Sustainable Development - A Global Challenge Need

Sustainable Development - a Global Challenge

Need for Change

State Sovereignty

Sustainable Development

Challenges for Businesses

The Role of MNCs in Sustainable Development

The Global Compact

Initiatives outside the Global Compact

What is International Sustainable Development Law (ISDL)?

International Environmental Law and its Impact on Australia

Sustainable Development: A Global Challenge

For many years, sustainable development has been one of the controversial issues faced by world leaders and citizens (Parmetier, 2002). The issue pervades both private and public sectors, and is the major focus of many International Organizations (IOs), mainly the United Nations (UN) and many Non-governmental Organizations (NGOs). However, there is little agreement across the globe about a solid definition of the concept of sustainable development. In addition, to further complicate the issue, another concept has recently s emerged on the international scene: globalization.

Globalization can best be defined as an increasing economic interconnection throughout the world, which influences cultural, political, social, and legal factors (Parmetier, 2002). While globalization is a very different concept than sustainable development, the two ideas have much in common, including a shared scope of shareholders. Multinational Corporations (MNCs) are central shareholders and active parties in the current movement of globalization, and their actions have a key influence over sustainable development, whether good or bad.

Kofi Annan said at the Davos World Economic Forum on January 31, 1999 (Parmetier, 2002): "Globalization is a fact of life, but I believe we have underestimated its fragility. The problem is this: The spread of Markets outspaces the abilities of societies and their political systems to adjust to them, let alone guide the course they take. History teaches us that such an imbalance between the economic, social and political worlds can never be sustained for long" (Rodrik).

This speech preceded the introduction of a new UN initiative, known as Global Compact (GC), which aims to develop private-public dialogues and partnerships by connecting private companies, mainly MNCs, with the UN (Parmetier, 2002). The GC is an open, non-binding initiative that aims "to advance responsible corporate citizenship so that business can be part of the solution to the challenges of globalization" and to build a more sustainable global economy.

However, the GC has been harshly criticized by NGOs for compromising the UN image by linking it with controversial and often "shady" MNCs, and to be too weak an instrument to deal with the development challenges that face the world.

In a globalized environment where the notion of sovereign states is increasingly breaking down, MNCs have emerged as the dominant global power (Parmetier, 2002). This paper is based on the hypothesis that individual states measures are inadequate resources to correctly regulate international business. In addition, it seems that international binding measures are impossible, as there is no central authority with the legal power of enacting such regulations. Finally, this paper aims to show that MNCs are a key part of globalization and therefore should have both the means and the influence to transform sustainable development from a lofty platitude to meaningful implementation.

This paper will present a case study of initiatives and measures that seek to develop the contribution of MNCs to international social and environmental issues, and to development policies and actions.

Need for Change

In 2002, the Earth Dialogues provided an open and neutral forum where all parties to the globalization and sustainable development debates could share their views and visions and develop solutions together. Five key areas of consensus emerged (Lyon, 2002):

Ethics - There is an urgent need to change the world's priorities, to correct the forces that promote material wealth over global welfare and justice, and to reinforce the fundamental values that make up the basis of human civilization all over the world- compassion and respect for one another and the natural environment, tolerance and solidarity, and the pursuit of peace.

The Rule of Law - These universal values must be translated into fair and enforceable legal instruments that prioritize sustainable development. Essential principles, including the polluter-pays and precautionary principles, should be fully recognized by international and national laws and regulate the activities of all sectors.

Sovereignty - The changing nature of the state, and the increase in influence of the private sector and civil society, is one of the greatest shifts of recent decades. The political landscape is more complex, with multiple, and often conflicting, power bases that must be integrated and cooperative. Many of the most serious problems faced today, including climate change, epidemics and terrorism, have little respect for national borders and their solutions must also be found in the global arena. Sovereignty over the world's common resources lies with individuals; the decisions they make and the resources they use, and those made and used on their behalf by governments, must consider the rest of the world, as well as future generations. The concept of being a Citizen of the World is now reality, and every person and company must be aware and considerate o of their global responsibilities.

