Corporate Social Responsibility

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28)UN Principles for Responsible Investment (2005). 29)Equator Principles .... obligations under Sharia'h, WE HAVE TO DO BETTER THAN. THE EU AND ...

Prof. Dr. Frank Emmert, LL.M. John S. Grimes Professor of Law Director, Center for International and Comparative Law Project Director Egypt Editor, European Journal of Law Reform Co-President, Council on International Law and Politics Indiana University Robert H. McKinney School of Law

Overview  What is CSR and What Does it Do?  Definitions of CSR  Incentives for Corporations to Adhere to CSR  Issues Addressed by CSR  Examples of Important International CSR Initiatives  Problems with CSR  The Recent EU Efforts  What the Future of CSR Could and Should Bring

What is CSR?

What is CSR and What Does it Do?

Definitions of CSR  Alternative terminology:  “Corporate accountability” “Corporate citizenship” “Sustainable responsible business (SRB)”  No universally accepted definition  Common elements of different definitions:  Voluntary adherence by corporations (self-regulation)  To standards that go above and beyond legal and/or contractual obligations to include respect for ethical and cultural norms and the avoidance of negative impact on human rights, the environment, consumer, employees, communities, and other stakeholders (Google: “Do No Harm”)  And possibly further, to the active promotion of public interest (sustainable growth, development, etc.) and support for the economic policy choices of the host country/community

Incentives for Corporations  Public Relations  Avoid bad publicity  Get good publicity (brand differentiation)  Risk Management via pro-active corporate culture  Avoid legal trouble (corruption, human rights violations re workers and communities, environmental issues like Palm Oil…)  Pre-empting of mandatory/legislative measures with stricter

and enforceable standards  Human Resource Benefits  Contractual Benefits  Building Long-Term Trust among employees, customers, consumers, citizens => CSR makes good business sense

Examples of Important Int’l CSR Initiatives OECD Guidelines for Multinational Enterprises (1976/2000) US Foreign Corrupt Practices Act (1976) ILO Tripartite Declaration of Principles Concerning Multilateral Enterprises and Social Policy (1977) EU Environmental Impact Assessment (1985) International Chamber of Commerce (ICC) Business Charter for Sustainable Development (1987) CERES Principles (1989) UNEP Statement by Banks on the Environment and Sustainable Development (1992) and UNEP Statement of Environmental Commitment for the Insurance Industry (1995) 8) Transparency International Corruption Perception Index (1993) 9) Interfaith Declaration: A Code of Ethics on International Business for Christians, Muslims and Jews (1993) 10) Forest Stewardship Council (FSC) (1993) 11) London Benchmarking Group (LBG) Measurement Model for Community Investment (1994) 12) EU Eco-Management and Auditing Scheme EMAS (1995) 13) CSR Europe (1995) 14) Sunshine Standards for Corporate Reporting to Stakeholders (1996) 15) OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1997) 16) Sustainability Reporting Guidelines by the Global Reporting Initiative (1997) 17) International Fairtrade Certification Mark by Fairtrade Labelling Organisations International (FLO) (1997) 1) 2) 3) 4) 5) 6) 7)

Examples Cont’d 2-3 18) Marine Stewardship Council Certification Program (1997) 19) Apparel Industry Partnership (AIP) Code (1997) and Fair Labor Association (FLA) Workplace Code of Conduct (1997) 20) The United Nations Global Compact (1999) 21) Dow Jones Sustainability Index (1999) 22) UN Millenium Development Goals (2000) 23) Earth Charter (2000) 24) EU Green + White Papers on Corporate Social Responsibility (2001-02); 25) European Roadmap on CSR (2005); European Alliance on CSR (2006); Renewed EU Strategy for Corporate Social Responsibility (2011-14) 26) Extractive Industries Transparency Initiative (EITI) (2002) 27) UN Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights (2003) 28) UN Principles for Responsible Investment (2005) 29) Equator Principles (2006) 30) International Finance Corporation (IFC) Sustainability Framework (2006) 31) UN Report of the Special Representative of the Secretary-General on the Issue of Human Rights and Transnational Corporations and Other Business Enterprises: Promotion and Protection of All Human Rights, Civil, Political, Economic, Social and Cultural Rights, Including the Right to Development (Ruggie Report) (2008) 32) Social Accountability International SA8000 Standard (2008) 33) Benefit or B-Corporations (2008) 34) Charter of Fair Trade Principles (2009) and World Fair Trade Organization (WFTO)

