2000 word essay: Environmental Ethics :BP oil spill in the gulf of Mexico

Human Systems Management 27 (2008) 243–253 243 DOI 10.3233/HSM-2008-0682 IOS Press

Globalization and the good corporation: Whither socially responsible investment?

Robert Howell CEO, Council for Socially Responsible Investment, 25 Kowhai Street, Kingsland, Auckland, New Zealand Tel.: +64 9 623 3253; E-mail: [email protected]

Abstract. The strategy and experience of the Council for Socially Responsible Investment in New Zealand promoting socially and environmentally responsible investment (SRI) is described and discussed. Issues the Council has faced included public ac- cessibility to good information, definitions of SRI, standards for good corporate responsibility, and climate change. Internation- ally there are no successful examples of strategic models used by government, business or civil society to make SRI mainstream by voluntary means. Research indicates that SRI internationally is in single percentage figures only. This is a particularly acute problem if the worst scenarios of climate change (for example) are to be avoided: a rapid shift (within perhaps, eight years) of public and private investment into a SRI framework is required. If the world is to avoid dangerous global warming, it is very un- likely that the strategy of a voluntary shift to an international SRI economy will achieve this, and even with a shift to a regulated economy the chances are not good.

Keywords: Socially and environmentally responsible investment, ethical and sustainable investment, corporate responsibility, globalization, climate change

Robert Howell has an MA in Philos- ophy, a DHA in health management, and a PhD in community health plan- ning and management. He is a highly experienced and qualified CEO, consul- tant and university teacher with com- petencies in strategic visioning, strate- gic planning, governance and policy set- ting, organisational and systems design and implementation, and business ethics. He has wide ranging experience having worked in advisory, teaching and CEO positions in the health, local authority, international education, and non-profit

sectors. He has played a significant role in the introduction of social and environmental factors into New Zealand investment, non-violent conflict resolution training in the Indonesian Police, and the strate- gic appreciation of climate change with NGOs. He is currently the CEO of the Council for Socially Responsible Investment and teaches business ethics at AUT University.

1. Description of CSRI and New Zealand investment

During the mid 1990s the Conference of Churches in New Zealand, an ecumenical body, set up a work- ing group to look at non-financial investment criteria for churches, to explore ways of working more closely together, and perhaps follow ways churches overseas

had worked ecumenically. Progress was slow, and early this century ways of setting up a separate charitable trust were explored. Because of the small population of New Zealand, it was considered more efficient to move away from a specialised religious base.

The Council for Socially Responsible Investment (CSRI) was legally established in 2003 open to any- one and any organisation interested in these issues. The purpose and objects of the Trust are to promote eth- ical, sustainable investment; help individuals and or- ganisations to develop guidelines, criteria and meth- ods for socially responsible investment; and research, educate, promote and advocate for socially responsi- ble investment. In 2004 CSRI organised a conference aimed at describing New Zealand and overseas prac- tices and models. Arising from that conference came the recognition that there were in New Zealand very few commercial socially and environmentally respon- sible investment (SRI) funds, very few financial plan- ners with the ability to advise on SRI, a number of community trusts with an interest in SRI, and that the government was to become a significant player in the investment field. In 2004 CSRI set strategic goals to fo- cus on Community Trusts and Government Funds, be- fore engaging with the commercial and individual ad- visory services. In 2005 it recognised climate change

0167-2533/08/$17.00 ! 2008 – IOS Press and the authors. All rights reserved

244 R. Howell / Globalization and the good corporation

as a major strategic issue. At its November 2006 strate- gic workshop the CSRI Board adopted a vision of SRI being mainstream in New Zealand within five years.

A universal pension system was introduced to New Zealand in 1938 as part of a welfare state. This was paid for out of general taxation on a pay-as-you-go basis. It is a basic provision, and the major source of income during retirement for the majority of New Zealanders [52]. During the last three decades of last century, there was frequent political dispute about levels of provision, whether there should be a form of compulsory individual savings, and whether the government should invest to supplement or replace the payment from the current tax collection. In 2002 the Government set up an investment fund, the New Zealand Superannuation Fund, to assist the Govern- ment with pension payments twenty years later when the number of retired people is predicted to have sig- nificantly increased.

Other Government Funds include the Government Superannuation Fund, the National Provident Fund, the Accident Compensation Corporation, and the Earthquake Commission. They are called Crown Fi- nancial Institutions (CFIs) and combined have around NZ $30 billion under investment. This is likely to grow over the next 15 years or so to something between $120–150 billion, but the New Zealand Superannua- tion Fund will be the largest. The amount of money un- der fund management (which does not include CFI’s) in New Zealand at December 2006 was NZ $63.9 bil- lion [53].

