Chapter 8 - Rausser College of Natural Resourcesnature.berkeley.edu/~kateon/outbox/privateactors.doc · Web viewIn part, this is a story of business interests and political lobbying

Kate O'Neill The Environment and International Relations

CHAPTER 8 (DRAFT)

CORPORATE POLITICS: BUSINESS INTERESTS AND INTERNATIONAL ENVIRONMENTAL POLITICS

Private economic actors - firms, corporations, business lobbying groups - are perhaps the most controversial group of non-state actors in IEP. Vilified by environmental activists as ravagers of the global environment, with undue political influence and zero public accountability, corporations - particularly multinational corporations (MNCs) - are frequently viewed as the ultimate bad guys in environmental politics. Business interests, on the other hand, are anxious to promulgate another view: advocating the marriage of economy and environment (with minimal government interference), as a "win-win" situation. By greening industrial practices, and developing tools of private governance and regulation, they argue that we will be able to balance environmental and social goals with economic - to the benefit of all.

Until recently, the environmental activities and related political action by the corporate sector had been ignored or underplayed in the IR literature.1 This changed, with the emergence of studies of the role of non-state actors in international relations, and the rise of private governance regimes.2 The vital importance of corporations as agents of global environmental degradation led to a vibrant activist-scholar literature on their role, a theme rapidly picked up by the IEP literature.

This chapter charts the growing engagement of business actors in IEP and global governance, documenting a shift from governance of to governance with and by private sector actors. It investigates why the private sector gets involved in international environmental politics, what sources of influence it brings to bear, and the means through which it seeks to shape political outcomes. In part, this is a story of business interests and political lobbying - in particular at the international level. However, it is also the story of the privatization of global governance and regulation, in which corporate interests have played a key role. This trend has started to attract serious attention from IR theorists. This chapter analyzes new forms of private governance at the global level, and assesses their overall utility. It also assesses some of the "good guy/bad guy" arguments forwarded for or against industry, comparing two hypotheses: regulatory capture (that business interests effectively hijack global political processes) and regulatory cooperation, or partnership (that effective global governance requires participation of business interests, and that these interests act in partnership with others towards broader social goals).

To return to the leading questions asked throughout this book, we investigate: Who are these actors, and what are their motivations and sources of influence? How are they shaping international governance institutions, power relations, norms? How do they relate to other actors/agents in the international system? How do the developments charted in this chapter affect general understandings of

international politics?

Defining the Private Sector in IEP: Actors and Motivations

1 Choucri, 20032 O'Neill et al, 2004

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Private economic actors have always played a crucial role in environmental politics at the domestic level, roles now being mirrored at the global level. First, industrial production has a significant impact on the global environment at all stages of the production process - from investment decisions, through resource extraction and manufacturing to marketing and waste disposal. To that extent, firms and corporations are seen as actors to be governed, in order to minimize environmental and societal harm, although, as we shall see, globalization has generated particular challenges to effective governance of private actors. Second, business interests frequently seek to influence the policy process, whether to reduce the impact of government regulation, or to improve the terms of competition. The influence of the corporate sector on domestic environmental politics is well-documented. More recently, they have sought to participate directly in and influence the process and outcomes of international environmental negotiations: this is charted in the section on governance with the private sector. Third, the growing reach of voluntary and self-governance mechanisms developed at the domestic level is being mirrored in the sphere of transnational politics. Global governance by the private sector is the subject of the third section of this chapter.

But, what exactly is the private sector? Not surprisingly, it is made up of a variety of different sorts of actors whose interests, capacities and activities vary substantially. In the course of this chapter, I will discuss a wide range of different actors under the broad umbrella of the private sector: from oil and chemicals multinationals to renewable energy firms, insurance companies, certification firms, illegal loggers, and trade associations, who represent the interests of a collection of firms or particular sectors. Creating an adequate typology of these different actors is no easy task. Here I distinguish briefly between firms and corporations on the one hand, and the actors who represent them, on the other.

At one level, firms and corporations manufacture goods and provide services for the global economy. Of particular concern to IEP are multinational corporations (MNCs): "any business corporation in which ownership, management, production and marketing extend over several national jurisdictions".3 However, firms and corporations of all shapes and sizes may have an impact on the state and politics of the global environment, and it is important not to "black box" the corporate sector in IEP. Evidence from numerous studies show that corporate strategies, interests and influence vary from sector to sector and firm to firm, and frequently conflict (think, for instance, of a company specializing in renewable energy development versus a coal-mining company). While manufacturing enterprises are considered to have the most direct impact on the environment (and thus may be most directly targeted by regulation), firms in the service sector are important too. This chapter highlights the role of the insurance industry and certification enterprises in IEP, but other service sectors include the waste disposal and recycling industries, the financial investment industry, consulting firms, the restaurant industry and so on.

Individual corporations rarely like to engage directly in the political process. Thus, representative organizations such as trade associations and industry NGOs provide a vehicle for collective political action by corporate actors. The broadest industry association engaged in IEP is the World Business Council for Sustainable Development (WBCSD), formed in 1991 just prior to UNCED (the Rio Convention).4 With over 170 members across multiple industrial sectors, it advocates involvement of the business sector in sustainability issues.5 The

3 Gilpin, 1975, p. 8.4 See http://www.wbcsd.ch5 Schmidheiny, 19992

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International Chamber of Commerce (ICC), which also represents many different sectors, is also a key industry player at international negotiations.

What motivates private sector actors, especially firms and corporations, to get involved in environmental politics? Microeconomic theory, at a very simple level, depicts firms as driven by profit-maximization, where profits are defined as revenues less cots. Environmental regulations are a threat to profit levels inasmuch as they raise costs of production, and may even threaten the firm's survival. As far as that motive holds, business interests are usually assumed to be antagonistic to environmental regulation, be it domestic or international.

Many economists and sociologists ascribe more varied motivations to the complex organizational entities that comprise modern corporations. Many do recognize the problem of environmental degradation over the longer term. Whether under pressure from consumers, shareholders, or run by a particularly aware CEO, some firms do respond to environmental threats with innovation and changes in production patterns, and many are able to reap higher profits this way. Recognizing this motivation, many national systems of environmental regulation have shifted away from traditional "command and control" regulatory mechanisms to ones that rely on partnership with industry and market-based incentives to innovate and maintain competitiveness.6 So, whether altruistic or profit-driven, firms, especially those with a longer-term perspective, do not automatically resist efforts to push them in a greener direction, and, in some cases, may be proactive.7

Taking the analysis a step further, why do private sector actors become involved in international politics, including environmental politics? Firms across countries have specialized in lobbying local and national political actors, developing and nurturing relationships that help them on the ground.8 Even multinational corporations followed the same approach: alliances with or coercive leverage over local and national officials have proven to be an effective mode of expansion.9

More recently, corporations, especially those in Western countries, have internationalized their strategies, through pushing for international standards, including those promulgated through international environmental agreements.10 In a globalized economy, where profit margins depend on taking rapid advantage of investment and innovation opportunities, firms have two other concerns with respect to regulation. First, they do not want to be at a competitive disadvantage against firms in other countries. To that extent, firms have often pursued international regulation over domestic, and regulatory harmonization across countries, in order to level the international playing field (though not without attempting to tip this level field in their favor, in many cases). The private sector is a strong supporter of international economic governance, especially that which it perceives as market-opening.11 To that extent, firms strongly support the World Trade Organization, and pushed for the (failed) Multilateral Agreement on Investment (MAI).12 Second, firms tend to value stability in regulation, and resist uncertainty. Direct engagement, to whatever extent possible, in regulatory processes enables them to minimize surprises and mitigate uncertainties across regulatory spheres, as well as provide specialized advice to regulatory and standard-setting bodies.

6 See Harrison, 1998; Jordan et al, 2003.7 E.g. 3M, etc. 8 Boczar, 19949 Note British East India Company and the British Empire10 DeSombre, 200011 Levy and Prakash, 2003.12 Walter, 2001

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With respect to international environmental regulation, business actors have, since the late 1980s, been involved at every stage of the policy process, from agenda-setting through negotiations to ratification and implementation, through, finally, developing their own global environmental governance regimes. In part, this is because for several key environmental issues, such as climate change, ozone depletion and biodiversity protection, most political activity has been initiated and debated at the international level. Table 8.1 (at end) gives examples of primary and secondary industries associated with particular international environmental issues. Many industries now feel they ignore international environmental negotiations at their peril, and that they may positively benefit from them. For example, the major US manufacturer of chlorofluorcarbons (CFCs), DuPont, faced with strict domestic restrictions on CFC generation, changed its position in 1986 to favor international regulation of ozone depleting substances, thus leveling the international playing field for its products, and, given its leading position in developing substitutes for CFCs, strengthening its position against smaller competitors.13 However, whether business sector actors are the key obstacles to international environmental protection or necessary - and sometimes willing - partners in this enterprise is a matter of some debate.

Perspectives on Corporations: Regulatory Capture or Regulatory Cooperation?

