24. SOCIAL ACCOUNTABILITY AND CORPORATE GREENWASHING – William S.

Laufer
GREENWASHING
In recent years, social activists
(environmental activists), have raised
concerns about corporate deception,
sometimes imbedded in fiery rhetoric. The
emergence of the terms “Greenwash” and
“Bluewash” reflects an increasing
apprehension that at least some
corporations creatively manage their
reputations with the public, financial
community, and regulators, so as to hide deviance, deflect attributions of fault, ensure
entity’s reputation, and finally seek to appear in a leadership position.
Corporations such as Royal Dutch/Shell, Mobil Corporation, Dow chemical, and
many other familiar Fortunate 500 companies, engage in a complex strategies and
counter strategies that serve to shift the focus and attention away from the firm, create
confusion, undermine credibility, criticize viable alternatives, and deceptively posture firm
objectives, commitments, and accomplishments.

Environmentalists refer to examples:

• World’s leading Ozone destroyer takes credit for leadership in Ozone Protection
• A mammoth greenhouse gas emitter professes the precautionary approach to
global warming
• A major agrochemical manufacturer trades in a pesticide so hazardous it has been
banned in many countries, while implying it is helping feed the hungry.
It is alleged that corporate activism, in response to increased regulatory activity
and heightened public concern about environmental matters, includes panoply of evils
associated with greenwashing, from manipulating public opinion to explicit attacks against
environmentalist.

Greenwashing turns on three elements of deception

a) Confusion - which flows naturally from the complex nature of the corporate form,
reliance on decentralized decision making, and the practices of managerial
winking.
b) Fronting - accomplished through the representations of retained counsel,
compliance officers, ethic officers, and ethic committees.
 c) Posturing - seeks to convince internal customers, as much as external
stakeholders, of the organization's collective commitment to ethics.

 The effect in both cases is that ethic codes and programs are perceived internally
as if designed to manage a firm's reputation. Externally, the firm achieves
confusion by careful document control and strict limits on the flow of information
made available to regulators and prosecutors.
 Civil society activists regularly make the same argument. The very firms that wash
their reputations through public relations, complex front coalitions, sponsored
"think tanks", and that publicly lead the fight against global warming, nuclear waste,
and water pollution, remain some of the worst corporate offenders.
 Without rigorous reporting methods and assessment of corporate compliance
effectiveness, no less social accountability, it is impossible to judge how significant
the disconnect is between public statements of compliance or social responsibility,
and a firm’s genuine efforts – particularly without external, third party verification
and monitoring.
 Environmental reports, corporate social reports, and sustainability reports require
audits, verification, and validation. Trust, intuition, and speculation seems partisan,
unscientific, and unfair. Assuming opportunism and manipulation also fails any test
of fairness.

SOCIAL ACCOUNTING RESEARCH AND THE LIMITS OF VOLUNTARY

- At the heart of the practical debate over
corporate social accountability are
fundamental questions of regulation.

“Should social and environmental disclosure

be Voluntary?”

- A growing consensus bemoans the

quality and reliability of voluntary disclosure.
An almost equal number raise problems with an interventionist stance. While this debate
proceeds, however, a host of international standards for social accounting emerged over
the past decade, holding out the promise of something more than voluntary corporate
disclosures.
 A comprehensive review by the ILO of all initiatives, from intergovernmental to
investor driven, is less than inspiring. They are, in the words of the ISO committee,
much like the efforts of the first generation of corporate responsibility initiatives.

 If there’s an exception, a second generation effort, it is the Global Reporting

Initiative (GRI). In the recently released 2002 GRI Sustainability Reporting
Guidelines, an impressive list of performance indicators appear in three categories:
Economic, environmental, and social. The 2002 GRI Guidelines are a much
improved version. For all of the obvious reasons, much is now made of the need
for reporting transparency, inclusiveness, completeness, relevance, and
auditability.

