Supply Chain Reality

A gentle reminder of the complex issues related to supply chains from an article in the New York Times on the sewer covers of New York City.

“We can’t maintain the luxury of Europe and the United States, with all the boots and all that,” said Sunil Modi, director of Shakti Industries.

…

Mr. Modi said that his factory followed basic safety regulations and that workers should not be barefoot. “It must have been a very hot day” when the photos were taken, he said.

The audio slide show is excellent.

World Investment Report 2007: TNCs, Extractive Industries and Development

The World Investment Report 2007 , focuses this year on Transnational Corporations and extractive industries.

“…the extraction of natural resources involves considerable economic, environmental and social challenges. The objective is to ensure it is done in the most efficient and environmentally friendly manner possible, while as the same time contributing to poverty alleviation and accelerated development. For that, we need institutional and regulatory frameworks promoted by accountable Goverments, as well as responsible investors. All relevant stakeholders need to join forces in a concerted effort. This year’s World Investment Report officer useful insights to that end.”

So said Ban Ki-moon in the introduction.

Well-referenced document. I have skipped around, mostly to the environmental and social impact chapters. I would say there is an over reliance on the importance of host countries laws and regulations, even if it makes sense for this type of publication. That said, Chapter VI on “The Policy Challenge” gets to some ideas and has a good summary of initiaitives that are lifting the performance bar for TNCs.

I came across and interesting law from South Africa – Section 104 of the South African Mineral and Petroleum Resources Development Act (2002) – which exists “to make provision for equitable access to and sustainable development of the nation’s petroleum and mineral resources; and to provide for matters connected therewith.” Would love to know how this has been implemented!

I also found this UNCTAD resource that I hadn’t seen before: Mineral Resources Forum. To add to links here.

This report is in Arabic, French, Russian, Spanish and Chinese.

Debating Biofuels

Via the Private Sector Development blog, I came across (a while ago) the Foreign Affairs May/June article on biofuels and its connection to food security.

The article conclusion…

The future can be brighter if the right steps are taken now. Limiting U.S. dependence on fossil fuels requires a comprehensive energy-conservation program. Rather than promoting more mandates, tax breaks, and subsidies for biofuels, the U.S. government should make a major commitment to substantially increasing energy efficiency in vehicles, homes, and factories; promoting alternative sources of energy, such as solar and wind power; and investing in research to improve agricultural productivity and raise the efficiency of fuels derived from cellulose. Washington’s fixation on corn-based ethanol has distorted the national agenda and diverted its attention from developing a broad and balanced strategy. In March, the U.S. Energy Department announced that it would invest up to $385 million in six biorefineries designed to convert cellulose into ethanol. That is a promising step in the right direction.

…is similar to the NPR story I heard on Saturday. It reminded me I never posted the first links, which help ensure the important food impacts are considered in the rush to grow ethanol.

Clear Commentary on “Community Content”

I can’t say I find the term “community content” resonates widely yet, but the substance of Overseas Development Institutes’s work on the topic – as well as its work on local content - is really valuable for oil and gas (and other sectors) working in community investment or socio-economic development.

A definition is helpful:

Community Content is the “the strategic deployment of local participation and local capability development opportunities arising from an oil or gas project, directed to strengthen the sustainability, relevance and the political visibility of community investment programs.”

It is good stuff for thinking through the lack of sustainability and relevance of many community-targeted programs.

ODI’s work focuses on the positive benefits. My previous employer’s work serves more as a warning of the negative outcomes for not thinking through this issue. Their Guide for Extractive Industries has some material on the flash point issue of what they call “social investment”.

They key lesson being that just spending money on community development does not automatically yield a positive results.

Pernicious Benevolence?

Companies today are exhorted to be “socially responsible”. What, exactly does this mean?

So asked The Economist three years ago in a survey of corporate social responsibility (subscription required). I post such an old article as the debate seems to linger on the same issues and general confusions. I’ve been thinking about this a lot as I watch people using the terms “CSR” and “sustainability” with the assumption that there is agreement on what they mean. Unfortunately, many people still call buying t-shirts for the local football club – often with a company ad on the jersey – “CSR”.

When I first read the survey, many parts rubbed me the wrong way, but I felt it had a very useful matrix:

It is worth reading the full discussion around the four “permutations” of CSR. But what the articles and many discussions on sustainability miss these days is that the CSR should be about good management, the upper left corner of the matrix. That is corporate responsibility, as I categorize it here on this blog. This is where companies work to account for their environmental and social externalities and focus on a long-term, sometimes hard to define goal. Good managment includes thinking through the externalities of “social investment” or “community development funds” that are offered with the good intentions. And, very importantly, this includes greater engagement with stakeholders (and not just shareholders) and it goes well beyond just following the law, especially when working in countries where there is no rule of law.

Debates over the other parts of the matrix leave the CSR sector – if you wish to call it that – in a spiraling argument between left and right over the role of philanthropy and business in the realm of public goods. I wish we could get past that.

Sustainable Development for the “Bottom Billion”

Paul Collier’s The Bottom Billion has some really important chapters for advocates of sustainable development. (There are plenty of summaries and reviews if you are interested.)

What struck me most – and there was a lot that struck me – was his discussion of the so-called “resource curse”. So often I think impact assessment brushes over some of the real risks of natural resource development in poor countries. Collier has an excellent chapter on the “natural resources trap”, one of four that he guides readers through in the book.

Yes, natural resources contribute to GDP in poor countries and provide jobs. But they also, as Collier explains, weaken political restraints. Why?

One reason is obvious, they radically reduce the need to tax. Because resource-rich countries do not need to tax, they do not provoke citizens into supplying the public good of scrutiny over how their taxes are being spent.

I appreciate Collier calling scrutiny a public good. Like all public goods, it is difficult to say who should supply and who should pay for it. Collier identifies a free press as part one of the key restraints. Does the private sector have any influence over free press in a developing or transitioning country? Freedom of information?

There is also an excellent chapter on the role of laws and charters. While maybe not perfect, the Kimberley Process and Extractive Industries Transparency Initiative are putting needed attention on key issues that increase the chance natural resources are used for a more sustainable purpose.

Collier again:

Companies are being pressured on their environmental policies and on their employment policies, both of which are frankly peripheral, when what is needed is pressure on their policies toward governance

And the book doesn’t avoid the concern that less regulated countries like China will gain if North American and European companies begin to push less-than-responsible governments toward good governance. I think this fear it is not as simple as it seems. If responsible companies improve governance, public scrutiny and support responsible and accountable NGOs as part of their work, won’t that scrutiny get applied to companies from every other country?