Corporate Environmental and Social Responsibility in the East Asia and Pacific Region Review of Emerging Practice May 2006 Environment and Social Development East Asia and Pacific Region Discussion Paper This study was prepared jointly by the Environment and Social Development Unit (EASES) of the East Asia and Pacific Region and the Environment Department (ENV) of the World Bank. Environment and social development issues are an integral part of the development challenge in the East Asia and Pacific (EAP) Region. The World Bank's recently completed Environment and Social Development Strategies for the World Bank in the region have provided the conceptual framework for setting priorities, strengthening the policy and institutional frameworks for sustainable development, and addressing key environmental and social development challenges through projects, programs, policy dialogue, non-lending services, and partnerships. The EASES Discussion Paper series provides a forum for discussion on good practices and policy issues within the development community and with client countries. This publication is available online at www.worldbank.org/eapenvironment. Cover design by James Cantrell, ENV, The World Bank. Environment and Social Development Department East Asia and Pacific Region The World Bank Washington, D.C. May 2006 This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202- 522-2422, e-mail pubrights@worldbank.org. ii Table of Contents FOREWORD iv ACRONYMS v ACKNOWLEDGEMENT vi EXECUTIVE SUMMARY vii INTRODUCTION: HISTORICALAND DEVELOPMENT CONTEXT 1 CHAPTER 1. THECESR CONCEPT AND KEY TOOLS 4 CESR Concept 4 Key Tools for Companies 6 Key Tools for Stakeholders to Promote CESR 7 CHAPTER 2. CESR TRENDS IN THE EAPREGION 11 ISO 14001 Certification 11 United Nations Global Compact 11 Environmental Reporting 12 Sustainable Forest Management Certification 13 Sustainability Indexes 15 Socially Responsible Investments 17 CHAPTER 3. CASES FROM THEEAPREGION 18 Public Disclosure Programs 18 Environmental Reporting 18 Codes of Conduct 21 Environmental Management Certification and Standards 21 Eco-Labeling 21 Public Recognition Programs 23 Partnerships 24 Supply Chain 25 CHAPTER 4. LESSONS LEARNED: DRIVERS ANDBARRIERS 26 Key Drivers 26 Main Barriers 30 CHAPTER 5. TOWARD A CESR STRATEGY FOR THEWORLD BANK IN THEEAPREGION 34 IFC's role: promoting CESR through direct engagement with client companies 34 Bank's role: promoting CESR through strengthening the capacity of governments 36 REFERENCES 40 ANNEX A: CESR Supporting Organizations Activities in the East Asia and Pacific region 46 ANNEX B: Environmental Content of Codes of Conduct and Policy 61 ANNEX C: Public Disclosure Programs as Regulatory Tools 63 iii FOREWORD The economies of the East Asia and the Pacific environmental problems. Civil society and (EAP) region have grown rapidly over the last business leaders have important complementary few decades. However, this rapid growth was roles. accompanied by considerable environmental damage, such as water and air pollution, Corporate Environmental and Social deforestation, biodiversity loss, and climate Responsibility (CESR) has emerged as a business change impacts. Environmental deterioration initiative. While CESR continues to evolve in often disproportionately affects poor people and many countries, some businesses are beginning constrains future economic growth. This is to view CESR as a way to enhance particularly true for the EAP countries, since competitiveness and increase their exports to most of the countries in this region are critically markets with strong environmental regulations dependent on natural resources. The World and environmentally conscious consumers. In addition, awareness of environmental Bank's regional environment strategy recognizes degradation and the need for improving that such environmental deterioration and sustainable production and consumption pollution affects people's quality of life. practices is growing domestically even in less developed countries, and there is an In response to growing environmental increasingly vocal civil society and other challenges, governments have introduced stakeholders who call for improved corporate environmental policies, regulations and practices. programs. It has become obvious, however, that governments alone cannot solve serious Magda Lovei Sector Manager Environment and Social Development Unit East Asia and the Pacific iv ACRONYMS ACCA Association of Chartered Certified IBL Indonesia Business Links Accountants ICCA International Council of Chemical AFR Africa Associations APEC Asia-Pacific Economic Forum ICTI International Council of Toy ATC Agreement on Textiles and Clothing Industries Bank World Bank IFC International Finance Corporation BITC Business in the Community ILO International Labor Organization CCF Corporate Citizenship Facility (IFC) ISO International Standards Organization CEC China Environmental United JSE Jakarta Stock Exchange (Indonesia) Certification Center KLSE Kuala Lumpur Stock Exchange CER Corporate Environmental Reporting (Malaysia) CESR Corporate Environmental and Social LAC Latin America and Caribbean Responsibility Meralco Manila Electric Co COC Chain of Custody MESRA Malaysia Environmental Reporting CSR Corporate Social Responsibility Award DJSI Dow Jones Sustainability Indexes MNCs Multinational corporations DJSWI Dow Jones Sustainability World Index MSC Marine Stewardship Council DENR Philippines Department of Energy NGOs Non-governmental organizations and Natural Resources OECD Organization for Economic Co- EAP East Asia and the Pacific operation and Development EBFP Environmental Business Finance PBSP Philippine Business for Social Program (IFC) Progress EC European Commission PPPs Public-private partnerships ECA Europe and Central Asia PROPER Program for Pollution Control EIA Environmental Impact Assessment Evaluation and Rating (Indonesia) EMAS Eco-Management and Audit Scheme RoHS Restriction of the Use of Certain EMS Environmental Management System Hazardous Substances in Electrical EOF Environmental Opportunities Facility and Electronic Equipment (IFC) SFMF Sustainable Financial Markets Facility EPBs Municipal environmental protection (IFC) bureaus (China) SMEs Small and Medium-sized Enterprises EPR Extended Producer Responsibility SRI Socially Responsible Investments EU European Union TBL Triple Bottom Line FSC Forest Stewardship Council TPI Thai Petrochemical Industry FM Forest Management TRI US Toxic Release Inventory GC United Nations Global Compact USAID US Agency for International GEN Global Ecolabeling Network Development GRI Global Reporting Initiative UNDP United Nations Development GTZ Deutsche Gesellschaft für Technische Programme Zusammenarbeit (international WEEE Waste Electrical and Electronic development agency in Germany) Equipment HSBC Hong Kong and Shanghai Banking WTO World Trade Organization Corporation v ACKNOWLEDGMENTS This paper was prepared by Michiko Shima Phuong Thi Thanh Tran, and Maya Villaluz for (Consultant, Environment Department) under useful inputs and comments. Comments were the guidance of Magda Lovei (Sector Manager, also received from Dan Biller (EASES), Mark Environment and Social Development Unit, East Wilson (EASRD), Ismael Fernando Loayza Asia and Pacific Region) and Kulsum Ahmed Careaga (ENV), as well as Richard Caines and (Lead Environmental Specialist, Environment Anne Copeland Chiu (IFC). The author is Department). It is based on a review of grateful for additional guidance by Charles di literature and selected interviews in EAP Leva (LEGEN). Editorial assistance was countries. The author is thankful to Giovanna provided by Bob Livernash, Andrew Murray Dore, Joe Leitmann, Nat Pinnoi, Jitu Shah, and Marija Kuzmanovic. vi EXECUTIVE SUMMARY The East Asia and the Pacific (EAP) region Companies in the EAP region have also been experienced not only rapid economic growth, adopting other private certifications, such as the but also considerable environmental damage forestry management certificates of the Forest over the last few decades. For economic growth Stewardship Council. Although some EAP to continue without further degradation to the companies are listed in a sustainability index environment, governments and business leaders like the Dow Jones Sustainability World Index have begun to address private sector's role in (DJSWI), companies and investors in the EAP sustainable development. One of the private region are not yet very keen on sustainability sector responses is Corporate Social and indexes and socially responsible investments Environmental Responsibility (CESR), voluntary (SRI). A limited number of SRI funds are business contributions through companies' core available in the region ­ only in Hong Kong, business activities that address environmental Singapore, Malaysia, and Taiwan. and social concerns of society at large. There are two sets of CESR tools described in CESR became an established concept by the this paper: (1) CESR tools for companies such as 1970s mainly driven by the ethics and labor environmental reporting, codes of conduct, concerns in developed countries, and later by environmental management certification and the same concerns about operations of standards, and eco-labeling and (2) CESR multinational corporations (MNCs) in promotion tools for stakeholders1 such as developing countries. With environmental command-and-control and market-based disasters like the Bhopal accident in the 1980s, regulations, mandatory public disclosure environmental issues also became an important programs, public recognition programs, and aspect of CESR. Following these incidents, the CESR indexes. CESR tools for companies are private sector began to undertake environmental applied on a voluntary basis while some CSR management initiatives such as voluntary codes promotion tools used by governments such as of conduct and environmental management public disclosure programs are mandatory. systems. Cases from the EAP Region Focusing on the environmental management Some companies and stakeholders in the EAP aspect of CESR, the review of corporate region have been using CESR tools to undertake environmental management practices in EAP or promote CESR activities. Examples of using countries indicates that CESR activities are voluntary CESR tools exist in the EAP region. A increasing in the region. For example, the voluntary CESR tools, Corporate Environmental number of International Standards Reporting (CER), has been undertaken by some Organizations (ISO) 14001 certification increased companies in the EAP. However, the tremendously. participation in the GRI to apply the international reporting guidelines is low (only Over 6,700 organizations obtained ISO 14001 11 companies). Larger companies and certificates in the EAP region. About 190 multinational corporations (MNCs) tend to companies in the region participate in the Global publish information about their environmental Compact (GC) that promotes commitments to performance more than others. Codes of the environment and labor-related principles conducts in the EAP region are also influenced among businesses. Some large companies in the by MNCs. Subsidiaries of MNCs apply the region participate in the Global Reporting headquarters' codes of conduct. Companies in Initiative (GRI) that promotes the adoption of the GRI environmental reporting guidelines. 1Stakeholders include government, civil society, and investors. vii the supply chain are adopting the codes of conduct of international industrial associations As for CESR promotion tools for stakeholders, such as International Council of Toy Industries governments have piloted mandatory public (ICTI) and International Council of Chemical disclosure programs in countries of the EAP Associations. region. For example, disclosure of corporate environmental performance has been piloted in Environmental management certification and China, Indonesia, the Philippines, Thailand, and standards have been spreading beyond MNCs. Vietnam. These programs have increased The majority of the ISO 14001 certification in the awareness among the public and helped EAP region belongs to Chinese companies. The improve companies' compliance with number of certificates in China has doubled environmental regulations. The pilot programs every year for the last five years. Companies in in Indonesia and Vietnam are continuing or plan other EAP countries are also steadily increasing to be continued while China plans to expand its the number of ISO 14001 certificates. However, pilot programs to more areas. there is little information available on the actual environmental performance improvement from To promote CESR efforts, public recognition adopting environmental management system programs such as CESR awards can be helpful. like ISO 14001 (See Figure 1). Companies in the EAP region have viewed the receipt of a CESR award as an achievement in Figure 1. ISO 14001 Certificates ­ Regional their environmental reporting. Awards can be Comparison (as of December 2004) supported by national governments as in the cases of Cambodia, Indonesia, Malaysia, and ISO14001 Certificates - Regional Comparison (as of December 2004) Thailand. There are also other CESR awards in 12000 the Philippines and Malaysia. 10000 14001 8000 In addition, other efforts to promote CESR are OSIfo se 6000 found in the EAP region. Different stakeholders have worked together to address corporate er catifitr 4000 ce environmental contributions in partnerships. mbun 2000 For example, a non-profit organization, the 0 Philippine Business for Social Progress (PBSP), 2000 2001 2002 2003 2004 carries out programs that contribute to the CESR EAP AFR ECA promotion by bringing together a wide range of LAC MNA SAR stakeholders from the EAP region and the world Source: The ISO Survey - 2004. Available: to address issues that reach beyond one http://www.iso.org/iso/en/prods-services/ company's influence and control (e.g., supplier otherpubs/pdf/survey2004.pdf. responsibility and standards harmonization). Efforts to support small and medium-sized Eco-labeling programs exist in China and enterprises (SMEs) on CESR activities are also Taiwan, Malaysia, the Philippines, and emerging in the region. Thailand. The Philippines, Taiwan, and Thailand are also members of the Global Drivers and Barriers Ecolabeling Network (GEN) that promotes From the review of cases in the EAP, key drivers cooperation, information exchange and for CESR are identified. These are (1) the harmonization of eco labels. Since most eco business/environment context; (2) global trade; labels are national programs, some countries ­ (3) requirements through the supply chain to e.g., Australia and China ­ have signed mutual SMEs, and the informal sector; (4) pressure and recognition agreements to facilitate the use of support stemming from government actions eco labels. such as regulations and financial incentives; and viii (5) demand from civil society such as can support governments to improve the design campaigns. Business concerns for reputation and enforcement of regulations to set the and relationship with external stakeholders minimum standards for all companies. They including the public and importers motivate could also provide an impetus to drive for companies to improve their environmental innovation and improvements that makes performance. Given the large number of smaller companies more environmentally friendly and companies in the region, tapping into SMEs and competitive. informal sector is important. Once they can integrate CESR, it could drive the spread of In addition, the Bank can support countries to CESR throughout the region. improve their transparency and dissemination of environmental information to build There are also barriers in the EAP region for awareness on corporate environmental CESR promotion: (1) lack of demand and performance and CESR. Awareness of awareness of CESR, including what it is and companies, particularly SMEs, needs to be how it benefits companies and society; (2) increased so that more companies undertake limited effectiveness of some CESR tools that CESR activities. Awareness of civil society also CESR may not result in environmental needs to be increased for greater demand for improvements; and (3) financial and technical information and corporate CESR actions. The constraints to implement CESR activities. Bank can encourage countries to bring together different stakeholders including private sector, Toward a CESR Strategy for the World Bank in public sector, and NGOS into decision-making. the EAP Region By involving stakeholders in decision making, There are opportunities to increase CESR smaller companies and civil society will also activities or create a favorable business increase their knowledge and awareness on environment for CESR in the EAP region. IFC corporate environmental performance and its has been playing an integral role in promoting implications to stakeholders. CESR activities. IFC is managing four social and environmental facilities to promote CESR and This paper serves as a first step toward a CESR sustainable businesses in the private sector and Strategy in the EAP Region. CESR awareness is four regional technical assistance facilities that increasing, built upon the environmental improve the business environment for SMEs in awareness in the region. Larger companies have developing countries. In addition, it encourages started to undertake CESR activities. In order to a change in approach to social and spread CESR among companies in the region, environmental stewardship in its direct contact both the Bank and IFC have roles to play. There with private sector companies, advocates the is a need for improving stakeholder activities, Equator Principles and the GRI, and continues including those of governments, consumers, and to disseminate good private sector practices. investors, which affect companies' behavior and CESR. There is equally a need to support While IFC promotes CESR directly among companies themselves in building greater private sector companies, the Bank can promote awareness of CESR, its tools, and advantages as CESR by working with governments. The Bank linked with their core business. ix INTRODUCTION HISTORICAL AND DEVELOPMENT CONTEXT The evolution of the CESR concept started as considered it "an important issue not only for early as the 1700s over dissatisfaction with business but in the theory and practice of law, prevailing business practices. Slave labor was politics and economics" (McKie 1974). still allowed, but some consumers found it unethical. In the 1790s, a consumer product Simultaneously, developing countries and boycott was carried out by Elizabeth Heyrick, international bodies became concerned about who urged the people in Leicester, England, multinational corporate practices. In the 1960s not to buy sugar from the West Indies where and 1970s, multinational corporations (MNCs) slave labor was used. This incident forced the expanded their operations into developing East Indian Company to get sugar from countries. Developing country governments producers who did not use slave labor tried to regulate the business practices of (Economist 2002). MNCs by imposing restrictions on foreign ownership or requiring local development Concerns for labor rights eventually led to the (Jenkins 2001)2. More than 20 developing formation of trade unions in the late 1800s and countries passed legislation to control the the early 1900s. In 1945, an international labor activities of MNCs (Hepple 1999). union, the World Trade Union Federation, was founded (Trade Union World 1999). By the At about the same time, international bodies mid­1900s, international labor standards began supported the regulation of corporate behavior to form. Since 1919, the International Labor and the protection of workers' rights. The Organization (ILO) has been promoting social member countries of the Organization for justice and internationally recognized human Economic Co-operation and Development and labor rights by formulating international (OECD) adopted the Declaration on labor standards. The ILO's conventions impose International Investment and Multinational obligations on the member states, but do not Enterprises in 1976 to improve the investment directly address the behavior of international climate while encouraging social progress and employers, even though it works with minimizing damage to the environment. The governments as well as employers and workers declaration includes a set of voluntary codes of (Jenkins 2001). conduct for multinational enterprises. In 1977, the ILO's governing body approved its An additional issue, corporate bribery, also Tripartite Declaration of Principles concerning contributed to CESR development. In the 1970s, Multinational Enterprises and Social Policy. In hundreds of American companies admitted to the same year, the Global Sullivan Principles, a making illegal payments to foreign government code of conduct for companies operating in officials, politicians, and political parties in South Africa, was developed to improve human order to secure business contracts. As a result, rights and equal opportunity.3 the United States passed the Foreign Corrupt Practices Act. In the late 1970s, many U.S. companies and others adopted voluntary corporate codes of conduct focusing on ethics 2 (Jenkins 2001). The Brookings Institution, a well- This is a view that is prevalent in the literature. However, the picture is more complex. As pointed established economic think tank in Washington, out by one reviewer, developing countries have had by this time already recognized the concept passed legislation that would stimulate foreign of corporate social responsibility (CSR) and companies' activities. 3See http://globalsullivanprinciples.org. 1 The 1970s also saw heightened concerns for the Although environmental issues are now environment, highlighted by the first Earth Day. considered in CESR activities, attention for Followed by a disaster in 1984 at Bhopal, India, environmental issues in CESR still lags behind where a Union Carbide gas leak killed labor issues. Even the 1991 version of the OECD thousands and the site was left contaminated Guideline for Multinational Enterprises makes (Luce 2004), environmental issues finally limited reference to environmental issues became an element of corporate responsibility. (FitzGerald 2001). The lack of focus on the All these events increased the pressures on environment may be due to the inability to agree businesses to behave more responsibly toward on acceptable international environmental the environment, labor, and society. standards and the variability in environmental conditions across different locations (Fischer, In the 1990s, CESR became a global issue. By this Parry, Aguilar, and Jawahar 2005). This is also time, the pressure to control foreign ownership recognized by research papers that international has been reduced by most of the countries environmental standards are few (Jørgensen and (Jenkins 2001). The role of MNCs in developing others, 2004) and that environmental challenges countries became the focus of grassroots are diverse (Ashida and Plinke 2004). activities for human rights, labor, environment, and improved social conditions (Hopkins and Today, companies and governments worldwide Cowe 2003). In addition, new corporate codes of have begun to recognize the importance of conduct focused more on environmental and CESR. For companies, CESR represents labor issues (Jenkins 2001). These codes of opportunities and risks. By undertaking CESR, conduct were more comprehensive than the companies could increases competitiveness in ones developed in the 1970s, which covered export markets by meeting higher expectations mainly ethics. or improve profitability by cutting costs and improving material efficiency. By not As concerns for the environment grew, undertaking CESR, companies may increase businesses started to address CESR and risks such as reputation damages and litigations. implement various environmental management Governments also started to recognize the initiatives. For example, the chemical industry's potential contribution of CESR to economic initiative to help the industry improve its health, growth. safety and environmental performance called Responsible Care initiative, was first adopted by For governments, CESR and regulations can be the Canadian association in 1985. The initiative also complements to environmental protection. includes principles and codes of practices to Theoretically, if all companies have met the address concerns about manufacture, minimum standards set by environmental distribution and use of chemicals. The regulations, any additional efforts on American Chemistry Council, Australian environmental improvements mean going Plastics and Chemicals Association, and British beyond compliance. Regulations could be also Chemical Industries Association followed suit in designed to promote the development of the late 1980s and the initiative has been environmentally and socially responsible implemented in more than 50 countries since products and services as well as the then4. Similarly, environmental management development of demand for such products. systems (EMS) emerged as a tool to help Lastly, CESR could also contribute to economic corporations systematically improve their growth by increasing competitiveness in exports environmental performance. An international markets. EMS standard, ISO 14001, was published in 1996 and it has been widely adopted worldwide. The World Bank (Bank) also recognizes and promotes CESR and sustainable private sector growth in several ways. The EAP regional 4See http://responsiblecare.org/. 