After the 2004 conference CSRI talked with the CFIs about how CSRI could assist them. Later that year it became apparent that they were not interested in membership of CSRI. We then investigated the non- financial legislative criterion that they were required to follow. This criterion is an “international reputation” clause, or “to avoid prejudice to New Zealand’s repu- tation as a responsible member of the world commu- nity”. CSRI sought political advice and was told that when the legislation was being considered pre-2002 it was felt that the “international reputation” clause would screen out the obvious unethical companies, and that if this was not the case then the Government would likely reconsider the legislation. CSRI then surveyed the CFIs for a list of all the companies they invest in, the companies they decided not to invest in for non- financial reasons, and their relevant policies guiding their decisions. The CFIs provided this information. CSRI also asked for copies of the advice the CFIs had received about the application of the “international rep-

utation” to these companies, but was not given this even on appeal to the Ombudsman. The reason given was that because the information had been obtained from an independent source on contract, it would con- travene a client/contractor relationship. In order to evaluate the social and environmental behaviour of the companies the CFIs invested in, CSRI sought assis- tance from Amnesty International, trade unions and some environmental groups. They were not able to as- sist. Eventually information was used from the USA Interfaith Center for Corporate Responsibility, and re- search by Professor Sethi. It was found that all the CFIs were investing in tobacco companies, and companies with unacceptable or questionable human rights behav- iour or environmental impacts, such as Nike, Walmart, BJ Services (operating in Myanmar) and Exxon Mobil. These investments were not consistent with other Gov- ernment policies. CSRI took this information to the Government and they agreed to help finance a CSRI conference to explore the inadequacies of the ‘interna- tional reputation’ clause and its alternatives. This oc- curred in late 2005 [9,31].

A member of the New Zealand Parliament, Maryan Street, attended that conference, and during 2006 drafted a private member’s bill to change the legisla- tion [32]. The Bill proposed amending individual CFIs governing legislation to ensure that:

(a) CFI investment policy must be consistent with and governed by ethics which promote so- cially responsible and environmentally sustain- able economic development;

(b) CFI investment policy must take into account international norms, conventions, declarations, covenants and treaties already supported, signed or ratified by the New Zealand Government.

The draft bill included the Swedish pension fund method of defining what is acceptable behaviour by saying that what the government has signed up to by way of international norms (example: UN Declaration of Human Rights) should be followed. However, rely- ing solely on this clause, will not get the CFIs out of tobacco investment, because there is no international norm about this – hence the inclusion of “socially re- sponsible and environmentally sustainable economic development” in the draft bill.

In the budget statement of May 2007 the Minister of Finance announced that KiwiSaver, a scheme whereby Government provides incentives for individuals to save with contributions from employers, will be required to disclose their approach to responsible investing. The

R. Howell / Globalization and the good corporation 245

full effect of this in increasing SRI will not be known until KiwiSaver has been going for a year or two.

Individual investors in New Zealand however bring value judgements to their investing. Chui’s key find- ings shows that New Zealand shareholders who are solely driven by the motivational value of a prosperous life (described as affluent, wealthy) constitute such a small minority (only 1.3%) that it throws considerable doubt on the simplistic assumption that shareholders are only concerned with maximising their wealth [4]. Despite this interest there have been very few funds for individual investors, and it is hoped that the Minister of Finance’s initiative will provide an impetus for the commercial sector.

Since 2005 CSRI has had both informal praise and criticism from people in the SRI sector. The criticism consists of a belief that CSRI’s strategy and tactics should be limited to working with the CFIs and other staff from the investment sector, rather than attempting to persuade the owners of the CFIs, the Government, to change legislation.

2. Discussion

The issues that CSRI has faced raise wider questions about the role of SRI in bringing good corporate behav- iour to a globalised world. Is the current strategy able to move investment into a SR frame in time to meet the challenges of global warming and environmental degradation that is threatening the planet? If it is not, what strategic elements are necessary for SRI to play an important role in the future?

2.1. Development and definition of SRI

The modern SRI activities came out of the Viet- nam War and the anti-apartheid and environmental movements of the 1970s and 1980s. Funds were de- veloped that met the moral requirements of individ- ual investors, but the onus was on the investor defin- ing the moral standards rather than the fund provid- ing a comprehensive definition. Research groups were established to provide the information about company behaviour to enable investors to make decisions about screening out and engagement. As an example, in Britain, The Religious Society of Friends (Quakers) which had established Friends Provident in 1832, and the first British specialist ethical fund in 1984, Friends Provident Stewardship Trust, were instrumental, with the Methodist Church, in the setting up of the re-

search group, EIRIS [60]. The research is contracted by the investor group who use it to make judgements about where to invest based on the investor groups val- ues. The onus is on the investor defining the moral standards. Stewardship (previously Friends Provident Stewardship Trust) produces reports on its engagement activity [61]. A consequence of this development is that a large amount of the evaluation of companies has commercial value and is not easily publicly accessible.