Arguments over whether the corporate sector is good or bad for the global environment are highly polarized. They focus on the environmental and social impacts of business activities, and on obstacles or opportunities for effective global governance of corporations. Activists frequently, and vocally, accuse the corporate sector of acting purely in pursuit of profit, regardless of social or environmental costs, and without accountability.14 To give some idea of the potential political and economic clout of the corporate sector, 51 of the largest economies in the world are not countries, but corporations, dominated by US firms.15 Sectors of particular concern to environmentalists include: resource-intensive industries - oil, mining, timber high-polluting industries - such as the energy sector, the chemicals industry, and waste

management agriculture - including the biotechnology and pesticides industries, and corporations fostering

large-scale production, or monocultureThese industries, frequently in collusion with local officials, have destroyed local

communities, devastated fragile ecosystems, and removed valuable and non or slow renewable resources at far too high a rate, especially in Southern countries.16

On the opposite side of the debate, others argue that corporations, in particular, MNCs can be engines of environmentalism. They point to standards imported by Western MNCs when operating in poorer countries, and to efforts made by leading global corporations to "green" their activities. Activists tend to respond by calling this process "greenwashing". However, there is a growing body of evidence that demonstrates a positive impact of efforts to green industrial activities: either internally, or via a process of policy transfer from Western MNCs. Ronie Garcia-Johnson, in a study of the impact of US chemical corporations in Mexico and Brazil, argues that the US Responsible Care program13 Parson, 2003, p. 12714 See Karliner, 1997; Rowell, 1996; Beder 1998, and the Corpwatch website (www.corpwatch.org) 15 Anderson and Cavanagh, 200016 Examples: Chevron in LA; Shell in Nigeria; Bhopal; mining in Ecuador; timber in SE Asia (Dauvergne)

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was enthusiastically imported and replicated with some adaptations by Mexican firms in order to facilitate free trade and to prosper in a free trade context. The institution was exported to Brazil by U.S. MNC subsidiaries, and it was adapted with reluctance on the part of Brazilian firms, in order to preempt stringent legislation and to survive in a global market.17

The largely European literature on ecological modernization theory also demonstrates diffusion of greener ideas among corporate actors and across borders: these include ideas about minimizing waste generation in the production process, and the utilization of greener technologies to minimize air and water pollution.18

These disparate views on the global governance of corporate actors reflect two perspectives on the political role and influence of corporate actors in environmental protection. The first view is one of regulatory capture: firms hostile to excessive environmental regulation essentially take over processes of environmental regulation to further their own interests and avoid excess scrutiny and accountability. The second is one of regulatory cooperation, or partnership. Contemporary structures of economic globalization has made traditional modes of regulation harder to carry out, and necessitates the active participation of corporate actors in order for regulation to be effective. What this means in terms of policy outcomes is ambiguous, and also depends on other factors, such as involvement of civil society actors. Partnership initiatives may water down environmental regulation - but they may also lead to more innovative, and legitimate, forms of governance.

These conflicting perspectives are readily applicable to analysis of corporate actors in international environmental negotiations, and to the rise of privatized modes of global environmental governance. Briefly, the following sections find support for both propositions.

- Corporations are not always autonomous of external influences, nor always skilled at collective action. They certainly do not always get what they want.

neo-Gramscian perspective

Global Governance of the Private Sector: Exit Threats and Flexible Structures

Governance of corporate activity in a globalized world is difficult, and becoming more so. Many governments do not have the capacity or willingness to govern private sector activities effectively. Economic globalization and capital mobility pose further problems for national and global governance of corporate activities. Corporations often have a credible exit threat: relocating facilities if regulations become too stringent, having a potentially devastating effect on local economies. Further, the flexibility of global capitalism has increased in recent years, creating complex chains of ownership, production and control which are difficult to monitor and regulate, effectively "deterritorializing" economic production and control.

In environmental politics, analysis of firms' exit threats revolve around the Pollution Haven Hypothesis (PHH): that firms choose to locate production facilities where the costs of environmental regulation are lowest. This threat, in turn creates incentives for countries to lower environmental standards, or, in the case of poorer countries, not to develop them.19 Efforts to test the PHH empirically have generated a large literature.20 In the strongest sense, there is little evidence that firms base location decisions purely on the costs of environmental regulation; labor 17 Garcia-Johnson 2000, p. 187. See also Grant and Jones, 2004.18 Mol and Sonnenfeld, 2000; Spaargaren et al 2000; Mol, 2001. Explanatory note on EM theory?19 See the "race to the bottom" and the "stuck at the bottom" hypotheses, discussed in Porter, 1999.20 See Thompson and Strohm, 1996, Dean, 1992, Strohm, 2002, Dean 2002?

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costs are, for instance, a much higher incentive to move. However, this does not mean the hypothesis is necessarily invalid. Firms may not always publicly state the reasons for their location decisions. They also use relocation as an implicit threat to local communities economically dependent on the industry. Analysts point out that the pollution intensity of industry in developing countries is rising, and that PHH studies are based on too narrow definitions of what constitutes a "dirty industry", omitting, for instance, raw materials extraction and hazardous waste management.21 Nor do they take into account the possibility of "regulatory chill" - that poorer countries are hamstrung in attempts to raise environmental standards, given that they would lose competitive edge.22 Further, globalization has given rise to the creation of "special economic zones", industrial areas where regulations are loosely enforced, and firms benefit from special tax and tariff treatment.23 The maquiladora zone in Mexico just south of the US border is emblematic, and its environmental conditions are notoriously bad (REFS).

The flexibility of contemporary global capitalism has also raised concerns for social policies, and the obstacles even for well-meaning firms to fulfill social or environmental goals can be formidable.24 Many MNCs, rather than operate their own facilities in other countries, simply contract out (outsource) vital work to local firms on a cost basis, relying on an extensive network of strategic partnerships, sub-contractors and joint ventures.25 These arrangements are flexible: contracts can be rapidly switched from one vendor to another, and chains of compliance and monitoring are extremely weak, as the purchasing corporations have less legal liability for social costs than they do if operating their own facilities. They may also be operating with incomplete information as to the environmental or social impacts of vendor firms.26 Second, ownership (and hence liability) of MNCs engaged in exploitative activities is often hidden at the end of a long corporate chain, and firms may well change hands before liability can be ascertained.27

On formal and informal levels, available legal and regulatory solutions to these problems are often weak. There is little international law governing the behavior of corporate actors within a country, though some firms and governments adhere to the "soft law" standards of the International Labor Organization or human rights standards. Often, national governments are unwilling or unable to make companies adhere to environmental or labor standards. Sometimes these standards do not exist, sometimes they cannot be enforced, and sometimes governments collude with firms for profit.28 MNCs, on the other hand, should be bound by environmental standards in their home countries, and often operate according to these. No matter their intentions, however, often they are operating in a country whose infrastructure cannot support these standards. If equipment breaks down, the right parts might be hard to find or difficult to transport in time - or local support services in the event of an emergency may not be adequate.29

Where governmental solutions are hard to develop or to enforce, two sets of governance regimes have emerged. The first is active involvement by the private sector in first or third party regulation: either corporations monitor themselves, or work in tandem with outside actors (such

21 Clapp, 200222 Porter, 199923 See Ong, 2000, and concept of graduated sovereignty24 find refs on global commodity chains, restructuring, etc.25 Haufler, 2003, p. 239.26 O'Rourke, 200327 Dauvergne, 2001. Note also "flags of convenience" issue in international shipping28 Dauvergne, 2002 - logging29 Find ref that this was the case at Bhopal

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as NGOs, or international organizations) to adhere to a set of approved standards. These solutions will be discussed at greater length later in this chapter. Second, civil society actors, both local and transnational, have developed their own monitoring, whistle-blowing and boycott regimes. This latter solution is particularly appropriate when corporations are unwilling to engage in the regulatory process, and may be most effective when used against Western multinational corporations, which are more vulnerable to political pressure in their home countries, and have brand names (such as Nike, Gap and so on) to protect.30

Global Governance with the Private Sector: Corporate Actors and International Environmental Negotiations

Corporate actors have important incentives to attempt to influence the outcomes of international environmental negotiations. In particular, environmental agreements are often seen as "market closing", cutting off economic opportunities via, for example, restricting trade in wastes, CFCs or endangered species.31 But multilateral environmental agreements (MEAs) also generate economic opportunities for some firms, which they are anxious to realize. Despite these incentives, corporate actors were relative latecomers in the global environmental arena. They saw global environmental governance at first as weak, and far less important than other negotiating forums, such as the WTO.32 It took the signing of the Montreal Protocol in 1987, which had a powerful impact on the operations of a range of industries, to wake industry up to the potential of global environmental governance.

This section assesses the levels of engagement and influence of the private sector in global environmental negotiations and outcomes, as they vary across issue areas. Following Betsill and Corell, it is not always easy to discern the real influence of non-state actors, as such standard indicators of level of access, activity, or even goal attainment do not necessarily translate into influence.33 In quite a few cases, industry influence is clear-cut, in others far less so, especially when interests within the private sector collide. Nor is it always the case that just because an agreement's terms were in line with clearly stated interests of the private sector that this sector influenced the outcome in a crucial way. Finally, empirical analysis of many MEAs shows several examples where powerful private industries have clearly lost.

Engagement and Influence: Access, Resources and Relationships

a. Channels of Access and Participation: Governments and Negotiating ForumsCorporate actors are able to take advantage of several channels of access to the

international environmental policy process. First, and more traditionally, they have lobbied national representatives to international negotiations to adopt particular positions during the regime formation process. During the ratification process, they are also closely involved in lobbying elected representatives for or against agreement ratification.34

30 O'Rourke, 2003; Diller, 1999; Conroy, 2001. Other examples: International Rivers Network, Project Underground (now defunct)31 Levy and Prakash, 200332 Sell, 199933 Betsill and Corell, 2001.

