CSR, Human Rights Abuse and Sustainability Report Accountability
INTRODUCTION
It is trite that activities of corporations, especially in developing countries, have
resulted in serious human rights abuses. In Africa, this is particularly so with regard
to extractive industries’ operations, the nature and scale of which is well documented
(United Nations Environmental Programme (UNEP), 2011; Owusu-Koranteng, 2004;
Lissu, 1999; Hazelton, 1999). This sector still attracts the most foreign investment
into the continent (UNCTAD 2012) and is therefore, dominated by multinational
companies. This paper includes environmental pollution and degradation as an
integral, and indeed, significant aspect of corporate human rights abuses both in its
own right and also as a precursor to other socio-economic, health, political and civil
rights abuses. Despite the continuing debate on the existence of a separate
recognisable environmental right at international law (Fitzmaurice & Marshal, 2007),
this is less so within the context of Africa. The matter appears quite settled with the
recognition in Article 24 of the African Charter on Human and People’s Rights (1981)
of “the right to a general satisfactory environment ...” and decisions of the African
Human Rights Commission in cases such as SERAC v. Federal Republic of Nigeria
(2000)1 and the Nigerian Federal High Court in Gbemre v. Shell (2005)2.
Furthermore, while specifics differ, the environmental dimension of extractive
industries and human rights abuses across Africa are similar. Both in the mining and
1
Social and Economic Rights Action Centre and the Centre for Economic and Social Rights v. Nigeria,
Communication 155/96, Case No. ACHPR/COMM/A044/1, 2000
2
Gbemre v. Shell Suit No.FHC/B/C/153/05 judgement delivered on 14 November, 2005; Full judgement also
available in African Human Rights Law Report (2005) 151
1
petroleum sectors, lack of proper environmental management practices (UNEP,
2011; Owusu-Koranteng, 2004; Lissu, 1999;) has implications not just for the natural
environment, but also the health and socio-economic rights of local communities
owing to their dependence on the natural environment for needs and livelihoods.
Protests against such pollution are often met with force from state security agents,
allegedly with complicity from corporations, thus giving rise to civil and political rights
abuses. Often, victims have no legal redress owing to inadequate national regulatory
and enforcement frameworks.
These inadequacies stem from factors such as
capacity deficits, governance challenges; and lack of political will to stringently
regulate economically strategic industries (Emeseh, 2006).
For these countries, there was much expectation that CSR touted as being over and
above what the law provides would help address these issues (Ward, 2008) through
companies voluntarily adopting appropriate environmental management, respect for
human rights, and adherence to international labour standards. However, the
promise of CSR filling the regulatory vacuum has remained largely unfulfilled
(Emeseh, 2009; Feeney, 2001). Despite the burgeoning of various voluntary
initiatives (The Global Compact; Voluntary Principles on Security and Human Rights;
Kimberly Process; and Sullivan Principles) and corporate codes affirming a
commitment to CSR, there is little evidence of alleviation of these issues especially
within the environmental context. A UNEP study of oil pollution in Ogoni in the Niger
Delta found high levels of pollution with significant health implications for the local
communities; and remediation which did not meet even the standards set by the
company, Shell. (UNEP, 2011)
Similarly, recent reports from both Zambia and
2
Ghana allege continuing environmental and other rights abuses (Boateng, 2012;
Anane 2011; The African Report, 2012).
Yet, in line with their avowed commitment to CSR, companies routinely publish
glowing reports on their activities in these countries (SPDC, 2006). It is unfortunately
not always easy to check the veracity of claims owing to lack of reliable data or
information from regulatory agencies in these countries. Nevertheless, there is
evidence that companies’ sustainability reports may not always reflect the truth about
their operations. For instance, Emel, Makene and Wangari (2012) found that
AngloGold Ashanti’s reports (from 2004 – 2007)
describing community
development projects undertaken in two communities in Tanzania were ‘misleading,
ambiguous, and omissive’ (2012, p.257). Further, data obtained from field research
conducted in 2005, 2007, and 2010 revealed that projects labelled in the company’s
reports as ‘community development projects’ for water and food supplies, health and
education were actually company-oriented projects for the direct benefit of the
company.
