The Rise of Private Governance: Origins, Operations, Authority,

The Rise of Private Governance: Origins, Operations, Authority,

The Rise of Private Governance: Origins, Operations, Authority, Role of Government, and Consequences Graeme Auld Carleton University, School of Public Policy & Administration March 20, 2018 Ottawa, Canada 1 Road Map for Talk Motivating example Four key themes o o o o Origins where does private governance come from? Operations how do these programs work? Source of authority what motivates compliance? Role of government what roles do governments play? Consequences o What do we know about the effects, limits, and future of private governance?

2 3 GDP/capita & Life Expectancy (3.a) (From 4 Forest Loss From 2000 to 2013 (3.b) (From Hansen et al 2013 Nature 342(6160): 850-853) Source: Annual old-growth forest loss for Indonesia from 2000-2012 5 Species and Biodiversity (3.c) Negative effects on interior dependent species Curran et al (2004) note 21 to 33 % reduction in Orangutan densities in logged versus un-logged areas

What Solutions are Available? Government o Policies for regulating forest practices, land use decision, agricultural development But o Rules exist, but are poorly enforced (e.g., 2005, ~ 45% of harvest illegal)* o Forest loss creates problems for other countries global commons problem (e.g., carbon emissions from clearing, species losses) Sovereignty For comparison, o UN Conference on Human Environment (Stockholm BCs largest no- 1972) o Principle 21 affirmed sovereign rights of nations to exploit harvest buffer zone resources conditional on not causing negative for other countries or isexternalities 50 m areas beyond national jurisdiction o Built in right to exploit

McDermott et al 2010, Figure 5.1, p 180 for Indonesia, Figure 3.6, p 96 for BC * See McDermott et al 2010 Global Environmental Forest Policies, London: Earthscan 7 What About Multilateral Solution? Cooperation among nations to deal with global commons problems o Exemplar: Montreal Protocol as part of convention to reduce releases of ozone depleting substances Forests not as successful o Decades of talks on global forest instrument o Great interest in the 1980s and lead up to Rio Earth Summit o But concerns over sovereignty scuttled agreement on forest convention 8 Other Alternatives? Unilateral action by governments o Austria tried this in the early 1990s; sought to impose requirement that imported tropical timber had to carry sustainability label o Problem? Ran counter to trade rules Boycotts & market campaigns o Calls by environmental groups for boycotts of companies selling tropical timber associated with deforestation

o Problem? Unintentionally create incentive for conversion Private governance o Create system of private standards to recognize and reward good practices in the market place 9 Returning to Indonesia Campaign against Asia Pulp and Paper (APP) illustrates the shift to markets and private governance More than 10 years of pressure on APP o Reports by NGOs identifying role of company in forest clearance o Attempts at partnerships with NGOs (e.g. WWF) o Attempts to gain certification o Limited success o In 2010, Greenpeace launched market campaign; targeted buyers of APPs products through naming and shaming campaign o APP in 2013 announces new Forest Conservation Policy 10 Key Themes Origins o Solutions to global problems arise out of actions by coalitions of actors, including NGOs and companies along global value chains Operations o Rules for economic activities set by NGOs and/or businesses

Source of authority o Role of market and shaming Role of government o Not rule setter, but do steer in important ways 11 Origins Past two decades, widespread increase in private, non-state forms of governance Factors behind the rise o Shifting role of government o Globalized trade and supply chains o Role of non-governmental organizations (NGOs) 12 Shifting Role of Government Changing perception of what the appropriate role of government ought to be o Preference for market-based instruments o Steering rather than rowing Some see this as a broader normative and ideational shift o Norm of liberal environmentalism o Neoliberalism more broadly Changing ability of government to intervene o Capacity or other issues prevent governments from acting on a problem

o Collective action problems prevent governments from acting on particular issues 13 Globalized trade and supply chains At least three relevant effects: o Powerful global actors o 2010, Walmart revenue = US$ 421.89 billion o 2010, Norway GDP = US$ 414.46 billion o Home Depot: began 1990s with 145 stores in 12 states; in 2005, had 2000 stores & net sales over US$ 80 billion o Need for standardization & harmonization o Different standards across national borders generally mean costs for multinational companies o Vulnerabilities o Health and safety o Brand value (Source for Walmart Norway comparison: 14 Role of Non-Governmental Organizations (NGOs) Also growing in size (e.g., WWF, TNC, etc) Shift from targeting government to targeting companies directly o Companies have been targets for strikes, protests, blockades, etc but these tactics generally aim to change

government policy This has recently changed o Companies are being targeted with the aim that they change their own corporate policies o Sometimes government then follows by changing laws 15 Government Arena Normative & ideational shift (preference for market regulation) Market Arena ? Economics Actors ? Governanc e Gaps Capacity to cooperate (Collective action problems)

