New approach could make multinationals more accountable

Some transnational corporations (TNCs) are starting to take responsibility for their harmful impacts but a lack of systematic monitoring means it is still almost impossible to tell the good from the bad, says research by the International Institute for Environment and Development (IIED).

The authors — Christoph Schwarte of IIED's legal subsidiary, the Foundation for International Environmental Law and Development (FIELD), and Emma Wilson of IIED — say some TNCs are shifting from recognising that they need to be more transparent about their activities to actually being accountable for their social and environmental impacts.

"TNCs have activities that stretch across national boundaries and this means they are often beyond the reach of traditional corporate control systems and so cannot be held accountable for their impacts," says Schwarte.

"Some TNCs are however starting to use grievance and redress mechanisms as new tools to mitigate conflicts with local stakeholders," add Schwarte. "But there is little monitoring and assessment of what actually works."

The authors say that the global economic crisis can instigate a change in business practices and lead to better corporate accountability. As attempts to establish accountability top-down from the international level have so far failed, project-based mechanisms provide an opportunity for multinationals to improve their social and environmental performance.

"Grievance mechanisms could gradually change the way transnationals do business and interact with local communities," says Wilson. "This would be especially valuable in countries with weak governance structures as it could provide an useful means for settling disputes."

Schwarte and Wilson surveyed twenty-eight large TNCs to assess whether they have set up accountability mechanisms to address the social and environmental complaints of local communities.

The TNCs included oil and gas companies such as Total and BP, mining businesses (e.g. Anglo American and BHP Billiton), and corporations in the forestry (Weyerhaeuser or Stora Enso) and other business sectors.

The study showed that the establishment of independent complaint and dispute settlement mechanisms varies significantly between business sectors. The majority of companies that have gained experience in operating such mechanism usually describe them as "very useful" in solving conflicts with external stakeholders.

To date these mechanisms have only been set up in relation to specific projects. One TNC, however, is considering setting up an additional mechanism at the corporate level - with potentially global application.

"Transnational corporations increasingly see a strong business case for establishing formalised complaint and dispute settlement procedures," says Wilson.

In addition international finance institutions (i.e. the International Finance Corporation and the European Bank for Reconstruction and Development) require clients that receive project finance to operate such mechanisms. "Overall however there is still a significant lack of awareness and the need for in depth research on good practice," adds Wilson.

Schwarte and Wilson published their findings in a briefing paper that can be downloaded from IIED's website. http://www.iied.org/pubs/pdfs/17049IIED.pdf