Moreover, even where claims are found to be false, there are no binding at both
national and transnational levels for holding companies accountable for the contents
of these reports. Part of this difficulty lies in the failure to move CSR beyond
voluntarism and self-regulation. As Ward opines, “... the definitional insistence that
‘CSR is only about voluntary action ...’ and the consequent separation of ‘CSR’ and
‘corporate accountability’ serves no one well …”. Corporate accountability is
therefore crucial for the effectiveness of CSR, and in the interests of all stakeholders.
3
Despite calls in some quarters, it is unlikely, at least in the short term that CSR will
be placed on a binding legal platform. This paper therefore explores the possibility of
a compromise within which a voluntary CSR framework, creatively uses information
voluntarily put out in the public domain as a mechanism for corporate accountability.
The paper argues that as with misstatements in financial reports, companies should
be held liable for inaccurate statements made knowingly or negligently in companies’
sustainability reports or other corporate publicity documents as a form of information
regulation. The paper comprises four main sections. Following this introduction, the
next section charts the use of sustainability reports by companies, highlights their
shortcomings and demonstrates the potential for their use as a form of information
regulation. Thereafter, various frameworks at both national and transnational levels
through which information regulation through sustainability reports could be utilised
are explored. The final section is the conclusion.
Sustainability Reporting- Issues and context
External reporting of companies’ non-financial reports started as a response to
demands for more transparency and accountability about environmental issues in
the 1960s and 1970s. However, it was in the late 1980s, following such disasters as
the Bhopal gas leak in India and the consequent public outcry that the first standalone environmental performance reports were published. In the relatively short time
since, there have been significant developments in three key areas in trends and
patterns of reporting: increased number of reports, more comprehensive coverage of
issues, and attempts at standardization/benchmarking. Indeed the Global Reporting
Initiative (GRI), currently the most widely used reporting guidelines states its vision to
4
be “that disclosure on economic, environmental, and social performance is as
commonplace and comparable as financial reporting …”
However, despite the huge steps that have been made, there are a number of
criticisms. One of these is the argument that the term sustainability reports is
inappropriate in light of strict interpretations of sustainability. For instance, Gray and
Milne (2002) contend that sustainability reporting implies going beyond the impacts
of a single organisation’s interactions with ecosystems, resources, and communities
to the impacts of other past and present organisations on those same systems. In
their opinion a better terminology might be the triple bottom line reporting on
financial, environmental and social activities of a company. While this argument has
merit, appropriate labelling of these documents is not central to this paper.
Consequently, for purposes of uniformity, and in line with the general literature and
reports, this paper adopts the term ‘sustainability report’.
More germane to this paper are critiques of the accuracy and credibility of
information contained in these reports which it is argued are generally not subjected
to rigorous auditing processes and little more than public relations documents. There
is undoubtedly a sound basis for such criticisms. As evidenced in Ernst & Young’s
study (2009), which supports an earlier study by Walden and Schwartz (1997),
companies report mainly favourable information rather than a balanced account of
both positive and negative aspects of their performances. The survey reveals that
76% of the reports contained mainly positive data with hardly any negative
disclosures; only 43% of reports addressed all social issues that generated media
attention on the organisation; and only 36% of reports include or discuss stakeholder
criticisms. The finding is particularly revealing when one considers that these are
5
reports from some of the leading companies in Europe with arguably better reporting
standards than those in emerging countries such as Brazil (Global Researchers,
2008). Other factors which further lend credence to criticisms of reports include the
non-use of standardized forms of reporting and credible external auditing, even
though both of these are required or recommended by most reporting guidelines,
including the GRI; and confirmed examples of “greenwashing” by companies. This
has led some to argue that social and environmental reporting by companies will
only become useful if it is mandated under legislation with clear requirements and
criteria (Gray & Milne, 2002).
However, while acknowledging these limitations and shortcomings, this paper posits
that in light of the stakeholder and legitimacy theories, information from these reports
can be useful for various stakeholders such as environmentalists, the media, and
even competitors, as a basis for challenging specific corporate claims, possibly even
through the formal legal system as an indirect form of informational regulation. This
argument is developed further below.