34 For example, CBD - Paarlberg, 1998

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Access to government officials varies across countries, often according to national regulatory style.35 However, campaign contributions, engagement in policy deliberations, and the availability of judicial challenge to the implementation of new laws all affect corporate access to policy-making. Access to powerful governments, such as the US and the UK is also key in the eyes of corporate actors. Take, for example, the George W. Bush administration's withdrawal from the Kyoto Protocol in 2001, seriously threatening the international climate change regime. In this case, key administration officials had many connections with the US oil industry, which had lobbied heavily against regulating greenhouse gas emissions.36 In its farewell message, the Global Climate Coalition (GCC), an industry association opposed to greenhouse gas emissions reductions, claims victory: "[t]he industry voice on climate change has served its purpose by contributing to a new national approach to global warming."37

Second, corporate actors have themselves become directly involved in the international negotiating process. While non-state actors have no voting power, there are many other ways of gaining access to decision-making at the international level. Non-state actors may attend as observers, be represented on technical working groups, submit policy briefs directly to UNEP or other negotiating officials, and serve on national delegations. For example, industry participation in the deliberations of the Intergovernmental Panel on Climate Change (the international scientific advisory body of the UN Climate Change process) has increased.38

Firms cannot represent themselves at international negotiations: UN rules allow only non-governmental organizations (NGOs) to register and attend negotiations. Thus, they are represented by business and industry associations (BINGOs, in UN parlance), whose goal is to advocate an industry's position at international negotiations, while at the same time distancing member companies from appearing to directly influence the political process.39 Examples of climate change BINGOs include the Global Climate Coalition, the World Business Council for Sustainable Development, the Pew Center on Global Climate Change, and the International Emissions Trading Association.40

A highly successful example of business influence on international negotiations concerns the recycling and scrap metal industries, represented by the International Chamber of Commerce and the Bureau of International Recycling (BIR). They strongly oppose the Ban Amendment of the Basel Convention (hazardous waste trading). To that end, they have joined the technical working group (TWG) of the Convention, which focuses on defining and listing hazardous wastes.41 The TWG meets about twice a year and industry presence is high. In September 1996, of the total 159 representatives there, including government representatives, 49 were from industrial organizations.42 In this forum, they have lobbied to include materials they trade in on List B of the Basel Convention – those wastes that can be freely traded - and redefining their product as “recycled raw materials”. According to Clapp and to the main NGO following this process, the Basel Action Network, the industry has achieved a good deal of success in realizing their goals. 35 Vogel, 1986; O'Neill, 200036 REFS: other explanations/explanatory factors also exist: Bush Administration unilateralism, Kyoto already dead in the water (non-ratification under Clinton) See McCright and Dunlap, 2003 - PUT IN TEXT37 GCC, at http://www.globalclimate.org/, accessed June 23, 200438 Levy and Newell, 200539 Pulver, 2002, p. 39. To view a list of NGOs, including business associations, represented in the on-going climate change negotiations, see http://unfccc.int/resource/ngo/ngo.html40 Pulver, 2002, p. 3941 Clapp, 1999; O'Neill, 200142 Clapp, 1999, p. 14

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However, industry collective action, especially across national boundaries, are not always successful. Simone Pulver examines the shifting terrain and organizational weaknesses of the fossil fuel industry in UNFCCC negotiations.43 First, corporate interests in this sector diverged sharply in the late 1990s.44 British Petroleum (BP) and Royal Dutch Shell both reversed their positions on climate negotiations in the late 1990s - a result of shareholder pressure and industry foresightedness in seeing strategic opportunities in moving "Beyond Petroleum" (BP's new slogan) - while US firms, such as Chevron-Texaco and Exxon-Mobil maintained their opposition. Second, the range of business associations representing the industry suffered from internal splits and external conflicts. Within the GCC, member countries differed over the role the association should play - advisory or lobbying - and the organization was not structured to accommodate conflicts between member companies. Competition between different BINGOs was also a problem in presenting a unified industry front: the GCC represented a very different view from other associations, such as the International Chamber of Commerce. Therefore, while the fossil fuel lobby may have succeeded in changing the position of signatory governments, they were less successful in affecting the outcome of climate change negotiations.

[Box: The World Commission on Dams]45

b. Resources: Money, People and MobilizationCorporations typically have more resources, financial and otherwise, at their disposal

than do environmental NGOs to attempt to influence the policy process. For one, as they tend to lobby only on single issues, they run less risk of over-stretching too few people or budgetary resources across too many issues. Substantial advertising, travel and lobbying budgets are typical of large and multinational corporations. They also tend to be expert in the minutiae of their particular areas of activity.

Individual firms, as hierarchical organizations with clear chains of command, find it easier to mobilize around a single position on a given issue. Typically, it is assumed the bigger a firm, and the more powerful it is within its industry or home economy, the more likely it is to be able to influence policy outcomes. This was certainly the case with DuPont, the largest global manufacturer of CFCs. As the dominant member of the US-based Alliance for Responsible CFC Policy, it was instrumental in pressuring the US government to seek international regulation of ozone-depleting substances.46

Aggregating beyond the level of the firm generates a more complex picture for resource mobilization through collective action.47 As seen above, in the context of the oil industry, a relatively concentrated industry structure (a sector dominated by a few large firms) can generate collective action problems, although one dominant firm within a country may have disproportionate influence on its home government. Less concentrated industry structures (with more, smaller firms) may face even greater collective action issues. Often, some firms see international regulations as an opportunity to drive out competitors, or ensure better strategic positioning for themselves over the long term. For example, large firms in the hazardous waste

43 Pulver, 200244 See also Levy and Kolk, 2002; Kolk and Levy, 200145 REFS: Ottaway, 2001; Brinkerhoff, 2002; Conca, 200246Parson, 2003, pp. 125-127; Kauffman, 1997; Levy, 1997. The Alliance for Responsible CFC Policy was formed in the US in 1980 in order to combat stricter CFC regulations at the domestic level, and was made up of the main CFC producers and many CFC users. It switched its attention to the international level in 1986, during negotiations towards the Montreal Protocol (Parson, 2003, p. 58).47 Olson, 19XX - on collective action

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disposal industry see international regulations as an opportunity to drive smaller, cheaper waste disposal companies out of the industry.48

Within the biotechnology industry, cross-national differences in industry structure at the time of the negotiation of the Convention on Biological Diversity influenced divergent national positions. The British industry, characterized by multiple, smaller firms, and a more flexible, cooperative relationship with government, pushed for the Convention, while US firms (at that point, a more concentrated, multinational industry, with an adversarial relationship with government) opposed the Convention on the ground that it overrode existing international property rights.49 While the US biotechnology industry opposed signing the CBD, it later, after much assurance by the Clinton Administration and following its own assessment of international support for the property rights regime contained in the CBD, switched to support ratification. The US failure to ratify the CBD is better explained by lack of support within the US senate.50 Later, in negotiations of the Cartagena Biosafety Protocol, industry strongly supported the Miami Group of countries, who opposed the restriction of trade in Living Modified Organisms (LMOs), a group that was ultimately defeated in the final negotiating round in 2000.51

c. Allies and Opponents Outside the IndustryCorporate actors do not operate within a political vacuum, and they are rarely

autonomous of external influence. Constellations of allies and opponents within an issue field include, beyond immediate competitors, relationships with other industries, civil society actors and states.

First, different industries may adopt opposing positions within the same issue area. While the fossil fuel and automobile industries are most often cited in terms of climate change, dozens of smaller industries, in particular, the renewable fuels sector, firms producing mitigation technologies, and even the nuclear power industry lobby hard for greenhouse gas reductions.

Second, corporate actors differ in their relationship with the NGO sector. Some treat NGOs across the board as adversaries, others engage in dialogue and even partnerships with civil society organizations. In fact, NGOs themselves often successfully exert moral pressure on corporations to change their positions and practices, either directly or via shareholders and consumers. Both Shell and BP's change in position on climate change can be contributed, at least in part, to environmentalist pressure.52

Third, in comparison with NGOs, business-state relationships are often closer and longer-term. Environmental groups typically act on the margins of politics, attempting in a range of different ways to try to influence politicians from outside the political system, while industry often has far closer, and often personal relationships with politicians.53 Structurally, business interests are often, but not always, formally institutionalized into the policy process.54 However, state-business relations may also be highly adversarial, as is often considered typical of the US

48 O'Neill, 2001.49 Raustiala, 1997. The biotechnology industry in general far prefers negotiating such issues in the context of the WTO and TRIPS (Raustiala, 1997).50 Paarlberg, 1998.51 Gupta, 200052 Kolk and Levy, 200153 REF: Pulver or Levy?54 O'Neill, 2000

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political system, while some countries have more formalized, consensual modes of NGO/civil society representation in political decision-making.55

Assessing Corporate Influence in International Environmental Negotiations

Existing studies of the role of the private sector in international environmental negotiations shows a clear trend towards greater levels of engagement by the sector at the international level. However, results on corporate influence show a decidedly mixed picture. While in some cases, industry influence is key in undermining either the terms of environmental agreements or support from important states (Basel Convention and Kyoto Protocol respectively), in other cases, private sector actors have played a positive role, enabling stronger cooperation (Montreal Protocol). Sometimes, industry has lost its battle (biotechnology and the Cartagena Protocol).56

The negotiation and ratification battles over the Kyoto Protocol provide an interesting example of what happens when industry interests collide. While, arguably, US oil companies operating through the GCC and ties with the GW Bush Administration were instrumental in influencing US withdrawal from the regime, the European firms, European firms, Shell and BP, have adopted a pro-Kyoto position. Given the current weakness of the Kyoto process, they may, at first glance, appear to have little direct influence on the course of negotiations. On the other hand, their continued support of Kyoto has strengthened the hand of those countries - notably the European Union - who do support the protocol, thus encouraging them to undertake unilateral implementation. Further, these companies have started to develop their own, internal measures to limit greenhouse gas emissions and switch to cleaner fuel generation (see later section).