NGOs ? 16 Operations (s9) How do private governance programs work? Diversity of forms o o o o Public-private partnerships Industry codes of conduct and self regulation Voluntary environmental programs Private-private partnerships Focus on one in particular: certification programs o Governance rules and procedures o Set standards for social / environmental practices and product tracking o Independent verification of compliance o On-product label 17 Governance (9.a) Decision-making powers held by different actors across programs

o Company led o Sets the rules in consultation / partnership with other groups (e.g., Starbucks CAF standard) o Non-profit led o Sets the rules in consultation / partnership with other groups (e.g., Rainforest Alliance & SAN, or Naturland for organics) o Industry-association led o Members of association ultimate power, delegate to association to run program (e.g., Sustainable Forestry Initiative, initially; Responsible Care) o Non-profit-board led o Rotating board with power, consults with stakeholders (e.g., Marine Stewardship Council) o Non-profit-membership led o Members have ultimate power, but delegate authority to board and secretariat to make operational decisions (e.g., Forest Stewardship Council) 18 Standard Setting (9.b) Most programs have two levels of standards o A global standard that sets broad requirements o Specific standard for region or operation Focus of standards differ o o

o o Some developed to address mostly environmental issues Others focused on social issues Others on food safety Others a bit of all of these Standards also exist for tracking products o Ensure that product sold came from certified source o Different methods for doing this o Physical separation, percentage claims, etc. 19 Fair Flowers Fair Plants (FFP) v. Florimark GTP source: ITC standards map, 20 Forests SFI v. FSC source: ITC standards map, 21 Seafood MSC v. Naturland source: ITC standards map, 22

Auditing / Compliance (9.c) How is compliance verified? Varies across programs, but there are some common features o Audits occur before participant can use program label o Assessment usually sets pre-conditions (must be done before certification awarded) and conditions (must be done within set time frame) o Not all programs have on-product labels, but even company initiatives increasingly have independent audits Example: Marine Stewardship Council (MSC) o Established to set responsible standards for capture fisheries 23 MSC Assessment Process Assessments are conducted by accredited certification bodies o Accreditation done by Accreditation Services International o Certifiers include: SGS, Food Certification International, DNV, etc Assessment broken into two parts o Confidential pre-assessment o Full, public assessment o To pass full assessment, must score 80 or greater (out of 100) on all three principles, with average scores calculated using weights for performances indicators associated with each principle o No score lower than 60 allowed; scores of 60-80 trigger conditions

Annual surveillance, then re-assessment after 5 years 24 MSC: Assessment process Confidential Public Full assessment announced Pre-assessment Public comments period for draft Final report & valid certificate report Assessment team Assessment w/ peer announced review & stakeholder consultations Objections procedure (if applicable)

Pre-Assessments & Assessments (Martin et al 2012 Review of Fisheries Science) Pre-assessment recommendations year not recommended cautionary 1997 recommended Fishery decision: # proceeding to full assessment not recommended cautionary 1 recommended 1 2000 1 1

1 2001 1 6 1 2 1 2002 2 4 3 3 3 2003 3 7

2 1 4 1 2004 2 8 2 1 7 2 2005 7 6 1

2 5 2006 1 2 1 2007 7 18 8 2008 22 44 2009 45 2010

1 1 1 13 5 13 3 26 12 51 22 1 21 12 50

59 22 1 10 14 2011 14 8 2 Total 155 214 78 1 10 94

52 26 MSC Assessments 27 Source of Authority Why would a company voluntarily adhere to the rules of private governance if those rules imposed costs? There is no state authority backing these rules Four other sources of authority posited to matter (note, these are not mutually exclusive) o o o o Regulatory threat Peer-pressure Social pressure Market demand / pressure 28 Regulatory Threat Companies have reasons to prefer self-regulation o Means to maintain their autonomy / flexibility Several cases where threat (real or perceived) of

regulations motivated creation / adoption of private governance o Responsible Care in the US o Reaction to high profile chemical accidents (e.g., Bhopal India); desire to better manage collective reputation and preempt restrictive government rules o Sustainable Forestry Initiative (SFI) in the US o Originally motivated due to increasing government restrictions on forest operations in the US (particularly spotted owl dispute in PNW) o Concerns also about extension of Clean Water Act to regulation of non-point source pollution, such as silvicultural activities 29 Peer-Pressure Work of Nobel Laureate Elinor Ostrom demonstrated the importance of low monitoring costs for self-organized collective action o Commons institutions were more effective when mutual monitoring by those exploiting the resources could regulate how much individuals used Same principle important for private governance o Pressure in tightly knit groups can ensure compliance o Reinhardt identifies this as one mechanism that made Responsible Care more effective; inter-dependence of large and small companies made internal enforcement easier o See same logic occurring with SFI