Security - There may never be true security in the world while inequality and injustice are so universally evident. The goals of poverty eradication and protecting our environment must be linked with the promotion of peace and security. The tragedy of the recent U.S. terrorist attacks demonstrated that everyone's personal security is at risk, and that no one can afford to ignore the suffering and frustration of others; this realization should fortify our resolve to achieve sustainable development, rather than distract us from it.

Action -Time is essential. Action is urgently needed, and to make it possible will require: "a strong ethical framework; political courage on the part of world leaders; reform of the current systems of global governance and financial regulation; increased and better targeted official development assistance; and heightened individual awareness and commitment worldwide."

State Sovereignty

According to Dhanapala (2001): "An essential link between globalization and the nation state is the concept of sovereignty, a term dating back several centuries, well before the nation-state system was established in 1648. Originally intended in reference to the establishment of order within a state, sovereignty has since been interpreted by some as a legal quality that places the state above the authority of all external laws. Yet whenever a state exercises its sovereign right to sign a treaty, it is also wilfully limiting that right by the very act of undertaking an international legal obligation. States are also bound by other rules, such as customary international law. With these formal legal limitations, sovereignty stubbornly persists even in an age of globalization -- and is manifested in such functions as the coining of money, the gathering of taxes, the promulgation of domestic law, the conduct of foreign policy, the regulation of commerce, and the maintenance of domestic order. These are all functions that are reserved exclusively to the state."

States have recently discovered that their interests are better advanced within a broader system of binding rules than without this type of system (Dhanapala, 2001). Rules serve to define rights, including property rights, as well as duties. Exactly what these rights and obligations are depends on a variety of circumstances: political, economic, cultural, and technological. Today, globalization is having a profound effect upon national and international rules -- it is, for example, influencing the norms that govern world commerce, transportation, environmental protection, and more.

The increased flows of commerce across borders has many benefits, including greater profits, jobs, efficiencies of scale, lowered unit costs, and more goods and services available for everyone to buy (Dhanapala, 2001).

One important question stems from the issues brought about by globalization: Is it possible to motivate structures of the state that have for centuries have sought to maximize the interest of specific local nationalities, to implement instead policies that serve the global common good (Dhanapala, 2001)? Even if it were possible to place an enlightened leader at the head of every government on Earth, that would be no guarantee that the complex machinery of the state would respond to this new responsibility.

According to Dhanapala (2001): "Global values simply cannot be imposed upon states from without. They must be embraced by states from within. The state is a neutral administrative structure that can be used for purposes both good and bad. It is neither inherently nor inevitably the enemy of globalization."

Globalization involves much more than simply expanding markets (Dhanapala, 2001). In presenting his Millennium Report to the General Assembly a year ago, Secretary-General Kofi Annan made the following statement: "To make a success of this great upheaval, we must learn how to govern better, and -- above all how to govern better together. We need to make our States stronger and more effective at the national level. And we need to get them working together on global issues, all pulling their weight and having their say."

He identified the following as needed for a sound international system (Dhanapala, 2001): "Ultimately, national action is the determining factor. If there is a single idea that embodies the sum total of national action, that idea is good goverance."

The heart of good governance is popular participation, transparency, and public accountability (Dhanapala, 2001). Strong laws to protect the environment, for instance, are forged as a result of a sustained political process, a process that involves solid efforts throughout civil society. Enlightened leaders in government require this popular participation to adopt laws and policies to meet genuine human needs, just as the groups in society that are advocating such reforms must also depend upon official authorities to enforce such reforms.

According to Dhanapala (2001): "In this light, NGOs can be a catalyst of what is truly good about globalization. Though they are elected by no one and lack legal authority themselves to govern, they play a crucial role in helping the state to identify new goals, in educating the wider public of the need for action, and in providing political support that government leaders need to enact new laws, to implement new policies, and to see that they are enforced. NGOs also will have a role in exposing inefficient and ineffective policies and in mobilizing demands for constructive change.