Examples cont’d 3-3 35) Caux Roundtable (CRT) Principles for Responsible Business (1994, 2009), CRT Principles for Government (2002), CRT Principles for Non-Governmental Organizations (NGOs) (2006), CRT Proposed Principles for the Ownership of Wealth (2004), CRT Proposed Principles for Responsible Globalization (2002) 36) ISO Standard 26000 Guidance on Social Responsibility (2010) 37) 21st Century Corporation Report CERES Roadmap for Sustainability (2010) 38) Fair Labor Association Workplace Code of Conduct and Compliance Benchmarks (2011) 39) The Mountain House Statement: Repairing our Stewardship of Creation: Abrahamic Social Thought (Judaism, Christianity, and Islam) and the Global Economic Crisis (2011) 40) Company of the Year Award Winners crowned by the American Business Awards for several years have included “Corporate Social Responsibility Program of the Year” “Stevie Awards” for organizations up to 100 employees, organizations with 100-2,500 employees, and organizations with more than 2,500 employees 41) Interfaith Center on Corporate Responsibility Statements of Principles for ethical investors on water stewardship, domestic health issues, equitable food production, food commodities, human trafficking, global health, climate change, ethical recruitment, and other subjects (since 1971) 42) ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy (MNE Declaration) (5th ed 2017) 43) Bentley University W. Michael Hoffman Center for Business Ethics has links to hundreds of (mostly US) corporate codes and sustainability reports here: 44) Canadian Business Ethics Research Network (CBERN) provides Compendium of Ethics Codes and Instruments of Corporate Responsibility 45) Etc, etc, etc.

=> Problems with CSR Today  1) Proliferation of Codes  2) Industry Specific Codes can be tailored to show only the

good things and steer clear of any bad things

 3) Lack of Accountability and Effective Complaints- and Review


 Example: Enron published an Annual Report on CSR and was

considered a model by the CSR movement

 4) Declining Interest in the Age of Trump

Can Legislation Help?

The answer would seem to be a clear “maybe!” Pro’s  Many enterprises have still not caught on to CSR because they did not have to  Legislation can be more specific, clear, unambiguous than codes and standards  Legislation can provide for supervisory and enforcement mechanisms

Con’s  CSR emphasizes “voluntary” action beyond legal requirements  It will not be easy to draft legislation that is clear, specific, unambiguous AND acceptable to a wide spectrum of enterprises and political forces  Politicians are more interested in jobs (and easily corrupted by corporate interests) than in CSR  After years of stagnant economic performance and flat salaries in the West, it is NOT popular to “regulate” industry more than it already is

HOW Would Legislation Have to Be to Have Real Value?  Should be clear, unambiguous and the language should

be of obligations (“have to” rather than “should”)  Should provide for supervisory mechanisms (force enterprises to incorporate CSR, provide for independent fact checking and verification of claims)  Should provide for sanctions in case of misrepresentation and other violations  Should be internationally coordinated or harmonized to reduce forum shopping or a repeat of the experience with tax avoidance => do the new EU rules meet those criteria?

Background to the New EU Rules  EU has long had certain harmonized rules on financial reporting  EU started in 2001 with CSR promotion (2001 Green Paper,

European Multistakeholder Forum on CSR, European Alliance for CSR, UN Global Compact, EMAS, ILO Tripartite Standards, Business Social Compliance Initiative, Global Reporting Initiative etc)  YET: in 2011, only 15 out of 27 MSs had national CSR policies in place  AND “only a limited number of EU large companies regularly disclose non-financial information [related to CSR] and the quality of the information disclosed varies largely, making it difficult for investors and stakeholders to understand and compare companies’ position and performance.”  => EU Com launched Public Consultation on CSR 2011-2014

=> EU Directive 2014/95 as Regards Disclosure of Non-Financial and Diversity Information by Certain Large Undertakings and Groups Art. 19(a): “Large undertakings which are public-interest entities exceeding on their balance sheet dates the criterion of the average number of 500 employees during the financial year shall include in the management report a non-financial statement containing information to the extent necessary for an understanding of the undertaking's development, performance, position and impact of its activity, relating to, as a minimum, environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters, including:  (a) a brief description of the undertaking's business model;  (b) a description of the policies pursued by the undertaking in relation to those matters, including due diligence processes implemented;  (c) the outcome of those policies;  (d) the principal risks related to those matters linked to the undertaking's operations including, where relevant and proportionate, its business relationships, products or services which are likely to cause adverse impacts in those areas, and how the undertaking manages those risks;  (e) non-financial key performance indicators relevant to the particular business. Where the undertaking does not pursue policies in relation to one or more of those matters, the non-financial statement shall provide a clear and reasoned explanation for not doing so. …”

Critique Does this new law meet our criteria for being effective, for providing new value for CSR?  The good news: the directive provides harmonized rules for 28+ countries  Deadline for transposition of (revised) directive: December 2016 for financial statements due in 2017 – so we should see some results now, right?  BUT: scope and coverage for multinational companies and subsidiaries incorporated outside of the EU is unclear  AND: To what extent is it clear and unambiguous and sufficiently specific for CSR reporting? (ex. German rules on employment of disabled persons)  Where are the mechanisms for forcing companies to report the nonfinancial information? And how about verification mechanisms?  What about sanctions for misreporting and other breaches  And what about SMEs? Nothing? Nothing at all?

