Topic: CSR codes in global supply networksHow effective are CSR measures such as voluntary supply chain labour standards codes and certification schemes in improving the lives of workers in developing countries? In addressing that question, you should consider the practical and political obstacles to formulating, implementing and enforcing effective CSR measures, and arguments for and against the view that such codes, even if successfully implemented and enforced, would be of marginal benefit or would do more harm than good.
You are not required or expected to use materials other than assigned course readings, and you are expected to make use of all readings that are relevant to the points you are making. The readings assigned for winter weeks 2-7 will be most directly applicable. Skilfully incorporating concepts from other units of the course (such as those relevant to the fall term assignment, and on normative CSR debates) is a plus, but avoid padding the paper with undigested or weakly integrated material.
winter_week_2_consumer_and_investor_activism.pdf
winter_weeks_9_11_extractive_industries.pdf
winter_weeks_3_8_supply_chains_and_sweatshops__2_.pptx
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Winter Week 2: Consumer
and Investor Activism
SOSC 3040
Corporate Social Responsibility
Ethical Consumption/Investment
themes
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Civil regulation via market
Avoidance of buying products or shares of
immoral/ socially irresponsible enterprises
Buying products /shares of good enterprises
Motives:
“Clean hands”, integrity (nonconsequentialist)
Create market incentives for responsible
enterprise (consequentialist)
Civil regulation campaigns via social
media
● CR
now often supported by slick
media use:
● E.g this clever ad in support of a palm
oil boycott, and this counter to Pepsi
CSR spin
CONSUMER ACTIVISM
Origins
● England:
Slavery abolition movement
● Boycotts of sugar, rum, cotton etc
● Quaker practice 1750-80
● 1791 failure of slave trade abolition bill
! widespread sugar boycott !
1807 Act
● 1845: American Quakers, abolitionists
establish “free produce” association,
stores
US 1950s-70s
● Civil
Rights Movement:
● boycotts of segregated stores, transit,
businesses that discriminated in hiring
● Anti-Apartheid Movement:
● Boycotts of products from South Africa
● Anti-War Movement:
● Boycotts of consumer products made by
firms that supplied Vietnam War
◦ E.g. plastic wrap made by Dow (napalm mfg)
Effectiveness of Boycotts
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Significance in relation to major change (e.g.
S.A.) debated—can be important for
particular firm (e.g. Nike, Nestle)
Klein et al: bad publicity + boycott hurts
brand image more than bad publicity alone.
Friends of the Lubicon example
Daishawa pulp mill logs traditional
lands of Lubicon Cree in northern
Alberta
Makes cardboard packaging for
fast food
Friends of the Lubicon campaign:
all 40 companies approached by
FofL switched from Daishowa as
supplier of paper packaging
(pizza boxes, bags etc), at least
after picketing by FofL activists
(1994)
Company sues activists and loses
Limitations of Boycotts
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Hard to get enough people to participate
◦ Klein study: 16% participation rate, 4%
decline in market share
◦ People, esp. boycott participants,
overestimate how many people participate
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Promotion expensive
● Message “sticks” in a few cases but hard
to predict
● Works best with branded consumer
products
Ethical Consumption
● Positive
ethical consumption
advantage: “good” firms have incentive
to promote as CSR/marketing
● BUT effectiveness diluted by spin,
“greenwashing” !