When CSRI was conducting its survey in 2005 it was difficult to get easily accessible public informa- tion about the ethical behaviour of companies. (There is information available publicly about company per- formance but it requires considerable research effort.) Access to the information on the social and environ- mental behaviour of the companies that the CFIs were investing in was denied because of contractual obliga- tions. If the research had been conducted by CFI staff rather than contracting out the task, then it would have been made public through the Official Information Act. Since then the Norwegian Council of Ethics [8] has established their research in-house, and has published its findings. Global 100 has listed their assessment of the one hundred most sustainable corporations in the world, but they have not produced a list of the worst companies [21].

Hawken [26] states that:

the term “socially responsible investing” is so broad it is meaningless. If a fund doesn’t own com- panies involved with gambling and pornography, it can be called socially responsible. Never mind that it owns Halliburton and Monsanto.

A fund with a particular focus (such as the environ- ment), which advertises itself to deal solely with that focus, is different from a government fund. Govern- ments are in a different position from private investors in that they should not be required to meet the moral values of a particular group but the values of the wider community. The values of the wider community are much harder to define than for a fund that is set up for a particular group with common values. Even though it is difficult, to do nothing because it is hard to draw a definitive line, is to continue to invest in companies that are clearly unacceptable. Like Norway, New Zealand is a pluralistic society and there is no consensus on one particular uniform ethical perspective [22]. Yet there are some companies which behave in ways that are morally unacceptable by any international or national consideration. The absence of a uniform perspective does not mean that there is no agreement on certain

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ethical principles and practices. But action can occur regarding companies which are at one end clearly un- acceptable and at the other end clearly praiseworthy, with a group in between where there will be consider- able debate as to which side of a fuzzy line they could fall. Indicators that support to be measures of SRI need to be treated with caution until validation studies have been carried out to provide surety that the indicators measure what they claim [29,30,47].

2.2. Prevalence and success of SRI

US institutional investors owned 69.4% of the larg- est one thousand US public companies in 2004 [6]. In the UK institutions hold more than 70% [49] and half of those institutions in the UK are pension funds [60]. The Social Investment Forum states that in the USA there are 9.4% of socially responsible invested assets out of the total of $24.4 trillion of assets under manage- ment [59]. But the definition used to get to this figure is very wide. The 9.4% of the $24.4 trillion includes one-only factors or single screens: tobacco is the most commonly applied social screen (88%), alcohol (75%), with gambling next at 23%. The use of a more com- prehensive definition allowing multiple criteria in the selection process will include companies that pollute and therefore avoid Hawken’s criticisms quoted above. With a comprehensive definition of SRI a figure of 2– 3% of the $24.4 trillion being socially and environmen- tally responsible investment is most probably more ap- propriate.

EuroSIF [18], in a 2006 study, estimates that the SRI market has now reached !1 trillion or 10–15% of the broad European market, although there are some methodological qualifications about this esti- mate (Sweden and Norway were not included). Simple screens accounted for 6% and the arms trade and hu- man rights were more commonly applied screens than tobacco. The percentage of SRI using a comprehen- sive definition is likely to be in the order of 4–9% of the total European investment. Both surveys include best-in-class screens. This is where some Funds divide the total investment domain into categories (healthcare, or construction and materials) and then invest in the companies considered to be the best-of-class in each category. The Dow Jones Sustainability Index uses a best-of-class approach [15]. There are problems with this approach because the best-in-class in some sectors (such as automobile and parts, or oil and gas) does not necessarily mean that these companies measure up to the stricter definition of sustainability required for ef-

fective impact on climate change matters. Best-in-class is another reason for treating the 9.4% and 10–15% figures with caution.

Nevertheless, the growth and influence in SRI ac- tivity has been very impressive. An example is the In- terfaith Center on Corporate Responsibility (ICCR), started in 1973 in the USA which now has 275 faith communities with US $110 billion under investment, and has grown to be respected and influential. ICCR has brought social and environmental issues to the at- tention of many companies that have traditionally ig- nored such matters. Du Pont has stated that ICCR has acted as an early warning system and “they have con- tributed an awful lot to Du Pont, and to our under- standing of how the general public might view cer- tain issues” [60]. ICCR was influential in leading Gen- eral Electric to promote energy efficiency and combat climate change [10]. In 2002 the pension funds of some religious orders led by a coalition of Catholic nuns petitioned General Electric to report on green- house gas emissions and the steps the GE Board could take to promote energy efficiency and deal with cli- mate change. Despite the very small holdings of the religious groups, 23% of GE’s investors gave support. The management then investigated and found that they could add $10 billion or more in five years. In 2005 it announced its project called ‘ecomagination’ to do just that.

