Recommended actions to foster the adoption of Corporate Social ...

Recommended actionsto foster the adoptionof Corporate SocialResponsibility (CSR)practices in Small andMedium Enterprises (SMEs)Inter-AmericanDevelopment BankCarlo Cici andFederica RanghieriAuthorsEstrella Peinado-Vara andGabriela de la GarzaEditors

The opinions expressed in this publication are those of the authors onlyand do not reflect the views of the Inter-American Development Bank.This publication is available electronically at: www.iadb.org/csramericasInter-American Development Bank1300 New York Avenue, N.W.Washington, D.C. 20577USAEmail: csramericas@iadb.orgFEBRUARY 2008

Recommended actionsto foster the adoptionof Corporate SocialResponsibility (CSR)practices in Small andMedium Enterprises (SMEs)Inter-AmericanDevelopment BankCarlo Cici andFederica RanghieriAuthorsEstrella Peinado-Vara andGabriela de la GarzaEditors

Cataloging-in-Publication data provided byInter-American Development BankFelipe Herrera LibraryCici, Carlo.Recommended actions to foster theadoption of Corporate Social Responsibility (CSR)practices in Small and Medium Enterprises (SMEs) /Carlo Cici and Federica Ranghieri, authors; EstrellaPeinado-Vara and Gabriela de la Garza, editors.p. cm.Includes bibliographical references.1. Social responsibility ofbusiness—Latin America. 2. Small business—Latin America. I. Ranghieri, Federica. II. Peinado-Vara, Estrella. III. De la Garza, Gabriela. IV. Inter-American Development Bank. V. MultilateralInvestment Fund. VI.Title.HD60.5.L29 C43 2008658.408 C43---dc22

table of contentsI Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1II Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2III Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71 Readers Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72 Methodological Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92.1 CSR defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92.2 Literature review and stakeholder mapping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92.3 CSR and compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Chapter 1: Argentina1 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132 Economic and Social Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133 Current State of CSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153.1 Marketplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .163.2 Workplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .173.3 Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .173.4 Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .184 Recommended Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .184.1 Multilateral Development Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .184.2 Government and local authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .204.3 Business Associations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .214.4 Civil Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24Appendix: Stakeholder map Argentina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25Chapter 2: Brazil1 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .292 Economic and Social Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .303 Current State of CSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .323.1 Marketplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .333.2 Workplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .343.3 Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .343.4 Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .354 Recommended Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .364.1 Multilateral Development Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .364.2 Government and local authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .384.3 Business Associations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .394.4 Civil Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41Appendix: Stakeholder map Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

Chapter 3: Chile1 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .472 Economic and Social Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .473 Current State of CSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .503.1 Marketplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .523.2 Workplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .533.3 Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .533.4 Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .544 Recommended Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .544.1 Multilateral Development Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .554.2 Government and local authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .554.3 Business Associations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .564.4 Civil Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59Appendix: Stakeholder map Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61Chapter 4: Colombia1 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .652 Economic and Social Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .653 Current State of CSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .683.1 Marketplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .683.2 Workplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .703.3 Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .703.4 Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .704 Recommended Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .714.1 Multilateral Development Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .724.2 Government and local authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .734.3 Business Associations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .744.4 Civil Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76Appendix: Stakeholder map Colombia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78Chapter 5: El Salvador1 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .832 Economic and Social Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .833 Current State of CSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .883.1 Marketplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .903.2 Workplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .903.3 Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .913.4 Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .924 Recommended Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .924.1 Multilateral Development Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .934.2 Government and local authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .934.3 Business Associations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .944.4 Civil Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .95Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96Appendix: Stakeholder map El Salvador . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98

Chapter 6: Mexico1 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1012 Economic and Social Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1023 Current State of CSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1043.1 Marketplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1073.2 Workplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1083.3 Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1083.4 Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1094 Recommended Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1094.1 Multilateral Development Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1104.2 Government and local authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1104.3 Business Associations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1114.4 Civil Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114Appendix: Stakeholder map Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .117Chapter 7: Peru1 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1212 Economic and Social Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1223 Current State of CSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1233.1 Marketplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1253.2 Workplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1253.3 Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1253.4 Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1264 Recommended Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1264.1 Multilateral Development Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1274.2 Government and local authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1284.3 Business Associations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1294.4 Civil Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .129Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131Appendix: Stakeholder map Peru . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133Chapter 8: Venezuela1 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1372 Economic and Social Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1373 Current State of CSR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1413.1 Marketplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1423.2 Workplace . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1423.3 Community . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1423.4 Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1434 Recommended Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1434.1 Multilateral Development Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1444.2 Government and local authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1444.3 Business Associations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1454.4 Civil Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .146Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .147Appendix: Stakeholder map Venezuela . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .149

acknowledgementsMain authors: Carlo Cici (Team Leader) from RGA and Federica Ranghieri from Università degli StudiMilano.Project supervision: Antonio Vives and Estrella Peinado Vara from the Inter-American Development Bank.Main editors: Estrella Peinado-Vara and Gabriela de la Garza from the Inter-American Development Bank.Secondary editors: Jessica Vexler and Alice Ishikawa Lariú from the Inter-American Development Bank.The team in charge of the field work and country data collection is:Country experts coordination Paula Aczel ICFIDB country experts interviews Bjorn Fruchtman ICFArgentina Maria Ana Gonzalez ICFBrazil Christianne Maroun ICFChileSandra BustosColombia Carlos Forero IngeominasInstitutional Developmentat AccionRSEEl Salvador Estela Canas Universidad Centro AmericanaMexico María del Rocío Moro López Universidad IberoamericanaLourdes LinaresGeorgina Reyes EsparzaUniversidad IberoamericanaDavero ConsultoresPeru Camilo Leon Social Capital GroupVenezuela Carmen Cecilia Mayz ICFPublication design: StudioGrafikAcknowledgements 1

acronymsCDMCSRECFLAFSCGDPGHGGRIHRWIDBIEAISOMDIsMIFNGOsOH SASSAISMEsTNCsUNESCOUNDPUNFCCCUNGCUNICEFUNIDOUNRISDWBCSDWEFWHOWRIClean Development MechanismCorporate Social ResponsibilityEuropean CommissionFair Labor AssociationForest Stewardship CouncilGross Domestic ProductGreen House GasGlobal Reporting InitiativeHuman Rights WatchInter-American Development BankInternational Energy AgencyInternational Organization for StandardizationMultilateral Development InstitutionsMultilateral Investment FundNongovernmental OrganizationsOccupation Health and Safety Assessment SeriesSocial Accountability InternationalSmall and Medium EnterprisesTransnational CorporationsUnited Nation Educational Scientific and Cultural OrganizationUnited Nations Development ProgramUnited Nations Framework Convention on Climate ChangeUnited Nations Global CompactUnited Nations Children’s FundUnited Nations Industrial Development OrganizationUnited Nations Research Institute for Social DevelopmentWorld Business Council for Sustainable DevelopmentWord Economic ForumWorld Health OrganizationWorld Research Institute2 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

executive summary“In Latin America, 95 percent of firms are Small and Medium Enterpises (SMEs), and account forbetween 40 and 60 percent of jobs, depending on the country, and contribute 30 to 50 percent of GDP”—(Vives, Corral and Isusi, 2005)In developing countries, private enterprises have ahistory of contributing to social developmentthrough paternalistic social welfare, healthcare,housing and educational programs. Thesecontributions have been mainly fulfilled throughcharitable and religious groups. However, in recentyears the concept of Corporate Social Responsibility(CSR) has transitioned from mere philanthropy to amore systematic corporate response.It is important to recognize that approaches to CSRcreated for or by large companies, cannot be simplytransferred to small and medium sized enterprises(SMEs), as SMEs lack the power to influencegovernments, dictate standards or move acrossnational boundaries in search of lighter regulation.Many SMEs already practice a “silent” type of socialresponsibility, which refers to social andenvironmental practices that SMEs are alreadyimplementing, but they do not categorize them asCSR because they do not have access to muchinformation on the topic. SMEs generally have agreater understanding of local culture and politics,they have more links with local civil society and agreater commitment to operating in a specificgeographic area. This report also aims to help SMEsgive a voice to their “silent” social andenvironmental responsibility.It is easier for large companies to generate commercialgains from CSR activities than it is for SMEs. Forexample, large companies and global brands can:• Develop systems and economies of scale to dealwith the demands for formal monitoring andstandards.• Allocate financial and human resources todevelop relationships and partnerships withnongovernmental organizations (NGOs) andgovernments.• Outsource production and pass the costs ofimprovements down the supply chain, whilegaining a better reputation for theseimprovements.• Use CSR as the ‘human face of globalization’ toease market entry into sectors where SMEs havedominated.However, CSR can produce competitive benefits forSMEs as well. For example, CSR can help SMEs:• Gain trading relationships with TransnationalCorporations (TNCs) or companies in NorthAmerican and European markets. It is importantto point out that export-oriented CSR can onlysucceed when products and services also meetinternational standards.• Establish closer links with entities with whichthey share values, such as business associationsand multilateral organizations.• Communicate directly with consumers throughenvironmental and social labels.• Decrease operational costs throughenvironmental efficiency measures and improveproductivity and quality through bettermanagement encouraged by CSR.• Enhance relationships with their staff, suppliers,customers and government.• Find new ways to develop skills, manage risks,seize opportunities and solve problems.SMEs also have the advantage to implement certainCSR practices more easily than other enterprises,because they are generally closer to the communityin which they operate. Frequently SMEs are familyowned enterprises, so they are characterized by aExecutive Summary 3

strong internal relationship, in other words theyhave a simple decision-making mechanism thatallows for faster CSR implementation.This report includes country specific research foreight Latin American countries, which are:Argentina, Brazil, Chile, Colombia, El Salvador,Mexico, Peru and Venezuela. Each chapter includesa description of the current state of CSR in thecountry and some recommended actions to fosterCSR within the marketplace, workplace,community and environmental areas, as well aswhich actors should lead each action item. Actorsinclude multilateral development institutions(MDIs), national governments and local authorities,business associations and civil society. All actorsneed to cooperate in order to improve the state ofCSR in the aforementioned countries. Historically,business associations have been less involved infostering CSR in the considered Latin Americancountries, except in Brazil, where there has beenmore CSR involvement by SMEs. Government andcivil society (mainly academia, NGOs and localcommunities) have been the major players infostering CSR in SMEs, with MDIs usuallysupporting, financing and disseminatinginformation and results.Overview of the current state of CSR in SMEsThe research conducted in the eight LatinAmerican countries: Argentina, Brazil, Chile,Colombia, El Salvador, Mexico, Peru and Venezuela,demonstrates that even though many SMEs arealready socially and environmentally responsible,there is still a long way to go before CSR becomes awidespread business practice among SMEs in eachcountry. The following paragraphs provide anoverview of the main findings per country:In Argentina most SMEs are unfamiliar with theconcept of CSR, they believe they need to solvetheir structural problems before focusing on socialand environmental issues. Nonetheless, researchsupports a positive perspective on CSR in the longtermbecause of a clear willingness to improve andbe competitive. Many stakeholders interviewedthink that the attention given to CSR in the last fewyears was a way to overcome aspects of the 2001economic crisis, and therefore it now needs to berefocused. Argentine civil society was identified asthe primary actor for fostering CSR among SMEs,however government, MDIs and businessassociations also have important roles to play.Regarding the areas of CSR, SMEs perceive themarketplace, workplace and community as veryimportant for their economic development, whileenvironment is not considered very relevant.In Brazil the concept of CSR is fairly well developedamong large companies, and a large number of SMEsalready implement some kind of CSR. There areseveral tools and training programs on CSR availablefor companies, as well as networks and awards.Research shows that CSR internal activities aremore frequently implemented than CSR externalactivities by Brazilian SMEs. Experts believe thatCSR is likely to grow, as a range of actors andinstitutions are actively engaged in promoting CSR.Business associations were identified as the mainactors in fostering CSR, however government, MDIsand civil society have also crucial roles to play.Additionally, the administration of President Lula daSilva, has made social programs and inequity apriority. Regarding the areas of CSR, SMEs perceiveall areas - marketplace, workplace, communityand environment- as important for theireconomic development.Most SMEs in Chile are unfamiliar with the conceptof CSR and therefore do not consider it a waytowards progress. There are, however, an importantnumber of publications, manuals and indicators forSMEs to help them understand and implement CSR,developed by civil society. Furthermore many CSRareas are already covered by laws prescribing4 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

ethical behavior or the application of internationalstandards, but they have not been broadlydisseminated. All actors –government, MDIs, civilsociety and business associations- have beenidentified as major players in the development ofCSR. Regarding the CSR areas, SMEs perceive themarketplace, workplace, and environment asimportant factors for their economic development,whereas community is not seen as an essential factor.The majority of SMEs in Colombia do not perceiveCSR as a competitiveness tool for their company.There are, however, a number of SMEs that act assuppliers for larger domestic and international firmswhich have already recognized CSR as providing acompetitive edge in the market. IDB experts feelthat SMEs are not likely to become more engaged inCSR in the near future, because SME productivity isquite low and most of them are merely surviving.MDIs were identified as the main actor forfurthering CSR in the country, howevergovernments, business associations and MDIs canalso play important roles. Regarding the areas ofCSR, SMEs perceive the marketplace andenvironment as very important for improving theireconomic development, while workplace andcommunity are not considered very relevant.In El Salvador only a few exporting SMEs, acting assuppliers for larger firms, have recognized CSR asan important factor for competitiveness in themarket. The majority of SMEs in the country still donot perceive CSR as a tool to improve their businesscompetitiveness. However approximately half of theenterprises interviewed for this research perceiveCSR as a priority and most of them are consciousthat society is demanding more socially andenvironmentally responsible behavior. The mainreasons why SMEs do not practice CSR are, lack offinancial resources and lack of information. MDIswere identified as the main actor for furthering CSRin the country, while government, civil society andbusiness associations should get more involved asthey can also play a vital role. Regarding the areasof CSR, SMEs in El Salvador perceive theenvironment as the only important factor forimproving their economic development, whilemarketplace, workplace and community are notconsidered very relevant.In Mexico, the concept of CSR is quite new andthere is no knowledge about CSR among themajority of SMEs, which often confuse the conceptwith the terms philanthropy and ethics. Someexporting SMEs already recognize CSR as animportant factor to improve their competitiveness.There is, little integration of CSR activities betweenlarge companies and SMEs. MDIs and businessassociations were identified as the main actors forfostering CSR among SMEs, however governmentand civil society also have important roles to play.Regarding the areas of CSR, SMEs in Mexicoperceive the marketplace, community andenvironment as very important for improving theireconomic development, while only the workplace isnot considered very relevant.SMEs in Peru show mixed behaviors, while mediumenterprises highly implement CSR activitiesregarding environment and workplace areas, microand small enterprises are more involved at thecommunity level. MDIs together with local publicauthorities and civil society, were identified as themain actors in fostering CSR among SMEs, howeverthe role of business associations is also veryimportant to further its development. Regarding theareas of CSR, SMEs in Peru perceive the marketplaceand community as very important for improvingtheir economic development, while the workplaceand environment are not considered very relevant.The new constitution in Venezuela, whichemphasizes social inclusion and access toeducation, may lead to an increase in responsiblepractices among SMEs. The administration ofPresident Chavez has prioritized social policies andExecutive Summary 5

