Rio+20 Portal

Also available in Français

We have taken the decision to present the topic of transnational corporations (TNCs) and the regulation of their actions by viewing these key players in the process of globalization as living beings who are born into, live and die in an environment comprising other actors (states, citizens, civil society groups, etc.). We consider that a TNC’s ability to evolve, its positive and negative impact on its environment, justify an examination of its origins. What is a business? Prior to taking on a global dimension, every transnational company/firm/business amounts simply to a source concept, that of a contract between people pooling their assets in the pursuit of a common goal (intuitu personae corporate purpose) with the intention of sharing the gains or profiting from the savings that may result.

The specific characteristics of this embryo then serve to guide the nature of the rights and obligations that accompany its evolution, growth, diversification and ties with other actors within its environment.

This Proposal Paper hopes to provide an explanation of the constraints and a series of proposals for a system of TNC regulation. This requires us to first set out the fundamental obstacles that make the question of regulating the activities of TNCs so problematic. The crisis in the financial system that hit economies worldwide proved the importance of regulating for-profit private and public transnational actors.

The difficulties states have in agreeing to a common set of rules reflect the scale of the various factors that have to be reconciled if we are to prevent and repair damage to the environment and violations to basic rights. Current negotiations on climate change and tax havens are proof of this problem. The international context over recent decades, marked by liberalization in the movement of goods, services and people is, of course, one of the causes of these difficulties. But this should not serve to mask the existence of a widespread web of principles and mechanisms found in all legal, economic and social cultures. The challenge is not to think of these principles and mechanisms in isolation, but as part of a whole, attempting then to come up with new arrangements for the future that can express them in a manner that accords with the idea of sustainable development. The challenge of corporate social responsibility (CSR)1 lies in reconciling, within a company, the three pillars of sustainable development—economic, social and environmental; the current position is imbalanced in favour of the first of these dimensions.

Hoping to make a clear presentation of the challenges and areas for reflection, we have adopted progressive levels of analysis that reflect the way in which a transnational company develops: the TNC in its home country (2), the TNC in countries where it operates (3) and the TNC and the international community (4). However, we will start by examining the notion of a business itself (1). A new approach to the concept is needed in order to bridge the widening gap between economic and legal realities.

Our chosen approach requires us to move from the smallest dimension (what are articles of association?) to the largest (what are suitable transnational institutional arrangements?). For each level, the idea is to be able to identify the major obstacles in place and the fundamental characteristics needed for TNCs to properly gauge the negative impact caused by their activities. We draw links between each level and the one that follows, similar to the way that a business defines its strategy beforehand and then adapts it in accordance with the various geographical and legal domains within which it operates.

We always favour a preventative approach, and will also be identifying mechanisms for redressing harm or damage. Our basic hypothesis is that current irresponsibility will persist in the absence of any suitable sanctions, bringing in its wake social and environmental consequences that will weigh heavily on future generations. The proposals set out below are therefore chosen to reflect the fact that the voluntary nature of current CSR regimes has reached its limits. Our Proposal Paper aims to provide suggestions for ways to create a clearer and more visible set of rules that will provide better protection for both TNCs and the victims of their excesses.

We must also state that our proposals are guided by the observation that the current situation hinders those businesses genuinely engaged in a sustainable approach from enjoying the legitimate commercial advantages they have a right to expect. Rules that are both clearer and more binding are thus the sole means of ensuring enhanced legal protection and of rebuilding the conditions needed for fair competition. These must enable businesses to actually achieve what is often referred to as the triple bottom line, meaning integrating into their strategies the three objectives generally held to define sustainable development (leaving aside for now the concept’s obvious ambiguities): economic prosperity, social justice and environmental quality. Encouraging corporates to aim for the highest common denominator requires that attempts to drive down the lowest common denominators must no longer be attractive in economic, social and environmental terms.

The working assumptions behind many of the following proposals are based on French or European law, but they have been carefully formulated to be acceptable internationally and participate in the evolution of international law, particularly the lex mercatoria. They have been designed to win support by being legal, legitimate and effective. The measures also aim to create conditions that will strongly encourage the practice of self-discipline in market actors, whose voluntary initiatives need to go far beyond “all talk and no action”.

The emphasis on transparency in social and environmental performance is a good example of this approach. We should say that although we are advocates of transparency—a concept overly idealized or even instrumentalized by many economists—as a lever in the development of effective reporting tools that will encourage businesses to improve their social and environmental performance, it is a far more precise aim that incites us to promote it. The fact is that the value of an enhanced and binding transparency regime lies in the uses that might be made of the information (or lack of information) provided by businesses. Thus, optimized transparency is a means of ensuring that third parties can make proper use of a battery of legal tools.

These measures alone are, of course, insufficient. They would be far more acceptable to economic actors were they to be adopted by all rich countries as well as, progressively, emerging nations. They must therefore be part of a normative multilateral framework yet to be elaborated. Real political backing will be needed to get this in place, partly in the form of additional powers for oversight bodies (judicial or otherwise)2 and partly in the form of guarantees that independence and impartiality will be fully respected. It also implies that civil society will accept new duties relating to these new obligations, and thereby set in motion the changes we ardently wish to bring about.