public sector roles in strengthening corporate social...

PUBLIC SECTOR ROLES IN

STRENGTHENING CORPORATE

SOCIAL RESPONSIBILITY:

TAKING STOCK

Halina Ward

Director, Corporate Responsibility for Environment and DevelopmentInternational Institute for Environment and Development

for the

Corporate Social Responsibility Practice of the World Bank Group

January 2004

This report is a product of the staff of the World Bank. The findings, interpretationsand conclusions expressed herein do not necessarily reflect the views of the Board ofExecutive Directors of the World Bank or the governments they represent. The WorldBank does not guarantee the accuracy of the data included in this work.

Abbreviations and Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2. Public Sector Roles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

3. The Case for Public Sector Engagement in CSR . . . . . . . . . . . . . . . . . . . . . . . 7

CSR and Public Governance Concerns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Tackling Outstanding Challenges in the CSR Agenda. . . . . . . . . . . . . . . . . . . . . . . . . 8

Justifications for Public Sector Familiarity with Mainstream CSR. . . . . . . . . . . . . . . 8

4. CSR and Competitiveness Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

CSR and Investment and Purchasing Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Turning the Market Access Implications of CSR to Competitive Gains . . . . . . . . . . 12

Aligning CSR Investments with Pursuit of Public Goods . . . . . . . . . . . . . . . . . . . . . 15

5. Sustaining Indigenous CSR Agendas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

6. Building Positive Spillovers for Domestic Enterprise Development . . . . 19

7. Building Positive Links between CSR and Public Regulation. . . . . . . . . . 21

8. Building on the Strengths of Different Actors . . . . . . . . . . . . . . . . . . . . . . . . 23

Table of Contents

iii

9. Taking the Agenda Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Reframing the Agenda: Localizing CSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Reassessing the Drivers of CSR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Reassessing Public Sector Roles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Table 1 Overview of Country Focal Areas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Table 2 Overview of Country Drivers, Risks, and Opportunities . . . . . . . . . . . . . . . . 9

Box 1 Four Central Public Sector Roles in Strengthening CSR . . . . . . . . . . . . . . . . . 5

Box 2 Localizing Company Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Table of Contentsiv

CSR corporate social responsibilityIIED International Institute for Environment and DevelopmentIFC International Finance CorporationILO International Labour OrganisationNGO nongovernmental organizationWTO World Trade Organization

Acronyms and Abbreviations

v

This report is an assessment of public policyroles to strengthen corporate social responsi-

bility (CSR). It is derived from the work of theCSR practice of the World Bank Group’s Invest-ment Climate Department. The CSR practice wasformed in 2002 to advise developing country gov-ernments on the roles and instruments that they canmost usefully deploy to encourage CSR. The over-all program involves building understanding ofCSR incentives and pressure points and improvingstrategic interactions and alignment between pub-lic policy goals and the CSR-related activities ofbusinesses.

The report draws from a series of reports on cross-cutting CSR issues that are relevant in defining therole of public sector agencies, as well as outputsfrom country-level technical assistance work inAngola, El Salvador, the Philippines, and Vietnam.The different focuses for the country-level workare highlighted in table 1.

The report also draws on discussions during athree-week World Bank–World Bank Institute e-conference on public policy and CSR held in July

2003; presentations and discussions at the Interna-tional Conference on Public Policy for CorporateSocial Responsibility organized by the CSR prac-tice and held in Washington, D.C. in October 2003;and a short overview of the CSR practice’s overallprogram to date, which was prepared for country-level reports by Tom Fox of the International Insti-tute for Environment and Development (IIED).

The report reviews the overall context for address-ing public sector roles in strengthening CSR andthe range of public sector roles (sections 1 and 2).It considers five justifications for public sectoractors to build familiarity with the mainstreamCSR agenda (sections 3–8) and concludes by offer-ing some suggestions on common themes that haveemerged to date and those that could usefullyinform initiatives in the next states of the CSRpractice’s work (section 9).

Except where otherwise indicated, the terms pub-lic sector and public sector agency are used to referto the public sectors of middle- and low-incomecountries.

Preface

1

Table 1: Overview of Country Focal AreasCountry Sector Issues

Angola Oil Local content, transparency, and social developmentEl Salvador General Business and educationThe Philippines Mining Socioeconomic and environmental impactsVietnam Footwear Labor

The contemporary corporate social responsibil-ity (CSR) agenda is founded in a recognition

that businesses are part of society, and they have thepotential to make a positive contribution to societalgoals and aspirations. CSR is at heart a process ofmanaging the costs and benefits of business activ-ity to internal and external stakeholders—fromworkers, shareholders, and investors through tocustomers, suppliers, civil society, and communitygroups. Setting the boundaries for how those costsand benefits are managed is partly a question ofbusiness policy and strategy and partly a questionof public governance.

The notion of corporate social responsibility is notnew, but the contemporary CSR agenda, with itsimmediate origins in the globalization debate ofthe 1990s, is still relatively immature. The domi-nant CSR agenda largely reflects the concerns ofstakeholders based in high-income countries. Ithas not yet been fully connected to the range of“indigenous” CSR agendas around the world. Yetvoluntary approaches to setting CSR standards arenow transferring the dominant agenda to busi-nesses in low- and middle-income countriesthrough supply-chain relations and other kinds ofprivate business interactions. This in turn isprompting concerns to address the impacts ofaction by businesses to reflect the demands of thenew “fourth party” interests—those of consumers,workers, and citizens in developed countries(Nguyen Manh Cuong 2003).

Business approaches to CSR can largely be under-stood as a response to a series of external and inter-nal drivers that generate a “business case” for CSR.The drivers include the pursuit of new businessopportunities through social and environmentalinnovation, reputational risk management, cam-paign pressure from nongovernmental organiza-tions (NGOs) or trade unions, media exposure tothe practices of individual companies or sectors,regulation, and litigation. Building effective driversof CSR is one pillar in approaches to build an opti-mal enabling environment for CSR or responsiblebusiness practices.

Optimizing the enabling environment calls forattention to more than just the drivers of CSR. Thedrivers will not be effective unless human capaci-ties and institutions are in place to enable them towork in their particular sectoral or geographic con-text. These key human capacities form the secondpillar. They include understanding of and capacityto engage with the CSR agenda, whether as citizens,consumers, regulators, workers, or businesses. Thekey institutions include government inspectoratesand enforcement agencies, key departments orteams within local and national government, andCSR-related teams within businesses. Addressingthe human capacities and institutions can help togenerate the drivers of CSR.

The third pillar of the enabling environment is pro-vided by the tools of CSR (RING 2003). These

1. Introduction

Corporate social responsibility is the commitment of business to contribute to sustainable economic

development—working with employees, their families, the local community and society at large to

improve the quality of life, in ways that are both good for business and good for development.

The World Bank’s working definition of corporate social responsibility

3

include legislation and regulation, labels and certificates, codes of conduct, action-oriented part-nerships among different actors, guidelines, man-agement systems, and award schemes.

Efforts to address each of these three pillars of theenabling environment would not necessarily deliverresponsible business across the board. There maybe insufficient financial resources available to busi-nesses to make the necessary investments, a lack ofwilling partners, or insufficient information onwhich to base decisions (Woicke 2003). The chal-lenge is to identify the appropriate balance betweenthe roles of the different actors and then explorehow they could best be combined to maximize thecontribution of business to sustainable develop-ment. In some areas, the public sector has uniquecompetencies. Only the public sector can set theoverall policy and regulatory frameworks withinwhich businesses operate, and only the public sec-tor has the legitimacy and authority to drawtogether the overall strands of the enabling envi-ronment in ways that allow each of the actors tomake their contribution.

