Sustainability, Responsibility - The business contribution to sustainable trade 

Sustainability, Responsibility - The business contribution to sustainable trade: Executive summary

Introduction

The intense and at times sharply polarised public debate on globalisation appears to imply that there is a fixed view of what sustainable trade is.

At the same time the increasingly rapid engagement by companies with the corporate social responsibility (CSR) agenda seems to suggest that corporate social responsibility offers an obvious route for business to pursue if it wishes to play its part in making trade more sustainable.

Yet any serious investigation of sustainable trade and the role CSR might play in that starts in a difficult place – with definitions that few can absolutely agree on. And while it is clear that there is a disparity between popular and other ideas of what constitutes sustainable trade and how business can help make it a reality, there is little agreement on one single definition.

Indeed, at CSR Europe’s General Assembly in December 2002, European Commissioner for Trade, Pascal Lamy, emphasised the challenges generated by the acceleration of the globalisation process. Though the pace of liberalisation is ever increasing, the development of relevant international governance mechanisms to encompass social and environmental aspects has not occurred as quickly as its economic counterpart. The Commissioner went on to challenge CSR Europe’s members to forge new synergies and cooperation between companies and to catalyse European stakeholder dialogue and policy development through an active business contribution.

The CSR Europe conference on Sustainable Trade – held in Brussels on October 16 and 17, 2003 – was the first time that experts and practitioners in trade and CSR had been brought together to search for common ground and understanding. In two days of debate, delegates began to sketch out ways to capture common issues and understandings and translate them into possible new approaches to trade. The first day was a business-to-business session aimed at further exploring the issues surrounding and feeding into the notion of sustainable trade. On the second day, businesses had the opportunity to hear what sustainable trade means to other stakeholders as well as to exchange views and experiences with them.

On the first day, the conference heard from Guy de Jonquieres, Financial Times; Anthony Kleitz, Organisation for Economic Co-operation and Development; Bernard Kuiten, World Trade Organisation; Graham Young, Independent Consultant; Anne Tallontire, Natural Resources Institute (University of Greenwich); Rachel Thompson, APCO; Sharon Spooner, EPPA; and John Sabapathy, AccountAbility.

Speakers on the second day were Jose Alfredo Graca Lima, Brazilian Embassy to the EU; Antoine Mach, Covalence; Patrick Itschert, European Trade Union Federation Textiles; Robert Madelin, European Commission; Fiona Gooch, Traidcraft; and Halina Ward, International Institute for Environment and Development.

Corporate delegates included both CSR and public affairs professionals from CSR Europe’s corporate membership. Companies present were: Dow, Levi Strauss, Mattel, Carrefour, BT, Nike, Novozymes, Procter and Gamble, ABN-AMRO, Unilever and Nestlé. Other participants included a range of international and national organisations, business groups and academics.

Where sustainable trade and corporate social responsibility meet

The conference did not agree on a working definition of sustainable trade; it did however, explore a wide range of topics and distil a number of key issues that any definition of sustainable trade should cover.

It became apparent that to reach a meaningful understanding of sustainable trade, it was necessary to look at trade in its c omponent parts: production 1, consumption and investment. The European Commission’s DG for Trade’s own definition of sustainable trade added other key elements. To be sustainable trade needed also "to be sellable, ethical and desirable in order to add value to production and consumption in a balanced way."

The Sustainable Trade and Innovation Centre’s definition emphasised the triple bottom line approach of balancing environmental, social and economic concerns as well as the empowerment of suppliers in developing countries.

To make a meaningful contribution to making trade sustainable, responsible practices need to be mainstreamed into all aspects of a company’s operations. However, CSR and the ethical behaviour of companies should be "bred-in-the-bone" not imposed from on high.

Standards and codes – both cross-sectoral and within countries - have a positive role to play but they could potentially act as a block to innovation and change and be a barrier to smaller suppliers.

