Business in Development: A Case Study of Private Sector Engagement with the Sustainable Development Goals in Chile

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Business in Development

A Case Study of Private Sector Engagement with the Sustainable Development Goals in Chile.

Ane Håvardsholm

Master’s thesis

The Department of Political Science UNIVERSITY OF OSLO

Spring 2019

Word count: 34818

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Business in Development

A Case Study of Private Sector Engagement with the Sustainable Development Goals in Chile.

Ane Håvardsholm

MASTER’S THESIS

THE DEPARTMENT OF POLITICAL SCIENCE UNIVERSITY OF OSLO

SPRING 2019

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Business in Development: A Case Study of Private Sector Engagement with the Sustainable Development Goals in Chile.

Ane Håvardsholm http://www.duo.uio.no

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Abstract

In light of the United Nation’s Sustainable Development Goals (SDGs) the private sector has been given a greater role in advancing sustainable development. Business is perceived as a significant player in driving a more sustainable path forward, with strengths in terms of specific skills and resources. While business as a development agent has generated great amounts of research to determine the role the private sector will have, developing and emerging market companies have received limited attention. The UN global registry for partnerships and voluntary commitments for the SDGs reflects low levels of contribution and participation by private companies from emerging and developing countries. In the case of Chile however, an elevated number of private companies are registered. In this thesis, I investigate why Chilean business engage with the SDGs. The thesis seeks to understand how these companies engage with the global goals and what influences them to do so, with the aim of contributing to the understanding of the role emerging market companies take in the development agenda.

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Acknowledgments

First and foremost, I would like to thank my supervisor, Benedicte Bull, for introducing me to the topic of global governance and sustainable development. Your research and knowledge have contributed greatly to this thesis. Thank you for great discussions, advice, constructive comments, and for providing guidance through my complicated thought-processes.

I would also like to extend my appreciation to the informants that took time to participate in the study. This thesis would not have been possible without you.

To my parents, thank you for your undivided support; for advice, words of encouragement, and for reminding me that all experiences, good or bad, are always learning opportunities.

Finally, I would like to thank Sebastián for encouragement, proof-reading, and for administrative assistance during the field work. I am grateful for all your support.

All mistakes are my own.

Ane Håvardsholm 29 March 2019

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Acronyms & Abbreviations

APL – Clean Production Agreements (Acuerdos de Producción Limpia) ASC – Aquaculture Stewardship Council

BRICS – Term to group Brazil, Russia, India, China and South Africa.

CME – Coordinated Market Economy CSR – Corporate Social Responsibility GG – Global Governance

GRI – Global Reporting Initiative GSI – Global Salmon Initiative IR – International Relations

ISO – International Organization for Standardization HME – Hierarchical Market Economy

LAC – Latin America and the Caribbean LME – Liberal Market Economy

MDGs – The Millennium Development Goals MNCs – Multi-National Corporations

MSC – Marine Stewardship Council MSPs – Multi-stakeholder partnerships NGOs – Non-governmental Organizations PPPs – Public-Private Partnerships

OECD - Organization for Economic Cooperation and Development SIBA – Sustainable and Inclusive Business Activities

SCX – Santiago Climate Exchange

SDGs – The Sustainable Development Goals SMEs – Small and Medium Enterprises UN – The United Nations

UNDP – The United National Development Programme UNGC – The United Nations Global Compact

UNSDN – The United Nations Sustainable Development Solutions Network

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1. Introduction

This thesis seeks to understand how and why Chilean companies engage with the Sustainable Development Goals (SDGs). Globalization has exposed national differences in standards, and brought attention to the acute social and environmental issues facing several countries. An increased awareness of development challenges has become even more notable in the light of the SDGs. The SDGs, also referred to as the 2030 Agenda, are a universal call to end poverty, protect the planet and ensure that all people possess peace and prosperity (UNDP, 2018). The 17 Goals, which were adopted by member states in September 2015, build on the Millennium Development Goals (MDGs), but are much more complex in scope and mechanism. The 2030 Agenda in comparison to the MDGs, apply universally to all states, and include new areas such as climate change, economic inequality, innovation, sustainable consumption, peace and justice, among other priorities (figure 1). Promoted, is the argument that development is not just a developing country’s concern, and that the global community as a whole has a role and responsibility in pursuing a more sustainable future (Scheyvens, et al., 2016). Businesses, government and civil society actors are expected to be equally responsible for global development under this agenda.

Figure 1 - The UN Sustainable Development Goals (Source: UNSDN)

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Private actors are especially encouraged to take an increasingly active role in global initiatives promoting development. Although engagement between the UN and the private sector is not new, what is new is the central role the business community has taken in providing substantive input to the development of the SDGs and their 169 associated targets.

For the first time, the private sector was represented at the negotiation table and involved in designing the global sustainable development agenda alongside political and civil society actors (Scheyvens, et al., 2016). Through the SDGs, the private sector is given the opportunity to act as a central player in developing and delivering solutions, such as providing capital, jobs, technology and infrastructure while pursuing their activities in a sustainable manner. Scholars and policymakers assert that the private sector has specific strengths that can contribute to the success of the SDGs, including efficiency, innovation, responsiveness, and various resources and skills (Scheyvens, et al., 2016; Lucci, 2012).

Private sector participation in development is especially prominent through Multi- Stakeholder Partnerships (MSPs). These new ‘SDG partnerships’ ask for universal solutions instead of mere North-South transfer of aid and technology. A collective effort is clearly emphasized as an important aspect of the potential success of the goals, and the formation of partnerships is integrated into the goals themselves (SDG 17). This idea of collective action has caused a surge of MSPs. The SDG partnership registry established by the UNDP now counts a total of 4111¹ partnerships and voluntary commitments. In comparison, the MDG registry totaled 340 initiatives at its peak. As a preliminary study to establish the private sector’s role in sustainable development, the SDG partnership registry was examined, mapping private sector engagement by country. In this study, Chile was identified as having a relatively high number of private companies participating in SDG initiatives, compared to other countries - sparking my interest in uncovering why.

