Community-Related Voluntary Standards

Businesses have long been called upon to comply with a range of formal laws and regulations in various areas related to sustainability-related responsibilities including laws and regulations pertaining to the environmental impact of their operations, the employment relationship, working conditions and health and safety standards.  However, apart from satisfying the requirements of local governments with respect to permits and licenses necessary for engaging in certain activities in the community, businesses generally are not heavily constrained by legal guidelines with respect to their community involvement and development activities.  This is an area in which voluntary standards have played an important role in providing business with ideas for objectives for their community involvement. 

Since the late 1990s there has been a proliferation of transnational, voluntary standards for what constitutes responsible corporate action (often referred to as corporate social responsibility or “CSR”), including standards have been developed by states; public/private partnerships; multi-stakeholder negotiation processes; industries and companies; institutional investors; functional groups such as accountancy firms and social assurance consulting groups; NGOs; and non-financial ratings agencies.[1]  While voluntary standards focusing specifically on the relationship of businesses and the communities in which they operate are still evolving, lessons can be drawn from many widely recognized normative frameworks, principles and guidelines such as the United Nations Sustainable Development Goals, the United Nations Global Compact, the OECD Guidelines for Multinational Enterprises, the United Nations Guiding Principles on Business and Human Rights, the Future-Fit Business Framework and the ISO 26000 Guidance on Social Responsibility.[2]  Specialized standards can be used as reference points for support of sustainability-related initiatives in local communities, such as requiring that recipients of grants and other investments for sustainable sourcing and agricultural activities adhere to the guidance developed by the Sustainable Agriculture Initiative Platform. Another point of reference for businesses with respect to identifying appropriate community-related engagement and investment projects are the emerging frameworks created for local governmental and community leaders to assist them in assessing the level of sustainability in their communities (e.g., the STAR Community Rating System and ISO 37101, both of which are described below).

Additional guidance comes from guidelines established for companies engaged in extractive activities where the potential for adverse impact on local communities is especially high.[3]  For example, Equitable Origin is an independent nonprofit organization dedicated to promoting socially and environmentally responsible energy development.  Equitable Origin claims to be the world´s first stakeholder-led, independent, voluntary standards system designed to enable high social and environmental performance, transparency and accountability in energy development.  Equitable Origin has developed EO100 Standards for Responsibility Energy, Conventional Onshore Oil and Gas and Shale Oil and Gas Operations, each of which are based on six basic principles addressing corporate governance, accountability and ethics; human rights, social impacts and community development; fair labor and working conditions; indigenous peoples’ rights; climate change, biodiversity and environment; and project life cycle management.  The Equitable Origin website contains references to technical information, tools, guidelines and best practices for topics covered by each of the principles including engagement and participation, resettlement, grievance mechanisms, community health, community investment and cultural impacts.[4]

In addition to the direct influence of the various standards and guidelines discussed below, businesses and other organizations will also be impacted by relevant standards on their key stakeholders, particularly investors.  For example, large institutional investors around the world have been moving quickly to embrace “responsible investment”, a concept that has been defined in the Principles for Responsible Investment as an approach to investing that aims to incorporate environmental, social and governance (“ESG”) factors into investment decisions, to better manage risk and generate sustainable, long-term returns.[5]  Not surprisingly, one of the social factors is local communities, including indigenous communities, and businesses with investors that are signatories to the Principles can expect that those investors will take their community involvement activities into account in making investment decisions and require appropriate disclosures regarding their impact on the development and wellbeing of the local communities in which they operate.  Investments from the International Finance Corporation (“IFC”) also come with requirements that client adhere to the IFC’s Performance Standards on Environmental and Social Sustainability which include requirements relating to assessment and management of environmental and social risks and impacts in local communities; community health, safety and security; indigenous peoples and cultural heritage.[6]

Businesses are also being pushed to demonstrate transparency with respect to their relationships with the members of their local communities through the emergence of international management and sustainability reporting standards.  Until recently sustainability reporting has been largely voluntary; however, a 2016 report compiled by KPMG, GRI, UNEP and the Centre for Corporate Governance in Africa noted that governments around the world had introduced a number of mandatory sustainability reporting instruments and that as a result of the level of activity in reporting on ESG topics over 80% of the world’s top economies by GDP in 2016 mandated ESG reporting in some form.[7]   While the public securities markets in the US remain the largest and deepest in the world, there is clearly competition from other markets that are achieving extremely high levels of growth including capital markets in the Eurozone, the Asia-Pacific region and in emerging markets such as China and India, and securities exchanges and regulatory authorities in these jurisdictions have often shown global leadership in integrating corporate governance and CSR.  In general, regulation has focused on disclosure rather than compliance with explicit standards relating to environmental and/or social actions.  According to a report issued by the Hauser Center, as of 2015 23 countries had enacted legislation since 2000 to require companies to issue reports that included environmental and/or social information.[8]  For example, companies incorporated in the United Kingdom that have listed securities (i.e., those with equity shares listed on LSE Main Market, EEA regulated, NYSE or NASDAQ) are expected to explain how they are managing issues such as environmental performance, human rights, social and community involvement and diversity.  The Shanghai Stock Exchange and the Shenzhen Stock Exchange in China have each released guidelines on the social responsibilities of their listed companies that include taking an active part in community development and other public causes.  In Mexico companies can be designated as a “Socially Responsible Enterprise” by the Mexican Philanthropy Centre if, among other things, they “promote a culture of responsible competitiveness that enables the success of the business while also contributing to the welfare of its community”  