Given that international sourcing now accounts for over half of world trade, the effectiveness of supply chain management through codes of conduct in promoting ethical outcomes within conventional trade now receives considerable attention. Codes are popular with certain sectors such as agriculture and textiles because they allow companies to set and enforce standards, expand markets and manage their international operations. They also, perhaps, convey a competitive advantage in helping companies to understand local, national and international regulation.

But codes can also have operational weaknesses. Often their scope is too limited. In certain sectors, they provide protection for full-time employees, but leave casual or seasonal labourers, unprotected. The plethora of codes is also perceived as confusing for developing country suppliers – for example the textile sector alone has around 20,000 codes.

Most delegates recognised the limitations of codes, and they were perceived by some as "stop-gap" measures with the objective of improving standards until more effective and inclusive mechanisms are found.

Living in a Vacuum – the state of trade after Cancùn

The need for business to consider the implications of the collapse of the Cancùn meeting of the World Trade Organisation in September was also tackled during the conference. Business needs to continue being proactive, particularly since stakeholder activism is unlikely to diminish while trade talks are in limbo.

However, the World Trade Organisation (WTO) is not the right arena for business to voice its concerns on trade related matters, and business would be advised to talk to national governments who are able to put matters on the agenda of the WTO. Indeed, any contribution of the WTO to sustainable trade must be considered within the context of its actual remit to support trade liberalisation. In the current context, most WTO members oppose rules on social and labour standards.

Building a business response to sustainable trade

It is important that business finds a relevant and workable definition of sustainable trade in order to crystallise its contribution to the broader sustainable development agenda. The practicality of breaking down sustainable trade into component parts- production 2, consumption and investment was seen as a necessary step. Doing so made it easier to understand the linkages between investment, CSR and trade and made apparent the implications of not managing sustainable trade.

On the positive role that CSR could play to facilitate sustainable trade, the meeting asked whether it was more realistic to tackle sustainable trade from a sectoral perspective.

While the conference had concentrated on trade in products, trade in services was highlighted as an inc reasingly important issue and could become increasingly vexed and complex. Outsourcing poses particular challenges as it moves higher up the value chain from call centre operations in India, for example, to such things as processing tax returns and medical laboratory analysis. This raises potential problems. There could well be a further fight back on job exportation and a consumer backlash on diminishing service standards.

Overall, the conference discussed the linkages between sustainable trade and CSR from three different standpoints:

• The internal perspective: mainstreaming CSR in the context of sustainable trade
• The dialogue perspective: creating a common understanding among stakeholders
• The collaborative perspective: how to create the right enabling environment

Mainstreaming corporate social responsibility in the context of sustainable trade

For CSR to have a meaningful impact on sustainable trade, business should work towards ensuring that CSR is integrated into all aspects of business operations.

Business should try to define what sustainable trade means by assessing what its impacts are at an operational level and how its component parts can be managed responsibly, particularly when considering risk and opportunities. Through internal consultation and broader dialogue with stakeholders, companies can build a relevant business case that reconciles business imperatives with responsibilities.

Aligning policies and practices would require business to assess whether their vision and governance, production processes, sourcing and pricing policies, marketing and sales policies, communications policies and position with regard to CSR were complementary and supported the effort to make trade more sustainable.

There were benefits in taking this approach. It could for example allow companies to evaluate how codes of conduct have developed and been used to date, and what alternative mechanisms might be considered. It could also lead them to further explore current costs and pricing structures and assess their impacts. Finally, it could help to determine how business can best cooperate with other stakeholders in collective action (see below).

However, several questions merit further consideration. For example, how should costs and risks be shared and communicated among business, government, and other stakeholders? Is it business’ role to further explore the social and environmental impacts of its operations, for example upon vulnerable groups?

Creating a common understanding among stakeholders

Given that trade defies borders, the dialogue around it is confusing because it takes place at a variety of levels: local, national, international, inter-governmental and bi-lateral. The sheer complexity of sustainable trade as a topic and the different levels of understanding among stakeholders, adds to the confusion.