Another example is the Carbon Disclosure Project [3] began in 2000. It represents an efficient process whereby many institutional investors collectively sign a single global request for disclosure of information on Greenhouse Gas Emissions. CDP has historically sent their request to the FT500 largest companies in the world. In the fourth request in 2006 the CDP in- formation request was signed by 225 institutional in- vestors with assets of more than $31 trillion. The infor- mation request was sent to 2180 companies and more than 940 answered the questions. The impetus of the Carbon Disclosure Project is likely to increase the per- centages of SRI generally when the Social Investment Forum and EuroSIF upgrade their calculations.

A third example is the United Nation’s Principles of Responsible Investment that seeks voluntarily sup- port from investing organisations [64]. It currently has support of organisations with combined investments of $10 trillion. It provides a code of conduct describing principles for responsible investment.

All three such initiatives are praiseworthy, but ques- tions need to be asked about strategic business mod- els when one of the world’s mightiest corporations,

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General Electric, needs a coalition of Catholic nuns to draw its attention to the business opportunities of en- ergy efficiency. Questions need to be asked also about whether voluntary initiatives are sufficient.

2.3. The challenge of climate change

At a global level, energy contributes 61.4% of global warming (electricity and heat 24.6%, transport 13.5%, industry 10.4%, other fuel 9%, fugitive emissions 3.9%). Land use change causes 18.2% and agricul- ture 13.5% [68]. For New Zealand [38], there has been an increase from 61.9 to 77.2 million tonnes of CO2e from 1990 to 2007, an increase of 25%. This consti- tutes only 0.3% of the world total, but New Zealand has the twelfth highest per capita emissions in the devel- oped world. Currently the 77.2 million tonnes comes from agriculture (48.5%), energy including transport (43.4%) and industrial waste (5.6%). It is predicted that there will be a 70% increase in 2012 above 1990 levels. In 1990 80% of energy came from renewables. The major problems that New Zealand faces include a growing dairy herd (currently very profitable), the transfer of forests to farms (particularly for dairying), poor public transport systems, an unsatisfactory private vehicle fleet and poor housing stock. The Government has set targets for a number of these issues [39], but as agriculture and tourism are major sources of revenue for the New Zealand economy, there are future prob- lems in transporting food to international markets and tourists to and from New Zealand. New Zealand has yet to face the difficult economic tradeoffs between its current economy and a carbon neutral economy.

The Stern Review on the Economics of Climate Change was released during 2006 [62]. Although not the first economic report on global warming, it was significant as the largest and most widely known and discussed report of its kind. Its main conclusions were that one percent of global GDP per annum is required to be invested in order to avoid the worst effects of cli- mate change, and that failure to do so could risk global GDP being up to twenty percent lower than it other- wise might be. It stated:

Even if the annual flow of emissions did not in- crease beyond today’s rate, the stock of green- house gases in the atmosphere would reach dou- ble pre-industrial levels by 2050 – that is 550 ppm CO2e – and would continue growing thereafter. But the annual flow of emissions is accelerating, as fast-growing economies invest in high-carbon in-

frastructure and as demand for energy and transport increases around the world. The level of 550 ppm CO2e could be reached as early as 2035. At this level there is at least a 77% chance – and per- haps up to a 99% chance, depending on the climate model used – of a global average temperature rise exceeding 2! C.

The 2! C warming above pre-industrial levels has been adopted by the European Union and many climate change scientists as the best goal for climate stability: beyond which global warming would be truly danger- ous [27]. Den Elzen and Meinshausen [11], joined by van Vuuren [12] estimate that to meet this target, global emissions will need to begin dropping by the year 2015. Lovelock predicts that without the use of nuclear power, horrific consequences for humanity cannot be avoided [36]. WWF stated in 2007 that the world has more than enough sustainable energy and technology to curb climate change, but only if key decisions are made within the next five years [67]. The International Panel on Climate Change has stated humanity has eight years left to prevent the worst effects of global warm- ing [55]. Monbiot [40,41] states that an increase above 2! C can be achieved in Britain by, among other initia- tives, switching the whole economy over to the use of electricity, and eliminating the use of aircraft. Whether the 2! C target can be met depends on such factors as the introduction of new technology and the rapid re- tirement of older technologies, so a firm estimate is open to debate. How much time do we have to make the changes without disastrous environmental change and consequent loss of human and non-human life? It is likely to be in the range of nought to eight years and the more we procrastinate the more difficult, if not im- possible, it becomes.

