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Washington Post

Monitoring Corporate Citizens. Voluntary Standards Fall Short, Critics Say.  By Jonathan Finer, Washington Post Staff Writer. Thursday, June 5, 2003; Page E04.

Big clothing retailers and banks are increasingly adopting voluntary standards of corporate conduct in response to those who accuse them of poisoning the environment, abusing workers and harming indigenous people in the developing world.

In short, the corporations say, we hear you and are taking steps to address your concerns.

But the critics answer that while voluntary standards are a start, self-policing does not go far enough, as illustrated by a report released yesterday that detailed cases in which workers in overseas factories were overworked and underpaid, were prevented from unionizing or suffered other workplace indignities.

The report was issued by a group representing seven major retailers -- among them athletic-apparel giants Nike Inc., Reebok International Ltd., and Adidas-Salomon AG -- that said the findings offer an independent assessment of working conditions in their suppliers' factories. The idea is that the companies will use the information to pressure their suppliers to improve employment practices.

Also yesterday, 10 major banks -- including Citigroup Inc., Credit Suisse First Boston Corp., and Credit Lyonnais -- said they will begin adhering to a code of conduct developed by the International Finance Corp., the development arm of the World Bank, requiring them to verify that the projects they finance meet environmental and social impact standards.

Voluntary standards "have a very good side in that they cause corporations to pay attention to areas they otherwise might not. It's better than nothing, but far from an ideal situation," said Ann Florini, a senior fellow at the Brookings Institution and the author of a recent book on global governance.

Corporations began adopting social, environmental and labor codes of conduct in the 1970s, with the rise of non-governmental pressure groups. Internal scrutiny became more aggressive in the 1990s, as the watchdogs became adept at mobilizing consumers who could spurn companies that did not fall into line. But activists have long been skeptical that real change is possible unless corporations disclose more details of their self-policing efforts.

The banks said they will apply standards known as the "Equator Principles," which are aimed at minimizing the environmental and social damage caused by the new dams, power plants, pipelines and other projects they finance. The banks have agreed to enforce these principles for all loans of $50 million or more. "Even if you use an extremely conservative estimate, this will change the rules of the game for about $100 billion in global investment in the next 10 years," said Peter Woicke, the executive vice president of the IFC, in a conference call.

But some environmental groups argue that the new policies leave some gaping loopholes.

"The core issues to me are that there's nothing in the statement that takes the most ecologically sensitive areas off-limits for mega-development," said Ilyse Hogue, global finance campaign director for the Rainforest Action Network, which in recent years has launched a campaign against the social and environmental practices of Citigroup.

A frequent complaint put forward by critics of corporations' attempts at self-regulation is that the corporations don't provide enough information about their methods and findings. The report released yesterday by the Fair Labor Association -- a consortium of companies, advocacy groups and university representatives -- was at least in part a response to such criticism, said Elizabeth Borrelli, director of public affairs and corporate social responsibility at Eddie Bauer Inc., one of the member corporations.

"This is groundbreaking in terms of corporate responsibility and accountability. It's the first time companies are reporting publicly on these things," she said.

Independent auditors evaluated 185 factories in 30 countries, most of which are locally owned in the developing world. Their report documents many violations of international standards, such as a lack of toilet paper in the bathrooms of a Chinese factory and the crushing of unions in El Salvador. It also outlines the steps that the auditors hired by FLA recommended to help improve conditions.

Some labor activists said the report was undermined by some major flaws, such as not disclosing the names and locations of the factories surveyed. But even those pointing out the limitations of corporate self-assessments acknowledge that there's no easy alternative. "Even the best intentioned corporate actors are not going to substitute for government regulation," said Brookings's Florini. "But we don't have government regulation at the international level. This is a stopgap."