5 Corporate social responsibility in a development perspective
Figure 5.1
Aid alone does not create lasting development. Economic growth is a prerequisite for this. An active and dynamic private sector is the foundation for the value creation we need to combat poverty and achieve the UN Millennium Development Goals (MDGs). Private-sector development creates jobs and helps to fund infrastructure and social services. Aid is and will remain important, particularly in the poorest countries. But without economic activity and value creation in the individual countries, it will be impossible to realise the MDGs.
In the Government’s view, economic involvement in developing countries is positive, not only as an instrument for value creation and economic growth but also because it can promote political and social development. Moreover, Norwegian companies can help to reinforce universal norms and values as expressed in the efforts of the United Nations and the OECD. This presupposes that the companies operate in accordance with these norms and their own ethical values regardless of where in the world they are located.
5.1 Investments in developing countries
Direct investment is one of the most important means of promoting development in poor countries. A large-scale survey by the OECD shows that direct investment plays a role in technology transfer, knowledge and competence building, trade integration and the development of a more competitive private sector. The OECD also points out that all these effects boost economic growth, which is the most important tool for combating poverty. UNCTAD has carried out a study of the participation of transnational corporations in the development of the extractive industry (oil, gas and minerals). The study examines the conditions that must be met if direct investment is to contribute to development. It shows that low-income countries at a low level of development in terms of competence and production capability can benefit most from the capital, knowledge, technology and skills that transnational corporations can provide. 1
In recent decades, we have seen a strong increase in private capital flows to developing countries. These capital flows are unevenly distributed, however. They have contributed to economic growth in many countries, while others have become marginalised. Today, Africa receives just 3 % of global foreign direct investment – and most of this is channelled to the petroleum sector. The least developed countries receive 2 % (2005).
Norwegian investments account for a very small fraction of total foreign investments in developing countries. Most of the Norwegian investments are in oil, gas, shipping and the environment – areas in which Norway has substantial expertise and a sound corporate base. It is important to build on areas in which Norwegian companies have expertise, as well as involving other companies. Almost 60 % of Norwegian foreign direct investment is in Europe. Approximately 25 % is in Asia, Africa and Latin America. The involvement of Norwegian companies is limited in the poorest countries and is concentrated in a handful of countries.
The Norwegian authorities encourage greater Norwegian investment in poor countries, including the least developed countries (LDCs), in order to contribute to economic growth. There is a particular need for substantial individual investments to boost businesses at the local level, providing earned income, foreign exchange income and tax revenues.
Figure 5.2 Norwegian foreign direct investment (2006).
Source Statistics Norway.
In view of the limited scope of Norwegian companies’ investments and involvement in developing countries, it may seem paradoxical to have high expectations in terms of social responsibility. The low level of investments by the Norwegian private sector in the poorest countries may be due in part to the high risks associated with such investments. Companies may also feel that these high expectations as regards CSR increase the risk of their failing to live up to their own values and ethical guidelines, and of reputation loss. Companies may avoid entering these markets because they feel that they may be unable to live up to their own expectations and those of other Norwegian stakeholders.
The Norwegian Investment Fund for Developing Countries (Norfund) is an important tool for establishing viable and profitable activities in poor countries. Norfund collaborates with private sector actors to provide risk investment capital and knowledge. In this respect Norfund represents government interests in several areas of business-oriented cooperation between public and private interests relating to investments in developing countries. The Norwegian Agency for Development Cooperation (Norad) and the Norwegian Guarantee Institute for Export Credits (GIEK) also administer support schemes designed to stimulate investment in developing countries and promote cooperation between the private sector and the authorities, cf. Chapter 9.
Textbox 5.1 Power plant development
Along with other Norwegian investors, Statkraft Norfund Power Invest (SN Power) holds a majority of the shares in the Khimti hydroelectric power plant in Nepal. Working with Norwegian aid authorities, the Norwegian actors have targeted development of the area around the power plant. In all, 4 300 households now have access to electricity from a small power plant run by a local cooperative. The water supply and other infrastructure have been improved and measures have been implemented to encourage the establishment of small businesses. The company’s school and health clinic are used by the local population as well as by company employees. Norwegian investors’ participation in the project has made it possible to reach an area of the country where the conflict with the Maoists is an obstacle to official involvement.
SN Power’s involvement in the Allain Duhangan hydroelectric power project in India is an example of the conflicts of interest that can arise between business development and standards for health, safety and the environment (HSE). The project is being implemented by a joint venture company in which SN Power has a holding. It is clear that, as a minority shareholder, SN Power has had insufficient influence to persuade the local project management to implement contractual HSE standards and prevent further fatalities at the plants. The 12 fatalities there highlight the issue of necessary preconditions for the Norwegian private sector to be able to contribute in developing countries. One of the lessons learned is that there must be agreement on improving standards before start-up – and that this must be understood by all parties.
