Governance of Transnational Corporations:
A CALL FOR A BINDING AGREEMENT
This paper is an output from a three day NGO conference on corporate accountability and
the WSSD, January 26-28 2002.
Governments attending the WSSD must declare their commitment to socially and
environmentally responsible investment and corporate behavior by agreeing to
negotiate a legally binding framework for corporate accountability in the form of
The 1992 UN Conference on Environment and Development in Rio de Janeiro failed to
confront the growing deficit in the governance of international business activity. This
problem has become more acute in the past 10 years.
In 2000, foreign direct investment grew by 18% to reach US $1.3 trillion. This was driven
by more than 60,000 transnational corporations with over 800,000 affiliates abroad. The
sales of the top 200 TNCs are now equivalent to more than one-quarter of world
The growing scale and increasing global mobility of trans national corporations have made
it more difficult for citizens and countries to hold them accountable for their actions. The
result has frequently been corporate behavior that has impeded sustainable development,
including many well-documented abuses of human rights and severe environmental
In response to the negative impacts of corporate behavior, the trend has been for
self-regulation. The promotion of voluntary codes and initiatives over the last ten years
such as the Global Compact is testament to this.
Codes of conduct and other voluntary approaches are an insufficient response to the
problems that can be caused by transnational corporations. Indeed, these initiatives have
left a major gap in the governance of transnationals that must be addressed: they fail to
empower citizens affected by corporate activities; they are not subject to enforcement;
and they are usually based on self-regulation.
ELEMENTS OF THE BINDING FRAMEWORK
A binding framework must cover four areas:
* corporate duties and obligations;
* citizen and community rights;
* support of socially and environmentally responsible government initiatives; and
* liability and implementation mechanisms.
Corporate Duties and Obligations
Transnational corporations must be required to fulfill certain basic duties, including
* Conduct social and environmental impact assessments;
* Report in the areas of human rights, the environment and labor conditions;
* Ensure public participation and engagement, especially of affected communities;
* Take social and environmental considerations fully into account in corporate
* Abide by high environmental, social, human rights and labor standards that are
reflected in international agreements and consensus, including ILO Core Standards,
Universal Declaration of Human Rights, and multilateral environmental and social
Citizen and Community Rights
Citizens and communities must be guaranteed certain basic rights in relation to
transnational corporations, emanating from their basic rights to development and a clean
and healthy environment, including:
* Rights of access to information on business activities as a current, or potential,
affected stakeholder, and participation in decision making;
* Legal redress for citizens and communities in both the home and host countries of
* Legal aid mechanisms to provide public funds to support challenges;
* Workplace and consumer rights; and
* Community rights to land and resources.
Support of government initiatives
A framework binding agreement must support efforts to ensure that transnational
investment is socially and environmentally responsible, including through:
* Capacity building and technical support;
* The right to regulate to encourage positive corporate behavior, including local
partnerships, infrastructure and training requirements; and
* The ability to attach corporate responsibility criteria to financial instruments such
as subsidies and inward and outward investment incentives.
Liability and implementation mechanisms
To be effective, a legally binding framework must require:
* Legal liability for corporations, including their directors, in both host and home
* Availability of sanctions to ensure compliance; and
* Independent monitoring and verification mechanisms.