World Bank Institute

1

WORLD BANK INSTITUTE

AND

SCHOOL OF INTERNATIONAL AND PUBLIC AFFAIRS

COLUMBIA UNIVERSITY

Corporate Social Responsibility in Representative Economies of Latin America

KELLY DESY

ADRIANA SUAREZ

CARLA RICCHETTI

DEBORAH BATISTA

MARIA LUISA BETANCUR

MAY 2006

This research document was elaborated in response to the invitation of the World Bank Institute through Columbia University. The views and ideas herein are those of the authors of the paper, and in no way reflect the views of the World Bank Institute, Columbia University or the School of International and Public Affairs.

ACKNOWLEDGEMENTS

This research paper is the product of many months of investigation and work. All this could not have been possible without the help of many people that kindly contributed their time and expertise to collaborate in this project. We would like to thank Professor Michael Silverman who kindly dedicated many hours revising our work and keeping us motivated. We would also like to thank Professors Sirkka Korpela, Hans Decker and Miguel Urquiola from Columbia University, for contributing with their own expertise. In Bolivia we would like to thank Álvaro Bazán Auza (Fundación Emprender). In Colombia we would like to thank Camilo Gutierrez (former Director of CCRE) and Roberto Gutierrez (Director of Iniciativa en Emprendimientos Sociales (IESO), Universidad de los Andes). In Brazil we would like to thank Instituto Ethos, GIFE (Grupo de Institutios Fundacoes e Empresas), and Eber Ferreira of Etno Brasil.

TABLE OF CONTENTS

I.INTRODUCTION

II.METHODOLOGY

III.COUNTRY PROFILE

A.BOLIVIA

1. Economic Snapshot
2. Political and Social Snapshot
3. Bolivia’s CSR System: Domestic Actors and Current CSR Activities

B.COLOMBIA

1. Economic Snapshot
2. Political and Social Snapshot
3. Colombia’s CSR System: Domestic Actors and Current CSR Activities

C.BRAZIL

1. Economic Snapshot
2. Political and Social Snapshot
3. Brazil’s CSR System: Domestic Actors and Current CSR Activities

IV.COMMON OBSERVATIONS AND GENERAL LESSONS LEARNED ABOUT CSR IN LATIN AMERICA

V.CONCLUSIONS AND RECOMMENDATIONS FOR ENABLING A POSITIVE CSR ENVIRONMENT IN LATIN AMERICA

1. INTRODUCTION

In the pursuit of growth and economic development, Latin America and its emerging economies are increasingly faced with environmental and social issues as a result of domestic and foreign economic activities. The policies of developing countries increasingly focus on attaining levels of development, as embodied in the eight Millennium Development Goals (MDGs) set by the United Nations. These goals include (i)eradicating extreme poverty and hunger, (ii)achieving universal primary education, (iii)promoting gender equality and empowering women, (iv)reducing child mortality, (v)improving maternal health, (vi)combating malaria, HIV/AIDS and other diseases, (vii)ensuring environmental sustainability, and (viii)developing a global partnership for development. As per the 2004 Global Monitoring Report[1], on current trends many MDGs will not be met by most countries. The implication is clear, reaching the MDGs requires rising above current trends and substantially accelerating progress towards the goals. There is an urgent need to scale up actions on the part of all parties. This includes accelerating reforms to achieve stronger economic growth, empowering and investing in poor people, and encouraging stronger reform efforts by developing countries with stronger support by developed countries and international allegiances. Specifically, priorities in developing countries include “improving the enabling climate for private sector activity, strengthening capacity in the public sector and improving quality of governance, increasing investment in infrastructure and ensuring its effectiveness, and enhancing the effectiveness of services delivered in human development.” [2]

The goals are complex and obviously require the collaboration and contribution of all actors of society. Increasingly, the private sector is being called upon to play a more substantial role in assisting the public sector to achieve its development goals. This private sector assistance is considered “good corporate citizenship” and is referred to as corporate social responsibility (CSR).