5.2 What can companies do?
Developing countries are interested in development assistance in the form of cooperation with businesses in other countries, as well as access to technology, capital and markets. In order to be financially sustainable, a company must generate a profit that will give returns on invested capital and lead to reinvestment and greater economic activity. Even where direct investments have major and positive effects, they may pose challenges. There are many examples of multinational companies ignoring the development perspective when investing in developing countries.
Textbox 5.2 Norfund and measures to combat HIV/AIDS
Experience shows that it pays for companies to devote resources to offering training, voluntary testing and treatment support for HIV/AIDS victims. Without such efforts, companies will lose valuable employees.
With the support of Norfund, the fund management company Aureos plans to introduce a programme aimed, among other things, at educating and treating employees in 15 of the companies in its portfolio with respect to HIV/AIDS. The programme will involve approximately 8 000 employees in East Africa and will later be extended to include malaria and tuberculosis.
Through their presence and contribution to local value creation, Norwegian companies can contribute to economic development that will reduce poverty and aid dependency. They can pass on Norwegian experience related to working environment standards, employee participation and similar matters. They can create good workplaces characterised by gender equality and the integration of different ethnic groups. There will undeniably be major challenges involved in introducing standards and procedures for health, safety and the environment and other measures. However, with enduring efforts and follow-up by the investing company, there are good chances of success.
The private sector can often help to find creative and innovative solutions. By developing new ways of running businesses, the private sector can promote development. This may, for example, be through improved access to goods and services for the local community and population groups, which in turn can promote the development of local business and help to protect the environment.
By making as much use as possible of local labour and local suppliers, international businesses can help to raise competence and create economic opportunities, thereby directly reducing poverty. Close collaboration with relevant institutions in the local community can also help to strengthen the institutions and create better framework conditions for local companies. Businesses should listen to and incorporate the views of local stakeholders at an early stage, particularly those of vulnerable groups.
Textbox 5.3 Nidar Bergene and the World Cocoa Foundation
Illiteracy and poor infrastructure are features of West Africa’s two million cocoa farms, making it impossible to solve poverty or child-labour problems overnight. It is possible, however, to improve the living conditions of the cocoa farmers.
Along with the ILO and several NGOs, Nidar is involved in the efforts of the industry organisation, the World Cocoa Foundation (WCF), to improve social conditions on the cocoa farms of West Africa. The work includes plant research, training, cultivation control and influencing the authorities.
At the «Farmers’ Field Schools», 24 000 cocoa farmers have received training in how to increase their yields and achieve better prices. They have also been made aware of their responsibility for ensuring that their children receive schooling and grow up in a secure environment. A total of 200 000 people have participated in other training projects. The farmers who have received training have increased their income by between 15 and 55 %.
Local content requirements can, however, present challenges. Companies may experience greater expectations and pressure to meet local needs which, in other contexts, would have been a public responsibility. They may, for example, be expected to develop the necessary infrastructure for the company’s activities, which will also benefit the local community. It may be a question of building roads, supplying water or providing health services. It may even involve developing infrastructure that is necessary from the national point of view and for the company’s activity, but which is contrary to the interests of the local community.
Companies have various types of expertise and technology that can be useful in specific development measures. An example of this is the health industry, which plays an important role in the development of new drugs and equipment for the prevention and treatment of diseases such as malaria, HIV/AIDS and tuberculosis. A well-functioning transport sector is essential for the effective distribution of goods both to the population and to businesses. Expertise in the area of pumping technology can be applied to the water supply. Companies can make valuable contributions based on their expertise, often in cooperation with development actors and local authorities. 2
Figure 5.3 Local communities formulate their own resolutions to prevent child labour in Côte d’Ivoire.
Source Winrock International.
According to Norwegian policy, when exploiting natural resources «owned» by the local community, such as hydroelectric power, developers should contribute in a manner that ensures an additional development impact for the local community. The Khimti power plant in Nepal is an example of a development project that has had positive consequences for the local community, cf. Box 5.1.
Companies can contribute to development through various measures closely related to their core business. Measures related to the company’s strategy are more likely to endure in the long term. But there are many examples where support for measures in the local community that are not connected to the company’s core business may prove important to the development of the local community while also giving the company local legitimacy.
Developing countries are important actors in resolving climate-related problems, and the private sector has an important role to play in this respect. Developing countries both need and have a legitimate right to better access to energy. Norwegian companies can contribute to more environmentally friendly energy solutions through innovation and technology transfer.
