2 Monitoring Sustainability: Tools, Incentives and Challenges
2.2 Stakeholders and Incentives
As we have seen in the previous section, the means to monitor sustainability have evolved over time – and so have the stakeholder expectations. Below, we analyse the four main stakeholders who can contribute to making sustainabil-ity the norm: consumers, NGOs, financiers and government.
Over the past few decades, consumers have become increasingly vocal over is-sues of sustainability. A Nielsen survey (2014) of more than 30,000 consumers in 60 countries found that more than half (55%) of global respondents said they are willing to pay extra for “products and services from companies that are committed to positive social and environmental impact – an increase from 50%
in 2012 and 45% in 2011” (p. 2).11 More and more, consumers expect compa-nies to help the environment. In fact, the Conference Board® Global Consum-er Confidence Survey, conducted in collaboration with Nielsen Q2 2017, found
10 From the interview with Frans Pannekoek, Tony’s Chocolonely: Chelsea Davis, ‘This Company Is Using Blockchain Technology to Eradicate Slavery In The Chocolate In-dustry’ (Forbes) <https://www.forbes.com/sites/chelseadavis/2019/03/31/this-com- pany-is-using-blockchain-technology-to-eradicate-slavery-in-the-chocolate-indust-ry/> accessed 31 March 2020.
11 ‘Global Corporate Social Responsibility Report June 2014’ <https://www.nielsen.
com/wp-content/uploads/sites/3/2019/04/global-corporate-social-responsibility-re-port-june-2014.pdf> accessed 31 March 2020.
150 International Trade and Sustainable Development
that 81% of global respondents said that it is “extremely” or “very” important that companies implement some programs to improve the environment.12
As a result, consumers are turning away from brands perceived to have a negative social or environmental impact. For example, the bankruptcy of fast fashion giant Forever 21 in September 2019 has been linked to shifting con-sumer tastes;13 one can also look at the backlash over H&M’s “Conscious” col-lection in July 2019 to witness this change. Consumers, armed with the power of social media, have become incredibly effective at pressuring companies to adopt more sustainable business models.
While consumer pressure on companies has grown in recent years, NGOs have been advocating for fairer social and environmental practices for decades. In the 1990s, activist Jeff Ballinger led a widely publicized NGO movement against Nike for worker abuse and exploitation in developing countries.14 After signifi-cant pressure from labour activists, campus organizers and anti-globalization forces, Nikes CEO Phil Knight promised reform in 1998.15 As mentioned earlier, Fairtrade International was founded around the same time (in 1997), raising awareness around the situation of farmers in developing countries. Today, 93%
of shoppers in Britain recognize the label.16 In 2009, Greenpeace ended its long-running feud with toilet paper giant Kimberly Clark, accused of decimating virgin forests for throwaway products. Following the reconciliation, Kimberly Clark increased the proportion of environmentally friendlier fibre from 54 to 83% in its global tissue-products.17 These are just a few examples of the signifi-cant pressure that NGOs have been exerting on companies.
Today, NGOs continue to be seen as the institution making the largest con-tribution to sustainable development, according to the 2019 GlobeScan-Sus-tainAbility Leaders Survey, which polled over 800 experts across 78 countries.18
12 ‘Global Consumers Seek Companies That Care About Environmental Issues’ <ht- tps://www.nielsen.com/us/en/insights/article/2018/global-consumers-seek-compa-nies-that-care-about-environmental-issues> accessed 31 March 2020.
13 Sapna Maheshwari, ‘Forever 21 Bankruptcy Signals a Shift in Consumer Tastes’ The New York Times (29 September 2019) <https://www.nytimes.com/2019/09/29/busi-ness/forever-21-bankruptcy.html> accessed 31 March 2020.
14 Chad P Bown, Self-Enforcing Trade: Developing Countries and WTO Dispute Settle-ment (Brookings Institution Press 2010).
15 Marc Gunther, ‘Under Pressure: Campaigns That Persuaded Companies to Change the World’ The Guardian (9 February 2015) <https://www.theguardian.com/
sustainable-business/2015/feb/09/corporate-ngo-campaign-environment-climate-change> accessed 31 March 2020.
16 Samanth Subramanian, ‘Is Fair Trade Finished?’ The Guardian (23 July 2019) <https://
www.theguardian.com/business/2019/jul/23/fairtrade-ethical-certification-super-markets-sainsburys> accessed 31 March 2020.
17 Gunther (n 16).
18 ‘The GlobeScan SustainAbility Leaders Survey 2019 Report’ <https://globescan.com/
wp-content/uploads/2019/07/GlobeScan-SustainAbility-Leaders-Survey-2019-Re-port.pdf> accessed 31 March 2020.
151 Among the NGOs that were nominated as leaders in advancing sustainable development were the World Wildlife Fund and Greenpeace, taking the first and second spots respectively.