=> What Should We Do?  The case remains for a Model Law on CSR for Europe, for

the MENA countries, the rest of the World…  The EU model does not provide much inspiration for such a model law  Better rules are available, however, for example ISO 26000 => this is not rocket science! => We can distinctly do better, in fact if we are serious about our obligations to future generations, including obligations under Sharia’h, WE HAVE TO DO BETTER THAN THE EU AND CERTAINLY BETTER THAN THE MENA COUNTRIES HAVE DONE SO FAR

What Should Be in a Model Law?

1) Specific requirements and examples for CSR reporting, e.g.  Commitment to “truth in reporting” AND “truth in advertising”  Percentage of disabled persons employed at different levels  Percentage of women employed at different levels  Percentage of minorities  Mechanisms in place for taking care of employee grievances  Mechanisms in place for ensuring compliance with human rights laws and anti-corruption and bribery laws and sanctions in place for violations by management (e.g. loss of stock options and pension rights)  Disclosure of law suits and other issues related to these matters  Disclosure of philanthropic giving is ok ONLY in combination with disclosure of political (campaign) spending  Longitudinal data on energy and water consumption and specific plans how these will be reduced in the future; review how the plans have been achieved and if not why not  Longitudinal data on other environmental impacts

2) Additional suggestions for supervisory mechanisms and enforcement, e.g.  Companies have to get their CSR reports independently audited like they have to get their tax reports audited  Companies cannot benefit from tax incentives of any kind unless they report their CSR regularly and correctly  Companies cannot benefit from public procurement and cannot participate in public tenders unless they report their CSR regularly and correctly  Companies cannot get government guarantees for exports or investment unless they report their CSR regularly and correctly  Banks who give loans to companies who do not report regularly and correctly have to disclose & justify this fact to the public  If companies are suspected to have misreported their data, they have to pay for additional audits and external review  If companies cause damages to third parties in violation of their CSR commitments, they have to compensate all damages, including legal fees and expenses, and pay an equal amount to NGOs active in CSR supervision and compliance and verification

Final Remarks  Just like closing down off-shore tax havens, I assure you that we could   

  

be serious about CSR if we really wanted to For example, why are the OECD Guidelines for Multinational Enterprises still just guidelines and not mandatory? Why does hardly any other country have criminal sanctions for bribing foreign officials like the USA have in the FCPA? Why are we still allowing our multinationals to sign agreements for the looting of natural resources with unrepresentative governments of developing nations that violate all rules of good business practice and CSR and even give them investment guarantees for this looting? Why does ISO 26000 not provide for certification mechanisms? Many have written or spoken of the need of creating a CSR Culture… I could not agree more… but what we are seeing in the EU and most other places is just T’ai chi, shadow boxing, bread and circus for the masses Specifically, I want to see every faithful Muslim to do better than that

Further Reading Suggestions

Available on Amazon

European Journal of Law Reform 2014/2 – Special Issue on Islamic Law 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11)

12) 13)

Issam Saliba: The Place of Islamic Law Among the Legal Systems of the World Salma Taman: The Sources and Fundamental Principles of Islamic Law A.T. Shehu: Democracy, Constitutionalism and Shariah: The Compatibility Question Mohamed Mattar: Human Rights in Islamic Law, Specifically the Guarantee of Procedural Justice Omar Alsunaid: Women’s Rights in Saudi Arabia Aishath Muneeza, Can Women Become Judges in Muslim Countries? Anthony Gray, The Banning of Religious Dress in Non-Muslim/Western Countries Ujala Akram: Freedom of Speech, Freedom of Religion, and Islam – a Review of Laws on “Offences Relating to Religion” in Pakistan Majed Majedi Alzahrani: The System of Kafala and the Rights of Migrant Workers in the Arab Countries Julie Malingreau: International Kafala – a Right for the Child to Enter and Stay in an EU Member State? Andrea Büchler & Eveline Schneider: Medically Assisted Reproduction in Egypt, Iran, Saudi Arabia, and the United Arab Emirates – an Overview of Modern Sunni and Shiite Legal Debates and Legislation Mohamed ‘Arafa: Environmental Protection Under Islamic Law Mahmood Bagheri, Mojtaba Nayyer & Mahdi Moalla: Protection of Intellectual Property Rights Under Islamic Law

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