This has different consequences in different con-texts. In countries or sectors where market driversof CSR have the potential to support public policygoals, or are neutral in relation to established pub-

lic policy goals, public sector agencies may opt totake a laissez-faire approach, endorse current tra-jectories, or facilitate the emergence of voluntaryapproaches that are more directly aligned with pub-lic policy goals. But in those circumstances whenthe market fails to provide the signals, or whensome market actors fail to respond to signals fromconsumers or other private actors, there is a case forstronger forms of intervention that establish clearincentives or lead the process of setting overallgoals.

There are already many examples around the worldof public sector actions that enable or drive CSR(Fox, Ward, and Howard 2002), though many ofthem are not explicitly described as CSR or con-sidered to be CSR enabling. Yet the public sectorhas often been left out of discussion of CSR.Nonetheless, there is increasing evidence thatdeveloping country governments are beginning toview CSR practices as a subject with relevance forpublic policy—as a means to enhance sustainabledevelopment strategies and a component of theirnational competitiveness strategies to compete forforeign investment and position their exports glob-ally, as well as to improve poverty-focused deliv-ery of public policy goals.

Public Sector Roles in Strengthening Corporate Social Responsibility: Taking Stock4

A n initial desk-based review of existing pub-lic sector activities to strengthen CSR (Fox,

Ward, and Howard 2002) indicated that public sec-tor roles in supporting CSR could conveniently bedivided into four broad categories: mandating,facilitating, partnering, and endorsing.

Understanding public sector interventions throughthese four central roles has the immediate advan-tage of simplicity. They allow coverage of thecomplete CSR agenda, and they are neutral in thatthey do not reflect inherent biases toward any par-ticular set of public sector actions. They can also beapplied at a range of levels and by a range of actors.

There are inevitable overlaps across the four cate-gories, but the goal is simply to encourage lateralthinking about CSR. Different decisionmakers willapply an understanding of the different roles totheir own contexts. It matters little where individ-ual actors draw conceptual distinctions betweencategories.

These four public sector roles have been appliedacross the CSR practice’s program of technicalassistance at the national level to express and iden-tify a range of possible public sector activities insupport of CSR. The relevance of the four overallcategories of public sector activity has generally

2. Public Sector Rules

Box 1: Four Central Public Sector Roles in Strengthening CSR

Mandating: Laws, regulations, penalties, and associated public sector institutions that relate to thecontrol of some aspect of business investment or operations.

Facilitating: Setting clear overall policy frameworks and positions to guide business investment inCSR, development of nonbinding guidance and labels or codes for application in the marketplace,laws and regulations that facilitate and provide incentives for business investment in CSR by man-dating transparency or disclosure on various issues, tax incentives, investment in awareness raisingand research, and facilitating processes of stakeholder dialogue (though not necessarily in the lead).

Partnering: Combining public resources with those of business and other actors to leverage com-plementary skills and resources to tackle issues within the CSR agenda, whether as participants, con-venors, or catalysts.

Endorsing: Showing public political support for particular kinds of CSR practice in the marketplaceor for individual companies; endorsing specific award schemes or nongovernmental metrics, indi-cators, guidelines, and standards; and leading by example, such as through public procurement prac-tices.

Source: Adapted from Fox, Ward, and Howard (2002).

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been affirmed, with a tendency in the national-leveltechnical assistance to focus in particular onstrengthening the facilitating and partnering roles.But there may be ways to optimize the value of thecategories for the future. The case for adding a fifthrole—demonstrating—is addressed further in thefinal section of this report.

Public sector understanding of the four centralroles would not be enough in and of itself to guidedecisionmaking to strengthen CSR. In an earlyeffort to offer a framework for underpinning pub-lic sector decisionmaking in relation to CSR, theWorld Bank Group commissioned work to developa diagnostic tool for corporate social responsibility(Warner 2003). The aim was to offer a frameworkthrough which public bodies could begin to navi-gate their way toward roles that better align CSRpractices with public sector development strategies(Warner 2003).

A diagnostic tool needs to support smart thinkingabout public sector roles to strengthen CSR,achieve alignment between public and privategoals to the greatest extent possible, capitalize oncore competencies, and take full account of therisks and unintended consequences of CSR prac-tices. For example, new labor standards can some-

times prohibit poor families from earning anincome; higher environmental quality standards forsuppliers may act as a barrier to market entry forlocal firms; and requirements for communityinvestment and greater transparency can reduceprofit margins and disincentivize investors(Warner 2003). The balance is between accessibil-ity, practicality, and relevance, recognising thatdifferent appraisal tools may appeal to differentusers, depending in part on their disciplinary back-grounds and on resourcing considerations.

The draft diagnostic tool is divided into two parts,each designed for application by World Bank tech-nical assistance staff or skilled consultants. Anoverall framework guides assessment of the cur-rent status of CSR practices at the national or sub-national level (whether sectorally or across theboard) and the range of public sector options avail-able to strengthen the business and developmentbenefits of CSR. This is accompanied by anappraisal tool that incorporates guidelines forappraising the relative merits of public sectoroptions. The diagnostic tool will continue to berefined as it is piloted in a number of developingcountries.


3. The Case for Engagement in CSR

The CSR agenda as a whole may now havereached a turning point in which the public

sector is repositioned as a centrally important actor.The mainstream CSR agenda as currently consti-tuted leads directly to the need for greater engage-ment by the public sector in middle- andlow-income countries. There is also a range of justifications for public sector actors to developgreater familiarity with themainstream CSR agenda as abasis for strengthening CSR indeveloping countries.

CSR AND PUBLICGOVERNANCE CONCERNSThe link between public gover-nance and CSR is seldom givenattention, yet public governancedefines not only the type andtrajectory of CSR in differentcontexts, but also the respectiveroles of different stakeholders.

Public sector regulatory andenforcement capacity plays acritically important role inunderpinning CSR. When mini-mum environmental and socialstandards are established andevenhandedly implemented bypublic sector actors or by citizens acting on rightsreflected in public sector action, market-based signals can work to reward those players who gofurther. Without that capacity or the necessary

attention to fundamental citizens’ rights, busi-nesses face substantial difficulties in finding andmaintaining appropriate boundaries for their CSRinterventions, and they may find themselves pres-sured into activities that are beyond their core com-petence and represent a financial drain on businessrather than a sensible CSR investment. ThoughCSR may still be useful in these circumstances—

particularly when it reflectsbusiness’s core competences—the voluntary CSR practices ofprivate enterprises are not andcannot be an effective substitutefor good governance.

CSR also tends to reinforce theimportance of addressing fun-damental issues of the invest-ment climate through publicsector action. As Peter Woicke(2003), Executive Vice Presi-dent of the International Fi-nance Corporation has remark-ed, “For businesses to continueto improve their social and envi-ronmental performance, thepublic sector needs to providetwo key contributions: (1) clar-ity in its regulations, the base-line standards it requires of allfirms, and (2) predictability of

government intervention”.

The CSR agenda has also become linked to issuesof good public governance in relation to the prob-

We have to strive towards a

very strong government, [that

is] corruption free [with a]

streamlined, transparent

bureaucracy. A world-class

bureaucracy would make CSR

irrelevant and would allow our

businesses to compete with the

best in the world.

Raul V Angeles, Board of Investments, thePhilippines, remarks at the InternationalConference on Public Policy for CorporateSocial Responsibility, Washington, D.C.,October 8–9, 2003.

7

lem of lack of transparency in government incomeand expenditure. Lack of transparency can hampercitizen efforts to call governments to account. Ithas become a particular focus of campaignaction—with businesses, not governments, as thefirst concern in countries whose economies areheavily dependent on oil, gas, or mining revenuesand in circumstances where there are substantialrisks of embezzlement or a possibility that rev-enues may be used to fund armed conflict. Herethe CSR agenda has evolved to incorporate con-cern for the role of businesses in generating finan-cial resources that fuel corruption and armedconflict.