Thus, existing studies of industry influence in international environmental negotiations demonstrate that the level of participation and resources of the private sector do not always translate into influence, or at least, readily-identifiable influence. However, sometimes they do, and in the cases examined here, while the regulatory capture hypothesis holds in the case of Basel, and, possibly, in the US position on Kyoto, the regulatory cooperation hypothesis holds too, across several issue areas. By working with parties to international negotiations, in Montreal Protocol and (partially) in Kyoto negotiations, industry actors have strengthened ultimate policy and agreement outcomes. However, there are still some important gaps in the literature. In particular, there are few studies in the existing literature that focus on influence, or attempts of influence, at negotiations by non-Western companies. This is an important omission, and should be addressed.

Global Governance by the Private Sector: The Privatization of Global Environmental Governance

The first part of this chapter examined how private sector actors work through structures of state power and relations in the environmental sphere. Another way in which private economic actors wield considerable influence in international environmental politics is through private, or non-state regulatory regimes. Non-state actors, including corporate actors, are beginning to establish their own transnational governance systems for reducing environmental

55 On US adversarialism, see Vogel, 1986; Kagan 2000. On more consensual relations, such as in the UK or Germany, see O'Neill, 2000.56 Also, check out the International Whaling Commission - see Skodvin and Andresen, 2003.

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impacts, either individually or in partnership with others, often bypassing interstate diplomatic processes or state politics altogether. Take, for example, the "eco-label". A trip through a supermarket or a hardware store will yield a multitude of different sorts of certification: tuna is labeled "dolphin-safe", wood products as "sustainably harvested", foods as GM-free, paper products as "40% recycled" and so on.57 For the average consumer, these are the most visible manifestation of private governance. These labels are not restricted to the environmental arena: clothes stores claim their products are not manufactured under sweatshop conditions; vegetables, milk and other foods may be labeled natural, hormone-free or organic, and so on. These labels are usually not mandated by government rules and regulations. Instead, firms themselves voluntarily undergo certification, often accepting significant costs in the process, but also benefiting from consumers and investors who place a premium on ethically produced goods.

Ecolabels are merely the surface manifestation of a web of global governance: regimes and institutions created and maintained by the private sector, frequently in collaboration with or pressured by societal interests. These regimes transcend short-term or strategic cooperative arrangements among firms. Instead, they represent "interaction that is institutionalized and of a more permanent nature".58 They are analogous in many ways to the concept of regimes developed by Krasner: "principles, norms, rules and decision-making procedures around which actors' expectations converge".59 However, their formation, negotiation and implementation occurs (at least formally) outside of state influence. Other terms used in the literature on private environmental governance include "multi-stakeholder regulation" and "non-state market driven governance".60 Participation in these regimes by corporate actors is considered to be voluntary, but a range of transnational organizations, particularly certification and accreditation bodies, anchor and institutionalize the private sector initiatives that started to proliferate in the 1990s.

Private sector initiatives in global environmental governance began in the 1980s, with not wholly successful experiments in debt-for-nature swaps engineered between financial institutions, NGOs and developing countries, and some high-profile deals concerning biodiversity resources.61 This chapter examines two primary forms of private governance regimes in IEP, as means of the collective exercise of authority over the practices of corporations and firms:62

Second and third party certification and standard setting institutions: whereby companies apply for outside certification as to the sustainability of their business practices

Financial market institutions: how insurance and investment companies can influence firms' decision-making via financial mechanisms favoring a "greener" course of action over one that is less so. [Note: Chapter will include separate case study of the oil industry and global environmental

governance, covering governance of, with and by: including efforts by BP and Shell to set up intra-firm emissions trading]63

57 Note - question for discussion - take a look around your local supermarket and see what different labels on food products tell you, beyond the nutritional values. Do you believe them? If so, why? If not, why not? Do you feel you have enough information to make an informed decision?58 Falkner, 2003, p. 73, Cutler et al, 1999, pp. 5-15 (on different forms of inter-firm cooperation)59 Krasner, 1983, p. 2, cited in Cutler et al, 1999, p. 13.60 Haufler, 2003, and Cashore et al, 2003.61 On debt for nature swaps see Jakobeit, 1996. On the Merck-InBio agreement in Costa Rica, see REFS62 This section will not discuss self-certification, i.e. Self (intra-firm)-regulation by MNCs, in particular, corporate codes of conduct and declarations of social responsibility (move into earlier section)63 REFS on oil industry: David Levy, Dunn 2002, Skjaerseth and Skodvin, 2001

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In this section we examine the demand for such forms of governance, identify some of the major schemes, and assess the strengths and weaknesses of privatized global environmental governance. Does it represent a legitimate form of international authority? To what extent does it represent an erosion of the role of the state and interstate diplomacy in IEP? Finally, we address questions of corporate influence on international politics, noting that private forms of global environmental governance are in fact, most frequently, hybrid forms of governance, involving active participation of civil society groups and IGOs, and often legitimation by state actors. In this sphere, we see more regulatory cooperation than capture, though that has in part to do with participation choices by firms. Later chapters will bring together some of the evidence presented here, and in other chapters, on the implications for our understanding of the state in international environmental politics, and the hybridization of global governance.

Private Governance and IR Theory

In discussing the emergence of private authority in the international system, Hall and Biersteker argue that:

[A] growing number of actors - actors other than the state - appear to have taken on authoritative roles and functions in the international system…They include, but are not restricted to, the apparent authority exercised by global market forces, by private market institutions engaged in the setting of international standards, by human rights and environmental non-governmental organizations, by transnational religious movements, and even by mafias and mercenary armies in some instances… They claim to be, perform as, and are recognized as legitimate by some larger public (that often includes states themselves) as authors of policies, of practices, of rules and of norms. They set agendas, they establish boundaries or limits for action, they certify, they offer salvation, they guarantee contracts, and they provide order and security. In short, they do many of the things traditionally, and exclusively, associated with the state.64

Literature on private authority in global governance is growing, in part as a response to what many analysts see as an overwhelmingly state-centric focus of existing cooperation literature.65 Critics of inter-state cooperation and regime theory argue that focusing on inter-governmental processes blinds analysts to new (and not-so-new) realities of global governance, and that state centric theory does not explain how we have arrived at the mixed private and public global governance institutions that currently, and sometimes uneasily, coexist.66

The emergence of private authority raises a number of theoretical and normative questions central to questions in IR. First, what does growing empirical evidence of private governance institutions across a number of issues in IR (especially in international political economy) imply about the role and influence of non-state actors in international politics? Perhaps the role accorded to non-state actors in standard realist and neoliberal accounts of IR is too peripheral. Instead, evidence suggests these actors are able to act autonomously, as agents in their own right, in setting up and managing global governance institutions.

Second, and related, what does the emergence of private authority in international politics tell us about the possible changing role of the state, and traditional channels of inter-state diplomacy in IR?67 Does the emergence of these forms of governance undermine state 64 Hall and Biersteker, 2002:4.65 For overviews, see Hall and Biersteker, 2002; Haufler, 2001; Cutler et al, 1999; Falkner, 2003; Cashore, 200266 See Paterson et al, 2003, Conca, 2002, Detomasi, 2002, Murphy, 2000.67 See Spruyt, 2002; Evans, 1997; Sassen, 1999; Strange, 1996; Schmidt, 1995.

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sovereignty? Does it imply that states have diminished capacity or will to manage a globalized world order? In other words, are these new governance regimes in competition with the nation state for global authority, or are they stepping into a political vacuum (either with or without governmental collusion)?

Third, where do private actors (corporations, NGOs etc.) derive the authority and legitimacy, over and above material power, to undertake governance activities?68 Should we be concerned about these trends? For example, how is democratic accountability maintained in the private sphere?69

Many instances of private governance used as cases in the general IR literature occur autonomously of societal interests and influence. Some standard-setting regimes, such as telecommunications and informational technologies are highly technical, and draw on the special expertise of private actors, although, as empirical work has shown, the standard-setting process itself is often highly political.70 Other sets of negotiations occur in national and international forums that are insulated (to date) from broader societal input: the Trade-Related and Intellectual Property Rights (TRIPs) Agreement was negotiated with strong private sector input under the auspices of GATT/WTO.71 This autonomy does not, however, apply to private regimes in the arenas of the environment or of human rights and labor standards. The inter-play between corporate, NGO, government and broader societal interests in the formation and implementation of global environmental standards is an especially interesting feature of this arena of governance, and one that has made it highly attractive for empirical study. In many ways, the examples discussed below are high-profile experiments in new forms of governance: experiments whose results are currently much disputed, but which have major implications for the effectiveness of global governance into the future.

Emergence of, and Demand for Private Global Environmental Governance

The environmental sphere has proved particularly fertile for the emergence of private and hybrid forms of governance. As in other areas of global governance, structural, institutional and ideological changes in the global economy have fostered the emergence of private governance regimes, though few other international issue areas have the same level of societal involvement and contestation from the outset as the environmental field. Processes of neoliberal economic globalization, the rise of de-regulated global markets, and the "shrinking" of the state are all factors that have fostered a favorable context for new forms of governance to emerge. Trends towards "smaller" government in advanced industrialized countries, meaning that governments carry out fewer regulatory and social welfare functions, began in the 1980s, under US President Reagan and UK Prime Minister Thatcher. In terms of environmental regulation, this meant a shift from command and control based regulation to more flexible, market-based incentives, but also entailed privatization of industry and full exposure of the national economy to the global market. These shifts occurred roughly concomitantly with liberalization of global markets. Lifting of trade restrictions, and restrictions of capital mobility effectively "deterritorialized" the global economy. No longer were corporations as dependent on national jurisdictions or geographical constraints to carry out their activities.

