Environment and Planning A: Economy and Space

In this paper we examine the emergence of firm-based global environmental standards as an approach to managing the environmental performance of complex global production networks. Firm-based global environmental standards exist when a firm defines a uniform set of process and product environmental performance requirements that must be adhered to by all of a firm's facilities around the world, even if these firm-based standards exceed the requirements of local and national environmental regulations. We identify increasingly stringent end-market environmental regulation, as well as growing concern over the need to protect a firm's reputational capital and operating legitimacy, as two key drivers of the adoption of firm-based environmental standards. Our analysis suggests, however, that firms are responding to these external drivers in part because of the characteristics of global production networks—a production form that depends on the ability to produce from any manufacturing plant to any end market. The paper examines the impact of firm-based environmental standards through case studies of a cement plant in Thailand and an electronics manufacturing plant in Penang, Malaysia. In line with the literature on new institution economics, the case studies demonstrate that firm-based standards are providing a platform for learning and innovation within the firm.

Two multinational retail firms, IKEA and Wal-Mart, illuminate the implications of a new era of labor standards—focused on the transnational firm. Global labor standards are increasingly enforced through transnational corporation (TNC) adherence to voluntary codes rather than through national labor regulation. Nonetheless, privatized labor-standards regimes within TNCs continue to be influenced by the national market governance framework in the TNC country of origin. Although, in principle, labor standards are arrived at through global political processes, in practice they are applied in conjunction with TNC production and marketing strategies. The way in which corporate objectives intersect with labor practices is different from one TNC to another, depending in large part on political and regulatory influences in the country of origin of a particular TNC.

The World Trade Organisation's (WTO) consistent rejection of proposals for the inclusion of a social clause into its existing rules and regulations has prompted the International Labour Organisation (ILO) to examine alternative ways in which global consensus on the regulation of labour standards can be developed. In this paper we map the failure of the social clause debate by reference to the outcome of successive WTO ministerials and we examine the role of executive leadership and related epistemic activity in the development of the international labour standards regime (ILSR). We conclude that the switch to a focus on a regime of core labour standards provides the most promising platform for progress in labour protection and an influential outcome in placing the ILO at the heart of attempts to integrate social policy into global economic governance.

Institutional investors, particularly pension funds, based in developed Anglo-American capital markets are increasingly investing in international markets, including emerging markets, in an effort to capitalize on the rapid growth rates of these markets. But investment in far-flung jurisdictions carries with it risk and uncertainty, particularly when the corporate standards of firms in emerging markets are below those found in these investors' home countries. In order to mitigate the risks posed by poor corporate standards of behaviour, institutional investors increasingly apply nonfinancial criteria not only to individual firms in emerging markets, but to the corporate practices of whole countries. Though countries and their regulatory regimes are central to external capital-investment decisions, we find convergence to global standards occurs when key actors in the investment value chain demand levels of corporate and social behavior greater than those currently consistent with countries' own regulatory frameworks. We test this hypothesis using the decision of the California Public Employees Retirement System to screen out several emerging-market countries from their investment portfolio on the basis of a variety of nonfinancial criteria.

The Australian Financial Reporting Council recently shocked the world business community by unexpectedly announcing a change in the nation's approach to global-accounting-standards development. The change involved switching from ensuring consistency of Australian accounting standards with International Financial Reporting Standards (IFRSs) developed by the International Accounting Standards Board to outright adoption of IFRSs by 2005. At the time of the announcement, Australia had the most developed international harmonisation programme of any country with a well-developed financial reporting system. Events surrounding the change demonstrate how political the accounting standard-setting process can be as it continues to receive front-page media attention, and as it provides a platform in parliamentary and electoral debate. In the meantime, the US role in the global accounting standard-setting arena has moved through phases of indifference to potential active dominance, and European influences have waxed and waned. We examine whether swings in political and regulatory influences that occur when globalisation becomes a national and international goal are explained by regulatory capture theory. We also address the extent to which a subset of a single nation's regulatory system plays a key role in a series of larger national and international games. Drawing upon experiences in Australia, the United States, and the European Union, we identify political influences on initiatives to reform accounting-standard-setting environments, policies, and processes.

In this paper we examine the long-term interests that large institutional owners (for example, the California Public Employees' Retirement System, Hermes, and the Universities Superannuation Scheme) have in the development of global corporate governance standards, especially as governance standards increasingly become intertwined with other standards and regime parameters involved in the globalization debates. We argue that institutional owners have a unique perspective and voice with which to contribute to the formulation of global standards in a variety of areas on the basis of their long-term financial interests. This conclusion is supported by an analytic review of the current state of global corporate governance, including multilateral initiatives (for example, the Organisation for Economic Co-operation and Development, the World Bank); an analysis of significant institutional investors, the role of various rating agencies (for example, Fitch, Moody's), the International Corporate Governance Network, and the growing role of various nongovernmental organizations (for example, the Coalition for Environmentally Responsible Economics, the Carbon Disclosure Project) in relation to corporate governance.

Institutional investors, primarily pension funds, drive global financial markets. The result is investors vulnerable to the risks companies face in global consumer and capital markets. Though some market risks are inevitable, others, such as reputation risk, can be mitigated through increased corporate social and environmental standards and the increased transparency that such higher standards demand. The transparency necessitated by reputation management has a dual role in monitoring corporate behaviour and providing all stakeholders (internal and external) with the information to evaluate corporate behaviour. Driving this process is the belief that higher standards of corporate responsibility pay off for investors over the long term both through potential equity premia and through risk reduction. This paper presents a model for understanding how and why institutional investors may encourage firms to adopt higher standards. To illustrate our argument, we refer to the experience of the UK Universities Superannuation Scheme (USS) strategy of corporate engagement and the attempts of the USS to encourage firms to raise their environmental standards by focusing on the climate change impacts of pension-fund investments. Investor engagement in corporate responsibility offers an insight into the role of investors in global-standard setting and global citizenship.

In this paper I explore the remaking of globalized standards through harmonization, and its impact upon certified-organic and fair-trade agrofood networks. I focus on certification standards and discuss four shifts associated with globalized standards (an increased importance of multilateral institutions, changes to standards language, displacement of network-specific standards, and a shift away from relational standards). It is then argued, with reference to value-chain rent theory, that the shift to globalized standards has transformed rent relations in ways that benefit certain actors (that is, retailers) and imperil the earnings of others. In brief, globalized standards increase the costs of standards compliance, the full burden of which falls upon immiserated producers, to the point at which farmers see little economic advantage to certified-organic and fair-trade production. I then examine social-accountability standards that seek to ‘fight standards with standards’ by championing the consolidation of strong labor and environmental protections under a single label. The study suggests that a single-label strategy can be successful, yet must struggle to overcome a Polanyian double bind, for, in order to build broad coalitions necessary to extend the reach of protective standards, the coalitions must include corporate interests that prefer weaker, contract-based standards.

The paper concerns the formation of standard setting in respect to international economic activity. A number of different forms of standard setting are discussed, but the analysis is concentrated upon the macro context for this process. In this paper I review the issue of the convergence in institutional design and systemic patterns of economic activity as global standards are pressed onto the governance framework for international economic management. However, the analysis suggests that the international economy is developing along a distinct path towards supranational regional bloc formations rather than towards an ever more global pattern. The consequences of this shaping of the international economy for the processes of standard setting in a number of different contexts are discussed.