TACKLING OUTSTANDING CHALLENGES INTHE CSR AGENDAEvidence is increasingly emerging that the effec-tiveness of the existing body of CSR tools—suchas codes of conduct, labels, or certificationschemes—can be improved only with the help anddirect engagement of public sector agencies indeveloping countries. Similarly, many broaderchallenges in the CSR agenda concern a need tolocalize CSR so that it is rooted in local sustainabledevelopment concerns, not imposed from above bythe “fourth party” stakeholders. The needs to buildlocal ownership of CSR issues, support the emer-gence of CSR initiatives tailored to the local cir-cumstances of particular sectors, and capitalize on

the potential to align domestic CSR practices topublic policy goals remain important challenges.They cannot be effectively confronted without theengagement—and in some cases, the leadership—of public sector agencies.

JUSTIFICATIONS FOR PUBLIC SECTORFAMILIARITY WITH MAINSTREAM CSRCSR leads directly to the public sector, but whyshould public sector agencies in developing coun-tries acquire an understanding of the mainstreamCSR agenda? There are five principal justifica-tions:

1. CSR can inform the development of nationalcompetitiveness approaches. Three possiblepublic sector strategies have emerged: (1) align-ing national investment promotion strategieswith the CSR interest of foreign investors, (2)turning the market access impacts of CSR topositive competitive advantage, and (3) aligningbusinesses’ CSR practices with the broader pub-lic goods that are a fundamental underpinning ofnational competitiveness.

2. With appropriate public sector engagement andsupport, CSR expressed through internationalsupply chains and foreign direct investment canact as a positive catalyst for domestic enterprisedevelopment.

3. Public sector understanding of CSR in interna-tional supply chains and foreign direct invest-ment can help to build and ensure the long-termsustainability of local CSR agendas.

4. CSR can help inspire new strategies to addressgaps in public sector capacity.

5. CSR can offer valuable insights for partnershipsthat create synergies between the complemen-tary skills of public, private, and civil societyactors to achieve public policy goals related tosustainable development.

Each of these justifications for public sectorengagement in CSR brings potential benefits fordevelopment processes in middle- and low-incomecountries, but there is also a risk that CSR activi-ties could inadvertently undermine public sectorroles. For example, it would be wrong for volun-tary and time-bound business investment in CSR inthe education sector to substitute for fiscal reformsthat could allow the state to play a greater role in


Virtually all participants [in a World Bank–com-missioned study to assess barriers to implementa-tion of CSR codes] noted that the absence of actionby local governments presented a significant bar-rier; not only as a barrier to the achievement ofgood practice generally, but also as a barrier to theimplementation of codes of conduct and other crit-ical steps taken by non-state actors. The consensuson this point was so overwhelming that it wastaken into consideration despite the fact that thefocus of the present study, as formulated in theBank’s Terms of Reference, was intended to be onthe private sector rather than the public sector.

Source: Jørgensen and others 2003.

The Case for Engagement in CSR 9

Table 2: Overview of Country Drivers, Risks, and Opportunities Angola

Driver Opportunity Risk

The needs to (a) address the country’s To align the CSR practices of oil companies That the CSR agenda distracts from thefundamental development challenges, with Angola’s fundamental development need to tackle fundamental issues of (b) mitigate against the risks associated challenges while tackling the obstacles to public governance; that CSR’s potential with an over-reliance on the oil sector further progress in the CSR agenda. as a voluntary business approach is within the economy overall, and (c) respond significantly constrained by public sector to calls for transparency in the application governance failures and lack of of oil revenues. investment in civil society empowerment.

El SalvadorDriver Opportunity Risk

The need to build a strong public education To improve the alignment between CSR in That business investment in educationsystem to tackle the country’s development the education sector and the country’s through CSR becomes a substitute for challenges and, by developing a highly skilled overall international competitiveness. fiscal reform that could enhance the work force[WB style], giving the country the systemic capacity of public sectorbest chance to prosper in the face of agencies to deliver education goals.international competition for trade and investment.

The PhilippinesDriver Opportunity Risk

A government shift in policy toward the To align voluntary CSR practices to public That a focus on the role of voluntary CSRmining and minerals sector from “tolerance” policy goals related to sustainable develop- practices by businesses could detractto “promotion,” against a background of ment in the mining and minerals sector, attention from the need to tackle basic strong historic opposition and a de facto thereby enhancing the attractiveness of the issues of governance in relation tomining ban based on community and civil Philippines as an investment location, minimum legal requirements and may society–based pressure. enhancing the social acceptability of mining, prove insufficient to secure high-quality

and increasing (through economic develop- investment across the board.ment) the resources available to tackle poverty reduction.

VietnamDriver Opportunity Risk

The need to sustain market access in the To enhance the capacity of export-oriented That the “indigenous” CSR agenda is face of foreign demands for implementation businesses in the textile and footwear stifled, generating a misplaced emphasisof supply chain–based codes of conduct in sectors to meet the requirements of supply on improvements in export-orientedthe textile and footwear sectors. chain–based codes of conduct. businesses at the expense of non-

export-oriented domestic enterprise, or a benchmark is set that prevents small domestic businesses from competing internationally.

the systemic delivery of public education. A coun-try whose government and agencies understand theCSR agenda will be well placed to manage therisks and reap the rewards.

The key drivers, opportunities, and risks of publicsector engagement in each of the four countries inthe CSR practice’s current technical assistanceprogram are highlighted in table 2.

The next sections address each of the five justifications in turn.

Could public sector investment in the enablingenvironment for CSR support sustainable

development while promoting national competi-tiveness? If the answer is yes, there would be aclear justification for public sector agencies toacquire sufficient understanding of the CSRagenda to develop appropriate support strategies.

CSR AND INVESTMENT ANDPURCHASING DECISIONSAn empirical starting point for testing the CSRcompetitiveness hypothesis is analysis of how CSRissues affect the investment and purchasing deci-sions of multinational enterprises. Interviews withrepresentatives of 107 leading multinational com-panies have generated promising (though, so far,statistically inconclusive) insights (Berman andothers 2003). Far from supporting the notion of a“race to the bottom” of CSR-relevant laws as anoptimal strategy for attracting trade and invest-ment, a clear majority of respondents in interviewswith multinational enterprises indicated that theyseek strong laws on CSR (which in this case shouldbe taken to mean legislation in the areas that areaddressed by the CSR agenda, including legislationon environmental and social issues) and even-handed implementation and enforcement.

Although effective public sector capacities forimplementation and enforcement of minimumsocial standards can be attractive to businesses thattake CSR seriously, and even attract investment,enthusiasm among suppliers for the market-basedCSR standards that those businesses bring isweaker. CSR can be viewed as a market entryrequirement for CSR “standards takers” or simplya means to retain existing customers, not a source

of additional business for CSR-ready suppliers. Forexample, in interviews on the challenges of inte-grating CSR into global supply chains, participants“held mixed views on whether good CSR perfor-mance helped suppliers maintain or secure busi-ness. Suppliers in particular did not see a direct linkbetween CSR performance and obtaining or keep-ing contracts, except in a handful of cases in whichbuyers were genuinely involved with CSR prac-tices of suppliers” (Jørgensen and others 2003, p.27). But this gloomy picture is far from universal,and there is also evidence of CSR-ready supplierswho view their CSR practices as a source of newbusiness or long-term relationships with some of

4. CSR and Competiveness Strategies

� Over 80% of respondents reported that theylook at the CSR performance of potentialpartners and locations before they close thedeal on a new venture.

� More than half of the respondents reportedthat the review takes place while they are stilllooking at multiple partners and countries.

� A majority of extractive companies reportedthat they have chosen not to enter a countrybased on CSR issues. Fewer, though, have lefta country once invested there.

� US-based companies are the most likely toreject locations based on CSR concerns.

� A majority of companies reported that CSRissues are at least as influential as traditionalconsiderations (for example, cost, quality,delivery) in new venture assessment, and thatthis influence has grown in the last five years.

Source: Berman and others 2003, pp. 2–3.

