Corporate Social Responsibility and Human Rights: Why They Matter for Business

Keynote Address at the Workshop on Corporate Social Responsibility and Human Rights in ASEAN

13-14 June 2014, Singapore

Ambassador-at-Large, Professor Chan Heng Chee, Chair of the ASEAN Intergovernmental Commission on Human Rights, Ambassador U Kyaw Tint Swe

Team Leader, Thomas Thomas

Colleagues and friends,

I am honoured to address you today. Let me start by congratulating you for putting this important and timely topic on the ASEAN agenda, for producing some very solid analysis and reports, and for convening this multistakeholder workshop to accelerate the promotion of CSR and human rights in the region.

This urgent issue is everybody’s business: government, civil society, our communities and especially our business sector. With leaders like you in this room I also know that this topic will not just remain an ASEAN workshop agenda but will find legs to walk the talk, to support policy development and practice, and to incorporate CSR and human rights principles into the corporate agenda of business, contributing to the sustainable, economic and social development of the ASEAN Community 2015.

However, this journey, in reality, will not be easy and we need to understand and address both the challenges and the opportunities of countries at different stages of development with different types of businesses and sectors, integrated differently into the changing global market place.

I. Setting the Stage

Let me start by setting the stage. Asian’s phenomenal growth over the past few decades has been driven by Factory Asia. As the world’s largest workshop, Asia surged ahead by providing cheap and abundant labour, formal and informal, to produce very rapidly and at very low cost much of the manufactured consumer goods that the world needed. With the unprecedented economic reform unleashed in China in late 1980’s, production networks and supply chains were born. ASEAN benefitted considerably from the regional production networks, producing intermediate products cheaply for the world market. This model of growth created jobs and prosperity. But it was prosperity that was not shared. Inequality grew rapidly in Asia. Jobs were created but the right to work sacrificed rights at work, as factories competed in the race to the bottom on labour standards and human rights. In this race, many factories ignored safety, health and labour standards, ignored how they disposed of their toxic waste, ignored human trafficking, ignored what they did to the environment and how they grabbed and acquired land from the communities. Our civil societies shouted and many leaders were arrested. Our governments had the dilemma of generating wealth and jobs at all cost, and to also invest in Human Development and build social cohesion in our nation states. Many governments in Middle Income Countries, like Singapore, quickly invested in human capital, in education and innovation to move up the value chain, getting rid of “bad jobs” and diversifying the economy for “decent jobs” and becoming a High Income Country. Low Income Countries like Cambodia showed that it was possible to access new market and increase US and EU market share by improving working conditions for their garment workers. Others struggle with the development pathway, trapped in the notion that “any job is better than no job”.

The major wake up calls came with the 2008 global financial crisis and several human and environmental tragedies too big to ignore. The 2008 global financial crisis which affected the real economy world-wide and increased household indebtedness and unemployment, broke public trust, confidence and legitimacy. Pressures worldwide were created for greater transparency, stronger corporate governance and accountability in the financial and banking sectors including from citizens’ movement like “Occupy Wall Street”.

In major western capitals, attention began to focus on growing inequality, the concentration of wealth and power, corruption, the corporate capture of the state, the need to move towards a new economic paradigm and responsible capitalism, as well as accountable business conduct and ethical governance. In Asia, the latest wake up call for workers’ rights came with the Rana Plaza incident where 1,138 garment workers, mainly women, were buried alive and over 2,000 injured, many missing arms and legs, when five factories collapsed. Workers without rights were ordered back to work to meet deadlines for 27 global brands despite official knowledge that the eight storey Rana Plaza building was unsafe. Workers under threat had to turn around vast quantity of clothes very rapidly and cheaply. This tragedy shocked the world and came in the wake of a series of other disasters in the region from factory fires, mining collapse, floods, to workers walk-outs and kidnapping of CEOs, to the haze created by the unsustainable cultivation and deforestation practices of palm oil companies. Clearly, business as usual is no longer an option. We can no longer grow first and clean up later; nor grow first and care later. The world is changing and so is Asia.