SUSTAINABILITY
REPORTING:
DEVELOPMENTS
AND
REGULATORY
FRAMEWORK
The increase in numbers of companies producing sustainability reports in a relatively
short time has been acknowledged by commentators as nothing less than dramatic
or phenomenal. Figures available from CorporateRegister.com, which has the
largest database on such reports, show that while only a handful of companies
mainly in the chemical and oil and gas industries had such reports in 1992, this has
now increased to well over 3000 from a broad range of industry sectors
6
(CorporateRegister.com, 2012). This accounts for stand-alone reports only and does
not include instances where non-financial disclosures may be contained in other
forms of company documents or websites. The majority of reports are from Europe,
although trends show notable increased levels of reporting in most other regions of
the world except Africa and the Middle East.
Also, reports now cover a much
broader scope than simply environmental issues. So, whereas the environment
accounted for 80 percent (80%) of output of such reports in 1992, by 2008, this had
dropped to about 15 percent (15%) only. These newer sustainability reports which
have evolved from environmental performance reports, are considered to be a more
holistic approach to providing non-financial information about corporations by
evidencing a company’s systemic and systematic management of not just
environmental concerns, but the core issues covered by Corporate Social
Responsibility such as labour, health and safety, human rights, business ethics, and
other socio-economic concerns or impacts of operations.
Significant steps have been taken towards addressing one of the main criticisms of
these reports: - standardizing performance indicators and general guidelines for
reporting in order to facilitate or enhance greater comparability of reports. Attempts
to provide such a framework either generally or for specific sectors took off pretty
early. However, not until recently, following the establishment of the GRI that there
appears to be a relatively broad based acceptance and use of a uniform set of
reporting guidelines. Thus while in a survey by KPMG (KPMG, 1999), there was only
5% reported use of any specific guidelines, in 2009, Corporate Register.com reports
that about a third of reports adopted the GRI guidelines. The smaller survey by Enst
7
& Young (2009) gives an even higher figure of 81%, although this may be
understandable because of the pool from which it drew its sample.
In the face of these important developments in sustainability reporting, it is
interesting to note that corporate reporting started on a voluntary basis by
companies, and grew within a framework of voluntary opt in schemes which either
required (such as the EU Eco-Management and Audit Scheme (EU EMAS)) or
recommended (such as International Standards Organisation (ISO)) reporting. This
dominance of non-regulation is particularly interesting when it is noted that one of the
key drivers for external environmental reporting was the US 1986 Emergency
Planning and Community Right to-Know Act which following the Bhopal gas leak
required specified companies to submit annual data to the Environmental Protection
Agency on release of certain toxic chemicals. Reporting still essentially occurs within
a framework of voluntarism, although the number and nature of voluntary initiatives,
guidelines and guidance have grown over the years (UNEP/KPMG, 2006). However,
some of the more recent initiatives such as the IFP’s Equator Principles and the
Johannesburg Stock Exchange Socially Responsible Investment Index (JSE/SRI
Index) arguably have significant implications for corporations’ traditional core focus
on business growth and shareholder value.
While sustainability reporting did grow within a voluntary framework, lack of
mandatory requirements for and standards in reporting, it has been suggested, is the
reason why “it is neither practised systematically by organizations nor able to claim
either universal recognition or universal definition” (Gray, Kouhy & Lavers, 1995;
Nahal, 2002). The trend, especially since the turn of the century in certain regions
and jurisdictions (EU, US, Australia, Netherlands, Norway, Sweden, Denmark, and
8
France, Japan) has been towards increasingly requiring varying degrees of
mandatory non-financial reporting (UNEP/KPMG, 2006). As criticisms over quality of
reports continue, it is likely that this practice may become more widespread, and
conditions more stringent in those already requiring mandatory reporting. For
instance, in November 2007 Sweden published new “Guidelines for external
reporting by state-owned companies” and announced a mandatory requirement for
all state owned companies to file an annual sustainability report based on the GRIG3) Guidelines before the 31 March each year, from 2009 (GR Press Resources,
2007).
However, whether or not mandatory reporting requirements will in itself substantially
improve the quality of reports is debatable. Studies examining reports in Norway,
Australia and France, all countries where there are mandatory reporting
requirements, reveal that strict compliance with the relevant laws were quite low.