In the meantime, most of the larger global businesses have been preparing and releasing sustainability reports that follow the standards and guidelines of one of the widely-recognized sustainability reporting organizations such as the Global Reporting Initiative (“GRI”), the International Integrated Reporting Council, the Sustainability Accounting Standards Board or the Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting.  For example, the GRI calls on organizations to report on the direct economic impact of their activities on local communities, which are defined as a change in the productive potential of the economy that has an influence on the community’s well-being and longer-term prospects for development; significant indirect economic impacts of the organization on local communities, including both positive and negative impacts; investments that organizations make in local infrastructure and services; and community engagement activities.  Businesses can also gather ideas for community-related objectives from the LBG Framework, which has been proposed as a global standard for measuring “corporate community investment” as opposed to a standard of conduct against which an organization’s programs and actions in its community can be measured.[9]

This article is part of the Sustainable Entrepreneurship Project’s extensive materials on Community Engagement and Investment and an excerpt from Community Engagement and Investment: A Guide for Sustainable Entrepreneurs by Alan S. Gutterman, which is available for purchase at various online booksellers.  Readers may also enjoy the author’s Responsible Business: A Guide to Corporate Social Responsibility for Sustainable Entrepreneurs.

[1] C. Williams, “Corporate Social Responsibility and Corporate Governance” in J. Gordon and G. Ringe (Eds.), Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2016), 7, available at http://digitalcommons.osgoode.yorku.ca/scholarly_works/1784.

[2] Id. at 8-9.  The Global Reporting Initiative, which is discussed in more detail below, has noted that local communities have individual and collective rights deriving from, among others, international declarations and conventions such as the United Nations Declaration, “Universal Declaration of Human Rights” (1948); United Nations Convention, “International Covenant on Civil and Political Rights” (1966); United Nations Convention, “International Covenant on Economic, Social, and Cultural Rights” (1966); and United Nations Declaration, “Declaration on the Right to Development” (1986).  See GRI 203: Indirect Economic Impacts 2016 (Amsterdam: Global Sustainability Standards Board, 2016), 6  See also the appendices to P. Hohnen (Author) and J. Potts (Editor), Corporate Social Responsibility: An Implementation Guide for Business (Winnipeg CAN: International Institute for Sustainable Development, 2007), which includes a list of national corporate social responsibility guidance and suggestions for further reading.

[3] See, for example, the Voluntary Principles on Security and Human Rights (http://www.voluntaryprinciples.org/), which are the only human rights guidelines designed specifically for extractive sector companies, and the ten principles developed by the International Council on Mining and Metals that serve as a best-practice framework for sustainable development in the mining and metals industry (http://www.icmm.com/en-gb/about-us/icmm-10-principles).

[4] With respect to the impact of investments by businesses on indigenous peoples in the communities in which the businesses operate see also the United Nations Declaration on the Rights of Indigenous Peoples (“UNDRIP”), which was adopted, following over two decades of deliberation and debate, by a majority of the states in the UN General Assembly in September 2007 (Australia, Canada, New Zealand and the United States were the four states that opposed the UNDRIP at that time; however, all four of them have since reversed the opposition, with the United States being the last to do so in December 2010).  The UNDRIP is lengthy; however, the goal was to identify, describe and affirm certain rights believed to be essential for preserve indigenous peoples’ identity: the right to live in dignity and maintain and strengthen their own institutions, cultures and traditions; the right to self-determination with respect to their economic, social and cultural development in keeping with their own needs and aspirations; the right to participate in decision-making; the right to lands, territories and resources; and the right to culture.  The UNDRIP also lays out the concept of “free, prior and informed consent”, which calls on states to consult with indigenous peoples on legislative and administrative measures affecting them, such as forced relocation, culture, intellectual property, lands, territories and resources, as well as development planning within the state, with a view to obtaining indigenous peoples’ free, prior and informed consent.

[5] The Principles for Responsible Investment (www.unpri.org) calls itself the world’s leading proponent of responsible investment and works to understand the investment implications of environmental, social and governance factors and to support its international network of investor signatories in integrating these factors into their investment and ownership decisions. The PRI is a non-profit organization that engages with global policy makers but is not associated with any government; it is supported by, but not part of, the United Nations.

[6] See International Finance Corporation Performance Standard 1 – Assessment and Management of Environmental and Social Risks and Impacts and IFC Performance Standard 4 – Community Health, Safety and Security.

[7] The 2016 “Carrots & Sticks” Report, https://assets.kpmg.com/ content/dam/kpmg/pdf/2016/05/ carrots-and-sticks-may-2016.pdf    .

[8] See Initiative for Responsible Investment, Corporate Social Responsibility Disclosure Efforts by National Governments and Stock Exchanges (March 12, 2015), available at http://hausercenter.org/iri/wpcontent/uploads/2011/08/CR-3-12-15.pdf..

[9] For further discussion of the LBG Framework, see From Inputs to Impact: Measuring Corporate Community Contributions through the LBG Framework—A Guidance Manual (London: Corporate Citizenship, 2014).