68 Hall and Biersteker, 200269 Cutler, 2002:2470 Mattli and Büthe, 200371 Sell, 1999

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Still, these structural changes do not explain why governance systems and rules or norms prescribing corporate behavior came into being, rather than a form of "wild west" global capitalism, such as that which existed in Russia in the years immediately following the collapse of the Soviet Union. Some would argue that in fact, we do live in such a world. But, a glance at the evidence shows different patterns. Although there are many and serious exceptions, corporations are taking social and environmental opportunities seriously, and developing institutions to address them. Explaining why these private environmental governance regimes have come into being requires examining the demand for them that exists on the part of major stakeholders: firms themselves, civil society actors, states and IGOs.

First, firms themselves have expressed a high level of dissatisfaction with the pace and extent of traditional, inter-governmental cooperation and regime formation. Private sector actors, especially MNCs, feel excluded from the direct decision-making process, and unhappy with the extent to which national interests trump their own commercial interests. As Haufler puts it, "the process of negotiating intergovernmental agreements can be slow, clumsy, often wrong-headed, and highly political, which means the design of rules - even rules that the private sector desires - can be fraught with risk".72 The prime corporate movers in these schemes are primarily MNCs from industrialized countries. These firms are particularly prone to transnational activist pressures, and operate across multiple regulatory jurisdictions, facing regulation from host countries, their home countries and from the international level.73 By adopting labeling and certification schemes, for example, they act both to protect their brand-name reputation, and to minimize risks and uncertainties associated with multiple and shifting governmental and inter-governmental rules.74 They also seek to reduce transactions costs: standardization rules provide information that is clearly understood from firm to firm that would, on an individual basis would be costly to obtain and unreliable.75 They also seek to maintain as much control as possible over their competitive environment - against competitors, as well as state and other non-state actors.

Second, firms seek to take advantage of existing vacuums in global environmental governance. By jumping into the gap between signing an international agreement and its implementation, corporations seek competitive advantage through first-mover status, by implementing expected rules ahead of their enforcement.76 Where international law is almost wholly absent, as in the case of global deforestation and the international trade in tropical timbers, firms seek to populate the area with regulatory schemes, and thus shape (and possibly supplant) future governmental action in these areas.77

Third, NGOs and other activist groups heavily involved in international environmental politics are also highly dissatisfied with the pace and direction of international cooperation, and with governance vacuums in important and high-profile issue areas. By exerting moral pressure on corporate interests to get involved in environmental regulation on their own behalf (using threat of sanctions or consumer boycotts, working with shareholders and investment companies, or by working directly with corporations), they have provided incentives for firms to start greening their activities. They have also, by this involvement, affected the forms of governance

72 Haufler, 2001, p. 2273 Haufler, 2001:1074 On the importance of the brand as a corporate asset, see Klein, 19XX ("No Logo")75 See Cutler et al, 1999, p. 336.76 The multinational oil companies have led the way here - note Insert study of oil companies and IEP, looking at Shell and BP's emission trading programs77 REFS to be put in an earlier chapter on absence of forestry regime - but see Humphreys, 2003; Gulbrandsen, 2004 Note, forests not wholly uncovered, but pretty close.

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that have emerged, their transparency, and, to some degree, their perceived legitimacy. This stands in contrast to areas of global governance that have little direct activist involvement, but has much in common with activist roles in developing and enforcing voluntary codes in labor standards in the garment industry.78 The global anti-sweatshop movement is a key example of this sort of pressure, and environmental groups have learned much from their counterparts in human rights and organized labor.

Finally, many states and IGOs, although by no means all, also support these forms of environmental governance. Many states, rather than feeling threatened by possible usurpation of their authority, benefit by avoiding the political and economic costs of imposing government regulation on key sectors of the economy, especially transnational sectors, where control is difficult. For IGOs, there is an emerging consensus that voluntary forms of regulation are more consonant with the overall goals of a liberalized world economy than compulsory regulations. The WTO, for example, after some debate on this subject, has, so far, not opposed voluntary eco-labeling schemes, although similar schemes applied by governments would violate its rules on not differentiating among products on the basis of how they were produced.79 UNEP and other UN agencies are, for their part, moving towards a "partnership" model for environmental protection, as evidenced at the World Summit on Sustainable Development (WSSD) held in Johannesburg, 2002.80

Two Cases of Private Environmental Governance: Certification and Insurance Market Discipline

Eco-Labeling and Certification Schemes: ISO 14001 and Forest CertificationCertification schemes trade in information and reputation. By participating in these

schemes, firms signal their environmental commitment to potential customers and investors, using not their own reputation, but, rather, that of an independent certifying body, to provide credibility. The consumer, making his or her purchases, is only one of the intended recipients of this information. Firms are also informing potential investors, their shareholders, and contractors of their environmental practices. This section examines two sets of international environmental standards: ISO 14000 series, and the various certification regimes that have proliferated in the global forestry sector, as they make an interesting comparison. ISO offers a single, international set of standards to any firms wishing to participate, and is primarily a private organization, whose decision-making body consists almost wholly of industry representatives and representatives of national standard-setting organizations.81 By comparison, sustainable forest certification schemes compete with each other for industry business, and their standards are far from universal across schemes. These are not the only examples of international certification:

78 O'Rourke, 200379 Some of this discussion emerged in debates over the Tuna-Dolphin Case (see later chapter on WTO), a dispute between the US and Mexico. While the GATT opposed the US government's unilateral discrimination against imports of Mexican tuna, on the grounds that it violated the product-process distinction (among other grounds), it did not oppose the solution that did emerge following the striking down of the US law: tuna producers, in recognition of consumer awareness around this issue) started labeling canned tuna "dolphin-safe", in order to maintain market share. REFS - NOTE: controversies in this area.80 Relevant Jo'burg REF81 Raines, 2003, p. 53

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another is the Responsible Care program, which, by 1998, covered 87 percent of the production of global chemicals by volume.82

Labeling and certification schemes share three main components: the development of environmental standards, certification (the process firms go through to show that they meet the required standard), and accreditation ("certifying the certifiers", in other words, ensuring the organization that carries out certification is competent and credible).83 Some schemes certify individual firms, others include "chain of custody" certification - certifying the product as it moves from firm to firm along the supply chain, from extraction to final consumption.

There are two broad categories of standards. Management system standards require a firm to establish processes and management systems to ensure that environmental goals are developed, assessed, and met. Performance standards, by contrast, specify the level of performance required across various criteria, including level of environmental protection.

Certification processes also vary according to the degree of independent monitoring. Under first party certification schemes, the producer makes its own claims about its products, backed by its own reputation and credibility. Corporate codes of conduct, for example, proclaim a firm's commitment to social or environmental stewardship.84 Under second and third party certification, industry actions are monitored and verified by outside actors. Second-party certification "is conducted by industry-related entities, such as trade associations, which establish guidelines or criteria for making such environmental claims", while third-party certification "is performed by either a governmental agency, a non-profit group, a for-profit company, or an organization representing some combination of these three".85

The most well-known global system standard for environmental management is the ISO 14000 series. Set by the International Organization for Standardization (ISO), it provides guidance and certification for firms seeking to develop their own environmental management systems (EMS), one that will be recognized worldwide by trading partners. ISO's purpose is to harmonize national standards or generate international standards, in order to avoid confusing and conflicting national standard systems for firms to meet.86

The most important of these standards, the ISO 14001 EMS Standard, was adopted in 1996, and offers third party certification to firms wishing to comply. As of 1999, 14,000 facilities worldwide had adopted ISO 14001. Of these, 52% were European, 36% based in the Asia-Pacific region (overwhelmingly in Japan), with only 6%, 2.2% and 2.4% in North America, Latin America and Africa/West Asia respectively.87 By December 2002, ISO 14001 certification had been extended to 49,462 firms in 118 countries.88 Despite the growth in numbers, the regional percentage breakdown remained surprisingly constant. ISO 14001 requires firms to formulate and implement a corporate EMS, and monitor and review its progress at the highest level; actual third-party auditing and certification is not required. Costs of certification vary, from $50,000 for smaller firms to over $200,000 for larger firms.89 Audits are carried out by

82 Garcia-Johnson, 2002, p. 7. See also Garcia-Johnson, 2000. The Responsible Care program came into being in the 1970s, but was adopted by the Canadian Chemical Producers' Association in the 1980s. After the 1984 Bhopal disaster, the US and Canadian associations together strengthened its requirements (Garcia-Johnson, 2002, p. 7).83 FERN, 2004, p. 9; Meidinger et al, 2003.84 Haufler, 2003, p. 23885 Lipschutz and Fogel, 2002, p. 13486 Raines, 200387 Delmas, 2002, p. 9288 ISO, 200389 Delmas, 2002, p. 95

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accredited national or international bodies.90 The largest single sectors seeking ISO 14001 certification worldwide are the electronics, chemicals, and mechanical sectors.91 Participating firms cite "environmental improvements", "corporate image" and "marketing advantage" as their main motivations for seeking certification.92 Both Delmas and Clapp note that the high uptake of ISO 14001 certification in the EU in particular may create a barrier for entry for non-certified foreign firms, but that the costs of certification may be insurmountable for firms from smaller or poorer countries.