Business contribution to sustainable development has generated a large literature attempting to explain this phenomenon, its effectiveness, and effects on structures of global governance.

However, research has for the most part focused on multinational corporations (MNCs) from developed nations, whereas developing and emerging market companies have received comparably limited attention. Differences in business sustainability has led to a greater focus

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institutional conditions under which firms will respond to global norms and business practices promoted within sustainable development. The thesis examines the Chilean private sector in a case study to gain a greater understanding of how and why emerging market companies engage with the SDGs. The analysis and discussions presented in this thesis come at a time when the role of businesses in the global development agenda is highly debated. On one hand, business participation is promoted as a key feature of the SDGs which can provide great contributions to development. On the other hand, business exploitation of the goals for self-interest, are said to undermine the 2030 Agenda. The analysis offered in this thesis will contribute to our knowledge on how and why the private sector engages with the global goals. Additionally, with the increasing presence of emerging economies in global affairs, studying an emerging market in the light of the SDGs presents additional contributions to the literature.

1.1 Research Questions and Hypotheses

Chile makes for an interesting case to study due to its categorization as both an emerging market economy as well as an OECD country, providing several aspects and approaches to the debate of private sector engagement with the SDGs. Moreover, Chile stands out by its high participation by the private sector in SDG initiatives. This has motivated my main research question:

1. What can explain that Chilean businesses engage more actively with the SDGs than other countries?

However, registration in a database does not necessarily signify real engagement. In addition to explaining why engagement is high, I will therefore answer the sub-question:

2. How do Chilean businesses engage with the SDGs? Are the SDGs changing business behavior?

There are several possible explanations to the research questions which I have categorized these into three groups: institutional drivers, partnership opportunities, and business image.

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According to several scholars, widespread corporate responsibility reflects the national institutional context in which the companies operate. As will be outlined in chapter 3, a strong theoretical argument links business behavior to incentives and norms emerging from national institutions. The literature argues that it is because of differences in context, that we see differences in rates of engagement between countries and regions. One hypothesis is therefore that Chile’s institutional context impacts business engagement with the SDGs, arriving at the first explanatory factor:

Hypothesis 1: Chilean private sector engagement with the SDGs is influenced by the national institutional context.

Another approach, especially highlighted with the SDGs, is the incentive provided to the private sector through various partnerships and alliances. Partnerships provide businesses with a set framework for engagement, while supporting private sector contributions to sustainable development. Opportunities to participate in partnerships is therefore another tentative explanation for both how and why Chilean businesses engage with the SDGs:

Hypothesis 2: Chilean companies engage with the SDGs due to available partnership opportunities.

The SDGs present businesses with an opportunity to be development agents, extending a moral commitment to private sector actors in sustainable development. However, it would be inaccurate to disregard business interests as influential factors for taking part in this. The literature argues that companies engage with the SDGs to maintain a good business image and avoid scrutiny from various stakeholders. Responding to stakeholder demands would thus also play a part in maintaining a good reputation. Given these considerations, the final hypothesis is as follows:

Hypothesis 3: Stakeholder demands and concerns for their business image, influence Chilean companies to engage with the SDGs.

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with the SDGs, and hence how this explains Chile’s private sector’s participation. As the hypotheses of why companies engage form part of a complex reality, I believe that it will be fruitful to analyze the hypotheses at both a broader Chile-level and at a firm-level perspective. Separating the two analysis levels is also necessary because it would be inaccurate to draw conclusions from a firm level to a national level of analysis. With two points of analysis and several hypotheses, I aim to gain an in-depth understanding of how various influences contribute to businesses engagement with the SDGs in Chile. The thesis does not aim to determine if contributions to sustainable development are effective, but why companies engage voluntarily to a global development agenda.

1.2 Definitions

To start off, it is necessary to define a few of the concepts widely employed in this thesis.

First, is the ‘private sector’. I then distinguishing between ‘CSR’ and ‘sustainable development’.

1.2.1 The Private Sector

The ‘private sector’ is a loose term often used to describe any non-state actor. Some scholars include NGOs, social enterprises, philanthropists and academia into the mix. In this dissertation, I adopt the same definition as Lucci who defines the private sector “as compromising businesses, that is ‘for-profit’ only” (Lucci, 2012, p. 3). Similarly, the term

‘business’ comprises all forms of for-profit enterprises, including multinational corporations (MNCs), small and medium-sized enterprises (SMEs), business associations, extending all the way down to individual entrepreneurs. The literature has primarily focused on MNCs from western countries, and lacks emphasis on participation of various national companies from emerging and developing markets. I argue that the engagement of national companies of all sizes play a role in the realization of the 2030 agenda. Thus, in my discussion and analysis of Chile, different for-profit companies are included to gain a greater understanding of an extended private sector participation for sustainable development.

1.2.2 CSR and Sustainable Development

The terms Corporate Social Responsibility (CSR) and sustainable development are often used interchangeably when discussing business impact and responsibility. There is no clear

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consensus about their definitions, nor whether these are corporate or government issues, or both. This section aims to determine the difference between the terms to establish how business engagement with sustainable development will be assessed in the thesis.

There is not a generally accepted definition of CSR, but a recurring theme in the CSR debate highlights voluntary behavior of companies. Vogel (2006) describes CSR in terms of

“practices that improve the workplace and benefit society in ways that go beyond what companies are legally required to do” (Vogel, 2006, p. 2). The assumption that CSR engagement equals contributions to sustainable development is currently being challenged.

Milne and Gray (2013), argue that current CSR practice hardly ever addresses system-wide sustainability challenges, such as ecosystem degradation, poverty, and social justice (Milne &

Gray, 2013). Rather, CSR tends to be a collection of programs that address social and environmental concerns related to stakeholders (Behringer & Szegedi, 2016). The point to CSR is usually to achieve benefits for society of the environment within an existing business model.