30 Market Demand / Pressure Consumers have played a minor role o Willingness to play translates into low actual market demand o Knowledge also a problem (survey 2008) Canadian Standards Association Sustainable Forestry Initiative 65% Forest Stewardship Council (FSC) 83 Sustainable Forestry Initiative (SFI) 82 Fairtrade label Energy Star label Organic label; e.g. QAI certified organic 19% 10% 24%

46% 64 61 52 19 5 12 17 21 3 14 17 17 35 30 18 27

18 9 28 17 11 34% 48 29 43 29 42 72 71 Base: Total respondents (n=1000) Source: Yale / Roper Survey 31

Market Demand / Pressure Most consistent factor generating reasons for operators to certify has been demand generated for certification among large, concentrated points along global supply chains that are vulnerable to bad public relations NGO campaigns have shifted from targeting government to targeting companies directly o Companies have long been targets o But changing government policy was often the ultimate aim o Now companies are being targeted with the aim that they change their own corporate policies; sometimes government then follows by changing laws 32 Shift in Campaigning Tactics SALE Productio n/ extractio n Primary processin g NGO action was directed at forest

product companies Transportatio n/ distribution Secondary processing Retail Use Disposa l NGOs 33 Turned to Upstream Retailers SALE Productio n/ extractio n Primary

processin g Transportatio n/ distribution International Border NGOs Secondary processing Retail Use Disposa l Pressured companies to adopt environmental purchasing policies 34 Fisheries Pursing MSC Certification by Year 45

40 Number of Fisheries Entering Full Assessment 35 February 2006 Wal-Mart announces commitment to buying MSC certified seafood in NA & UK stores 30 25 20 October 2005 15 Greenpeace UK releases first Supermarket Report 10 5

0 1998 1999 2000 2001 2002 2003 2004 2005 2006 Year 2007 2008 2009 2010 2011

2012 2013 2014 2015 35 SFI versus FSC certificates in the US FSC Cumulative 24 22 Home Depot announces policy (endangered forests & 3rd party cert) 20 Area (mil ha) 18 SFI Licensing & 3rd party verification 16

14 12 10 8 6 4 SFI Cumulative SFI commitment required for AFPA members SFI launched SFI-Tree farm mutual recognition FSC-US office Sep-07 Sep-06 Sep-05 Sep-04 Sep-03

Sep-02 Sep-01 Sep-00 Sep-99 Sep-98 Sep-97 Sep-96 Sep-95 Sep-94 Sep-93 Sep-92 Sep-91 FSC 2 established 0 Commitments in the Forest Sector Companies

No wood products from: BC Great Bear Rainforest Old growth / Ancient Forests FSC certifie d 3rd-party certified Recycled Products

3M Corporation Bristol-Myers Squibb Dell Computer Corporation Estee Lauder Hallmark Cards Inc. IBM Corporation Johnson & Johnson Kinko's, Inc. Levi Strauss & Co.

Liz Claiborne Lockheed Martin Corp. McGraw-Hill Mitsubishi Electric Corporation Mitsubishi Motors North America, Inc. Mother Jones Magazine Mutual of Omaha National Geographic Society

New Leaf Recycled Paper Nike, Inc. Pacific Gas & Electric Company Patagonia Quantum Corporation Seventh Generation Starbucks Coffee Company United Stationers Supply Co. Utne Reader 1999 The Home Depot IKEA Wickes Lumber

1996 The Body Shop The Body Shop Canada 1998 Auld 2014 Constructing Private Governance Endangere d Forests Stated preference for:

Periodic Audits

37 Divided Demands, Diluted Effects? What underlies the link between corporate campaigns and uptake of certification? The first answer is that the campaigns themselves involve many competing objectives from different actors, which can and often do create mixed signals for targets. Understanding these gives deeper insights into how companies have reacted to NGO corporate campaigns. 38 Character of Pressure, Expected Response Character of Dependence on the constituents demands