Vormedal and Ruud (2006) found from their survey of reports from the 100 largest
companies in Norway that only 10% of reports complied strictly with legal
environmental reporting requirements. Similarly, Utopies, SustainAbility & UNEP
(2005) found that not only smaller companies, but as many as 20 of the 120
companies on the SBF 120 Index (the most actively traded stocks listed in Paris),
completely ignored the reporting requirements. Of those that did attempt to comply,
two thirds reported on less than 40% of the required indicators. Finding similar noncompliance in Australia, Bubna-Litic (2008) posits that optimal reporting in
accordance with the guidelines can only be achieved where there is effective
enforcement by a regulatory authority. However lack of specificity with regard to
9
indicators and reporting guidelines could also be faulted for poor compliance (Baue,
2002). This would explain Sweden’s initiative to specify use of the GRI guidelines.
If corporations are not complying fully with mandatory requirements, why then is the
number of sustainability reports even under a voluntary framework growing?
Understanding the rationale for corporate decision to publish these reports is a
helpful indicator of how relevant stakeholders could meaningfully use the information
contained therein for their own ends.
WHY DO COMPANIES REPORT?
Corporate motivations, and indeed the theoretical underpinnings for sustainability
reporting, especially within a voluntary framework has long been an interest of
researchers in the fields of accounting, management and business ethics (Ullmann,
1985; Puxty, 1986). However, Gray, Kouhy, and Lavers (1995) note in their review of
the literature on the subject, that there has not been any “agreed theoretical
perspective”
in
the
analysis
of
sustainability
reporting.
This
is
perhaps
understandable considering sustainability reporting straddles various academic
fields; issues are relatively novel; their precise nature and scope inherently
contestable; and its core ideas challenge established understandings about the role
and obligation of corporate entities. For instance, according to Gray, Kouhy, and
Lavers (1995), there is an inherent conflict between the issues raised in sustainability
reporting which appear to highlight the failure of the free market in addressing the
injustices of corporate action on ordinary citizens while pure economic accounting
theories are predicated upon the success of free markets.
10
Despite the plurality of academic interests and conceptual paradigms, two dominant
theoretical approaches - the stakeholder and legitimacy theories - emerge in the
literature. Although separate theories, they are not necessarily competing theories
but rather overlap and reinforce one another. While there are varying views or
interpretations of the stakeholder theory and its implementation in practice, at its
core is the move away from the narrow conventional view of the firm with its focus on
shareholder value, towards one which takes account of the interests of all its relevant
stakeholders (Freeman, 1984; Donaldson & Preston 1995; Mitchell & Agle, 1997).
Within this context, sustainability reporting demonstrates a company’s recognition of
their obligation to a wider group of relevant stakeholders, and their entitlement to
information about issues concerning them in much the same way as the
shareholders are entitled to financial information about the company. Aguilera &
Jackson (2003) suggest that the influence of the stakeholder theory on sustainability
reporting can perhaps be seen in the higher numbers of reporting companies and
more comprehensive mandatory reporting requirements in European countries such
as Norway, Denmark, and the Netherlands, where a stakeholder concept of the firm
has been most dominant.
Although, there are inherently ethical underpinnings to this theory, a stakeholder
approach to management is essential for the survival and free operation of
corporations. This is underscored by the impact that certain stakeholder activities
such as negative campaigns by environmental and human rights groups, boycott of
goods/products by consumers, and disruption of operations by local communities,
have on productivity, profitability and share value of the companies affected. This
would also explain why it was especially larger companies with well-known corporate
11
identity and reputation in certain industries facing a crisis of trust with critical
stakeholder groups who took the lead in sustainability reporting. Sustainability
reporting becomes a useful tool for fostering dialogue between the company and its
stakeholders. Here, the stakeholder analysis of motivations for sustainability
reporting merges and overlaps with the legitimacy theory.
Analysis of corporate motivations based on the legitimacy theory sees reporting as a
strategy adopted by companies to legitimise actions which management perceives
as potentially or actually detrimental to its reputation, with possible implications for its
profitability and ultimate survival. According to Lindblom (1994), when there is a
crisis of or threat to legitimacy between “an entity’s value system … [with that] of the
larger social system of which the entity is a part [owing to] a disparity, actual or
potential … between the two value systems, that entity may adopt one or all of four
approaches to seek legitimation depending on the cause of the “legitimacy gap”.
