UN World Investment Report 2010 - Office of Trade Negotiations

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leakage investment could potentially generate
much needed development gains, including
(skilled) employment, infrastructure, export
and tax revenues as well as multiplier effects
and other positive externalities, particularly
in the short run. In the long run, however,
each country would benefit from enhancing
the energy-, material- and resourceefficiency
of its production processes which
the move towards a low-carbon economy
would entail.
Instead of addressing the issue of carbon
leakage at the border, it could also be dealt
with at its source. Regulatory options in this
regard include building on TNCs’ investment
decision-making and corporate governance
mechanisms, through improved environmental
reporting and monitoring.
In terms of TNCs’ investment decision
making, it remains to be seen whether firms
would ultimately engage in carbon leakage
at a large scale. Notably, carbon policies are
only one element of the broader industry
picture, which influences TNCs’ decisions
about their investment locations and it may
not necessarily be in the best interest of TNCs
to relocate polluting facilities to developing
counties with lower emission standards.
One significant factor in this respect might
be the economies of scale that are created
by using common global technologies and
standards across countries. The cost of operating
facilities in different jurisdictions
with different technologies – so as to take
advantage of laxer regulations in some of
them – is often higher than operating one
“clean” (i.e. less carbon-intensive) technology
across all relevant TNC facilities. In
earlier versions of the “pollution haven”
discussion, efficiency savings and cost
reductions resulting from the application
of stricter environmental standards across
the board were cited as a factor for less
environmentally harmful foreign investments
(WIR99). Consistency throughout a
company’s integrated production system is
World Investment Report 2010: Investing in a Low-Carbon Economy
in line with the logic of the value chain and
would also facilitate the implementation of
corporate carbon policies.
Another reason that might induce TNCs to
refrain from engaging in carbon-leakage type
operations is the need to safeguard their corporate
image in the face of increasing public
concern on climate change, environmental
or other public policy issues. Particularly
for firms producing consumers goods, customers’
perceptions about the producing
company and the extent to which it operates
in line with particular value sets is of utmost
importance. This is particularly the case for
export-oriented foreign investment. Hence,
a company perceived as a “good corporate
citizen” might derive economic benefits from
acting in a low-carbon manner.
This raises further issues about private standards
and TNCs’ reporting on the carbon
footprint of their activities. Improved climate
reporting, particularly when undertaken in a
harmonized and verifiable manner, can help
ensure that a company’s branding is based on
solid ground, as it increases the transparency
and accountability of company operations.
A noteworthy example in this respect is the
nearly two decade old Forest Stewardship
Council, a global multi-stakeholder initiative
that provides standard-setting and accreditation
services to companies. Such private
standard setting, especially in the context of
multi-stakeholder initiatives, can be an effective
tool for inducing behavioural change.
Exposing carbon leakage, for example
through a “Climate Stewardship Council”,
can help to incentivize firms to take action,
with a view to meeting stakeholder expectations
(section C.1). The related package
of monitoring tools could include, amongst
others, standardized reporting, audits, product
certifications, and management system
standards, which could be based on – or
linked to – existing initiatives (e.g. ISO
14 000). In addition, policy makers could
consider the promotion of the monitoring
of and standardized reporting on (private)