CSR is defined differently across sectors, regions, countries and institutions. The World Bank’s working definition is the commitment of business to contribute to sustainable economic development by working with employees, their families, the local community and society at large to improve the quality of life in ways that are both good for business and good for development. This paper takes this definition one step further. We include in our definition of CSR in Latin America, the notion that businesses owe to the society in which they operate a commitment to conduct operations, processes, products and services in a responsible manner that ensures sustainability and positively impacts social and environmental conditions. This process should be implemented through principles and codes that are inherent to the corporations’ short and long term business/development strategies. Moreover, this definition represents a conscious effort to evolve away from antiquated notions that equate corporate social responsibility and philanthropy. It is the view of the authors that philanthropy as a corporate strategy is problematic since it often perpetuates a paternalistic type of relationship between business and community and does not necessarily promote changes that are associated with improving societal welfare. Secondly, this form of contribution does little to refrain a company from exploitative or harmful behaviors or to remedy damage already caused. A more active and participatory role of the private sector is essential to create an effective CSR environment in developing countries in Latin America, as well as to maintain successful and sustainable business practices with minimal impact to the environment and welfare of the society.

The methods, definitions and specific goals of CSR of more highly developed countries are not entirely applicable in developing countries and emerging economies. Regarding the developing world and Latin America, there seems to be a lack of data and statistics on CSR, specifically, a lack of information on types of programs implemented, by whom and with what results. When dealing with emerging economies in the developing world, there are a number of factors to consider, including the stage of development of the economies, the government’s national agenda, institutions, geographical characteristics, and the social and political status of the regions. Historical aspects that contribute to prevailing attitudes of and toward the state also play a role. This is in addition to social indicator levels and cultural differences. What is apparent from existing literature about CSR in OECD countries is that the European Union and the US are at a stage when they can afford to focus on improving specifics of CSR management and regional integration of such efforts. In Latin America much is yet to be done before reaching that phase.

In this paper, we will provide a snapshot of three economies, classified at different stages of CSR development, followed by a description of key actors in the CSR arena within each country. These actors include NGOs, government, the private sector, civil society and media. We will look at the ways in which these groups have established themselves within their countries and/or region and analyze how they interact in order to achieve substantial progress related to sustainable and socially responsible behaviors. One key aspect to remember is that the 35 countries in this region are extremely diverse and their degree of socio-economic development varies tremendously. Regarding interaction, we note, the importance media plays in promoting a greater awareness in society, especially among consumers and of the role they can play in exerting pressure for change.

By looking at the specific actions of certain actors in each country, we hope to identify certain processes that have been successful and that can provide a model that can be implemented in similar economic, social and cultural scenarios in Latin America.

1. METHODOLOGY

Research on this project began with extensive literature review and included perusal of numerous internet and website sources. Background interviews were conducted with academics and scholars who have actively worked, either directly or indirectly, with CSR efforts around the world. Additional interviews were conducted with CSR practitioners. Finally, questionnaires were sent out to organizations and businesses whose activities emerged throughout the information-gathering process as significant.

Literature indicated a consensus that CSR activity worldwide can be ranked at four levels: beginning, intermediate, advanced and frontrunners. It also became evident from the research that corporate social responsibility is present in varying degrees throughout Latin America. The countries of Latin America, however, all fall into the first three categories (beginning, intermediate and advanced) with no country having achieved a standing in the frontrunner group. Specifically, beginner level countries are those that have only a few key elements of CSR in place, and where general public awareness, government advocacy, citizen, private-sector and media participation are low to non-existent. The CSR activities that do exist have had little to no impact, and public and private sector efforts are disconnected. The second, or intermediate stage, denotes countries where there is significant private sector CSR activity, a relatively vibrant public awareness as reflected by media citations, NGO participation and university programming. The advanced stage includes countries where CSR, at least as a concept, has been institutionalized by the private sector as demonstrated by its inclusion in mission statements and codes of conduct. Further, civil society and media are also engaged in CSR efforts. Government has enacted policies that are helpful to CSR without acknowledging the issue directly.