2 environment strategy supports efforts by client efforts. This is a desk-top review of CESR countries to improve policy and regulatory practice and not a comprehensive study of the frameworks and engage the private sector and CESR in the region. It is intended to serve as a civil society in improving environmental first step to help the region form a view and management. In addition, the Bank's approach on the issue. The first chapter Environment Strategy also explicitly highlights discusses the CESR model by describing the sustainable private sector development as an concepts and key tools of CESR. Chapter 2 important aspect of the "quality of growth." reviews the current trends and Chapter 3 looks Furthermore, the Bank's Private Sector at CESR cases in the EAP region. Chapter 4 Development unit has been promoting CESR describes drivers of change, followed by a through its Corporate Social Responsible discussion on barriers. The final chapter Practice by assisting client governments to work concludes with suggestions for a potential more effectively with businesses, use incentives, complementary role of the Bank and the and take advantages of the linkage between International Finance Corporation (IFC) to move voluntary programs and regulations. Lastly, the toward a CESR promotion strategy in the EAP Bank itself has adopted CESR within its own region. institution though its Environmental and Social Sustainability Initiative. As CESR's importance The term, CSR, Corporate Social Responsibility, increases in the EAP region and the Bank, so too is most often used when discussing does the need to better understand CESR issues corporations' performance on social and and challenges. environmental matters. To reflect the accurate coverage of the issues, the term, CESR, The primary objective of this paper is to review Corporate Environmental and Social the environmental management aspects of CESR Responsibility, is used in this paper where and discuss the issues and challenges related to appropriate. promoting CESR activities in the EAP region. It also identifies drivers and constraints to CESR, and looks at how the Bank can support these 3 CHAPTER 1 THE CESR CONCEPT AND KEY TOOLS CESR Concept CESR has a philanthropic focus in reality. CESR or CSR has more than a single name and Charitable donations such as supporting definition. CESR is often synonymous with educational and health organizations dominate corporate citizenship, corporate sustainability, CESR activities (Commission on Private Sector and corporate philanthropy, although each of and Development 2004). This focus on charitable these terms has slightly different connotations. corporate activities has reinforced the idea that Among the various definitions, here are two CESR is just corporate window-dressing that widely accepted definitions: does not make any real changes to corporate business practices. The World Business Council on Sustainable Development:5 However, it is possible for CESR activities to have real impacts on the environment. It is [B]usiness' commitment to contribute to especially when CESR becomes part of a firm's sustainable economic development, working with core business practices and strategy that impacts employees, their families, the local community, from such business changes can be long lasting. and society at large to improve their quality of For example, Mirant, an international energy life. company in the Philippines, uses CESR as a business strategy. The company has reforested The European Union (EU) (Commission of the upstream areas and mangroves near coastal European Communities 2001, p. 6): areas in Pagbilao and Badre Burgoes and in Quezon in collaboration with the Philippines [A] concept whereby companies integrate social Department of Energy and Natural Resources and environmental concerns in their business (DENR). This action is strongly tied to the operations and in their interaction with their company's core business of producing energy stakeholders on a voluntary basis. Being socially because these forested areas serve as a "carbon responsible means not only fulfilling legal sink" to offset its carbon emissions from the expectations, but also going beyond compliance energy production (Business World 2003a). and investing "more" into human capital, the environment and the relations with stakeholders. Other examples exist in Asia. Fuji Xerox Co. These widely accepted definitions do not agree group now recycles almost 100 percent of its on the treatment of charitable donations that is resources at its Shenzhen and Shanghai factories also called corporate philanthropy. The EU's in China, producing almost no waste from their definition implies that corporate social operations. For three years, the company taught responsibility excludes corporate philanthropy employees to recycle at the factories and the because CESR is about a company's core company dormitories and also negotiated with a business operations, not just about its charitable local power company to use Fuji Xerox's waste donations (Luetkenhorst 2004). CESR, when it is as fuel (International Herald Tribune, 2005). This incorporated into core business practices, is practice made employees aware of the more than corporate philanthropy. Instead, importance of sorting waste inside and outside CESR is about the way a company does its of the company. business and how a company conducts itself in relation to stakeholders (Crook 2005). However, There are many ways to integrate CESR that fits to each company's core business. In Malaysia, a Malaysian energy provider, Tenaga National 5See http://www.wbcsd.ch/. Berhad, and a supermarket chain, Carrefour, 4 incorporate CESR into their operations. Tenaga terms illustrate business approaches or runs a Carbon Isolation program through strategies that are good for business, the reforestation and Carrefour provides environment, and society. environmentally friendly shopping bags to shoppers (Luan 2004a). When business benefits There is also a similar concept that links and broader social benefits are connected business benefits, the environment, and society through CESR activities, CESR is not just a at large. It is called triple bottom line (TBL). public relations agenda. It becomes a business TBL is a business concept under which a strategy that brings about long-lasting impacts company tries to satisfy three types of business on the longevity of business, the environment, performance simultaneously: environmental and society at large. performance, social performance, and financial performance. It is a business approach that Other names of CESR include corporate intentionally pursues environmental and social citizenship and corporate sustainability. There betterment as much as profits. All these terms are various definitions of these terms. The may be used interchangeably in business. World Economic Forum defines corporate citizenship as follows6: These terms are used in business today. It makes sense to businesses when CESR Corporate citizenship is the contribution a contributes to profitability on its own and in a company makes to society through its core direct sense. These are "win-win" situations business activities, its social investment and that companies behave responsibly, because philanthropy programs, and its engagement in they are good business. Theoretically, these public policy. The manner in which a company situations encourage more companies to manages its economic, social and environmental undertake CESR activities and lead to relationships, and the way it engages with its continuous environmental improvements to the stakeholders (such as shareholders, employees, point that corporate performance goes beyond customers, business partners, governments and legal obligations. However, it is not always the communities), has an impact on the company's case. long-term success. In this paper, CESR is defined as voluntary According to the Dow Jones Sustainability business contributions to society at large Indexes (DJSI), corporate sustainability is through companies' core business activities that defined as "a business approach that creates address environmental and social concerns. By long-term shareholder value by embracing this definition, firms undertake CESR activities opportunities and managing risks deriving from based on their own decisions, rather than economic, environmental and social regulatory requirements. However, CESR is developments"7. Former World Bank President linked to regulations, because CESR can James D. Wolfensohn also emphasized that internalize externalities. CESR implementation corporate sustainability is good business and not contributes to the internalization of simple philanthropy. He noted that "corporate environmental and social concerns and sustainability today includes recognition of the objectives into corporate planning and leadership role that the private sector must take management practices. These CESR practices in ensuring social progress, improved equity, include a variety of activities ranging from higher living standards, and stewardship for the corporate environmental performance environment" (World Bank, 2001). All these improvements and environmental disclosure to cleaner production activities such as material 6See http://www.weforum.org/site/ homepublic substitution and energy efficiency. .nsf/Content/Global+Corporate+Citizenship+Initiati ve. 7See http://www.sustainability-indexes.com/ htmle/sustainability/corpsustainability.html. 5 Key CESR Tools for Companies the EU, the Forest Stewardship Council (FSC) The following section briefly introduces the key certification, and the Marine Stewardship CESR tools that companies can voluntarily use. Council's (MSC) Sustainable Fishing (see annex This section presents some examples of the A for details). types of tools that are currently used, but it does not aim to provide a comprehensive list of CESR Among them, the ISO series (Box 1) are widely tools. used across industries. However, they are not necessarily concerned with outcomes. They do Corporate Environmental Reporting (CER).8 CER is not ask whether a management system actually voluntary reporting and disclosure of reduced a company's emissions or waste companies' environmental performance. Most significantly (Krut and Gleckman 1998). companies that publish such reports do so voluntarily as part of their annual reports. In the case of ISO 14001 on environmental Depending on the guidelines (for example, the management, it typically assists companies in Global Reporting Initiative) and criteria (for striving for continuous improvement in example, wastewater discharge, energy environmental management practices and in consumed) chosen, the data in CER may not be meeting government regulations, but does not comparable or meaningful in evaluating their guarantee regulatory compliance. environmental performance. Although the ISO series are not directly Codes of Conduct. These codes represent a set of associated with governments, they are linked to policies or guidelines, which a company or governments. Many member institutes in the group of companies are committed to adhere to. ISO are governmental entities and some They can be complementary to government countries refer to and use health, safety, and legislation--they typically include a provision to environmental ISO standards in their regulatory comply with local laws--but they are not framework9. typically used as devices for compliance with local regulations. A company-based code is Eco-Labeling. Eco-labeling is also a certification typically a learning and innovation tool rather scheme for environmentally friendly products than a driver for compliance (Angel and Rock and services. Eco-labels are not given to a 2004). company, but to products and services. Environmental Management System (EMS) Although criteria may differ among different Standards. Companies can voluntarily decide to labeling programs, the certification processes are apply an EMS standard. To obtain an EMS similar. In general, impacts on the environment standard certification, companies must meet by products and services throughout their specific requirements, such as establishing an lifecycle are evaluated, and only the products environmental policy and mechanisms for and services that meet certain criteria receive the monitoring and measurement of performance, labels. Since 1977, when the first eco-label was and the compliance to the EMS requirements introduced in Germany, eco-labeling has must be verified by a third-party audit. The increased rapidly (OECD 2001). third-party does not set the requirements but only certifies the companies for meeting such Many different types of eco-labels exist today, requirements. These EMS standard programs including those sponsored by governmental include the International Standards organizations, private organizations, and Organization (ISO) 14000 standards series, the companies themselves. Eco-Management and Audit Scheme (EMAS) of 8In some countries such as Denmark and France, 9See http://www.iso.ch/iso/en/aboutiso environmental reporting is required by law. /introduction/index.html. 6 Governmental eco-labeling programs include Box 1. What is the ISO 14001? the Blue Angels of Germany, the Eco-mark of International Standards Organization (ISO) is a Japan, the Environmental Choice of Canada, and non­governmental organization, comprised of the EU Daisy. Each scheme evaluates products national standards bodies from 149 countries (as and services sold in a country. However, eco- of March 2005). It develops voluntary labeled products and services may be international standards for products, services, recognized in other countries when two processes, materials, systems, conformity countries agree on mutual recognition. assessment, and managerial and organizational practices. ISO has published over 600 standards The degree of governmental involvement related to health, safety, and environment issues varies significantly among programs. For by the end of 2004. example, the Eco-Mark of Japan is managed by a foundation with subsidies from the ISO 14000 series address environmental management. In particular, ISO 14001 sets government.10 In Germany, the quality requirements for environmental management assurance and product labeling institute called systems so that an organization can develop and RAL Deutsches Institut für Gütesicherung und implement a policy and objectives about Kennzeichnung e.V., the Federal environmental issues that the organizations can Environmental Agency, and the state where control and influence. It does not specify the manufacturer or supplier of the product or environmental performance criteria. The service is located are all involved in awarding conformity to the requirements can be certified by and developing the criteria with other an external organization that has been accredited stakeholders.11 by national accreditation bodies. In the EAP region, both national accreditation and Private labels focus typically on one issue as in certification bodies were set up in China, the cases of the FSC label and the MSC's Indonesia, Malaysia, the Philippines, and sustainable fishing label. There are also self- Thailand. A national accreditation body was claimed labels by manufacturers and retailers, established in Vietnam. which may lack credibility and verifiability due to their vagueness and the lack of life-cycle A challenge remains for increasing ISO assessments (OECD 2001). All of these labels certification among exporting companies in attempt to provide consumers with information developing countries. There is no ISO mechanism on which their purchasing decisions are based, governing the mutual recognition of registration allowing the companies to differentiate their certificates, except individual mutual recognition eco-labeled products from non-labeled products agreements by involved parties. It means that a of competitors. company certified in country X may not be accepted as an ISO-certified company in country Y, if its business partners and customers in Key Tools to Promote CESR country Y do not trust the certification obtained in Stakeholders, such as governments and country X. Therefore, lack of user confidence in investors, can also indirectly promote CESR. certification bodies can lead to repeated The primary purposes of the tools in this section conformity assessments. are typically not to promote CESR. However, they can influence business behaviors. CESR is, Source: See http://www.iso.org. by definition, a voluntary business commitment and not mandated by regulation, but business decisions and behaviors are often influenced by regulations (Box 2). 10See http://www.jeas.or.jp/english/aboutjea.html. 11See http://www.blauer-engel.de/englisch/ navigation/body_blauer_engel.htm. 7 Box 2. How Regulations can Help Facilitate CESR ­ Command-and-Control and Market-Based Improving Competitiveness Regulations. Command-and-control regulations are traditional environmental regulations used by governments. They specify the permissible Government actions mandate companies to take amount of pollution or equipment and process specific actions, which contradicts with the voluntary to abate pollution. They include emission caps nature of CESR. However, properly designed laws and emission standards; pollution permits; and regulations can instill in companies the mind-set mandatory phaseouts; and the use of the "best for innovation and improvements. This mind-set available technology economically achievable." allows companies to continuously seek business Market-based instruments include pollution benefits that result in beyond-compliance behavior. charges and emission taxes, tradable permits, Some companies do so regardless of regulations but deposit refund systems, and government others do not. Regulations can help more companies subsidies. They differ from command-and- to innovate and improve by (Porter and van der control regulations in that the market-based Linde 1995): instruments allow companies to determine 1. Creating pressure that motivates companies to whether to pay the charges for pollution or incur innovate; the cost to abate the pollution (Ahmed 1995). 2. Improving environmental quality in cases where innovations are unlikely to occur immediately Both command-and-control and market-based (i.e. innovations and the resulting improvements instruments can trigger companies to take do not offset the costs, or it takes time to reduce precautionary actions to improve their the costs of such innovative solutions); environmental performance. When companies 3. Alerting and educating companies about likely resource inefficiencies and potential areas for anticipate the change in regulations, such as an improvement; increase in the future price of pollution charges, 4. Raising the likelihood that product and process they may start searching for ways to reduce innovations in general will be environmentally pollution loads to minimize their regulatory friendly; costs because companies do respond to 5. Creating demand for environmental regulatory charges. For example, an analysis improvement until companies and customers are able to perceive and measure the resource based on a survey of Mexican factories suggests inefficiencies of pollution better; and that regulatory pressure improves 6. Leveling the playing field during the transition environmental performance (Dasgupta et al. period to innovation-based environmental 1998). These regulations bring the companies solutions, ensuring that one company cannot up to the minimum compliance level when gain position by avoiding environmental enforced, but are not always successful in investments urging companies to go beyond compliance. Good regulations in terms of promoting CESR are those that instill the mind-set for innovation and Mandatory Public Disclosure Programs. This is an improvements. Once companies have this mind-set, information-based regulation used by they continue to improve their environmental governments. It can also compel companies to performance and their contributions to a larger shift to cleaner production. It influences the society, because they realize that negative environmental impacts are the result of resource behaviors of polluters through consumer and inefficiency, regardless of regulations. This is one community pressure by revealing corporate way that regulations can help companies become environmental performance records to the more competitive and more responsible. public. The resulting public pressure can stimulate a company's interest to portray itself as a good company. In public disclosure Source: Porter and van der Linde 1995. programs, governments mandate companies to disclose their pollution records and release the records or a ranking of such records. For 8 example, the U.S. Toxic Release Inventory (TRI) responsibility for products after the lifecycle makes publicly available a database ends. This policy shifts the responsibility of a documenting releases of chemicals at individual post-consumption product upstream in the plants, counties, states, or the entire nation. production-consumption continuum and Public disclosure programs in China, Indonesia, provides incentives to producers to design and others rate the companies based on their products to integrate such environmental environmental performance (the details of the responsibility (OECD 2003), particularly public disclosure programs are provided in through eco-efficiency such as material annex C). substitution and reuse and recycling of product materials. This has a tremendous impact on Public disclosure programs are primarily a tool manufacturers' core business by encouraging used by governments. They are, in most cases, companies to behave in a more environmentally regulations aiming at environmental responsible fashion than their business requires. performance improvements. For example, the Through life-cycle assessments of companies' participation in the TRI has been always products and services, the EPR also promotes mandatory for the industrial facilities that upstream changes in material used or product release and transfer specific chemicals. design (OECD 2003). This regulatory Although a public disclosure program can be instrument has been implemented primarily in voluntary, as in the case of the Indonesian Europe such as Germany, Norway, and Sweden Program for Pollution Control Evaluation and (OECD 2003). It has prompted legislation on Rating (PROPER) I, the fact that regulators waste packaging, waste electrical and electronic asked companies to voluntarily participate in equipment, end-of-life motor vehicles, batteries, the program differentiates it from company- tires, and newsprint, particularly in the EU, but initiated voluntary CESR efforts. also in China and the U.S. state of California (Lomas 2004). If public disclosure of environmental performance records is totally company- Public Recognition Programs. Public recognition initiated on a voluntary basis, in this paper, it is programs are a type of information-based tools. referred to as CER rather than as a public They are not regulations and can be disclosure program. However, government implemented by a wide variety of stakeholders may convert CESR activities into regulatory from governments to private organizations. programs12. The mandatory environmental These programs praise the good performers, performance reporting works as an which is contrary to public disclosure programs information-based instrument like public that typically shame polluters. In addition, disclosure programs. It makes the information companies that are good stewards of the publicly available and allows stakeholders to environment can be recognized in speeches pressure the poor performers. given by public officials and given awards for their good environmental performance. These Extended Producer Responsibility (EPR). This is a programs are linked to CESR, because new type of governmental regulation that can companies regard these awards as one of their promote CESR practices. In short, EPR is a CESR accomplishments. policy to reduce post-consumption product waste by requiring manufacturers to take CESR Indexes. CESR indexes are ratings of a set of companies or countries on their CESR performance. Various organizations develop 12For example, CER is required for polluting these indexes to provide information on companies in Denmark and all publicly-listed companies in France See corporate environmental performance, and http://europa.eu.int/comm/employment_social/em various stakeholders use these indexes. For plweb/csr- example, non-governmental organizations matrix/csr_topic_allcountries_en.cfm?field=7. 9 (NGOs) may promote CESR by targeting a Index has attempted to provide a comparison of campaign on companies with poor CESR CESR activity levels among companies. In ratings. Investors may consider CESR indexes addition, the CESR penetration at the country as one criterion for selecting companies to level has been measured in the National invest. Corporate Responsibility Index and the Environmental Sustainability Index. These indexes can affect the reputation and image of companies, and thus motivate Social Responsible Investment (SRI) Funds. CESR companies to improve their own performance. indexes can be used by the investment They are more comparable than individual community to evaluate and screen companies indicators provided in CER, because a set of for socially responsible investments (SRI). SRI companies or countries is assessed against the funds are pools of funds invested in companies same criteria. that meet environmental and social criteria as well as financial criteria. The criteria were set by A few indexes are now available. Financial the company that manages specific SRI funds. indexes that rate companies against The abundance of SRI funds suggests that environmental and social criteria as well as investors are keen to businesses' CESR practices. financial criteria include the DJSI and the FTSE4Good. The Corporate Responsibility 10 CHAPTER 2 CESR TRENDS IN THE EAP REGION Indicators and statistics are useful in showing Companies in the EAP region are more trends in the adoption of CESR practices by aggressively obtaining ISO 14001 certificates companies in the EAP region. Valuable compared to other World Bank regions (Figure indicators and statistics include the number of 2.1). However, ISO certificates are still companies certified by environmental predominantly issued in developed countries. certification programs, the number of For example, companies in eight major participants in business initiatives for the industrialized countries ­ France, Germany, environment, and the use of sustainability Italy, Japan, Spain, Sweden, the United indexes. Kingdom, and the United States ­ obtained over 52,000 ISO 14001 certificates in 2004. ISO 14001 Certification Table 2.1 shows the number of ISO 14001 Figure 2.1 ISO 14001 Certificates­regional certificates issued in the EAP region during the comparison (as of December 2004) last five years. As of December 2004, 90,569 ISO 12000 14001 certificates have been issued to organizations in 127 countries worldwide. Of 10000 this total, about 12 percent belong to companies in the EAP region. In particular, China's ISO set 8000 certification has grown tremendously, ranking icaiftrec1 00 6000 second in the world after Japan in 2004. 