● 3d party certification, NSMD
● More effective in Europe
ETHICAL INVESTING
Investor Driven Civil Regulation
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Two investor strategies for encouraging
CSR:
● 1. Ethical/ Socially Responsible Investing
(SRI)
◦ Passive/ screening approach
◦ Invest in more socially responsible firms
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2. Shareholder Activism
◦ Invest in less socially responsible firms
◦ Use shareholder democracy to press “from within”
for more CSR
Two Kinds of Ethical Investment
● SRI
screening approaches:
● Positive (e.g. “Ethical” Mutual Funds’”):
invest in “good” firms that pass CSR
screen
● Negative (e.g. divestment campaigns
directed at institutional investors):
avoid/ divest from particular firms or
classes of firms targeted as particularly
irresponsible
Two Kinds of Ethical Investor
Prudential: premised on business case
for CSR: CSR! better investment
(higher returns and/or lower risk)
◦ Reasons to be skeptical of this
Normative: investor willing to accept
lower returns for ethical reasons
Normative ethical investing undermines
Friedman’s principal-agent critique of
CSR
Ethical Investing as Civil Regulation
Strategy
● Increases
demand for shares of
responsible firms!
● Boosts share price! rewards,
protects management of responsible
firms
● NOTE: This does not make the
company more profitable
Critical issues
● Compare
civil regulation vs “clean
hands” motives for ethical investment/
divestment
● Consider that almost all ethical
investment/ divestment involves shares
in the secondary market (not IPOs)
● Therefore “investment in the
company” does NOT go to the
company
Limitations of strategy
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Increasing demand for shares of responsible
firms! boost price/earnings ratio! less
attractive investment for “non-ethical”
investors
● Depresses relative price/earnings ratio of
less responsible firms! their shares
become a “good buy”
◦ Notes that “unethical funds” [e.g. Barrier] do well
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Market restores equilibrium; little over all
effect on stock market?
An Empirical Test of “Limitations”
Hypothesis
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Kumar et al (2002) found that stocks of firms
with South African operations out performed
the market following Mandela’s approval of
the lifting of divestment sanctions in 1993,
suggesting that investors’ avoidance of
those stocks had depressed share prices.
● Implication: if there is enough focus on a
single issue, it can make a difference to
share prices
Further Research on Limitations of
Ethical Investment Strategy
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Allen Goss (2011) econometric study finds
over-all no relationship between CSR and
equity financing! confirms limitations
hypothesis
● Divestment by ethical investment !
purchase of shares by others
● E.g. Norwegian pension fund divested $180
M worth of Barrick Gold shares due to
human rights concerns ! no effect on
Barrick
Further Limitations
● Ethical
investors usually “price
takers”—don’t affect share prices (too
small a proportion of investment to
make a difference)
● Most “ethical screens” are very crude,
porous—little difference between
portfolios of ethical funds & other
mutual funds
CSR and debt financing
! risk of default ! cost of
borrowing
● Allen Goss finds lenders (banks, bond
market) demand higher interest from
firms with very bad social performance
● BUT very good social performance
does not result in lower interest
● Esp. for small firm, too much CSR
might increase borrowing costs
● CSR
SHAREHOLDER
ACTIVISM
CSR-related shareholder activism
● Active
strategy: buy stocks of
“unethical” or “irresponsible” firm, and
then advocate as shareholder to
change corporate policy [e.g., filing
proposals to be voted on by
shareholders at AGM]
● Note: most shareholder activism not
CSR related, focused on shareholder
value
CSR Resolutions (at AGM)
● Resolutions
usually non-binding
(except where firm by-laws stipulate)
● CSR resolutions seldom garner
majority support BUT may influence
executives even at 10-20% of votes.
● CSR resolutions often framed in
business-case terms to appeal to $oriented investors
Monk findings: Resolutions in 81 top
corporations 2000-3
● 55%
Corporate Governance-related
● 38% CSR-related,
● 7% “crossover”
● Support for CG resolutions 20-30%,
● Support for CSR resolutions <10%
CSR Resolution Issues (Monk study)
●
47% social, human rights or animal
welfare related,
● 28% environmental,
● 14% re employment equity,
● 9% re: political lobbying or campaign
donations.