At the March 2006 Climate Change Conference in New Zealand Lord Oxburgh [50] stated that govern- ments need to see the issue as a war threat and mobilise accordingly. He spoke about the investment cycles for infrastructure. Examples: cars for 10–15 years; aircraft for 20–30; wind turbines, 25; power plants, 40 plus; electricity distribution networks, 40 plus; houses for 70 plus years. Capital investment by individuals, organi- sations and governments occurs over a range of years depending on cash, earning and debt flows: to expect a massive injection of capital into carbon neutral in- frastructure over a few years is unrealistic. If the, per- haps, eight year opportunity to reduce significant cli- mate change impacts is to be taken, then changes in investment patterns need to be started immediately. In 2006 the New Zealand Prime Minister said at the an- nual Labour Party Conference [5]:

248 R. Howell / Globalization and the good corporation

I believe it’s time to be bold in this area. Why shouldn’t New Zealand aim to be the first coun- try which is truly sustainable – not by sacrificing our living standards, but by being smart and deter- mined? We can now move to develop more renew- able energy, biofuels, public transport alternatives, and minimise, if not eliminate, waste to landfills. We could aim to be carbon neutral. I believe that sustainability will be a core value in 21st century social democracy. I want New Zealand to be in the vanguard of making it happen – for our own sakes, and for the sake of our planet. I want sustainabil- ity to be central to New Zealand’s unique national identity.

Over 70% of New Zealanders support this approach [46]. It is consistent with a survey of what is important to New Zealanders which found that the quality of the natural environment was in the top four of most impor- tant factors for them [24]. The New Zealand Govern- ment is developing programmes to work towards this goal but have yet to develop an integrated and compre- hensive set of Government policies. SRI has yet to be considered as part of this goal.

2.4. Voluntary versus regulated change

If the investment sector is to significantly minimise the harmful effects of climate change, the environmen- tal measures of SRI need to be much stronger: best of class measures and simple screens will not be ad- equate. Although there has been significant growth in SRI activities, particularly in Europe, it is questionable if there will be a major switch to SRI enough to have a meaningful impact within the, perhaps, eight years within which it is predicted we have to act. There are in simplified form two options for SRI strategy:

(a) to continue to encourage the investment sector to voluntarily move to a SRI frame;

(b) for governments to take an active role through regulation and other means to move the invest- ment sector to adopt a rigorous SRI frame as part of a more general response to the climate change and related threats.

Can the investment sector voluntarily produce major reforms with an outcome of investment that is carbon neutral? There are serious doubts about the UN Princi- ples of Responsible Investment if they follow the expe- rience of codes generally, and the UN’s Global Com- pact initiative in particular. According to Sethi [57]

most codes are short on specific content, are not taken seriously by either managers of employees within the companies, and lack effective and meaningful moni- toring as to verification. A number of companies that signed up to the Global Compact developed by the UN used the Code as a public relations exercise to counter adverse public pressure for their poor records in their overseas operations. Rosett [54] has charged that the UN Office responsible for the development and pro- motion of the Code fails the basic tests of good gov- ernance. While many of the organisations signed up to the UNPRI may have genuine motives and records, there is doubt if the Principles on a voluntary basis, and without effective monitoring, will turn around the many companies that need to change. Kelly [34] co- founded Business Ethics in the US to support the rise in corporate social responsibility, believing that voluntary change by progressive businesspeople would transform capitalism. She now concludes that this will not hap- pen.

. . . [O]ver and over again I’ve seen the failure of voluntary change by individual companies. I have seen corporations announce family-friendly poli- cies only to turn around and lay off tens of thou- sands. I have seen companies pursue environmental stewardship, but only to the extent that it enhances the bottom line.

After more than a decade of advocating corporate social responsibility and seeing its promise thwarted, Kelly states that the mandate to maximise returns for the shareholder is a legal mandate which overwhelms voluntary reform. Dixon [14], who spent six years as Managing Director of Research for Innovest oversee- ing the sustainability analysis of more than 2000 firms, now believes that there are conflicts with what is best for business and what is best for society and believes a voluntary approach is inadequate. He calls for high- level system change. John Elkington, co-founder and chair of Sustainability reporting in 2005 on his organ- isation’s report Gearing Up [16] states that, despite some real progress, the effect of the international cor- porate responsibility movement is minimal.

Most company initiatives are too peripheral from core businesses, too isolated from one another, and too disconnected from wider systems to make much of a collective impact. . . . A small but grow- ing number of bold and visionary companies have made considerable strides. . . . But their numbers will remain small as long as the business case for getting in front of the corporate pack remains weak. Here, government involvement will be crucial.

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Sir Nicholas Stern has stated that:

climate change is a result of the greatest market failure the world has seen. The evidence on the se- riousness of the risks from inaction or delayed ac- tion is now overwhelming. We risk damages on a scale larger than the two world wars of the last cen- tury. The problem is global and the response must be a collaboration on a global scale [1].