According to the first well-known definition of sustainable development, the Brundtland Report defined the concept as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” (The Brundtland Commision, 1987, p. 41). This definition early labelled sustainable development as an environmental issue, but it has now become clear that economic and environmental issues cannot be separated from social concerns (Behringer & Szegedi, 2016). At the center of sustainable development are human beings and the need for human dignity for all (UN, 2002, p. 1). Although CSR is considered to contribute to sustainable development, the business role in sustainable development goes beyond voluntary contributions. It assesses the impact of the company and its ability to operate in manner which ‘meets the needs of the present without compromising the ability of future generations to meet their own’. To cover the spectra of corporate sustainability, some scholars employ the term Sustainable and Inclusive Business Activities (SIBA). As distinctive SIBA are grounded in different SDGs, this thesis will evaluate private sector engagement with the SDGs in regard to a company’s strategy of SIBA.

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1.3 Structure of Thesis

The thesis is organized in eight chapters. Having introduced the topic, the research questions and their possible explanations, Chapter 2 will provide context to the hypotheses. First, I introduce Chile’s institutional context derived from its political and economic history. I then examine the evolvement of partnerships, and the increased role provided to the private sector through these governance mechanisms. Finally, I discuss how factors of business image and stakeholder demands are considered to influence business behavior. Chapter 3 presents the theoretical framework of the thesis. In this chapter, I discuss how the various political and economic theories frame the themes introduced in the background chapter. In Chapter 4, I account for my choice of method and the challenges I faced during my fieldwork. I will additionally walk through the reasoning for choosing Chile as a case. Following the reasons for my choice of method, I discuss my fieldwork experience and all it entailed. Chapter 5 introduces the companies included in this study, providing context to the analysis. This chapter emphasizes how business engage in sustainable development. Chapter 6 and 7 form my analysis. The chapters are divided between two levels of analysis: a national and business perspective. The first analysis chapter assesses the various hypotheses from a national level of analysis. In the second analysis chapter, I discuss how the findings in chapter 6 impact the different companies. The conclusion is presented in chapter 8. I will present a summary of my findings, its implication for business, and present recommended areas for future research.

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2. Background

To understand why a great number of Chilean companies engage with the SDGs, there are several elements to consider. To fit the research question and to provide structure to the thesis, I developed three hypotheses to uncover different mechanisms of influence that impact business behavior in Chile. This chapter will serve as an introduction to each of these topics.

First, I will describe the institutional context of Chile and how it is relevant for my research question. I then introduce the partnership literature, how it has evolved, and the role presented to the private sector through this governance mechanism. Finally, I discuss how the literature presents business image and stakeholder demands influence business engagement with sustainable development.

2.1 Chile: an OECD, Emerging Economy

Chile is categorized an emerging market economy, which can broadly be described as a country that is in transition towards becoming a developed nation, and is constrained through various socio-economic factors (Investopedia, 2018). The country has a market-oriented economy characterized by high levels of foreign trade, and is considered Latin America’s strongest supporter of free trade and multilateralism. Chile is the world’s largest copper producer and a major exporter of agricultural, forestry and fishery products. Despite major diversification of the economy since the 1980s, copper is still the predominant export earner.

In 2010, Chile was granted membership to the OECD, and is as of today the only South American country in the organization. Despite being one of Latin America’s fastest growing economies, significantly reducing poverty rates the last decade (World Bank, 2018), the economic and political legacy left by the military dictatorship continues to affect Chile to the present day.

2.1.1 Economic History of Chile

The military regime under the command of General Augusto Pinochet from 1973 to 1990, embarked upon the first and most extensive neoliberal experiment in Latin America. These

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Thomas, 2014). Shifting coalitions of capitalist and landowners, who tended to be businessmen without significant links to business organizations, also played an active role in the policy process. Pinochet and his policy makers believed that capitalists held the key to economic growth and the regime was keen to expand private investment (Silva, 1996, p. 23).

To achieve this, State actors had to find upper-class allies willing and able to respond to policy initiatives. Businessmen who supported economic restructuring, were therefore offered points of access and influence in the agenda-setting, formulation, and implementation stages of the policy process – being an important force in forming the institutional structures in Chile (ibid, p. 2). However, while big business was offered political influence in policy, various business associations and SMEs were excluded.

After the overthrow of President Salvador Allende, privatization and the deregulation of the financial system attracted international investors, allowing them to acquire leading Chilean firms at bargain prices (Silva, 1996, p. 103). International corporations had privileged access to international banking at a time when Chile was in a severe credit crisis. High levels of international liquidity further pushed the enlargement of the power bloc that backed the dictator regime and the neoliberal policies (ibid). Over time, the availability of foreign capital helped fuel an economic boom in Chile. The boom between 1979 and 1981, created a sense of euphoria in the traditionally poor country. Consumerism was flourishing, and Chile’s upper and middle classes consoled themselves with the belief that Chile was at the forefront of capitalist development in the developing world, despite the international community’s uproar for the dictatorship’s human rights abuses (Silva, 1996, p. 137).

The central policy strategies in the neoliberal policies included: elimination of price controls, deregulation of financial markets, devaluation, and tariff reform. The public sector was significantly reduced, particularly cutting social program funding, and reform of the labor sectors and tax system (Davis-Hamel, 2012; Hernández & Parro, 2008) Included was also the re-privatization of several government corporations that had been nationalized under Allende.

Most industries apart from the mining sector, were privatized; including the economic sector, healthcare, and pension planning. Private universities were established, elementary and secondary education was moved to a voucher system, which essentially helped privatize these institutions as well (Silva, 2012, pp. 465-466).

From an economic perspective, the neoliberal reforms were very successful, diversifying the

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economy and spurring major economic growth. Despite a brutal and prolonged recession starting in 1982, with employment and investment funds especially affected, the country’s fiscal condition was sounder and inflation lower than other Latin American countries in the same period (Silva, 1996, p. 173). Chile’s sectorial policies set it on a course of robust economic recovery, to the envy of neighbors in crisis. Economic growth averaged 7.2 percent from the mid-1980s until 1997, almost a decade after the end of the military regime (Fisse &

Thomas, 2014). The country’s economic performance was referred to as ‘miraculous’², becoming an example for reformers across the developing world seeking to spur growth.