14 O IS ofr 4000 Table 2.1 ISO 14001 certificates in EAP be num (as of December 2004) 2000 2000 2001 2002 2003 2004 0 Cambodia 0 0 0 1 1 2000 2001 2002 2003 2004 China 510 1,085 2,803 5,064 8,862 EAP AFR ECA LAC MNA SAR Fiji 0 0 1 1 0 Source: The ISO Survey - 2004. Available: Indonesia 77 199 229 297 373 Malaysia 174 367 367 370 566 http://www.iso.org/iso/en/prods- services/otherpubs/pdf/survey2004.pdf. Myanmar 0 1 1 0 2 Papua 0 0 0 1 0 New United Nations Global Compact Guinea Other initiatives have fewer participants, Philippines 46 120 124 174 261 notably in Asia. For example, an international Thailand 310 483 671 736 966 network, the UN Global Compact (GC), Vietnam 9 33 33 56 85 supports and promotes 10 principles among Total 1,126 2,288 4,229 6,700 11,116 businesses (for the detailed description of the % of 5% 6% 9% 10% 12% GC, see Box 3). The GC's current participants World exceed 2,200 worldwide, but less than 10 percent Total of this number is located in five EAP countries Source: The ISO Survey - 2004. Available: (China, Indonesia, Malaysia, the Philippines and http://www.iso.org/iso/en/prods-services/ otherpubs/pdf/survey2004.pdf. Notes: Data for China excludes Macao, Hong Kong, and Taipei. 11 Table 2.2 Number of EAP Participants in Box 3. What is the Global Compact? the UN Global Compact (as of September The United Nations Global Compact (GC) is an 2005) international CESR initiative that brings together Country Number the private sector, UN agencies, and labor and China 48 civil society. It encourages the spread of 10 Indonesia 2 principles in the areas of human rights, labor, the Malaysia 1 environment, and anticorruption. Philippines 116 These 10 principles are as follows: Thailand 19 Vietnam 1 Human Rights Total 187 Principle 1: The support and respect of the Source: The UN Global Compact web site. protection of international human rights. Principle 2: The refusal to participate or condone human Available: http://www.unglobalcompact.org/. rights abuses. Environmental Reporting Labor The Global Reporting Initiative (GRI) develops Principle 3: The support of freedom of association and disseminates global guidelines for and the recognition of the right to collective environmental reporting. Overall, fewer bargaining. Principle 4: The abolition of companies participate in GRI than ISO or GC. compulsory labor. Principle 5: The abolition of Most participating companies are the child labor. Principle 6: The elimination of subsidiaries of MNCs. Out of 747 companies discrimination in employment and occupation. participating worldwide, only 13 are located in the EAP region (Table 2.3). Environment Principle 7: The implementation of a Table 2.3 List of GRI Participants in the EAP precautionary and effective program to region environmental issues. Principle 8: Initiatives that Organization Country Sector demonstrate environmental responsibility. Architectural Services China Public Agency Principle 9: The promotion of the diffusion of Department, HKSARG environmentally friendly technologies. British American Tobacco China Tobacco Hong Kong CLP Holdings Limited China Energy Anti-Corruption Ford Lio Ho Motor China Automotive Principle 10: The promotion and adoption of Company initiatives to counter all forms of corruption, Mass Transit Railway China Railroad including extortion and bribery. Corporation (MTR) The University of Hong China Universities Kong Among over 2,000 companies worldwide British American Tobacco Fiji Tobacco participating in the GC, 187 are from the Fiji developing countries of the East Asia and the British American Tobacco Malaysia Tobacco Pacific region, but none are SMEs. Jakarta Stock Malaysia Ford Malaysia ­ Shah Alam Malaysia Automotive Exchange (JSE) (Indonesia) also participates in this Assembly Plant initiative. Manila Water Company, Philippines Water Utilities Inc. See http://www.unglobalcompact.org. Siam Cement Group Thailand Conglomerates Siam Cement Industry Thailand Construction (Siam Cement Group) materials Thailand) of the EAP region (Table 2.2). Over Siam Kraft Industry (Siam Thailand Forest and Paper 1,000 GC participants are located in developed Cement Group) products countries while about 450 in the Latin America Source: The GRI web site. Available: and the Caribbean (LAC) region and 260 in the http://www.globalreporting.org/guidelines/reports /search.asp. Europe and Central Asia (ECA) region. 12 The EAP region does not necessarily have a revenues in respective countries) that report large number of GRI participants, compared their environmental performance on their web with other Bank regions. The EAP region falls sites: 42% in Thailand, 32% in Malaysia, 30% behind Africa (AFR) and LAC regions (Figure in the Philippines, and 24% in Indonesia. In 2.2). contrast, 96 percent of the top 50 companies in Japan and 98 percent in the United Kingdom Figure 2.2 Regional Comparison of Global release environmental performance reports Reporting Initiative Participants (as of (Chambers and others 2003). Japanese and November 2005) British statistics indicate that a higher level of CER may also be attainable for large 40 companies in the EAP region, if certain stna 35 conditions such as a high demand for such ipcitraPIRGforeb 30 reporting and a favorable economy exist (Box 25 4). 20 Sustainable Forest Management Certification 15 Sector-specific certification programs, like the m 10 FSC (Box 5), can gather more participants. The Nu 5 FSC's certification programs have more 0 participants than GRI, as forestry is a major AFR LAC EAP ECA SAR industry in some of the EAP countries. One type Source: The GRI web site. Available: of certificate, chain of custody (COC), provides http://www.globalreporting.org/guidelines/reports guarantees that production (including /search.asp. processing, transformation, manufacturing and distribution) does not contribute to the Other statistics on Corporate Environmental destruction of forests13. As of February 2005, Reporting (CER) are available through reporting there were 3,625 COC certificates worldwide; initiatives, associations, and other research. The 257 companies (about 7 percent) are in the EAP Association of Chartered Certified Accountants region (Table 2.4). (ACCA) published a report on CER based on the CorporateRegister.com database, an online Table 2.4 Number of FSC COC certificates (as directory of corporate non-financial reports. of February 2005) According to this report, non-financial reports Country Number of COC produced worldwide increased from 100 in 1993 Certificates to over 1,500 in 2003. China 87 Indonesia 27 According to this report, in Asia, Australia, and Malaysia 48 the Pacific, over 1,300 non-financial reports were Philippines 2 produced during the period from 1990 to 2003. Taiwan 6 More than half of the reports were about the Thailand 11 environment and about 20 percent were about Vietnam 76 sustainability. However, only 5.8 percent of non- Total 257 financial reports were actually produced in the Source: The FSC web site. FSC chain of custody certificates by continent (February 2005) is available: countries of the EAP region; Japan and Australia http://www.fsc.org/keepout/en/content_areas/92/ published the majority of such non-financial 1/files/ABU_REP_70_2005_01_total_COC_continent. reports (ACCA and CorporateRegister.com pdf. 2004). Another research analyzes the percentages of the top 50 companies (based on the operating 13See http://www.fsc.org/coc/. 13 Box 4. Environmental Awareness Exists in the EAP Region with Varying CESR Focus Areas Box 5. Forest Stewardship Council's Forest Social and labor issues in particular, have historically Certifications driven the CESR agenda. Similarly, in terms of The FSC promotes environmentally responsible, corporate activities, more labor issues than socially beneficial and economically viable environmental concerns caught the public attention in the EAP region. For example, labor rights violations management of forests based on 10 principles and by MNCs such as Gap and Nike were intensely criteria: reported by NGOs and media, while deforestation Principle 1: Forest management shall respect all that continues today receives less attention. In terms applicable laws of the country. of public exposure, it appears that labor issues have Principle 2: Long-term tenure and use rights to the been more visible than environmental issues in the land and forest resources shall be clearly defined, EAP region. documented and legally established. Principle 3: The legal and customary rights of However, this does not mean that companies in the indigenous peoples shall be recognized and EAP region do not pay attention to environmental respected. issues. Chambers and others (2003) analyzed the top Principle 4: Forest management operations shall 50 companies in seven countries (India, South Korea, maintain or enhance the long-term social and Singapore, Thailand, Malaysia, Philippines, and economic well-being of forest workers and local Indonesia) for their CESR activities through their communities. environmental reporting. It shows that social and Principle 5: Forest management operations shall environmental considerations vary among companies encourage the efficient use of the forest's multiple of different countries. products and services. Principle 6: Forest management shall conserve For example, there were similarities in the percentage biological diversity and its associated values, of companies in Thailand and Singapore reporting water resources, soils, and unique and fragile environmental performance, which indicates that ecosystems and landscapes. both countries have a similar level of CESR Principle 7: A management plan shall be written, awareness. One of the most important CESR issues implemented, and kept up to date. for the companies in both countries was education Principle 8: Monitoring shall be conducted to assess and training. The Thai companies also include the condition of the forest, environmental environmental issues as the most important CESR, impacts, etc. while the companies in Singapore add welfare and Principle 9: Management activities in high public health issues. conservation value forests shall maintain or enhance the attributes which define such forests. The CESR-reporting companies in the Philippines and Principle 10: Plantations shall be planned and Malaysia focus on environment, education and managed in accordance with the Principles and training. However, community development is also Criteria considered important among the Filipino companies, and welfare is a priority among Malaysian The FSC runs an accreditation program for two companies. internationally recognized forest management certificates: the Forest Management (FM) Certificates This study implies that the companies in the EAP for forest management operations and the Chain of region see environmental issues as one of their CESR Custody (COC) Certificates for processing, areas, even if it is not the most important one. The transformation, manufacturing and distribution of concerns for the environment exist at least among forest products. The FSC accredits certification bodies largest companies, as demonstrated by their CER. If and national initiatives and the certification bodies this awareness can be translated into demand, it may audit and certify interested parties based on the FSC have a significant impact on CESR activities in the standards or national initiatives that have met the EAP region. FSC standards. Source: Chambers and others (2003) See http://www.fsc.org 14 The FSC also endorses certificates for forest sites company's CESR programs against a set of with environmentally and socially sustainable established performance indicators so that the forestry management. As forest resources differ company can improve its practices. PBSP is also among countries, participation varies across assisting the Indonesia Business Links (IBL) to countries. The FSC certified forests exist in four replicate the program in Indonesia16. In China, a countries ­ China, Indonesia, Malaysia, Papua CESR benchmark was developed by an New Guinea, and Thailand ­ in the EAP region. Australian CESR research and rating agency, However, the FSC certified forest areas are a Reputex17. The environmental aspect of this very small portion of the forest areas of these benchmark covers areas such as environmental countries (table 2.5). There are also certification management system, code of conduct, and programs for other industries (Box 6). product stewardship and life-cycle assessment. Sustainability Indexes At a global level, the Corporate Responsibility In the EAP region, the development of indexes, Index was developed by Business in the particularly financial indexes for sustainable Community (BITC) of the United Kingdom in businesses, seems limited. Globally, financial 2003. This is based on voluntary self-assessment indexes such as the DJSI and the FTSE4Good are of companies from the FTSE 100 and FTSE250, available to track financial performance of the the Dow Jones Sustainability Index Sector companies committed to sustainability. leaders18. Another such index, the National Corporate Responsibility Index, was created in The majority of the companies in these financial 2003 by the Copenhagen Centre and indexes are from developed countries. Only a Accountability, to compare a country's state of few from the EAP region are identified among corporate responsibility. This index was also over 300 companies of the composite DJSI linked with the World Economic Forum's World Index14, including a Malaysian company, Growth Competitiveness Index to create British American Tobacco Malaysia Bhd15, and a Responsible Competitiveness Index. In the 2005 Thai company, the Siam Cement Public version, 6 EAP countries were included in these Company of Thailand. Furthermore, the Jakarta indexes with 77 other countries. A significant Stock Exchange (JSE) is going to launch its own correlation is found between a country's Social Responsibility Index. The JSE's index will competitiveness and its corporate social be "the first of its kind in an emerging market, responsibility (Accountability 2005b). Among and the first such index sponsored by an the EAP countries, the same correlation can be exchange" (Global Compact 2004). seen (Figure 2.6). There have been some attempts to rate and rank There are other sustainability indexes that do the CESR, instead of the financial performance, not directly measure CESR performance. For of companies. In the Philippines, the Philippine example, Environmental Sustainability Index Business for Social Progress (PBSP), with the compares "the ability of nations to protect the funding from Ford Foundation, benchmarked environment over the next several CESR practices. This Benchmarking Corporate decades"(Yale Center for Environmental Law Citizenship Practices measures the efficacy of a and Policy of Yale University, and the Center for International Earth Science Information Network of Columbia University 2005). 14 See Dow Jones Sustainability Index web site for the most recent list. Available: http://www.sustainability- index.com/htmle/data/djsiworld.html. 16See http://www.pbsp.org.ph/benchmarking.htm. 15 In addition to the composite DJSI World Index, 17See https://secure1.impactdata.com.au/reputex/. there are subset DJSI World indexes that exclude 18See http://www.bitc.org.uk/programmes companies generating revenues from tobacco and /key_initiatives/corporate_responsibility_index/inde firearms among others. x.html. 15 Table 2.5 FSC Certified Forest Areas in the EAP region Country FSC Total Area under Total Forest Area FSC Certified Forests (as Certificates Certified Forests (ha)* % of country's total (ha) forest area) China 4 439,630 163,500,000 0.27% Indonesia 3 274,598 105,000,000 0.26% Malaysia 4 81,389 19,300,000 0.42% Papua New 1 19,215 30,600,000 0.06% Guinea Thailand 1 921 14,800,000 0.01% Source: The Little Green Data Book 2005 (World Bank, 2005) and FSC certified forests (January 2006). The FSC report is available: http://www.fsc.org/keepout/en/content_areas/92/1/files/ABU_REP_70_ 2006_01_09_FSC_certified_forests.pdf. *Note: Total Forest Area is obtained from the Little Green Data Book 2005 (World Bank, 2005) and converted into hectares. Box 6: Green Globe Eco-Tourism Certification An international ecotourism certification program was introduced by Green Globe 21 in 1999. A company or site can be certified against one of four standards: company, community, international ecotourism, and design and construct. In addition, there are three progressive levels of qualification: awareness (a company or site is committed to benchmarking and certification), benchmarking (a company or site developed an environmental and social sustainability policy and completed an independent assessment of measurements against key indicators, and the indicators passed the baseline performance level), and certification (a company or site implemented an integrated Environmental Management System and passed an independent on-site audit). As of June 2005, 112 companies or sites worldwide and fourteen in the EAP region achieved the highest level of Green Globe qualification. Green Globe Certified Companies or Sites in the EAP region (as of June 2005) Country Location China Huanglong National Scenic Area China Jiuzhaigou National Scenic Area China Sanxingdui Heritage Site Museum China Shenzhen Pavilion Hotel Co. Ltd China South Sichuan Bamboo Sea Scenic Area China World Trade Center Grand Hotel Zhejiang Fiji Sonaisali Island Resort, Fiji Indonesia Bali Tourist Development Corporation Indonesia Bali Hilton International Malaysia Malaysia Airport Operations Malaysia Melia Kuala Lumpur Thailand The Evason Hua Hin Thailand The Evason Phuket Resort & Spa (Managed by Six Senses Resorts & Spas) Vietnam Meliá Hanoi Hotel Source: The Green Globe 21 web site. Available: http://www.greenglobe21.com/Participants.aspx. 16 Figure 2.6 National Corporate Responsibility Green gross domestic product (GDP) also does Index and Responsible Competitiveness not directly measure CESR performance. Index for Selected Countries However, inputs to green GDP, such as 80 pollution and loss of timber assets, are closely Finland linked to private sector activities. China is s developing green GDP with ongoing research neseviti Malaysia and pilot projects to measure its industrial Thailand pollution and forest accounts (NBS 2004). pet 60 mo China Socially Responsible Investments (SRI) C elbi Indonesia Philippines Although Asian SRI funds are very limited, they onspse Vietnam are available in Hong Kong, Malaysia2, R Singapore, and Taiwan3. For example, investors Zimbabwe 40 in Hong Kong can invest in a fund called F&C 40 60 80 Stewardship International, with its total value of, National Corporate Responsibility Index US$ 169 million4 (as of January 2005) (F&C 2005). Source: National Corporate Responsibility Index 2005 It excludes companies that were considered (Accountability 2005a) and Responsible harmful to society, people, and wildlife, and Competitiveness Index 2005 (Accountability 2005b) includes companies like Tesco, Statoil, and Note: This figure includes Finland and Zimbabwe Starbucks. In Taiwan, UBS Investment Bank (ranked first and last respectively in the Responsible offers the UBS (Lux) Equity Fund--Eco Competitiveness Index 2005) in order to provide a Performance B, which focuses on companies that sense of the index range. demonstrate above average environmental, social, and economic performance. As of April The index is based on 76 indicators, and 5 of 2005, its fund size reached over US$ 600 million5 which measure private sector responsiveness to and its portfolio included companies like environmental sustainability.1 In the 2005 Citigroup and BP (UBS 2005). A limited number version, Malaysia, the Philippines, Taiwan, and of global SRI funds include companies from the Thailand have positive values for private-sector EAP region. For example, Henderson Global responsiveness in the EAP region (Yale Center Investors' SRI funds include Telekomunikasi for Environmental Law and Policy of Yale Indonesia and Hong Kong & China Gas University, and the Center for International (Henderson Global Investors 2005). Earth Science Information Network of Columbia University 2005). 2 In Malaysia, there are Islamic funds based on Syariah finance principles which exclude certain activities. 3 See http://www.asria.org/sri/asia/sriasia. 489.7 (in million Pound Sterling) was converted into US dollars based on the January 31, 2005, spot exchange rate, 1.8850 (US dollar per Pound Sterling). The rate obtained from the United States Federal Reserve Statistical Release on Foreign Exchange Rates. Available: http://www.federalreserve.gov/releases/h10/Hist/ 1 Five indicators are: Dow Jones Sustainability Group dat00_uk.txt. Index (DJSGI);average Innovest EcoValue rating of 5 516.97 (in million Swiss Franc) was converted into firms headquartered in a country; number of ISO US dollars based on the April 29, 2005, spot exchange 14001 certified companies per billion dollars GDP; rate, 1.1898 (Swiss Franc per US dollar). The rate World Economic Forum Survey on private sector obtained from the United States Federal Reserve environmental innovation; Participation in the Statistical Release on Foreign Exchange Rates. Responsible Care Program of the Chemical. Available: http://www.federalreserve.gov/ Manufacturer's Association releases/H10/Hist/dat00_sz.htm. 17 CHAPTER 3 CASES FROM THE EAP REGION The use of the tools discussed in Chapter 1 is five top-ranked 'green' factories. Privately, they emerging in the EAP region. Overall, MNCs, notified illegally polluting factories of their large domestic companies, and companies failing grades and gave them six months to with greater environmental impacts tend to clean up. In addition to disclosing the rating, dominate the scene. the environmental authority also made efforts to provide accurate and timely advice on how to Public Disclosure Programs improve the rating and provided a check-list for With the World Bank's support, public environmental performance for each company disclosure programs on company environmental (Lopez and others 2004). Within 18 months of performance were piloted in China, Indonesia, the first ratings, water pollution from the 187 the Philippines, Thailand, and Vietnam. While pilot plants fell by 40 percent. Although the the disclosure of chemical release inventories in program does not require companies to comply the United States simply provide emission data with regulations, it was able to reduce the without interpretations, these public disclosure proportion of plants that were not in compliance programs rate companies along with the with environmental regulations from 65 percent provision of emission data. Most of them are in June 1995 to 47 percent by September 1996 applied as regulatory tools. (World Bank 2002). Indonesia's PROPER I was started in 1993 to A survey of companies that participated in overcome enforcement difficulties of the existing PROPER I revealed companies that still had not command-and-control environmental complied with environmental regulations -- but regulations (Afsah and others 2000). It made improved their environmental performance -- Indonesia the first developing country to were concerned about international clients, implement a public environmental disclosure while companies in compliance were more initiative. This voluntary participation program concerned about their shareholders (Afsah and started with 187 companies, mainly large water others 2000). In addition, the same survey polluters but more companies joined over the pointed out that the most common reason why years. As noted earlier, even though it was the companies made improvements in their labeled "voluntary" by the government, environmental performance was that program companies were asked to participate by the participation made them realize how well they regulators. The program monitored and rated were doing on pollution control and how to company's regulatory compliance level and the abate their emissions (Afsah and others 2000). results shown by five colors were publicized through the media. Its five-color scheme -- Following the success of the Indonesian Gold, Green, Blue, Red and Black in declining PROPER I, public disclosure programs have order of environmental performance -- been expanding in the EAP region. However, provides a simple but effective format for they are applied as regulatory tools, including communicating environmental information to the revamped, now mandatory, PROPER II in the public, putting pressure on industries to take Indonesia (see annex C). a better care of their environmental performance and/or image. Environmental Reporting Despite an increase in the last five years, CER To increase their leverage, officials organized a has been undertaken by a relatively small high-profile awards ceremony to congratulate number of companies worldwide (Wilenius 2005). In the EAP region, only six companies in 18 China (including Hong Kong), one in Fiji, two in countries studied. Nevertheless, there are Malaysia, one in the Philippines, and three in Indonesian companies that report their Thailand participate in the GRI (Table 2.3). environmental performance, including P.T. These companies are mostly large Astra International, Tbk., Asia Pacific Resources conglomerates or subsidiaries of MNCs from International Holdings, Ltd., and P.T. Aneka industries with significant impacts on the Tambang, Tbk. (Finneren and Rachmawaty environment and society, such as tobacco, 2003). automobiles, and cement. So far in the EAP region, only the government of Hong Kong The content of CER varies from a company to a mandated environmental reporting but it is company. However, CER typically lists specific required only for governmental agencies (ACCA achievements and future goals. For example, and CorporateRegister.com 2004). environmental performance data of Matsushita Electric Company Berhad, Malaysia, is found A report entitled "The State of Corporate on its corporate web site24. The company's goal Environmental Reporting in Malaysia" is to produce environmentally friendly (Environmental Resources Management products such as lead-free products in 2003. Malaysia 2002), looked at corporate reporting on Along with achievements such as the environment for all companies listed on the environmental compliance and increased Kuala Lumpur Stock Exchange (KLSE) main recycling rates, it also reveals that the company board between 1999 and 2001. It revealed that is facing a difficult challenge in the area of the number of companies reporting on energy saving. environmental performance increased from 25 in 1999 to 40 in 2001. These 40 companies In 2001, MTR, a mass transit railway company represented about 7.7 percent of the KLSE in Hong Kong, published a corporate companies listed on the main board. Half of sustainability report for the first time in Hong them were among the largest 100 companies in Kong. Using the GRI guidelines, its first report Malaysia based on their stock values, including specifically lists immediate goals, such as Shell Refining Company and Matsushita Electric attainment of ISO 14001, roll-out of the Green Company Berhad. Most companies were Procurement Policy, and achievements such as resource-intensive industries, such as industrial the Green