 How serious a problem is this omission? The emergence of countless reporting

initiatives reflects a growing trend of corporation to provide more than annual
financial impact

 According to KPMG's 2000 survey, only 29% of the GFT250 had their report
independently verified. Most verified reports, are reviewed by major accountancy
firms. Even so, the scope and approach taken by auditors differed widely. This fact
and the ad hoc nature of verification more generally led more authors of the KPMG
2000 survey to conclude that "inconsistency in the approach to verification has
adversely impacted the overall credibility of verification with stakeholders.

 The growing conventional wisdom is that companies must produce verified

accountability reports. Verified reports by auditors specializing in social accounting
and auditing. Some claim, however, that this does not go far enough to protect the
independence of social auditors from management influence.
BEYOND VERIFIED DISCLOSURE: TRIPARTISM
 Answer to questions of auditor independence, may rest with the engagement of
stakeholders outside the firm. This is familiar ground for those who seek
independent sources and metrics for "effective" corporate compliance.
 In theory, Tripartism insures against regulatory capture, enhances communication,
and allows for independent third party monitoring.
 Ayres and Braithwaite's conception of a “third” party, are now codified in social
accountability standards (Accountability Standard AA1000).
 Lydenberg makes the incisive observation that the vocabulary of SRI and CSR are
now an integral part of the "debate about the proper form and role of global
capitalism." In asking whether the potential of corporations to do good can be
harnessed, the potential to do bad tamed, and the goals of transnational
corporations reconciled with the social objectives of national governments, he calls
for corporations to fully disclose "actual" data on social and environmental impact
CONCLUSION:
The important call must be heard not only by corporations, but by the reporting
bodies and initiatives that seek a corporate constituency with integrity. If for no other
reason, with accusations of greenwashing and evidence of its practice, decisions to defer
third party auditing or to forgo the requirement entirely strongly undermine an appearance
of legitimacy. For those who invest in social screened funds, and stakes are just as high.
For many if not most investors, SRI is less than an investment strategy than a matter of
principle.

25. GROUNDED – Income Inequality and Speculative Investment Led to the

Financial Meltdown
By. Branko Milanovic
The current financial crisis is generally blamed on feckless bankers, financial
deregulation, crony capitalism, and the like. To go to the origins of the crisis, one needs
to go to rising income inequality within practically all countries of the world, and the United
States in particular, over the last 30 years. American Income Inequality over the last
hundred years thus basically charted a gigantic U. Meaning, that such enormous wealth
could not be used for consumption only. There is a limit to the number of Dom Perignons
and Armani suits one can drink and wear.

 A huge pool of available financial capital went in search of profitable opportunities

into which to invest. Overwhelmed with such an amount of funds, and short of good
opportunities to invest the capital as well as enticed by large fees attending each
transaction, the financial sector became more and more reckless.
  While one cannot prove that investible resources eventually exceeded the number
of safe and profitable investment opportunities, this is strongly suggested by the
increasing riskiness of investments that the financers had to undertake.

 Real median wage in the United States has been stagnant for 12 years. About
one-half of all real income gains between 1976-2006 accrued to the richest 5% of
Household. The new "gilded age" was understandably not very popular among the
middle classes that saw their purchasing power not budge for years. A way to
make it seem that the middle class was earning more than it did was to increase
its purchasing power through broader and more accessible credit. People began
to live by accumulating ever rising debts on their credit cards, taking on more car
debts or higher mortgages. Thus was born the great American consumption binge
which saw the household debt increase from 48% of GDP in the early 1980's to
100% of GDP before the crisis.

 The interests of several large groups of people became closely aligned. High net
worth individuals and the financial sector were keen to find new lending
opportunities

 The credit fueled system was further helped by the ability of the US to run large
current account deficits; that is, to have several percentage points of its
consumption financed by foreigners.

 The real cause of the crisis lies in huge inequalities in income distribution which
generated much larger investible funds than could be profitably employed. The
political problem of insufficient economic growth of the middle class was when then
"solved" by opening the floodgates of the cheap credit.

CONCLUSION:
People with middling incomes have many more priorities needs to satisfy before
they become preoccupied with the best investment opportunities for their excess money.
Thus; the structure of consumption would have been different. In other words, there would
have been more equitable and stable development which would have spared the United
States, and increasingly the world, an unnecessary crisis.