From a social perspective however, the reforms have had very negative effects; contributing to making Chile one of the most unequal nations in Latin America³. Although expansion of public services was emphasized after democratization in the 1990s, access to quality healthcare and education is still highly dependent on social class. Chile has additionally dipped into an extensive period of low-productivity and low-growth (Bril-Mascarenhas &

Madariaga, 2017). With a strong dependence on copper exports, difficulties stimulating growth, and growing social discontent, Chile is not the ‘miracle’ case it once was.

2.1.2 Business-State Relations

Close interaction between capitalists and the State has been a main feature of economic and social policymaking in Chile’s new democracy as well (Silva, 1996). Although more sensitivity has been given to social issues, democratically elected governments have in large part maintained the institutions and policies established under the dictatorship. This has created an environment for economic elites and powerful business associations, dominated by the country’s leading firms, to remain a highly influential body in Chilean policy-making.

Chile’s business and industry organized earlier than in most Latin American countries. As early as 1838, the National Agricultural Association (SNA) was created. In 1858, the National Chamber of Commerce (CCC) was established, followed by the National Society of Mining (SONAMI) founded in 1888, and the Industrial Development Association (SOFOFA) in 1883 (Silva, 1996, p. 31). Much later, the major business associations, the Confederation

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and Financial Institutions (ABIF), 10 years later in 1943 (Fisse & Thomas, 2014, p. 315) From the turn of the 20th century, when sectoral organizations, such as SNA, SOFOFA, and SONAMI added a political and public policy role to their original purpose of self-help, a clear pattern of the development of the increasing power of big business became evident.

During the dictatorship, these peak associations of business and landowners had privileged access to key policymaking institutions and were able to take advantage of political circumstances to create a political atmosphere conducive to their interests (Fisse & Thomas, 2014).

The OECD reports that there is a lack of industrial oversight in Chile, and that good practices in rule-making procedures are limited (OECD, 2016b, p. 3). This is highly due to the capitalist environment in Chile which allow big business to be highly independent of the State. The size of the business associations has allowed them to rely on private sources of long-term finance, both domestic and foreign, further determining their opposition of government intervention (Bril-Mascarenhas & Madariaga, 2017). Access to foreign and private investment has made many Chilean firms independent of the availability of state- sponsored credit. Firms are hence either indifferent or express outright opposition to any potential expansion of state involvement in credit markets. Such policies would benefit smaller competitors and require the expansion of government revenues, likely through higher corporate taxes (Bril-Mascarenhas & Madariaga, 2017). Only SMEs, defined by the OECD as independent firms with up to 250 employees (OECD, 2005), prefer more ambitious industrial policy. In contrast to the larger corporations, SMEs cannot access foreign credit markets or issue equity or bonds in domestic capital markets, while risk-averse banks are reluctant to allocate long-term credit to SMEs (ibid, p.10). However, although SMEs constitute the majority (84 percent) of the companies in the Chilean economy (OECD, 2016b), they enjoy limited resources compared to big business. Although SME’s may express preference for more active state involvement in credit markets, they do not influence policy decisions because these firms lack the necessary political leverage (Bril-Mascarenhas

& Madariaga, 2017, p. 10). There is big prejudice against government involvement among businesses. The ‘Chicago boys’-ideology, of which the state only should perform minimal functions, is still mirrored by most big business in Chile today (ibid).

Close relationships with Chilean governments have been among the foundations of big business influence. Tight state-business relations, “both formally—through membership on

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various boards—and informally—through personal contacts in the tight-knit ‘friends and neighbors’ environment of the Chilean social and economic elite— have had major influence on policy decisions of several government ministries” (Fisse & Thomas, 2014, p. 316). An overrepresentation of elites in the political system, high levels of inequality, and low social mobility form the foundation for the low levels of political trust among Chilean citizens (Latinobarómetro, 2017). Business elites and government officials are understood to be highly interrelated, contributing to direct and indirect influential powers. Even though several sectors that have considerable impact on the Chilean economy, particularly energy and environment, are in fact heavily regulated by the State. There is because of this, a long history of private-public sector collusion. Despite introducing a law limiting lobbying activities in 2014, organizational capacity of big business through associations like the CPC, is so strong that they achieve getting their interests reflected in policy (Bril-Mascarenhas &

Madariaga, 2017). How these institutional characteristics impacts businesses engagement with the SDGs is an interesting point for the analysis.

2.1.3 Main Sustainability Challenges

According to the Chilean government, the main sustainability priorities of the country is to achieve an economic and socially inclusive sustainable development model; strengthen institutions and democracy; reduce poverty and inequalities; and combat climate change (Ministerio de Desarrollo Social, 2017). Concrete resolutions to reduce inequalities and combat climate change have especially received attention - the latter being the only area in which business is effectively assimilated.

Reduce poverty and inequalities

Between 2000 and 2015, Chile significantly reduced the percentage of the population living in poverty, from 26 percent to 7.9 percent (World Bank, 2018). Nevertheless, as mentioned earlier in the chapter, Chile is a country with major socioeconomic inequalities, where wealth is concentrated at the very top. Maintaining such inequalities is rooted in its institutional context, culture, and market structure. A UNDP report concluded that the top 1 percent pocket 33 percent of the income generated in the Chilean economy (UNDP, 2017, p. 22). On

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70 percent of the minimum income level (ibid). An OECD report informs that one in five Chilean children live in poverty, with social mobility being limited (OECD, 2017, p. 38).

State action of redistributing wealth is deemed insufficient by the report, with government spending only amounting to 20.8% in 2014, less than half the level among OECD countries (ibid).

Chile has the greatest inequalities based on educational attainment in the OECD. The OECD reports that the income difference of having a tertiary degree versus secondary graduates, is 160 percent, where the corresponding average for OECD countries is 60 percent. Having a master’s degree, doctoral or equivalent, amounts to 444 percent difference of upper secondary graduates (OECD, 2017, p. 41). Attaining an education is the source of achieving a better life, but although access to education is better in Chile than in other Latin American countries, the quality is highly uneven. The education system was partially privatized as part of the neoliberal policies, and is today combined by public, private and state-subsidized providers. Public institutions are infamous for providing low quality education, forcing families to spend significant amounts to offer their children a fair shot at life.