Exxon Shareholder Activism
● One
of the top venues for shareholder
activism;
● Over half CSR, especially
environmental issues such as Arctic
drilling, alternative energy & global
warming
● Climate change related resolutions
attracted up to 20% pro-votes
Barriers to success
● Management
usually recommends
against shareholder resolutions
● Institutional investors (e.g. insurance
companies, mutual funds and pension
funds) usually vote as management
recommends [e.g., b/c fund managers
want to manage firm’s pension fund, or
just due to policy]
General assessment of shareholder
activism
● Goss
finds “hard” shareholder activism
(resolutions, proxy fights) ! small,
temporary effect on social performance
of corporation
● “Soft” advocacy (lobbying of
management, etc.) more difficult to
assess quantitatively
CSR and CG activism
● CSR
shareholder activism depends on
conditions advocated by CG
advocates
◦ e.g. transparency and oversight of
executives by Board of Directors.
● BUT
if investors only interested in $,
this might make it harder for
executives interested in CSR
Human Rights and Extractive
Industries
SOSC 3040
Corporate Social Responsibility
Extractive Industries: Controversy
● Canadian
mining companies accused
of violating human rights and
environmental standards in Latin
America, Africa and Papua
● Norway pension fund divests from
Barrick Gold because of abuses at
Pogera Mine, Papua
Review questions
● What
does “divest” mean?
● What potential effects could
divestment by a big investor (like
Norway fund) have on a company (like
Barrick)? What effect did it have?
Review questions
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What are the main perspectives on CSR
introduced last term?
What perspective is this passage from
Investing in Conflict an example of?
“Ethical investment” funds do their part by investing
heavily in companies like Goldcorp, misleading their
clients into believing that large-scale mining is
environmentally and socially responsible….Meanwhile,
NGOs like World Vision use mining company money to
carry out projects in affected communities, and groups
like the Canadian Foundation for the Americas
(FOCAL) work to convince people in resistance that
they should dialogue with the mining sector.”
Reviewing CSR and
Development
● Distinguish
issues involving:
● Corporations and agriculture
● Manufacturing (esp. labour-intensive)
● Extractive industries (e.g. mining, oil)
Differences
● Labour-intensive
sectors—agriculture
and (esp.) light manufacturing,
“artisanal mining”
● CSR issues mainly relate to treatment
of workers (wages, working conditions)
● Industrial extractive sector creates
fewer (but possibly well-paid) jobs
● More negative impacts on nonemployees! social conflict
Artisanal v industrial mining
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Artisanal
Incl. “raiding”/ gleaning
industrial mines
Corporations as
purchasers
Labour intensive
Dangerous, poorly
paid, child labour, etc.
Conflict minerals (e.g.
“blood diamonds”)
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Industrial
FDI, often Canadian
Corporations as
producers
Capital intensive;
relatively little local
employment
Environmental
impacts, displacement
Conflicts with security
forces
Civil Regulation:
Complications
● Efforts
by civil society & CSR to
control human rights abuses, child
labour, environmental and health
hazards etc. in artisanal mining-“blood diamonds”, gold, coltan etc.
● can benefit big business at
expense of poor?
Direct and indirect human rights
issues re extractive industries
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1)Expropriation of land, displacement
2)Destruction/impairment of livelihoods and
property due to environmental impacts
3) Opposition, resistance, conflict between
opponents and supporters, repression
4) Distribution of wealth generated
1) Land Acquisition/
Displacement
● Also
relevant to plantation agriculture
—e.g. oil palm in Ghana)
● Problems:
● Informal, traditional or feudal land
tenure systems
● Community reliance on/ occupation of
common or “public” lands
2. Environmental and other
externalities
● Air,
water and soil pollution, vibration
● Depletion of groundwater, drying up of
streams
● Social disruption due to influx of
outside workers, increased income
inequalities
3. Conflict & Repression
● 3.
Corporate collusion with or
instigation of violent repression of
project opponents and other
community advocates
● Issues: to what extent are companies
responsible for state or local non-state
violence against company opponents?
● To what extent are companies
responsible for “rogue” actions of
security forces they employ? E.g.