Singular High Low Conform to demands Avoid / ignore (e.g., Wal-Mart requiring (e.g., NGOs putting direct pressure suppliers to be GAA certified; on producers to get certified) WFP pursuing FSC to respond to demands from UK customers) Multiple Selectively conform Selectively ignore / avoid (e.g., Pressure from NGOs and (e.g., NGOs putting direct pressure

buyers for different changes in on producers to pursue multiple practices from certification to objectives from certification to protection of threatened species protection of threatened species and and habitats) habitats) Auld & Cashore 2013 Canadian Public Policy 39 Role of Government Governments not rule setters or enforcers, but do play several important roles Two are worth noting o Governments as market participants o Governments as policy makers It is also essential to note that the state provides a critical institutional context in which private governance operates o Key point: private governance is not a substitute for the

state 40 Government as Market Participant Here governments act as an economic actor o Buyer or producer of a give good, or a service provider Role as buyer o Many government procurement policies give varying levels of support to certified products o Highly contention given creates winners and losers Role as producer o Many state owned forests and forest operations have sought certification Role as service provider o Local municipality that decides to support fair trade and then provides these products through its service outlets 41 Government as Policy Maker 42 Consequences What about the effects of private governance? Do they help address problems? Three ways to think about this o Spatial patterns of effects

o Issue-area or problems effects o Longer, overtime effects With each of these, we can also consider spill over and interactive effects 43 Spatial Patterns of Effects Here we ask where benefits accrue on a local, regional, and global landscapes o Does certification affect just the behvaiour of the operator, farmer, or producer who participates, or are their spillover effects (positive or negative) that affect a larger spatial scale, such as the landscape or surrounding communities or farms? Studies generally find improved practices for the operators that participate Also see positive spillovers to surrounding communities However, there is the problem of self-selection 44 that raises concerns about broader effects Relationship FSC support and deforestation rates in 2007 Countries with large proportion of area certified,

have no forest loss or net forest gain Countries with net forest loss have low or no area certified Auld et al 2008 ARER 45 0 United States Trinidad and Tobago Equatorial Guinea Mexico Gabon M alaysia Venezuela Costa Rica Panama St. Vincent and the Grenadines Brazil Dominica Dominican Republic Colombia Thailand Peru Suriname Jamaica Belize

El Salvador Ecuador Angola Samoa China Tonga Guatemala Paraguay Sri Lanka Fiji Honduras Bolivia Vanuatu Guyana Congo, Republic of Indonesia Philippines Nicaragua Vietnam India Yemen, Republic of Cameroon Lao People's Democratic Rep... Nigeria Papua New Guinea Cambodia Kenya So Tom and Prncipe Cte d'Ivoire Benin Ghana

Zambia Haiti Tanzania Comoros Myanmar Nepal Uganda Guinea Rwanda M adagascar Mozambique Ethiopia Togo Malawi Central African Republic Sierra Leone Burundi Liberia Congo, Democratic Republi... Zimbabwe Cuba # of producer organizations 250 50000.00 FLO producer organizations 200 Utz producer organizations

RA producer organizations GDP, based on PPP per capita 150 100 50 Auld (2010) Journal of Environment and Development GDP per cap in PPP ( ,000) Coffee Certification by Country, GDP/capita 45000.00 40000.00 35000.00 30000.00 25000.00 20000.00 15000.00 10000.00

5000.00 0.00 46 Issue-Area or Problem Effects Central concern here is that certification programs often develop standards that focus on a narrow but interrelated set of concerns In addressing these narrow problems, can have unintended effects Example o FSC initially required 100% FSC fiber in certified paper; this created the possibility that 100% post-consumer recycled paper would be viewed as less environmentally beneficial than certified paper o Focus on environmental problems with wood can create perception that other construction products are better concrete or steel 47 Overtime Effects Effects are not static o We need to understand how systems evolve and interact with other governance processes Examples o Focus on illegal logging in the timber sector

o Interactions between certification competition and voluntary government forest practices rules in the US o Changes in management ideas & practices; such as development of methods for assessing high conservation value forests 48 Growing Interactions Increasing interactions among standard-setters Just as it important to understand the relationships among government departments, it is increasingly important to understand how private regulators interact. o Gives an idea of how learning happens o Or how information and norms get conveyed between programs 49 Network of Agriculture Programs Fransen et al 2016 Global Networks 50 Multi-tie Network Fransen et al 2018 Regulation & Governance 51

Closing Thoughts Private governance a critical new instrument Programs are spreading For governments, good to understand the limits and possibilities of private governance o Opens opportunities to create synergistic relations between government rules and private rules But, key to remember that there are distributional consequences built into these standards o They create winners and losers 52

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