Office Grand Award from the Hong products (oil and gas, metals, cement, Kong Eco Business Award Committee. Its latest chemicals), plantations, and consumer products. report also discusses its environmental It also found that most companies devoted a few regulatory compliance level on noise control pages to environmental issues in annual reports, and water discharge. The drivers that MTR rather than a stand-alone report. The content identified for the sustainability reporting focused on environmental management and include attracting investors and SRI and achievements. Environmental performance publicizing the incorporation of environmental indicators such as effluent and waste were matters in its business strategy.25 hardly reported. Indonesia appears to lag slightly behind Malaysia with respect to CER. No companies in Indonesia participate in the GRI, although CER can be undertaken without GRI participation. Chambers and others (2003) compared the CER 24 of the top 50 companies in the Philippines, See http://panasonic.co.jp/semicon/ environment/en/pf_pdf/tdm.pdf. Malaysia, Thailand, Indonesia, among other 25See http://www.asria.org/sri/resources/ countries and found that Indonesian companies casestudies & http://www.mtr.com.hk/eng/ has the lowest level of CER among other EAP sustainability/introduction_e.htm. 19 Box 7. Voluntary Code of Conduct for Bankers MNC's codes of conduct are developed - Equator Principles generally in their headquarters and The Equator Principles are voluntary implemented throughout their subsidiaries. international standards concerning the impact of For example, MNCs like Novartis (Thailand) lending practices on social and environmental Ltd. and BP Indonesia must adhere to performance. The principles are based on the corporate policies and principles of their pollution abatement guideline and safeguard respective headquarters. policies of the Bank and the IFC. There is no Other companies apply their standards to single organization responsible for maintenance companies outside of their own. Levi Strauss & of these principles. Today about 30 of the Co. has created its version of a code of conduct, world's leading banks have adopted these the Global Sourcing and Operating Guidelines. principles in financing projects. By adopting The company directs business practices of these voluntary principles, borrowers are required to assess social and environmental suppliers based on the code of conduct. impacts and to follow social and environmental Some companies apply the codes of conduct of management plans for higher-risk projects. industry associations. In the EAP region, there are international associations such as the The adoption of the Equator Principles could International Council of Toy Industries (ICTI) affect companies in the EAP region, because (China is a member) and a global network of projects financed by these banks must meet such chemical industry associations called the standards. Some of these banks carry loans in International Council of Chemical Associations Asia. For example, Standard Chartered Bank (ICCA) (Indonesia, Hong Kong, the Philippines, lends SMEs in Malaysia as well as businesses in Taiwan, and Thailand are members). Members industries, such as finance and insurance, of these associations are required to follow manufacturing, and agriculture in EAP specific business principles of respective countries. ABN AMRO Bank offices are located associations. in China, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam to support the local In terms of content, codes of conduct are general financing businesses. According to the ABN and rarely have measurable performance AMRO annual report 2004 for the Malaysian criteria. Environmental protection in codes of office, it invests in construction and conduct, corporate policies and guidelines is manufacturing industries among others. generally limited to compliance with laws, Source: See http://www.equator-principles.com. although variations exist depending on the See http://investors.standardchartered.com/ industry. These codes also tend to focus on downloads/SCB_R&A_2004_low.pdf. ethics rather than environmental issues (see See http://www.abnamro.com.my/General/ Annex B). FinanHigh/annualReport2004.pdf Environmental Management Certification and Standards Codes of Conduct Some countries in Asia have their own It is estimated that more than 1,000 codes of environmental management certification and conduct exist today (World Bank 2003). For standards. For example, Korea has its own example, there is a code of conduct for Bankers certification scheme for environmentally (Box 7). These codes are brought to companies friendly companies. However, most countries in the EAP region in different ways. However, seem to follow the existing international few are developed by and for the companies in standards such as ISO 14001 for environmental the EAP region. management--as shown by the increasing number of companies with ISO 14001 20 certifications in the EAP region (Table 2.1). Asia was also triggered by the EU's abolishment of its global quota system for the garment and Companies may adopt environmental textile trade in 2005. It is anticipated that management systems, because it is required by exporters with eco-label certifications may gain their headquarters. Japan-based Canon, Inc. an advantage in the EU market because of the developed its own global environmental EU's existing voluntary eco-labels. management system for its manufacturing plants overseas; four out of nine plants in China were certified to ISO 14001, applying standards Box 8. Thai Petrochemical Industry (TPI) Group that are mostly stricter than Chinese environmental standards. In 2003, waste in Thai Petrochemical Industry (TPI) Group is in the Canon's Chinese plants was reduced by 38 process of attaining ISO certification at all of its plants percent from the 1998 level (Ashida and Plinke in response to their poor environmental performance. 2004). In the late 1990s, the company's factories released foul odors and waste, and the company was sued by the Other companies implemented environmental Harbor Department for discharging wastewater into management systems to increase their sales. the Kon Peck Canal (ONEP 1998). The company had For example, the Cheng Loong Corporation in been seen as an environmental culprit. Two of the Taiwan was able to obtain a major contract companies--ABS Co., Ltd. and TPI Polyol Co., Ltd.-- with Nike because of its Environment, Health, implemented ISO 14001 standards and since then and Safety performance as well as its ISO 14001 have been awarded the ISO14001 certification. The certification26. However, the benefits of ISO rest of the companies plan to implement 14001 certification on the environment is not environmental management systems. always clear as the certification does not guarantee environmental improvements (Box It was not possible to find evidence of specific 8). environmental performance improvements at TPI. According to the Blacksmith Institute's polluted There are over 11,000 companies in the EAP place initiative, adequate monitoring and emergency region that attained ISO 14001. Little information response plans were in place at an industrial area on their actual environmental performance where some TPI plants were located. However, fly improvements is available, which could be due to ash samples collected from a coal-fired power plant the fact that CER has not been undertaken by of the TPI Group showed that all samples were still many companies, that there are time lags contaminated with toxic substances like arsenic, between ISO implementation and actual results, chromium, lead, and mercury. Furthermore, very or that improvements are not being made. fine particles contained in this fly ash could pose a health threat, as they could travel to the lungs. Eco-Labeling Source: Thai Petrochemical Industry (TPI) Group. Eco-labels are a voluntary CESR tool, but Also see http://www.pollutedplaces.org/region/ governmental agencies are involved in eco-label se_asia/thailand/maptaphut.shtml. schemes in some countries. These labels and (Brigden and others 2002). differentiate environmentally friendly products and services from other products and services. In Asia, they are beginning to be viewed as a This link to competitiveness seems to gain a high competitive advantage in global trade, where profile. Unlike codes of conduct, eco labels have trading partners seek credible quality products. been developed by and for some EAP countries. The recent heightened attention to eco-labels in Unlike other schemes to address environmental issues, eco labels are not necessarily overseen by environmental agencies. For example, in 26See http://www.sustainability.com/developing- value/details.asp?bcid=43&sfid=100&bsid=1. countries like the Philippines and Thailand, 21 ministries dealing with industrial standards are metal-free electrical and electronics equipment also involved. The involvement of various components and parts (Cruez 2004). organizations indicates that eco-labels are a tool for businesses and industries to improve their Environmental Label, China. China introduced product and service quality. its own labeling scheme in early 1994. China's Environmental Label certifies a company's Green Mark, Taiwan. In 1992, the Environmental products as healthy, safe, and environmentally Protection Administration of Taiwan launched friendly (Chuan 2004). In early 2000, China the Green Mark Program. The program covers 26 linked domestic eco-labels with international product categories according to the Global standards by adopting ISO 14020, 14021, and Ecolabeling Network (GEN). Many of the 14024, which concern environmental labels, as products are consumer electronic products such national standards28. Its certification process is as computers and printers. In order to be managed by the China Environmental United certified, a company first submits documents to Certification Center, Ltd. (CEC). The CEC is prove that a product meets its pre-determined responsible for environmental label criteria. This is followed by an on-site assessment certification. The State Bureaus of or a random sample check of the product. Upon Environmental Protection also carry out local approval, the Green Mark logo can be used on inspections and examinations as part of the the product. certification process. For Chinese environmental labels, there are 55 product Green Label Scheme, Thailand. The Thai Green categories, including furniture and glass Label Scheme was formally started in 1994 by a dishware (Chuan 2004). The total number of NGO, the Thailand Environment Institute, products with environmental labels increased along with the Ministry of Industry. This from 1,000 products in 1999 to 9,000 in 2003. scheme can cover 39 product categories, Currently, it includes 12,000 products from including washing machines and fertilizers, more than 800 companies (Chuan 2004). however, currently 153 products from 17 product categories are in use27. The certification These individual eco-labels can be cumbersome process is similar to the Taiwanese Green for companies that export to many countries. Mark. After the application and documents are To address this issue, for example, eco-label submitted, a governmental agency, the Thai programs in Taiwan and Thailand are linked Industrial Standards Institute, investigates the by the GEN along with the programs of 26 fulfillment of the requirements. Green Labels other countries. The GEN is a non-profit are generally valid for a maximum of two international association, whose objective is to years. improve and promote eco-labeling programs by sharing objectives and criteria of individual Eco-Label, Malaysia. Malaysia also has an eco- labeling schemes. In addition, there are labeling program. A government-owned bilateral efforts to mutually recognize eco- company, SIRIM, researches and develops labels. For example, the Chinese eco-label is national standards and quality. It introduced a also accepted in Australia under a cooperative voluntary eco-label for CFC-free refrigerators agreement effective in 2005 (Chuan 2005). in an attempt to comply with the Montreal Protocol in the 1990s. In 2004, it initiated the The textile industry, in which some EAP SIRIM eco-labeling scheme for four products: countries are large exporters, is not the only recycled paper, biodegradable cleaning agents, industry that may benefit from eco labels in the environmentally degradable and nontoxic EAP region. For example, Thailand is among plastics packaging material, and hazardous the top 10 cut-flower exporters, although the 27See http://www.tei.or.th/greenlabel/ 28 See http://www.cqc.com.cn/main?siteid=6823 pdf/TGL_Name_May2005_eng.pdf. &classid=9497&docid=9434. 22 Asian cut-flower industry is not as large as enterprises (SMEs). In Hong Kong, the Kenya or Columbia (Van Liemt 1999). The Industry's Environmental Performance Grand existing codes of conduct for the cut-flower Award and the Hong Kong Eco-Business industry include the Kenya Flower Council Awards are given to local companies (Nam codes and the German Flower Label 2004). An award for SMEs, the SME Living Programme. By joining or aligning their Business Awards 2005, was also developed by standards with these initiatives, Thailand may the Hong Kong and Shanghai Banking gain access to a wider market. Corporation (HSBC) with support from the Hong Kong Business Environment Council to Public Recognition Programs recognize SMEs for their responsible and Public recognition programs are sometimes sustainable business management (China News viewed as public relations efforts. However, Digest 2005). the public recognition of CESR activities can contribute to awareness building when Hibiscus Award, Malaysia. CESR awards can be awareness level is low. It can also encourage endorsed by governments. The Malaysian companies to undertake CESR activities, Hibiscus Award is given annually to because the awards can contribute to a good businesses. The purpose of the award is to public image. Environmental awards are one recognize companies for their environmental of the most frequently discussed items in CER, accomplishment and leadership, so that good according to Malaysia's ACCA report corporate environmental performance is (Environmental Resources Management encouraged. This award has been endorsed by Malaysia 2002). the Ministry of Science, Technology and the Environment and supported by the Asian CSR Awards. Awards for CESR activities Department of Environment. Companies such are emerging in the EAP region. The first as ST Microelectronics Sdn Bhd and Advanced regional Asian CSR awards were given at the Micro Devices Export Sdn Bhd received the 2003 Asian Forum on Corporate Social 2002/ 2003 awards. Responsibility in Bangkok, Thailand (Business World 2003b and 2003c). The Asian Institute of Industry Awards, Thailand. In Thailand, Management of the Philippines is the major industry awards include a category for organizer of this award, in collaboration with Environmental Quality Preservation. The Thai international partners. The Asian CESR Ministry of Industry, Thailand Environmental awards have different categories. For example, Institute, and Industrial Estate Authority of an environmental excellence award is given to Thailand select a recipient annually based on commend companies with best practices in comprehensive criteria, including a company's environmental performance and sustainability. environmental targets and achievements, its implementation of clean technologies, its waste Environmental and Social Reporting Awards, management and recycling programs, and its Malaysia. The ACCA Malaysia presents the use of clean products and raw materials, annual Environmental and Social Reporting among others (GM 2005). Awards (ACCA MESRA) since 2002 (Bernama Daily Malaysian News 2004). The ACCA MESRA Corporate Awards, Indonesia. In Indonesia, recognizes companies that disclose their annual corporate awards for corporate environmental and social practices and that governance and financial reporting are given promote the reporting of such activities. since 2001 to demonstrate positive contributions made by companies and to regain investor SME and Local Business Awards, Hong Kong. confidence (Finneren and Rachmawaty 2003). It Award programs have started for local is supported by the Minister of State Owned businesses and small and medium-sized Company, the Directorate General of Tax, the 23 Department of Finance, the Capital Market industrial tree plantation project in the Supervisory Agency, Jakarta Stock Exchange, Philippines. In exchange, the company was the Committee of National Government Policy, allowed to cut 10 percent of the trees grown and Indonesian Institute of Accountants29. The (Business World 2005). The DENR and Meralco award evaluation process includes the ranking agreed in 1991 that the government would lease of participating companies. Although the award a denude land for reforestation for 25 years to does not specifically refer to environmental Meralco. The trees harvested serve as Meralco's reporting, one of the companies that published a electricity poles and other wood-based sustainability report, P.T. Astra International, materials. Meralco also manages three tree Tbk., has been selected for the awards in 2001. nurseries for reforestation and excess seedlings from the nurseries are distributed to schools and Corporate Citizenship Awards, Cambodia. In nearby communities30. This reforestation Cambodia, the government introduced the project not only helps the local environment but Corporate Citizenship Awards in 2005 with also contributes to their core business practices support from the IFC (World Bank 2005a). by producing the materials needed. The Cambodian award is to praise companies with best practices in at least one of the In Indonesia, Unilever initiated and partnered following areas: employment and labor with local agencies and communities to clean up practices, environmental stewardship, the polluted Brantas River in East Java's Malang community engagement, and corporate district. The cleanup was aligned with the governance. company's commercial interests, because its factory, located 5 kilometers from the river, Partnerships needed a clean water supply in order to Partnerships engage a wider range of manufacture soap, toothpaste, and shampoo. stakeholder groups to address common Under the project, the company provided concerns. Broadly speaking, partnerships management expertise, voluntary help, and include the GRI and the Equator Principles (Box equipment donations31. This cleanup improved 7) in which international organizations and the local water quality for the communities and private sector cooperate. They attempt to reflect their core business operations. a wider consensus from civil society on corporate codes of conduct, improve In the Philippines, a non-profit foundation, coordination and collaboration, and share the PBSP, works in a partnership with government, costs of implementation (Jørgensen and others NGOs, civil society, and donor institutions to 2004). In addition, they try to address areas, assist industries to address environmental such as supplier responsibilities, and concerns and impacts in the Philippines. One of harmonization and standardization of codes, the major PBSP's CSR activities is the Industry which corporate self-regulating codes of conduct Waste Exchange Program (IWEP), which fail to reach (Utting 2002). matches companies generating wastes with companies that can re-use those materials. In In public-private partnerships (PPPs), individual another program, the Environmental companies can engage directly with public Management and Public and Private Sector entities. When a PPP works, a project for a Ownership (EMPOWER) aims at improving community or the local environment seems to industry access to its Industrial Environment offer clear benefits for the participating Management (IEM) information and providers company. For example, Manila Electric Co. (Meralco) worked together with the DENR to 30See Meralco's web site: http://www.meralco.com. reforest the stripped land under the Meralco ph/Consumer/commitments/treereforest.htm. 31See http://www.unilever.com/Images/ 29See http://www.bri.co.id/english/berita/ Unilever_mailer_sustainable_development.pdf. berita_detail.aspx?id=11. 24 of environmental services. governmental development agency (GTZ) and major European buyers including Kraft Foods, The PBSP also serves as a resources pool to the project helps local producers' practices with which member companies can donate 1 percent financial and technical support to a local of net income before tax in order to support the processor and improves agricultural practices development of communities and the protection through training classes (Vietnam Investment of the environment. Its members have grown Review 2004). The United States Agency for from 50 to over 180 companies today (Reyes International Development (USAID) also 2003). The member companies include manages projects in Asia to promote sustainable prominent ones in the Philippines, such as APO performance of cocoa, coffee, and fishery Cement Corporation, Cebu Power, Mindanao industries. Development Bank, and a mining company, Oxiana Philippines Inc. The Environmental Management Programme for Industry Competitiveness by the United These types of donations are unlikely to affect Nations Development Programme (UNDP) and the core business practices of the member the Philippines Department of Trade and companies. However, to be a member, donation Industry promotes the adoption and and adherence to the PBSP principles, such as implementation of EMS among SMEs and commitment to social development and business establishes indicators to measure the impact of contributions to the quality of life, are required. such environmental management tools to At least, its membership and yearly donations industries' productivity and competitiveness32. make continuous commitments to the betterment of society at large. Companies can also provide assistance to their suppliers. For example, Sony Technology International organizations also actively Malaysia carries out the Green Partner participate in promoting private sector activities Environmental Quality Approval Programme, to improve their environmental performance. which trains and supports its direct suppliers to The list of such organizations and their activities receive ISO 14001 (Luan 2004b). Companies can are provided in Annex A. also influence their suppliers by adopting green procurement policies. In Malaysia, several Supply Chain multinational companies are following national Activities to influence smaller companies in the policy directives to establish green procurement supply chain are also emerging in the EAP programs by giving priority to products that region. Smaller companies may not have save energy and contribute to the reduction of resources and capacity to undertake CESR waste (Philippine Business for the Environment, activities. However, there are examples that aim 2004). to help smaller suppliers to integrate CESR into their business operations. A multi-stakeholder project, the common code for the coffee community, aims to improve the sustainability of the coffee trade throughout its supply chain, including production, processing, and trading. Supported by the German 32See http://www.pbe.org.ph/epic.htm. 25 CHAPTER 4 LESSONS LEARNED: DRIVERS AND BARRIERS This section discusses the key drivers that companies undertaking environmental emerged from the cases in the EAP region. reporting included meeting the demand for Many stakeholders are involved in creating transparency and accountability as their drivers drivers for CESR, including company owners, for environmental reporting, because shareholders, investors, employees, suppliers, privatization in Malaysia has led to a more customers, communities, and NGOs. These rigorous assessment of companies regarding stakeholders put pressure on companies in reputation and risk (Environmental Resources different ways to demand CESR practices, Management 2002). Along with environmental which becomes a driver for CESR. In this reporting, CESR indexes like the DJSI also context, five drivers are identified in this raised the profile of corporate environmental paper: (1) the business/environment context; performance to investors. (2) global trade; (3) requirements through the supply chain to SMEs, and the informal The examples reviewed in this paper also sector; (4) pressure and support stemming indicate that a stronger relationship with from government actions; and (5) demand external buyers and potential business from civil society. opportunities, such as a new market and export growth, can motivate companies in the EAP Key Drivers region to undertake some CESR activities. Business/ Environment Context. The Environmental issues are being addressed, business/environment context refers to the because international buyers, customers, and general business conditions or factors affecting corporate headquarters demand that the business operations such as reputation, risk, production of goods and services be stakeholder relationship, customers and environmentally benign, as in the cases of suppliers, and market opportunities. A change Canon and the common code for the coffee in these factors can make CESR practices a community project. CESR efforts can make good or a bad decision. businesses attractive to external clients by progressively addressing environmental Reputation and business risk are often seen as concerns. one of the drivers behind CESR implementation, because companies undertake These companies that already incorporate CESR activities to improve companies' future CESR are considered "CESR-ready" suppliers outlook by proactively addressing potential by international buyers because, for example, issues such as environmental damages, they already meet the buyers' standards with regulatory costs, and accountability and their ISO 14001 certification. Buyers do not transparency. For example, MTR in Hong need to train and educate these "CESR-ready" Kong identified attracting investors and SRI as suppliers to be aware of environmental issues the drivers for environmental reporting, and international standards. They are more suggesting that the company was concerned likely to meet the environmental, health, and about business risks and reputation perceived safety requirements in consuming countries by investors. because of their awareness and approach for continuous improvements. In addition, transparency is becoming important in emerging markets, where investor The use of eco-labels also creates a favorable confidence needs to be built. Malaysian business environment for CESR promotion. 