Clean energy is an area where there is a good potential for greater involvement by Norwegian companies. SN Power Invest and Statkraft already have substantial investments in developing countries, and Trønder Energi is in the process of building its first power plant in Uganda. Several regional energy companies are considering the possibility of setting up in developing countries, and work is ongoing to strengthen SN Power’s involvement in Africa. The participation of more Norwegian actors would enable Norway to contribute capital to invest in cleaner energy.
The Government’s action plan for clean energy in development efforts (2007) 3 points to opportunities with respect to energy efficiency, solar energy, hydroelectric power, wind power, geothermal energy and other renewable energy forms. Cooperation with Norwegian companies can contribute to the transfer of technology, experience and expertise relating to planning, construction and operations.
5.3 Partnerships for development
Partnerships between authorities, civil society and the private sector can boost the positive development impact of international business activities in developing countries. Several multilateral institutions are working to support the development of international business activity with a view to promoting development and combating poverty. One example of this is UNDP, which works with private companies to identify market opportunities and business models for the private sector in developing countries.
Firm support from the local authorities is a prerequisite for good and enduring partnerships. It is also important that the private sector parties involved see the partnership as relevant and strategically important in relation to their own activities and goals. Partnerships that combine the financial and technical expertise of the companies with NGOs’ insight into development issues will generate better development effects from private sector engagement. Local companies will also be natural partners.
Figure 5.4 Microfinance has proved to be a successful strategy for women’s participation in the economy.
Source Aubrey Wade/Panos Pictures /Felix Features.
Closer cooperation between the public aid apparatus and private companies can make aid more effective. Using aid funds to facilitate private investments can reduce the risks involved and result in private actors releasing more money for commercial investments in developing countries. Cooperation of this kind facilitates a strengthened and more concrete dialogue about CSR. This could, for example, apply in the case of hydroelectric development projects. In this type of project, environmental awareness, social responsibility in relation to the local community and affected groups, the working environment and special development programmes for the districts involved will be essential to the success of the project.
The Norwegian private sector has valuable expertise in a large number of fields that are central to the creation of new activity and profitable business development – including in developing countries. Examples of partnerships with Norwegian companies include efforts to improve value chains in African agriculture and in microfinance.
Several parties, both private and public, have worked together to set up a Norwegian microfinance initiative. The purpose of the Norwegian Microfinance Initiative (NMI), which was launched in June 2008, is to improve access to microcredit by combining private sector capital and expertise with public aid capital and professional development expertise. The private investors who have been at the forefront of this initiative are Ferd, DnB NOR, Storebrand and KLP. Norfund contributes 50 % of the investment capital, and Norad provides technical assistance.
Textbox 5.4 Agricultural development in Tanzania
Tanzanian agriculture largely consists of many small farms with limited mechanisation and somewhat primitive production methods, and it involves a risk of soil impoverishment. Yara International ASA, Norfund, Norad, the Rockefeller Foundation, Rabobank, the Agricultural Council of Tanzania and the Tanzanian authorities have formed a broad partnership to improve the lives of small farmers in Tanzania. The partnership helps to build expertise in local institutions, and provides training and a credit line that ensures that farmers have access to small loans to buy the required input goods.
Partnership is a central topic in the business forum set up by the Norwegian Minister of the Environment and International Development in the spring of 2008 with representatives from the private sector, business and industry organisations and the Norwegian Confederation of Trade Unions (LO) with the aim of giving greater impetus to business development efforts in developing countries.
5.4 Institution and capacity building
In many developing countries the institutional basis for creating good and predictable framework conditions for the private sector is poor. Weak governance and inadequate legal protection often contribute to extensive corruption. This puts a damper on domestic investment and makes it harder for countries to attract foreign investment. Weak institutional frameworks can also be exploited to protect monopolistic positions, which may result in the markets supporting existing elites and sustaining social inequality and exclusion.
Business development is linked to factors such as distribution, rights, social and environmental conditions, the share of profits that remains in the developing countries and the use of public funds. A responsible macroeconomic policy, including balanced and predictable taxation, is therefore an important foundation for the development of the private sector. A good macroeconomic policy is important for value creation in general and for the private sector’s freedom of manoeuvre in particular. Norway participates actively in the dialogue between cooperating countries and donors on macroeconomic policy and reforms.
Figure 5.5 Educating workers in Vietnam through the Rogaland Training and Education Centre.
Source Ole Imsland.