Moving now to the forestry sector, corporate environmentalism is governed by a plethora of different certification schemes, national and transnational: an "unstoppable certification craze", in the words of one analyst.93 ISO certification is available to this sector, but the industry is coming to be dominated by two transnational certification and accreditation bodies: the Forest Stewardship Council (FSC) and the Programme for the Endorsement of Forest Certification Schemes (PEFC; formerly the Pan-European Forest Certification Scheme). In part because of the relative absence of international law on forest management, the range of schemes existing (and the competition between them), and the size and importance of forest ecosystems from environmental, economic and sociological perspectives, forest certification schemes have generated a lot of interest from academics, activists and international organizations.94

The FSC was founded in 1993, under the auspices of the Worldwide Fund for Nature (WWF), as a more effective way of protecting tropical forests than a simple boycott of timber products. Its membership is drawn from NGOs, the timber industry and forest community representatives. Firms seeking FSC certification must adhere to 10 performance-based principles of sustainable forest management (including respecting the rights of forest dwellers), and scores highly on several criteria, including ecosystem based science, representation in decision-making, accountability and transparency.95 As of March 2004, 40,422, 684 hectares of forest in 59 countries had been certified under FSC standards, mostly in industrialized countries.96

Given the breadth and stringency of its standards, FSC is unpopular with dominant firms in the timber industry, who saw its entry as a "declaration of war" on large-scale tropical forest logging operations.97 Small forest owners, too, do not like the scope (and cost) of its standards. In response, industry actors began forming their own certification schemes during the 1990s, including the Sustainable Forests Initiative of the American Forest and Paper Association (SFI), the Canadian Standards Association (CSA), and others in Malaysia, Finland, Australia and so on. 1999 saw the founding of the PEFC, originally an umbrella organization for smaller European firms. Based on a looser set of management system standards, the PEFC accredits national certification systems, and is in the process of expanding its reach beyond Europe, with member organizations from five continents.98 As of March 2004, 46 million hectares of forests were under PEFC certification - or, 41% of the world's certified forests.99

90 Clapp, 2001, p. 2891 Corbett et al, 2003, p. 3392 Corbett et al, 2003, p. 3493 Smouts, 2003, p. 197. See FERN, 2004, and Gale 2002 for comparative perspectives on different schemes.94 See Cashore, 2002; Humphreys, 2003; Gale, 2002; Gulbrandsen, 2004, Meidinger et al, 2003, Freris and Laschefski, 2001.95 Gale, 2002, p. 29696 FERN 2004, p. 46.97 Smouts, 2003, p. 205. See also Meidinger et al, 2003, p. 1898 Meidinger et al, 200399 See www.pefc.org

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In total, industry-dominated forest certification schemes claim a greater share of this market, primarily in developed countries and plantation areas.100 Table 8.2 (at end) compares the FSC and PEFC with two North American forest certification organizations, as assessed by FERN (a watchdog NGO): the SFI and CSA along key institutional dimensions of standards, participation, on-the-ground activities, re-assessment, transparency, and chain of custody certification and labeling. It gives some idea of the variance among schemes, but also the emphasis on chain-of-custody certification by the transnational schemes.

The most interesting recent trend is the market-driven convergence of the current multiplicity of schemes onto the two transnational models - FSC and PEFC, who, rather than issue certificates themselves, accredit national and international certification organizations. Each of these schemes reflect different perceptions of the scope and role of sustainable forest management, and represent different constituencies.101 Their visions are, in the eyes of many, representative of competing views on balancing environmental protection with economic development - and each is subject to serious criticism, from industry and from environmentalists.

c. Financial Market Discipline: Insurance and Investment

Another set of private governance mechanisms which shows potential for controlling the actions of polluting firms involves harnessing the disciplinary power of the insurance and investment industries. Members of the climate change activist and scientific communities have targeted the insurance industry as potentially a powerful force in changing firms' behaviors, arguing that the destruction wrought by climate change could bankrupt the entire industry, and that this process is already underway, citing the rise of hurricanes, droughts and similar catastrophes.102 Similar arguments apply to investment. "Socially responsible" investment firms are under a mandate to direct their funds only to firms that satisfy particular ethical requirements, such as environmental responsibility, thus rewarding firms for "doing good".

Insurance companies, in order to remain profitable, must engage in different activities in order to reduce their exposure. To see what some of these might be, let's take home-owners (renters) insurance in California as an example. California is highly earthquake-prone, so much so that a devastating earthquake is more than likely in the next 30 years. We don't know exactly when, or exactly where, only that it cannot be prevented. What can an insurance company do to make sure it is not bankrupted if a major earthquake hit a large part of California? First, it can refuse to insure residents against the possibility of an earthquake, or provide only a minimal level of coverage (thus possibly persuading certain customers to leave the state for a safer part of the country). Second, it can charge California residents an "earthquake premium", while at the same time spreading its risk by insuring customers in less earthquake prone parts of the country. Third, in order to obtain coverage, it can demand that home and business owners undertake retrofitting so that structures are safer than otherwise in the event of an earthquake. Fourth, the insurance company can "reinsure" itself. The reinsurance market worldwide is a large one, and consists of firms that insure insurance companies in a variety of ways. Fifth, it can invest time, energy and expertise in accurately assessing and modeling the risks, probability, extent and location of major quakes.

100 Gulbrandsen, 2004:90101 See Cashore, et al 2003 on variable explaining differential uptake of these schemes102 Leggett 1996

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Of these options, the third is the one that entails risk management behavior on the part of customers. The other options essentially involve risk minimization on the part of the insurance company. What happens, however, when the disaster to be insured against is preventable, and there are clear actions that can be taken to do this, as is the case with climate change? Advocates of using the insurance industry to help mitigate the impacts of climate change define climate change as a problem that is both preventable and political, resulting in "losses due to actions, or inactions by governments or other political entities".103 To that end, activists argue, by changing its requirements for adequate coverage or switching investments away from fossil fuels, the insurance industry could bring about changes in firm behavior that could help ameliorate global warming. It could also lobby governments to enact regulations limiting greenhouse gas emissions, a political clout amplified by the fact the insurance industry alone accounts for 10% of global financial flows.104

Insurance companies have, historically and collectively, changed patterns of coverage as certain political disasters, such as war, became more extensive and more expensive.105 However, this action did not involve lobbying in favor of peaceful means of dispute settlement, nor has removal of insurance coverage prevented wars from breaking out (that we know of). Likewise, studies so far of the insurance industry demonstrate that it has not lived up to environmentalists' expectations.106 Some insurers, particularly US companies, have remained more skeptical than European counterparts over the risks posed by climate change, in particular, the extent to which these are political risks, as defined above, rather than abnormal weather patterns, and government lobbying by the industry has been minimal. Second, the industry as a whole has engaged in risk management behavior: protecting itself, rather than changing the behavior of others. Insurance firms have withdrawn coverage or raising premiums in coastal areas, and demanding better construction (though US states such as Florida have enacted regulation to ensure coverage is not withdrawn entirely).107 Reinsurance markets, by developing innovative mechanisms such as catastrophe bonds, have also helped minimize the insurance market's exposure to disaster (including major terrorist incidents).108 They have, with more universal benefit, also worked with scientists to improve long-term climate change prediction models and to quantify risks.

Ultimately, as Paterson argues, actions by the insurance industry could lead to profoundly inequitable outcomes, as wealthy clients who can afford coverage, and extra construction measures to receive coverage, are privileged over a large class of people in developed and developing nations who cannot.109 Thus, to date, market discipline has not proved to be an effective tool of private environmental governance.

Assessing Private Governance of the Global Environment: How well does it work?

This section assesses the strengths and weaknesses of private governance mechanisms and regimes, asking how well the schemes outlined above work in terms both of process and outcome. Ultimately, the question is, are private regulatory regimes better for the global

103 Haufler, 1999, p. 204104 Paterson, 2001, p. 19105 Haufler, 1999, p. 205.106 Paterson, 2001; Brieger et al, 2001107 Paterson, 2001, p. 27.108 Paterson, 2001, p. 27; Jagers and Stripple, 2003109 Paterson, 2001, p. 37

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environment than the alternative, which is seen by many to be either no regulation at all, or weak intergovernmental regimes? Many also argue (REFS - Humphreys?) that in order to work efficiently and effectively, these regimes must be grounded in a universal set of norms, principles and rules - one that may well entail active participation of states and governmental bodies.110 It goes without saying that these are hot-button issues for firms, environmental activists, and academics alike.

The strengths of private governance are not insignificant. As noted at the start of this section, the rise of these forms of governance is directly related to levels of frustration with existing inter-governmental processes of environmental regulation. Private regimes have emerged in areas where significant gaps exist in regulatory coverage - in the gaps between MEA negotiation and implementation, and in areas such as forestry, where international regimes have failed to converge on a set of legally-binding international rules. These mechanisms are faster than MEAs to set up and to implement, and are significantly more flexible, adaptable to changes in business or environmental conditions.111 Management system standards, such as ISO 14001, are noted for this adaptability.112

Second, the process of developing private standards and regimes engages industry in a way that standard governmental regulatory processes have not. Even when in direct competition with other certification systems, as in the case in the forestry sector, industry is often pushed to take further measures than it otherwise would have done. By harnessing the power of market-based incentives, and actively engaging a range of stakeholder groups, arguably, more can be accomplished, and far more efficiently than otherwise. The use of market-based incentives is by no means antithetical to government-driven governance processes, as the Kyoto Protocol demonstrates - but they have suffered from too much reliance on inter-state cooperation, rather than encouraging broader participation by non-state actors.