26 Eco-labeled products can attract external CESR requirements. At the WTO, for example, buyers as these products already meet the Colombian government has argued that minimum requirements of certain labeling eco-labels were a form of non-tariff barrier (Fox programs. In addition, mutual recognition of and others. 2002). Similarly, ISO standards eco-labels (such as between China and could also become a non-tariff barrier for Australia) further strengthen companies' companies in developing countries, interests in eco-labeled products, because it particularly in the countries without requisites allows immediate acceptance of the products in like qualified certification bodies and staff, if both markets. For example, the mutual they were to become de facto standards for recognition agreement between China and international business (Crooks and others Australia encourages companies in China to 2005). obtain domestic eco-labels, because such products can be accepted and distinguished as Domestic promotion of CESR has the potential environmentally friendly in the Australian to influence domestic companies toward market. greater CESR activities but also to become barriers to trade for companies in other coutries. Even when a country promotes CESR Global Trade. The potential impact of CESR on domestically, it may have trade implications, trade is complex. Implementing CESR may because regulations and CESR codes of the help a company gain markets in an consuming country could influence production increasingly competitive world. On the other in another country through global trade. Not hand, in some cases a national government's all the regulations and CESR codes translate requirements for CESR could be perceived as a into pressure for manufacturing companies trade barrier. Finally, domestic requirements overseas to adopt CESR activities. However, in developed countries may act as a driving some CESR efforts that involve technical force towards cleaner production and CESR in requirements and conformity assessment (e.g., developing countries. eco-labels and product content requirements) Implementing CESR may make a difference in may constitute a barrier to trade (Fischer, an increasingly competitive global market. Parry, Aguilar, and Jawahar 2005; WTO 1999). CESR is seen as one way to differentiate from For example, two EU directives that will be competitors. For example, the Cheng Loong implemented soon may have impacts on Corporation in Taiwan secured a major exporting companies in the EAP region. The international contract by obtaining ISO 14001 European Commission (EC) Directives on Waste and improving its environmental performance, Electrical and Electronic Equipment (WEEE) according to the Sustainability Developing encourages the design and production of Value Matrix33. Companies with CESR electrical and electronic equipment, which take activities may gain easier and faster access to into account and facilitate dismantling and export markets than their non-CESR recovery, particularly the reuse and recycling of competitors. waste electrical and electronic equipment, by On the other hand, when a country requires requiring producers of certain product CESR, it could be perceived as a trade barrier. categories34 in the EU member states to provide Some developing country governments are concerned about being blocked from developed 34 These categories are large and small household country markets if they do not meet these appliances, IT and telecommunications equipment, consumer equipment, lighting equipment, electrical and electronic tools (with the exception of large-scale 33See http://www.sustainability.com/developing- stationary industrial tools), toys, leisure and sports value/details.asp?bcid=43&sfid=1&bsid=1#top. equipment, medical devices (with the exception of implanted and infected products), monitoring and 27 for the financing of the collection, treatment, Generally, direct suppliers of international recovery and environmentally sound disposal of buyers tend to receive support from MNCs, as waste electrical and electronic equipment and to in the case of Sony Technology Malaysia. The set up systems for the collection and recovery second and third tier suppliers (i.e. suppliers of (EC 2005). The EC Directive on Restriction of suppliers) tend to receive less support to the Use of Certain Hazardous Substances in improve their practices. A few initiatives by Electrical and Electronic Equipment (RoHS) international organizations target SMEs, such as requires certain hazardous substances in the GRI's handbook for SMEs and the Common electrical and electronic equipment ­ lead, Code for the Coffee Community (see Table A.1 mercury, cadmium, hexavalent chromium, in annex A for a list of projects). polybrominated biphenyls (PBBs) and polybrominated diphenyl ethers (PBDEs) ­ to be Pressure and Support Stemming from Government replaced by other substances (EC 2005). Actions. Government actions, laws and Although these requirements could put pressure regulations as well as incentives, can be drivers on manufacturers in the EAP region to shift for CESR. Government actions to mandate toward cleaner production and incorporate environmental information disclosure, such as extended producer responsibility so that public disclosure and CER, can indirectly products can meet the consuming countries' provide incentives for companies to adopt requirements, they may also be perceived as a CESR. Information disclosure itself does not trade barrier. require regulatory compliance, though the ultimate goal is to promote the compliance. Requirements through Supply-Chain to SMEs and First, information disclosure educates the public the Informal Sector. Large companies sometimes on companies' environmental performance and work with their suppliers to introduce CESR creates pressure on companies to make practices. This mechanism could potentially be improvements. Investors and shareholders also an important driver for CESR, since small put pressure on the poor performers, as companies consist of a large portion of the financial markets and stock exchanges private sector activities in the EAP region. increasingly recognize that corporate Although detailed information on the informal environmental performance and disclosure sector is not available, the size of the sector is policy affect business risks and long-term thought to be quite large in the EAP region. For profitability. Secondly, information disclosure example, it is estimated that the informal non- educates companies on their performance and agricultural workforce in countries like makes companies realize potential areas of Indonesia and the Philippines reaches 70 improvement. percent, according to data provided by the Bank and ILO (Commission on Private Sector and Regulations and enforcement, not CESR Development 2004). As for SMEs, the Asia- activities such as ISO 14001 certifications, ensure Pacific Economic Forum (APEC) indicates that environmental regulatory compliance (Box 9). 98 percent of all enterprises are SMEs in the Voluntary CESR actions do not fully protect the Asia-Pacific region35. environment and thus they do not eliminate the need for regulations. If regulatory enforcement Buyers in developed countries have attempted is working, companies meet the minimum to influence the supply-chain practices in standards and CESR activities mean beyond- developing countries with some success. compliance activities. Regulations and enforcement complement the CESR efforts by control instruments, and automatic dispensers (see setting the level playing field for all the http://europa.eu.int/scadplus/leg/en/lvb/l21210.ht companies. m). 35See http://www.apec.org/apec/news ___media/fact_sheets/smesmicroents.html. 28 Box 9. Enforcement, not CESR, Ensures voluntary and companies can stop embracing it Compliance at any moment. With sufficient regulatory enforcement and strong awareness, companies A waste handler operating in the Hsinchu will find it difficult to undo the good progress Science-Based Industrial Park of Taiwan, where high-tech production plants generate toxic made by CESR efforts. To promote CESR waste, was caught dumping and polluting the further, governments can strengthen their nearby river, even though the company was enforcement capacity and awareness among ISO14001certified. This incident left the local stakeholders. people without water for two days. As a result, the government immediately revoked its ISO Lastly, governments can provide incentives for certification. companies to undertake business activities that contribute to environmental improvements. In This example demonstrates a failure of Vietnam, the government established the regulatory enforcement. CESR does not replace Environmental Protection Fund to provide regulations and regulatory compliance. ISO financial incentives for companies that 14001 does not guarantee the environmental undertake clean production (Nghi 2002). The improvements or environmental compliance. fund can provide low-interest loans to For CESR to go beyond compliance, a companies pursuing cleaner production; more government needs strong regulations and than 40 companies have shown interest in this enforcement in order to ensure that the program so far (Huynh 2004). Since the change minimum environmental standards are met. in production was required by law, this was not Source: (NHI, the Nautilus Institute, and HRA a voluntary commitment by companies to 2002) improve their environmental performance, and thus it is not a CESR activity. The fund Regulatory compliance is also important for subsidizes and promotes clean production, CESR, because it ensures that companies meet expecting that companies become conscious minimum environmental standards. In about business benefits of material and energy addition, companies with regulatory compliance efficiency such as reduced costs and better are considered to have the ability to understand reputation through better environmental and meet the regulatory requirements. They performance. become attractive for foreign customers and buyers that seek CESR-ready companies. In Demand from Civil Society . Civil society actions other words, "CESR-ready" suppliers are likely can be drivers for CESR activities, because to exist in countries with sufficient regulatory companies seek social acceptability. The EAP compliance. A survey of multinational region can be considered culturally adaptive to enterprises also supports this argument by CESR initiatives. Asian culture tends to put indicating that strong regulations and stronger pressure on companies to seek social enforcement of host governments greatly help acceptance than western cultures, because Asian when seeking "CESR-ready" suppliers (Berman companies are traditionally less focused on the and others 2003). ideas of private property and individualism (Chambers and others 2003). There is a fear that such intense competition in global trade will undermine the progress made But CESR, which reflects the social and with the application of codes of conduct. In environmental concerns of citizens and order to remain competitive, suppliers in Asia communities, is not yet undertaken as a may revert back to compulsory longer working mainstream business practice in the EAP region, hours and compromise workers' safety and except philanthropic donations by larger health conditions (Doane 2005). CESR activities companies. One reason may be that regulatory are independent of regulations. CESR is capacity, particularly enforcement, and 29 consumer and community pressures are weak, manufacturing company repeatedly developed and thus do not demand improved illnesses or died at an industrial site. Although environmental performance by companies. occupational hazards were suspected to be a Weak regulatory capacity and powerless cause, sufficient evidence was not available and consumer and community organizations, the government did not take action. In addition, typically found in developing countries, do not reliable health and safety data was not fully support the effort to promote CESR accessible, because workers were not allowed to (Luetkenhorst 2004). There are, however, a few get information about occupational hazards. examples in the EAP suggesting that civil A coalition of civil society groups campaigned society is working to fill the gap left by weak and demanded that the government establish an governmental regulations and enforcement. independent institute for occupational health and the environment. Although the company Actions involving civil society such as strengthened its occupational hazard campaigns, public disclosure programs, and monitoring as a result of the pressure of active CESR indexes can create pressure on companies civil society groups, the proposed institute is to undertake CESR activities. For example, still under consideration. public disclosure programs help raise awareness and activism among citizens and community Source: (NIH, the Nautilus Institute, and HRA groups, as seen in the improved environmental 2002) regulatory compliance with the PROPER and the Green Watch programs. They inform the public about companies' environmental Main Barriers performance and pollution in their community. Despite the various initiatives to promote CESR In the case of Thailand's industrial site (Box 10), in the EAP region, barriers still exist. These if public disclosure had been required in this barriers include (1) lack of demand and poor industrial site, corrective actions might have awareness of CESR, including what it is and been taken earlier and the illnesses and deaths how it benefits companies and society; (2) might have been prevented. limitations of CESR tools, such as environmental reporting and ISO standards; and (3) financial NGOs and industrial associations are also active and technical constraints to implement CESR. in developing various CESR-related standards. These barriers lead to insufficient pressure and Globally, various organizations, such as incorrect signals by consumers, investors, industrial associations and chambers of regulators, and others. commerce, have programs or policies supporting CESR; however, the extent of Lack of Demand and Poor Awareness. In the EAP involvement is typically superficial or narrowly region, awareness on environmental issues is focused. For example, the FSC's standard covers increasing. Yet, there seems to be a lack of only forestry operations and production. The demand for CESR activities. Companies may ICTI has a policy on labor and the work place, not know how good their environmental including health and safety issues, but performance is or if there are any areas to adherence to the ICTI's policy is based on self- improve. They may not have enough support assessment. Other CESR-supporting activities such as training and financial incentives in order are also described in Annex A. to undertake CESR. They may also not know the benefits of CESR activities. Box 10. Thailand Electronics manufacturing company In Thailand, employees of an electronics 30 Progress has been made in the EAP region. (Canadian Business for Social Responsibility Public disclosure programs and CER can help 2001). Although it is not carried out by companies understand their own performance, governmental agencies, the Prince of Wales because companies may not realize such CESR Business Leaders Forum operates the CSR benefits when they are not required to collect, Forum Project, which aims at serving as a review, and report their environmental central website for CESR practices worldwide.37 performance information. The slow These efforts may be useful in the EAP region. improvements in CESR in the EAP region have prompted some governments to consider Despite the progress, there are challenges with mandatory information disclosure, such as regard to awareness and demand. The first Indonesia and China, and environmental challenge is to create demand for responsibly reporting. In Malaysia, the Minister of Science, produced goods and services. Most customers, Technology and Environment has mentioned both end-product consumers and intermediate the possibility of mandatory environmental suppliers, are not taking part yet in improving reporting (Thompson 2002). Singapore is also the environmental performance of companies considering the same path. A committee, led by through demanding responsibly-produced the private sector and sponsored by the products and services. Studies indicate that Singapore government, has recommended a CESR can easily result in a competitive financial statement of all listed companies to advantage in countries where citizens' awareness include their social and environmental impacts on environmental issues is strong (FitzGerald (Thompson 2002). 2001). However, even in developed countries, "responsible" consumers, as opposed to "ethical" Some companies consider CESR is not about consumers, are not yet sufficiently strong to making environmental improvements in their encourage responsible businesses (Doane 2005). core businesses. For example, businesses in Customers with awareness on environmental Hong Kong as well as China only view CESR as issues do not always purchase environmentally donations to the community and do not and socially friendly products and services. For recognize its benefits (Watson 2004). Some example, a survey of 21,000 American and British companies view CESR as a costly undertaking consumers --many of whom buy goods from the and do not implement such activities. For EAP region-- revealed that many consumers said companies to understand CESR benefits, that they would not buy from companies with training and information sharing may be poor ethical reputations although only 5 percent helpful. of them have actually done so (Daily Telegraph 2005). Translating awareness into demand In some countries, a clearinghouse of CESR remains a challenge worldwide for both information for businesses has been developed. consumers and intermediate suppliers. Companies that have not adopted CESR may not understand what it entails, what benefits it The second challenge is the large number of brings, which codes and standards should be SMEs and companies in the informal sector in the used, or how much CESR costs. Such EAP region. SMEs and the informal sector may information can be provided from a single not have received enough attention from civil source. The Canadian government collaborated society. Exploring the views of stakeholders on with provincial and economic development corporate codes of conduct worldwide, smaller agencies to develop a website, the Canadian- companies generally attract less attention from Provincial Business Centre.36 It provides a single civil society and media because of their small size window for businesses regarding regulatory and impact (Jenkins 2001). With the lack of strong information, although its provision of attention and demand, the pressure to pursue information on sustainability is limited CESR may not be strong for SMEs and informal 36See www.cbsc.org. 37See http://CESRforum.com. 31 sector. There is a need to reach out SMEs and the example, ISO certifications may not be applied informal sector so that they can also realize quickly among SMEs because of the costs environmental performance improvements and involved. Even in economically advanced Hong the resulting long-term prosperity. Kong, SMEs still view CESR as something of a luxury that they can afford only when the Limitation of CESR tools--environmental reporting economy is good (South China Morning Post and ISO standards. CESR tools have limitations. 2004). At the company level, the cost for CESR Some CESR activities do not ensure better activities can be prohibitive for SMEs. The costs environmental performance. In particular, for the first-time ISO certification generally voluntary initiatives such as environmental range from $5,000 to $20,000 including reporting do not guarantee that companies will consultation for environmental management have good environmental records. For example, systems (Utting 2002). Limited information is Unilever received an award from the ACCA for available on the costs involved in ISO its environmental reporting despite the fact that certification, particularly in developing the company did not mention a mercury countries. However, as shown by one study on poisoning accident in India that occurred in the Canadian SMEs, at least 74 percent of the SMEs same year (Doane 2005). An ISO-certified waste cannot undertake ISO 140001 certification due to handler in the Hsinchu Science-Based Industrial the cost. SMEs in developing countries are, Park in Taiwan (Box 9) is another example. therefore, likely to face greater challenges (Johannson 1997). On the other hand, there are CESR activities that have made measurable environmental Time to get certified may be substantial for some improvements. For example, a Vietnamese companies. Obtaining an ISO certification company, Tan Thanh Rubber Processing requires tasks such as performance Enterprise, considerably reduced its wastewater measurement, documentation, development of generation, water consumption volume, and process control and oversight, training of staff, electricity use by applying clean production and evaluation, followed by an external audit. processes (Huynh 2004). However, regional or The time involved varies depending on type and country-level statistics on environmental size of a company as well as its existing improvements through CESR are not available to environmental management system. The US determine CESR effectiveness. Minnesota Pollution Control Agency estimates that it takes 1-2 years38. If any assessment CESR continues to evolve and it may increase requires a factory to shut down operations, it the private sector's responsibility on the also incurs lost production. However, limited environment in the future. However, CESR information is available on the actual time activities alone, particularly environmental needed for ISO 14001 certification, particularly reporting and ISO standards, seem to have a for companies in developing countries. limited ability to improve environmental performance without external pressure. As In order for standards and certification discussed in the section on drivers for CESR, programs to expand in the EAP region, the different stakeholders, such as government and essentials, such as certification bodies, qualified civil society, need to create demand and support auditors and trainers, must also exist. For for CESR, so that more companies would have example, no ISO certification body is yet the incentive to undertake CESR activities. available in Vietnam.39 MNCs may use a certification body from their headquarters, but Financial and technical constraints to implement CESR. Companies in developing countries, 38See http://www.pca.state.mn.us/programs/ems- particularly SMEs, may experience financial and faq.html#3. technical difficulties in implementing CESR. For 39See http://www.iso.org. 32 for a smaller company in Vietnam, it may be financial incentives provided by the difficult to get certified when there is no Government of Vietnam for companies certification body in the country. Thus, there is undertaking clean production. Governments in a concern that developing countries are at the EAP region may benefit economically and disadvantage in adopting international environmentally from providing more support standards (Crooks and others 2005). to promote CESR and growth of the private sector in the region. Financial and technical constraints can be eased by technical assistance and support, like 33 CHAPTER 5 TOWARD A CESR STRATEGY FOR THE WORLD BANK IN THE EAP REGION The review of CESR cases is summarized in a IFC's projects are listed in Table A.140). strength/ weakness/ opportunity/ threat (SWOT) analysis in Table 5.1. In addition, IFC manages four social and environmental facilities to promote CESR and Overall, the SWOT analysis highlights the sustainable businesses in the private sector and existence of opportunities to increase CESR four regional technical assistance facilities that activities and create favorable business improve the business environment for SMEs in environment for CESR. In particular, awareness developing countries (Table 5.2). Social and needs to be built; more attention and support is environmental facilities provide supports for needed for SMEs; regulatory enforcement needs companies to realize the opportunities that to ensure the minimum standards; and CESR offers their businesses. The Sustainable regulations should not to hamper CESR Financial Markets Facility (SFMF) can be activities. Together with the IFC, the Bank can beneficial to many SMEs in the EAP region. work with client governments to address these Regional technical assistance facilities also help challenges. SMEs improve supply chains and sustainable resource management. IFC has been providing IFC's role: promoting CESR through direct supports for SMEs as the SWOT analysis engagement with client companies identified. IFC has been improving its approach to sustainability in its business of financing private IFC also promotes the CESR practices through sector investments. Its new approach will disseminating the CESR examples and their establish performance standards by providing benefits. In 2002, the IFC together with clients with a solid framework to manage Sustainability and the Ethos Institute published business risks and promote consistent a report entitled Developing Value: the business improvements in their sustainability case for sustainability in emerging markets. It performance. IFC also aims to use its client collected examples and analyzed CESR benefits. relationship as an opportunity to encourage a About 30 cases from the companies in the EAP change in the approach to social and region were included. The research on these environmental stewardship, while engaging cases has a dual purpose for the regions like with client companies. For example, it: EAP, where more CESR activities can be undertaken. First, the sustainable business cases advocates the Equator Principles in provide the public with information on developing countries; corporate environmental performance. Second, collaborates with the United Nations to these cases increase awareness among not only promote the Global Compact (Box 3) in citizens, but also other companies and investors, developing countries; and and thus the demand for information as well as Helps market development for products produced by companies with CESR environmentally and socially friendly activities. products and services, such as in renewable energy and eco-tourism industries (some 40More information on IFC's work on mainstreaming sustainability can be found in IFC's annual sustainability report. Available: http://www.ifc.org/ ifcext/publications.nsf/AttachmentsByTitle/2004Sus