11

their sector’s most prized customers (Tran 2003).Either way, public sector engagement in CSRneeds to be linked to efforts to address mainstreaminvestment climate issues, including efforts to cutthe costs to business of weak state institutions andpoor infrastructure (Petkoski and Twose 2003).

Work in the Philippines has offered opportunities toidentify public sector roles that could help toimplement one part of the CSR competitivenesshypothesis—namely, those roles that can help tointegrate support for voluntary CSR practices ininternational investment promotion strategies. If thePhilippines mining sector were to fully develop, thegovernment could expect to secure an average ofUS$380 million in mining investment annuallyover the next 10 years (Hubo 2003). Yet the indus-try’s share in economic development has declinedover the years. The most important factor in thatdecline has been increasing stakeholder activism ofvarious civil society groups and the CatholicChurch in relation to the social acceptability andsustainability of mining practices. Today “… activism is present at every step from service deliv-ery to policy development and political mobilisa-tion. It has developed into coalitions and has man-aged, to a large degree, in securing a ‘mining ban’in the country” (Hubo and Lewis 2003).

Just as civil society opposition to mining has effec-tively halted foreign investment in the sector, theexpanded CSR competitiveness hypothesis is thatpublic sector engagement in strengthening CSRcould help to both address civil society concernsand revive quality investment in the sector. Accord-ingly, public agencies, including the Board ofInvestments of the Department of Trade and Indus-try, are exploring the potential to integrate CSR intoinvestment promotion for the mining sector.

Social and environmental CSR practices can act asa bridge between the legal framework and imple-mentation of the best available local-level tech-nologies, environmental management practices,and social or community development strategies.But public sector promotion of CSR cannot be astand-alone strategy. The situation in the Philip-pines further underscores the importance of inte-grating support for voluntary CSR practices withefforts to secure an effective legal and institutionalbaseline for public sector governance of the sec-tor’s environmental and social issues.

Over the past 10 years, the government of thePhilippines has developed a series of legislativechanges for an overarching sustainable miningregime in the Philippines, with the Mining Act of1995 at the center. A newly adopted National Min-erals Policy (“EO Seen to Revitalize…” 2003)aims to promote sustainable development throughresponsible mining practices. Important issues stillneed to be addressed if the new body of policy andlegislation is to be effectively implemented andpublic sector institutions at national and subna-tional levels are to be equipped for the task of driv-ing forward action in support of overall publicpolicy goals (Domingo 2003). These issues will all need to be addressed alongside efforts to pro-mote CSR.

TURNING THE MARKET ACCESSIMPLICATIONS OF CSR TO COMPETITIVEGAINSCSR concerns become market access concernswhen they are integrated into value chains as mar-ket entry requirements, whether through the mech-anisms of direct investment, supply chainrequirements, or successful marketing by competi-tors. The standards, guidelines, and principles thatreflect these concerns are often referred to collec-tively as codes of conduct, a term that can encom-pass a range of third-party labels and certificationschemes, business’s own statements of values orcodes, or informal guidelines for application in par-ticular sectors or on particular issues.

Concerns have begun to surface about the potentialnegative impacts of these requirements for busi-nesses in developing countries. They have thepotential to impose new costs on businesses thatare ill equipped to respond. Yet the market accessimpacts of the private tools of CSR cannot be con-trolled through the established mechanisms of the World Trade Organization (WTO), whichare addressed to government action.

For public sector agencies in developing coun-tries, understanding the dynamics and sources ofthese CSR requirements and their variousdrivers—in other words, acquiring a familiaritywith the mainstream CSR agenda—has the poten-tial to enhance capacity to strengthen domesticCSR practices and implement the requirements, as


CSR and Competiveness Strategies 13

well as enable better tuning of policies to addressthe market access issues.

No two sectors are alike in their adoption of codesof conduct or the detailed content of the codes(Smith and Feldman 2003). What is clear is thatcodes of conduct are proliferating. Businessesoften argue that convergence or harmonizationamong codes is the most appropriate response tothe potential economic inefficiencies generated byefforts to comply with multiple CSR requirements.

Such convergence as is happening between theprovisions of different codes of conduct seems tobe taking place principally at the sectoral level, andeven then, there is little consistency. An agreed setof core International Labour Organisation (ILO)Conventions has certainly had an impact on con-vergence among labor provisions within codes ofconduct in the apparel, footwear, and light manu-facturing sectors (Smith and Feldman 2003). Butthe extent to which even these core requirementshave been incorporated into codes of conduct alsotends to reflect specific CSR issues and pressureswithin individual sectors. In the tourism sector, forexample, there are very few specific labor orhuman rights standards, but health and safetyissues are addressed in more detail. In the oil andgas sectors, a majority of companies had no artic-ulated principles on forced labor, child labor, orfreedom of association and collective bargaining.

For environmental considerations, there is no col-lection of international legal requirements akin tothe ILO’s core Conventions. Taking the work thathas so far emerged from the CSR practice as a solereference point, the consequence is that in the

environmental policy field, codes of conductappear overall to be less significant in mediatingthe relationship between buyers and suppliers orhost countries and foreign investors (Smith andFeldman 2003). Whether this is a significant gapdepends on the impact of codes of conduct on dif-ferent stakeholder groups, including in particularthe effect on market access and environmentalperformance. In the absence of authoritative inter-national agreement on core environmental stan-dards, World Bank and International FinanceCorporation (IFC) guidelines have sometimesbeen applied as reference points in shapingnational standards in areas where they are lacking(Evans 2003). Now they are also beginning to playa similar function in the CSR agenda. For exam-ple, IFC guidelines provide the basis for the new,voluntary Equator Principles, which guide the pro-ject finance decisions of a group of signatorybanks that together make up some 78 percent ofglobal project loan volume.

If the proliferation of codes generates efficiency-based arguments for convergence, the performancearguments for convergence appear less strong.Work on CSR in global supply chains has ques-tioned the oft-asserted assumption that the currentplethora of codes per se poses a considerable obsta-cle to improved performance on the part of suppli-ers (Jørgensen and others 2003). Instead, theinconsistent interpretation and application of codespresents the greatest source of confusion and inef-ficiency for suppliers in developing countries.Among the problems are multiple auditing by dif-ferent buyers, differing auditing methodologies,contradictory approaches to remediation, inconsis-tent application of code interpretations of overtimerequirements, and different buyer approaches toasking suppliers to demonstrate how they manageand implement the standards included in codes (for example, through differing documentationrequirements).

All of this is coupled with the prevalence of a top-down approach to implementation of codes of con-duct requirements, in which buyers demandchanges in the management practices of their sup-pliers and monitor progress without reference toprinciples of partnership that guide CSR practiceselsewhere. There is a “widely held view that thetop-down approach remains important in many cir-

Among 24 surveyed enterprises [in the Viet-namese footwear and textile sectors], 18 enter-prises are implementing one or more codes ofconduct, of which 9 are textile enterprises and 9footwear enterprises. Of the 18 code-of-conduct-performed enterprises, 11 enterprises are practic-ing 2 codes of conduct or more, [with] 2 firmsapplying 6 codes of conduct.

Source: Government of Vietnam, Ministry of Labor, Invalids,and Social Affairs and Institute of Labor Science and SocialAffairs. 2003, p. 32

cumstances, and that engagement from buyers andother institutions in the North would continue to bepart of the picture, and could reinforce needed bot-tom-up strategies for capacity building, workerempowerment, and government enforcement oflaws” (Jørgensen and others 2003). But it isincreasingly recognized that investment in local-ized approaches to implementation of environ-mental and social standards in transnational supplychains is more likely to provide lasting contribu-tions to the task of improvingperformance than currentefforts, in which buyer pressurefrom above is the principal cata-lyst for change (Jørgensen andothers 2003).