Given constraints on time and resources, this report was limited to an assessment of selected countries in Latin America. Selection of the countries occurred based on their position in a global ranking of CSR activity. The National Corporate Responsibility Index of 2005 is a listing of 83 countries ranked by the level of their CSR accomplishment. The list was divided into quartiles. These were designed to roughly correspond to the four different levels of CSR development cited above. Once again, it should be noted that there were no Latin American countries, and in fact no developing countries at all, in the first section which contained the top twenty countries in CSR development. This paper analyzes one Latin American country from each of the other sections. In addition to considering their rankings within each section, factors such as unique economic, geo-political and social characteristics contributed to their selection for deeper analysis.

Bolivia, which is included in the “beginner” category, is currently at a political juncture following the recent election of Evo Morales, an indigenous leader with a socially-oriented agenda. Considering that a large portion of the country’s GDP is the result of natural resource endowment and acknowledging the large role played by multi-nationals, there is uncertainty regarding the new government’s agenda and how President Morales will reconcile social and economic policies.

The case of Colombia, a country falling within the intermediate CSR category, stands out for the complex dynamics and social implications engendered by the combination of the illicit drug crops trade and the strong presence of armed revolutionary forces that continuously impact the wellbeing of the population at every level. Despite this, the private sector and local communities have achieved significant results through collaborative action.

Brazil is the 12th largest economy in the world and a regional leader in Latin America with a highly advanced industrial sector. Due to its size, the country also deals with significant environmental questions (it is home to the largest remaining area of rainforest, located in the Amazon basin), and must manage an enormous developmental disparity among its regions. Brazil has one of the highest rates of inequality in wealth and income distribution in the world, leading to numerous social issues A vibrant civil society has increased CSR activity at many levels, as evidenced by the Ethos Institute, a non-profit umbrella organization for NGOs established by Brazilian businesses. The Ethos Institute serves as an international reference point concerning the role of NGOs in promoting responsible business practices.

Two countries not included in this analysis are Chile and Argentina, both recognized internationally for their CSR environments. Despite recognition of its solid CSR model, Chile has shown little recent innovation, developments or growth in the field. This is in contrast to Brazil, for instance, which has recently made great strides in increasing awareness and private sector involvement in the matter. The rapidly rising membership of Ethos Institute as well as the increasing number of CSR-focused NGOs and events in that country are examples of this. Further, the Chilean economy and social indicators are strong, the result of specific historical policies including, for example the promotion of education during the Pinochet dictatorship. The country’s performance levels differ greatly from most of the other economies of the region and it does not contend with similarly acute levels of income inequality, corruption and poverty. As regards Argentina, although it may be known for having an advanced CSR program, for the purposes of this study’s "quartile" division, it was ranked in the third quartile below Colombia.

After selecting a country at each level of CSR development, the first phase of this report required the identification and analysis of the main stakeholders involved in CSR activities in each country: government, private sector, and civil society this includes business and industry associations and organizations termed B/INGOs, media and consumers. The goal of this phase was to understand the level and form of interaction among these actors, as well as the main obstacles encountered in implementing projects and policies of CSR.

Having garnered a greater understanding of the dynamics at play, a sharper focus on the programs of specific actors allowed us to identify practical, on-the-ground obstacles to successful CSR within a region. This understanding was especially enriched by interviews and questionnaires administered to NGOs and business representatives involved in implementing relevant projects in the selected countries. It should be noted that the objective of the interviews and questionnaires was not statistical. They served to clarify patterns of constraints common to all of the cases.

Finally, overall assessments of economic, political and social data from each of the countries were coupled with specific analyses in order to draw comparative considerations regarding CSR practice within each country and the applicability of the national experience across borders. These conclusions are tailored to the realities of developing economies, and specifically to Latin America. A common factor that we identified is the need for a stronger performance from the government sector. The need to integrate efforts, information and programs was also evident. Results pointed to the need for development of a national strategy focusing on all societal actors in order to maximize the effects and reach of social and economic development programs.