There will, of course, be others who would argue for a voluntary approach because they consider that the conclusions produced by Sethi, Rosett, Kelly, Dixon, Elkington and Stern do not constitute overwhelming proof that a voluntary approach will fail. But they do raise very serious concerns for an impartial observer. To date the change has been minimal and time is not on our side. There already are climate change refugees. A small island of Tegua, part of Vanuatu, is claimed to be the first example [51] although the Cateret atolls in Papua New Guinea may be an alternative for this dubious honour [66]. There are a number of displaced person due to the Katrina cyclone who could be clas- sified as climate refugees. Myers states that there were 25 million environmental refugees in 1995 [43]. Only some of these would be climate change refugees. The Stern report [62] stated that stabilisation at 450 ppm CO2e is already almost out of reach. It recognised that adaptation policy is crucial for dealing with the un- avoidable impacts of climate change. Hillman [28] ar- gues that in Britain time is running out to make funda- mental lifestyle changes and that, amongst other fac- tors, a system of carbon rationing is necessary.

2.5. Roles for governments

The types of economic systems and the roles of gov- ernments range from command economies, mixed reg- ulated economies, and unregulated economies with a minimal role for governments. The USA provides ex- amples of all three. At one extreme there is the un- regulated economy with a minimalist role for govern- ment, that is best associated at a theoretical level with Friedman [19] and Nozick [48], and in practice with Reagan and the Bush Sr. and Jr. Governments. Nozick provides a more sophisticated conceptual theory than Friedman, but his philosophical formulation has fatal flaws [37,65]. At a practical level the governments of Reagan and the Bushes have dismantled environmen- tal regulations and the New Deal regulatory structure resulting in a significant increase in speculative finan- cial investment activities and considerable harm to the

environment by corporate behaviour, illustrated by its isolation in world forums dealing with climate change. (This example illustrates one of the lessons Diamond [13] draws in his analysis of how societies choose to fail or survive environmental disaster: the danger of un- equal distribution of wealth leading to an insulation of the elite from recognising the threats.) The Command option is usually associated with socialist or commu- nist regimes, but other examples include war time gov- ernments. Example: actions by the Roosevelt Govern- ment during WW2 when it commandeered industry. The Government cut car production and instead or- dered the car industry to produce trucks, tanks, aircraft engines and machine guns in part or whole [23].

For a mixed and regulated economy, governments have a variety of options regarding the role they can play in bringing about SRI. Broadly speaking, gov- ernments can influence by persuasion and example, and through taxes, subsidies, regulations and legisla- tion that prohibit or control. At a very basic level, the many perverse tax incentives [42] that work against climate change and SRI reform should be removed or reversed. Stern recommends policy to reduce emis- sions on three essential elements: carbon pricing, tech- nology policy, and removal of barriers to behavioural change. In regard to carbon pricing it is important that investors believe that it will be maintained in the fu- ture in order for a carbon price to be factored into their decision-making. Regarding the second element, the technology policy, the report argues for policies that support the development of a range of low-carbon and high-efficiency technologies on an urgent time-scale, and recommends closer collaboration between govern- ment and industry. About the third element, the re- moval of barriers to change, Stern states that barriers include lack of reliable information, transaction costs, and behavioural and organisational inertia. Regulatory measures, minimum standards for buildings and ap- pliances, information policies, including labelling and sharing of best practice, are some of the ways he rec- ommends for consideration.

Governments can influence by example, and by poli- cies regarding the use of money. Government invest- ment funds are called Sovereign Wealth Funds, and have been estimated to total $2,876.3 billion [17]. UAE has $875, Singapore $489.2, Norway $380, Saudi Ara- bia $300, Kuwait $250, and China has $200 billions. While this is 2% of the world’s $165 trillion worth of traded securities, the Sovereign Wealth Funds are in- fluential. In terms of disclosure on fund performance, investment strategy, or even basic philosophy, many

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sovereign wealth funds rank below the most secretive hedge fund. Only the Norwegian Sovereign Wealth Fund has adequate SRI criteria and disclosure policies and practices.