The financial sector has been also increasingly looking into the field of sus-tainability. Today we see more financiers providing what is called “sustainable finance”. Sustainable finance refers to any form of financial service integrat-ing environmental, social and governance (ESG) criteria into the business or investment decisions for the benefits of both clients and society. Sustainable fi-nance includes sustainable funds, green bonds, impact investing, microfifi-nance, and credits for sustainable products, to name a few.19
Environmental and social factors have become important safeguards to com-panies when developing their business strategies. Similarly, financial institu-tions are increasingly taking into consideration such indicators in their financ-ing operations:20 the demand from the market for sustainable products cannot be dismissed, and companies find themselves in a de-facto situation where they need to demonstrate that they embrace sustainability and comply with their consumers’ demands, their financiers’ demands, and their country regulators’
The power of sustainable finance is, firstly, that it places a price on risks re-lated to sustainability issues; secondly, that investors can influence corporations in which they invest to apply more sustainable business practices.21 Therefore, sustainable finance is a strong incentive for companies to implement more sus-tainable business practices. For instance, socially responsible investors Interfaith Center on Corporate Responsibility and Christian Brothers Investment Services have their own code of conduct for the protection of children from sexual ex-ploitation in travel and tourism, to which all the companies with whom these investors are working have to abide.22
In some countries, central banks take an active role in enhancing sustainable finance. For example, in 2019 the Bank of Ghana published the Sustainable Banking Principles and urged banks to implement environmental and social risk management policies on projects financed by banks. Commercial banks are also beginning to adjust their lending policies in order to stimulate sustainable companies by giving discounts on loans for sustainable projects.23
20 See also the IFC Global Map of Environmental & Social Risks in Agro-Commodity Production tool: <https://gmaptool.org/.
21 Schoenmaker, D., Schramade, W., Principles of Sustainable Finance.
22 Mehra, A., Shay, K. (2016), Corporate Responsibility and Accountability for Modern Forms of Slavery.
23 ‘Climate Change, Central Banks and Financial Risk – IMF F&D | DECEMBER 2019’
<https://www.imf.org/external/pubs/ft/fandd/2019/12/climate-change-central-banks-and-financial-risk-grippa.htm> accessed 31 March 2020.
152 International Trade and Sustainable Development
Businesses today face significant pressure to be more sustainable not only from consumers and NGOs, but also from governments. Governments can play a key role in ensuring that sustainable supply chains include an adequate legal framework that protects the public interest and underpins responsible business practices, while monitoring business performance and compliance with regula-tory frameworks.24 Several countries have adopted laws that oblige companies to trace their value chains and ensure that there are no social or environmental issues associated with production. For instance, the UK adopted the Modern Slavery Act in 2015. Part 6 of the Act deals with Transparency in Supply Chains and obliges large companies25 operating in the UK to prepare annual Mod-ern Slavery Statements. The Statement should describe the company’s supply chains, modern slavery risk management policies, due diligence policies as well as performance indicators. The statement must be approved by the board of di-rectors and signed by a director or a CEO.26 While the Act has been criticized for not having a financial penalty for companies that do not comply with it, experts admit that it has triggered companies to develop or re-visit their sustainable sourcing practices with a special attention given to the modern slavery issue.27
In 2018 the French Parliament, following the UK’s example, adopted the French Law on Duty of Care (Loi relative au devoir de vigilance des sociétés mères et des entreprises donneuses d’ordre), which obliges French companies to demon-strate they have processes to address modern slavery issues as well as other issues related to human rights, health and safety and environment. Companies that fail to demonstrate compliance with the law would face a risk of financial penalty of up to EUR 10 million.28 A similar legislation is being discussed and prepared in Germany and Finland in 2020.29
Another example is the Dutch Agreement on Sustainable Garments and Tex-tile, whereby the Dutch companies are obliged to avoid the risks related to violation of human rights, worker health and safety, environmental protection
24 ‘Promoting Sustainable Global Supply Chains: International Standards, Due Dili-gence and Grievance Mechanisms’ (2017) Report <http://www.ilo.org/global/about- the-ilo/how-the-ilo-works/multilateral-system/g20/reports/WCMS_559146/lang--en/index.htm> accessed 31 March 2020.
25 Companies with a turnover of more than £36 million.
26 Modern Slavery Act, 2015 <http://www.legislation.gov.uk/ukpga/2015/30/part/6/
enacted> accessed 31 March 2020.
27 INDEPENDENT REVIEW OF THE MODERN SLAVERY ACT 2015. Joint submissi-on from Amnesty Internatisubmissi-onal UK, Anti-Slavery Internatisubmissi-onal, Business & Human Rights Resource Centre, CORE Coalition, Fairtrade Foundation, Freedom United and Share Action, 25 October 2018.
28 ‘France Adopts New Corporate “Duty of Care” Law | Ethical Trading Initiative’
accessed 31 March 2020.
29 ‘Corporate Due Diligence and Voluntary Standards – a Look Forward’ (ISEAL Al-liance) <https://www.isealalliance.org/sustainability-news/corporate-due-diligence-and-voluntary-standards-look-forward> accessed 31 March 2020.
153 and animal rights in the countries to which many businesses in the Netherlands outsource their production outside the European Union.30
Given its unique challenges, it becomes crucial for the governments to not only push for domestic legislations, but also to co-operate and negotiate with their trading partners to monitor sustainability across GVCs. The same can be achieved through multilateral/plurilateral agreements. Whereas multilateral negotiations are challenging, at the regional level, countries seem to be making some efforts. One such example is that of the “Agreement on Climate Change, Trade and Sustainability”(ACCTS) scheduled to be negotiated in early 2020 between and among the five-country group (including Norway, Iceland, Costa Rica, Fiji and New Zealand). Under the planned ACCTS, the countries involved will not only set out to slash barriers to trade in environmental goods and serv-ices and phase out their fossil fuel subsidies, but also encourage the promotion and application of voluntary eco-labelling programs and mechanisms.31