The nature of public sectorengagement in individual coun-tries or sectors will differaccording to a range of factors,including the sector, the existinglevel of awareness of CSRamong producers, the geo-graphic location, and the signifi-cance of the potential marketaccess issues. For example,though codes of conduct arebeing applied within the supplychains of a core of multinationalenterprises in the garment andfootwear sectors and, to someextent, agribusiness (Smith andFeldman, 2003), there may belittle pressure to implementcodes of conduct in other sectors or in the case ofbusinesses that are supplying domestic marketsthat are not susceptible to the same CSR drivers.

Whatever the circumstances, gathering informa-tion on the various ways in which domestic enter-prises of various kinds understand the CSR agendabecomes a valuable part of preparations to assessthe optimal scope and type of engagement by pub-lic sector agencies to strengthen CSR (Governe-ment of Vietnam, Ministry of Labor, Invalids, andSocial Affaris, 2003). It can also help the publicsector to effectively target information on CSR andcodes of conduct to different domestic enterprises.

Efforts to build supplier capacity to deal with thenew body of CSR requirements in transnational

supply chains may also result in opportunities tosecure new business through integration of CSRinto national strategies for competitiveness. Thetextile sector is a case in point. As a deadline ofJanuary 2005 approaches for the complete elimi-nation of import quotas on textiles and clothing,producers around the world are faced with an unfa-miliar playing field. The goalposts will shift furtheras China’s highly competitive and technologicallyadvanced textile and footwear sector begins to reap

the benefits of full WTO mem-bership. The consequence is asearch for new competitivenessstrategies. Could public sectoraction to enable CSR providepart of the answer?

Cambodia now accepts that itstextile industry cannot competewith China simply on the basisof low input costs. Instead, thecountry is seeking to positionitself as a location for “respon-sible” purchasing.

In the future, the same couldapply to Vietnam, where thefootwear and textile sectors inparticular are increasinglyexport oriented. Against a back-drop of fierce competition andconsiderable domestic con-straints to international compet-itiveness, these sectors have“proven to be particularly sus-

ceptible to market-based CSR pressure” (Govern-ment of Vietnam, Ministry of Labor, Invalids, andSocial Affairs and Institute of Labor Science andSocial Affairs 2003, p. 4).


We are not cheap, but [our high

labor standards give us] an

edge that will look good on

your annual report. We know

you are going to continue to

source from China, but if you

can save 5 to 10 percent for our

country, it will look good in

your annual report. And it

works well for us.Sok Siphana, Cambodian Secretary ofState for Commerce, in response to thequestion, “How would you market Cambo-dia as CSR-friendly?” at the InternationalConference on Public Policy for CorporateSocial Responsibility, October 8–9, 2003,Washington, D.C.

The most fundamental drivers of implement-ing or initiating CSR would be to meet cus-tomers’ demands in [an] effort to gain morebusiness orders or have more customers toguarantee. . . stable and developed productionfor enterprises.

Source: Government of Vietnam, Ministry of Labor, Invalids,and Social Affairs and Institute of Labor Science and SocialAffairs 2003, p. 16.

CSR and Competiveness Strategies 15

A new U.S.-Vietnam textiles agreement, signed inMay 2003, incorporates an obligation for the Viet-namese authorities to encourage implementationof CSR codes in return for access to the U.S. mar-ket (now Vietnam’s top market, after just twoyears of formal trade relations). This appears to bethe first time that an international trade agreementhas included a government obligation to encour-age CSR codes, as opposed to requiring additionalregulation or enforcement, as in an earlier U.S.-Cambodia textile agreement (Petkoski and Twose2003, p. 43).

ALIGNING CSR INVESTMENTS WITHPURSUIT OF PUBLIC GOODSCould the CSR and national competitivenesshypothesis be applied to channel CSR investmentsby businesses toward pursuit of social and envi-ronmental public goods linked to overall publicpolicy goals?

Work in El Salvador has explored this aspect of theCSR competitiveness hypothesis. Could CSRdirected toward the education sector deliverenhanced national competitiveness based on ahigher level of participation in international mar-kets? Few issues are as significant in the reproduc-tion of poverty as lack of education. From adevelopment perspective, thereis clearly value in consideringthe roles of the full range ofstakeholders in enhancing thequality of education. Whatcould the private sector’s rolebe? And how could public sec-tor agencies and businesseswork together to improve thequality of education and its relevance to the challenges ofparticipation in a globalizedeconomy?

In El Salvador’s current, post-conflict context, there is alreadya strong basis for achievingprogress toward shared goals on the basis of broad-based participation and dialogue. Businesses regu-larly engage in a range of activities beyond theircore business. The country’s leaders have consis-

tently acknowledged that El Salvador’s futureprospects rest on the skills of its people.

Interviews with company chief executive officersand other senior executives in El Salvador haverevealed a strong willingness to consider optionsfor public sector roles that might increase thespread and impact of the current range of educa-tion-focused activities, as long as they remain vol-untary, individual business decisions. In contrast,there had been relatively little formal public sectorengagement with education-focused CSR. Whenthese factors are placed alongside the fact that edu-cation initiatives form a core part of many largecompanies’ CSR strategies in El Salvador, thepotential for new and powerful synergies to be real-ized immediately becomes clear.

The government has a critically important role toplay as a facilitator of CSR in the education sec-tor—first, by setting a clear overall policy frame-work for national education and, second, byhelping to set an overall framework and set ofpolicies on CSR and its role within national edu-cation. This in turn presents an important opportu-nity for businesses to “lead from behind,”(Petkoski and Twose 2003) making a positive andtransparent contribution to public policy and plan-ning processes and helping to build the capacity ofpublic sector agencies to plan and implement poli-

cies in support of CSR. In ElSalvador, work is now ongoingwithin the Ministry of Educa-tion to develop an overallnational plan for CSR and edu-cation.

In the Philippines, initial diag-nostic work focused on explor-ing the alignment betweenexisting CSR practices in themining sector and public policygoals, including those relatingto environmental and socialissues, as well as overall invest-ment priorities. The key objec-tives now are to increase the

alignment between private CSR and public policygoals, achieve greater take up of CSR across thesector, and strengthen the government understand-ing of CSR as an investment objective.

A low level of education does

not allow companies to have

the capacities that they need

to face the challenges of

globalization.

Fernando Bogantes, Director of TechnicalSecondary Education and Training, Min-istry of Education, Costa Rica, speaking atthe International Conference on PublicPolicy for Corporate Social Responsibility,October 8–9, 2003, Washington, D.C.

In the case of the mining sector, only a small number of companies lead the way in CSR, the majority are stilltrying to keep abreast of the ever-increasing developments in the field. It is in this sense that the public sectorshould play an increasing role. But it has to go beyond its conventional and traditional role of passing or man-dating laws and regulations. More importantly, the public sector has to: a) make sure that the industry realisesthe significance of the changes that are brought about by such developments; and b) recognize the need to enterinto new forms of partnerships with stakeholders to clearly communicate the implications and the impacts ofCSR on the social and ecological issues raised by them.

Source: Hubo 2003


In many parts of the world, domestic enterprisesare primary drivers of economic development.

Public sector policy for strengthening CSR needsto be capable of addressing the interests of allenterprises, not just the largest or the export-ori-ented or the foreign investors. There is a clear needwithin the CSR agenda to support the existing pos-itive practices of domestic companies, includingthose operating outside international supplychains. The World Bank Group’s work in Vietnamhas revealed a risk that “foreign” CSR practicescould undermine indigenous CSR agendas whenthey fail to respect the value and relevance ofindigenous agendas in their particular setting.Public sector understanding of the range of“imported” CSR agendas therefore has the poten-tial to enable better policymaking for localiz-ed CSR.

Domestic visions of what it means to be sociallyresponsible may well be quite different from thoseof international buyers. In Vietnam, there is anexisting and distinctive national CSR agenda,focused on the business contribution to tacklingsocial crises, such as floods, or improving the lot ofdisabled citizens—what some other business com-munities would characterize as corporate philan-thropy. When buyer-imposed CSR norms that donot address these indigenous dimensions ofresponsible business behavior are referred to asCSR, there is a risk of confusing or even under-mining the local agenda.