Report/$FILE/2004SustReport.pdf. 34 Table 5.1: SWOT analysis from the review of CESR cases in the EAP region Opportunities Threats/Risks Business Awareness among shareholders and Regulation (e.g., environmental Environment/Context investors can be increased reporting) may increase ISO 14001 certification and ecolabels encourage CESR activities Global Trade Product and company differentiation Trade barriers (e.g., ecolabels) through CESR-related activities may be created Bilateral trade negotiations Packaging and waste regulations in consuming countries Supply Chain, SMEs and A large number of SMEs and informal firms A few efforts are under way Informal Sector in supply chain can be influenced drivers) Governmental Pressure Disclosure of environmental performance Weak regulatory enforcement ing and Support may be mandated does not create a level play field Disclosure policy for listed companies can (exist encourage CERs Financial support for environmental improvements may be considered (e.g., Strength Vietnamese Environmental Protection Fund) Civil Society Pressure Stronger civil society provides an organized Community pressure may not be effort to press governments and companies strong enough to induce further to take action CESR actions in some places Public disclosure programs may be applied to other regions to increase awareness among civil society Codes of conduct by NGOs and industrial associations may act as standards, especially for export markets Lack of Demand and Awareness of companies needs to be Smaller companies attract less Poor Awareness by increased so that more companies undertake attention (and get less pressure) Companies CESR activities but also less support Awareness needs to translate into actions Lack of Demand and Awareness on environmental issues is Awareness needs to translate into Poor Awareness by Civil growing, which needs to be catalyzed for actions arriers)b( Society greater demand for CESR actions Awareness of civil society needs to be increased to create the demand for information CESR Does not Mean Continuous CESR evolution may increase Regulatory enforcement needs to Weakness Compliance with Laws the responsibility of private sector on complement CESR efforts because environmental issues CESR alone will not protect the environment Financial and Technical Necessary arrangement (e.g., certification Costs can be high, especially for Constraints bodies, auditors, and trainers) needs to be SMEs established 35 Table 5.2 IFC's Technical Assistance Facilities for Sustainable Private Sector Development Program Name Focus Corporate Citizenship Facility Promotes corporate social responsibility in IFC client companies la (CCF) Environmental Opportunities Finances innovative projects that promote local environmental Facility (EOF) benefits ronmenti Environmental Business Works to develop a sustainable market for SMEs, whose activities Finance Program (EBFP) benefit the global environment (renewable energy and energy Env efficiency; ecotourism; sustainable agriculture and agro-forestry; and d Facilities certified fishing) an Sustainable Financial Markets Provides advisory and technical assistance to enhance the social and Facility (SFMF) environmental impact of financial intermediaries and the broader Social financial sector in IFC member countries, and promote increased private sector investment in emerging markets China Project Development Supports the development of private small and medium sized Facility (CPDF) enterprises in the interior of China Mekong Private Sector Supports the development of private, domestically-owned SMEs in Facilities Development Facility (MPDF) Vietnam, Lao PDR, and Cambodia TA Program for Eastern Indonesia Supports expansion of the SME sector in eastern Indonesia SME Assistance (PENSA) Pacific Enterprise Development Supports development of viable small and medium-sized private Regional Facility (PEDF) sector businesses See http://www.ifc.org/ifcext/proserv.nsf/Content/TechnicalAssistanceandAdvisoryServices. There are over 11,000 companies in the EAP paper because they are not always direct CESR region with ISO 14001 certification. Each of the tools. CESR practices may not need them, companies is making (or has made) an effort to although they are helpful. For economic and address their environmental management environmental regulations to facilitate CESR, systems. However, these cases and the results they need to be properly designed to urge are not publicized. Thus, disseminating these companies to strive for innovation and examples may be beneficial for companies as improvements that reduce their impacts on the well as the public in the EAP countries where environment. They could create pressure, point demand and awareness for CESR activities out resource inefficiencies, or build demands for could be increased. environmentally friendly products and processes (see Box 3). Bank's role: promoting CESR through strengthening the capacity of governments Environmental regulations are necessary for While IFC promotes CESR directly among environmental protection because, as discussed, private sector companies, the Bank can promote CESR does not guarantee the compliance with CESR by working with governments. Helping laws. Appropriate regulations and enforcement governments make improvements in regulations do. As for economic regulatory tools, they are and enforcement, and build awareness and not necessary for environmental protection or demand for CESR would lead to a favorable CESR. Some economic regulatory tools, such as business climate for companies to integrate tax incentives and subsidies, typically have CESR activities. purposes other than promoting CESR or protecting the environment. However, they can Regulations. Economic and environmental affect the environment through changing regulatory tools and regulatory enforcement business behaviors. Unintended effects on the have not been discussed extensively in this environment can be negative or positive. Regulations need to complement the CESR 36 efforts and ultimately the environmental to strengthen the capacity of governments protection, such as tax incentives for energy- complements the effort to expand CESR efficient equipment and products. On the activities in the region (Box 11). contrary, for example, subsidies for fossil fuels could undermine the CESR efforts by promoting Awareness Building. Lack of demand and poor the use of non-renewable fossil fuel awareness of CESR still remain as a challenge in consumption. Regulations should not hamper the EAP. The Bank can support countries to CESR efforts. In this regard, the Bank's improve their transparency and dissemination analytical work can support governments to of environmental information. Opportunities to improve the design and enforcement of do this include supporting implementation of regulations. transparency laws, access to information in environmental process, such as environmental As the Bank's Environment Strategy and the impact assessment (EIA) and licensing, and EAP Environment Strategy emphasize, a more programs that disclose environmental comprehensive approach to address information. For example, public disclosure environmental priorities at early stages of programs in Indonesia and other countries policy, program, and development plan is brought together different stakeholders to helpful in ensuring that private sector improve corporate environmental performance. development positively contributes They have proven to improve awareness of the economically, environmentally, and socially. public and companies themselves through Through the use of analytical work such as dissemination of environmental performance Country Environmental Analyses and Strategic information. The Bank can continue to help Environmental Assessments, the Bank can help governments design public disclosure programs governments form policies and regulations that to improve the demand for better environmental send right signals to companies, even if they performance (see annex C for the Bank's support may not directly address private sector for the public disclosure programs). activities. In order to build awareness further among Capacity Building for Governments ­ Enforcement smaller companies and civil society, the Bank and Public Administration. Regulatory can encourage countries to bring together enforcement must exist along with regulations, different stakeholders including private sector, because good regulations may not bring results, public sector, and NGOs into decision-making if they are not enforced. Strengthening processes. By involving various stakeholders in governments' capacity for regulatory decision making, stakeholders will increase their enforcement would help governments achieve knowledge and awareness of environmental the minimum compliance for all companies and impacts and their linkages with corporate create the favorable business climate for CESR environmental performance. This will also lead promotion. Furthermore, smoother trade to demands for information and corporate administration can promote CESR by facilitating environmental performance improvements. In the international trade and thereby increasing addition, the Bank could support client the exposure of domestic companies to the governments in designing and implementing international market standards. For example, reward schemes to encourage voluntary CESR public administration initiatives -- such as activities. technical assistance programs in Vietnam and Cambodia and investment climate assessments Finally, the Bank could continue to encourage -- can help improve the business climate, CESR in other companies through its own integrate companies into the global trading efforts to improve the environmental and social system, and, thus indirectly promote CESR aspects of its operations. The Bank has activities. In this context, the World Bank's effort implemented initiatives such as green 37 Box 11. Improving Trade Administration ­ Trade Increases Companies' Exposure to CESR International buyers and customers can expose companies to their standards, norms and cultures, and regulations. Pressure to undertake CESR may come from such international buyers and customers. This potential positive impact on CESR may not be realized, if a government is not ready for international trade. The Bank supports the improvement of public administration by assessing the quality and predictability of business regulations and government services. This support aims to increase the private sector activities and investments with international business partners. The Private Sector group's investment climate reports identify the inefficiency and ineffectiveness of government policies and services experienced by local businesses. By identifying the bottlenecks, these reports help improve the efficiency and effectiveness of the governments' capacity. Efficient and effective regulatory inspections and business registration can support suppliers improve their overall business performance and opportunities. The Bank provides technical assistance to the Cambodian and Vietnamese governments to improve their public administration and to help companies in the supply chain to integrate into the global trading system. For the Royal Government of Cambodia, the Bank assists the government in addressing the constraints in trade development. Government officials understand that their regulatory processes are acting as constraints. This project aims to address these constraints by reducing transaction costs associated with trade and investment, introducing transparency in investment processes and facilitating access of smaller enterprises to export markets (World Bank 2004). By incorporating rural and informal companies to access export markets, the project will promote these companies' compliance with environmental and other regulations. As a result, it will provide an opportunity for small companies to operate as reliable and responsible suppliers. The Government of Vietnam is currently modernizing its Customs Administration in an effort to improve its functions as part of preparations to join the WTO. Within the Customs Modernization project, the government has introduced modern systems and procedures based on internationally recognized standards and practices. It has also attempted to improve private sector compliance and the investment climate with various incentives (World Bank 2005b). Improved private sector compliance and an improved investment climate will encourage companies' interaction with international buyers. Increased international exposure will likely promote compliance with international environmental standards. Source: World Bank 2004, 2005b. procurement and actions to "green" its facility This paper serves as a first step toward a CESR management (e.g., renewable energy programs). Strategy in the EAP Region. CESR awareness is By building awareness among stakeholders, increasing, built upon the environmental consumers will demand environmentally and awareness in the region. Larger companies have socially responsible products; investors will started to undertake CESR activities. In order to demand companies to reduce risks from spread CESR among companies in the region, environmental consequences; civil society will both the Bank and IFC have important roles to demand companies to protect communities and play. There is a need to improve stakeholder workers; governments will be pressured to activities, including those of governments, design better regulations to facilitate CESR consumers, and investors, which affect further; and suppliers will desire to benefit from companies' behavior and CESR. 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Benchmarking national environmental stewardship. 44 ANNEX A CESR SUPPORTING ORGANIZATIONS ACTIVITIES IN THE EAST ASIA AND THE PACIFIC REGION The following list provides brief descriptions of Asian Development Bank. The Asian Development CESR supporting activities in the EAP region by Bank (ADB) is a multilateral development some of the major bilateral and multilateral, financial institution that promotes economic and nongovernmental, and private organizations. social progress in Asia and the Pacific. ADB encourages governments in the EAP region to Bilateral and multilateral organizations incorporate environmental protection measures Asia-Pacific Economic Co-operation. Asia-Pacific in their project design and implementation Economic Co-operation (APEC) is an inter- procedures and promotes projects and programs governmental forum of Asian Economies that will protect, rehabilitate, and enhance the (Australia, Brunei Darussalam, Canada, Chile, environment and the quality of life. In addition, People's Republic of China, Hong Kong, China, the Asian Environmental Outlook (AEO) 2005, Indonesia, Japan, Republic of Korea, Malaysia, focusing on Corporate Social Responsibility, is Mexico, New Zealand, Papua New Guinea, launched. The AEO 2005 highlights the need for Peru, The Republic of the Philippines, The collaboration between public and private sectors Russian Federation, Singapore, Chinese Taipei, and environmental reform to harness public- Thailand, United States of America, and private partnerships and promote new Vietnam), established in order to engage technologies and greener products. In addition, member countries in dialogue and exchange the ADB has a couple of projects on pollution views on the basis of non-binding commitments. mitigation in industries. Although CSR is not undertaken as a separate agenda, it has been discussed in the APEC Association of Southeast Asian Nations. The meetings during the last few years. In the 2004 Association of Southeast Asian Nations APEC Small and Medium Enterprise Ministerial (ASEAN) is an inter-governmental association of Meeting, environmental awareness was Indonesia, Malaysia, Philippines, Singapore, discussed as a critical factor for APEC micro- Thailand, Brunei Darussalam, Vietnam, Laos, enterprise development, and Thailand's efforts Myanmar, and Cambodia. The purpose of in this area were to be shared among member ASEAN is to accelerate economic growth, social countries. In the 2003 APEC Small and Medium progress, and cultural development in the Enterprise Ministerial Meeting, compliance with region and to promote regional peace and various foreign standards, rules, and regulations stability. ASEAN has a working group on was discussed as one of the small exporters' environment, but it is not focused on corporate barriers. Various corporate codes of conducts responsibility or corporate citizenship issues. may have been imposing additional burdens on The 2002 ASEAN Report to the World Summit small exporters. In the 2002 APEC Women on Sustainable Development lists priority areas. Leaders Network Meeting as part of the APEC These include the promotion of environmental Small and Medium Enterprise Ministerial campaigns and awareness activities such as the Meeting, responsible corporate governance and proposed ASEAN Environmental Awards, the socially responsible business practices were promotion of environmentally sound discussed.41 technologies, and cleaner production such as 41See http://www.apec.org/. 45 programs to reduce waste in manufacturing and Organization for Economic Co-operation and benchmarks to highlight "best practices" for Development. The Organization for Economic Co- certain industries.42 operation and Development (OECD) is an international forum of 30 countries that share a German Public-Private Partnership Programme. On commitment to democratic government and the behalf of the German Ministry for Economic market economy. Its Investment Committee Cooperation and Development (BMZ), a works on the issue of corporate social German government-owned corporation for responsibility. Its main work includes reporting international technical cooperation, Deutsche developments and good practices, improving Gesellschaft für Technische Zusammenarbeit the understanding of business and government (GTZ) GmbH, partnered with private companies roles, and identifying areas of collaboration and local organizations to support sustainable between its guidelines and private initiatives45. private sector development in Vietnam under The guidelines refer to the OECD Guidelines for the program called Public Private Partnerships Multinational Enterprises, which are (PPP). Projects such as ecological production of recommendations to transnational corporations marine products for exports and sustainable operating in or from the 38 adhering countries. coffee production are currently under way43. The guidelines include voluntary principles and standards46. In addition, the GTZ has projects in Cambodia, China, Indonesia, Thailand, and Vietnam. They United Nations. The United Nations (UN) is an focus on pollution reduction and resource international association of governments that efficiency in industries. facilitates cooperation in international law and justice, peace and security, economic International Organization for Standardization. The development, and social equity. There are International Organization for Standardization several CESR initiatives carried out by the UN (ISO) is a nongovernmental organization linking agencies. Although this list is not national standards institutes of 149 countries. comprehensive, it indicates the areas in which ISO developed and maintains international the UN works with the private sector to improve standards for environmental management environmental performance. processes. The ISO 14000 family of standards was first published in 1996. The latest addition Global Compact: The UN Global Compact to the ISO environmental series, ISO 14063, (GC), a global voluntary corporate citizenship "Environmental Management ­ Environmental initiative, was launched in 2000. It brings Communication ­ Guidelines and Examples," together the private sector, UN agencies, and aims to help companies communicate their labor and civil society to encourage the spread environmental performance to external of 10 principles in the areas of human rights, stakeholders. These are voluntary standards, but labor, the environment, and anticorruption. auditing is required for certification. Currently there are more than 11,000 organizations Business Partnership Programme: The UN certified in the East Asia and Pacific region out Industrial Development Organization (UNIDO) of over 90,000 organizations worldwide at the Business Partnership Programme aims to assist end of 2004.44 SMEs in developing countries to meet the mandate of multilateral institutions and international standards brought by global supply chains. It focuses on quality, efficiency, 42See http://www.aseansec.org/. 45See http://www.oecd.org/department 43See http://www2.gtz.de/vietnam /0,2688,en_2649_33765_1_1_1_1_1,00.html. /ppp/ppp_eng.htm. 46See http://www.oecd.org/department 44See http://www.iso.org. /0,2688,en_2649_34889_1_1_1_1_1,00.html. 46 and the international competitiveness of SMEs. several reports with sustainability focus; its Trade increasingly demands that producers and latest report covers the issue of sustainability manufacturers in Asia meet international reporting. standards. This program helps SMEs to increase their competitiveness and environmental The UN Industrial Development Organization performance47. (UNIDO) has a variety of projects and programs to support environmental performance Cleaner Production (CP) Programme: UNIDO improvements of companies. These projects, also encourages cleaner production to increase excluding ODS and CFC phaseout projects (as productivity and environmental performance of they attempt to simply comply with companies in developing countries, including regulations), are listed in the table A.1. It runs China and Vietnam. It aims to give a the Business Partnership Programme which competitive edge, and thereby facilitate their focuses on quality, efficiency, and the access to international markets48. international competitiveness of SMEs and aligns with the Global Compact principles. It Global Reporting Initiative: The Global also carries out the Cleaner Production (CP) Reporting Initiative (GRI) is a multi-stakeholder Programme, which aims to build national CP process to develop and disseminate capacities, foster dialogue between industry and Sustainability Reporting Guidelines worldwide. government, and enhance investments for It was originally established by a partnership transfer and development of environmentally between the UN Environment Programme sound technologies. Many of the listed projects (UNEP) and the U.S.-based Coalition for in the table A.1 fall under these programs. The Environmentally Responsible Economies UN Development Programme (UNDP) also has (CERES). It became an independent institution projects to promote, among others, in 2002. Out of 632 companies worldwide, 11 environmental management for SMEs, energy companies in the East Asia and Pacific region efficiency, and renewable energy. use GRI for reporting. GRI also published a sustainability reporting handbook for SMEs United States Agency for International entitled "High 5!" Developed through a multi- Development. The United States Agency for stakeholder advisory committee, it addresses International Development (USAID) is an issues related to reporting throughout the American federal government agency for supply chain, and highlights the benefits of foreign assistance and humanitarian aids. It reporting49. promotes increased development activity by the private sector by supporting linkages between Other initiatives by the United Nations the business sector and USAID programs Environment Programme: In addition to the UN through an initiative called the Global Global Compact and GRI, UNEP introduces and Development Alliance (Franco, 2002). There are promotes various tools available for at least four projects in Asia to promote environmental management; carries out sustainable performance in the fishery, cocoa, outreach activities and publications, including and coffee industries. Two of these are carried sector-specific partnerships; and sponsors out by the U.S.-Asia Environmental Partnership forums for the mining sector, tourism sector, (USAEP). information and communications technology (ICT) sector, and agri-food production and World Bank. The World Bank (Bank) is an consumption sectors50. It has also published institution for financial and technical assistance to developing countries. The Bank supports CESR in various ways. 47See http://www.unido.org/doc/4364. 48See http://www.unido.org/doc/4460. 