programs that affect the private sector. The mainactors currently furthering CSR are the governmentand MDIs, however business associations and civilsociety have vital roles and could greatly supportthe efforts. Regarding the CSR areas, SMEs inVenezuela perceive the marketplace, communityand environment as very important for improvingtheir economic development, while only theworkplace is not considered an essential factor.Where possible, the actions also identify:• Clusters of SMEs that can form broader sociallyresponsible initiatives and/or supply chainagreements to enhance CSR performances;• Alliances among public and private institutionsand civil society organizations.CSR actual positioningThe following figure illustrates an estimated CSRpositioning of each of the countries in regards to thesignificance of CSR for SMEs (vertical axis) and CSRactions implemented by SMEs (horizontal axis).This positioning is an approximation, developed bythe authors, and it is based solely on the informationutilized for the writing of this report (interviews,panel discussions and literature review).The following country specific chapters examine theparticular needs of SMEs and characteristics of CSRin each country. They present the state of CSR as wellas actions that could be taken to improve it, at thecountry level, involving different stakeholders. Eachchapter takes into consideration country specificcharacteristics, such as the economic and socialframework, to develop recommended actions. Thepurpose of these recommended actions is to avoid theimposition of inappropriate standards or rigiditiesinto the countries’ economies and to avoid turningCSR into empty public relations strategies. Theactions propose win-win strategies, for bothenterprises and society related to the following topics:• Actions to foster CSR practices in SMEs, andgoals to reach, within the marketplace,workplace, community and environmental areas;• Roles of multilateral, public and privateinstitutions, and civil society organizations inpromoting CSR in SMEs;CSR area significancemaxminArgentinaPeruVenezuelaminBrazilChileMexicoColombiaEl SalvadorCSR actions implementationmax6 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

introduction1 Reader’s GuideThis report is comprised of eight chapters, one foreach of the eight countries that were researched:Argentina, Brazil, Chile, Colombia, El Salvador,Mexico, Peru and Venezuela. Each of the chaptershas four sections, which are described below.Section One – Executive Summary: Describes thekey findings of the report for each country andhighlights how the actors (national governmentsand local authorities, civil society, MultilateralDevelopment Institutions – MDIs, and businessassociations) can foster CSR in SMEs.Section Two – Country Economic and SocialFramework: Uses data collected for this report andthird party data to describe the country’s macroeconomic factors such as the gross nationalproduct, unemployment rate and socialenvironment through factors such as the level offemale employment or human rights conditions.Section Three – Current State of CSR: Academicsand researchers have identified five CSR areaswhere CSR strategies and actions are applicable,which are Governance, Marketplace, Workplace,Community and Environment. This project selectedfour of the five areas, excluding Governancebecause not all SMEs, in particular smallenterprises,set corporate governance rules in theircompanies. Unfortunately, an internationallyrecognized description of each area does not exist.For the purpose of this investigation, we define eachof the CSR areas as follows:• Marketplace: Refers to issues such ascompliance, quality, competitiveness, reputation,fairness, etc. It includes actors involved in themarket (customers, suppliers, competitors,investors, etc.) and actors involved directly orindirectly in defining and implementing marketpolicies (governmental organizations, businessassociations, customer associations, etc.). It alsoincludes shareholders and entrepreneurs thatintegrate social responsibility into core businessstrategies, making profitability an element ofcorporate social responsibility.• Workplace: Refers to issues related to compliance,human rights, health and safety, etc. It includesemployees, their families and parties involveddirectly or indirectly in defining andimplementing labor policies (governmentalorganizations, business associations, unions, etc.).• Community: Refers to issues such as poverty,diversity, consensus, medical assistance,education, etc. It includes civil society andparties involved directly or indirectly in definingand implementing social and aid policies(governmental organizations, local authorities,NGOs, etc.). This area also includes academiaand the media for their role in buildingcommunity awareness about social themes.• Environment: Refers to issues related tocompliance, climate change, biodiversity, localenvironmental impacts, etc. Includes present andfuture generations as well as parties involveddirectly or indirectly in defining and implementingenvironmental policies (governmentalorganizations, local authorities, NGOs, etc.).Additionally a graph was prepared, for eachcountry, with an estimated positioning of the CSRareas – marketplace, workplace, community andenvironment. The graph shows the significance ofCSR for SMEs and the CSR actions implemented bySMEs. The objective of this figure is to visualize thesituation and relevance of each of the CSR areas forSMEs in a specific country. The positioning is anapproximation, developed by the authors, and it isbased solely on the information utilized for thewriting of this report, which includes interviews,panel discussions and literature review.Introduction7

Section Four – Recommended Actions to FosterCSR: This section proposes several actions tofurther the implementation of CSR in SMEs,organized by main actors, which are intended to beimplemented in the mid-term (3-5 years). For thepurpose of this study, there are four categories ofmain actors:• Multilateral Development Institutions (MDIs):May play a broad role in fostering CSR for all fourareas of significance: marketplace, workplace,community and environment. “Theirindependent position, relationship with all partiesinvolved in the CSR market, and their ability toprovide financial and technical support, indicatethat not only do MDIs have a role to play infostering CSR, but also given the commonobjective of CSR and MDIs (i.e. development)they have the obligation to do it” (Vives, 2004).• National Governments and Local Authorities:May implement policies for all CSR areas. Thedrivers for Government to promote CSR areglobalization and the new economy; new modelsof governance and the welfare state crisis;national competitiveness and innovation;sustainable development; and the partnershipapproach (ESADE, SDA Bocconi, and NorwegianSchool of Management, 2006). Business maysupport the public sector, when developingcountries lack the capacity to establish afunctioning legal and regulatory structure forCSR. To allow this, the government should setclear policy objectives and then encouragebusiness to contribute to those objectives(Petkoski, D. and N. Twose, 2003).• Business associations: May operate in all CSRareas. By definition, business associations areclose to companies and are especially relevant,through their work, to enhance the businessenvironment. They are usually aware of thedifficulties for companies to implement CSRactivities. Thus, business associations should beleading stakeholders in policy design, that canfacilitate the implementation of CSR.• Civil Society: May operate in all CSR areas andmay be able to act as a 'bridge' betweencompanies and government. They can alsoprovide information on enterprises' activities tothe public, as well as to convey society’sexpectations to the private sector.The actors in these four categories may use all orsome of the following six strategies to implement arange of initiatives:• Mandating: To define minimum standards,authorization procedures or best availabletechniques or technology for businessperformances embedded within the legalframework.• Ensuring transparency: To identify voluntaryprograms to certify processes or products, andensure transparency in the processes in whichSMEs are involved.• Facilitating: To enable or increase the adoptionof management tools such as voluntary productlabeling schemes and guidelines for companymanagement systems or reporting. It may includefiscal incentives or specific procurementprocedures.• Improving Promotion and Advocacy: To enhanceCSR awareness through conferences, workshops,training programs, baseline indices, etc.• Partnering: To tackle complex social issues byinitiating and managing public and privatestakeholder partnerships that combinecomplementary skills.8 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

• Endorsing: To include CSR in the politicalagenda and demonstrate the success of CSRmanagement by recognizing the effortsof companies, for instance, throughawarding schemes.2 Methodological Approach2.1 CSR DefinedThe definition of CSR adopted for this projectis “practices of the corporation that, as part ofthe corporate strategy, complementary and insupport of the main business activities, explicitlyseek to avoid damage and promote the well-beingof stakeholders (clients, suppliers, employers,financial resource providers, community,government and environment) by complyingwith current rules and regulations and voluntarygoing beyond those requirements” (Vives, 2004).This definition is also consistent with thefollowing main features largely recognizedin social responsibility, identified by theEuropean Comission:• CSR is business behavior over and abovelegal requirements, voluntarily adoptedbecause businesses deem it to be in their longterminterest;• CSR is intrinsically linked to the concept ofsustainable development: businesses need tointegrate the economic, social and environmentalimpact in their operations;• CSR is not an optional "add-on" to business coreactivities - but about the way in which businessesare managed.Traditionally, large companies have driven corporatesocial responsibility, even though socially responsiblepractices exist in all types of enterprises, public andprivate, including SMEs and cooperatives.SMEs vary widely in their form of operation;however, they generally have unclear separation ofroles between ownership and management, theyhave close relations with suppliers, clients and thecommunity, and they interact frequently with theirimmediate surroundings, where they are frequentlylocal activists or benefactors. In addition, SMEs areoften focused on the day-to-day businessoperations, dependent on informal communicationand subject to market dynamics generated by largecorporations, which they often supply.2.2 Literature Review and StakeholderMappingSection three of each chapter; “Current State ofCSR” includes input from stakeholders, which wascollected though interviews and panel discussions aswell as literature review. The following paragraphsdescribe who was considered as a stakeholder andwhich types of documents were consulted.For the literature review, the majority of documentsfell into the four CSR areas: Marketplace, Workplace,Community and Environment. Some documents,however, covered information in all four CSR areas.For example, reports from the Inter-AmericanDevelopment Bank, other multilateral developmentinstitutions and local institutions covered all fourCSR areas. Below is a list of publications and indicesfrom research institutes, academia and internationalorganizations that were used in this report.• Marketplace Literature Review: Several Indiceswere used in researching each country’smarketplace. The Word Economic Forum (WEF)has published several indices for approximatelytwo decades. Specifically, the GlobalCompetitiveness Index, the GrowthCompetitiveness Index 1 with its sub-indices1 The Growth Competitiveness Index uses a combination of hard data—e.g., university enrollment rates, inflation performance, thestate of the public finances, level of penetration of new technologies, such as mobile telephones and the Internet—and data drawnfrom the World Economic Forum’s Executive Opinion Survey. The latter helps to capture concepts for which hard data are typicallyunavailable, but which are, nevertheless, central to an appropriate understanding of the factors fuelling economic growth.Introduction9

(Technology Index, Public Institution Index andMacroeconomic Index), the Reliability of PoliceServices and the Public Trust of Politiciansrankings. Other WEF indices provide data onmarket efficiency 2 that was useful for thedefinition of organizations’ performances. 3 Inaddition, Transparency International’sCorruption Perception Index was used, as well asseveral surveys conducted by Proetica on theperception of national problems, in particularcorruption, and Government priorities. Lastly,Vives, Antonio, A. Corral, and I. Isusi (2005)provided information regarding the contributionsof SMEs to national economies.• Workplace Literature Review: Several sourceswere used in researching each country’sworkplace. The International Labor Organization(ILO) provides national unemployment andinformal employment data, as well as the ChildLabor Index. WEF’s Strength of Auditing andAccounting Standards indicate the level ofcompliance with business registration andcertification, as well as information on laboremployerrelations. The Private SectorEmployment of Women Index and the GenderGap Index show the level of genderdiscrimination. Additionally, valuable informationcomes from health and security certifications,such as OHSAS 18000, and WEF Health andSafety Index at the national level.• Community Literature Review: The countries’community scenarios were developed using theUnited Nations Educational, Scientific andCultural Organization’s (UNESCO) EducationalAttainment Index, United Nations DevelopmentProgram (UNDP) Human Development Index,HRI Intrinsic Human Rights Index and theUnited Nations Children’s Fund (UNICEF) ChildRights Risk Index. Also, information on CSR inLatin America from Vives, Corral and Isusi(2005) was used. Lastly, WEF has a research anddevelopment sub-index and university-industryresearch collaboration sub-index which quantifyinteractions among stakeholders.• Environmental Literature Review: In thedefinition of the Environment area, many figureshave been quoted. Among them, the number ofClean Development Mechanism (CDM) projectsin each country reveals their engagement in theKyoto Protocol Program. In addition, the numberof enterprises certified by ISO14000(environmental management system) was usedand the country’s rating on the RenewableEnergy Index. Lastly, the World ResearchInstitute index named the Number of FormallyCommitted Municipalities to the United Nations’Local Agenda 21, which measures thecommitment of the community and the localgovernment to both environmental protectionand economic prosperity.In addition, a stakeholder map was used in eachcountry to ensure a balanced representation ofactors in all four CSR areas for the individual andpanel stakeholder interviews. Stakeholders wereidentified across a number of different dimensions,including: international organizations,governmental organizations, associations, financialinstitutions, multinational companies, the media,NGOs, academia and CSR consulting firms. Localactors answered three questions: (1) What has beendone on CSR?, (2) what is going to be done in termsof programs and policies?, and (3) what could beuseful to strengthen the path? The interview resultswere used as inputs to develop the recommendedactions to foster CSR in each country. 4In the last few years, Stakeholder Engagement hasbeen considered the foundation of effectivecorporate social responsibility. Dialogue withstakeholders is increasingly becoming a part ofmainstream business practice as a way of gatheringinput and ideas, anticipating and managing2 Number of procedures required to start a business, Time required to start a business and Extent and effect of taxation; as for the levelof innovation and technology development, Quality of scientific research institutions, Government procurement of advancedtechnology products, Capacity for innovation, Technological readiness, Production process sophistication, Local availability ofspecialized research and training activities were considered characterizing each country’s Market3 Business Competitiveness Index (BCI) , which shows competitiveness situation at microeconomic level, and the sub index Ethicalbehavior of Firms. Moreover, valuable information comes from third party organization about companies certified against ISO standards.4 All detailed results of the Stakeholder Engagement phase are collected into the Progress Report delivered in May 2006.10 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

conflicts, improving decision-making, buildingconsensus among different views, strengtheningrelationships and enhancing corporate reputation.2.3 CSR and ComplianceIn this report, according with the adopted definitionof CSR, compliance is considered the first step ofcorporate social responsibility. This starting point isdistinct from an alternative CSR view defined as“the commitment of business to contribute tosustainable economic development, working withemployees, their families, the local community andsociety at large to improve their quality of life”(WBCSD, 2002). Even if it is hard to strike the finebalance needed between voluntary and regulatedactions, all companies should comply with the lawfor at least the following two reasons. First, becauseto be responsible one needs to respect all rulesapproved by institutions as representatives ofthe interests of the main stakeholders. Secondly,because “responsible” companies by not complyingeven with the law will destroy the credibilityof CSR.In the globalization era, voluntary approaches tobusiness regulation in the areas of sustainabledevelopment and human rights are increasing. Theyare designed by TNCs, business associations,governmental and intergovernmental organizations,civil society and NGOs. According to Utting (2005),some examples of these initiatives include:• Global framework agreements betweeninternational trade unions and globalcorporations that agree to apply certain standardsthroughout their global structure (e.g. agreementsbetween the International Union of Food andAllied Workers/IUF and Chiquita and Danone).• Standard-setting and monitoring schemesassociated with anti-sweatshop initiatives such asthe Clean Clothes Campaigns, the Global Alliancefor Workers and Communities and Worker RightsConsortium.• Initiatives that emphasize stakeholder dialogueand the sharing of best practices such as theUnited Nations Global Compact (promoting tenprinciples derived from international labor,environment, human rights and anti-corruptionlaws), the Global Reporting Initiative (promotingtriple bottom-line reporting), the Ethical TradingInitiative (promoting social standards throughoutsupply chain), AccountAbility (promoting socialand ethical accounting) and TransparencyInternational (promoting good governance andencouraging the fight against corruption).• Certification schemes such as the ISO 14001regarding environmental management standards;the Fair Labor Association (FLA) and SocialAccountability International’s (SAI) SA8000regarding labor standards; Forest StewardshipCouncil regarding sustainable forest management.Introduction 11