Third, private governance regimes can step in when capacities of state and international regulatory authorities are low or when they are unwilling to intervene in industry practices. Garcia-Johnson's study of the positive impacts of Responsible Care in Mexico, Brazil bears this out.113

There are also several limitations readily identifiable in existing practices of private governance. Some apply to all forms of non-state market driven governance, others apply primarily to purely private sector initiatives, or to certification schemes, making it hard to generalize. We briefly discuss problems on both the supply and demand side of private environmental governance, as well as available data on the effectiveness of these regimes, including environmental impact. On the supply side, we ask who participates, and is there any evidence that any groups are persistently excluded or marginalized in these regimes, and raise the issue of accountability, to be expanded on in the conclusion. On the demand side, we examine issues of complexity and transparency, and some of the problems identified with relying on consumer choice as the primary mechanism for disciplining firms. Participation in private governance regimes can be measured across several dimensions. First, participation by firms across an industry may be uneven. Given that these are voluntary regimes, many firms may choose not to participate, and these may well be the firms with the worst pollution record; certainly, they are likely to be ones that are less vulnerable to outside

110 Detomasi, 2002; Humphreys, 2003111 Detomasi, 2002, p. 304112 Meidinger et al, 2003, p. 6113 Garcia-Johnson, 2000. Other examples??

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pressure.114 Even within firms, participation may be uneven: a timber corporation may certify forest land near a national park, but nowhere else. Second, participation varies by country and by GDP; smaller firms and firms in poorer countries may find themselves excluded from regime participation. Data on participation in ISO14001 is very clear on this point: this regime is dominated by northern firms.115 Authors cite cost of certification as one of the barriers to entry, in turn, excluding non-certified firms from particular markets. The forest sector shows similar results: "the share of certified forestland in developing countries in the world's total certified area is only about 10 percent", and certification schemes are overwhelmingly perceived as northern.116

Third, not all private governance schemes engage a broad range of stakeholders, including NGOs, and local communities in standard setting and decision-making processes.

Persistent patterns of exclusion lead to perceptions of inequity among potential participants, which may undermine the legitimacy and effectiveness of the regime. One study of perceptions of equity in the ISO14001 decision-making process found that there was indeed a perception of inequity among late-entry firms, primarily from developing countries, in particular, that the standard would not be able to meet their specific needs.117

Perhaps the most serious criticism that private governance regimes have to overcome is that of external accountability.118 Unlike democratically elected governments, corporate and NGO actors have no mechanisms to ensure their accountability, nor are voluntary measures subject to enforcement and control. Firms not wishing to comply may simply exit the regime. NGOs question the accountability of industry-led schemes, while industry actors question that of NGO-led schemes, such as FSC.119 Accountability is important as a component of legitimacy, which, arguably, is necessary for a regime's efficacy and survival. But, it is unclear to what extent many of these schemes achieve accountability over and above to their own members, even those with heavy NGO involvement. There is no elected representative body or other electoral mechanism through which the public can register its opinion about standards or procedures, nor are there sanctions that can be imposed on schemes that are unpopular or even harmful.

On the demand side, serious questions remain about how target purchasers and consumers acquire, assess and act upon information provided by certification regimes and corporate codes of conduct. Second, many critique the very mechanism - purchaser choice - on which private governance schemes rely. Given the proliferation of eco-labeling and certification schemes, how do consumers gain enough information to decide which to support? What happens when certifications conflict? These are serious problems, especially in the forestry sector. There is not much to differentiate one label from another on the face of it (they are all quite attractive logos), although they represent very different sorts of standards. It is complex and time-consuming for consumers to look for the relevant information to enable them to choose. A lack of transparency and formal reporting requirements as to how standards are decided on, enforced and work plagues many certification schemes and other forms of corporate governance.120 There is some concern that as this may work to the advantage of key players, providing a disincentive

114 Note illegal logging115 ISO, 2003, Delmas, 2003; Clapp, 2001116 Gulbrandsen, 2004:90; Humphreys, 2003, p. 48. Though, check Yale Project on Forest Certification for LDC results117 Raines, 2003, pp. 71-72.118 Cutler, 2002.119 Gulbrandsen, 2004, p. 92120 For example, websites of many certification organizations do not post regularly updated information as to who belongs, and how certifications are monitored.

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to improve standards, and confusion among schemes may dilute the consumer pressure needed to sustain eco-labeling schemes.

Second, assuming that consumers can distinguish between different labels, some analysts question the willingness to pay a premium for sustainably produced goods, suggesting that, at best, this is a niche market, and that overall, consumers are willing to pay only a small premium.121 A study of consumers in Germany found that while "half of German consumers pay attention to eco-labeled products, but only a third would pay 5% more for them. This is inadequate to effect changes required for sustainable forest use".122

Third, some authors question the assumptions behind a strategy of harnessing consumers to the project of environmental conservation. They argue that environmental problems are more a consequence of structures of globalization and corporate power, and that to rely on individual choices in the absence of a strategy targeting these structures is likely to fail, especially given resources at the disposal of corporations through advertising and pricing to combat environmentalists' efforts. Marie-Claude Smouts refers to this as "the cult of the self in the West today".123 Consumption decisions "soothe one's environmental conscience", but do little else.

In recognition of these problems of demand-side penetration, FSC, in particular, has switched strategies to target high-profile purchasing firms, the companies which buy wood products to manufacture or process in order to sell to the general public. By getting such large firms as Home Depot or Swedish furniture (or is that "furniture") manufacturer IKEA to agree to buy FSC certified products, they argue they can wield more effective market power in this arena.

Effectiveness: Monitoring and Implementation, Environmental ProtectionWays of defining and measuring the effectiveness of private governance regimes parallel

those of inter-governmental regimes. Are standards implemented? How are they monitored? Do actors comply, or can they cheat on their obligations? Finally, do these schemes actually result in environmental protection? Alternatively, do they adequately balance economic and environmental needs, thus at least meeting sustainability criteria?

There is considerable skepticism among academics and practitioners that these schemes are better for the environment than alternatives, and many recommend that they would work best if grounded in a universal and widely accepted set of international principles.124 First, in terms of scope, voluntary environmental protection schemes cover only a small percentage of world industrial production, much of it concentrated in the North. For example, of all tropical timber producing countries, only roughly 2,800,000 hectares are FSC certified, out of an estimated surface area between 1,090 and 1,220 million hectares.125 Firms whose practices are most environmentally damaging do not participate in these regimes. Peter Dauvergne, in a study of the logging industry in the Asia-Pacific region, finds that "[t]imber firms weave themselves into webs of financial and trade ties that obscure environmental accountability. These corporate ties also contribute to widespread illegal activities…Intricate and obscure connections among

121 Gulbrandsen, 2004, p. 93; Veisten, 2002. Evidence of consumer willingness-to-pay is more decisive in the labor standards arena, especially in terms of preventing child labor, on the basis of opinion polls. However, that result has not yet been replicated in surveys of actual decisions. See Elliott and Freeman, 2001.122 Freris and Laschefski, 2001, p. 6, citing Brockmann et al, 1996.123 Smouts, 2002, p. 203. Michael Maniates makes a similar point in his essay on the individualization of environmental responsibility: "plant a tree, buy a bike, save the world?" (Maniates, 2002).124 Detomasi, 2002125 Smouts, 2002, p. 200

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firms…have also made it extremely difficult to hold companies accountable for environmental mismanagement".126

Second, more research needs to be carried out on the relative effectiveness of performance and management system standards, and the capacities of certification and accreditation bodies. Management system standards, such as ISO 14001, are criticized because they do not entail improvement in environmental performance, only effort, and thus can be met rather too easily. Performance standards, on the other hand, may be too demanding or inflexible, and involve ion-the-ground monitoring that certification bodies do not have the resources to carry out. The FSC has been heavily criticized on this score.127 Related, chain-of-custody certification, namely, certifying firms along the supply chain (e.g. from forest to store), is fraught with additional needs for monitoring, and problems of asymmetrical information. It is hard for outside bodies, or indeed, purchasing firms, to obtain full access to all information from supplying companies, who may well have an incentive to keep the information private. Some analysts are concerned that the standards put forward by firms and by independent bodies represent not a floor, but a ceiling for international environmental standards. They cite WTO criteria for allowing such standards as an important contextual variable, as more stringent EMS standards could be perceived as a trade barrier.128

Finally, there is little hard data on the impact of private governance regimes on the state of the global environment, or even on efforts to achieve sustainability. Certainly, these schemes have stepped in where international and national laws have failed, and studies show that member companies cite improvements in environmental efficacy as a result of membership.129 However, more research is needed to understand exactly what the environmental impact of private governance regimes has been.

Corporate Actors and Influence: Theoretical Concerns and Private Environmental Governance

Let us now turn to the key theoretical concerns about "private" global governance raised in the introduction to this section. First, what can we learn about the overall influence of corporate sector actors on international environmental politics, and their relationship with other international actors? How does private sector activity alter the structures and overall terrain of global governance? Second, what can we conclude from these case studies about the authority and legitimacy of non-state governance, and the role of the state in the global system? [Finally, what can we deduce about the relative importance of the "regulatory capture" versus the "regulatory cooperation" hypotheses?]