49See http://www.globalreporting.org. Its private sector investment arm, International 50See http://www.unep.org/themes/business/. Finance Corporation (IFC), drafted the Equator 47 Principles together with the Equator Banks. For contribute to the promotion of CESR in the East the financial institutions that adopted the Asia and the Pacific region. Since it is difficult to principles, IFC also offers training. Its determine whether projects, programs, and commitment to CESR is also shown by the research contribute to CESR promotion, this list publication of a sustainability report separately includes their projects, programs, and from its annual report. publications with potential direct contributions to CESR promotion through encouraging The Bank's Corporate Social Responsibility environmentally-friendly products and Practice specifically focuses on CSR issues in environmental performance improvements in private sector development by advising companies. This is not a comprehensive or developing country governments and definitive list, but provides areas and types of undertaking research. It assessed the work done by development agencies. The environmental issues of the mining sector in the following projects are excluded: Philippines and developed appraisal tools containing guidelines to appraise the relative Projects that may indirectly promote CESR, merits of a set of public sector options. such as technical assistance to improve customs administration, which promotes There are other projects and programs that international exposure through increased promote CESR activities, including pollution trade. reduction and energy efficiency improvement. Projects that promote compliance with Public disclosure programs on companies' policy and international agreements, such environmental performance have also been as CFC or ODS reduction projects, because undertaken in China, Indonesia, the Philippines, they may not promote further and Vietnam. In addition, the World Bank improvements beyond specific Institute provides programs to increase requirements. understanding of the role of business in society and the capacity for sustainable business Not-for-profit and nongovernmental practices, including projects such as organizations Implementing Environmental and Social Accountability. Accountability was established Accountability and Governance in SMEs. in 1995 as an international nonprofit organization. It aims to bring together members World Economic Forum. The World Economic and partners from business, civil society, and Forum (WEF) is an independent international the public sector from across the world to organization with more than 1,000 corporate promote accountability in sustainable members. Under the Global Corporate development. Although it is focused more on Citizenship Initiative, it works with member the social agenda, it publishes the Responsible companies and other organizations in CSR to Competitiveness Index in collaboration with the organize discussions and produce reports, in Copenhagen Centre, which compared and order to increase businesses' awareness, ranked countries52. engagement, and support for CSR. It held the Asia Roundtable and China Business Summit in Business for Social Responsibility. Business for 200551. Social Responsibility (BSR) is an international nonprofit organization that helps its member The last part of Annex A lists projects, companies integrate corporate social programs, and publications by major responsibility into their operations and development agencies that potentially strategies. It provides information, tools, training, and advisory services and maintains 51see http://www.weforum.org/site/ cross-sectoral collaboration. Its members are not homepublic.nsf/Content/Global+Corporate+Citizens hip+Initiative 52see http://www.accountability.org.uk 48 required to adhere to a set of standards.53 well as environmental monitoring in Vietnam and Indonesia through partnerships with public, Forest Stewardship Council. The Forest private, and civil society organizations57. Stewardship Council (FSC) is a global not-for- profit non-governmental organization that Marine Stewardship Council. The Marine promotes responsible forestry. It provides forest Stewardship Council (MSC) was originally management standard and accreditation established in 1997 by Unilever and WWF and services based on its ten Principles and Criteria became an independent global nonprofit of responsible forest management. organization in 1999. Supported by over 100 organizations from more than 20 countries, it The FSC accredits certification bodies, which developed an environmental standard for certify forestry operations and production. FSC sustainable fishing and an accreditation operates in more than 34 countries. There are program. The accreditation for sustainable almost 260 organizations in Asia that are eligible fishing is provided by independent bodies. No to display the FSC logos. Some critics say this Asian companies are either certified or are in the changes little on the ground, because the process of being certified. The MSC has a companies that are already good performers get program that covers small-scale fisheries in the the certification (Bass and others. 2001).54 Pacific and an outreach program in East Asia58. Green Globe 21. The Green Globe 21, a global Associations affiliation for sustainable travel and tourism, Association of Chartered Certified Accountants. The introduced the international ecotourism Association of Chartered Certified Accountants certification program in 1999. The program is (ACCA) Malaysia59 has sponsored the annual independently audited. As of 2004, participants Environmental and Social Reporting Awards spread across approximately 50 countries. (MESRA) since 2002. The awards are endorsed Depending on the criteria that tourist sites meet, by the Department of Environment, Ministry of they are given different levels in the certification Natural Resources and Environment of process. As of June 2005, 112 companies are Malaysia. Similarly, ACCA Hong Kong60 currently certified worldwide. The certification sponsors the Awards for Sustainability involves annual renewal, requiring these Reporting, and ACCA Singapore61 sponsors the companies to monitor and minimize the Singapore Environmental Reporting Awards. environmental impacts from their operations55. They also report on the status of such reporting in each country. ACCA China62 has not yet International Business Leaders Forum. The developed such awards. International Business Leaders Forum (IBLF) was established in 1990 as a not-for-profit Association for Sustainable & Responsible organization to support sustainable business Investment in Asia. The Hong-Kong based activities, particularly in developing and Association for Sustainable and Responsible transitional economies. It carries out the CSR Investment in Asia (ASRIA) is a not-for-profit Forum Project56 initiated by the Prince of Wales membership organization that promotes Business Leaders Forum, which aims at serving corporate social responsibility and sustainable as a central website for CSR practices investment in the Asia and Pacific region. It worldwide. In the East Asia and Pacific region, conducts research and holds conferences and its current projects include implementation of occupational health and safety evaluation as 57see http://www.iblf.org 58see http://www.msc.org 53see http://www.bsr.org/ 59see http://malaysia.accaglobal.com/ 54See http://www.fsc.org 60see http://hongkong.accaglobal.com/ 55see http://www.greenglobe21.com 61see http://singapore.accaglobal.com/ 56see http://csrforum.com 62see http://china.accaglobal.com/ 49 briefings to raise awareness among investors, Asia Pacific Roundtable for Cleaner Production. The business, and communities63. SRI funds exist in Asia Pacific Roundtable for Cleaner Production Indonesia, Malaysia, and Taiwan, along with (APRCP) is an international nongovernmental more developed economies, such as Korea and and nonprofit membership organization that Singapore. was formally established in 1998. It aims to provide leadership and support for cleaner International Council of Chemical Associations. production and to stimulate the promotion and Responsible Care is the chemical industry's implementation of cleaner production strategies initiative to improve its health, safety, and and technologies in the Asia and Pacific region. environmental performance through national Since its inception, it has held five roundtables chemical industry associations. Since its start in in the region.65 Canada in 1985, 52 national chemical industry associations--members of the International World Business Council for Sustainable Council of Chemical Associations (ICCA)--have Development. The World Business Council for adopted the Responsible Care initiative, Sustainable Development (WBCSD) is a including Indonesia, Hong Kong, the coalition of companies that are committed to Philippines, Taiwan, and Thailand. Responsible sustainable development. The council was Care is unique among voluntary codes of originally conceived in 1991 and merged with conduct, because it has enforcement the World Industry Council for the Environment mechanisms. Although there is no punishment in 1995. Its members consist of 180 companies involved, companies can detect noncompliance, from more than 30 countries, including five because they regularly sell and buy intermediate from China and two from Thailand. These products from one another (Reinhardt 1999). companies represent 18 major industrial sectors. National chemical associations provide periodic It aims to catalyze change toward sustainable reports or devote part of their association's development and to promote corporate social annual report to discuss progress in adopting responsibility and eco-efficiency.66 the common guidelines.64 For-Profit Organizations International Council of Toy Industries. The Sustainability was established in 1987 as a for- International Council of Toy Industries (ICTI) is profit advocacy, consulting, and think-tank a non-governmental organization of toy organization to advocate transparency and associations, originally established in 1975. The accountability for business and others. Although China Toy Association and Chinese Taipei Toy most of its work is concentrated in the OECD & Children's Article Manufacturers Association countries, it has worked with international are members. The Code of Business Practices organizations to publish reports, including was accepted in 1991 and adopted in 1995. Developing Value: the business case for Environmental issues have been discussed at its sustainability in emerging markets.67 annual meetings. However, the code only refers to compliance with laws protecting the environment. 65See http://www.aprcp.org. 63see http://www.asria.org 66See http://www.wbcsd.com. 64See http://www.responsiblecare.org/. 67See http://www.sustainability.com. 50 Table A.1: A list of projects/ programs/ publications by major development agencies that potentially contribute to CESR promotion in the EAP region Agency Project/ Programme/ Country Content to Promote Better Environmental Performance Publication in Private Sector ADB Asian Environment Outlook Regional A publication on CSR in Asia, with related workshops 2005: Corporate Responsibility for Environmental Performance ADB Metro Manila Air Quality Philippines A project to strengthen compliance monitoring and Improvement (Air Pollution subsequent enforcement of emission standards for Control Facility) polluting industries and contribute to the funding of air pollution monitoring equipment for individual or groups of industries as well as the installation of pollution abatement equipment ADB Shanxi Environment China A project to introduce policies which will mitigate the Improvement environmental pollution and environment-friendly technologies to conserve energy and raw materials GTZ Common Code for the Coffee Vietnam A project to develop a global code for the sustainable Community growing, processing and trading of mainstream coffee and ensure the feasibility and sustainability of the code implementation GTZ Enhancing the Thailand A project with a component that includes promotion of competitiveness and eco- eco-efficiency in industry that aims at sustainable and efficiency of small and clean industrial development medium-sized enterprises (SMEs) GTZ Environmental policy China A project to achieve environmental pollution reduction advisory service and through improved environmental policy measures of the environment management Chinese government for enterprises (EPEM) GTZ Environment-oriented China A project to support cleaner and eco-efficient production Enterprise Consultancy through provision of information and know-how to Zhejiang (EECZ) industries GTZ Indonesian-German Indonesia A project with a component that includes reduction of Environmental Programme industry-related pollution and improvement of usage (ProLH) efficiency of resources, capacity building at micro and meso level, pilot-projects and PR campaigns GTZ Multilateral EU trade Cambodia A project that includes the preparation of "A National promotion Action Plan" for developing the commercialization of Organic and GMO free products in Cambodia IFC Cagayan Electric Power and Philippines A project to developing a solar photovoltaic plant to Light Company (CEPALCO) enhance the capacity of CEPALCO's existing 7 MW run- of-river hydroelectric facility IFC Ecolodges: Exploring Global A report summarizing the results of research into the Opportunities for Sustainable sustainability of ecolodges Business IFC Efficient Lighting Initiative Philippines A program to reduce greenhouse gas emissions by (ELI) increasing the use of energy-efficient lighting technologies IFC Fenglin medium-density China A project to finance construction of a new MDF fiberboard (MDF) production line, a laminated-flooring line and MDF printing line among others, but it also addresses the reduction of resource consumption at the plant IFC/ GEF Asian Conservation Philippines A project to conserve significant coastal and marine GEF Corporation biodiversity through a partnership between a private equity investment holding company (Asian Conservation Company) and two local NGOs 51 IFC/ Marine Aquarium Market Indonesia A project to transform the marine aquarium trade of the GEF Transformation Initiative and Philippines and Indonesia to ecological and economic Philippines sustainability using conservation management and rehabilitation IFC/ Sustainable Forestry Indonesia A sectoral project to develop competitive, sustainable WWF and others wood trade with programs to help forestry managers, sawmills, furniture manufacturers, and buyers capitalize on the business potential for producing certified wood products for export by promoting sustainability throughout the supply chain UNDP Barrier Removal for Efficient China A project to address identified market barriers by Lighting Products broadening the China Green Lights start-up efforts into a (Greenlights) major national effort, including upgrading the quality of Chinese lighting products and establishing a self- sustaining market in efficient lighting products and services UNDP Capacity 2015: Partnership Indonesia A project to devise a 30-year plan for the region that for Sustainable Development matches economic growth with needs for social and in Papua ecological security and seek to engage British Petroleum's commitment to corporate responsibility in the `Tangguh' Liquefied Natural Gas operation in Papua province UNDP Capacity 21: Strengthening Vietnam A project to Influence investment decisions of all scales to National Capacities to incorporate environmental considerations, through Integrate the Environment development of new environmental management into Investment Decisions instruments UNDP Capacity Building to Remove Philippines A project with a long term objective of reducing Barriers to Renewable Energy greenhouse gas (GHG) emissions by identifying and removing key market, policy, technical and financial barriers to the development of renewable energy to replace fossil fuel use in the Philippines UNDP End Use Energy Efficiency China A program to remove barriers to the widespread Program (EUEEP) application and practice of energy conservation and energy efficiency in the major energy consuming sectors (buildings and industrial) UNDP Energy Conservation and China A project to remove key market, policy, technological, GHG Emissions Reduction in and financial barriers to the production, marketing and Township and Village utilization of energy efficient technologies and products Enterprise Industries (TVE) in the brick, cement, metal casting and coking sectors in China Phase II UNDP Environmental Management Philippines A project that aims to develop an internationally Programme for Industry competitive Philippine industry sector, specifically the Competitiveness Small and Medium-scale Enterprises (SMEs) primarily through the use of environmental management tools UNDP Industrial Energy Efficiency Malaysia A project to reduce barriers to the implementation of Improvement Project energy efficiency and conservation efforts and will contribute to the rational use and improved energy efficiency in Malaysian industries UNDP Philippine Efficient Lighting Philippines A project consisting of preparatory activities that will Market Transformation culminate in the design of a multi-component program Project that will address the removal of the remaining technical, financial and market barriers to the accelerated introduction/large-scale promotion and commercialization of energy-efficient fluorescent lighting systems UNDP Private Sector Participation in Philippines A project that aims to strengthen the role of the private Managing the Environment sector in environmental management (an environmental (PRIME) partnership of the UNDP and the Philippines' Board of 52 Investments - Department of Trade and Industry) UNDP Promoting Energy Vietnam A project to reduce the greenhouse gas emissions from Conservation in Small and small-and medium-sized enterprises (SMEs) by removing Medium-sized Enterprises existing policy, institutional, technical, informational, and (PECSME) financial barriers to adoption of more energy efficient technologies and practices UNDP Promoting Methane China A project to promote indigenous enterprises that will Recovery and Utilisation build and operate recovery systems and utilize the energy from Mixed Municipal Refuse UNDP Public Private Partnership for Global A project to increase the access of the urban poor to basic the Urban Environment urban services by promoting collaboration between the (PPPUE) private and public sectors; established the Project Development Facility to support the development of joint-venture companies in cities around the world, along with a capacity building element for the analysis and dissemination of best practices and lessons learned UNEP Buried Treasure: Uncovering Global A report to uncover evidence to test the premise that the business case for responsible business is value enhancing corporate sustainability UNEP Driving Sustainability: Can Global A publication that focuses on the ways in which a number the Auto Sector deliver of leading companies in the sector are defining and sustainable mobility? responding to the sustainable mobility agenda UNEP Environmental Management China, A program to promote eco-industrial development, of Environmental Estates Vietnam, including training workshops in Vietnam (1999), China and (1999), and Philippines (2001) Philippines UNEP Environmental Management Global An area of activities to make available environmental Tools management tools to assist individuals and organizations to undertake various environmental management tasks UNEP Finance, Environment and Global A report of the European Seminar on Finance, Sustainable Development: Environment and Sustainable Development on January Corporate Responsibility and 10, 2003 Capital Markets: Managing Qualitative Risk Issues UNEP Greenhouse Gas Emission China, A project to reduce greenhouse gas (GHG) emissions Reduction from Industry in Indonesia, from industry through capacity building in national Asia and the Pacific Philippines, institutions and industry, energy assessments in (GERIAP) Thailand, participating plants, and a review of national policies Vietnam UNEP Industry Outreach Activities Global A program to promote the use of Corporate Environmental Reporting, including the Efficient Entrepreneur calendar that introduces environmental performance measures through a month-by-month programme for SMEs UNEP International High-Level Global Biannual seminars to review and evaluate the progress of Seminars on Cleaner Cleaner Production initiatives worldwide, assess Production obstacles as well as opportunities for further development, and recommend future directions for UNEP's Cleaner Production activities (1998, 2000, 2002, and 2004) UNEP Life and Science: Global Research that demonstrates that most life sciences Accountability, companies fail to acknowledge many of the issues of most Transparency, Citizenship concern to external stakeholders and Governance in the Life Sciences Sector UNEP Offshore Oil and Gas Malaysia, A multi-stakeholder initiative to create a medium to 53 Environment Forum etc. locate and disseminate environmental information concerning the sustainable development of the offshore oil and gas industry, including regulatory profiles of selected countries UNEP Risk & Opportunity: Best Global An international review of corporate sustainability Practice in Non-Financial reports by SustainAbility, the United Nations Reporting Environment Programme and Standard & Poor's UNEP Roundtable "Can Global A roundtable at the International Motor Show, September Sustainability Sell? - 12th, 2003 - Frankfurt/M, Germany Communicating Corporate Responsibility/Sustainability, a business case for the automotive industry" UNEP Strategies and Mechanisms Vietnam, A project to demonstrate how helping national and local for Promoting Cleaner etc. policy makers, industrial associations and financial Production Investments in institutions understand the importance of CP can Developing Countries stimulate such investments UNEP The 1997 Benchmark Survey Global A report that analyses 1000 company environmental reports from 16 sectors and 18 countries UNEP The Global Reporters Global A report that spotlights emerging best practice around the world, focusing on a number of key sectors and hot topics UNEP The Non-Reporting Report Global A publication that aims to promote reporting by exploring why some companies choose to produce corporate environment reports while others choose not to UNEP The Oil Sector Report: A Global A report that aims to increase the number of companies Review of Environmental with environmental reporting, the quality of reporting, Disclosure in the Oil Industry and the comparability of reporting across the sector and industry UNEP Trust Us: The Global Global An UNEP/SustainAbility report that reveals both Reporters 2002 Survey of significant gains and important gaps in the latest crop of Corporate Sustainability corporate environmental, social and sustainability reports Reporting UNEP Virtual Sustainability: Using Global A publication that documents examples of how the Internet to Implement the companies communicate their social and environmental Triple Bottom Line performance online UNEP/ UNIDO/UNEP National China, A program to promote and implement the Cleaner UNIDO Cleaner Production Centre Vietnam Production strategy in enterprises and government (NCPC) programme policies, in harmony with local conditions UNEP/ Global Compact Global A global voluntary corporate citizenship initiative that UNIDO/ offers facilitation and engagement through several UNDP mechanisms: Policy Dialogues, Learning, Country/Regional Networks, and Projects UNIDO Advisory Assistance on Vietnam Preparatory assistance to assist the government in the Avoidance of Environmental preparation of a programme and appropriate strategies Damages and Pollution from that are most effective in achieving the necessary change Artisanal Mining and in the polluting behaviour of the artisanal tin miners Processing of Tin Ores UNIDO Advisory Assistance on China A project that aims at increasing energy efficiency and Reducing Air Pollution improving substantially the environmental performance Caused By Copper Refinery of the so-called poling process in Shanghai UNIDO Assistance in Cleaner China A project to provide advisory services to Jilin Chemical Production of Basic Organic Industries needed for the installation and modification of Chemicals cleaner production equipment for the production of basic chemicals such as acetaldehyde, acetic acid and acetic anhydride UNIDO China Motor System Energy China A project to control the growth of greenhouse gas 54 Conservation Programme emissions by establishing a national programme to promote motor system improvements in factories throughout China UNIDO Corporate Social Global A publication that reviews recent trends in CSR theory Responsibility and the and practice and, in doing so, places special emphasis on Development Agenda: their relevance for small and medium enterprises (SMEs) Should SMEs Care? and on the context of economic development in developing countries. It is argued that at the end of the day, CSR will only prevail and remain an important force if SMEs can be effectively engaged UNIDO Corporate Social Global A report published in 2002 that focuses on CSR Responsibility: Implications implications and potential roles for SMEs in developing for Small and Medium countries Enterprises in Developing Countries UNIDO Energy Conservation and China A project to reduce GHG emissions in China from the Ghg Emissions Reduction in Township-Village Enterprises (TVE) sector by increasing Chinese Tves - Phase II the utilization of energy efficient technologies and products in the brick, cement, metal casting and coking sectors UNIDO Energy Conservation and China A project to review the current manufacturing patterns in Pollution Control in the four most energy-intensive TVE sub-sectors (brick Township and Village making, cement, coking and metal casting), identify key Enterprises marketable technologies and demonstration sites, and formulate an institutional strengthening programme and a commercialization strategy UNIDO Environmentally Sound China A program to reduce environmental pollution and Technologies Programme improve the competitiveness of industrial entities through the adoption of cleaner and environmentally sound technologies UNIDO Establishing Climate- China A project to substantially increase financing to small and Friendly Technology medium-sized enterprises (SMEs) that can provide clean Financing Facility and efficient energy services, thereby reducing greenhouse gas emissions UNIDO Evaluation and Adjustment China A project to strengthen the capacity of the Department of of China's Industrial Policies Long-term Planning and Industrial Policy (DLTPIP) of the For Key Industries To State Planning Committee to revise China's industrial Promote Sustainable policy for the five key sectors in light of sustainability Development (competitiveness, employment and environment) considerations UNIDO Industrial Environmental Vietnam Analysis of environmental degradation and associated Protection Policies problems originating from industrial activities UNIDO Industrial Pollution Control Thailand An assessment of existing policies and strategy in industry-related norms, standard regulations and legislation in environment UNIDO Industrial Pollution Vietnam A project to reduce the negative environmental impacts Reduction in Viet Tri from industrial operations in Viet Tri by carrying out studies to better define the regional impacts, prescribing appropriate guidelines for waste emissions, formulating a strategy to meet these guidelines, and promoting voluntary compliance UNIDO International Conference on China A conference to demonstrate to participating countries Plastics Waste Recycling the applied technologies and the equipment for plastics Technology, Shanghai, 15- 18 waste recycling April 1991 UNIDO Investment Promotion For China A project to assess the policy, institutional and business Environmentally Sound climate existing in the Taihu Basin with a view to 55 Technology For The Taihu identifying opportunities for investing in environmentally Basin sound technologies and processes UNIDO Packaging and the Thailand A project to formulate international technical assistance Environment that aims to establish up-to-date knowledge and advisory capability on environment suited packaging production and recycling at the thai packaging centre UNIDO Packaging Technology and Vietnam A project to establish technological support capability and Development Centre to introduce modern packaging technologies that ensures packaging with minimal damage to environment UNIDO Promotion of Cleaner Cambodia A project to assist the government to