Trans-national businesses (TNs) have the opportunity to contribute directly to specific national development goals, in the short term and achieving targets under the Millennium Development Goals (MDG) in the medium to long terms. In such an investment negotiating environment, opportunities will be created to enable governments in developing Commonwealth member States to leverage Corporate Social Responsibility (CSR) Inclusive Business (IB) strategies of multi-national companies to create “Triple Wins” for investors, governments and communities.
A myriad of social and environmental concerns can be found under the umbrella of CSR or IB of TNs. In the main, many studies on CSR address issues such as labour conditions rights, community/stakeholder engagement, accountability, good governance, philanthropy, volunteering by employees and ethical procurement. Not considered directly is the link between CSR/IB and Foreign Direct Investment (FDI). There is a need, therefore to identify opportunities for partnerships among public, business and community interests to flourish and boost national development as a consequence of inward investments and compliance with national legislation and job creation, while demonstrating best practice reflective of CSR/IB strategies that could trigger additional rewards from national governments for investments.
These were the findings of a recent study by Veronica Broomes titled: “Triple Wins’ from Foreign Direct Investment: Potential for Commonwealth countries to maximize economic and community benefits from inward investment negotiations – case studies of Belize and Botswana“. The study, funded by the Commonwealth Secretariat, through the Governance and Institutional Development Division (GIDD) focused on Belize and Botswana as pilot countries to explore how governments across the Commonwealth could leverage the CSR or IB practices on TNs in investment negotiations. In considering how CSR can be mainstreamed in inward investments, government officials negotiating with investors and policy makers formulating investment frameworks need to be innovative in providing additional incentives to enhance the business competitiveness of their respective States.
According to the study, where designated or clearly defined CSR, IB or community engagement strategies are already in place, there is a potential for incentives to be provided by official investment agencies. This will involve matching investment needs with priority sectors such as energy, communications, women, youth and/or geographic areas, including communities with high levels of unemployment. In the case of Belize, there is potential for the government to leverage CSR strategies and policies of TNs through:
- Promoting more investment in rural areas so as to increase opportunities in employment and income generation;
- Developing employable skills in the population through the provision of education and training;
- Improving basic health care and access to potable water in rural areas, and;
- Improving access to land and shelter ownership in the Toledo District and Belize South.
Contributions by investors as part of their CSR would free resources for the Belize government to address other national and regional needs. However, according to the study, such a shift should not be viewed as any government using CSR strategies as a way of abdicating responsibility to provide basic services and facilities for its citizens. On the other hand, communities should not be subjected to the whims of private investors and their ever changing CSR strategies and/or action plans. Instead, there should be an approach towards creating “Triple Wins” for all stakeholders – business, governments and communities. In general, private investors seem reluctant to allocate funding directly to governments, apart from taxes and duties, as there is no guarantee that such funds will be used for earmarked community needs once placed into the national consolidated budgets. Placing such money into special funds may incur additional administrative costs, which may not be widely favoured. TNs may be wary also of the specific national government being seen as the source of the funding, rather than businesses. In order to make a strong business case for CSR, the study suggests that businesses see how they too can benefit from actions beyond mere traditional business practices of creating jobs and complying with legislation.
The findings of the case study on Botswana indicate that mining companies in the country have adopted the philosophy of CSR and are prepared to link social and environmental initiatives to their core business. One such example is the comprehensive approach taken by the diamond mining company, Debswana, to develop and decentralize its strategy on corporate social investment. In so doing, the company demonstrated preparedness to go beyond ‘business as usual’ approach of creating employment and attracting FDI.
The study suggests that because of government interest, there has been a formal strategy for investing in local communities and national economic investment. This strategy, however, does have a strong philanthropic element, although longer-term capacity building and technology adaptation have been included occasionally, the interventions fall short of national requirements to fill the technological gap. While some of the areas supported by the mining companies can be viewed as traditional from the perspective of focusing on charity/corporate giving, others are more innovative and open the door to contribution across a broader range of issues and sectors.
Governments and in some instances communities determine the land and labour available to investors and are frequently guardians of the resources required by investors. More, often than not, however, it is traditional for governments and businesses to benefit directly and significantly from the harnessing of resources for development and communities to be left at the mercy of both their governments and investors. In the context of Commonwealth States, CSR can be considered as a broader perspective of business, one that leads investors to more complex assessments of prospective investments and greater consideration of customer views and initiatives to be able to thrive in a highly competitive, and sometimes hostile, business environment.
The study notes that companies that have made information on their CSR activities available for this activity can be seen as having in place initiatives to mitigate any adverse effects of their operations through the development of appropriate social and economic facilities in the community in which the operate. “Triple Wins” for stakeholders in investment negotiations require a paradigm shift in partnerships and investment frameworks. This move shifts the focus from traditional public private sector partnerships to one that includes communities as legitimate stakeholders.
Creating awareness and increasing understanding of CSR are essential requirements for negotiating teams and policy makers in ministries such as Finance, Economic Development, Trade and Commerce and dedicated investment agencies. “With heightened awareness and understanding of CSR, such teams will be equipped to consider and develop appropriate innovative and strong investment frameworks to attract FDI. Not only will strong frameworks provide benefits to shareholders, but simultaneously contribute to improving lives and livelihoods of the communities in which investments are based and promote national economic development” the study concludes.
Specific actions that should be taken and issues explored by teams negotiating investments and policy makers in finance and sectoral ministries include:
- Fostering strategic and innovative approaches when revising investment frameworks and negotiations, especially in the face of recent turmoil in global financial markets. Agreed incentives should be defined clearly in contracts.
- Reviewing lessons learnt from approaches taken by some countries to make social demands of incoming businesses, as in the case with Mauritius, where there is a Corporate Governance Committee which imposes certain taxes across the board.
- Principle-based standards such as United Nations Global Compact, Organisation for Economic Cooperation and Development (OECD) guidelines for multi-national enterprise and Caux Roundtable principles for business could provide a meaningful starting point when considering CSR credentials of TNs, but should not be viewed as comprehensive for informed decision making. Additional information sources should be reviewed and considered.
- Focusing on assessing the robustness of information provided by potential investors, as this will lead to the development of best practices for investment negotiations rather than settling for accepted practice that may not be in the best interest of national goals and communities’ interest.
- Applying a sliding scale of rewarding good behavior – based on cost, its duration, extent of impact and/or geographical location.
- In some sectors eg. mining, practices such as the use of resource saving technologies go beyond minimum requirements and open the door to providing extra incentives for additional good behaviour by investors.
- Formulating certain strategies to deal with investors already demonstrating exceptional corporate citizenship in applying CSR to non-core business areas and, under a different guise e.g. financial institutions partnering with local councils/municipalities to maintain parks and street furnishings in cities and towns – beautification/aesthetics.
- Unifying the approach to investment initiatives across sectors is not necessarily appropriate as sector issues vary and national development needs change, in addition to wide ranging differences in the level of progress made towards achieving MDG.
The report further suggests that case studies provide lessons learnt and potentially, to shorten the learning curve and reduce the risk of failure. Commonwealth governments that leverage the CSR strategies of TNs could contribute to increasing the attractiveness of their countries as investment destinations and increase business competitiveness. Additionally, they could formulate investment incentives attractive to TNs to support ad/or build capacity in the local supply chain, thus promoting enterprise and improving livelihoods.
Allison S. Ali
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