NOTE: This chapter has addressed, in this version, the emergence of new, hybrid regulatory regimes (certification processes, especially in forestry - although less true for ISO 14001 - where none previously existed). The other trend that has been evident in global governance is the privatization or hybridization of existing inter-governmental processes, in other words, bringing in non-state actors as equal participants in policy processes. Two examples that are important here are the embrace of "Type II" partnerships by the UN environment and development agencies at the 2002 WSSD, and the World Commission on Dams, which brought in non-state actors as panel members. Overall, assessing both these trends 126 Dauvergne, 2001, p. 107. See also Sears et al, 2001.127 Freris and Laschefski, 2001128 Clapp, 2001; Gulbrandsen, 2004, p. 86129 Raines, 2003, p. 70

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will be most important in generating conclusions about how or whether non-state governance is displacing traditional, state-led global governance. For the time being, this section primarily addresses the influence of the certification regimes described and assessed above.

First, it is evident that a range of different types of private sector actors are becoming engaged in developing global environmental governance schemes, and that traditional models of global governance are being challenged, both in theory and in practice. These actors include individual corporations, business and trade associations/NGOs (including ISO), and firms in the financial services/coordination sector (notably, here, the insurance industry). However, it is equally clear that these actors are not engaging in this activity autonomously of outside influence. The majority of private global environmental governance schemes are not actually "private", but are better described as "hybrid", resulting directly from pressure from, and frequently in partnership with, global civil society actors, notably environmental NGOs.130 Sometimes, as in the case of PEFC, private governance emerges out of antagonistic relations, or in competition with NGOs. Thus, in the environmental sector, it is important not to overstate the agency and autonomy of corporate actors in this sphere. They needed to be pushed.

On the other hand, the imprint of private sector norms and interests can clearly be seen in the design and operation of these schemes, most especially in ISO14001, which arose out of an already-established international standards regime. They are voluntary, incentive-based, and are couched in the language of the corporate sector. That these norms are being applied to an issue area usually discussed in terms of command-and-control, or of purely environmental goals, also represents a potential sea-change in how we understand how to protect the environment (through incentive-based mechanisms), and what the ultimate goal is (sustainable development - balancing economic and environmental imperatives). This change in discourse is now widely disseminated among the environmental community - although some remain skeptical as to how well it will ultimately work.

This section has, so far, not directly addressed the role of the state in private environmental governance regimes. This is one of the two key themes of IR literature on private governance. Do such regimes represent a usurpation of state and inter-state authority, or are private and public regimes complementary? Alternatively, are they more accurately described as enabled by states? There is no simple answer to this question. If there could be said to be a majority consensus in the environmental literature, it is that private regimes are essentially complementary to state and inter-state activity in the environmental arena.131 They have emerged in areas largely not covered by international and national legislation, and, some argue that states lag far behind non-state actors in these arenas.132 Counter-intuitively, third party certification schemes have emerged not where state capacity is considered to be low, but where it is high. The standards regimes considered in this chapter have taken hold not in the South, where governments are weaker, but in the North, in particular, in the EU, where states and the EU itself are quite strong.133 Evidence is fairly clear that these states welcome and frequently enable the adoption of private environmental standards, through official recognition, for example.134

Of course, this raises the question of whether corporate actors have crowded out ("chilled") state action, and the extent to which states may be complicit in this. This view would

130 See Falkner, 2003, p. 75131 Falkner, 2003.132 Gereffi et al, 2001.133 Despite the intentions of, for example, the FSC - formed with the intention of limiting uncontrolled logging in tropical forests134 FIND REF

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be consonant with a "neo-Gramscian" perspective on the role of private interests in international politics.135 In this account, "capitalist forces are seen to be engaging in alliance building processes with a variety of state and civil society actors in an effort to realign the ideological and material bases of the dominant hegemonic order".136 In other words, corporate interests are re-shaping global environmental governance in a way that co-opts rather than over-powers other actors, and reinforces the ideology of market liberalism in this sphere.137

In order to assess this argument, it is important to address the second key question in the IR literature on private governance: from where, and to what extent do private governance regimes obtain authority over global affairs? This is closely related to the perceived legitimacy of these regimes. In the absence of such authority, it is unlikely that private regimes can really shift (or replace) existing material and normative underpinnings of global governance.

A close reading of this literature reveals two dimensions of authority and legitimacy, which are rarely explicitly compared: internal and external.138 Internal authority is the extent to which a regime is viewed as legitimate by its members. It determines whether or not members will comply with their obligations or remain within the regime. External authority, on the other hand, is the extent to which it is perceived as legitimate, or authoritative, by outside actors: states, civil society actors, international organizations, and the court of public opinion. A lack of external legitimacy will lead to other actors seeking to remove or replace the regime, loss of confidence in the effectiveness of the regime, and ultimately threaten its survival.

Existing evidence on internal legitimacy within ISO14001 shows that on the whole, it is quite high.139 This is, perhaps, not a surprising result, but in comparison, there are many national participants in MEAs who do not believe they are authoritative or legitimate: the US's participation in the UNFCCC is a case in point. However, the extent to which private regimes wield external authority and legitimacy is more complex to discern. As already discussed, they lack the social legitimacy accorded to democratically-elected governments, although they do derive legitimacy from the increasing salience of market-oriented policy instruments in the global economy.140 Benjamin Cashore argues, in effect, that the legitimacy of NSMD governance regimes is basically as good as its actions:141 how credible are certification processes over time? How well do they reflect societal values, and encourage participation? He suggests that regimes which include a wider range of stakeholders, such as the FSC, are more likely to achieve external legitimacy. However, these may be the schemes most likely to be rejected by industry actors if alternatives exist. Finally, legitimacy and authority also derive from efficacy. If these regimes actually "get the job done" in terms, for example, of protecting forest areas and communities, they will derive further standing in the eyes of other actors. So far, the data suggests that this is not yet the case.

In sum, private economic actors, in tandem with civil society actors, have helped expand the range of global governance activities available for environmental protection, and have expended energy, time and resources to set up institutions and regimes which have demonstrated

135 See Levy and Newell, 2002 - NOTE: go back and integrate this earlier on136 Falkner, 2003, p. 75, citing Cox, 1987.137 Note - how do other theoretical paradigms - e.g. ecological modernization theory - address this issue? E.g. lack of state capacity/willingness to control private sector actors138 Though these are roughly, but not wholly analogous to Cashore's Tier I and Tier II audiences - Cashore, 2003, p. 512139 Raines, 2003140 Cashore et al, 2003, p. 226141 Cashore, 2003

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durability and autonomy over time. The significance of hybridized or private governance systems can no longer be ignored by IR scholars. Have they transformed the structure and normative underpinnings of global environmental governance? The answer, tentatively, is no, but private governance has significant support among key global constituencies. It is also the case that much of this activity is still in "experimental" form. However, it remain highly contested, in terms of efficacy and legitimacy, and their relatively small extent over the world's industrial activities implies that private governance has a long way to go before dominating this particular sphere.

Chapter Conclusion

1. Agency and influence: study of corporate actors part of general literature on non-state actors in IR. Also forms focus of other literatures (e.g. activist-scholar literature) on the impact of globalization and the environment. These two literatures dovetail in the study of IEP. It is quite clear that corporate actors have become active at all levels: most interesting: role at negotiations, in private governance.

- literature also arises out of frustration with existing governance processes, plus awareness on the part of scholars that studying state interactions yields only a partial picture

- also clear: they don't rule the world: instances of failure, also of working in the interests of the environment

- but - large part of activities still occur outside frameworks of global governance (for every DuPont, there is a Union Carbide, etc.)

- governance of, with and by: encompasses an historical trend, but not necessarily a concomitant increase in influence/agency. Still, in some cases, this does hold. Far more than peripheral to states' interactions2. Governance3. Cooperation cf. Capture: mixed evidence

- need for detailed empirical studies4. Impact of Environment on IR and vice versa in this case: cross-applicability of many concepts (regimes, power, norms); many cases of hybrid governance

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Table 8:1 - Global Environmental Issues and Associated Industries

Issue Primary Industry Secondary (User) Industries142

Climate Change Fossil Fuels - e.g. Shell, Chevron-Texaco

Transportation Sector, electric utilities, other energy-intensive industries

Hazardous Waste Trade Waste Disposal IndustryScrap Metal, Recycling

Numerous manufacturers, especially small companies, LDCs

Biodiversity/Biosafety Agricultural biotechnologyPharmaceuticals

Farming

Ozone Depletion Chemical manufacturers - e.g. Dupont, ICI

Refrigeration, electronics, aerosols

Persistent Organic Pollutants Chemical manufacturers Farming

Deforestation Timber industry Furniture, Hardware - e.g. Home Depot

Ocean Pollution Oil industry, Shipping - cruise ships and tankers

142 Manufacture products from resource

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Table 8.2: Comparison of forest certification schemes, as of February 2004

Adapted from FERN, 2004, pp. 28-29

Area certified (ha.)

Performance Standards

Balanced Participation

Field visits Annual Monitoring

Reporting Requirements

Labels and Chain of Custody

CSA 28,405,000Canada

No Yes Yes Yes Yes Yes

FSC 40,422,684Global

Yes Yes Yes Yes Yes Yes

PEFC 48,600,000Europe

No No Not Always Yes No Yes

SFI 30,309,476US/Canada

No No Unclear No No No

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Chapter 8 - Rausser College of Natural Resourcesnature.berkeley.edu/~kateon/outbox/privateactors.doc · Web viewIn part, this is a story of business interests and political lobbying