1. COUNTRY PROFILE

1. BOLIVIA

1. Economic Snapshot

As Bolivia’s economy struggles to grow, it wavers between the poorest and the second poorest country in South America as measured by GDP per capita[3][4]. Bolivia is a landlocked nation with a diverse landscape ranging from the mountainous Andes to the lowland Amazon. Natural resource endowments contribute greatly to its GDP. Economic activity is divided into two areas: the southern and eastern lowlands which hold the country’s agricultural and hydrocarbon industries, and the western highlands which comprise the less technologically advanced mining and metal refining industry. This uneven economic dichotomy is due to the presence of more arable farmland and natural gas reserves in the eastern and southern regions and mineral deposits the western mountainous region.

Table 1

Environment
2000 / 2003 / 2004
Surface area (sq. km) / 1.1 million / 1.1 million / 1.1 million
Forest area (sq. km) / 600.9 thousand / .. / ..
Agricultural land (% of land area) / 34.1 / 34.2 / ..
CO2 emissions (metric tons per capita) / 1.0 / .. / ..
Improved water source (% of population with access) / .. / .. / ..
Improved sanitation facilities, urban (% of urban population with access) / .. / .. / ..
Energy use (kg of oil equivalent per capita) / 594.4 / 503.8 / ..
Energy imports, net (% of energy use) / -19.4 / -73.6 / ..
Electric power consumption (kWh per capita) / 421.0 / 421.8 / ..
Source: World Development Indicators database, April 2006

Bolivia has the second largest gas reserves in Latin America, and the Rio Grande-Campinas pipeline running between Brazil and Bolivia has proven to be a valuable economic asset[5][6]. Moreover, economic success of the eastern lowland region is largely due to commercial agriculture advanced by foreign direct investment (FDI) from Brazil and Argentina[7]. Japan and member countries of the European Union have also increased trade and investment with Bolivia since the mid-1990’s[8]. Despite its struggling economy, Bolivia’s trade balance has improved over the last couple of years and in 2005, Bolivia achieved a trade surplus[9]. Bolivia’s top two trading partners are Brazil and Argentina largely due to its participation in regional trade agreements in the Comunidad Andina and the Mercado Comun del Sur (Mercosur).

Table 2

Economy
2000 / 2003 / 2004
GNI, Atlas method (current US$) / 8.3 billion / 8.1 billion / 8.6 billion
GNI per capita, Atlas method (current US$) / 1,000.0 / 920.0 / 960.0
GDP (current US$) / 8.4 billion / 8.1 billion / 8.8 billion
GDP growth (annual %) / 2.5 / 2.8 / 3.6
Inflation, GDP deflator (annual %) / 5.2 / 6.1 / 8.5
Agriculture, value added (% of GDP) / 15.0 / 15.4 / 15.6
Industry, value added (% of GDP) / 29.8 / 29.5 / 30.7
Services, etc., value added (% of GDP) / 55.2 / 55.1 / 53.8
Exports of goods and services (% of GDP) / 18.3 / 25.5 / 30.7
Imports of goods and services (% of GDP) / 27.3 / 26.3 / 26.4
Gross capital formation (% of GDP) / 18.1 / 13.4 / 12.4
Revenue, excluding grants (% of GDP) / .. / 18.8 / 20.2
Cash surplus/deficit (% of GDP) / .. / -7.6 / -5.4
Source: World Development Indicators database, April 2006

Although it has attracted foreign direct investment in the past, Bolivia remains a difficult place to do business, particularly due to political and social disturbances in recent years that negatively impacts the investment and business climate[10]. As a result, Bolivia’s competitiveness ranks low (#101) on the World Economic Forum’s 2004 Growth Competitiveness Index and (#113) on their Business Competitiveness Index[11]. Foreign investors are wary to invest in a country with a weak judicial system afflicted with high rates of crime and corruption,[12] and investors are uncertain about the new government’s push for greater control over the country’s natural resources. The recent changes in energy law sharply raised the tax take from oil and gas companies, which has made investors cautious[13]. Currently, mining operations are in the hands of local and foreign private companies and local mining cooperative groups.