BibliographyESADE, SDA Bocconi, Norwegian School of Management (2006) ‘The Changing Role of Governmentin Corporate Responsibility – A report for practitioners’, (EABIS – European Academy of Businessin Society).European Commission (2002) ‘Communication from the Commission concerning Corporate SocialResponsibility: A business contribution to Sustainable Development’. (European Commission).Petkoski, D., and Twose, N. (2003) Public Policy for Corporate Social Responsibility. World Bank Institute,Private Sector Development, (the World Bank, and the International Finance Corporation).Utting, P. (2005) ‘Rethinking Business Regulation: From Self-Regulation to Social Control’, (Geneva:UNRISD – United Nations Research Institute for Social Development).Vives, Antonio (2004) ‘The Role of Multilateral Development Institutions in Fostering Corporate SocialResponsibility’, Society for International Development 1011-6370/04, (Washington D.C., Inter-AmericaDevelopment Bank).Vives, Antonio, A. Corral, I. Isusi (2005) ‘Social and Environmental Responsibility in Small and MediumEnterprises in Latin America’ (Washington D.C., Inter-America Development Bank).WBCSD (World Business Council for Sustainable Development) (2002) ‘The Business Case for SustainableDevelopment’, (Geneva: WBCSD).12 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

Chapter 1: Argentina1 Executive SummaryIn Argentina, CSR development should be led byNGOs and academic institutions, which are alreadyengaged in the promotion of CSR, in partnership withenterprises, business associations and governmentalorganizations. Local actors, such as the communityand civil society, which had prominent roles duringthe 2001 economic crisis, should promote CSR inArgentina at the sub-national level.There are several variables that may be holdingback the advancement of CSR in Argentinean SMEs.The most evident obstacles are the effects of the2001 economic crisis, including: lack ofemployment, corruption, absence of an effectiveregulation framework and ineffective compliancecontrol systems. Many stakeholders think that theattention given to CSR in the last few years was anapproach to help overcome aspects of the economiccrisis. Since the crisis is now arguably over, CSRneeds to find a different way to draw attention to itspotential not only as a recovery remedy, but also asa way to increase competitiveness, access new andglobal markets, enhance supply chains, and supportlocal economic development.NGOs, as a part of Argentinean civil society, have avaluable role in fostering CSR among SMEs. 5 Civilsociety should educate SMEs, engage stakeholders,and conduct awareness campaigns and feasibilitystudies. Civil society could also contribute to thecreation of codes of conduct and ethical behavior,the improvement of monitoring systems andenvironmental assessment, the launch of a centerfor environmental technology transfer and thecreation of CSR awards and labels.Given the shortcomings of existing regulations andthe lag in the adoption of internationally acceptednorms in Argentina, MDIs have a strong role inraising awareness of CSR, engaging the parties innegotiation and cooperation, financing pilotactivities and providing technical assistance. MDIsmay provide financial support through MultilateralFinancial Institutions, which are part of MDIs. MDIsshould also encourage the involvement of publicauthorities, promote public-private partnershipsand support transparency campaigns.The Argentinean national and local governmentscan have an important role in facilitating CSR. Thisanalysis, however, discourages Argentina’s publicauthorities from imposing CSR regulations, due tothe low level of public trust in politicians andadministrators.Business associations can also play an importantrole in promoting CSR, as they have successfullytaken a leading role on several pilot projects aimedat enhancing compliance in the marketplace,applying environmental management systems, andimplementing gender policies among SMEs. Theyalso have leading roles in facilitating an approach tocompliance, improving monitoring systems,promoting environmental assessments and trainingSME managers.2 Economic and SocialFrameworkMost of the documents reviewed for this analysishighlight the exceptionality of Argentina, due to theunique macroeconomic figures resulting from the2001 economic crisis. After the economic crisis,approximately 40 percent of SMEs could not continueoperations. This was mainly because they were facedwith having to pay similar levels of taxes and penaltiesas they had before the crisis, but now withconsiderably less income. According to the WorldEconomic Forum (WEF) in 2005, Argentina’sunemployment rate was 13.6 percent of the total laborforce. SMEs in Argentina employ 78 percent of thelabor force and contribute with 61 percent of thedomestic product.5 The civil society role, as known, was mainly in raising attention to ethical conduct and responsible behaviors as a way to overtakethe crisis and the impasse.Argentina13

The following chart shows competitiveness indicatorssupplied by the WEF. All data is from 2005 and thechart is sorted by indicator ranking. The five indicesbelow reveal a positive state for Argentina’scompetitiveness and market development.OrganizationWEFWEFWEFWEFWEFIndexNumber ofCountriesin the IndexArgentina’sRankingLocalavailabilityofspecializedresearch andtrainingservices 117 33Productionprocesssophistication 117 46Technologicalreadiness 117 45Quality ofscientificresearchinstitutions 117 44Globalcompetitiveness11754 (2 outof 21in LatinAmerica)However, Argentina does not rank high in allcategories. The country faces problems to achieveeconomic growth including, a high level ofcorruption, lack of security and a high level offinancial access risk. In addition, the politicalparties have been identified as the most corruptnational institution (Transparency International).All data is from 2005.OrganizationWEFWEFWEFWEFWEFWEFWEFWEFTransparencyInternationalWorld Bank 6IndexNumber ofCountriesin the IndexArgentina’sRankingEthicalbehavior offirms 117 80Value chainpresence 117 84Number ofproceduresneeded tostart abusiness 117 97Efficiencyoflegalframework 117 98Businesscosts ofcrime andviolence 117 102Judicialindependence 117 105Public trustof politicians 117 107Creditavailability 117 111CorruptionPerception 159 97Financialinclusion 177 70Investigation of Argentina’s equity and genderpolicies exposes poor to average conditions incomparison to other countries in the index. Theindex also reveals poor human rights conditions inArgentina. Again, all data is from 2005.6 www.maplecroft.com14 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

OrganizationWEFIndexNumber of Countriesin the IndexArgentina’s RankingPrivate sector employmentof women 117 88UNICEF Child rights risk 192 58Amnesty International andHuman Research Watch 7 Intrinsic human rights risk 194 110International LaborOrganization 8 Child labor 191 1073 Current state of CSRMost Argentinean SMEs are unfamiliar with theconcept of CSR and therefore do not consider it anessential factor toward progress. They believe theyneed to solve their structural problems beforefocusing on social and environmental issues.Nonetheless, research supports a positiveperspective on CSR in the long-term, because of aclear willingness to improve and be competitive.Regarding the meaning of CSR in Argentina, 86percent of the people interviewed answered thatCSR means “to guarantee safe and healthyproducts,” 84 percent think that CSR means “to notdamage the environment,” and 81 percent believethat it means “to treat workers equitably” (Anselmi,2005). In the stakeholder interviews, a distinctionwas made between primary and secondaryresponsibilities for SMEs. There was a generalconsensus that the marketplace, workplace andenvironment were primary responsibilities, whilethe community was a secondary responsibility. 9In 2005, Argentina held the 58 th position out of 83in AccountAbility's National CorporateResponsibility Index. However, in the CSR Monitorsurvey for 2005, distributed by CanadianGlobeScan Institute, Argentina shows a positiveinclination for CSR development. This surveyconsists of 1000 interviews conducted in each ofthe 19 participating countries. Argentina ranked 8out of 19 (54 percent agreed) in the potential forlaws to effectively support the implementation of CSR.Impressively, in the category on the perception ofbusinesses as actors that care about societalimprovement, Argentina ranked 18 th out of 19.Casali (2004) identifies several characteristics ofArgentinean SMEs that support the effectiveimplementation of CSR in their operations: i) SMEsare usually family run companies with loosemanagement structures, which gives them a moreflexible decision making processes and therefore itmay be easier to introduce changes and strategyinnovations through employer motivated efforts; ii)SMEs usually have close relationships with thecommunity, their suppliers and their clients; iii)nearly all SMEs already implement aspects of CSRin their activities, but not in a conscious andsystematic way – if they can develop deliberate CSRpractices the effects will be far more noticeable.Concerning the actors, the stakeholders interviewedrecognized civil society as the first mover duringthe 2001 crisis, and also recognized the role ofpublic authorities in fostering CSR. In regards topublic authorities, Argentina is one of twofederations in South America (Brazil is the other).As a result, there is a high degree ofdecentralization, allowing provinces to be importantplayers in the promotion of CSR.7 www.maplecroft.com8 "The end of child labor: Within reach", 2005, shows that the actual number of child laborers worldwide fell by 11 percent between2000 and 2004, that is from 246 million to 218 million. www.maplecroft.com9 It was decided that there were other entities that had a stronger responsibility for social and community issues. Therefore, SMEsshould have a policy on not damaging the community rather than on helping it.Argentina15

CSR area significanceThe following figure illustrates an estimatedpositioning of each one of the CSR areas –marketplace, workplace, community andenvironment. The graph shows the significance ofCSR for SMEs (vertical axis) and the CSR actionsimplemented by SMEs (horizontal axis) inArgentina. This positioning is an approximation,developed by the authors, and it is based solely onthe information utilized for the writing of this report(interviews, panel discussions and literature review).maxminCSR actual positioning in ArgentinaminMPWPCEWPMPCECSR actions implementationSMEs country positionin the Marketplace areaSMEs country positionin the Workplace areaSMEs country positionin the Community areaSMEs country positionin the Environment areamax3.1 MarketplaceIn Argentina, the marketplace area is perceived, bySMEs, as very important for their business. Theirgeneral view is that marketplace issues such ascustomer relationship, supply chain management,quality and compliance may affect theircompetitiveness in the mid- and long-term. Inparticular, SMEs believe that CSR issues canincrease their competitiveness. Specifically whensmall and micro enterprises foster relationshipswith medium and large compliant companies (aswell as domestic ones) and become part of a largesupply chain, thus promoting investment and credittrust through transparency. Unfortunately,cooperation within the supply chain is infrequent inArgentina and cooperation within the businesscommunity, regarding CSR, is almost non-existent.The biggest challenge to advancing CSR inArgentina is the lack of clear roles among the threesectors of society. As a result, no sector hasassumed a sense of ownership, and the businesscommunity has not been strategically integrated inthe public sector’s efforts to advance a socialagenda. The international community can have animportant role in facilitating this process.The 2001 economic crisis is perceived as a majorissue, and still affecting corporate behavior,resulting in short-term planning, low levels ofinvestment and permanent fiscal and supplierdebts. A number of SMEs, as in many other LatinAmerican countries, lack access to credit.Additionally, Argentinean SMEs still have fiscal andsupplier debts from the crisis. Consequently, thelevel of SME investment comes mostly fromreinvestment of profits. Main disadvantages seem tobe connected to government or public authority’sactivities, as SMEs face challenges in the publicsystem that negatively affect their efforts towardregistration and compliance.16 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

According to the ISO Survey (2004) 10 , 4,149enterprises in Argentina are certified against ISO9000:2001 quality management system. This can beinterpreted as a valuable indicator of the tendencyof larger companies to use management systemapplications and of the wider attention paid toquality processes and products in the country.The following factors could allow SMEs to createrelationships with other large and/or internationalcertified companies in the mid-term:• Capacity to respond quickly to the marketrequirements• Strong entrepreneurial culture• High technological readiness• Export capacity• Voluntary management systems on quality,health and safety, and environmental issues3.2 WorkplaceIn the short-term, Argentinean SMEs do notperceive the workplace area as relevant for theircompetitiveness. This is mainly because of the highlevel of unemployment and the lack of regulationand enforcement on work related issues. However,in the long-term, SMEs recognize the workplacearea as valuable for their operations. Their view isthat workplace issues such as health and safetynorms, employment policies, equal opportunitiesand compliance may affect Argentina’s economicgrowth and SME profitability. Currently, CSRworkplace actions are determined by an interest inequitable economic growth.SMEs in Argentina are generally not compliant withlabor laws, health and safety regulations. Withregard to the specific issue of informal employment,some argue that managers keep workers in thatcondition because their company would not be ableto survive otherwise, as taxes and payments can bequite high. Hiring and firing practices are poorlyperceived in Argentinean companies, demonstratedby its rank of 107 out of 117 (WEF). The samesituation exists for cooperation in labor-employerrelationships where it ranks 87 out of 117 (WEF).Argentina historically has been a provider ofqualified workforce to other countries, yet it islikely that the most qualified individuals left thecountry during the economic crisis. These problemsseem to be the consequence of two main issues: i)managers’ tendencies to focus solely on the survivalof the company, thereby neglecting to pay attentionto the conditions of their workplace; and ii)confusion with regulations as well as lack ofenforcement and control.Approximately 60 companies in Argentina arecertified against Occupation Health and SafetyAssessment Series (OH SAS) 18001 or IRAM 113800:1998, which are international health and safetymanagement systems 12 and may indicate a positivetrend towards voluntary management systems.3.3 CommunityThe community area is not perceived as valuable bySMEs. Their opinion is that community issues, suchas consensus building, participation and publicprivatepartnership may affect the overallArgentinean economic growth in the mid- and longterm,but not necessarily SMEs competitiveness.However according to the research on CSR in LatinAmerican SMEs (Vives, Corral and Isusi, 2005),they show deep interest in the well being of thecommunity, where they develop strong relationshipsand their leaders are widely known and trusted.Many existing surveys and reports describe theinteraction between SMEs and their localcommunities. These reports stress the importanceof effective community links, which are notgenerally used to enhance competitiveness, butcould be shaped to do so in the near future (Vives,Corral and Isusi, 2005). Most SMEs have non-10 Also available on www.iram.com.ar11 Argentinean Institute of Normalization and Certification (Instituto Argentino de Normalización y Certificación)12 www.iram.com.arArgentina 17