Asia is at a cross road. It became “Factory Asia” when people like the Nobel Prize economist Gunnar Myrdal predicted the Asian Drama of poverty but advised that our destiny rest within our own hands. Today Asia has become a power house, the center of gravity of the global economic recovery. Many parts of Asia including ASEAN have gone beyond “Factory Asia” with an expanding middle class, with higher educated, richer and technologically advanced population. It is time for us to differentiate good business from bad business, to rethink, to change our development script, to take another leap and to invest in ourselves – in our people, in our cities, rural communities, the safety of our food, the quality of our air, our land, our water and energy systems. We can start to do this at whatever stage of development journey. While a section of business is at the core of the problem, business has to be an important part of the solution as we seek to create future sustainable and shared prosperity for all.

II. The Future of Business in ASEAN: Why Corporate Social Responsibility and Human Rights Matter

In today’s globalised and changing world, the long-term value and success of business is inextricably linked to the integration of economic, social, environmental and governance issues into corporate management and operations.

Three main areas today have become critical factors in measuring the sustainability and ethical impact of an investment in a company or business. ESG or Environment, Social, and Governance are used today as criteria for social responsible investing. There is a major mindset change. In the wake of the current economic crisis, world leaders have expressed their belief that responsible business practice and governance will be critical to restoring public trust and recovery in the global economic system, and to achieve sustainable development and future prosperity. Asian businesses are beginning to realise that their long-term profits and sustainability in an increasingly competitive and integrated international economic system depend upon how well they invest in the societies of which they are a part and the environment which sustains them.

Corporate Social Responsibility (CSR) matters for business because their key stakeholders expect them to practice it.

Consumers are showing increased interest in supporting responsible business practices, as witnessed by the rise of ethical consumerism. They are demanding more information on how companies address risks and responsibilities related to social and environmental issues. Increasingly corporations wanting to access global markets or participate in international supply chains will limit their growth potential if they lack the competency to handle these demands.

Civil society organizations are leveraging the power of the media to increase their scrutiny and collective activism around corporate behaviour. Advances in ICT assist external stakeholders in more effectively tracking and discussing corporate activities. These same technologies allow them to quickly assess and profile business practices they view as either problematic or exemplary. Multinational businesses are now being asked to examine their own internal practices as well as those of their entire supply chain.

Investors are increasingly looking beyond the short-term financial performance of a company. They are not only interested in their financial returns, but also in the practices that ensure business continuity. A number of serious and high-profile breaches of corporate ethics have negatively impacted employees, shareholders, and communities– as well as share prices. This has increased the demand for good corporate practices by investors and shareholders through socially responsible investment practices. A CSR approach can help improve transparency, accountability and contribute directly to risk management strategies for business.

So how can CSR and Human Rights drive future business and growth in ASEAN?

Corporate Social Responsibility and Human Rights matter for business because it is good business. It creates both value and values.

As value creation, CSR can play a major role in building good brand perception as well as a company’s reputation. Businesses who actively pursue CSR strategies can gain a competitive advantage in the global market. Several famous brands have now built their business on ethical values and differentiate their corporate identity by making a socially-responsible practice their commitment.

There is growing evidence that CSR can create shared values and improve both the recruitment and retention of good employees – particularly within the competitive market of technical specialists. It can promote value driven partnerships with governments, CSOs, and communities if genuinely integrated into core business strategies.

CSR offers cost reductions related to the environmental management of operations. Most companies that reduce pollution and hazardous waste, reuse or recycle materials, operate with greater energy and water efficiency. This can result in significant cost savings in addition to avoided ecological costs. More importantly, while maintaining CSR as corporate philanthropy, there is urgent need to move CSR to corporate governance to mitigate operational risk.

CSR can also help drive innovation and, therefore, competitiveness. A well known example is Toyota’s response to concerns over automobile emissions which resulted in the development of a hybrid electric vehicle.

CSR matters in each of our ASEAN countries. A recent study assessing 108 countries established a strong relationship between responsible business conduct and a country’s competitiveness. Countries that advance responsible business practices tend to be easier places to do business, with less corruption, cleaner governance and risks management.

The new concept of “Responsible Competitiveness” has been described by people like Pascal Lamy as “an essential ingredient for effective global markets, creating a new generation of profitable products and business processes underpinned by rules that support society’s broader social, environmental and economic aims”. In other words, businesses and governments that encourage CSR will not only increase their international competitiveness, but will also promote a more inclusive economic growth and development—an important way of closing development gaps within and between ASEAN member states as they prepare to be a community.