These strategies include information about actual changes within the organisation in
recognition of and response to failures within the organisation that led to the
“legitimacy gap”; changing perceptions that led to the “legitimacy gap” where they
are believed to be misconceptions by the organisation; deflecting attention from the
issue causing the “legitimacy gap” by addressing other issues (essentially reframing
the focus of the discourse); and finally, seeking to change or lower expectations
where the organisation believes these to be either not legitimate or realistic.
Each
of these strategies involves information management with its relevant public- evident
in sustainability reports.
Whichever of these theories one subscribes to, it is safe to conclude that it is
important to these companies to demonstrate their commitment to sustainability
12
principles to relevant stakeholders through sustainability reports. Unless one
believes that the motivation for this is purely ethical and/or altruistic, the obvious
conclusion to be drawn from the largely voluntary uptake is the corporate advantage
derivable from making such reports. Inherent in this corporate motivation for
voluntary sustainability reporting is its potential as a means for indirect regulationeither through the formal legal system or indirectly by bringing pressure to bear on
companies to change their attitudes.
To do so, one has to move the analysis away from a focus on the organisation’s use
of information as a strategy for creating legitimacy and accountability in the minds of
the stakeholders to a focus on the stakeholder and their use of information as a
strategy for holding businesses accountable. In truth, this is not really a new
paradigm. Corporations have for long had mandatory financial disclosure
requirements - a strategy of informational regulation. More recently, economic and
legal discourses on optimal environmental regulation of corporations highlight the
utility of public disclosure of information as a potentially valuable means of indirect
regulation, and a complement to the conventional and often criticised dominance of
the command and control approach (Jacobson, 2003; Case, 2001; Vandenbergh,
2004). Informational regulation operates through creating incentives for change in
behaviour and attitudes of the company owing to pressure from relevant
stakeholders. According to Case (2005:383), “market forces unleashed by public
information disclosure create incentives for self-regulation not provided by traditional
regulatory approaches”
The pivotal role of the public’s access to information as a useful environmental law
regulatory tool was recognised by Principle 10 of the Rio Declaration which underlies
13
the binding UNECE Convention on Access to Information, Public Participation in
Decision-making and Access to Justice in Environmental Matters (Aarhus
Convention) 1998. Principle 10 clearly states the rationale for “making information
widely available” as being to “facilitate and encourage public awareness and
participation …” Clearly, the focus of the Principle is on the responsibility of States,
not corporations, to make available environmental information in their custody, and
participation as envisaged therein is a much broader, complex concept.
Nevertheless, there is ample scope for informational regulation through pressure
owing to such information being made publicly available. For instance, the TRI in the
US, was hailed as a successful example of informational regulation owing to very
significant voluntary reductions in reported emissions (48% over a 12 year period
according to the EPA). This flowed in part from the availability of the information in
the custody of the EPA to the public and the consequent pressure this brought to
bear on the companies (U.S.EPA, 2002; Wolf, 1996). The negative pressures from
this publicly available information also influenced the growth of sustainability
reporting as companies, using legitimation strategies identified by Lindblom,
published stand-alone environmental reports painting a more positive picture of their
environmental performance (KPMG 1999). A recent example of the power of such
negative information is the decision by Starbucks to pay more taxes following
revelation of their tax practices in the UK even where there was no allegation of
breach of tax rules (Neville & Treanor, 2012). Although the Government and
Parliament are ultimately responsible for the failings of the tax rules, yet, the real
question from the perspective of CSR must be whether it is ethical for a company to
aggressively exploit regulatory loopholes to the extent that it pays no taxes
whatsoever.
14
Clearly, there is a fundamental difference between sustainability reporting and more
conventional informational regulation models such as TRI and even the EU EMAS,
that is, its essentially voluntary nature so that there is no “regulator” or institution
through which reported information is filtered. Nevertheless, information in
sustainability reports can arguably be used in a similar way to bring pressure on
companies to change their attitudes and behaviour. The main difficulty with this
appears to be issues of credibility of reports such that critics dismiss reports as a
whole rather than critically evaluate their contents. Most surveys of reports are very
general, seeking merely to evaluate methods and patterns of reporting rather than
drawing conclusions from their actual contents (KPMG, 1997; Ernst & Young 2007).