Sustainable Development

Traditionally, the concept of development has been primarily economic (Parmetier, 2002). It was initially measured as the progression of Gross Domestic Product (GDP) of Gross National Product (GNP). However, as time passed, the concept of sustainable development evolved and it became clear that development could not be viewed purely as an economical concept. There was a realization of the necessity of a long-term view of development that would not prevent the development of future generations.

After the Cold War ended and communism was wiped out, capitalism emerged as the single major economic system (Parmetier, 2002). It is now a worldwide system, led by large companies operating in many countries, known as the MNCs. This globalization meant that national regulations and laws became more and more unprepared to fix limits in areas like labor and environmental law, as they were limited at the national level, while the economic actors were becoming more and more globalized.

While globalization is inevitable, there is a popular opinion that something must be done to address its excesses (Parmetier, 2002). If it continues at the current rate, the social and environmental issues wil lincrease, and a "backlash against globalization" (Williamson, 2003) may occur.

International environmental governance is founded in law (Segger, 2002). It is important to note that sustainable development was never meant to replace the environment as a priority, nor was environmental law and policy meant to provide the only answer for problems which reach far beyond this field. Environmental protection and restoration is important in its own right, and sustainable development serves to help other areas of law (trade, investment, social development) to address environmental challenges.

To understand how the international environmental governance (IEG) exercise relates to sustainable development governance, we must look at how IEG relates to other aspects of the UN system whose work largely affects sustainable development (Segger, 2002). With a strong report coming forward from a process of inter-governmental meetings on IEG, the World Summit on Sustainable Development (WSSD) has the unique chance to set broad directions for global sustainable development governance. According to Segger (2002): "Core pillars representing the three bottom line concerns would be IEG, International Social and International Economic Governance. While the latter benefit from strong, significant international organizations, there is not yet a specialized agency for the environment. This imbalance makes sustainable development governance less likely to achieve, and justifies a special focus on the environmental pillar."

Challenges for Businesses

The Earth Consensus developed a list of key challenges for business and industry. One of the greatest challenges is the issue of ethical codes to guide sustainable business practices (Lyon, 2002). Employers and employees around the world face the challenge of reconciling the personal ethical codes of individuals as employees with the corporate ethical codes (or lack of) of the employer. The competition model pressures businesses to maximize their profits by cutting costs as much as possible, often resulting in the unethical and unsustainable business practices such as the exploitation of the labor force, pollution and manipulation of local government. This problem is fueled by the corporation's main obligation to generate profit for the shareholders over and above the responsibility to conduct business operations in an environmentally and socially responsible manner.

Voluntary corporate initiatives present another challenge to businesses (Lyon, 2002). The increasing loss of trust between the public and corporations is having a negative impact on profit margins. The lack of corporate transparency is resulting in negative public images and poor public relations. While voluntary corporate initiatives towards sustainable business practices are a step in the right direction, in many cases, public and employee trust are betrayed by non-compliance with voluntary initiatives, suspicions of corruption, and outright violation of national and international laws.

A third major concern is accountability for trans-national corporations (Lyon, 2002). Trans-national corporations, because of their recognized power, are under particular scrutiny for both real and perceived deficiencies in accountability, transparency and regulation, in addition to violation of human rights and inordinate influence over national governments and, by extension, international agreements. Given their large size and scope of influence, trans-national corporations are facing strong pressure to comply with ethical norms in support of sustainable development.

The final major challenge for businesses is promotion of unsustainable consumption (Lyon, 2002). The promotion of unsustainable consumption patterns is partially due to advertising by businesses that adhere to a system in which profit is valued above all else. Pursuit of sales is encouraging businesses to promote a culture that desires material goods as a way to reach personal fulfillment.