From this starting point, addressing codes of con-duct in international supply chains purely in termsof their implications for market access is a prag-

matic short-term approach that preserves theindigenous CSR agenda by separating it from “for-eign” CSR concerns. The “good for business, goodfor society” entry point into discussions on CSRwith businesses in high-income countries can beless highly valued by public sector agencies, whosee their role as communicating foreign CSR agen-das to their business communities and assistingthose communities in staying ahead of the game.Even so, understanding the mainstream CSRagenda and its dynamics is likely to strengthen thepositive impact of any public sector intervention.

Recommended next stages of work in Vietnaminclude a number of options that could serve toground the foreign CSR agenda that is reflected insupply chain requirements much more closely thanin domestic policy priorities. Achieving that goalwill call for development of extended contacts withstakeholders in the foreign agenda—for example,through discussions with buyers and CSR stan-dards makers on areas where harmonizationbetween CSR code content and national law maybe possible.

Work in El Salvador has taken a strong indigenousCSR agenda as its starting point—in this case, onCSR-related investments in education—and thensought to strengthen the positive impacts of thatagenda by learning from international experience.The next generation of public sector action tostrengthen CSR could usefully draw inspirationfrom the Salvadoran model, consciously applyingforeign CSR agendas and international perspec-tives on best practice to strengthen indigenousagendas.

5. Sustaining Indigenous CSR Agendas

17

Public sector understanding of the CSR agendacould catalyze new approaches to domestic

enterprise development. The potential value of thisentry point remains largely unexplored, but thereare indications that it could offer a valuable strategyfor the future.

The policy goal of building domestic enterprisecapacity in an overall climate of economic liberal-ization is shared by many developing country gov-ernments. Within the CSR agenda, the so-calledbusiness linkages theme is one entry point foraddressing this goal. It explores ways to developbest business practice through partnershipsbetween large and small enterprises. For example,in Vietnam, there are already positive examples offoreign buyers working with domestic suppliers toimplement codes of conduct. But there is littlesense that the CSR agenda reflected in those codesis exerting a positive influence on non-export-ori-ented production.

Enterprise development considerations may alsobe an appropriate entry point for public sectorengagement in CSR when there are no local sup-pliers of goods and services. For example, foreignoil companies and government agencies in Angolaall agree on the importance of developing a localsupply market. Alongside this, the contribution offoreign investors to local economic empowermentprocesses is increasingly being scrutinized through

a CSR lens. However, most oil companies cur-rently import everything that they need (Blakeleyand others 2003).

Stimulating oil company investment in buildinglocal supply capacity appears to bring with it thepotential both to deliver progress toward publicpolicy goals and minimize costly dependence onforeign imports. Achieving this kind of engage-ment from enterprises demands companies that areable to see beyond projects to the value of sector-based approaches, beyond foreign-driven CSRpriorities to national priorities, and beyond bilat-eral partnerships with NGOs to public-privatepartnerships (Beye 2003). However, this also hassome limits: There are questions about whetherthis kind of investment is more or less sustainablefor the long term than development of effectivepublic sector capacity to lead a process of diversi-fication and enterprise development. The businesscase for investment in these kinds of initiatives islimited without public sector support and anunderlying endorsement for their goals. The mostsustainable initiatives are likely to be those thatreflect an appropriate balance between the skillsand competencies of the key stakeholders. Thepublic sector can set the overall public policygoals of the framework for local enterprise devel-opment while working to support and catalyze theeffective engagement of the full range of actorswith relevant skills and insights.

6. Building Positive Spillovers forDomestic Enterprise Development

19

There is already a range of ways in which theprivate standards and tools of the CSR agenda

interact with public sector regulation of environ-mental and social issues.

First, positively, a review of company codes ofconduct and international standards in selected sec-tors (Smith and Feldman 2003) notes the tendencyfor codes to defer to national legislative require-ments in certain areas that are key to determiningthe economic competitiveness of nations. Mostnotably, findings from recent research suggest thatin those sectors where code of conduct provisionsaddress wages, benefits, and terms of employment(apparel, footwear and light manufacturing, andcertain agricultural sectors, of those included in thestudy), there appears to be a trend to allow locallaws to set monetary guidelines (Smith and Feld-man 2003).

Second, CSR-driven supply chain requirementshave the potential to supplant domestic legislation,even when they do not directly conflict with it. InVietnam, labor legislation allows employment ofworkers younger than 18 years old (though notyounger than 15 years old) in certain jobs. A lim-ited survey of 24 enterprises in the Vietnamese tex-tile and footwear sectors suggested that the effectof efforts to comply with buyer codes of conductwas to establish a recruitment criterion of age 18years or older (Government of Vietnam, Ministryof Labor, Invalids, and Social Affairs and Instituteof Labor Science and Social Affairs 2003). Theimpact on public policy goals in relation toemployment of youths between the ages of 16 and18 is potentially negative.

Third, businesses have sometimes raised concernsabout how best to behave when norms found inCSR guidelines or codes generate direct conflictswith national legislation. For example, China doesnot allow for freedom of association or collectivebargaining under its national laws (Smith and Feld-man 2003, p. 11). In Vietnam, it has been reportedthat one of the business demands for governmentsupport in relation to implementation of codes ofconduct is to “timely amend and supplement legaldocuments which are no longer suitable” (NguyenHuu Dzung 2003).

Finally, the relationship between monitoringunder private codes of conduct, on the one hand,and enforcement by public sector agencies, on theother, is an important area for consideration bypublic sector actors. In the supply chain context,buyer-imposed pressure to comply with terms ofcodes of conduct, on ultimate pain of terminationof supply relationships, has the potential to act asa more important incentive for compliance withminimum standards than the limited deterrenteffect of state inspections in countries with severeshortages of staff or facilities. In interviews oncodes of conduct in global supply chains, oneIndian apparel supplier, echoed by others, pro-fessed that buyers’ efforts to enforce codes of con-duct “had achieved more in a few years than theIndian labor inspectorates had in 30 years” (Jør-gensen and others 2003, p. 24). Although the addi-tional pressure for compliance that comes withcodes of conduct may be welcomed, it also has thepotential to be viewed as an unwelcome insertionof (often foreign) private enterprises in domesticcompliance processes.

7. Building Positive Links betweenCSR and Public Regulation

21

One route forward might be to explore options forestablishing ways for private monitors to shareinformation with public sector inspectorates. How-ever, there is a risk that such collaboration may beviewed as “imperialistic” or tainted by the percep-tion that local labor inspectorates are inefficient andcorrupt or that governments should not be spendingresources on the development and enforcement ofprivate law (Jørgensen and others 2003, p. 32).Thisis an area where further work to explore precondi-tions for success and social acceptability is needed,drawing in particular on the environmental policycommunity’s experience of “coregulation” aroundthe world.

In all of these areas, private CSR tools have thepotential to either support or undermine domesticregulatory and enforcement capacities. Public sec-tor actors in developing countries have centralroles in working through the different points ofintersection, ensuring that tensions are avoided,

and working with private CSR standards agenciesand those businesses that apply CSR standards intheir trading relationships to ensure that the poten-tial benefits of CSR standards to domestic regula-tory capacity are realized and the potential toundermine domestic capacity avoided. This islargely uncharted territory, where multicountryand sector-wide approaches at the level of analy-sis could generate considerable efficiencies.

One outstanding information gap for effective pub-lic sector engagement in this field will soon be par-tially filled: an assessment of the relationshipbetween the provisions of codes of conduct andnational legislation, based on selected sectors andcountries, is now being carried out. This analysiscould inform development of new approaches tolinking public and private sector monitoring andenforcement, as well as the future development ofcodes of conduct.


Public sector agencies can apply an under-standing of CSR to generate synergies among

the complementary skills of public, private, andcivil society actors to achieve public policy goals.