structured philanthropic policies, and the businesscommunityinteraction is dominated byphilanthropic activities. Furthermore in thecommunity area, there are not many partnershipsamong the public, private and non-profit sectors.3.4 EnvironmentSMEs do not perceive the environment area as apriority to improve their performance. Their view isthat issues such as environmental management,compliance, monitoring and climate change mayaffect Argentina’s sustainable development in themid- and long-term, but not necessarily SMEscompetitiveness. Increasing attention and a “senseof environmental responsibility”, however, makescivil society more aware and demanding ofenvironmental stewardship.More than 408 Argentinean companies are certifiedaccording to ISO 14000 requirements (ISO 2004) 13 ,which is a valuable indicator of the spread ofenvironmental management systems, even thoughthe certified companies are mainly large firms.Argentina was the first country in Latin America toset up Carbon Facilities, driving local companiestowards the Kyoto Protocol requirements. Argentinaalready has three registered Clean DevelopmentMechanism (CDM) projects 14 and many otherprojects in the pipeline, and is currently waiting forthe United Nations Framework Convention onClimate Change CDM, Executive Board decisions.4 Recommended ActionsThe main actors able to strengthen CSR inArgentina have been classified in the following fourcategories: a) Multilateral Development Institutions(MDIs), b) national governments and localauthorities, c) business associations, and d) civilsociety. These four categories of actors may act viaall or some of the following strategies, as defined inthe Introductory Chapter: Mandating, Ensuringtransparency, Facilitating, Improving Promotionand Advocacy, Partnering, and Endorsing. Theproposed actions are by no means exhaustive andonly illustrate the types of involvement, which canbe easily modified to meet local needs.4.1 Multilateral Development InstitutionsGiven the shortcomings of existing regulationsand the lag in the adoption of internationallyaccepted norms, MDIs have an important roleto play in fostering responsible practices inArgentinean SMEs (Vives, 2004). MDIs may playmany roles 15 , such as raising awareness, engagingvarious stakeholders, promoting discussion andmulti-sector collaboration, financing pilot projects,providing technical assistance and providingfinancial support for some of these activitiesthrough Multilateral Financial Institutions,which are part of MDIs.a. Ensuring transparency, recommended actionsfor MDIs:– Take the lead in ensuring transparencypolicies, such as the “transparency in creditthrough participation” project, which is aninnovative analysis of credit accessprocedures applied to two or three selectedlocalities.– Lead the effort to educate SMEs onaccountability and reporting standardssuch as the Global Reporting Initiative,as well as other international guidelinesand principles such as the Global Compactand the International Labor Organization.– Work with academia and public authorities toeducate SMEs on best practices andinternationally accepted standards andtechniques. Brochures, leaflets, reports,workshops and conferences can be usefultools for this purpose.13 Also available on www.iram.com.ar14 www.unfccc.int15 Promotion and advocacy, development of a conducive policy environment, financial support and promotion of compliance, reportingand accounting (Vives, 2004).18 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

. Facilitating, recommended actions for MDIs:– Fund, supervise and support initiativesaiming to enhance the policy environment,which in turn can facilitate private sectorinitiatives and support voluntary effortstoward responsible behaviors.– Support long-term, voluntary approaches forcompliance, which represent an importantstep for participation in the supply chain andallows SMEs to compete in global markets.For example, MDIs could work with businessassociations to conduct a noncomplianceassessment study, including a risk analysisthat identifies the direct and indirect costs ofnoncompliance. In addition, assistanceshould be given to a pilot group of SMEs todraft a compliance program specifying timing,resources and expected results. Complianceissues may also be addressed through trainingprograms on issues such as taxes andadministrative costs, transparency,accounting, and health and safetymanagement to create awareness of laborrights. Lastly, to increase compliance, theinformal labor pool in SMEs must be reducedand mandating policies increased, withoutweakening enterprises by increasing costs.– Fund pilot projects for quality managementsystems implementation into local supplychains. In the short- and mid-term, SMEsshould implement these systems forprocesses, products and services, aiming towiden the use of having a business planculture in Argentina. Quality can be a majordriver for innovation and change in SMEs. Aproactive approach, not only driven byTransnational Companies’ requests, mayenhance compliance and increasecompetitiveness in the mid-term. MDIsshould work with business associations todevelop guides for companies according totheir size, integration and certification status.– Help spread the implementation of theenvironmental management systems withinSMEs. This will increase awareness about thepossibilities that responsible managementpractices represent in reducing costs anddecreasing environmentally negative impactsand, where applicable, bolstering thereputation of the company.– Partner with business associations, academiaand NGOs to stimulate pilot projects usingclusters to implement environmentalmanagement systems according to ISO 14001at the district level.– Work together with all sectors to enhanceresponsibility through transparency andpromote the application of codes of conductin SMEs.c. Improving Promotion and Advocacy,recommended actions for MDIs:– Formulate the business case for CSRpractices in a language that SMEs canunderstand. 16 Embedding CSR in Argentina’sculture is not a matter of social values,but rather the need to demonstrate thebusiness case.– Sponsor voluntary agreement feasibilitystudies to enhance management practicesand promote pilot projects to develop CarbonPooling among SME sellers. Before voluntaryagreements are implemented communitywide,the method and guidelines should betested on at least two or three cases. Inaddition, Carbon Pooling pilot projects thatenhance the capacity of SMEs to profit fromthe Kyoto Protocol CDM could be sponsoredby a national bank, MDIs, businessassociations and/ or academia.d. Partnering, recommended actions for MDIs:– Lead an effort in partnership with otheractors, to establish an association dedicatedto the dissemination of gender policies among16 Vives, 2004, pag. 46.Argentina 19

the private sector and to develop genderpolicies applicable to SMEs to supportyoung women.e. Endorsing, recommended actions for MDIs:– Help launch a responsible product label aimedat promoting responsible Argentinean SMEs ininternational markets.4.2 Government and Local AuthoritiesArgentina’s government and local authorities havean important role in ensuring transparency,facilitating, improving promotion and advocacy andendorsing policies. This analysis does not promoteany mandating roles for Argentinean publicauthorities. In fact, given the low level of businessesthat have obtained operating licenses combined withthe low level of public trust in politicians andadministrators, fostering CSR through regulations isperceived as ineffective.a. Ensuring Transparency, recommended actionsfor government and local authorities include:– Facilitate, monitor and legitimize corporateaccounting, governance and transparencystandards. Transparency policies may includeissues such as compliance, fair trade,employment relations, taxation, bribery andcontractual conditions.– Work with local banks and MDIs to enhanceaccess to credit for SMEs and to increaseinvestments and reputation in specificterritories. Specific actions may include anawareness campaign to address transparency,internationally accepted rules and properbank-SMEs relationships or a pilot project totest the feasibility of a new model for credit,debit and loans.– Lead the effort to educate SMEs onaccountability and reporting standards such asthe Global Reporting Initiative, as well asother international guidelines and principlessuch as the Global Compact and theInternational Labor Organization.– Work in collaboration with academia andMDIs, to educate SMEs on best practicesthrough brochures, leaflets, detailed reports,workshops and conferences.b. Facilitating, recommended actions forgovernment and local authorities include:– Foster CSR among SMEs by supporting thedefinition of guidelines for codes of conductand ethical behavior, for improving monitoringsystems and environmental assessmentprocedures and practices, as well assupporting an approach to compliance,possibly adding incentives or reducingpenalties for cooperative companies.– Work with business associations, academiaand MDIs to develop a step-by-step voluntaryapproach to SME compliance. Issues to beaddressed could include taxes andadministrative costs, transparencyor accounting.c. Improving Promotion and Advocacy,recommended actions for government and localauthorities include:– Raise awareness, disseminate information andspread best practices among SMEs toindirectly foster their involvement in CSRpractices.– Launch an Environmental Technology Expo thatwould enhance the application of best availabletechnologies in the industrial sector and praiseenvironmental innovation in technologies.– Work in partnership with academia, businessassociations, NGOs, public authorities andMDIs, to promote stakeholder engagementthrough training and the dissemination of bestpractices.– Promote business registration throughsimplification of administrative andbureaucratic procedures.20 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

d. Endorsing, recommended actions forgovernment and local authorities include:– Help launch a responsible label aimed atpromoting responsible Argentinean SMEs ininternational markets and create an award tosupport the adoption of new practices or newtechnologies (i.e. utilizing byproducts asinputs in the production process).4.3 Business AssociationsBusiness associations include trade associations,territorial associations, Chambers of Commerce andSME associations. Business associations play animportant role in Facilitating, ImprovingPromotion and Advocacy, Partnering andEndorsing. Business associations may supportSMEs’ efforts towards CSR through their capacitybuilding programs based on the experiences of pilotprojects; raising awareness; developing new toolsand promoting them with SMEs.a. Improving Promotion and Advocacy,recommended actions for business associationsinclude:– Engage managers of large companies toenhance the participation of clients in SMEgovernance activities. The aim would be topursue a client/customer partnershipapproach to the decision-making processon the development of new productsand/or services.– Work together with MDIs and unions toenhance compliance and disseminate bestpractices about health and safety inthe workplace.– Promote voluntary agreements andpartnering aimed at the launch of pilotprojects and the dissemination of bestpractices.– Partner with academia, NGOs and MDIs toraise awareness among SME managersregarding international gender and child laborpolicies. Women should be supported at workthrough direct experience sharing andworkshops with women who are leadingmanagers, politicians or entrepreneurs.– Raise awareness among SMEs of the KyotoProtocol, and Argentina being the hostcountry of the first Latin American CarbonFacility. This may facilitate the Best AvailableTechnology transfer, improve and renewenvironmental performances, widen theinternational network, and increase CSRpractices among Argentinean companies thatdesire participation in the supply chain of thenew plants and activities.– Promote the organization of anEnvironmental Technology Expo to enhancethe application of best available technologiesin the industrial sector and to praiseenvironmental innovation in technologies.b. Partnering, recommended actions for businessassociations include:– Conduct a noncompliance assessment studyfor the marketplace and the workplace areas,including a risk analysis that identifies thedirect and indirect costs of noncompliance, inpartnership with MDIs. In addition, assistanceshould be given to SME participants to draft acompliance program specifying timing,resources and expected results.– Collaborate with MDIs and academia todevelop gender policies that support youngwomen and that are applicable in the SMEcontext.– Form alliances with MDIs, academia andNGOs to launch pilot projects for usingclusters to implement environmentalmanagement system according to ISO 14001at the district level.Argentina 21

c. Facilitating, recommended actions forbusiness associations include:– Create voluntary compliance programs forissues such as taxes and administrative costs,transparency or accounting.– Collaborate with MDIs and NGOs to improvemonitoring systems and environmentalassessments in SME procedures.– Support CSR training for SME managers aswell as the creation of guidelines for codes ofconduct and ethical behavior among SMEs.d. Endorsing, recommended actions for businessassociations include:– Facilitate cooperation among market playersthrough the use of clusters and theenhancement of sector-based approaches,aimed at: i) facilitating the development ofeconomies of scale, ii) promoting linkagesamong firms, and iii) strengthening the localposition of SMEs within the value chain todevelop an economy of scale.– Pilot CSR cluster projects and developguidelines for developing linkages in localsupply chains with regards to specific CSRareas and benchmarking processes amongArgentinean SMEs. For example, thedefinition and application of a new territorialapproach – a pilot project on theimplementation of quality managementsystems to local supply chains.– Endorse the launch of a responsible productlabel and promote environmentally friendlySME start-ups.– Partner with MDIs and academia to helpSMEs find the proper technology for theirbusiness, and facilitating the transfer,application, and reduction of costs andbureaucratic executions.4.4 Civil SocietyArgentina’s civil society comprises academia,media, NGOs, and the people interested, involvedor affected by SMEs’ activities. In the past years,academia and NGOs have been the most activeparticipants of civil society in Argentina.a. Improving Promotion and Advocacy,recommended actions for civil society include:– Take the leading role in activities such as:providing CSR training to SME managers,facilitating stakeholder engagement, startingan NGO awareness campaign on responsiblepractices, promoting CSR benchmarkingtechniques and best practices and issuingCSR publications that focus on Argentina andother Latin American countries.– Facilitate a participatory decision-makingprocess by linking SMEs to their customersor pilot alliances among SMEs, public sectorand NGOs, with the direct engagementof stakeholders in the design andmonitoring phases.– Collaborate with business associations,district municipalities, and MDIs to evaluatethe feasibility of voluntary environmentalagreements. Before agreements areimplemented community-wide, the methodand guidelines should be developed andtested in selected municipalities.– Take a supporting role on the promotion ofbusiness registration through simplification ofadministrative and bureaucratic proceduresand training activities on health & safety.– Support counseling on gender and child laborrights, in which women are supported at workthrough direct experience sharing andworkshops with women who are leadingmanagers, politicians or entrepreneurs.22 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

– In partnership with national banks, MDIs andbusiness associations could sponsor CarbonPooling pilot projects that enhance thecapacity of SMEs to profit by the KyotoProtocol CDM.b. Facilitating, recommended actions for civilsociety include:– Lead the development of guidelines for codes ofconduct and ethical behavior, that can supportother actions such as, creating a voluntaryapproach to compliance, the improvement ofmonitoring systems and environmentalassessment and the launch of a center forenvironmental technology transfer.– Contribute to training activities for healthand safety and engage managers of largecompanies to enhance the participation ofclients in governance activities of SMEs withthe aim of pursuing a client/customerpartnership approach to the decision-makingprocess on the developments of new productsand/or services.– Partner with business associations and MDIs tolaunch pilot projects for using clusters toimplement environmental management systemaccording to ISO 14001 at the district level.c. Endorsing, recommended actions for civilsociety include:– Endorsing policies such as the creation of anaward for environmental technologyinnovation, the launch of a responsibleproduct label to promote Argentine productssold internationally and the promotion ofenvironmentally friendly SMEs that use newpractices or technologies to integratebyproducts into their production.d. Partnering, recommended actions for civilsociety include:– Take supporting roles in partnering policiessuch as pilot projects, activities to promoteworkplace compliance and activities topromote the dissemination of gender policiesamong SMEs.Argentina 23

BibliographyAnselmi, P. (2005) ‘La responsabilità sociale d’impresa: le aspettative e le valutazioni dei cittadini di 21Paesi. CSR Monitor 2005’, (Eurisko, Globescan).Casali, H. (2004) ‘Congreso de la Pequeña y Mediana Empresa – Responsabilidad Social Empresariay las PYMES’.ISO (International Standard Organization) (2004) ‘Small and medium–size enterprises’, (Geneve,Switzerland: ISO).ISO (International Standard Organization) (2005) ‘The ISO Survey – 2004. ISO and The ISO Survey’,(Geneve, Switzerland: ISO).Transparency International (2005) ‘Report on the Transparency International Global Corruption Barometer’,(Berlin: Policy and Research Department Transparency International –International Secretariat).Vives, A. (2004) ‘The role of multilateral development institutions in fostering corporate socialresponsibility’, (Society for International Development).Vives, Antonio, A. Corral, I. Isusi (2005) ‘Social and Environmental Responsibility in Small and MediumEnterprises in Latin America’ (Washington D.C., Inter-America Development Bank).WEF (World Economic Forum) (2006) ‘The Latin America Competitiveness Review’, (Geneva: WEF).WEF (World Economic Forum) (2005-2006) ‘The Global Competitiveness Index’, (Geneva: WEF).Websites consultedwww.accountability.orgwww.apyme.com.arwww.ceads.org.arwww.avina.netwww.comunicarseweb.com.arwww.earthtrends.wri.orgwww.eldis.orgwww.ethos.org.brwww.fundacioncompromiso.org.arwww.fundses.org.arwww.iarse.orgwww.IDB.orgwww.ifc.orgwww.ilo.orgwww.iram.com.arwww.maplecroft.comwww.proetica.uccor.edu.arwww.Transparency.orgwww.weforum.orgwww.wri.orgwww.unicef.orgwww.unrisd.orgwww.unfccc.int24 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