The Role of MNCs in Sustainable Development

Although states remain the key actors of international relations, their supremacy has become more and more challenged in recent years (Parmetier, 2002). MNCs have emerged as the key actors of the global economic sphere. MNCs are the stakeholders that hold financial resources superior to most states, and accessibility to markets around the world. The evolution of the structure of industry towards higher technology and services, and the increased flexibility of Foreign Direct Investment (FDI) translate to the possibility that MNCs can move most of their operations across countries quickly and inexpensively. As a result, national regulation has weakened. The importance of MNCs demonstrates that they are key components in the debate over implementation of the concepts of sustainable development. In addition, it must be noted that MNCs are not all-powerful entities, and may be hurt by some aspects of globalization.

The corporate sector has become trapped by its own success (Parmetier, 2002). We live in a world of proliferating "problems without passports" and there is no government at the global level that can respond to them. Our international institutions, meanwhile, are too weak to fill the gap. Yet the corporate world has demonstrable global reach and capacity. It can make and act on decisions far faster than governments or agencies. And parts of it - particularly such brand-sensitive companies as Coca-Cola - are vulnerable to external pressure. Society, therefore, has come to demand help from the corporate sector in coping with adversity (Williamson, 2003)."

Codes of conduct are becoming more and more important among MNCs. A code of conduct is a formal declaration by a company of its corporate values and activities, which often include its supplies (Parmetier, 2002). The code devises minimum standards to which the company pledges to uphold on a voluntary basis. "Codes reflect the growing pressure on the private sector to recognize international standards, but also its willingness to enter into voluntary agreements (Williamson, 2003)."

These codes are described as "soft-law," as there is no legal party to enforce them (Parmetier, 2002). Still, they are good reference points, both for the company and for external actors, such as NGOs or customers. While they are good first step towards the accountability of international firms and a sign of awareness to social and environmental problems, there is no legal or common basis for these codes that could create a common ground to generalize their use. The GC was created to address these issues on a greater scale, while providing the backup of the UN and using the opportunities created by globalization.

The Global Compact

The GC is made up of a network of four UN agencies, companies that agreed to comply, and an advisory council with representatives from the business world and IOs.It is strictly voluntary (Parmetier, 2002). The concepts of the GC are based on nine principles (human rights, environmental, and social issues) drawn on major international conventions that the companies agree to respect. Once a year, participants report their initiatives to respect one or more of the principles.

The initiative of the Global Compact was the first time the UN developed a private-public partnership in a public way, integrating large and often controversial MNCs, such as Shell, Coca Cola and Nike (Parmetier, 2002). As a result, there have been varied reactions, both positive and negative. Most of the comments were expressed by NGOs, which mainly criticized the initiative, even though some supported the project. Many corporations were satisfied with the initiative, pleased that the UN started PPPs on a voluntary and non-binding basis, but some also voiced concerns that the GC could be the first step towards international regulation of business, despite open denegation by the Secretary-General.

There is a wide consensus among world leaders and citizens that the GC is "not the answer to the problems caused by globalization, but an answer among many (Parmetier, 2002)." There is much room for improvement and progress; however, it serves as an important first step towards the necessary cooperation between MNCs and civil society to address globalization issues and lead to actual measures and decisions.

Initiatives outside the Global Compact

The Global Compact is not the sole initiative nor idea towards corporate accountability (Parmetier, 2002). Concepts like the triple bottom line have an increasing influence, even if no specific solution emerged as the cornerstone of a regulation of MNCs activities. Some ideas are based on concepts that have already proved inefficient, such as the recent proposition of creating a "regulating body that would ensure that LDCs' (least developed countries) environments, habits, etc., are not destroyed by imperious MNCs." The problem of voting, implementing and enforcing the creation and actions of such a body are clear. Another proposition from the UNCTAD is to assist LDCs hosting MNCs to improve their relationship and to make them ready to possible departures of MNCs, in order to strengthen their bargaining power.

The notion of 'triple bottom line' is perhaps one of the best examples of self-accountability by businesses. According to Parmetier (2002): "It emerged with the growing realization that following environmental and social standards in addition to economic ones can be good for business, as it improves the image of the company, thus boosting its sales. The strong point of the triple bottom line is its development from within companies but it also is its main weakness, as there is very little possible verification by independent bodies. Even when the company hires a private firm to account its progresses, it is very easy to use vague and non-committal formulas in place of concrete actions. The concept of triple bottom line is at its best when independent analysts and risk assessment firms review the actions of a firm in environmental and social issues."