While conclusions from this may in themselves be damning, yet, by tarring all reports
with the same brush, there is no incentive for individual companies to do better; or
recognition of those adopting best practices in their reporting by using the GRI
reporting principles ostensibly ensuring consistency and comparability of their
reports. This is underscored by the UNEP/ KPMG (2006:6) report’s opposition to “the
position that classifies all sustainability reports as “greenwash” and therefore, as
fundamentally flawed, subjective, manipulative and untrustworthy.”
Indeed, even where reports are merely “greenwashing”, the potential still exists for
imaginative use of its contents for purposes of informational regulation.
For
companies, publishing reports is not an end in itself, but is aimed at advancing a
corporate strategy to engage relevant stakeholders to achieve certain outcomes. To
realise their aim, the contents need to either be believed as true, or be impossible to
positively controvert or raise reasonable doubts about. Raising awareness about
their falsity therefore diminishes their usefulness. There is also the possibility of
15
formally holding companies to account for false statements. Thus, both the general
public and other organised stakeholders such as the media and the NGO community
can play a key role as watchdogs. This will be no more than the role they currently
play in naming and shaming through various reports, campaigns and protests, or
successfully lodging formal complaints against errant companies involved in
unsustainable practices, or “greenwashing”. For instance, in 2008, the World Wide
Fund (WWF) was able to successfully challenge a Shell advertisement branding its
Canadian tar sands operations as sustainable, with the British Advertising Standards
Authority (ASA). The WWF stated that this sent a strong signal about the
unacceptability of “greenwashing”, then disseminated this ruling through an
advertisement campaign (Hickman, 2008). Similarly, ASA upheld a public complaint
about Toyota’s advert that their Lexus RX 400 was "perfect for today's climate …
[and] makes environmental, and economic, sense" as breaking truthfulness and
environmental claims (Sky News, 2008).
Similar complaints against Saab
automakers and easyJet airlines about environmentally cleaner claims have also
been upheld (BusinessGreen, 2008) The Australian Competition and Consumer
Commission also held that claims by the Goodyear tyre company in an advert that its
Eagle LS2000 tyre range produced fewer CO2 emissions were unsubstantiated and
in breach of the Trade Practices Act and ordered the company to partially reimburse
its customers (McCulloch, 2008). As more awareness about “greenwashing” is
created, some countries are tightening their advertising rules, and professional
bodies providing guidance on sustainability communications (Australian Competition
and Consumer Commission, 2008; Norwegian Consumer Ombudsman’s Office,
2007; Chartered Institute of Public Relations, 2007).
16
From the analysis above, a holistic approach to the evaluation of reports, including
apparent shortcomings can produce useful insights which can form the basis for both
formal and informal information regulation. For instance, the fact that companies fail
to use reporting guidelines, have external auditors, fail to present quantifiable data,
or have negative disclosures all go to paint a picture of that company which can be
utilised by activists and other stakeholders. More importantly, where actual
misstatements are made, formal measures can be adopted to make companies
accountable. In the next section we explore some of the frameworks that can be
employed to ensure such accountability.
Sustainability Reports:
Frameworks for Accountability on False and
Misleading Statements
There are undoubtedly a range of mechanisms that be utilised to hold corporations
accountability for false and misleading statements in sustainability reports. This
paper identifies and recommends the following four frameworks: information
regulation at domestic level; green and ethical investment; transnational- OECD
national contact points, and multilateral lending Institutions.
Information Regulation at Domestic Level Approach
In most countries including those in Africa, companies incur liabilities (civil and
criminal) for making false and misleading financial statements. For instance, in
Nigeria, Under the Securities and Exchange Commission (SEC) Rules and
Regulations 2000 (as amended) made pursuant to the Investment and Securities Act
(ISA) 1999, the SEC is statutorily empowered to prevent and deal with cases of
false and misleading financial statements by companies registered in Nigeria.
17
Sanctions for false reporting or misstatement in financial reports are directed at both
the company and its officers, and the auditors. These include payment of fines,
suspension of officers, managers and directors of the company from operating or
being employed in the capital market, or holding any directorship position in a
Nigerian company; payment of fines by conniving accountancy firms; and possible
referral of individuals to the Economic and Financial Crimes Commission (EFCC) for
investigation and prosecution (Angahar, 2012).
