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Business interests, correctly understood

by D+C | E+Z
Electro-car at Frankfurt’s International Motor Show / Elektrosmart auf der IAA

Electro-car at Frankfurt’s International Motor Show / Elektrosmart auf der IAA

There is no inherent conflict between pursuing corporate interests and observing social as well as environmental standards. The influence of globally active corporations on policymaking has increased. Accordingly, these companies must rise to their responsibilities. They can – and must – contribute to sustainable development. [ By Andreas Baaden and Jochen Weikert ]

Sport is no fun if some don’t play by the rules. Doping and unfair methods distort competition. The same is true in business. Corruption and irresponsible management – often at the expense of the people, the environment and the climate – erode the rules of the game for a sustainable world economy.

The rules of the business game are defined in changing conditions. In national contexts, governments and public authorities used to be able to define standards on their own, and only the largest companies and associations exerted any influence. For the most part, commerce and industry played a rather passive role. Matters have changed in the globalising world, however, as companies increasingly take advantage of their growing power.

It used to be easy for companies with a global presence to flout national environmental regulations. They simply moved their production elsewhere. This sort of behaviour has been heavily criticised by the media and international NGOs. Consequently, new networks of socially and environmentally oriented businesses have emerged. They are turning the market-driven economy into an agent of sustainable development.

Evidence of this trend was to be seen at Frankfurt’s International Motor Show in autumn. This trade fair, so far, never had a reputation of paying much attention to sustainability. But even the motor industry can no longer escape the issue. Business already is deeply involved in global governance, says John Ruggie, a professor at Harvard University, who advised Kofi Annan in setting up the “Global Compact” and who is now UN special representative on business and human rights. In his view, “we need stronger bridges” between business and politics. Climate change is a subject that affects people in both industrialised and developing countries. It is also a threat to businesses and markets. The unsettling reports by the UN Intergovernmental Panel on Climate Change (IPCC), which won the Nobel Peace Prize this year, have told humankind where we are heading. Nonetheless, some industries are still not prepared to make decisive changes in the necessary direction. There is still a large gap between knowledge about climate change and action to solve the problem.

Rajendra Pachauri, the chairman of the IPCC, says businesses can play a crucial role in global climate protection. Pachauri considers the spread of more climate-friendly technologies to be the most significant task of our time. Managers that adopt a pro-active approach do not only serve the common good, however, they also boost the future potential of companies.

Climate-friendly technologies are already used on a large scale in Brazil. Roberto Giannetti da Fonseca, an entrepreneur in the bioethanol industry, estimates that half of the energy for the Brazilian transport sector is obtained from biofuels. This emerging-market nation is willing to share its technological knowledge and the resulting comparative advantages with African countries, for example by means of trade and investments. According to da Fonseca, however, rich countries’ market-distorting subsidies for various forms of energy – conventional as well as renewable – obstruct such developments.

It is important that all involved cooperate closely. Pachauri maintains that governments must create legislative frameworks to improve corporate responsibility and promote environmentally-friendly industries. However, the decisions consumers make every day also matter very much to climate protection. Other important players include international organisations which, in many cases, are run along similar lines as businesses. According to Heidemarie Wieczorek-Zeul, Germany’s development minister, combating climate change may well become the World Bank’s most important task in future.

Exposing corruption

As is true of climate protection, there are also many reasons for companies to support new rules against corruption. According to World Bank estimates, one trillion dollars is paid in bribes around the world every year. This affects the economies of the poorest countries above all. At the 12th International Business Forum held by the World Bank Institute and InWEnt in Washington (see box), Peter Eigen, the founder of Transparency International (TI), praised the Bank, saying it had changed “from Saulus to Paulus”, now employing people with a clear stand against corruption even in leading positions. According to Eigen, who chairs the Extractive Industries Transparency Initiative (EITI), the responsibility for corruption lies primarily with industrialised countries and the companies that pay bribes. He says it is time to stop pointing the finger at the countries of Asia, Africa and Latin America.

Companies face a dilemma: either they bribe or risk suffering disadvantages due to unfair competition, should they oppose this “standard practice”. However, TI President Nancy Boswell stresses that building business relations on bribes is no sustainable strategy, as prominent examples – Siemens in particular – have proven recently. If companies are again and again shown the red card, the cost of their reputational decline may well exceed the advantages gained through corruption even in monetary terms (share price, customer confidence).

Once again, collective action is the best course. Exposing corruption unreservedly is a task not only for governments and companies, but also for independent media and civil society. Promising initiatives include the OECD Guidelines for Multinational Enterprises, which have now been adopted by 40 countries, and corporate climate alliances such as the German “2° Initiative” or intersectoral anti-corruption pacts.

The role of other players and intersectoral cooperation are hot topics on the agenda of the G8. Under the German chair this year, the group of leading industrialised countries emphasised at the Heiligendamm Summit the role of business in global development, corporate social responsibility and the importance of initiatives such as the EITI.

It is the job of economic development policy to promote these initiatives and to build the necessary capacities for governments and companies all over the world to shape globalisation in a responsible manner. At the World Bank Annual Meeting in Washington, Wieczorek-Zeul asked what the next generation might think of us if we, fully aware of the challenges at hand, plunged Earth into climate disaster.