AppendixThe following stakeholder map has been used to verify that all eight defined stakeholder categories and allfour CRS areas are represented. Stakeholders that were chosen for interviews or as panel participantseither had relevant expertise in the issue or may influence awareness, interests and implementationinstruments relevant to the issue.APPENDIX 1 – ARGENTINA’S STAKEHOLDER MAP1. Internationalorganizations2. Governmentorganizations andinstitutions3. Associations(national, sectoral,business)4. MultinationalcompaniesMarketplace Workplace Community Environment—Programa deDesarrollo parapersonas condiscapacidad delMinisterio deEducación, Cienciay Tecnología de laNación—ConfederaciónGeneral del Trabajo(CGT)—Cámara deComercio de losEstados Unidos enArgentina(AMCHAM)—Asamblea dePequeños yMedianosEmpresarios de laRepúblicaArgentina (ApyMe)—Intersindical—Manpower—Inter-AmericanDevelopment Bank(IDB)—United NationsDevelopmentProgramme (UNDP)—Pacto Global—Project PAI/CIPRA-GTZ—Subsecretaría de laPequeña y MedianaEmpresa yDesarrollo Regional—Secretaría dePolíticas Sociales yTransformaciónSocial—Responsable de laOficina de Empleopara personas condiscapacidad ygrupos vulnerables—Kodak—Unilever—Coca-Cola—Total Austral—Pan AmericanEnergy—Inter-AmericanDevelopment Bank(IDB)—United NationsDevelopmentProgramme (UNDP)—Pacto Global—Project PAI/CIPRA-GTZ—Secretaría deAmbiente yDesarrolloSustentableArgentina25

APPENDIX 1 – ARGENTINA’S STAKEHOLDER MAPMarketplace Workplace Community Environment5. Media —Comunicación de laResponsabilidadSocial de laEmpresa(ComunicaRSE)6. NGOs —AsociaciónCristiana deDirigentes deEmpresas—Fundación ARCOR—Fundación Diario LaNación—Fundación Noble—Instituto Argentinode RSE (IARSE)—Instituto para eldesarrolloempresarial de laArgentina (IDEA)—Instituto Argentinode RSE (IARSE)—Red Argentina deComercio Justo—Fundación Centrode DerechosHumanos yambientale(CEDHA)—Centro de Estudiosde Estado ySociedad(CEDES)—AsociaciónCristiana deDirigentes deEmpresas—Centro para laResposabilidadSocial(Interruption)—Grupo deFundaciones(GdeF)—Foro EcuménicoSocial—Foro del SectorSocial—Fundación Bunge yBorn—Fundación El Otro—Fundación GEOS—Fundación PoderCiudadano—FundaciónSolidaridad,EducaciónSustentabilidad—Fundación delTucumán—Consejo Nacionalpara la EticaPublica (Proética)—Fundación Centrode DerechosHumanos yAmbiente (CEDHA)—AsociaciónArgentina dePeriodistasAmbientales(AAPA)—Fundación ProDesarrolloAmbientalSustentable(PRODIS)—Consejo EmpresarioArgentino para elDesarrolloSostenible (CEADS)—Fundación VidaSilvestre Argentina—FundaciónAmbiente yRecursosNaturales(FARN)—GreenpeaceArgentina—Fundación Centrode DerechosHumanos yambientale(CEDHA)26 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

APPENDIX 1 – ARGENTINA’S STAKEHOLDER MAP7. Academia —Centro de EstudiosMacroeconómicos(CEMA)—Centro de EstudiosNueva Mayoría8. National companies —Arcor—Cosméticos Avon—Respsol YPF—TGN—Argentina María—Amelia VidelaMarketplace Workplace Community Environment—Social EnterpriseKnowledge Network(SEKN)—Universidad de SanAndrés (UdESA)—UniversidadCatólica de Córdoba—UniversidadTorcuato Di Tella—Universidad Austral(IAE)—UniversidadCatólica Argentina(UCA)—Universidad de SanAndrés—UniversidadNacional SanMartín—UniversidadNacional de laPlata—Instituto deEstudios para laSustentabilidadCorporativa (IESC)Argentina 27

28 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

Chapter 2: Brazil1 Executive SummaryThe interest in improving the social performance ofBrazilian firms increased significantly in the 1980s,and was driven to a large extent by domesticconcerns and actors. A crucial element was thediffusion of values and ethics related todemocratization and progressive religious thinking.Democratization also paved the way for theexpansion of civil society and social movementsconcerned with the social and environmentalimpacts of business. During the 1990s, politicalparties, NGOs, trade unions, media, localgovernment, consumers and shareholders becameinvolved in promoting CSR, along with somebusiness associations and pro-active managers andfirms. The momentum behind the social efforts hasbeen reinforced by pressures associated with crossbordermanagement of transnational corporations(TNC), global civil society activism, environmentalcertification, and international social, environmentaland human rights norms and laws.Brazilian business associations seem to have thestrongest potential role in fostering CSR due to theirpositive influence on SMEs, a high level ofrecognition by employers and civil society and thepromotion of voluntary approaches to CSR that gobeyond current regulations. Therefore, businessassociations lead most of the projects proposed inthe recommended actions such as facilitatingcompliance, promoting CSR awareness, developingprograms on gender rights, counseling on laborrights and promoting improved labor–employerrelations. Business associations should propose aterritorial approach on the implementation of qualitymanagement systems in local supply chains andshould drive the creation of product labels thatcertify CSR management practices.Brazil’s civil society could take a leading role inincreasing awareness on accounting and reportingstandards, developing training courses for SMEmanagers on strategic planning and how to write abusiness plan as well as developing guidelines for codesof conduct and ethical behavior. In addition, Braziliancivil society may be a leader in the promotion ofenvironmental compliance, in stakeholder engagementpolicies and in sponsoring pilot projects.MDIs are an important resource for Brazilianinstitutions and companies. In recent years, severalprograms and partnerships with Brazilian businessassociations and other institutions (i.e. SENAI 17 ,National Confederation of Industries, Ethos Institute)have been launched to build CSR awareness anddevelop an understanding of the drivers and keyplayers. In addition, MDIs have helped conduct acountry specific impact assessment of the CSR agendafor Brazilian development. Due to this past success,proposed activities for MDIs include promoting newpartnerships aimed at issues such as encouragingcompliance, enhancing sustainable practices,responsible planning, stakeholder engagement,sustainable tourism and transparency. MDIs should beinvolved in funding most of the proposed actions,including those actions that are led by other actors.The Brazilian Government and local authorities couldenable CSR without imposing mandatory policies orrules on SMEs. Public sector bodies should be aware ofthe potential for promoting CSR among enterprisesthat support national policy priorities 18 . According tothe panelists and many of the stakeholder interviews,Brazilian public authorities seem to lack awareness ofCSR policies, promotion and stimulation. Therefore,this report recommends CSR training for publicemployees. Public authorities, especially at the statelevel, may lead campaigns aimed at promotingvoluntary behaviors and sustainable practices amongSMEs, such as promoting pilot projects to implementquality management systems in local supply chains. Toensure transparency, Brazilian public authorities cansupport new forms of voluntary auditing and promoteawareness of accounting and reporting standards.17 National Industrial Training Service (Serviço Nacional de Aprendizagem Industrial)18 According to Fox, Ward, Bruce (2002) good examples may be the following: the existance of opportunities to integrate businesslinkages programs into national povertry eradication strategies or the development of public sector advisory services in these areaswhich may require external support.Brazil29

2 Economic and SocialFrameworkBrazil faced an economic crisis in 1997-98. Oneresult of this crisis has been a heightened focus onthe human aspects of economic policies. While thisshift took place only academically at the beginning,a growing number of NGOs and socially committedcorporations began to recognize the positiveimplications of CSR (Sussdorff, 2003).As companies sought to restructure and becomemore competitive internationally, some managersrecognized the potential for using social andenvironmental initiatives as a way of reducing costs,increasing competitive advantage and managingrisks and reputation (Cappellin and Giuliani, 2004).The international repercussions of Brazil’sunfavorable business image pushed them toprioritize issues such as poverty, violence, childlabor, education and environmental protection. Inparticular, the largest firms assumed leadership,seeking to fill some of the gaps that resulted fromthe perception of a weak public sector.As the CSR agenda broadened in the 1990s and withcorporate restructuring intensifying, companiesdirected more attention inwards, and toward socialinvestments aimed at improving workers’ skills,particularly in the metallurgical, chemical, buildingand textile sectors. Social investments related toemployees had the primary goal of increasingproductivity. At the same time, such actions had thepotential to reduce problems on the shop floor suchas safety, illiteracy, poor health, absenteeism andweak identification with company goals.The level of unemployment in Brazil according to theWorld Economic Forum (2005) is 11.5 percent of thetotal labor force, and the level of informal economy isat 39.8 percent of the GNP (Schneider, 2002). SinceBrazil is a Federation of States, the states have thepotential to be powerful CSR policy makers.The following chart shows competitivenessindicators supplied by the WEF. All data is from2005 and the chart is sorted by indicator ranking.The indices below reveal a fair state for Brazil’scompetitiveness and market development.Organization Index Number of Countries in the Index Brazil’s RankingWEF Local supplier quantity 19 117 27Company spending onWEFresearch and development 117 29WEF Capacity for innovation 117 32WEF Local supplier quality 117 36WEFQuality of scientific researchinstitutions 117 39WEFUniversity/industry researchcollaboration 117 40WEF Ethical behavior of firms 117 51Strength of auditing andWEFaccounting standards 117 62WEF Global Competitiveness Index 117 65 (4 out of 21 in Latin America)19 Indicates that Brazilian suppliers are ready to be an important part of larger firm (multinational and transnational companiesincluded) supply chains.30 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

However, Brazil does not rank high in all categories.Like many other Latin American countries, Brazilsuffers from various forms of corruption andunethical behaviors in both public and privateinstitutions. Even though the level of corruption isperceived as unsustainable by civil society 20 , it hasbeen evaluated at more favorable levels than manyother Latin American countries by several researchinstitutes. Additional rankings illustrate a lack ofsecurity and market efficiency.In Brazil, the equal opportunities situation isdivided. Educational development and reduction ofchild labor has been successful. However, otherfactors such as employment of women and healthand safety must be improved.OrganizationWEFIndexNumber of Countries in theIndexBrazil’s RankingFavoritism in decisions ofgovernment officials 117 69WEF Judicial independence 117 72Efficiency of legalWEFframework 117 74WEF Hiring and firing practices 117 89Extent and effect ofWEFtaxation 117 90WEF Public trust of politicians 117 93WEF Organized crime 117 99WEFNumber of proceduresrequired to start a business 117 102WEFTime required to start abusiness 117 104WEFBusiness costs of crime andviolence 117 107Transparency International Corruption Perception 158 62OrganizationIndexNumber of Countriesin the IndexBrazil’s RankingInternational LaborOrganization (ILO) 21 Child labor 191 28UNESCO 2005 AND UNDP2005 22 Educational attainmentindex 166 55WEFPrivate sector employmentof women 117 85ILO 23 Health and safety 187 14820 For example, on the 16th of August 2005 some 10,000 to 15,000 Brazilian students and trade union members marched againstcorruption (BBC News).21 "The end of child labor: Within reach", 2005, shows that the actual number of child laborers worldwide fell by 11 percent between2000 and 2004, that is from 246 million to 218 million. www.maplecroft.com22 Idem23 Available on www.maplecroft.comBrazil31

3 Current State of CSRThe concept of CSR in Brazil is fairly well developedamong large companies. Led by the public sector,the administration of President Lula da Silva hasmade creating social programs and addressing thevast social inequities a priority. 24 Brazil has one ofthe highest disparities in the distribution of wealth.Therefore, the private sector feels pressure todemonstrate social awareness. 25A recent survey on CSR in Latin American SMEs,(Vives, Corral and Isusi, 2005) reveals that a largenumber of SMEs in Brazil implement CSR activities(93 percent), among which 53.6 percent claim toimplement CSR activities extensively. Furthermore,among those enterprises 26.1 percent consider theimplementation of CSR in their activities a priority,46.2 percent declare that their customers demandsocially responsible performances and ethicalbehaviors, and 67.3 percent affirm that Braziliansociety needs socially responsible companies. Theknowledge, expertise and pressure capacities ofBrazilian civil society are recognized as highlyvaluable and strong when compared to other LatinAmerican countries.The CSR organizational structure is already presentand used by some SMEs. For example, Ethos andthe Brazilian agency for the support of micro andsmall enterprises (Serviço de Apoio às Micro ePequenas Empresas de São Paulo - Sebrae) provideSMEs with a management tool that explains thatCSR is not just philanthropy, but a way toadministrate business with real positive results. Inaddition, the National Industry Association (CNI)promoted a Social Responsibility Council, formedby several entrepreneurs with the objective ofdiscussing ways to improve CSR in their businesses.Lastly, the Federation of Industries of the State ofRio de Janeiro developed 46 seminars for capacitybuilding on the Ethos and Sebrae indicators forSMEs, with the participation of 1,430 people.Most of the experts pointed out the importance ofprizes and awards already present in the country asawareness raisers, best practices disseminators andnetwork builders. These include: National Prizes forCSR good practices of SMEs, Premio Eco, EthosAwards, Social Audit Stamp by the BrazilianInstitute of Social and Economic Analyses -IBASE,Citizen Company Stamp (Selo Empresa CidadãPrize), Sustainable Enterprise Prize (EmpresaSustentável prize), and Social Report NationalAward among others.CSR internal activities are more frequentlyimplemented than CSR external activities mostly byBrazilian SMEs, and they generally addressemployee participation, health, training, equalopportunities and job-family conciliation. BrazilianSMEs also carry out external activities in the formof philanthropy –donations and sponsorships- aswell as manager participation, mainly in the areasof education and support for underprivileged andneglected people. Environmental activities are alsocarried out and directed at waste reduction,recycling, and environmental impact monitoringsystems (Vives, Corral and Isusi, 2005).According to Cappelin and Giuliani (2004), theprospects for CSR depend on an institutional contextthat combines regulatory, political, and businessdimensions. There are signs that such a contextmay be developing in Brazil. The momentumbehind CSR is likely to grow, as a range of actorsand institutions — old and new, domestic andinternational — are actively engaged in promotingCSR. Markets for environmental goods and servicescontinue to expand and recent political developmentssuggest that the state will assume a more proactiverole in economic and social development.The following figure illustrates an estimatedpositioning of each one of the CSR areas –marketplace, workplace, community andenvironment. The graph shows the significance of24 Examples of this include Bolsa Familia (Family Fund) as a means of assisting poor families. In an effort to both combat hunger andaddress inequities in access to education, a requisite of eligibility in Bolsa Familia is that families keep their children in school.25 Brazil is a Federation of 26 states and the country is highly decentralized; the State Governors are given a significant degree ofautonomy. This is reflected in varying degrees of corporate social responsibility being exhibited between states.32 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