It is in business’ interest to engage in dialogue with the right partners and in the right fashion. For business to engage and make its voice heard at the international level, an understanding of the remit and activities of the WTO and other international organizations is vital. It is important for business to be aware of areas where the international trading system creates tensions between CSR and trade. Conversely, business could consider the benefits and potential drawbacks of supporting those international initiatives, like Sustainability Impact Assessments (SIAs), which explicitly attempt to assess and attenuate negative social and environmental impacts of trade.

There are clear areas where the WTO generates potential clashes between trade and CSR – for instance in non-product related process and production methods. But given the current imperfections of the multilateral system, the role of national governments should not be overlooked. I t is in the sphere of international trade that national competitive advantage and commercial competitive advantage are most likely to be aligned.

Conference participants discussed whether informing consumers about the social and environmental impacts of production and consumption is a responsibility that business, government and other stakeholders should share. The conference noted that there is a disparity between consumer intention and actual purchasing patterns and that further research is needed into consumer behaviour.

Although company procurement policies and supply chain management have clear social and environmental impacts, it is essential that the role of business is not overstated in responding to and resolving global social inequalities. In assessing the relationship with suppliers in their global supply chains, buyers are encouraged to reflect on how their activities affect the ability of their suppliers to meet codes of conduct, especially in cases of ‘just-in-time delivery’.

In communicating with suppliers, companies should be careful to be inclusive in developing codes and take national realities into account. Additionally, companies may want to adopt a more proactive approach in communicating the business benefits of codes to suppliers. Deeper insight is also needed in to the effects of having so many codes in certain sectors, with particular reference to what this means for informal workers and 2nd and 3rd tier suppliers.

As it is unlikely that stakeholder activism will diminish, it would be important for business to be proactive in fostering a continuing dialogue with stakeholders such as NGOs, trade unions and other social partners. However, as one speaker at the conference suggested, it would also be interesting to further understand to what extent trade has been made accountable for the failures of national and development policies – and the place CSR should occupy in this addressing such failures.  

Several questions still need further reflection. Is there a danger of business taking up positions on too many public policy issues? For example, should business explicitly contribute to poverty alleviation through trade – as is the case in fair trade? To what extent is it business’ responsibility to inform consumers about the social and environmental impacts of the production and consumption of their products and services?

Collaborative initiatives at both national and international level, such as the European Multi-Stakeholder Forum and the Sustainable Trade and Innovation Centre, have important contributions to make.

What is an enabling environment?

Policy makers and business representatives should carefully reflect on the way distorting policies might affect the role that CSR could play in the sustainable development agenda.

In order to get a more accurate understanding, it is desirable to split the above point in two. On the one hand, how to counter the distorting or negative social and environmental impacts of trade and other policy measures. On the other hand, how can policy makers encourage CSR through appropriate measures?

As the situation currently stands, it would seem that the removal of distorting and negative impacts has the potential to have a greater short-term effect. Existing distorting measures such as agricultural subsidies are also likely to continue to undo or neutralize the positive impact of public policy measures regarding CSR that attempt to foster enabling environments.

However any policy measures should not merely place the onus on business. They should be explicit that implementation, enforcement and the task of explaining national legal obligations are the responsibility of governments. The role of soft law and multi stakeholder initiatives should also be further explored by governments as drivers for change and this should occur within the context of commonly accepted guiding principles at the international level.

Given the current weakness of governance – nationally and internationally - the most constructive way forward in the short term would appear to be collaborative action.

This approach offers a number of clear benefits, not least that it creates shared responsibility across the stakeholder community and allows stakeholders to enrich the process by bringing a variety of perspectives to the debate. While these measures will probably be more appropriate at a local level, collective action can contribute to competitive advantage both sectorally and nationally.

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