The Government’s strategy for supporting business development in developing countries focuses strongly on the poorest countries in Africa and is clearly recipient-oriented. At the same time, support for business development must be provided so as to ensure that adequate account is taken of human rights, environmental issues, indigenous populations, women’s rights and gender equality. Projects receiving aid must ensure that labour rights and other human rights are safeguarded, among other things by ensuring that international conventions are complied with and followed up nationally. They must also to contribute to raising awareness about the importance of combating child labour and ensuring that partners and suppliers do not use child labour, cf. Chapter 9.
Through bilateral cooperation, the Norwegian authorities are involved in an advisory capacity in developing national frameworks and capacity building to facilitate business development. In development cooperation, Norway prioritises aid to public institution-building, among other things as a means of combating corruption. This could provide greater opportunities for national and international companies to compete on equal terms in countries with inadequate legislation and unpredictable practices.
Textbox 5.5 Oil for Development
The Oil for Development initiative was launched in 2005 to assist developing countries in the management of their petroleum resources. The aim is to build the competence and capacity of public authorities and lay the foundations for developing a holistic framework to avoid the «natural resource curse». The initiative promotes sustainable economic development and the welfare of the population as a whole. Developing good governance is a recurrent theme throughout the initiative, and it is reflected in the work on resource management, financial management and environmental management. This entails assisting in drawing up legislation for the sector, transferring technical knowledge and raising awareness of environmental consequences and revenue management. Oil for Development currently has projects in 25 countries.
The Government
calls on the private sector to increase its investments in developing countries and invites companies to enter into strategic partnerships in order to reduce the risk associated with such investments and improve their development impact;
will include cooperation on social responsibility as an important component in partnerships between public and private actors in developing countries;
expects Norwegian companies operating in developing countries to demonstrate social responsibility and bring good business practices from their operations in Norway;
emphasises how important it is that the private sector’s involvement contributes to building up local partners and local ownership, transferring knowledge and ensuring a long-term perspective;
calls on Norwegian companies to actively recruit locally in host countries, encourage the use of local suppliers and cooperate with local companies as contractors and suppliers where they are to be found, in order to develop sustainable and competitive local companies;
will use the new business forum to discuss possibilities for partnerships and other measures to promote private sector development in developing countries.
5.5 Responsible business – the key to development
Through knowledge, experience, presence and influence, the private sector can help to address many of the challenges facing developing countries. Through investments, transparency and good business practices, Norwegian and other multinational companies can contribute to strengthening the countries’ own economies and private sectors. In this respect, development can be said to be good for business, and business good for development.
However, there is no automatic convergence of the interests of foreign companies and the real needs of the local population. That is why there is a need for dialogue and exchange of experience and knowledge between the foreign companies and authorities or organisations that have development experience, and between the private sector and local authorities and societal groups.
Norway is seeking to persuade developing countries to accede to international conventions and implement and enforce them nationally. This will help to raise standards for economic activity in these countries. However, there are still a number of considerations that cannot be dealt with without further developing the international framework for the private sector. Norway is therefore actively participating in efforts to strengthen international guidelines for CSR.
Textbox 5.6 The UN Millennium Development Goals and examples of private sector contributions
A report from the UN Development Programme (UNDP), Creating Value for All: Strategies for Doing Business with the Poor (July 2008), provides examples of what companies can do to help to achieve the Millennium Development Goals and promote global development.
Eradicate extreme poverty and hunger
Promote value creation and contribute significantly to public revenues.Create jobs and access to necessary goods and services.
Achieve universal primary education
Play an important role in efforts to combat child labour in the workplace.Promote schooling for the children of employees and invest in education.
Promote gender equality and empower women
Increase women’s financial autonomy as entrepreneurs, employees and producers. Contribute to and invest in leadership development for women.
Reduce child mortality
Provide inexpensive medical products and health services.Promote children’s rights and issues concerning children.
Improve maternal health
Provide inexpensive medical products and health services.Improve women’s working conditions and occupational health.
Combat HIV/AIDS, malaria and other diseases
Provide inexpensive medical products, health services and innovative solutions.Implement HIV/AIDS programmes in the workplace, focusing on information, prevention and treatment.
Ensure environmental sustainability
Can have a major positive impact on the environment and increasingly invest in new products and business processes to counteract adverse environmental impacts.
Global partnership for development
Be an important partner in supporting investment and a transparent trading and financial system.Be an essential partner in work to promote employment among young people and to make new technology available.
Footnotes
UNCTAD World Investment Report 2007.
Kolstad, Wiig, Larsen (2008), Hvordan gjøre gode ting bedre? Norske bedrifters CSR-aktiviteter i utviklingsland (How to do good things better. Norwegian companies’ CSR efforts in developing countries, only available in Norwegian). CMI Report 2008:4.
Initiativ for ren energi i utviklingsarbeidet (2007). Only available in Norwegian.