The Chilean economy is also characterized by considerable gender inequities. Women earn merely 84.4 percent (2015) of what men earn (UNDP, 2017). The labor participation rate for men is also 22 percent higher than for women. In fact, while Chile ranks 39 out of 144 countries for educational attainment and 47 for health, it ranks 117 for economic participation and opportunity (Herrera, 2017).

Face climate change and protect biological diversity

Among the actions required to combat climate change, the Chilean government highlights:

care of water and efficient use of energy; innovative industries and inclusive and sustainable cities; sustainable consumption practices and production; as well as the care of terrestrial and marine ecosystems (Ministerio de Desarrollo Social, 2017). This is where the government emphasizes cooperation with the private sector. The State expects that companies will adopt SIBA and to report their real and potential impact on the environment and human rights (ibid).

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Natural resources are a significant part of Chile’s open and market-oriented economy, being a major producer and exporter of copper, in addition to agriculture, forestry and fishery products. However, Chile’s natural resource-based economic model is starting to show its limits (OECD, 2016a, p. 3). Increasing environmental pressures are accompanying the country’s growth, affecting several of its major industries. The country is vulnerable to the impacts of climate change. Increased flood risk, reduced availability of water for hydropower, reduced agricultural production, and loss of biodiversity are substantial threats (ibid, p. 13). However, greenhouse gas emissions are predicted to keep increasing in line with economic growth and energy use. Chile’s greenhouse gas emissions grew by 23 percent between 2000 and 2010. One of the largest among OECD members (ibid, p. 12).

2.1.4 Responsible Business Behavior in Chile

Despite low state intervention, Chilean firms are certainly implementing SIBA. Earlier studies of the emergence of corporate responsibility in Chile, link the phenomenon to MNCs, the role of civil society and NGOs, in addition to company value and belief systems. In their study on the emergence of CSR in Chile, Beckman et al. (2009) found that MNCs with well- entrenched CSR practices from home-countries, brought these practices to their operations in Chile (Beckman, et al., 2009, p. 197). Several studies found this to be a common in Latin America, that pressures and incentives typically originate from outside the country (Haslam, 2004). Export activities force Chilean firms to compete in the same markets as companies with higher sustainability standards. Consequently, Chilean companies must meet international standards if they wish to sell their products in European and North American markets. Beckman et al. also refer to the common perception among Chilean businesses that SIBA is part of advanced management practices, which they seek to be part of.

Another finding reflects that NGOs and civil society contributes to corporate responsibility (Beckman, et al., 2009). As discussed in the sections above, given the institutional context of Chile, the economic sector operates with low levels of state intervention. While government activity in this area was increasing at the time of earlier studies, progress was deemed slow, which may be correlated to the business-state relations in the country. Pressures and support

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As a final point, Beckman et. al. deem corporate responsibility an attribute of integrated ethical and moral belief systems in business culture (Beckman, et al., 2009, p. 200). While this point is not true for all companies, they argue the companies which do implement sustainable development as a core feature of the business strategy, do so because they accept that their operation impacts others. In this perspective, companies consider SIBA a necessary measure for the long-term focus of the firm. An important part of this argument, is the need to prove authenticity of the sustainable initiatives. Introducing programs was insufficient.

From what earlier research suggests, SIBA among business in Chile would only flourish when perceived as authentic by stakeholders. Only in this way, would it be worth the effort.

The Chilean case illustrates big business taking advantage of political circumstances, creating a political atmosphere conducive to its interests. How do these institutional effects then impact business engagement with the SDGs? Big business has the power to manoeuvre themselves past government regulation, which also relate to SIBA. But as witnessed by the UN registry, private companies do participate in initiatives to advance sustainable development in Chile. Previous research considers the emergence of corporate responsibility in Latin America an aspect of international influence, pressures by non-governmental bodies, and internal belief systems. These studies suggest that private sector engagement differs between developing and emerging markets and western countries, indicating that institutional context plays a part in the equation (Beckman, et al., 2009; Haslam, 2004). If low state intervention and business flexibility encourages business to become development agents, and how this happens, is thus an element that must be further examined.

2.2 Partnerships for Sustainable Development

On a global scale, private sector commitment to the SDGs is especially prominent through multi-stakeholder partnerships (MSPs). MSPs with private actors, are considered a key element of the development agenda. However, discussions regarding MSPs for the SDGs mainly focus on the participation and investment by MNCs from the western world. As the SDGs are a universal call for change - and with the changing global order igniting a stronger presence of emerging economies in the global economy - the case for national emerging and developing market companies in SDG partnerships is an interesting, but surprisingly little discussed topic. In which types of partnerships companies engage, and how this impacts a

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company, is therefore an essential consideration to understand Chilean business engagement with the goals.

2.2.1 Defining Partnerships

The upsurge of partnerships has generated a large literature with an increased focus of multi- stakeholder participation. Given the variety of scope and mechanism of these partnerships, there is no clear definition on what exactly they encompass. All major multilateral organizations work with different definitions, and different countries use their own definitions in national policies (KS, 2016). Additionally, scholars argue that the concept of partnerships is ambiguous, pointing to variations across many parameters such as actors, responsibility, cost, time, closeness of cooperation, risk, and complexity (Weihe, 2006;

Bleisheim & Simon, 2016).

Despite the lack of consensus, there are some basic principles of partnerships that offer common ground. First, is the concept that partnerships provide a collective good, defined as a good “with nonexclusive benefits and non-rival consumption” (Schäferhoff, et al., 2009, p.

454). Second, partnerships are global relationships, in the sense that they constitute partners from distinct countries and backgrounds (Andonova, 2006; Schäferhoff, et al., 2009). Finally, partnerships are multi-stakeholder collaborations. Although, most definitions agree on this characteristic, one side of the literature requires at least one stakeholder to be a public actor and one, a private organization. The other side argues that partnerships can involve any stakeholder, private or public. The partnerships in the first group are most often termed

‘public- private partnerships’ (PPPs) (Börzel & Risse, 2005; Schäferhoff, et al., 2009), while the latter is often referred to as ‘multi-stakeholder partnerships’ (Bleisheim & Simon, 2016).