Barrick in PNG
“The world is deadlier than ever for land
and environmental defenders, with
agribusiness the industry most linked to
killings”
--Global Witness 2018 Report
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207 environmental activists murdered world
wide in 2017:
46 killed resisting big agriculture
◦ Eg. palm oil, coffee, tropical fruit and sugar cane
plantations, cattle ranching
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40 killed resisting mining
23 killed resisting logging
23 killed resisting poaching
Killings of environmental
activists
4) Distribution of wealth
● Giving
back to the community:
positive responsibilities to assist
development; Impact-Benefit
Agreements (IBAs)
● How
much of wealth extracted ought to
go back to community in infrastructure,
services, clinics, libraries etc.?
● How should this be decided and
carried out?
Extractive Industries: Negative
and Positive Responsibilities
● Negative
duty = duty not to do
something
◦ Eg. “do no harm”
● Positive
duty = duty to do something
◦ E.g. philanthropy
● Complaints
that corporations harm
communities and that they fail to return
wealth from resources “owned” by
community often go hand in hand, but
raise distinct issues.
Extractive Industries: Negative
and Positive Responsibilities
● Jenkins:
CSR framed in terms of
merely negative responsibilities [do no
harm] may not address poverty
● Idemudia: positive action [e.g. funding
community development projects]
may be poor compensation for failures
re negative responsibilities
Criticisms of industry CSR
approach
● Doesn’t
address “resource curse” –macro
economic weakness of resource-based
development
● Doesn’t adequately address local
negative impacts of resource
development that outlast temporary
economic boom of mine
● Local sourcing would do more for local
economy than CSR spending
Week 10
SOME CONFLICTS
INVOLVING CANADIAN
MINING COMPANIES
Barrick Gold—North Mara
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Open pit gold mine in NW Tanzania—
extremely poor area
Mine site closely ringed by villages
◦ Displaced local farmers and artisanal gold
miners;
◦ people attracted from elsewhere
“Intruders” from local villages invade mine
site to glean waste ore! process to extract
gold
North Mara--Issues
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Environmental impacts similar to previous
cases
Economic benefits e.g. electrification BUT
benefits fall short of what was promised by
mine developer (before bought by Barrick)
Violence between intruders and mine staff,
security, police
◦ 5 intruders killed by police in 2011
◦ Frequent injuries on both sides
Progera, Barrick Gold, PNG
● Assaults
and rapes of gleaners and
locals by security
● Eventually Barrick offers compensation
($, training)
● Some accept, others sue
● Suits settled for 10x amount offered
Fenix Project time-line
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Proposed open-pit nickel mine, Guatemala
2006-7: Skye Resources (Canadian firm),
via hired armed Fenix security, military and
police, evict Mayan villagers from mine site
2008: Skye acquired by HudBay (another
Canadian mining firm)
2009: village leader killed in confrontation at
mine site
March 2011: HudBay sued (in Toronto) by
villagers: Choc v HudBay
Sept 2011: HudBay sells Fenix to Russian
company
2013 HudBay accepts jurisdiction of
Canadian court, case to proceed
Choc: suit HudBay position
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We were granted rights to land—plaintiffs
were there illegally
Security forces acting in self-defense when
attacked by Mayans; rape claims false
Mine was developed by subsidiary, not us
Violence was not reasonably foreseeable,
so we had no duty to try to supervise
subsidiary
Sue subsidiary in Guatemalan court, not us
in Canadaian court
Choc: Plaintiff position
● Mining
rights granted by military
dictatorship, Mayans reclaiming
◦ Mayan claim upheld by Guatemalan court
in 2011
● HudBay
controlled subsidiary and
directly controlled security forces
● HudBay should have known that
violence likely, given Guatemalan
context
● HudBay’s own CSR PR indicated close
involvement, care for local
Araya v Nevsun Resources
● Re
Bisha copper & zinc mine, Eritrea
● BC based firm Nevsun main investor in
mine
● Claim: Nevsun in collusion with military