CSR area significanceCSR for SMEs (vertical axis) and the CSR actionsimplemented by SMEs (horizontal axis) in Brazil.This positioning is an approximation, developed bythe authors, and it is based solely on the informationutilized for the writing of this report (interviews,panel discussions and literature review).maxminminMPCSR actual positioning in BrazilWPCMPECSR actions implementationSMEs country positionin the Marketplace areamax3.1 MarketplaceIn Brazil, SMEs perceive the marketplace area ashighly valuable for their operations. They think thatmarketplace issues, such as customer relationships,supply chain management, quality and compliancemay affect their competitiveness in the mid- tolong-term. In particular, SMEs perceive CSR issuesas important factors to increase competitiveness.Specially when small and micro enterprises fosterrelationships with medium and large compliantcompanies (even domestically) and become part ofa large supply chains, thus strengthening their exportquota and fostering better management capacities.From 2000 to 2003, many corporations publishedsocial reports. According to current data, 300corporations published their social audit (98 ofthose registered by the IBASE). In 2005, IBASEregistered 976 reports and 305 different companies.This progress is significant, considering that in 1998only four companies published figures based onCSR models. Several managerial instruments aimedat monitoring, measuring, evaluating and reorganizingsocial and environmental performanceshave been developed and applied in the country, i.e.Ethos indicators, IBASE models, Akatu indicators,etc. Additionally, 7,378 companies are certifiedagainst ISO 9001 26 .WPCESMEs country positionin the Workplace areaSMEs country positionin the Community areaSMEs country positionin the Environment areaThere are several marketplace issues that positivelyinfluence SMEs management capacities, exports andcooperation with large domestic and internationalcompanies in the mid term, such as SMEs’ capacityof innovation, strong links with large companies,the entrepreneurs’ adaptability, practical skills, hightechnological readiness, a local availability ofsuppliers and positive trends towards voluntarymanagement systems on quality, health and safetyand the environment.The Ethos Institute emphasizes the need to establisheffective partnerships between large companies and26 www.inmetro.gov.brBrazil33

micro and small companies based on confidence andsustainability, “in such a way that all can earn andgrow” (Alli and Sauaya, 2004). These partnerships canbe facilitated through activities and tools that canenhance the application of CSR in the country. Forexample NBR 16001 (Brazilian standard from ABNT– Brazilian Technical Standardization Association)could be a strong tool for improving the requirementsmade by large companies to their suppliers for valuechain integration.CSR can also promote international trade, althoughcaution should be exercised to prevent it fromturning into a non-tariff barrier. Furthermore, theBrazilian private sector needs to commit itself tothe Millennium Development Goals (MDGs), whichare essential for development and can only beachieved through collaboration between thegovernment and private sector.3.2 WorkplaceSMEs in Brazil perceive the workplace area asvaluable for their competitiveness, in the mid- tolong-term. Workplace issues, such as health andsafety norms, employment policies, equalopportunities and compliance are perceived asinfluencing economic growth. However, in theshort-term, CSR workplace issues are not perceivedby SMEs as very relevant for their competitiveness,due to the high level of unemployment and informalemployment (the latter reaching 39.8 percent ofGDP) in the country. Many of the social actionsmade by Brazilian SMEs are addressed to external(17 percent) and internal (25 percent) health andsafety programs as well as to education and training(46 percent) activities according to IPEA (2002). 27Certain practices could derail CSR in Brazil, forinstance hiring and firing practices, lack ofcooperation in labor-employer relations, the lowavailability of scientists and engineers and the poorquality of the educational system. Moreover, weakpolicies perpetuate the gender gap and health andsafety conditions. However, even though the qualityof the educational system receives poor evaluations,Brazil has the highest primary school enrollment(WEF rank 1) and excellent rankings in highereducation and training in Latin America.Additionally, the 88.4 percent adult literacy ratemay lead to an enhancement of workforcecapacities in the future.It is important to add that approximately 400companies in Brazil are certified againstOccupation Health and Safety Assessment Series(OH SAS) 18001 28 , which may indicate a positivetrend towards voluntary management systems,beyond regulation.3.3 CommunitySMEs in Brazil perceive the community area asvaluable for their operations. The general view isthat community issues, such as participation andpublic-private partnerships may influence economicgrowth at the country and firm level. In theresearch on CSR in Latin American SMEs (Vives,Corral and Isusi, 2005) and according to the panel,Brazilian SMEs show a strong interest in thecommunity area, they have good relationships withtheir neighbors, they are well known and trusted,and they often act in ways that benefit the localcommunity. Many surveys and reports that haveexamined the interaction between SMEs and theirlocal communities stress the existing strong links,the ability to shape new forms of businesses, andeven the creation of new jobs.The role of NGOs is changing in Brazil. Beforedemocratization, NGOs were focused on increasinghuman rights in the country. In the 1990s, NGOs27 Institute of Applied Economic Research (Instituto de Pesquisa Econômica Aplicada)28 www.rma.org.br34 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

turned to trying to reduce the policy making powerof the state and business lobbyists. A realistic viewof Brazilian NGOs must recognize that theirinfluence on social policies is limited and that theirrole is more in social services delivery than inshaping social policy itself (Foweraker, 2001).In the community, Brazilian SMEs lack partnershipswith public, private and non-governmentalorganizations. This situation may be due to SMEs’lack of long-term horizons, which detracts fromprogress in cooperation and partnerships.3.4 EnvironmentIn Brazil, SMEs perceive the environment area asvaluable for their competitiveness. Their opinion isthat CSR issues, such as environmental management,compliance, monitoring, climate change, etc. mayaffect Brazilian sustainable growth and developmentin the long-term.Environmental stewardship is supported byregulatory systems defined by national laws,international agreements, civil society pressuresand certain business opportunities. However, anyconclusion about the “greening of business” couldbe an oversimplification of a complex process thatinvolves various actors and dynamics. Concern forenvironmental issues is a relatively recentdevelopment in the social conscience and hasincreased significantly in many sectors of society,including business. Still, there are few signs of atruly new culture characterized by a critical andself-critical dialogue between the economy andsociety on environmental issues (Cappellin andGiuliani, 2004). Gains in relation to environmentalresponsibilities are fragile. Relations betweenbusinesses and environmental NGOs remaintenuous and some business groups continue to pushfor the relaxation of environmental regulation,particularly when it is related to forest conservationand restrictions on the production and marketing ofgenetically modified products.According to data from the National Institute forMetrology, Standardization and IndustrialQuality 29 , 667 ISO 14000 certificates have beenissued to Brazilian companies. Moreover, a total of95 companies possess Forest Stewardship Council(FSC) certification 30 for their products, includingtimber components for the construction andfurniture industry, cellulose and paper, charcoal,tools, decorative objects, household products, andfood. According to an FSC report in 2006, Brazil hasthe largest number of Forest ManagementCertificates out of all Latin America countries – 67certificates covering 3,560,008 hectares.Recent research from the Federation of Industries ofthe State of Rio de Janeiro shows that 72.4 percent ofthe companies in Rio de Janeiro have activities in theenvironmental area as a result of legislation. Thoseresults include both SMEs and large corporations.Special credit must go to the SENAI, which has anambitious project, at a national scale: the SENAI’sprogram for Environmental Quality and SustainableDevelopment (Programa SENAI de QualidadeAmbiental e Desenvolvimento Sustentável - PSQA).The objective of PSQA is to build skills and transfertechnological solutions to the private sector throughthe development of training programs and planningand advisory actions to create environmentalmanagement systems adapted to the conditions ofeach area. In 1995, SENAI created the NationalClean Technology Centre (CNTL) to disseminateinformation, train professionals and support theimplementation of cleaner production systemsin industry. 3129 www.inmetro.gov.br30 The Forest Stewardship Council was created to change the dialogue about and the practice of sustainable forestry worldwide. It’spurpose is to coordinate the development of forest management standards throughout the different biogeographic regions of the U.S.,to provide public information about certification and FSC, and to work with certification organizations to promote FSC certificationin the U.S. FSC-US has a national presence through the work of its Board of Directors, members, staff, and regional standardscoordinators (www.fcsus.org)31 The CNTL is part of the network created by UNIDO and the United Nation’s Environmental Program (UNEP) to stimulate theadoption of production processes in developing countries based on clean technology. The experience of the CNTL is beingreproduced in different regions of Brazil through the creation of the six Clean Technology Centres which include several activitiessuch as in-plant demonstrations, training, information dissemination, and policy assessment and advice. Results include 76 trainedconsultants from a six-month pilot project that involved forty small industries. The network involves more than 100 Braziliancompanies, and is being expanded to other South American countries. Moreover, BCSD-Brazil has signed an agreement with theNortheastern Development Bank and two more Centers were implemented in the poorest region of Brazil – the northeastern region –in August/September 2001.Brazil 35

Brazil ratified the Kyoto Protocol and already has 63registered Clean Development Mechanism (CDM)projects and many other projects in the pipeline forwhich is currently awaiting decisions from theUnited Nation Framework Convention on ClimateChange (UNFCCC) CDM Executive Board. Accordingto estimates from Institute of EnvironmentalResearch in the Amazonian (Instituto de PesquisaAmbiental da Amazônia - IPAM), deforestation isresponsible for emissions of an estimated 200million tons of carbon annually (Næss andSchjolden, 2002). This represents two-thirds ofBrazil’s emissions of greenhouse gases and about 2.5percent of the global carbon emissions.While the Brazilian government opposed forestprotection as an option to reduce CO2 emissions inthe climate negotiations, many Brazilian NGOs seeforest protection measures as an importantopportunity not only to reduce greenhouse gasemissions but also to attract resources to promotesustainable forest management and benefits for localcommunities (see, e.g., the Belém manifesto) 32 .In the 90s there has been little interaction betweenthe government and civil society regarding Brazil’sposition in the international climate negotiations.Hence, Brazilian NGOs have had little influence overtheir government’s climate policies. Key constraintshave been low professional capacity, lack ofcommitment, weak organization and limited financialresources, as well as skepticism towards NGOs fromparts of the Brazilian bureaucracy. However, thissituation is now changing. The interest in climatechange is growing among the Brazilian NGOs, and in2002, 26 organizations jointly established a network –the Climate Observatory – to promote civil societyparticipation on climate change issues. The goal of thenetwork is to become a vehicle for influencinggovernment views and policies on climate change andto direct more attention to deforestation.4 Recommended ActionsThe main actors capable of strengthening CSR in Brazilhave been classified in the following four categories: a)Multilateral Development Institutions (MDIs), b)national governments and local authorities, c) businessassociations, and d) civil society. These four categoriesof actors may act via all or some the followingstrategies, as defined in the Introductory Chapter:Mandating, Ensuring transparency, Facilitating,Improving Promotion and Advocacy, Partnering, andEndorsing. The proposed actions are by no meansexhaustive and only illustrate the types of involvement,which can be easily modified to meet local needs.The cooperation among domestic market players canbe assured through the establishment of clusters andby stressing the cooperation of provinces in order to:(i) promote cooperation among firms within the samesector, cluster, or supply chain, (ii) strengthen thelocal position within the value chain to develop aneconomy of scale and (iii) enhance partnershipsamong public, private and non-governmentalorganizations. To this extent, the development andapplication of guidelines for linkages in local supplychains -in specific CSR areas- and benchmarkingprocesses among Brazilian SMEs should becommended. Moreover, the high quantity and qualityof local suppliers should be used to develop strongersupply chain partnerships, enhancing the quality ofproducts made by Brazilian SMEs.4.1 Multilateral Development InstitutionsMDIs, mainly because of their strong expertise andreliability, should promote partnerships amongMDIs, civil society and SMEs, encourage stakeholderengagement, launch a benchmarking effort andprepare feasibility studies.32 Available on www.ipam.org.br36 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

a. Endorsing, recommended actions forMDIs include:– Write generic guidelines for a code of conductand ethical behavior.– Support the creation of a responsible Braziliansupply chain label that would certify companiesthat use CSR management practices. Thushelping enhance their competitive positions inthe international markets.b. Partnering, recommended actions for MDIs include:– Launch a women’s association that couldeducate SMEs on gender polices, disseminatebest practices and provide scholarships foryoung women in the field of businessadministration and/or CSR.c. Improving Promotion and Advocacy,recommended actions for MDIs include:– Improve environmental compliance throughsimplification of environmental regulation byidentifying priorities and milestones.– Start a pilot project to enhance the capacity ofSMEs to profit from the Kyoto Protocol CDM byencouraging Carbon Pooling among SME sellers.– Assist sustainable tourism by fosteringplanning, management and communicationactivities for SMEs.d. Ensuring transparency, recommended actionsfor MDIs include:– Promote awareness of accountability andreporting standards such as the GlobalReporting Initiative, as well as otherinternational guidelines and principles such asthe Global Compact, the International LaborOrganization and the OECD principles to beimplemented with the contribution of TNCsand/or large domestic companies which areable to share experiences and perhaps supportor finance the effort.e. Facilitating, MDIs should be involved in fundingefforts, led by other actors, that may:– Facilitate workshops on compliance issues suchas taxes and administrative costs, transparencyand accounting.– Develop an SME culture of transparency andcommunication by sharing domestic andinternational best practices and tools.– Support voluntary third party auditing toprovide CSR accreditation for SMEs.Responsible SMEs should be recognized bytheir stakeholders (in particular by customersand competitors) for their efforts to complywith tailored ethical protocols.– Pilot a project on the implementation of qualitymanagement systems in the supply chain usinga chosen territory or sector. Provide assistanceto participants according to the specific rolethey have in the supply chain.– Train SME managers on CSR best practices. Forexample, provide classes on strategic planningand how to write a responsible business plan.– Conduct a risk analysis to identify the directand indirect costs of non-compliance based oncase studies. Then, form a pilot group of SMEsto draft a compliance program specifyingtiming, resources and expected results.– Provide gender rights counseling by supportingwomen at work through direct experiencesharing. Arrange workshops with women whoare leading mangers, politicians andentrepreneurs, as guest speakers.– Raise awareness of good labor practices throughvoluntary programs. Involve managers andunion representatives.– Launch an NGO engagement awarenesscampaign to raise awareness about stakeholderengagement. Start a pilot engagementawareness campaign with at least five localNGOs and five local SMEs.– Start a pilot project for a chosen sector onenvironmental management systems accordingto ISO 14001 at the district level.Brazil 37