In Angola, the bulk of oil companies’ CSR activityhas focused on humanitarian responses from aquasi-philanthropic perspective. Recognizing theunique opportunity to affect the shared objective ofpeace and development in Angola, companiesappear potentially ready to ratchet up that CSRinvolvement to a more strategic level, providedthat they see a real commitment from the govern-ment of Angola to seek a more efficient and trans-parent partnership with them (Blakeley and others2003, p. 5).

The CSR practice’s work on issues surrounding themining sector in the Philippines is focusing onbuilding effective collaboration among the differ-ent actors and sharing examples of best practices inCSR. Since 1998, a Working Group Process onMining and Sustainable Development has pro-vided opportunities for broader and more partici-pative stakeholder engagement, addressingimpacts of mining on human development andenvironmental sustainability along with its poten-tial economic development and employment bene-fits. By early 2003, the need for broader civilsociety engagement in matters surrounding themining and minerals sector was well established atthe government level. With the support of theWorld Bank Group, a pilot workshop in a miningregion is planned for 2004, with the aim of helpingbuild the capacity of the range of local stakehold-ers to enhance CSR practices. The hope is that theworkshop will provide a venue for a wide variety

of local stakeholders jointly to build understandingon different ways to enhance the management ormitigation of local environmental impacts frommining activity and maximize local social and eco-nomic benefits. The Philippines work also pointsout the importance of engaging with local govern-ment agencies. In the Philippines, local govern-ment agencies have important policy functions thatare directly relevant to current efforts to buildbacking for responsible mining that is supportiveof sustainable development. For example, they areresponsible for allocating those mining tax rev-enues that are specifically allocated to the regions.In the past, some local governments have alsoexpressed strong policies against mining.

The Salvadoran technical assistance strategy hasbeen rooted in an ongoing process of national dia-logue, driven by shared recognition of nationalchallenges and a strong measure of participation bya range of national stakeholder groups. That thishas been possible is in part attributable to changesin the role of key stakeholder groups. It has beensuggested, for example, that the engagement of theSalvadoran trade union movement has become lessideologically driven over time, shifting from essen-tially political institutions to broad-based instru-ments of worker representation (Marín 2003). Theconsequence is that the movement’s focus on edu-cation has become better attuned to focusing onquality and excellence through partnership-basedapproaches. Technical assistance work in El Sal-vador has aimed to stimulate dialogue aroundappropriate stakeholder roles in strengthening theimplementation of an education-focused CSRstrategy.

23

8. Building on the Strengths of Different Actors


The preeminent business model for CSR activity ineducation in El Salvador has traditionally been theso-called deficiency model, where companies fillgaps in the education system. This deficiencymodel has some benefits, particularly given lack ofpublic resources to invest in the education sector,but it often results in scattered projects with limitedopportunities for cross-project learning. In theworst cases, the deficiency model can lead to adhoc investments by businesses (for example, ininformation technology training for teachers) thatare ineffective because they cannot succeed with-out simultaneous investment in other areas (such asin the necessary hard technologies). Now, withgovernment engagement in an overall partnershipapproach, the general objective is to harness corebusiness competences and skills to delivering awork force with the abilities and attitudes neededto obtain and retain employment in a competitiveenvironment.

In the Angolan oil sector, the immediate driver forinvestment in education is legislation. Beginning in1982, the government has passed various laws toset targets for local labor within the oil sector, aprocess referred to as”‘Angolanization.” Manycompanies have already achieved compliance withthe targets for hiring unskilled workers, but com-

pliance with the targets for higher-level staff ismore difficult. There is overall consensus and abuilding momentum among oil companies, thegovernment (led by the Ministry of Petroleum),and other development institutions for a compre-hensive approach to the problem of development ofhuman capacity, skills, and training for Angolancitizens. The Angolanization targets offer a poten-tial catalyst for development of strategies for long-term investment in education and training. A key tofuture efforts will be application of the legislationas a trigger for efforts to seek a common vision foreducation among the core stakeholders..

Public sector actors are well placed to map differ-ent stakeholders’ roles and set a policy frameworkthat reflects and supports the different comple-mentary core competencies at the national level,but without capacity or interest from key stake-holder groups, partnerships cannot succeed. Pub-lic sector action to support the role of local civilsociety–based actors and trade unions in partner-ships must be central in efforts to localize the CSRagenda. Effective partnerships need to begrounded in local stakeholder interests and needsand be capable of tackling and transcending real orperceived power imbalances among the differentplayers.

The CSR agenda increasingly recognizes thecentral role that must be played by public sec-

tor agencies in developing counties if the agenda’spotential contribution to sustainable developmentis to be realized. The work that has been under-taken to date by the World Bank Group’s CSRpractice with its partners is an early investment inthis emerging field. It is too soon to measure theimpact of that work or draw conclusions about theeffectiveness or the efficiency of the investmentsthat have been made compared with other possiblepolicy approaches. Nonetheless, some commonthemes are already emerging from the work, as areindications of the kinds of initiatives that couldusefully be undertaken in the next stages of theCSR practice’s work.

REFRAMING THE AGENDA: LOCALIZING CSRThe enabling environment for CSR is the sum ofthe drivers, tools, and human capacities and insti-tutions directed toward that goal (RING, 2003). Inmiddle- and low-income countries, there is muchto be done to strengthen each of these three pillarsso that the drivers of CSR derive as much fromaction in those countries as from demands fromstakeholders based in high-income countries; thetools of CSR are appropriate to their local contexts;and the human capacities and institutions thatunderpin efforts to promote responsible businessbehavior are nurtured in all countries.

The clearest overall message concerns the value ofpublic sector engagement as a way to localize theCSR agenda so that implementation and engage-ment by the various stakeholders is properlygrounded in an understanding of and respect forlocal, national, and regional development priorities.

The goals should be to make CSR responsive to andreflective of local stakeholder concerns related tosustainable development, maximize its alignmentwith public policy goals that are supportive of sus-tainable development, and build effective localcapacities to engage with CSR agendas that may beimported through foreign direct investment orinternational trade. A localized CSR agenda willbuild on the strengths of local enterprises as well asthose of foreign multinational corporations.

Adoption of this localization theme in future workcould build a more legitimate and ultimately moresustainable CSR agenda—one that is better able tomeet both the outstanding needs of stakeholders indeveloping countries and those of businessesinvesting in or sourcing from developing countries.

Some tricky balancing acts lie ahead, particularlyin finding ways to manage and sustain balancesamong international priorities, globally applicablebaseline standards, and legitimate local distinc-tions. Only a more inclusive agenda, in which pub-lic sector actors and stakeholders based indeveloping countries are accorded a central role,will be able to deliver lasting resolution of the ten-sions that currently arise from local implementa-tion of an agenda that remains largely “foreign.”

Five themes point the way to future localizationstrategies:

1. Work on global supply chains stressed the needto move beyond the current top-down model forimplementation of code of conduct require-ments, in which codes of conduct are understoodsimply as presenting new compliance require-ments. This is reflected in work in Cambodiaand Vietnam, which is beginning to explore thepotential for public sector agencies to work withforeign buyers to secure more cooperative

9. Taking the Agenda Forward

25

approaches to code of conduct implementation.Work to localize code of conduct implementa-tion through various kinds of collaborativestrategies among buyers, suppliers, and workersis likely to be supportive of a shift toward under-standing how CSR could be strengthened inglobal supply chains

2. International insights into best practice canstrengthen and support indigenous CSR agendas,as work on CSR and education in El Salvadordemonstrates. There could also be value in dis-seminating information on indigenous agendasto ‘foreign’ stakeholders to prevent the dominantCSR agenda from undermining indigenous prac-tices

3. Public sector leadership in developing countriescan help to achieve appropriate linkagesbetween the CSR practices of foreign companiesand local enterprise development.