Generally, what the term MSPs refer to are partnership arrangements between various actors.

The SDG partnership registry makes no requirements for valid public or private actors, and welcomes all partnerships and voluntary commitments in support of the implementation of the SDGs. This thesis thus adopts the UN’s definition which describes partnerships as

“voluntary and collaborative relationships between various parties, both public and non- public, in which all participants agree to work together to achieve a common purpose or

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2.2.2 The Evolution of MSPs

MSPs have since the 1990s been an increasingly integral part of the UN’s work. During the 90s, and even more so at the turn of the century, business particularly gained attention as key actors in the multilateral system. UN-business cooperation was an avid priority of former Secretary-General Kofi Annan, who introduced the UN Global Compact (UNGC) in 1999.

The UNGC called for the engagement of private companies in the promotion of UN principles within corporate domains, in areas of environment, anti-corruption, labor, and human rights. Since its launch in 2000, the UNGC has become the world’s greatest voluntary corporate sustainability initiative (Dodds, 2015). Today the UNGC consists of more than 9000 corporate participants, from 161 countries (UNGC, 2018). Aligning the ten principles of the UNGC to business practice and to strengthen actions in support of broader UN goals, such as the MDGS and SDGs, are the two main objectives of the UNGC. In relation to the latter, engaging in partnerships is described as a method of making a greater impact. There has certainly been an evolution in the partnership-thinking since the launch of the UNGC, illustrated by the establishment of new and varied partnerships.

Multi-stakeholder partnerships were first introduced at The UN Conference on Environment and Development (UNCED) in 1992, where Agenda 21 explicitly called for “a global partnership for sustainable development to improve human lives and protect the environment” (UN, 2018c). Agenda 21 identified specific stakeholder groups that could help play a role in developing policies and implement sustainable development, mentioning among others, NGOs, trade unions, and business and industry. A decade after the UNCED, there had been substantial advance in the interaction between the UN, NGOs and business.

Emerging among actors, was a growing consensus that traditional governance was no longer sufficient in the management of sustainable development (Dodds, 2015, p. 6). Consequently, new actors were invited to participate in the preparatory phase of the World Summit on Sustainable Development (WSSD) in Johannesburg in 2002. Johannesburg strongly reaffirmed implementation of Agenda 21 and presented massive opportunities for various stakeholders to form new, progressive partnerships for tackling critical global issues (UN, 2018b). The WSSD incorporated suggestions for participatory guidelines to partnerships known as Type 2 partnerships, opposed to Type 1 partnerships which typically are outcomes of international agreements (Dodds, 2015, p. 6). In 2003, these guidelines were updated at the 11^th Session of the Commission of Sustainable Development, reiterating the message of

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partnerships as a significant factor to implement the outcomes of UN conferences. Following the WSSD, economic, social and environmental dimensions of sustainable development were additionally emphasized in the design and implementation of MSPs. In this context, a private sector role, balanced by participation from civil society, was considered critical because of the increasingly predominant role of private capital flows into developing countries (ibid).

The innovative features of private actors in partnerships, has been highlighted at every major UN conference on sustainable development. It was however, most prominent at the 2012 UN Conference of Sustainable Development (Rio+20) (Dodds, 2015; Scheyvens, et al., 2016). In Rio, all stakeholders, including government, civil society, and the private sector were invited to make voluntary commitments that would deliver concrete results for sustainable development. The conference witnessed the establishment of 700 new initiatives and the formation of new partnerships to advance development (UN, 2018d). Declaring these new commitments, launched the process to develop a set of sustainable development goals, building upon the Millennium Development Goals (MDGs).

2.2.3 Post-2015 Development

The MDGs were a product of the millennium declaration which was signed by 189 State leaders at the UN Millennium Summit in 2000. Building upon a decade of major UN summits and conferences, the MDGs contained eight development goals with additional time-bound targets to be achieved by 2015 (MDG-Fund, 2012). Although the MDGs generated several innovative partnerships and illustrated the value of setting ambitious goals, evidence from the MDGs demonstrated the need for greater involvement by the private sector in the design and implementation of any new development goals (Dodds, 2015). MDG 8 was similar to SDG 17 of strengthening global partnerships, however, the scope of business engagement and the language used for the SDGs indicates a shift in the partnership-thinking since the MDGs. In MDG 8, promotion of business engagement was limited, only mentioning pharmaceutical and technological companies. In contrast, the SDGs include a vision of building systematic MSPs, not limited to business sector.

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developing. SDG partnerships are receiving attention as an alternative to traditional development assistance. Applying the SDGs universally to all nations, in addition to the inclusion of NGOs and business leaders in the process of crafting the SDG framework, has ignited the establishment of partnerships. The 4111 commitments in the SDG partnership registry today, clearly illustrates a new wind of partnership thinking. Partnerships have certainly changed in the 15 years between the MDGs and the adoption of the SDGs. Evidence shows that new and more varied partnerships are emerging, from private-public to private- private, local and regional to global (Saldinger, 2015). The changing nature of partnerships particularly demonstrates a shift from the central role that multilateral organizations have had in the past, and the participation of a wide range of actors. These developments are fostering changes to the partnership framework and definition, particularly as we observe an increase of private sector engagement in these initiatives.

The upsurge of MSPs has generated a large literature dedicated to the various issues related to phenomena, including the topic of partnership efficiency. This dissertation is not concerned with efficiency of actions, but rather how and why businesses participate in the development agenda. Private sector participation in MSPs may by some be considered a designated act of commitment to the SDGs, however previous studies have found that many partnerships are in fact inefficient or inactive (Pattberg, et al., 2012). This thesis therefore treats participation in MSPs as an explanatory factor for how and why companies engage with the SDGs, and not as a factor indicating definite commitments.