– Improve monitoring systems andenvironmental assessments in SMEs throughthe development of the Life Cycle Assessmentapproach in a specific sector.4.2 Government and Local AuthoritiesBrazilian government and local authorities couldhave a positive role in enabling CSR withoutimposing mandatory policies or rules on SMEs.Brazilian public authorities are perceived as lackingawareness on CSR policy definition, promotion andstimulation. Therefore, the first step proposed is towork with MDIs to train local public authorities andnational representatives on CSR.a. Endorsing, recommended actions forgovernment and local authorities include:– Pilot a project on the implementation ofquality management systems in the supplychain using a chosen territory or sector.Provide assistance to participants according tothe specific role they play in the supply chain.– Create a responsible Brazilian supply chainlabel that would certify companies that useCSR management practices. Thus enhancingthe competitive positions of these companiesin international markets.– Create a Safe Workplace Label to award tocompanies that voluntarily adhere to stricterhealth and safety procedures. Guidelines maybe drafted by sector.b. Partnering, recommended actions forgovernment and local authorities include:– Develop a SME culture of transparency andcommunication by sharing domestic andinternational best practices in partnershipwith MDIs.– Start a pilot project for a chosen sector onenvironmental management systemsaccording to ISO 14001 at the district level,and in partnership with other actors.c. Improving Promotion and Advocacy,recommended actions for government and localauthorities include:– Work with MDIs and civil society to train localpublic authorities and national representativeson CSR.– Facilitate workshops on compliance issuessuch as taxes and administrative costs,transparency and accounting.– Promote stakeholder engagement throughtraining programs and dissemination ofbest practices.– Improve environmental compliance throughsimplification of environmental regulation byidentifying priorities and milestones.– Start a pilot project to enhance the capacity ofSMEs to profit from the Kyoto Protocol CDM byencouraging Carbon Pooling among SME sellers.– Enhance the application of Best AvailableTechnologies and praise environmentallyfriendly technologies through anEnvironmental Technology Expo.d. Facilitating, recommended actions forgovernment and local authorities include:– Define guidelines for a code of conduct andethical behavior.– Improve monitoring systems and environmentalassessments in SMEs through the developmentof the Life Cycle Assessment approach in aspecific sector (through the supply chain).e. Ensuring transparency, recommended actionsfor government and local authorities include:– Support voluntary third party auditing toprovide CSR accreditation for SMEs.Responsible SMEs should be recognized bytheir stakeholders (in particular by customersand competitors) for their efforts to complywith tailored ethical protocols.– Promote awareness of accountability andreporting standards such as the GlobalReporting Initiative, as well as other38 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

international guidelines and principles such asthe Global Compact and the InternationalLabor Organization.4.3 Business AssociationsBusiness associations include trade associations,territorial associations and associations for servicedelivery and support to SMEs activities. The “SSystem” (Brazilian Service to Support SMEs - SEBRAE;Social Service of Industries - SESI 33 ; Social Service ofCommerce - SESC; National Rural Training Centre -SENAR), is the social service network to which allBrazilian companies contribute. The “S System” hasbeen considered in this analysis and included in therecommended actions as project developers. Brazilianbusiness associations seem to have the strongestpotential role in fostering CSR, therefore, they areencouraged to lead most of the actions proposed below.a. Ensuring transparency, recommended actionsfor business associations include:– Encourage and support voluntary third partyauditing to provide CSR accreditation for SMEs.Responsible SMEs should be recognized bytheir stakeholders (in particular by customersand competitors) for their efforts to complywith tailored ethical protocols.b. Facilitating, recommended actions for businessassociations include:– Facilitate workshops on compliance issuessuch as taxes and administrative costs,transparency and accounting.– Improve monitoring systems and environmentalassessments in SMEs through the developmentof the Life Cycle Assessment approach in aspecific sector (through the supply chain).– Train SME managers on CSR best practices. Forexample, provide classes on strategic planningand on how to write a responsible business plan.– Participate in the definition of guidelines forcodes of conduct and ethical behavior.c. Improving Promotion and Advocacy,recommended actions for businessassociations include:– Provide gender rights counseling bysupporting women at work throughexperience sharing and workshops withwomen who are leading managers, politiciansor entrepreneurs.– Raise awareness of good labor practicesthrough voluntary programs.– Enhance the application of best availabletechnologies and praise environmentallyfriendly technologies through anEnvironmental Technology Expo.– Promote stakeholder engagement throughtraining and dissemination of best practicessuch as benchmarking techniques.– Promote sustainable tourism practices amongrelated SMEs. Foster planning, managementand communication activities for SMEs in thetourism industry.d. Partnering, recommended actions for businessassociations include:– Develop an SME culture of transparency andcommunication by sharing domestic andinternational best practices and tools.– Conduct a risk analysis to identify the directand indirect costs of non-compliance based oncase studies. Then, form a pilot group of SMEsto draft a compliance program specifyingtiming, resources and expected results.– Start a pilot project for a chosen sector onenvironmental management systems accordingto ISO 14001 at the district level. Local banksand financial institutions can support thisproject with their knowledge of local SMEs,including the financial and industrial situationas well as the risk involved 34 , they can also helpfinance the project.33 SESI promotes workers’ quality of life. Its objective is to stimulate the sustainable growth of the country with services in the healthcare, safety, environment, sport, leisure, culture and basic education. Besides stimulating the companies to be socially responsible,the SESI promotes activities that help change the life of thousands of people. Together with Global Action, the System carries outother activities on a regional level, in partnership with local associations to diminish misery and assist the excluded portion of thepopulation in the generation of sufficient income.34 Clients privacy policy should be appliedBrazil 39

e. Endorsing, recommended actions for businessassociations include:– Pilot a project on the implementation ofquality management systems in the supplychain using a chosen territory or sector. Provideassistance to participants according to thespecific role they play in the supply chain.– Create a responsible Brazilian supply chainlabel that would certify companies that useCSR management practices. Thus, enhancingthe competitive positions of these companiesin international markets.– Create a Safe Workplace Label to award tocompanies that voluntarily adhere to stricterhealth and safety procedures. Guidelines maybe drafted by sector.4.4 Civil SocietyBrazilian civil society has a high level of education.NGOs have a strong awareness of negotiating andcampaigning tools, as well as a history of demandinghuman rights and resource preservation. They haveparticipated in policy making and, more recently,have had a positive and effective role in servicedelivery. The latter role is the function relied onmost in the following recommended actions.Academia and research institutes are consideredwithin the civil society and act as content providersand drivers of CSR innovative management tools.a. Facilitating, recommended actions for civilsociety include:– Drive the development of CSR trainingcourses for SME managers on strategicplanning and responsible business plandevelopment.– Provide content for the development of acode of conduct and ethical behavior, whichmay have a strong impact on knowledge,awareness and best practices and foster awider implementation of ethical behaviorsamong responsible SMEs (and their suppliers).b. Improving Promotion and Advocacy,recommended actions for civil society include:– Lead the improvement of environmentalcompliance through simplification ofenvironmental regulation by identifyingpriorities and milestones.– Provide gender rights counseling bysupporting women at work throughexperience sharing and workshops withwomen who are leading managers, politiciansor entrepreneurs.– Work on the enhancement of labor practicesthrough voluntary programs and promotenew partnerships among MDIs, civil societyand SMEs.– Assist sustainable tourism and other activitiesby fostering planning, management andcommunication efforts within SMEs.c. Partnering, recommended actions for civilsociety include:– Conduct a risk analysis to identify the directand indirect costs of non-compliance based oncase studies. Then, form a pilot group of SMEsto draft a compliance program specifyingtiming, resources and expected results.– Launch a women’s association that couldeducate SMEs on gender polices, disseminatebest practices and provide scholarships foryoung women in the field of businessadministration and/or CSR.– Partner with other actors, to create a Braziliansupply chain label that would certify companiesthat use CSR management practices. Thusenhancing the competitive positions of thesecompanies in international markets.– Create a Safe Workplace Label to award tocompanies that voluntarily adhere to stricterhealth and safety procedures. Guidelines maybe drafted by sector.– Act as a leader in stakeholder engagementand in promoting awareness campaigns andsponsoring pilot projects in specific states.40 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

BibliographyAlli, S. and Sauaya, T. (2004) ‘Como fortalecer a responsabilidade social nas grandes e pequenas empresas’,(Ethos Institute).Cappellin, P., and Giuliani G.M. (2004) ‘The Political Economy of Corporate Responsibility in Brazil Socialand Environmental Dimensions’, (Geneva, Switzerland: UNRISD).Ethos Institute (2003) ‘Indicadores Ethos de Responsabilidad Social Empresarial’, (Ethos Institute),available on: www.ethos.org.br/.Foweraker, J. (2001) ‘Grassroots movements, political activism and social development in Latin America: acomparison of Chile and Brazil’, (World Bank, Paper n.4, PP-CSSM-4).Fox T., Ward H., Howard B, (2002) ‘Public sector roles in strengthening corporate social responsibility: abaseline study’, (the World Bank).IPEA (Instituto de Pesquisa Econômica Aplicada) (2002) ‘Company Social action researh’, (IPEA).ISO (International Standard Organization) (2004) ‘Small and medium–size enterprises’,(Geneve, Switzerland: ISO).ISO (International Standard Organization) (2005) ‘The ISO Survey – 2004. ISO and The ISO Survey’,(Geneve, Switzerland: ISO).Næss L.O., Schjolden A. (2002) ‘Brazilian NGOs establish network to influence climate change policies’,Cicerone 4-2002, (Norway: Ed. CICERO), ON www.cicero.uio.noSchneider, F. (July 2002) ‘Size and measurement of the informal economy in 110 countries around theworld’, (Washington: World Bank).Sussdorff M., 2003, ‘Echoes from Latin America’, Brussel, CSR Europe.Transparency International (2005) ‘Report on the Transparency International Global Corruption Barometer’,(Berlin: Policy and Research Department Transparency International –International Secretariat).Vives, A. (2004) ‘The role of multilateral development institutions in fostering corporate socialresponsibility’, (Society for International Development).Vives, A., A. Corral, I. Isusi (2005) “Responsabilidad Social de la Empresa em las PyMES deLatinoamérica”. (Inter-American Development Bank and IKEI).WEF (World Economic Forum) (2006) ‘The Latin America Competitiveness Review’, (Geneva: WEF).WEF (World Economic Forum) (2005-2006) ‘The Global Competitiveness Index’, (Geneva:WEF).Brazil 41

Websites consultedwww.accountability.orgwww.akatu.org.brwww.cni.org.brwww.cebds.org.brwww.ceris.org.brwww.csrwire.comwww.earthtrends.wri.orgwww.eldis.orgwww.ethos.org.brwww.fsc.orgwww.IDB.orgwww.ibase.org.brwww.icd.org.uywww.ifc.orgwww.ilo.orgwww.inmetro.gov.brwww.ipea.gov.brwww.iso.orgwww.it.wikipedia.orgwww.maplecroft.comwww.meioambienteindustrial.com.brwww.mhcinternational.comwww.mma.gov.brwww.rae.com.brwww.rma.org.brwww.sebrae.com.brwww.sesi.org.brwww.sesc.com.brwww.senar.org.brwww.transparency.orgwww.unfccc.intwww.weforum.orgwww.wri.orgwww.worldbank.org42 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

AppendixThe following stakeholder map has been used to verify that all eight defined stakeholder categories and allfour CRS areas are represented. Stakeholders that were chosen for interviews or as panel participantseither had relevant expertise in the issue or may influence awareness, interests and implementationinstruments relevant to the issue.APPENDIX 1 – BRAZIL’S STAKEHOLDER MAP1.Internationalorganizations2.Governmentorganizations andinstitutions3. Associations(national, sectoral,business)Marketplace Workplace Community Environment—The international —The internationalCouncil for Local Council for LocalEnvironmental EnvironmentalInitiatives (ICLEI) Initiatives (ICLEI)—Brazilian Instituteof Geography andStatistics (IBGE)—National Instituteof Metric,Normalization andIndustrial Quality(INMETRO)—Instituto dePesquisa EconômicaAplicada (IPEA)—Annual relation ofSocial Information(RAIS)—Association of thecontrollers of salesand marketing ofBrazi (ADVB)—InternationalConfederation ofIndustry (CNI)—Federation of theindustries of theState of Rio deJaneiro (FIRJAN)—Brazilian PetroleumInstitute (IBP)—Brazilian Instituteof Geography andStatistics (IBGE)—National Instituteof Metric,Normalization andIndustrial Quality(INMETRO)—Instituto dePesquisa EconômicaAplicada (IPEA)—Annual relation ofSocial Information(RAIS)—Association ofHuman Resourcesof Brazil (ABHR)—Association of thecontrollers of salesand marketing ofBrazi (ADVB)l—Federation of theindustries of theState of Rio deJaneiro (FIRJAN)—Inter-AmericanDevelopmentBank(IDB)—The internationalCouncil for LocalEnvironmentalInitiatives (ICLEI)—United NationsDevelopmentProgramme (UNDP)—Brazilian Instituteof Geography andStatistics (IBGE)—Instituto dePesquisa EconômicaAplicada (IPEA)—Annual relation ofSocial Information(RAIS)—Association of thecontrollers of salesand marketing ofBrazi (ADVB)—InternationalConfederation ofIndustry (CNI)—Federation of theindustries of theState of Rio deJaneiro (FIRJAN)—Brazilian PetroleumInstitute (IBP)—Inter-AmericanDevelopmentBank(IDB)—The internationalCouncil for LocalEnvironmentalInitiatives (ICLEI)—United NationsDevelopmentProgramme (UNDP)—Brazilian instituteof environmentaland the naturalrenewableresources (IBAMA)—Brazilian Instituteof Geography andStatistics (IBGE)—National Instituteof Metric,Normalization andIndustrial Quality(INMETRO)—Instituto dePesquisa EconômicaAplicada (IPEA)—Annual relation ofSocial Information(RAIS)—National CleanTechnology Centre(CNTL)—Association of thecontrollers of salesand marketing ofBrazi (ADVB)—Brazilian ClimateChange Forum—InternationalConfederation ofIndustry (CNI)—Federation of theindustries of theState of Rio deJaneiro (FIRJAN)Brazil43

