Can corporations be a force for good?

Transnational corporations (TNCs) are becoming increasingly powerful and thus critically important for ensuring that irreversible climate or ecosystem tipping points are not transgressed. National legislation often fails to prevent harmful impacts of TNCs on the climate system, ecosystems and people. An article in Annual Review of Environment and Resources calls for more transformative approaches by TNCs, together with stronger actions by governments and global organisations to safeguard the planetary systems on which TNCs themselves rely.

Negative impacts of TNCs include pollution of soils, freshwater and oceans, depletion of air quality, ecosystems and species, climate change emissions, and social effects such as unacceptable working conditions, erosion of traditional practices and increased inequalities.

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National law falls short for international corporations

National legislation covers only activities taking place within a nation and expected standards of performance differ between countries. Therefore, TNCs operating in several countries are subject to different legal requirements and no single nation has a full overview of their operations. Moreover, TNCs are rarely forced to consider the full social and ecological costs of doing business. The author team, led by Henrik Österblom at the Beijer Institute (also affiliated with Stockholm Resilience Centre), claim that extensive lobbying and science denial have delayed establishment of adequate regulations.

“It is time for governments to ensure that company motives and purposes are aligned with political and societal interests and economic preconditions—namely to safeguard the resilience of the biosphere for future generations”, the authors write.

The inability of governments to agree on a set of global standards for TNCs, combined with limited transparency and knowledge of impacts, has resulted in a governance gap.

The rise of voluntary environmental programmes

Some TNCs, alone or in partnership with others, have started to take action and have established voluntary environmental programmes (VEPs) to clean up their act, prompted by the realisation that this is necessary for the future of their business and reputation or to avoid public shaming. VEPs unite companies behind voluntary commitments to go beyond complying with minimum legal regulations. Corporate engagement is emerging as a pathway to competitiveness, recruitment of talent and progress among companies and investors.

The international wheels move too slowly

International governance efforts have been made, e.g. the OECD has sought more general regulation of TNCs since in the 1970s. OECD guidelines cover topics such as human rights, employment practices and bribery, but also expectations on documenting and reducing negative environmental impacts. Many of these principles and practices are similar to those adopted by the United Nations Global Compact, a non-binding pact to encourage businesses and firms worldwide to adopt sustainable and socially responsible policies and report on implementation.

The article identifies several weaknesses with these efforts, e.g. they are non-binding and the OECD guidelines have not been updated since 2011, so do not consider recent scientific advances regarding the biosphere crises.

Call for a new convention

“International governance of environmental effects of corporations is rarely put in place proactively; instead, it is developed years after environmental problems have become evident”, says Henrik Österblom. “We can conclude that the combined effect of state-led and voluntary governance of corporations has been insufficient to meet the United Nations Sustainable Development Goals”.

Broader transformation is needed, where governments adopt a leadership role, through development of formal regulations. The authors claim that the time is ripe for a “Convention for Transnational Corporations in the Anthropocene Biosphere.” It could be modelled on an updated OECD framework and the UN Guiding Principles on Business and Human Rights, expanded to include the latest research on the state of natural systems, connections between systems and the different pressures they face.

“Corporations can be an instrumental force for reducing climate change impacts and achieving the Sustainable Development Goals. This requires corporate leaders to be willing to go far beyond compliance, and work together with science. Equally necessary are stronger and more ambitious policies and incentives from political leaders and financial institutions”, says Henrik Österblom.

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Österblom, H., J. Bebbington, R. Blasiak, M. Sobkowiak, and C. Folke. 2022. Transnational corporations, biosphere stewardship, and sustainable futures. Annual Review of Environment and Resources 47:609-635.