improve the Industrial Production productivity and competitiveness of its growing industry base, as well as improve industry's access to international and more local markets, through the application by export-oriented enterprises of cleaner production techniques and technology UNIDO Promotion of Cleaner Lao A program to assist the government to improve the Industrial Production productivity and competitiveness of its growing industry, as well as improve its access to international and more local markets, through the application by export-oriented enterprises of cleaner production techniques and technology UNIDO Reduction of Industrial Vietnam A project to diagnose the causes for industrial pollution Pollution in Ho Chi Minh and inefficient plant operation in and around Ho Chi City Minh City and recommend remedies which may involve changing operating procedures or plant modifications which are expected to increase operating efficiency and profitability UNIDO Reduction of Industrial Vietnam A project to address development of Clean Production Pollution in Ho Chi Minh (CP) friendly policies, assistance to companies in the City, Viet Nam: Phase Iii advanced aspects of CP, feasibility study to explore cost effective ways of disseminating CP, and institutionalization and capacity-building of local R&D institutions UNIDO Reduction of Industrial Vietnam A project to demonstrate how pollution and especially Pollution: Ho Chi Minh City: waste water pollution can be reduced through cleaner Phase Ii industrial production UNIDO Reduction, Control and Vietnam Preparatory assistance to analyze the dyeing, finishing Treatment of Effluent in A and printing departments at the Nam Dinh Textile Mill to Textile Factory determine to what extent they could be modified in order to reduce the effluent UNIDO Support For Upgrading Vietnam A project to establish the institutional framework for the Seafood Products To fishery processing sector so that advice, information and International Standards and guidelines on a number of issues including export Quality Requirements marketing, quality control, financial and environmental issues and project design/technology for fish processing can be provided UNIDO Transfer of Cleaner Process Vietnam A project to improve the environmental performance of Technologies in The Pulp and the pulp and paper industry in Vietnam Paper Industry UNIDO Viet Nam National Cleaner Vietnam A project to promote and disseminate the concept of Production Centre cleaner production through the development and operation of a Viet Nam National Cleaner Production Centre USAID Fisheries Improved for Philippines A project to assess the current fishing industry challenges Sustainable Harvest (FISH) and recommend good fisheries management practices in project in the Philippines order to balance biodiversity conservation with increased fisheries production 56 USAID Strengthening the National Timor- A project to improve production, processing, and Coffee Cooperative System Leste marketing of organic and fair-trade coffee products by the Cooperative Café Timor (CCT), a federation of Timorese- owned cooperatives that produces and exports premium organic coffee in the world specialty coffee market USAID USAEP Environmental Philippines A program to links the sustainable yield of fish stock with Governance (EcoGov) the capacity of commercial and municipal fishing fleets, and link the issuance/renewal of licenses with performance USAID USAEP Sustainable Cocoa Philippines A project to strengthen the partnership between local Extension Services for governments, universities and farmer groups and the U.S. Smallholders (SUCCESS) private sector to better utilize resources to support the sustainable development of the cocoa industry WB Beijing Environmental Project China A project to assist Beijing Municipality to plan cost- effective strategies for a comprehensive environmental protection program, strengthen the policy and institutional framework required, and support priority investments needed to start the process including renovation of a number of highly polluting industries WB Chongqing Industrial China A project to help Chongqing municipality achieve a Pollution Control and Reform significant reduction in pollution and restructure Project productive facilities (iron and steel industry) and establish a strategy and prepare a long-term plan WB Company Codes of Conduct Global Research analyses to determine the content of CSR codes and International Standards: of conduct in apparel, footwear, and light manufacturing, An Analytical Comparison agribusiness, tourism, oil and gas, and mining sectors and the extent to which code content derives from internationally agreed standards WB Demand-Side Management & Vietnam A project to develop and expand demand-side Energy Efficiency Project management (DSM) business programs and develop sustainable business models and mechanisms to support energy efficiency retrofit investments in commercial and industrial facilities WB Diagnostic study of the Philippines A diagnostic study into CSR mining practices of Corporate Social companies operating in the Philippines Responsibility (CSR) activities of large scale mining companies in the Philippines and the respective public sector roles that strengthen CSR WB Efficient Industrial Boilers China A project to reduce Greenhouse Gas Emissions (GHG) Project and emissions of total suspended particulates, sulfur dioxide and nitrogen oxides through the development of affordable energy efficient and cleaner industrial boilers (IB) design and the mass production and marketing of such IB models WB Electricity Generating Thailand A project that includes the regulatory-system reform for Authority of Thailand the energy sector such as formulation of corporate policy (EGAT) Investment Program for environmental and social management Support Project WB Energy Conservation Project China A project to achieve large, sustained and growing increases in energy efficiency and associated reductions in the rate of growth in carbon dioxide emissions and other pollutants as well as to provide access to information on successful domestic experiences, particularly to enterprises 57 WB Forest Certification: Toward Global A paper by the Resources for the Future that illustrates Common Standards the active roles that industry associations, environmental NGOs, national governments, and international organizations in developing and promoting codes of conduct that are formally sanctioned and certified WB Guangzi Urban Environment China A project to improve the environment of Nanning and Project Guilin, in support of sustainable economic growth and poverty alleviation in the region, which includes a pilot project to fund sugar refinery pollution abatement WB Hubei Urban Environment China Part of a phased development program designed to Project improve environmental conditions and management in Hubei Province, including identification of the highest- impact industrial air and water polluters and significantly reduce their pollution WB Industrial Restructuring Philippines A project to strengthen environmental protection along Project with the revival of the industrial sector through credit line and export credits for on-lending to enterprises in eligible industrial subsectors for modernization, expansion and new facilities, including investments in energy conservation and pollution control devices among others WB Laguna de Bay Institutional Philippines A project to assist the Laguna Lake Development Strengthening and Authority, Local Government Units, and other Community Participation stakeholders improve the environmental quality of the Project Laguna De Bay watershed, including the introduction of incentives for environmental management through public disclosure o f environmental performance (Eco Watch) WB Liaoning Environment China A project to assist in financing an investment program Project addressing air pollution mitigation measures in enterprises among others WB Mining Sector Institutional Papua New A project to strengthen institutional capacity within the Strengthening Technical Guinea Mining Department (DoM) and the Internal Revenue Assistance Project Commission (IRC) to administer and regulate exploration and mining projects and to thereby contribute to socially and environmentally sustainable private mineral investment WB Public Sector Roles in Global A report categorizes and discusses the range of roles that Strengthening Corporate public sector agencies have played in providing an Social Responsibility: A 'enabling environment' for corporate social responsibility Baseline Study WB Public Sector Roles in Global An assessment of public policy roles to strengthen Strengthening Corporate corporate social responsibility Social Responsibility: Taking Stock WB Public Sector Support for the Global A report on ways in which governments of developing Implementation of Corporate countries can create more effective enabling environments Social Responsibility (CSR) in for corporate social responsibility in global supply chains Global Supply Chains: Conclusions from Practical Experience WB Race to the Top: Attracting Global A report that identifies business initiatives worldwide to and Enabling Global increase profits by making progress on sustainability Sustainable Business (Business Survey Report) WB Renewable Energy China A project to foster development of a sustainable market Development Project for PV technologies and demonstration of the viability of commercial wind development WB Shandong Environment China Part of a phased development program of Shandong 58 Project Province to improve environmental conditions, including a revolving credit subloans facility to assist heavily polluting small and medium-sized enterprises to carry out pollution abatement such as waste minimization in order to comply with environmental regulations WB Solar Home Systems Project Indonesia A project to facilitate private sector participation in advancing renewable energy commercialization among others WB Southern Jiangsu China A project to strengthen their environmental planning and Environmental Protection management capabilities, including a line of credit for Project large-scale industrial pollution control subprojects and small-scale industrial pollution control subprojects and pilot township and village industrial enterprise environmental management subprojects WB Technology Development China A project to support the government's continuing reforms Project in technology policy and institutions so as to promote the development of clean, productivity enhancing technologies in China's industries WB Tianjin Urban Development China A project to help the Tianjin Municipal Government to and Environment Project increase efficiency and responsiveness of its infrastructure and environmental management systems, including a line of credit for pollution control investments for industrial enterprises to undertake waste minimization or other cost-effective pollution reduction measures WB Western Java Environmental Indonesia A project to lay the strategic framework which will form Management Project the institutional and community foundation for sustainable environmental waste management, including a Community and Private Sector Participation component to provide technical assistance, training, and information on ways to reduce pollution to SMEs WB Yunnan Environment Project China Part of a phased development program of Yunnan Province to improve environmental conditions, including industrial pollution control component with direct financial support for enterprises to abate pollution 59 ANNEX B ENVIRONMENTAL CONTENT OF CODES OF CONDUCT AND POLICY This table shows the environmental codes of conduct, policies, and guidelines of companies discussed in the paper. NAME INDUSTRY COUNTRY MAIN ENVIRONMENTAL CONTENT International Manufacturing International Comply with or exceed all applicable local laws Council of Toy concerning sanitation and risk protection Industries International Chemical International Continuously improve their company's and the Council of chemical industry's performance in protecting Chemical people and the environment throughout the life Associations cycle of their products and processes Novartis Pharmaceuticals (Swiss based) Respect highest standards to protect the (Thailand) Ltd. Thailand environment BP Indonesia Oil and Gas U.K. Comply with the BP Health, Safety, Security and Environment Management System and rules to minimize any damages to the environment Levi Strauss & Textile and U.S. Do business only with partners who share the Co Garment company's commitment to the environment Fuji Xerox Office Equipment U.S. Conduct operations in a manner that safeguards health, protects the environment, conserves valuable materials and resources Thai Petrochemical Thailand Comply with the laws, regulations and Petrochemical international standards; minimize risks to the Industry (TPI) environment and community Group Dow Chemical Chemical U.S. Ensure that products and operations meet (Union Carbide) applicable government and Dow standards British American Tobacco U.K. Comply with all applicable laws and regulations, Tobacco establish procedures for assessing the environmental, health and safety impacts CLP Holdings, Energy H.K., China Comply with all applicable environmental laws Limited and regulations, continuously improve environmental performance Hong Kong Government H.K., China Deliver our services in an environmentally Architectural responsible manner, comply with all relevant Services legislation and regulations as a minimum Department requirement Mass Transit Railroad H.K., China Comply with all occupational health and safety Railway legislation, commit to the continuous review of Corporation environmental issues (MTR) Ford Malaysia - Automobile Malaysia Compliance with laws, rules and regulations Shah Alam Assembly Plant Ford Motor Automobile U.S. Work to provide effective environmental solutions Company and to continuously reduce environmental impacts 60 Siam Cement Conglomerates Thailand Control pollution to meet or exceed all applicable Group government requirements, reduce waste from production and other processes Tesco Retail U.K. Comply with all applicable laws and regulations relating to the environment, commit to reporting on its environmental performance Statoil Oil and Gas Norway "Zero harm" to the environment - conserve biodiversity, limit emissions and discharges as well as land use Starbucks Retail U.S. Work with suppliers that are committed to our universal principles of operating their business in a responsible and ethical manner and helping to protect the environment Citigroup Financial U.S. Run business in an environmentally sensitive manner, support the Equator Principles Shell Refining Oil and Gas Malaysia Aim to have a Health, Safety, Security and Company Environment (HSSE) performance we can be proud of and to earn the confidence of customers, shareholders and society at large Matsushita Electronics Malaysia Comply with environmental requirements, Electric promote 'green products' and 'clean factory' Company programs (Malaysia) Berhad PT Freeport Mining Indonesia Comply with environmental statutes and Indonesia regulations and commit to continuous improvement of environmental performance Rex Hotel Tourism Vietnam Comply with all local environmental legislation and continuously seek to improve its environmental performance Excelbond Metal Metal Malaysia Commit to continual improvement and prevention Recycling of pollution Industries Sdn Bhd HSBC Financial Hong Kong Seek to demonstrate the highest standards of environmental stewardship Canon Office Equipment (Japan based) Contribute to society, including preservation of the China global environment ST Semiconductor Switzerland Commit to Total Quality and Environmental Microelectronics Management and to publish as part of its Annual Report, a specific Social and Environmental report Advanced Micro Semiconductor U.S. Protect the environment and assure compliance Devices with applicable laws and regulations worldwide Kraft Foods Retail U.S. Commit to reducing environmental impact, preventing pollution and promoting the sustainability of natural resources while providing quality products Oxiana Inc. Mining Australia Comply with any applicable statutory laws and regulations, integrate sound environmental management into all of its business 61 ANNEX C PUBLIC DISCLOSURE PROGRAMS AS REGULATORY TOOLS Annex C describes public disclosure programs, which sees ample participation of TV and daily one of the successful regulatory tools that are newspapers, and environmental advocacy used to facilitate CESR and to improve corporate groups. The number of firms/factories audited environmental performance in the EAP region. has been consistently increasing over the past three years: in 2002-2003, ratings for only 85 Indonesia Pollution Control, Evaluation and Rating companies were disclosed; in 2003-2004, the Program (PROPER) II. Indonesia's goal was to number went up to 251, and in 2004-2005, it saw expand PROPER, which was introduced in 1993, a further increase of about 20 percent, thus to a national scale, hoping to evaluate 2000 firms reaching 466 firms. In 2005, not a single in the year 2000. However, overtaken by the company received a Gold mark: 23 were rated East Asian crisis of the late 1990s, the PROPER Green, 221 Blue, 150 Red, and 72 Black (Figure program became dormant between 1998 and C.1). Of the 72 companies rated black, 14 have 2000. also received a Black rating in the two previous PROPER II audits. The latest result shows that In 2001, as the country recovered form the more than half of the 466 companies meet the financial crisis, the Ministry of Environment minimum standards or above. asked the World Bank to help revamp PROPER. Between 2001 and 2002, the original PROPER Figure C.1 PROPER II Rating in 2004-2005 methodology was reworked and adapted to the 250 newly deployed country-wide decentralized 200 administrative structure. As a result, PROPER II es 150 was officially launched in 2002. The new design anip mo 100 would enable the program to reach a much Cfo 50 # larger number of firms and to apply a wider 0 range of performance parameters, including Gold : Green: Above Blue: Efforts Red: Poor in Black: Exemplary standards & meet minimum environmental Substandard indicators for air quality, hazardous waste and environmental good standards management performance performance maintenance that do not with serious resources management, Environmental Impact and meet environmental Assessment requirements, and specifics about housekeeping standards damages factories' Environmental Management Systems. It is based on at least 50 criteria, such as waste Source: Jakarta Post, 2005. management for liquid and hazardous waste, environmental impact analysis, and resources PROPER II is a successful example of an management. A company's rating goes up as it innovative approach to complement the existing satisfies more of these criteria (Jakarta Post, rather weak command-and-control regulation, It 2005). shows how public disclosure can influence other areas, such as informal regulation by Finally, a ministerial decree endorsed PROPER communities, investor preference for clean II and encouraged further community firms, and consumer preference for green development and firm participation. The annual products. It offers another option to ratings are disclosed to the public over the policymakers, but it also imposes new summer months in an official ceremony responsibilities for strategic thinking about the sponsored by the Ministry of Environment, benefits and costs of pollution control, strong 62 commitment to public participation, and a The International Workshop on Beach EcoWatch clever, focused use of information technologies. Program for the Philippines was held in 2004 with 100 participants from various government Philippines EcoWatch Program. Modeled after the agencies, non-government organizations, Indonesian PROPER program, the Industrial academia and private institutions. The local EcoWatch program in the Philippines also rated governments in partnership with other companies' environmental performance with stakeholders in La Union, Cebu, Bohol, and five colors based on companies' compliance Oriental Mindoro in the Philippines also led with environmental regulations. This pilot several Beach EcoWatch consultations. program was undertaken in 1997. Out of 12,000 companies in the Metro Manila region, it Currently, a draft national ecotourism standard involved about 1,000 companies, including is being prepared by the Department of industries such as beverages, food, textiles, and Tourism, which will hopefully include a set of pulp and paper (Business Daily 1998). It required national Beach EcoWatch standards and a self-monitoring and reporting of the data on Monitoring and Evaluation framework. A water quality. In this program, 39 companies national certification for beaches, similar to the were found to be discharging pollution more Blue Flag certification, is also envisioned. An than the regulations allowed (i.e., rating Black) intermediate goal is to test an information and only 26 companies were in compliance with management system and systematic provision of the regulations68. In 1998, the number of public access to information on beach water companies rated black, indicating that quality in the Philippines based on lessons from companies made no effort to achieve the U.S., Europe and Latin America. compliance, declined to 19 (DENR 1998). No follow-up surveys on participating companies China Green Watch Programs. In 1999, Green from this pilot program were found. Watch programs were carried out in two locations in China--Zhenjiang in Jiangsu In 2003, the Philippines decided to extend the Province and Hohhot in Inner Mongolia. Both program nationwide, providing incentives such programs mandated participation for the as permit extensions and reduced frequency of companies selected. For the Zhenjiang program, submitting monitoring reports to high achievers 91 large polluters selected from several (DENR 2003). In 2005, the program disclosed the industries were rated based on their names of 43 companies that were consistently environmental performance, including out of compliance with environmental emissions, inspection records, regulatory standards. However, some of the 43 companies compliance, records of public complaints, and had not even submitted the required self- environmental management systems. It covered monitoring reports (DENR 2005). not only water pollution, as in the Indonesian PROPER or the Filipino EcoWatch program, but The 2003 Philippines Environment Monitor has also air, noise, solid waste, etc. The result identified that water pollution in the Philippines showed that a few companies achieved the affects the health of the population, fishery and highest green rating and 31 percent of the tourism with total damages and costs reaching companies earned a superior blue rating (Wang US$1.3 billion. To improve and monitor the and others 2002). beach environment, the Beach EcoWatch program was designed to raise awareness and For the Hohhot program, the scale of this public address water quality-related issues by disclosure program was smaller than the providing the public with information on water Zhenjiang program. Since it was a poor pollution. economic region in China, the program covered only 56 companies and only water and air 68See http://www.worldbank.org/nipr/ pollution. Companies were selected based on pub_info.htm#ecowatch. 63 their pollution level, their susceptibility to the "Green Bamboo" rating software. There was public pressure, and their ability for a significant shift of results between the two independent action. Among the 56 enterprises, rounds, showing the effort of enterprises to companies that were at least in compliance reduce water pollution. The figures for first increased from 24 percent percent to 62 percent, round changed from no enterprises rated while the companies in the worst categories Excellent and Good and five enterprises rated as declined from 11 percent to 5 percent from 1999 satisfactory to one excellent, one Good and ten to 2000 (Wang and others 2002). Satisfactory in the second round. These two pilot programs in China revealed that The pilot program had also great impacts on governmental support and leadership were other stakeholders involved in the program. important to success, enabling politically weak Technical staff from the enterprises was trained municipal environmental protection bureaus on pollution prevention and quick assessment (EPBs) to disclose the information (Wang and methods. Staff from regulatory agencies was others 2002). In addition, they also trained to use the "Green Bamboo" rating demonstrated that companies improved their software and became more aware of the new environmental performance at both locations approach in using information as an effective where economic and institutional developments management tool. The local communities were significantly different (Wang and others became more collaborative through the 2002). This supports the application of the knowledge of water pollution and the efforts program to other regions where economic and taken by enterprises and regulatory agencies in institutional circumstances may be different. As solving the problems. The mass media had a result, the program has been expanded to 13 proven to play an effective role in putting municipalities in Jiangsu Province involving pressure on the enterprises to improve their about 2,500 companies (Wang and others 2002). environmental performance. Vietnam Green Bamboo Program. In 2002, Green As a result of the pilot program, the Ministry of Bamboo program was created in Vietnam with Environment and Natural Resources allocated assistance from the World Bank as part of an an operational budget of approximately US$ IDF-funded project on Strengthening 20,000 in 2002 to continue the program in Hanoi Institutional Capacity for Environmental and disseminate the experience to other Information Management. 50 enterprises, heavy provinces and cities. In addition, the Danish water polluters in the textile and food Government committed support during the processing sectors, were selected to participate period 2003-2005 as a follow-up activity to in the pilot program in Hanoi. Environmental strengthen the environmental public disclosure, performance of the enterprises was rated and, at the same time, to enhance the capacity of through quick environmental assessment, the environmental information and reporting independent monitoring, and self-monitor system from central to local levels. reporting. The participating enterprises were classified twice in February and June 2002, using 64