There is a need for different measures of costs and returns, for instance, which include the impacts of factors such as pollution, staff well-being and community goodwill. There is also a need to capture alternative kinds of shareholder value, by considering the wider community of stakeholders in businesses. Modern management should seek not only to increase market share, but to increasingly widen the market itself. To stimulate strong regional markets and increase aggregate demands, we have to focus on expanding opportunities for decent productive work, and providing fair and equitable ways for all people to earn a living. Our business sector, as the principal source of jobs, plays the central role in this endeavor. I know that many businesses are already looking at issues of supply chain reform – for example – to help protect operations and save jobs by preventing future disasters. In short, the future of ASEAN business rest in realizing that sustainable, inclusive development is the smart business of business.

III. Standards for Responsible Business and Human Rights

Today, the adoption and implementation of international responsible business practices, which not only generates financial returns but also contributes to inclusive and sustainable development, while minimizing negative impacts on environment and society, has gained increased attention from both governments and enterprises, besides CSOs.

A series of international conventions and agreements form the basis for international norms on human rights, labour and environment. Most of the global CSR instruments either take these as their starting point, or align their content with these. They include the Universal Declaration of Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, the UN Convention Against Corruption, and environmental conventions such as the Montreal Protocol.

Several existing voluntary international CSR instruments, including the UN Global Compact, OECD guidelines for Multinational Enterprises (MNEs), Global Reporting Initiative (GRI), ISO 26000, the IFC’s sustainability framework/performance standards, and the UN Guiding Principles for Business and Human Rights provide a useful framework for businesses and some are listed below:

UN Global Compact, launched in July 2000, is the framework for development, implementation, and disclosure of sustainability policies and practices. It consists of 10 principles in the 4 areas of human rights, labour, environment and anti-corruption. Companies and other organizations sign up to implement the 10 principles in their core operations, and annually report on progress in implementation.

ISO 26000, launched in 2010, provides guidance rather than requirements on responsible business. Unlike some other well-known ISO standards, it cannot be certified. The ISO 26000 standard was heavily influenced by the OECD Guidelines and many elements are central to both. The ISO’s global network of national standard organizations are strengths that may see ISO 26000 uptake exceed the use of the OECD Guidelines (and UNGCs).

UN Guiding Principles for Business and Human Rights were endorsed by the UN Human Rights Council in June 2011. They comprise 3 pillars: (i) State Duty to protect human rights, (ii) Corporate Responsibility to respect human rights, and (iii) Access to Remedy for human rights victims. UNGPs encourage companies to formally assess actual and potential human rights impacts, create a statement of commitment to respecting rights, and integrate human rights across relevant functions and processes. These principles have been integrated into the updates of OECD guidelines in 2011 and IFC Performance Standards in 2012.

US Government’s Requirements on Responsible Investment in Burma went into effect on 23 May 2013. American businesses investing more than $500,000 in Myanmar are required to disclose information on observance of human rights, environmental impacts, anti-corruption, security arrangements, acquisition and use of real estate, and payments to government bodies.

IV. Moving from Standards to Implementation: Challenges and Practices

Two decades ago, when the United Nations hosted the Earth Summit in Rio, few companies were exploring the notion of sustainable business and the long-term impacts of their operations on the environment and society. Today, there are thousands of companies advancing corporate sustainability through a number of global initiatives. Most of these initiatives are led by the world’s leading transnational corporations (TNCs) which operate extensive global supply chains, including in the Asia-Pacific and the ASEAN region.

A few examples, as revealed by the United Nations Global Compact (UNGC), may illustrate this trend:

Unilever is launching a drive to halve the greenhouse gas impact of their products.

Nike, Inc.’s target is zero discharge of hazardous chemicals along its entire supply chain, both by 2020.

H&M will upgrade to 100 per cent sustainable cotton – either organic, recycled, or certified – in its cotton garments.

Groups of companies are engaging in shared efforts. Forty-five companies, including Levi Strauss & Co., PepsiCo Inc. and the Coca-Cola Company are extending their commitments to water management, and 23 companies pledged to transparency and disclosure on their impact on climate change. And numerous companies are taking action on the United Nations Secretary-General’s campaign for Sustainable Energy for All.

