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EMTA Special Presentation - CSR- September 26, 2011

EMTA Special Presentation: Corporate Social Responsibility in the Emerging Markets: Responsible or Irresponsible?

On September 26, 2011, at its offices, in NYC EMTA hosted a roundtable discussion on the pro’s and con’s of applying Corporate Social Responsibility policies in the Emerging Markets.

The event featured a discussion of research into corporate social responsibility (CSR) programs and the risks they present to investors in Emerging Markets.  The discussion offered an overview of CSR programs and strategies currently being pursued in Emerging Markets.  It also raised the issue of whether ‘Western’ CSR standards are appropriate for Emerging economies, and the level of opportunity or risk they present.

Ambassador Alan Oxley, Chairman of World Growth, Chairman of the APEC Study Centre (Australia), and former Chairman of the GATT (the predecessor to the World Trade Organization), made a presentation, while the panelists discussed the topics below:

Ambassador Alan Oxley – Corporate Social Responsibility as an Investment Risk in Emerging Markets

David Rice, Executive Director, Development Research Institute, New York University – Investor-Led Development: Corporate Profitability as Social Responsibility

Rohit Malpani, Senior Campaigns Advisor, Oxfam America – Beyond Corporate Social Responsibility: A New Relationship Between Civil Society, Business and Governments

Ambassador Oxley introduced the discussion, arguing that a number of major corporations with interests in the Emerging Markets have adopted CSR policies that have effectively been written by environmental campaign groups.  These policies are skewed towards an environmental agenda; the economic considerations are secondary.

He noted that CSR policies have the following significant impacts for Emerging Markets:

              First, for investors in Emerging Markets, CSR policies that are opaque or effectively controlled by NGOs present a risk.  For example, policies that restrict lending to large-scale agriculture or coal-based power plants may restrict potential returns for investors.
              Second, for commodity producers in emerging economies, meeting sourcing policies increases costs.  This has a particular impact on small producers who can be effectively squeezed out of supply chains if they are unable to meet requirements.
              Third, for Western companies operating in the Emerging Markets, imposing Western standards in these markets may ignore the needs of local communities that are seeking economic growth and health/education facilities, for example, rather than reduced greenhouse emissions and habitat protection.

Rohit Malpani underlined that Oxfam is an organization that supports trade and the private sector as an engine for economic development, but only if the rules also work for the benefit of the countries themselves; so it is a balancing act to design accountability standards for companies, while also improving the status of the countries.  He stated that, “[i]n fact, the main thing corporations should be doing is understanding how the value chain operates through due diligence into the impact on these communities.

David Rice commenced his presentation by dispelling any myth that CSR in its current form is a response to advocacy from local affected communities, nor a result of market forces, such as consumer preferences.  He instead asserted that genuine market forces are a reflection of individual rights, and that greater individual freedoms provide more opportunities for economic growth and prosperity.  He contrasted this with the other end of the political economy spectrum: the myth of “benevolent autocracy” propagated by states such as China, Cuba and Vietnam.  He pointed out that, despite the seemingly miraculous growth that has come with greater interventionist policies, states such as China are ignoring the endemic levels of poverty that exist throughout the country.  In this regard, Mr. Rice regards CSR initiatives as “a distraction to genuine means of increasing economic growth, investor returns and employee opportunities in Emerging Markets.”  The core purpose of companies should be “to provide better environments for investments and innovation.  The power of the market should be greater than that of governments (that may be corrupt) or NGOs, and certain countries should not be held to different standards, thus impacting their ability to export products.”

The discussion that followed the presentations was a lively debate.  However, the key discussion revolved around how investors should themselves assess risks and opportunities presented by CSR standards, particularly certification standards: how should the industry move forward with the growing number of CSR standards that are populating the market?  Ambassador Oxley was the only panelist who ventured to answer this question.  His answer was simple, “the industry needs to acquire the capacity to assess the standards themselves by introducing a series of tests to determine whether such CSR policies contribute to economic growth and job creation.”  He pointed out that these standards can often be written from a skewed perspective that wouldn’t necessarily prioritize the needs of investors alongside those of environmental campaigners, and that, in fact, the opposite might take place.  He reinforced the point by stating that the industry must develop the tools to discover and quantify the policy risks posed by these standards, instead of always assuming there is a net benefit.

In summary, the discussion covered all aspects of the CSR debate, from broader development and macroeconomic questions, right through to investor-specific questions relating to portfolio management.

The Agenda, two reports by Ambassador Oxley (Corporate Social Responsibility: How Global Business is Getting It Wrong in Emerging Markets and Abuse of Sustainability Standards: An Attack on Free Trade, Competition and Economic Growth) and a Summary of the roundtable discussion can be accessed by clicking on their respective links above.