Underlying this is the fact that the right to know by shareholders and consumers
respectively encompasses the right to know the truth to be able to make wise and
informed decisions. This should also be the case for environmental and social
reporting as stakeholders deserve to know the truth of what companies are doing in
their areas of operations. Consequently, information regulation can be extended to
hold companies, and auditors of their reports, accountable for false and misleading
statements in sustainability reports. Indeed, John Ruggie’s “Protect, Respect and
Remedy framework” (UNHRC, 2011) particularly calls on governments to protect
human rights through the use of legislation. Such legislation will strengthen not just
regulatory agencies, but also civil society organisations in their bid to hold
corporations accountable. If both traditional sanctions, as well as innovative ones like
self-advertisements through public withdrawal of statements and apologies are
employed, in light of our discussions on the stakeholder and legitimacy theories,
such risks will counteract to some extent the strategic corporate reputational
advantage in making misleading or false statements. To reduce the evidential
burden on regulators and other stakeholders, the onus of establishing the
truthfulness of statements should be on the one whom so alleges- the company.
18
2. Green and Ethical Investment Approach
Whether within the narrow construct of green investment – investing in reduction of
greenhouse gas and other pollutants; or a broader approach that includes social
concerns (ethical or socially responsible investment), a growing body of vocal green
or ethical investors are integrating sustainability concerns in their investment choices
and requiring information on environmental and social aspects of company
operations. For instance, shareholders at a Washington DC Newmont Mining Annual
General Meeting questioned its management and Board of Directors about
operational and reputational risks that the company faces in Peru over failure to
obtain the free, prior and informed consent of local communities. They also
requested ‘additional disclosure on the company’s environmental and social
guidelines and practices, including Board oversight of these issues’ (Christian
Brothers Investment Services, Earthworks, and Maryknoll Sisters 2012).
Indeed, there are now Green Banks such as the Green Investment Bank
(headquartered in Edinburgh) established by the United Kingdom government in
2012 to finance projects aimed at environmental protection and preservation (House
of Commons Environmental Audit Committee, 2011). This affects the core area of
businesses as it has implications for investment decision-making and consumer
choices and can therefore be utilised as a form of informal and indirect information
regulation.
However, this approach will be most effective if such misleading
statements are verified either through the formal process above, or informally by civil
society organisations.
19
3. Transnational- OECD National Contact Points
Owing to weak domestic regulatory systems, transnational opportunities for
accountability are crucial within the context of Africa. The Organisation for Economic
Cooperation and Development’s (OECD) Guidelines on Multinational Enterprises
which promote such issues as human rights, environmental protection, and anticorruption, offers a unique platform through its National Contact Points (NCPs),
established as a complaints mechanism for aggrieved parties, for stakeholders to
hold companies accountable for false and misleading sustainability statements.
Under the Guidelines, Multinational Enterprises cannot “make representations or
omissions … that are deceptive, misleading, fraudulent or unfair.” This recognises
that consumers increasingly have an interest in “a broad range of economic, social
and environmental issues” which impact on “their choices [for] goods and services”;
and therefore deceptive, misleading, fraudulent and other unfair commercial
practices can distort markets at the expense of both the consumer and responsible
enterprises (OECD, 2011: 82; 88). Under the Specific Instances procedure, the
NCPs can consider allegations that the behaviour or activity of a Multinational is
inconsistent with the OECD Guidelines. Where the NCP agrees to take on a case, it
will mediate, conciliate or investigate the alleged breaches and make a determination
whether or not the company is in breach of the Guidelines.
The importance of this mechanism for false statements is highlighted in a complaint
brought before the United Kingdom’s and Netherland’s NCPs, by Amnesty
International, Friends of the Earth (FoE) International, and FoE Netherlands against
Shell Nigeria (OECD Watch, 2011). The complainants’ allegation in the context of
this paper is that Shell violated relevant provision of the Guidelines by making false,
20
misleading and incomplete statements about incidents of sabotage to its operations
and sources of pollution in the Niger Delta, and their clean-up operations, the effect
of which was that victims were unable to claim appropriate compensation under
Nigerian Laws. The complainants support these allegations by relying on evidence
from the 2011 UNEP Environmental Assessment of Ogoniland (2011) which
contradicts
Shell’s
communications
on
these
issues.