Governments can ensure that such funds have an SRI mandate that is robust enough to screen out and engage in a comprehensive way. Governments can set up mechanisms and rules for the provision of savings and investments. In some countries there are compul- sory savings schemes that are administered by the pri- vate sector according to rules established by the gov- ernment. In a number of countries, following the UK Pension Regulations of 1999, there is a requirement by funds to consider and declare whether they use SRI policies. Governments can also assist organisations that promote ethical behaviour. Examples: the UK Government funds the Ethical Trading Initiative deal- ing with codes of conduct within supply chains [60]; and has helped fund the Carbon Disclosure Project [3]. It is also important that a SRI requirement be at- tached to Stern’s recommendation about low carbon and high efficiency technologies: there is little point in encouraging an alternative fuel which may be low carbon but harms the environment in other ways. Gov- ernments also have a role in the provision of certifica- tions that can be trusted for integrity. Diamond [13] de- scribes how the effectiveness of the Forest Stewardship Council has been diminished by other certification or- ganisations being established, namely, the Sustainable Forestry Initiative in the US; American Forest and Pa- per Association; Canadian Standards Association; and Pan-European Forest Council. These have low stan- dards and inadequate independence and monitoring ac- tivities. Governments have a role to ensure effective consumer protection, standards and methodologies by endorsing and publicizing robust measures. In the field of SRI, this should include measures that are not single issue or best-in-class measures, but comprehensive and robust enough to deal with climate change. All organ- isations should be required to annually produce an in- dependently audited report verifying that they are car- bon neutral, and if not what plans they have in place to become carbon neutral by when.

2.6. Triggers for change

Governments, in whatever form, have some power and responsibility for making changes happen. Be- cause of substantial reduction of regulations in the USA dealing with the environment and financial spec- ulation during the last three or so decades [35], it is

understandable that it may be thought that from its be- ginning this model is the norm for the USA. This is not the case. Sandel [56] states that within the his- tory of USA Republican thought there has always been a tension between an unregulated and regulated economy. The Republicans have debated the question “What economic arrangements are most hospitable to self-government?” because liberty depends on sharing in self-government. Should economic power be con- trolled and decentralised and the capacity of demo- cratic institutions be enlarged? Jefferson’s agrarian vi- sion did not prevail over the introduction of large-scale manufacturing. Roosevelt’s ‘New Nationalism’ pro- posal to regulate big business by increasing the capac- ity of government won out over Brandeis’ views. Ac- cordingly, the Republican thought and behaviour dur- ing the last three decades is not standard.

But regardless of the political history and culture of countries, governments cannot act in isolation if they want to survive long enough to make the changes. In democratic systems, if they move too far from the cen- tre, they will not get re-elected, unless they are able to redefine where the centre is and persuade people accordingly. In non-democratic societies, the govern- ing elite and those that benefit will place constraints on reformers who threaten existing power and reward systems. The commercial sector is one of the groups that will influence public opinion and governments. Survival and profits will drive commercial interests, and those groups with a longer view, such as insur- ance companies and pension funds who can appreci- ate the impact of climate change on their businesses (and the wider society) have a role to play in bringing such a perspective to governments and the public arena [58]. The other important sector is civil society. This group includes environmental activist groups, aid or- ganisations, charities, religious and consumer groups. There are NGOs that provide goods and services and are, in structure and performance, little different from commercial entities. There are NGOs that have been set up or captured by business. Examples are Philip Morris and Exxon Mobil who have provided funds for organisations that deny the risks of smoking and cli- mate change respectively [20,40]. There are a number of NGOs that are able to act without some of the con- straints in the other two sectors, and provide the re- assessment of and justification for change by govern- ments and commerce and society generally. Ultimately the role of civil society will be crucial in providing the impetus for governments to act.

The relationship between these three sectors (gov- ernment, commercial and civil society) will vary from

R. Howell / Globalization and the good corporation 251

country to country and over time, with major groups showing good long term leadership, and at other times, becoming dysfunctional. There are change agents as well as status quo supporters in all three sectors. Suc- cessful change needs champions, but the champions need supporters and helpers. Within this complicated web of international, national and local links, govern- ment, commercial and civil society sectors, will de- velop initiatives that have the ability to change invest- ment patterns. To be effective change agents and agen- cies, local and national groups need to be aware of the actions taken at an international level. But con- versely, international groups that do not have well grounded local links will be less effective, and in some cases impede progress. For example, some SRI re- formers from outside New Zealand cannot understand the significance of CSRI’s emphasis on the Crown Fi- nancial Institutions investment in tobacco companies. New Zealand’s actions in tobacco reform, and the pub- lic support for this, are ahead of many other coun- tries. In part this is because when the present Prime Minister was Minister of Health between 1987 and 1990 she sponsored the introduction of tobacco con- trol legislation. This provided protection against smok- ing in workplaces and public places, and eliminated tobacco advertising and the sponsorship of sporting events by tobacco companies. The investment by the Government investing agencies in tobacco was, there- fore, a politically sensitive matter because of its contra- diction with Government health policy. Overseas col- leagues do not easily understand the importance of the tobacco issue in New Zealand because most govern- ments throughout the world are living with the tobacco conflict [9].