Risk Assessment and ratings by companies, like Fitch and Moody's, have a major impact on companies and on the value of their shares, and there is currently a major debate within these companies to decide whether they should integrate social and environmental factors on their review of companies (Parmetier, 2002). It is commonly agreed upon that they should consider these factors if they have an economic influence on the company, such as toxic waste leftovers to clean up or consumer preferences moving towards 'cleaner' goods and services. This seemingly insignificant evolution may prefigure a huge shift, as they are more likely than any other realist possibility to pressure companies to adopt higher corporate standards on sustainable development.

What is International Sustainable Development Law (ISDL)?

ISDL is still vague and in a process of further definition in many ways (Segger, 2002). However, an increasing corpus of legal provisions and instruments can be identified that integrate international environmental, social and economic law. In governance structures, especially with regard to the environment, consensus is now developing on which legal principles will provide orientation for this integration. Based on prior work by the UN Commission for Sustainable Development and many legal experts, 4 the International Law Association Committee on the Legal Aspects of Sustainable Development has elaborated a set of 'Principles of International Law for Sustainable Development. 5 recent CISDL survey of international treaty and customary sources of international law, including soft law international judgments demonstrates that these principles have been widely adopted into economic, social and environmental law.

Implementing ISDL

Many state and national laws and judgments have recognized a connection between environmental protection, economic development and human rights (Segger, 2002). On the international level, in binding treaties and international judgments, in 'soft law' declarations and state practice, governments, judges and panel members no view these objectives as complementary rather than unrelated or opposing disciplines. Recognition of integration is very important to the implementation of ISDL. The need for integration of development and environment policy pervades international law.

However, not all economic or social law requires environmental expertise (Segger, 2002). Only certain instruments in each regime need to integrate others, in practice. A strengthened IEG will make it easier to determine which aspects of the environmental agenda must be increased, and which should be done in partnership with social or economic institutions and legal structures.

Stronger IEG support aims to broaden sustainable development governance in many ways. Each part of the IEG agenda plays a key role in the context of sustainable development. It is recommended that the IEG consider the following points (Segger, 2002):

The Global Ministers of Environment Forum (GMEF) can provide a meeting place for environmental law and policy makers and strengthened partnerships with civil society and the private sector. It must be open to observers from economic and social institutions, to promote integrated decision-making. Its role can not be to replace the UNCSD but rather strengthen the environmental pillar of sustainable development. Universal membership will allow it to address problems of environmental degradation of global importance.

If Multilateral Environmental Agreements can form closer collaboration around their respective substantive solutions, these clusters can designate particular secretariats or jointly select experts to advise partners from social and economic fields, and act as observers to other inter- governmental bodies.

If an authoritative Environmental Management Group is constituted, this will contribute to coherence and efficiencies among environmental institutions. Such co-ordination could develop informed, realistic proposals for the GMEF, and forward to the United Nations Commission.

Environmental governance needs stronger, reliable and increased funding. The role of the Global Environmental Facility (GEF) in this respect is key. Without a strong environmental pillar, sustainable development cannot be achieved. Innovative measures also include new international mechanisms for raising funds (taxes, specific appeals) and partnerships with civil society and private actors. UNEP's partnerships with economic and social development institutions provide good examples for further integration.

Sustainable development governance, and inter-generational equity, requires a long-term perspective. It appears clear that the evolution of a specialised environmental agency for the environment, to many actors from the 'Rio Generation' is necessary and inevitable. The questions are when and how. Such an endeavour must be built upon consensus, and necessary political will takes time to develop. The WSSD provides one forum for increased dialogue and political debate, and will hopefully help to move proposals forward.

In accordance with an IEG that is sensitive to the sustainable development principle of equity, and the importance of technology transfer to overcome the digital divide at all levels, strengthening the United Nations Office at Nairobi (UNON) is necessary. The development of a specialized agency holds potential to increase support for the UNON.

