1. FDI and the Environment: From Spaghetti to Sustainability Workshop on US-AEP’s New Investment Study April 4, 2001 Lyuba Zarsky Nautilus Institute http://www.nautilus.org

2. FDI and Environment: Linkages Micro: Technique (technology and management) Sectoral: Composition effect Macro:Scale effect Policy/political economy effect Local Global

3. FDI and Environment: Key Questions Rules and regime: Does openness to foreign investment push standards up or down? Practices and performance: Do foreign companies perform better? Corporate social responsibility: Do environmental standards ‘beyond compliance’ create value for companies?

4. Is There a System-Wide Bias? Pollution Haven Gaps in standards have little affect on company location decisions. Composition effect Openness reallocates investment towards higher value sectors. Environmental impact?

5. Race to the bottom? ‘Incentives-based’ competition for FDI between locales and countries keeps environmental standards ‘stuck in the mud’—standards are too low and rate of change is slow International core environmental standards?

6. Do Foreign MNCs Perform Better? Yes: Newer, cleaner technology Better management practices Deep pockets Domestic NGO and consumer pressure Global company standards

7. No: Technology dumping MNCs follow local standards Large-scale environmental impacts Shielded from domestic consumer pressure because of lack of information/disclosure

8. Havens, Halos and Spaghetti Question: Is FDI ‘good’ or ‘bad’ for the environment? Evidence: Statistical studies, case studies, surveys Answer: Yes, no, it depends.

9. Yes: Air quality improvements (e.g. recent World Bank study) No: Widespread degradation (e.g. minerals and oil—PNG, Nigeria, Amazon, Indonesia) Scale effects

10. It depends: Technology vintage Conditions of sectoral competition Local regulation and enforcement Company practice (global vs local standards, best practice) Community pressure

11. High Tech in Taiwan: A Case Study High level of incentives-based competition Companies were shielded from local environmental regulation—poor waste management ISO 14,000 certification very easy High level of water pollution Need to focus on supply chain management

12. How Can FDI Promote Sustainability in Asia? Key role of Governance -- Rules and regs of government and capacity to enforce them -- Practices and norms of companies and investors

13. Enhancing the Role of FDI As a Vehicle for Sustainability Corporate Social Responsibility Socially Responsible Investment

14. What is ‘Corporate Social Responsibility’? Company mission directed at producing social goods as well as adding value for owners/shareholders ‘Triple bottom line’ - financial - social/economic - environmental Sustainability as integrating vision and principle

15. Company internal management systems Track environmental and social impacts (auditing, reporting) Set environmental/social performance benchmarks Make information available to managers, stakeholders, public

16. Community engagement: Consult regularly with stakeholders - Workers - Investors - Local communities - Suppliers - NGOs

17. Ethics by another name Corporate citizenship Responsible industry Social markets Responsible entrepreneurship Community engagement Enlightened business

18. Do Higher Standards Create Value? Substantial evidence that higher standards are linked to company value Do higher value companies have better standards or do higher standards create value? Leaders and laggards: good environmental management as part of good overall management

19. Managing for CSR Performance Benchmarks - quantitative/qualitative - compliance and beyond compliance - ‘best practice’ - continuous improvement Information Disclosure -Auditing/monitoring -Social reporting - third party verification

20. Socially Responsible Environmental Management End of pipe: Reduce water and air pollution through greater efficiency and better end of pipe treatment Clean technology: Modify internal processes to prevent pollution and enhance efficiency of energy and materials inputs Product stewardship: Establish systems to re- use and recycle end-products EMS: Implement management system with performance indicators, evaluation, audit

21. Drivers of CSR in Asia Local NGOs (e. g. Green Rating of Industry Project, Center for Science and Environment, Delhi) US and European NGOs and labor groups (e.g. Fair Labor Agreement in textile sector) Consumers, both locally and in Europe/US (e.g. ISO 14,001 certification for market access)

22. Drivers of CSR in Asia Parent companies of Asian subsidiaries (e.g. Hewlett Packard) Foreign TNCs with global standards (e.g. Intel) Procurement/supply chain management policies of TNCs (e.g. Agilent Technologies)

23. Socially Responsible Investment Export-import agency guidelines International Finance Corporation guidelines and Ombudsman SRI financial firms (e.g. NPI Global Care Asia Pacific Fund) Shareholder advocacy (e.g. Newmont Mining; PetroChina Goldman Sachs)

24. Drivers of CSR in Asia Asian business leaders –Increasing embrace of ISO 14,001 –Participation in local regional and international conferences (e.g. Prince of Wales Business Leaders Forum) –Is social responsibility good for business? Recent studies of TNCs suggest it is.

25. Where is CSR heading? Uptake in Asia—tailoring the model New roles for public policy? -Reporting framework -Mandatory disclosure -Guidelines for verification

26. Role for US-AEP? US-AEP could play role in helping to promote CSR and SRI in Asia Trainings, education, information in Asia Work with domestic SRI and pension funds (e.g. CALPERS) in developing realistic screen for Asian investment