact Assessment, Cleaner Production assessment, risk assessment, environmental auditing, environmental accounting. Life Cycle Assessment (LCA), whose use has been growing over recent years, is another example of this cluster. 39. Life Cycle Assessment is the process of evaluating the effects that a product has over the entire period of its life cycle or "cradle- to-grave". This integrative approach avoids substituting one set of environmental problems for a different set of problems. The number of applications for LCA is also growing: it is now being used in the improvement of both products and processes, in setting criteria for ecolabelling, and in decision making about purchasing. LCA is thus becoming increasingly important in the development of cleaner products. One example is LCA's use in the automobile industry. In the car industry, the environmental impacts of items such as engines, car bumpers and paints has long been a matter of concern. In a project to demonstrate environmental-friendly design, one manufacturer chose a dashboard as a product to improve. A basic LCA was performed on several improvement options. Although there were some expected outcomes (reductions in material use, number of materials used etc.) the most remarkable outcome was that the improvement of the ventilation system could result in less use of the fan and lead to a reduction in fuel use. 40. This and other examples as well as an increasing interest by industry in LCA prompted UNEP to produce a report. "Life Cycle Assessment - what is it and how to do it". The publication explains the concept of LCA and examines the steps involved in making one. 41. The increased use of LCA has shown the need to develop consensus on quantification of the sub-elements to take into account when preparing the LCA of a product. In other terms, there is a need to quantify the "environmental content" of 1 tonne of steel, aluminium or plastics, given the current state of production process. Clearly, analysis leads to action, and the analysis of ecotools has led to the development of another set of tools. 42. One of the important first steps in enabling companies and society to make informed decisions is the ability to adequately compare costs and benefits. To do so, one must be able to identify the value of resources such as clean fresh water, air or biodiversity and this process is commonly called environmental accounting. Putting quantitative figures on such factors is a very complex endeavour and much research is already being undertaken on this mater. This is not a process that can be accomplished overnight. Pressure for the ■immediate■ implementation of such accounting systems could lead to the use of misleading figures. This could be worse than no figures at all. But the opposite attitude, can be similarly damaging. The importance of an accounting systems as one of the first building blocks necessary to other efforts such as cost internalization, life cycle analysis and eco-efficiency should make this a high priority for all groups concerned. Tools for action 43. The most important overarching tool for action is probably the development of an EMS, which was already analysed above. Training and education are key factors for it is people that make systems and technology work. The degree and extent of an existing skilled labour force is a determining factor in a countries■s ability to absorb and develop new technologies. The same is true for management systems -- the more sophisticated and performing a system -- the greater is the need to train personnel at all levels so that they can understand their roles and responsibilities. In the same way, achieving sustainable development depends on positive actions by a vast array of professionals in their daily activities. For this to be possible, universities and technical schools must review their curricula to integrate the necessary courses and subject matters which their students would need to perform their professional activities in a sustainable manner. 44. Ecodesign considers environmental aspects at all stages of the product development process, striving for products which make the lowest possible environmental impact throughout the life cycle. Ecodesign is an "action" tool, building on the results of the analysis from LCA. The UNEP manual "Ecodesign: A promising approach to sustainable production and consumption", prepared by Delft University with the support of the Netherlands government, allows companies to develop their own ecodesign programme through a step-by-step approach. Tools for Communication 45. Further to ecodesign, "Ecolabelling" is a tool by which companies can provide information on the environmental impact of their products. It should be used as the result of LCA to orient the consumer demand towards environmentally friendly products. To enhance such a demand, a number of governments have now developed such ecolabelling schemes, as reported in the recent UNEP Industry and Environment review ("Product Development and the Environment", vol. 20, n■ 1-2). 46. Corporate environmental reporting (CER) is the interplay between three core themes of corporate environmental management: responsibility, accountability and sustainability. It is closely tied to basic environmental issues such as regulatory compliance and pollution control as well as to emerging concerns such as liability and product stewardship. External reporting is also closely associated with other environmental management tools such as LCA and full-cost accounting. As a result, it appears highly likely that such reporting will play a key role in driving the transition of companies and industries towards the goal of sustainable production and consumption. 47. There is no hard and fast definition for the practice or scope of CER. It can be a simple document written for informal, internal education or a detailed document for specific target audiences. How a CER is structured and what it contains is dependent on the company preparing it. Companies prepare reports to inform stockholders of improvements in their environmental records. Others use it to promote greater corporate responsibility so as to off-set any new regulations or tougher enforcement. 48. To help stimulate individual companies (and industry associations to help their members) begin reporting, UNEP and SustainAbility Ltd. co-produced "Company Environmental Reporting - A Measure of the Progress of Business and Industry towards Sustainable Development". This publication demonstrates how companies can use environmental reporting as one tool for building dialogue and cooperation between various partners. Although there is no "blueprint" for CER, the objective of the publication is to help companies decide whether, to whom and how they should report on their current environmental performance and on what their future targets should be. 49. Of course, corporate environmental reporting goes hand in hand with "environmental indicators", another tool to quantify various aspects of environmental performance. A number of organizations are working together to harmonize and simplify indicators, and reduce their number. Such indicators, which first focussed on production processes, are now looking at products and services. In particular, MIPS (the Material Intensity per unit of service), is clearly a crucial indicator to measure dematerialization and monitor achievements towards the Factor 10 goal of improvement in resource productivity. IV. CONCLUSION 50. The growth and use of environmental management tools, despite their imperfections, are hopeful signs for the future, and UNEP strongly believes they should be used more widely. We encourage their worldwide dissemination, catalyze their improvement, and support their harmonization through publications similar to those mentioned above. Ecotools enable companies and governments to take practical steps to improve industry's environmental performance. Just as importantly, they improve the management of environmental performance, making gains more sustainable. Last, but not least, environmental management tools are helping industry and governments replace confrontation with mutual understanding and partnership. That both are vital components of sustainable development is stressed in Agenda 21, agreed at the 1992 Rio Earth Summit and has been reinforced at the Rio + 5 Special Session of the UN General Assembly. Notes 1/ See the report prepared by the UNCTAD secretariat (TD/B/COM.1/EM.4/2) and the report of the Expert Meeting (TD/B/COM.1/10, TD/B/COM.1/EM.4/3)
This document has been posted online by the United Nations Department of Economic and Social Affairs (DESA). Reproduction and dissemination of the document - in electronic and/or printed format - is encouraged, provided acknowledgement is made of the role of the United Nations in making it available.
Date last posted: 8 December 1999 15:15:30