2.3 Image and Stakeholder Demands

Business contribution to sustainable development is based on the understanding that business and social values are inextricably linked. The idea presented is that ‘if progress is too slow, there is no viable world to do business in’ (Business & Sustainable Development Commission, 2017, p. 8). Although solid moral commitment by business is the image promoted, another side of the discussion illustrates external pressures from civil society organizations, the international community, and the media as sources that have triggered an interest by business to illustrate ‘good’ behavior (Lucci, 2012). Self-interest, combined in some cases with a perceived moral obligation to the local communities, have driven some companies to examine how they can deliver profits while contributing to development

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challenges (ibid). Besides influences through national institutional context and MSPs, scholars particularly cite business image, highlighting reputational effects and satisfying stakeholders as factors influencing business.

2.3.1 Business Image and Reputational Concern

Several scholars are skeptical to include business in the development agenda, arguing that companies may have hidden agendas in engaging with the SDGs. Scheyvens et al. (2016) argue that companies have difficulties moving ‘beyond business-as-usual’, adding that most private actors will focus primarily on their core business objectives which are associated with making a profit (Scheyvens, et al., 2016). Several studies are devoted to examining businesses as development agents. However, there is no clear conclusion to what type of role business will take.

In his study of business as development agents in response to poverty, Blowfield (2012) concludes that there are three conditions that appeal to businesses. First, businesses are more likely to act when poverty is linked to identifiable risks to the company. This can include risks to reputation, availability of commodities, and production. Second, businesses are more likely to engage in initiatives to alleviate poverty when it presents a financial return on investment. In many cases, delivering return on investment position the poor as consumers.

The third and last point argues that businesses are more likely to act when poverty is associated with inefficiency. This accounts for initiatives to combat corruption, enhance the poor’s productive capacity, increase health and safety standards, invest in education, and improve living environments (Blowfield, 2012, p. 421). The tendencies illustrate that sustainability initiatives are active where businesses see an opportunity to profit or for reputational advantage. This corresponds with other studies. In a study of 40 large corporations, reputation and business image ranks higher than the social, economic and contributions of development initiatives. The study found that motivations to pursue SIBA included: “maintaining competitive position” as the leading motivator, followed by “avoiding reputational damage,” “avoiding future supply disruptions,” and “capturing revenues and building loyalty” (Chakravorti, et al., 2014, pp. 2-3).

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Although these studies paint a critical picture of business as development agents, there certainly is agreement that more knowledge is required to determine what can be achieved and constrained by the private sector. This view is summarized by Blowfield:

…more information to understand the potential of business as development agent should not be treated as criticism or with suspicion: rather, it expresses a genuine need to know about the possibilities, limitations, and conditions of business’ role, so that in turn opportunities can be exploited, hazards contained, and the complementary contributions of different types of agents optimised (Blowfield, 2012, p. 422).

Business interest is certainly a factor integrated into most company decisions, and may form part of explaining why the private sector is increasingly contributing to sustainable development. However, some private enterprises are in fact making substantial contributions to the SDGs, and more than the minimum necessary to maintain a good business image. This paradox also does not tell us much about why business engagement with the SDGs varies between countries. While business image may be an influential factor, it is certainly not the only explanation. Examining this issue closer will contribute to Blowfield’s proposition mentioned above.

2.3.2 Stakeholder Demands

Demands from company stakeholders motivate SIBA. Blowfield notes that “whereas the business-as-usual approach to development emerges from managerial calculations related to costs, returns, and competition, business as a development agent is also motivated by stakeholder concerns, pressures and demands” (Blowfield, 2012, p. 416).

Stakeholders can be defined as “any group or individual who can affect or is affected by the achievement of the organization’s objectives” (Freeman & Reed, 1983). In this view, stakeholders are distinguished from other interested parties in having both the means of bringing attention to a particular issue, and the power to take action if these issues are ignored (Foley, 2005). Also as depicted in Freeman’s (1984) stakeholder theory, corporations have responsibilities to their shareholders and other interest groups. The stakeholder theory, argues

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that sustainable and responsible behavior will enable the firm to achieve a comparative advantage through developing lasting, productive relationships with their stakeholders.

An organization’s list of stakeholders can vary over time. It depends on “factors that determine the prevailing power balance among various parties, such as culture, type of market, and government system” (Garvare & Johannson, 2010, p. 739). Organizations have various ‘primary’ and ‘secondary’ stakeholders. Primary stakeholders usually refer to stakeholders who have direct control of essential means of support required by the organization. Examples include customers, co-workers, management, suppliers, and government. Secondary stakeholders describe actors who do not directly provide the organization with any essential means of support, but have enough influence to be more than just an interested party (ibid). Secondary stakeholders can be NGOs, academia, media, environmental pressure groups, or any other organization that can influence primary stakeholders to withdraw support (ibid).

For many organizations however, the foremost stakeholder is the customer (Foley, 2005).

This is because the customer provides the revenue necessary to satisfy other stakeholders.

Customers today demand more information from producers and suppliers about how a product is made. In many cases, customers are willing to pay more for an ethical produced product. Stakeholders hold great influential power on business, capable of impacting sales, investments, and production - depending on how a firm responds to their demands. Business engagement with the SDGs may be motivated by stakeholder requests and a source to improve image. These are hence additional influences which needs to be addressed in this analysis.

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3. Theoretical Framework

In this chapter, I outline the theoretical perspectives that will function as the framework for answering my research question. I consider that there are both relevant international and national influences which may impact businesses to engage with the SDGs. To start, I establish which theoretical standpoint in the IR literature best incorporate the various explanatory factors. I then illustrate how the hypotheses are rooted in theory, and discuss how different mechanisms of influence can be recognized as contributing to changes in firm behavior.

3.1 Conceptualizing Power in IR

Power is an integral part of all political relationships, and is hence a key concept for the study of International Relations (IR). Power in IR, broadly refers to an actor’s ability to influence other actors, but can be a process, a relationship, a means to an end, and even a quantity, carried out by various means (Holsti, 1964, p. 193). In the study of IR, there are different theoretical perspectives for explaining influence and interactions in the global realm, where the importance of- and approaches to power vary greatly. Drawing on some of the most common paradigms of international relations, I will discuss how each theory interprets the concept of power to establish my point of departure for analyzing business engagement with the SDGs.