dictatorship uses slave labour in mining
● Workers sue Nevsun in BC courts
● Nevsun motion: throw out case—
Canadian courts don’t have jurisdiction
● BC courts reject motion, issue of whether
lawsuit can proceed in Canada to be
decided by Supreme Court of Canada
El Dorado project, El Salvador
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Project proposed by Vancouver-based
Pacific Rim Mining
Mine opposed by locals because of threat to
water etc
2008: El Salvador government refuses to
grant environmental approvals
Company: approvals denied only because
we didn’t pay bribes
Pacific Rim sues El Salvador for $77M
under CAFTA investor-state provision
El Dorado, continued
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2010-2011: four opponents of El Dorado
project murdered after getting death threats
re: anti-mine activism
2012: International investment disputes
settlement tribunal rejects Pacific Rim suit
on jurisdiction grounds (not really a US
company) but agrees to hear case under El
Salvador law
Context: Civil War
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Civil wars in Guatemala (1978-96), El
Salvador (1980-92)
Right-wing authoritarian governments &
wealthy vs leftist rebels
Assassination, torture, rapes and massacres
commonly used by govt. forces against
suspected rebel sympathizers (esp. in
Guatemala, indigenous people)
War over but problems of violence and legal
impunity remain pervasive
Review/discussion questions
● Why
is gold mining in particular so
controversial?
● Why has mining given rise to violence?
Who are some of the parties?
● Under what circumstances are
Canadian mining companies
responsible for violence linked to their
projects? Why?
THE MARLIN MINE CASE
E.g.: Marlin Mine, Guatemala
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5 square km gold & silver mine in
Guatemalan highlands
2005-2017; possible expansion/ extension
Lowest cost, most profitable mine operated
by Goldcorp (Canadian firm)
Largest single taxpayer in Guatemala
Local Mayan people: 80% in “absolute
poverty”—subsistence agriculture &
remittances from relatives in US
Goldcorp Marlin Mine, Guatemala
Marlin Mine: Short-Medium Term
Environmental Concerns
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Removal of farmland and forests
Dumping of waste rock and tailings consumes more
land
Blasting! vibration damage, stress to people and
animals, clouds of choking dust
Ore treated with vast amounts of water! drying up
wells and streams
Ore also treated with cyanide! if escapes can
poison people, fish and livestock
Air pollution from smelting
“Tailings — vast quantities of finely crushed and
processed ore rock — must be disposed of safely
once they have been exposed to cyanide”;
Marlin Mine: Long-term
Environmental Concerns
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“Acid mine drainage (AMD) results from the
exposure of sulfide-rich crushed rock
(tailings and waste rock) to rainfall. AMD can
contaminate local waters with heavy metals
such as aluminum, arsenic, cadmium, lead,
nickel and zinc that would otherwise remain
buried in intact rock.”
◦ Unlike short-term cyanide and dust
hazards, can persist long after mine closed
Marlin Mine—Issues re
options
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Mine had 11 year lifespan
Unless major investment in rehabilitation of
land, local communities will be left worse off
despite modest economic benefits in short
term
Local communities get about 5% of mine
revenues via wages and investment in local
infrastructure, CSR
Guatemalan government gets 6% of mine
revenues via taxes and royalties
Most of economic benefit to Guatemala via
procurement of supplies and equipment
(mostly not local)
Social impacts
● Provided
~ 1000 well paid jobs for
locals
● "The legacy of that will remain after the
mine is closed. Our values had been
ones of empathy, solidarity, sharing
and love of nature. But today, the mine
has become a value in this community.
Money is now a value. We have never
had money before and it is tearing us
apart.” – local opponent
What Should Goldcorp Do?
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2005 referendum of 2400 local people: 94%
vote “no” to mining
Goldcorp share value increased by 1400%
over10 years—Marlin m ...
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