Contrary
to
Shell’s
communications and statements (Shell Dialogues Webchat, 2011), the report, found
among other things, that Shell’s own internal procedures were not applied, and that
ten out of the fifteen investigated sites which Shell records show as having
completed remediation, still had pollution exceeding Shell (and government)
remediation closure values. It also found that Shell’s new Remediation Management
System which was an improvement still did not meet local regulatory requirements or
international best practices.
Although the Final Statement of the NCP fell short of the expectations of the
complainants by not holding Shell accountable, it nevertheless recognised that
“Shell management should have had a more cautious attitude about the percentage
of oil spills caused by the sabotage," as the data they are based on is "not absolute".
It went further to make recommendations to Shell regarding its reporting practices.
In spite of this case, and although the NCPs have been active in recent times,
unfortunately, it has been poorly utilised by stakeholders from Africa despite obvious
serious breaches of the Guidelines by companies operating in the continent (OECD
Watch, 2011). This may be attributable to the fact that decisions or final statements
of the NCPs, which are not judicial bodies, are not binding, enforceable, or
appealable. Recommendations by the NCPs for improvement of compliance with the
21
OECD Guidelines are also not subject to follow-up or monitoring to ensure
compliance.
These are clearly significant limitations to the NCP complaints mechanism, and
justify some of the criticisms against CSR as ‘lacking teeth’. Some limited
developments such as in the United Kingdom’s NCP, where there is now a Review
Committee to which complainants may request a review of a case on procedural
grounds, is aimed at addressing some of these concerns. However, while clearly
imperfect, even in its current form, the NCP can be a useful mechanism for
information regulation, especially in light of the reputational risks companies face
from a determination of the NCP if well publicised.
4. Multilateral Lending Institutions Approach
Multilateral lending institutions such as the World Bank and the International
Financial Institutions (IFC) provide funds that finance some of the projects
undertaken by companies especially those in the extractive sector. These multilateral
lending institutions have mechanisms in place that require borrowing companies to
comply with environmental, social and human rights laws and standards of those of
the host countries in the lending contracts which bind them to comply with the
safeguard policies of the World Bank or the performance standards of the
International Financial Corporation (IFC).
Furthermore, there are complaints
mechanisms such as the Inspection Panel of the World Bank and the Compliance
Advisor/Ombudsman of the IFC and Multilateral Investment Guarantees that allow
affected communities to file claims alleging breach of the environmental and social
standards of these lending institutions. The complaints mechanisms also determine
22
the multilateral lending institutions compliance with their own polices and guidelines
for monitoring compliance of funded projects with the policies.
It is not a far stretch therefore to recommend that these institutions also include
accuracy of information in sustainability reports of borrowing companies as prerequisite of the loan and a ground for access to the complaints mechanisms. This fits
in directly with the monitoring of compliance with the institutions policies on
environmental and social issues (Alfredson & Ring, 2001; Suzuki & Nanwani, 2005;
Dysart, Murphy, & Chayes, 2003).
Conclusion
The paper has argued that despite the shortcomings in sustainability reports, under
the right framework, it can be utilised as a tool for corporate accountability in Africa.
This will help strengthen the operation of CSR on the continent by ensuring that
companies are unable to claim false reputational advantages within the context of
voluntary CSR. The paper has suggested four main frameworks within which such
accountability can take place. However, this is far from a panacea for the ineffectual
CSR on the continent and would indeed need the right combination of legal and
extra- legal measures to have a meaningful impact. Crucially, success relies largely
on the political will of African governments in regulating economically sensitive
industries through this form of accountability. This is far from guaranteed. Moreover,
civil society groups will have to battle the much more powerful corporations for the
initiative in controlling the corporate message to the public.
However, the reputational risk to corporate entities is a useful “stick” under the
suggested framework. Similarly, the introduction of Freedom of Information Laws in
23
some African countries such as Nigeria would enhance the effectiveness of
information regulation approach to sustainability reports. Outside the domestic
sphere, the OECD Guidelines and its NCPs, and compliance mechanisms of
multilateral lending agencies offers further opportunities for such regulation. Relevant
stakeholders on the African countries will do well to utilise these mechanisms more,
possibly with the support of international NGOs.
24
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