The longer governments ignore or procrastinate about the issues, the greater the costs [62], and the greater the likelihood of the other extreme of a war- type command government intervention as the social and economic impacts of climate change have more serious disruption. For developed democracies, which have philosophies and policies that are either mixed and regulated, unregulated, or somewhere in between, the move to a regulated economy that deals signifi- cantly with climate change is fraught with electoral im- plications. In the USA successful political candidates are usually beholden to corporations for financial assis- tance and are compromised in supporting policies that threaten these corporations [20,25,35]. In other coun- tries the people and groups who are benefiting from the present economic system will make it difficult to change a system to their disadvantage.

During the late 1980s and 1990s, New Zealand’s economy was moved towards a more unregulated one. In 1998 a Labour Government was elected on a centre- left platform and began to reverse a number of those changes. However, there is a considerable portion of the electorate who would oppose a regulated economy and the reforms necessary for the avoidance of the wor- rying climate change scenarios. At the international level, it is difficult to see the significant shift in the available time that will be required to move economies away from their dependence on oil and other energy forms that contribute to climate change, because of the economic and life-style changes that will be necessary to achieve this. Changes of this magnitude usually oc- cur gradually or in times of crisis (usually involving wars). When one considers the recent reports of the re- duction of the ability of the southern ocean [2], both Arctic [45] and Antarctic ice caps [7], and trees to ab- sorb CO2 [55], any of these singly should be the equiv- alent of the Japanese bombing of a Pearl Harbour “trig- ger” to shift to a war-type alert. If these and other cli- mate change warnings are not sufficient to bring about a commitment to the necessary economic and political actions required to avoid the dangerous impacts of cli- mate change, including moves to shift investment into a SRI framework, then it appears that serious damage to the earth will need to occur first. This will pose ma- jor threats for the viability of public and private invest- ment funds, including pension funds, leading to con- siderable risk of poverty for older people amongst oth- ers.

The critics of CSRI, over its promotional and ad- vocacy role in working to change the legislation re- garding Crown Financial Institutions, have taken a very narrow role perspective, or have ignored the activity of such groups in other countries. In 2006 the So- cial Investment Forum [59] in the USA sent a letter to the US Chamber of Commerce urging the Cham- ber’s leadership to re-evaluate its negative public state- ments on such issues as corporate governance, share- holder rights, and corporate engagement on climate risk. The UKSIF [63] took an active role in encourag- ing the British SRI pension fund legislation that came into force in 2000 in face of opposition of the National Association of Pension Funds, and currently coordi- nates the work of the All Party Parliamentary Group on SRI. The EIA in Australia played an instrumental role in facilitating Australian legal reforms that help educate investors who wish to pursue SRI [59]. Un- fortunately it has done little by way of advocacy of the use of Australian Government investments. Politi-

252 R. Howell / Globalization and the good corporation

cal activity is an important tool in the achievement of SRI goals. CSRI has contributed to public debate and help shift public opinion because it did not limit itself to an inwardly focussed industry association role, and is now working through what should be the strategic components of the next stage. But if the strategic goal of SRI being mainstream in New Zealand within five years is to be realised, government action to persuade and regulate changes to the economy will be essential.

3. Conclusion

After its first conference in 2004, CSRI recognised that there were in New Zealand very few commercial SRI funds, very few financial planners with the abil- ity to advise on SRI, some community trusts with an interest in SRI, and that the government was to be- come a significant player in the investment field. It set strategic goals to initially focus on Community Trusts and Government Funds, and thus identified the need to change the legislation for the Government’s financial institutions, and worked accordingly to that end. Late in 2006, CSRI adopted a vision of SRI being main- stream in New Zealand within five years, recognising the need to include the investments of all government agencies and the commercial sector. The 2007 Bud- get announcement by the Minister of Finance that Ki- wisaver Funds will be required to disclose their ap- proach to responsible investing will provide a stimu- lus for the commercial sector to begin SRI reporting. It is hoped that there will be adequate disclosure for informed decision making by individuals.

During this time the issues CSRI has faced include public accessibility to good information, definitions of SRI and standards of good corporate responsibility, climate change, and the failure to date internationally of strategies of government, business and civil soci- ety to make SRI mainstream. In working to achieve its vision of SRI being mainstream, the voluntary ap- proach will not achieve the required changes in time to avoid dangerous impacts from climate change. The move to a regulated economy that will address these is- sues will involve fundamental economic and life-style changes, and it is hard to see this happening within the required time and avoid significant damage to the earth. CSRI will need to face the issues of the most ap- propriate roles and relationships between government, the commercial and civil society in New Zealand, and the most appropriate international networks to estab- lish and work with to enable an approach tailored to

New Zealand’s circumstances. To achieve the strategic goal of SRI being mainstream in New Zealand within five years, government action to persuade and regulate changes to the economy will be essential and very dif- ficult unless the general public is prepared to undergo significant changes to the way it presently lives.

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