Career Advice

 The rapid globalization of the world’s economies has been accompanied by the markedly slower development of international frameworks, rules and principles to facilitate and standardise human interactions. Harmonised standards are important for international business as they establish a level playing field, help resolve disputes and provide a framework against which performance can be assessed or audited, including in the social and environmental spheres. 

Take the example of the ‘Equator Principles’, discussed by Peter Zollinger in the April 2006 edition of Radar. The Principles outline environmental and social safeguards for financing of large-scale infrastructure projects and, although voluntary, they are supported by 40 major banks covering 75% 

of all project financing. While the effectiveness of implementation is still under scrutiny, at least in theory the Principles have the double benefit of ensuring that projects are more benign to the environment and societies, while also providing greater clarity and certainty for those seeking financing. Companies dealing with Equator banks know in advance what the requirements will be, and can build this into the early project design and planning.

Some type of industry-wide standard has also been proposed for factories contracting to clothing companies like Nike or Gap. These factories frequently supply a number of global brands, each of which has its own set of environmental and labour standards, making compliance complex and leaving individual factories subject to a series of costly audits. One set of global standards could radically simplify the requirements and reduce costs.

However, universal standards can also create complexities for companies and societies in different parts of the world when they overlap or conflict with other global or local requirements. One example comes from South Africa, where the government made it a priority to accede to international conventions on the integrity of the financial market, including enacting anti-money laundering legislation. At the same time, however, the government had a social policy mandate to ensure greater access to finance for the country’s ‘unbanked millions’. This left South African banks with a dilemma as anti-money laundering legislation, with its strict client identification criteria, left them unable to open accounts for many of the country’s poor, who often have no fixed abode, let alone proof of address.

Is there a way through this quagmire? How can standards be adapted to foster important objectives, such as preventing terrorism or increasing access to finance, without undermining other equally laudable aims? 

Going back to the debate over universality of human rights vs cultural norms – human rights advocates have made a forceful case that if implemented appropriately, there is no inherent conflict. Their main argument is that human rights principles are universal and should hold anywhere in the world, but the way these principles are translated into practice needs to be culturally appropriate. 

In South Africa the solution was to develop of a special type of account — the ‘Mzansi’ account. Offered by the country’s four major banks, the account has relaxed identification requirements but retains other parameters that reduce the risk of money laundering. These include a cap on the amount of money that can be held in the account, and the amount that can be withdrawn in a particular period, as well as a block on cross-border activity. 

The lesson is that in a more complex and globalized world, international standards and frameworks need to be based on a set of guiding principles, while retaining the flexibility to be implemented in a culturally appropriate, economically efficient and politically acceptable way. This ‘principles-based approach’ also helps avoid conflict between standards or guidelines that address different social or environmental objectives.

However, principles-based approaches bring their own difficulties. It is much more difficult to judge compliance with principles, compared with more prescriptive regulations or standards. This gap is particularly acute in the case of global voluntary standards where there are no official entities empowered to identify and punish non-compliance, and where ‘enforcement’ is often left to civil society watchdogs and the ‘court of public opinion’. As a result, initiatives like the UN Global Compact and the Global Reporting Initiative have retrospectively developed measures and mechanisms to address levels of compliance. 

In the future, standards will need to address compliance much earlier. Transparency is one crucial element, particularly given the role that civil society or the public at large plays in enforcement. Other elements include the development of performance indicators, setting up of an independent ombudsperson or complaints body, and even capacity building for civil society groups. Unless principles-based approaches address aspects like transparency and performance indicators as an integral part of standard development, their effectiveness, meaningfulness and acceptability will remain contentious issues.