4. There is a need to engage in deeper analysis ofthe relationship between national laws and thenorms of the burgeoning body of CSR-relatedcodes of conduct. There is little understanding asyet of practical ways to take advantage of theadditional pressure for compliance that cancome from CSR tools while ensuring that publicsector regulatory capacity is not undermined andavoiding the creation of inappropriate tensionsbetween national and transnational priorities.Public sector agencies, as sole sources of domes-tic legislative authority, have a unique role toplay in catalyzing work on these issues.

5. There is a need to build stronger understandingof the value of investment in the broaderenabling environment for CSR by helping localstakeholders to play their role in driving forwardlocal CSR agendas. Relevant activities couldinclude facilitating or mandating locally relevantinformation flows on business impacts (see box2); legal protection and maintenance of respectfor the basic rights without which no multi-stakeholder process can be equitable, includingin particular respect for common and privateproperty; and recognizing and maintaining sup-port for fundamental procedural rights thatenable citizens to realize their full potential asdrivers of CSR, including through freedom ofassociation, broad rights of public participation,and access to justice.

REASSESSING THE DRIVERS OF CSRA baseline assessment of public sector roles instrengthening CSR put forward five drivers of pub-lic sector action to strengthen CSR. Each offersinsights for possible future initiatives.

Trade and investment promotion has been a themeacross much of the work. A key goal is to align theCSR–trade and investment promotion nexus todomestic policy concerns and national and localcontexts. Increasingly, this will call for public sec-tor actors to broaden their networks beyond thenational level to influence the practices of interna-tional NGOs, foreign buyers, parent companies offoreign investors, and home country governments.


Box 2: Localizing Company Reporting

Reporting is often understood as a central tool of the CSR agenda. There is important activity through the GlobalReporting Initiative to develop internationally applicable guidelines for “global” company reports to external stake-holders on environmental, social, and economic issues. Without an emphasis on defining and implementing CSRthrough reporting at the local level in addition to reporting at the global level, many company reports are of lim-ited utility to stakeholders and public sector agencies in developing countries. With the increasing number of com-panies reporting beyond their financial bottom line, the next questions for the CSR agenda are “How could localizedreporting frameworks best be developed?” and “How could public sector agencies seek to capitalize on the avail-able information?” and “What capacities would be needed to allow them to do this, whether in terms of trade andinvestment promotion or alignment with public policies?”

Take the Agenda Forward 27

These stakeholders all play an important role insetting the priorities of the mainstream CSRagenda and consequently its impacts. There mayalso be value in exploring further the range ofcooperative linkages that could be made throughbilateral and regional trade and investment agree-ments to strengthen the overall enabling environ-ment for CSR.

Business demands for more effective public sectorimplementation and enforcement of minimum stan-dards and good public sector governance emergedclearly from much of the CSR practice’s work—from overall assessments on integration of CSRinto investment decisionmaking, to the challengesof integrating CSR in global supply chains andcountry work in Vietnam and Angola. The generalmessage is that efforts to strengthen CSR cannot beuncoupled from efforts to address broader issues ofgood public governance. This is a message targetedprincipally to public sector agencies, but also todonor agencies and the international communitymore widely. Issues of good governance set theboundaries for the voluntary CSR agenda to makea positive contribution to development. Only whengood public governance is integrated into CSR—and CSR into good governance—will the potentialvalue of the CSR agenda be maximized.

Local, national, and international civil societydemands for responsible business and support forpartnership-based approaches to tackling complexproblems are an important driver of public sectoractivity in the Philippines to integrate CSR into thedevelopment of the mining and minerals sector.Also, work in El Salvador builds on a sense ofshared purpose among different social actors toestablish a strategic framework for linking CSRand education. What has not yet been directlyaddressed is the potential value of public sectorsupport for the development of strong local civilsociety and trade union capacity to engage with theCSR agenda.

Consumer demand for sustainable goods and ser-vices in industrial countries relates closely to thetrade and investment promotion driver and itsexpression through codes of conduct. What has notyet been addressed is the scope for public sectoragencies in developing countries to help build andchannel effective domestic demand for sustainablegoods and services. This will not be a cost-efficient

investment in all countries, but as a first step, suchexperience as already exists from middle- and low-income countries could usefully be drawn togetherwith a view to identifying more clearly the poten-tial and limits of public sector engagement. Thereis also potential to link to the considerable interestamong multinational corporations in finding newways to identify and deliver against potential mar-ket demand for goods and services that supportsustainable development for the economicallypoorest consumers “at the bottom of the pyramid”(Prahalad and Hart 2000).’

International policy processes appear to be a lim-ited driver of public sector action to strengthenCSR (as opposed to public sector action to step upimplementation and enforcement of minimumrequirements imposed by law). However, a newbilateral trade agreement between the UnitedStates and Vietnam is one trigger for public sectorefforts to strengthen implementation of codes ofconduct by domestic suppliers. There are also indi-cations that in the future, regional intergovern-mental policy processes could play an increasinglyhelpful role in coordinating the development oflinkages among CSR, regional competitiveness,and trade and investment promotion in certain sec-tors. In Central America, there may be potential toinvestigate the efficiencies that could be achievedthrough a regional process to link CSR, public edu-cation, and the development of national andregional comparative advantages, building on theexperience of the CSR practice’s work in El Sal-vador. In Southeast Asia, the new competitiveenvironment that will emerge after China hasentered the WTO may bring opportunities forregional coordination to link competitiveness withsocial and environmental goals. The key is not tocompete directly with China, but to generate a“race to the top” among the social and environ-mental standards of members of the Association ofSoutheast Asian Nations Free Trade Agreement.China’s own strategy for engaging with CSR willbe an important determining factor for the effec-tiveness of such a strategy.

As the CSR agenda evolves, the relative impor-tance of each of the drivers of public sector actionwill also shift. The adoption of the Equator Princi-ples may indicate that private financial institutionsare set to play a bigger role in driving public sector

action on CSR. Similarly, as the notion of localiz-ing CSR gathers momentum, new dynamics willemerge to reframe the contexts in which publicsector agencies define their strategies and roles inenabling CSR.

REASSESSING PUBLIC SECTOR ROLESThe work of the CSR practice has generally rein-forced the relevance of the four public sector rolesin strengthening CSR—mandating, facilitating,partnering, and endorsing. Care needs to be takenwhen applying these four public sector roles so thatthey do not draw attention away from the need totackle deeper systemic issues in the CSR enablingenvironment. These include concerns about thebasic economic investment climate issues, such asclarity and predictability of public sector actionand the need to eradicate corruption, respect forfundamental procedural rights that allow citizensto express their views effectively in both the mar-ketplace and the public policy arena, and the needto invest in building the capacity of civil society indeveloping countries to engage with CSR. Civilsociety–based organizations can drive market-based CSR, and they may be able to act as a bridgebetween companies and government. These orga-nizations can provide information on enterprises’activities to the public, and they may be able totranslate the language of social development intoterms that can guide business action.

One way to reflect these broader enabling environ-ment issues within the overall categories of publicsector roles in the mandating to endorsing spec-trum is to add a distinct fifth role—demonstrating.Public sector agencies can demonstrate leadershipto business in the exemplary way that they them-selves engage with stakeholders or promote anduphold respect for fundamental rights. They candemonstrate leadership by carrying out their activ-ities with probity and free from corruption. Andthey can show leadership in the way that they sup-port transparency about their own activities in rela-tions with external stakeholders.

CONCLUSIONThere are considerable opportunities for the publicsector in middle- and low-income countries to har-ness the present enthusiasm for CSR to help deliverpublic policy goals and priorities. In exploring andperforming its potential roles, the public sector canplay an important role in shaping national CSRagendas that not only respond to external pressures,such as codes of conduct, but are also in line withlocal needs. The two priorities for the next phase ofwork are to localize CSR and bring a contemporaryunderstanding of it to efforts to revisit the remain-ing challenges of good governance in developingcountries. The result could be to place CSR on a tra-jectory that is both good for business and good forsustainable and equitable development.


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