Despite these good examples, corporate sustainability has not penetrated the majority of companies around the world, in particular the small and medium-sized enterprises (SMEs) which make up the vast majority of all companies. We have not seen the depth of action needed to address the most pressing challenges, the human rights challenges of corporate governance especially in supply chains, and when formal sector work with the global economic downturn becomes increasingly casual, informal, unregulated and contract-based. Even when our governments, businesses and CSOs have signed off on the UN principles on businesses and human rights, implementation remains complex in many situations, especially with the growing precariousness of work including in the “economic success” stories.

Let me take one example. In the aftermath of the Rana Plaza incident, many big brands and sourcing companies are trying to clean up their supply chains and to provide better and safer working conditions. Using Rana Plaza and Bangladesh as a case study, there are many complex challenges to be addressed internationally, nationally and locally, and lessons to be learned for ASEAN.

Wages remained the lowest in the world but land prices rose so fast in central Dhaka where most of the garment businesses were based that new investors sought spaces in the margins of the city where wetland was cheap. Investors were not concerned by building codes or quality of materials. As the recession hit western economies in 2008 – 2009, global brands force prices even further as they negotiated with supplier. Those in Bangladesh who demanded government intervention in the countries economic success story, held up also as a social transformation empowering rural women through wage work, made little head way. Dozens of factory owners sat in parliament, and powerful industry bodies had the ear of policy makers. The boom continued. Bangladesh the world’s 76th biggest exporter of clothes in 1980, was the 8th biggest in 2006, and by 2013 was second only to China.

The collapse of Rana Plaza was a major turning point. After a series of meetings in Geneva and Paris, three separate initiatives were formed: The Accord which involves more than 150 largely European brands; the Alliance set up by US brands, and a joint effort by the UN and Bangladeshi Government. Between them, these three are meant to bring all the garment factories in Bangladesh into a system of auditing and inspection that will enforce human rights standards.

The brands will help pay for improvements needed by their suppliers to meet the new standards, with provisions for strengthening the country’s underdeveloped and highly politicized unions. They see this turning point as “an unprecedented chance to put all this right”. Some even hope that the initiatives will provide a model not just a Bangladesh but also in Cambodia, Indonesia and emerging new market like Myanmar.

V. Conclusion: Common Framework for Corporate Governance in ASEAN

In conclusion, I would like to share six suggestions for a common frameworkfor CSR and Human Rights in ASEAN as you develop the next step:

First, business needs to shift Corporate Social Responsibility (CSR) attention from how to spend money (i.e. charitable giving) to how their money is made (i.e. in a sustainable and socially responsible manner), hardwired into management and operations.

Second, business needs to use innovation to open up new growth markets and develop new drivers of growth – addressing the needs of poor consumers; developing consumer demand for value-based sustainable products and services; and helping marginalized communities use technology to leap-frog inefficient and less sustainable products and services.

Third, business should ensure the highest labour standards, industrial safety; and environmental protection. We cannot allow a ‘race-to-the-bottom’ on labour standards and the resulting loss of lives, for toxic waste to be shifted from developed to developing countries, and for food, air and water pollution to destroy our health.

Fourth, wise stewardship of our ecosystems and concern for the common good must become core values of business, this entails, inter alia, staying cost-competitive by efficient use of land, water, energy, and natural resources including our forest.

Fifth, move from short-term speculation to long-term value creation. There must be zero tolerance for both public and corporate corruption and criminality.

Sixth, besides independent monitoring, reward compliance and penalize offenders so that we are not just good at ticking boxes, writing reports, regulations and policy frameworks but genuinely contribute to the growth and practice of responsible business.

Responsible business can become a leading agent of change and future prosperity – partners in development to reduce poverty, ensure environmental sustainability and provide decent living and working conditions for all our people.

Our shared challenge is to not only accelerate the rate of growth, but also to change the quality of growth, making it more inclusive, more sustainable, and ultimately more supportive of people and our planet.

I believe that difficult as it may be, ASEAN can be a leader in CSR and Human Rights. Let us together create an ASEAN community that we can truly be proud of – for ourselves and for our children.