Increased capacity building is necessary for environmental legislators, jurists, authorities and civil society organizations, to implement environmental law and policy. Capacity building is also critical for social and economic actors at the national, regional and global level, to facilitate implementation of international sustainable development law. All countries and diverse institutions, including the UNEP, the UNDP, and many expert civil society institutes, have much to offer to fill the urgent need, especially in the regional context where common cultural or geographical conditions exist.

Innovative mechanisms have been developed in the last ten years and should be more widely used. In particular, integrated assessment (sustainability impact assessment) is a new mechanism in ISDL that can provide integration of economic, social and environmental law and policy. There is a role for this tool in environmental law and policy bodies, but also as a mechanism to ensure public participation and environmental expertise in social and economic intergovernmental bodies, so to include a respective intergovernmental panel in IEG appears a self-enforcing."

In this light, a stronger IEG should be addressed in the context of sustainable development.

International Environmental Law and its Impact on Australia

International law is the body of law accepted by countries that regulates their conduct toward one another (EDO, 2003). International law consists of agreements, in the form of treaties and conventions, between governments, in addition to customary laws, which are agreed to by countries but do not necessarily appear in agreements.

International environmental law is a somewhat new concept in international law. It has been developed through declarations - a series of international and regional treaties, conventions and protocols (EDO, 2003). A protocol is a type of international agreement that supplements an existing agreement.

This section describe the process by which international agreements are incorporated into Australian law, outlining key environmental treaties and describing the role of individuals and non-government organizations in applying international laws in Australia.

Nations become bound by an international agreement when they become a party to the agreement (EDO, 2003). Depending on the terms of the agreement, a nation becomes a party on signing or ratifying the agreement. It must declare that it considers itself bound by the agreement.

In Australia, the power to enter international agreements is administered by the Commonwealth Minister for Foreign Affairs and is exercised by the Governor-General, on the advice of the Federal Cabinet (EDO, 2003). The Department of Foreign Affairs makes recommendations relating to international agreements in consultation with relevant government departments. These are then submitted through the Minister for Foreign Affairs to Cabinet. An international agreement is implemented domestically when Federal legislation, which complies with the terms of the agreement, is drafted, passed and introduced as law into the Australian community.

International law is only binding on Australian courts if it has been adopted and made part of Australia's internal law (EDO, 2003). United Nations resolutions or declarations also have no effect on domestic law until domestic laws are enacted by Parliament.

The Australian Constitution does not give Federal Parliament any explicit power to make laws about environmental matters (EDO, 2003). However, under the external affairs power of the Constitution, Parliament can enact legislation to meet its international obligations - including agreements it has entered into relating to the environment.

Between 1960 and 1991, France conducted 197 atmospheric and underground tests in Algeria, and at Mururoa and Fangataufa Atolls in the South Pacific (EDO, 2003). In 1973, Australia and New Zealand went to the ICJ demanding the end of French atmospheric testing because of the harm done by fall-out. The Court ordered France to stop its testing. France ignored this order. In 1974, France announced that it would shift to underground testing and the ICJ dismissed the Australian and New Zealand applications on the ground that a dispute no longer existed.

In 1995, President Chirac of France announced that France would resume underground nuclear testing at Mururoa Atoll before signing the Comprehensive Test Ban Treaty in 1996 (EDO, 2003). The Australian government subsequently acted to stop France from carrying out the tests. Representations were made to international forums including the Conference on Disarmament, the International Atomic Energy Agency, various UN organizations and the OECD.

Australia is also a party to many major international environmental agreements, some of the most significant of which are summarized below (EDO, 2003).

Biodiversity: Australia signed the Convention on Biological Diversity 1993 (Biodiversity Convention) at the United Nations Conference on Environment and Development (Earth Summit). It was ratified by Australia in 1993. This Convention calls on parties to implement measures to protect biodiversity and integrate conservation of biodiversity with national decision-making. The Biodiversity Convention has been partly implemented in Australia by the Environment Protection and Biodiversity Conservation Act 1999.