3.1.1 Realism

For realists, the international system is defined by anarchy. To explain international political change in the absence of central authority, realists focus on States and interactions between them. States are sovereign and thus autonomous of each other. In this perspective, the individual State is the only accountable and legitimate actor at the global level. Although sovereignty makes States functionally similar, it is their capability, or relative power, that determines their position in the international system (Walt, 1998). Although other motivational factors than power and security may exist, the leading realist scholar Robert Gilpin stresses that “these more noble goals will be lost unless one makes provision for one's security in the power struggle” (Gilpin, 1984, p. 291). Realists recognize that cooperative international institutions exist. However, they maintain that institutions are ultimately a reflection of the distribution of power in the world (Mearsheimer, 1994). According to

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Gilpin, the process of international political change reflects the efforts of individuals or groups to transform institutions and systems to advance their interest (Gilpin, 1981). States may create international law and international institutions, and may enforce the rules they codify. However, it is not the rules themselves that influence State behavior, but instead the underlying material interests and power relations. While contributing to the understanding of self-interest in international affairs, the realist paradigm is deficient in considering the influence of ideas, civil society, institutions, and transnational forces in its analysis. Power is certainly not irrelevant in IR, but a realist perspective cannot adequately explain the joint commitments to sustainable development we are observing in light of the SDGs.

3.1.2 Marxism

Marxism rejects the realist view of power struggles as the main source of conflict and cooperation. Instead Marxists suggests that capitalism, or how individuals and groups produce and exchange the goods necessary for their survival, shapes how they interact.

Marx's theory of the state is concerned with understanding relations inside a State, and the effect of that system on its relations (Ollman, 1979). Capitalist economies develop at different rates, causing differential growth of national power. Consequently, the development of differences become the source of international political change. Bound by the understanding that capital is not only the physical means of production, but the entire pattern of social and economic relations, Marx stressed that capitalism creates interdependence. In this way, political relations between states are formed (Ollman, 1979). Marxism accentuates that the social world plays a part in determining consciousness and behavior. Individuals as well as groups are shaped by specific circumstances and material conditions which they themselves create in the process of realizing their material needs (Nagim, 1996). The connection between social structure and individual action is made by the presumption of rationality of individuals who act under the constraints of social structures (Hodgson &

Callinicos, 2001). Although Marxists argue that institutional context form the social structures that explain how individual interests are constrained, the main analytical framework is centered around capital structures. Material interests are considered influential for the private sector to engage with SDGs, but I argue that other explanatory factors beyond

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3.1.3 Liberal Institutionalism

Liberal institutionalism places its faith in international institutions and arrangements that effectively limit State power. Liberal institutionalism argues that in order for there to be peace in international affairs, States must cooperate together and in effect yield some of their sovereignty to promote economic growth and respond to international issues. Although liberal scholars maintain that obtaining and creating power is significant for the global order, actors are also influenced by democracy, liberal values, economic interdependence, and international institutions (Barnett & Duvall, 2005). Although most institutionalists focus on the role of formal institutions in coordinating international cooperation, they also position norms, practices, and conventions as additional agents of governance. Institutions can hence be defined as “the rules that form the behavior of organizations and individuals, which are both formal (legal rules that apply to all) and informal (norms and customs that apply to specific groups)” (van Wijk, et al., 2011). In other words, the core of institutionalism signals that social order, including organizations in all their forms, is not simply constrained by institutional rules, but also constituted by shared norms and customs.

The general agreement of what a norm is, is a standard of appropriate behavior for actors with a given identity (Finnemore & Sikkink, 1998, p. 891). The difference between ‘norms’

and ‘institutions’ is the collectivity of behavior; norms refer to single standards of behavior, while institutions emphasize the way in which behavioral rules are structured together (ibid).

For institutionalists, common goals play a fundamental role in the international system. They lay the foundation for international organizations to encourage cooperation in the global realm. Institutionalism therefore rejects the realist assumption that international politics is merely a struggle for power in which military security issues are top priority. Instead, actors other than States participate directly in world politics, in which a clear hierarchy of issues does not exist.

Rather than viewing private sector engagement with the SDGs only as a voluntary action, institutionalism suggests a framework that focuses on developing a sociological view of the way institutions interact and how they affect society. Understanding engagement with the SDGs as an institutional form of private governance shows that businesses are pivotal actors in this area (Brammer, et al., 2012, p. 17). From an institutional standpoint, sustainability “as a voluntary, ad hoc and discretionary set of practices, is just a fraction of corporate activities

Business in Development: A Case Study of Private Sector Engagement with the Sustainable Development Goals in Chile

Business in Development

A Case Study of Private Sector Engagement with the Sustainable Development Goals in Chile.

Ane Håvardsholm

Master’s thesis

The Department of Political Science UNIVERSITY OF OSLO

Spring 2019

Word count: 34818

Business in Development

A Case Study of Private Sector Engagement with the Sustainable Development Goals in Chile.

Abstract

Acknowledgments

Table of Contents

List of Figures

List of Tables

Acronyms & Abbreviations

1. Introduction

1.1 Research Questions and Hypotheses

1.2 Definitions

1.2.1 The Private Sector

1.2.2 CSR and Sustainable Development

1.3 Structure of Thesis

2. Background

2.1 Chile: an OECD, Emerging Economy

2.1.1 Economic History of Chile

2.1.2 Business-State Relations

2.1.3 Main Sustainability Challenges

Reduce poverty and inequalities

Face climate change and protect biological diversity

2.1.4 Responsible Business Behavior in Chile

2.2 Partnerships for Sustainable Development

2.2.1 Defining Partnerships

2.2.2 The Evolution of MSPs

2.2.3 Post-2015 Development

2.3 Image and Stakeholder Demands

2.3.1 Business Image and Reputational Concern

2.3.2 Stakeholder Demands

3. Theoretical Framework

3.1 Conceptualizing Power in IR

3.1.1 Realism

3.1.2 Marxism

3.1.3 Liberal Institutionalism