APPENDIX 1 – BRAZIL’S STAKEHOLDER MAP3. Associations(national, sectoral,business)4.FinancialinstitutionsMarketplace Workplace Community Environment—Brazilian SteelInstitute (IBS)—NationalConfederation ofIndustry (CNI)—Serviço Brasileirode Apoio às Micro ePequenas Empresas(SEBRAE)—ABN AMRO REALBank—Bovespa Bank—Rabobank—Rural Bank—Unibanco5. Multinationalcompanies6. Media —Canal Futura—Globo News—Globo Journal—TV Educativa—Valor Journal7. NGOs —World BusinessCouncil forSustainableDevelopment –WBCSD Brazil(CEBDS)—Group of Institutes,Foundations andCompanies (GIFE)—Forum Empresa—Brazilian instituteof Social andEconomic Analyses(IBASE)—Instituto dePesquisasEcológicas (IPE)—Istituto EuvaldoLodi (IEL)—Brazilian SteelInstitute (IBS)—Brazilian PetroleumInstitute (IBP)—NationalConfederation ofIndustry (CNI)—Social service of theCommerce (SESC)—Social service ofthe Industry (SESI)—National service ofCommercialLearning (SENAC)—National service ofAgriculturalLearning (SENAR)—Canal Futura—Globo News—IndustrialEnvironmentMagazine—Globo Journal—TV Educativa—Valor Journal—ETHOS Institute—Group of Institutes,Foundations andCompanies (GIFE)—Brazilian instituteof Social andEconomic Analyses(IBASE)—Brazilian SteelInstitute (IBS)—Serviço Brasileirode Apoio às Micro ePequenas Empresas(SEBRAE)—National service ofCommercialLearning (SENAC)—National service ofAgriculturalLearning (SENAR)—Social service of theCommerce (SESC)—Social service ofthe Industry (SESI)—ABN AMRO REALBank—Bovespa Bank—Rabobank—Rural Bank—Unibanco—Canal Futura—Globo News—IndustrialEnvironmentMagazine—Globo Journal—TV Educativa—Valor Journal—Abrinq Foundation—Agenda Institute—Ayrton SennaFoundation AkatuInstitute—Brazilian Forum ofNGOs and SocialMovements—Centro de Estudos doTerceiro seto (CETS)—World BusinessCouncil forSustainableDevelopment –WBCSD Brazil(CEBDS)—Brazilian PetroleumInstitute (IBP)—Brazilian SteelInstitute (IBS)—Serviço Brasileirode Apoio às Micro ePequenas Empresas(SEBRAE)—National service ofCommercialLearning (SENAC)—National service ofAgriculturalLearning (SENAR)—ABN AMRO REALBank—Bovespa Bank—Rural Bank—Unibanco—Canal Futura—Globo News—IndustrialEnvironmentMagazine—Globo Journal—TV Educativa—Valor Journal—World BusinessCouncil forSustainableDevelopment –WBCSD Brazil(CEBDS)—Chico MendezSustainableRainforestCampaign—Eco-DevelopmentFund—EcoFuturo Institute—ETHOS Institute—Ford Foundation—Group of Institutes,Foundations andCompanies(GIFE)44 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

APPENDIX 1 – BRAZIL’S STAKEHOLDER MAPMarketplace Workplace Community Environment7. NGOs —Conselho IndigenistaMissionario –(MissionaryIndigenous Councilworks on indigenousrights issues in Brazil)—CSN Foundation—Foundation Instituteof Enterprise andSocial Development(FIDES)—Ford Foundation—FRM—Group of Institutes,Foundations andCompanies(GIFE)—Brazilian institute ofSocial and EconomicAnalyses (IBASE)—IstitutoSocioambiental—Kellogg Foundation—Landless WorkersMovement -MST(Largest socialmovement in LatinAmerica, aims to carryout land reform inBrazil on a grassrootsbasis)—Nativus (network ofBrazilian NGOs onindigenous rights andenvironmentalprotection)—Razão Social Institute—Roberto MarinhoFoundation—Semear Institute—Souza Cruz Institute—Telemar Institute—Vale do Rio DoceFoundation—Vitae Civilis (ondevelopment andenvironemnt)—Votorantim Institute—Brazilian instituteof Social andEconomic Analyses(IBASE)—Instituto Nationalde PesquisaAmbiental daAmazonia (IPAM-NGO composed ofscientists andeducators dedicatedto sustainablemanagement of theBrazilian Amazon)—IstitutoSocioambiental—The ClimateObservatory—Vitae Civilis (ondevelopment andenvironemnt)Brazil45

APPENDIX 1 – BRAZIL’S STAKEHOLDER MAP8. Academia —Getúlio VargasFoundation (FGV)—Catholic University(PUC)—Fluminense FederalUniversity (UFF)Marketplace Workplace Community Environment—Getúlio VargasFoundation (FGV)—Catholic University(PUC)—Fluminense FederalUniversity (UFF)—Getúlio VargasFoundation (FGV)—Catholic University(PUC)—Fluminense FederalUniversity (UFF)—PontificiaUniversidadeCatolica de MinasGerais (dr.Teodosio)—Universdade deBrasilia (prof. Viola)—Getúlio VargasFoundation (FGV)—Catholic University(PUC)—Fluminense FederalUniversity (UFF)—PontificiaUniversidadeCatolica de MinasGerais (dr.Teodosio)—Universidade deBrasilia (prof. Viola)46 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

Chapter 3: Chile1 Executive SummaryThis analysis shows that Multilateral DevelopmentInstitutions (MDIs) could play several important rolesin Chile to support CSR. For example, developing aconducive policy environment, promotingcompliance with existing laws, starting pilot projectsto educate SMEs on reporting and accountability, anddisseminating best practices by promoting new tools -such as environmental benchmarking to enhancecompetitiveness. MDIs could also take the lead onensuring transparency in credit by helping SMEsovercome the obstacles to accessing capital marketsand therefore increasing SMEs’ penetration of banks.In addition, MDIs could support pilot projects todevelop Carbon Pooling among SME sellers to gain thebest profit from the application of the Kyoto Protocolmechanisms, as a hosting project country. MDIsshould have a prominent role in the definition ofgender policies and child labor rights in SMEs, whichmay contribute to the foundation of an associationdedicated to gender policies among SMEs. MDIsshould provide financial support through MultilateralFinancial Institutions, which are part of MDIs.The Chilean government and local authorities havean active role as regulators, enforcers and controllers.Many CSR areas are already covered by lawsprescribing ethical behavior or the application ofinternational standards. This analysis does notpromote mandating roles for Chilean publicauthorities, because of the large number of lawsalready in place. Government may encouragetransparency on issues such as corporate governance,fair trade, employment relations, taxation andcontractual conditions. Public authorities may raiseawareness, distribute information and spread bestpractices among SMEs to indirectly foster CSR.Chilean public authorities can have an important rolein stakeholder engagement training programs. Theycan also participate with local authorities in thelaunch of innovative activities such as giving awardsfor innovation, creating CSR labels and launchingtechnology expos.The leading role of business associations isprominent in building capacity. This can be donethrough pilot projects aimed at enhancingcompliance and responsible behaviors in themarketplace, workplace and environmental arenasof CSR, as well as by raising awareness, increasingtraining programs and developing new tools for SMEs.Chilean civil society should not only help enable anenvironment for CSR, but should also foster ethicalbehaviors among SMEs. Chilean civil society hasleading roles including building capacity throughtraining programs, applying benchmarkingtechniques, increasing awareness and editing CSRpublications. Academic institutions may drive CSRby providing content, educational materials andtraining programs and may help write guidelines forethical conduct among SME managers. Civil societymay also contribute to a stakeholder engagementand NGOs awareness campaign for local communities.2 Economic and SocialFrameworkChilean economic growth has been among thehighest in the world, with an average of 6.8 percentper year between the years 1990 and 2000, in spiteof a downturn of 1.1 percent in 1999. Povertydeclined from 44.8 percent of the total populationin 1987 to 22.2 percent in 1998, while extremepoverty was reduced from 16.5 percent to 5.6percent in the same period. Infant mortality ratesdeclined from 32 per thousand in 1980 to 20 perthousand in 1990, and to 10 per thousand in 1998.The country’s sovereign debt is classified as A- byStandard & Poor’s, the highest rating for any LatinAmerican country. Chile’s level of unemploymentcalculated by the World Economic Forum (WEF)was 8.8 percent of the total labor force in 2005.Chile 47

A stable macroeconomic framework, strong publicinstitutions, high investment in human capital andcontinuity in development policies explain Chile’sstrong economic and social performance over thepast years. 35 The Central Bank has conductedmonetary policy with prudence and persistent tradeliberalization has helped achieve an efficientresource allocation. According to ratingorganizations and think tanks, Chile ranks high withrespect to law and order, quality of its civil service,management of public institutions, and transparency(low levels of corruption). Public expenditures ineducation, health, housing, social security and othersocial services have increased over recent years,reaching 71 percent of total government spending in1999. Reforms introduced in the 1980s to promoteefficient delivery of social services have beenimproved and are monitored for effectiveness.Concerning the access to credit and loans, a WorldBank study (Sirtaine, 2006) stated that only largefirms have access to the entire range of financialinstruments available in Chile and abroad (capitalmarket or off-shore banks). Small size firms, on theother hand, face financing constraints and SMEshave no access to capital market financing. While inthe mid 80s and early 90s some smaller firms didmanage to issue equity, this channel has dried outdue to their depressed performance. In addition, theunder-development of private equity in Chile onlyallows a fraction of these firms to access privateequity. As for access to bank loans, banks arerapidly expanding their leasing and factoring linesof business, nearly exclusively devoted to mediumand small firms. However, both industries are still intheir infancy in terms of volumes lent.There are various obstacles to downsizing access tocapital markets and increasing the penetration ofbanks in smaller segments. The key obstacles forenabling more small and micro enterprises toaccess bank financing are: (i) the legal difficulties inusing and executing movable pledges, (ii) the lowquality and trustworthiness of the financialstatements of smaller firms, (iii) the imposition ofthe stamp tax on the renewal of small value loans,and (iv) the cap on interest rates on small loans(tasa maxima convencional) (Sirtaine, 2006). Onthe other hand, some institutions (i.e. UnitedNations Research Institute for Social Development-UNRISD) claim that economic policies in Chilehave been “fiscally permissive” in some sectors,such as the mining industry 36 (Riesco, 2005).The following chart shows competitiveness indicatorssupplied by the World Economic Forum (WEF). Alldata is from 2005 and the chart is sorted by indicatorranking. As for the general level of competitiveness,Chile is in a very good condition. The three mainobstacles for the country’s competitivenessdevelopment are: the restrictive labor regulations, thegovernment bureaucracy and the inadequatelyeducated workforce. On the other hand, other WEFsub-index rankings show a good situation in Chile forthe development of its competitiveness.35 Although since 1817, Chile's war of independence from Spain brought into place a system of representative democracy, the country'spolitical history has not always been smooth. In 1970, a Marxist government under Salvador Allende came to power in response to theperceived failure of the established liberal party. Allende's attempts to radically change the structure and direction of the countrybrought about a second political crisis, and in 1973 a right-wing government under General Augusto Pinochet Ugarte seized power withassistance from the United States Central Intelligence Agency. Allende was killed in the coup, and Pinochet's government maintainedpower for the next decade and a half, frequently resorting to terror in order to stifle discontent. In 1990, having failed in his bid to gainpopular ratification for his rule, Pinochet handed over the presidency to the rightfully- elected Patricio Aylwin Azocar. Chile's politicalclimate has since remained stable, although there is still considerable tension between the military and the government concerning thehuman rights violations of the Pinochet era (wikipedia 2006). The last presidential and congressional elections were held in December2005 and January 2006. Michelle Bachelet won that presidential election and took office on March 11, 2006.36 As a result overproduction has been encouraged (almost 40 percent of the world copper production is from Chile) and world copperprices remained low, damaging employment in the mining sector locally and internationally and harming government revenues. Somemining companies in Chile claim to act responsibly48 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

OrganizationWEFIndexNumber of Countriesin the IndexChile’s RankingIntensity of localcompetition 117 7WEF Technological readiness 117 26WEF Global Competitiveness 11727 (1 out of 21 inLatin America)WEFTime required to start abusiness 117 31WEF Local equity market access 117 33WEFEfficiency of legalframework 117 35WEFNumber of proceduresrequired to start a business 117 37WEF Capacity for innovation 117 40WEFUniversity/industry researchcollaboration 117 45WEFCompany spending onresearch and development 117 47Also, the institutional framework in Chile appears to be stable and trustworthy.OrganizationWEFIndexNumber of Countriesin the IndexChile’s RankingFavoritism in decisions ofgovernment officials 117 20WEF Public trust of politicians 117 23WEF Reliability of police services 117 27WEF Judicial independence 117 47Transparency International Corruption Perception 159 21Chile49

An investigation of Chile’s equity and genderpolicies exposes poor to average conditions. A reportfrom the Women National Service (ServicioNacional de la Mujer- SERNAM, 2006) shows thegender specific initiatives that have been carried outin Chile between 2005 and 2006. Highlights includethe government's commitment to improve women'sparticipation in employment and in public office,both in local government and at the parliamentarylevel. In addition, six new centers for women victimsof domestic violence were opened and thegovernment made a commitment to deal withhuman trafficking at a legislative level and byguaranteeing protection and assistance to itsvictims. The Chilean national machinery for theadvancement of women also started the process ofdeveloping codes of conduct for the public sector inorder to ensure that women enjoy equalopportunities and are not discriminated against.Other gender specific initiatives on socialprotection, childcare, health (including reproductiverights), education and HIV/AIDS are also describedin the report.3 Current State of CSRMost Chilean SMEs are unfamiliar with the conceptof CSR and therefore do not consider it a waytowards progress. They believe they first need tosolve their structural problems before focusing onbecoming socially and environmentally responsible.The results of the CSR Monitor survey for 2005,distributed by the Canadian GlobeScan Institute,indicates that 53 percent of people interviewedthink that companies do not commit themselves tobuilding a better society for all, and another 54percent believe that it is necessary to introduce lawsto force companies to go beyond their traditionaleconomic role (Anselmi, 2005).In 2004, Prohumana 40 conducted a survey in whichCEOs and managers of large and small enterprises,members of the Federation of Chilean Industry(Federación Gremail de la Industria - SOFOFA), wereinterviewed to determine their CSR management. Thisstudy found that of the 160 companies surveyed, 67OrganizationIndexNumber of Countriesin the IndexChile’s RankingWEF Educational Attainment 117 48Quality of EducationalWEFSystem 37 117 73WEF Hiring and firing practices 117 82WEF Private sector employment 117 101ILO Child Labor 38 191 143ILO Health and Safety 39 187 119Amnesty International andHuman Rights WatchIntrinsic Country HumanRights Risk 194 5537 www.maplecroft.com38 Idem39 Idem40 Prohumana is a non-profit organization whose aim is to build a culture of Citizen and Corporate Social Responsibility in Chile,promoting a proactive attitude in peoples, institutions, and enterprises.50 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

percent said they were actively pursuing CSRinitiatives. Of those companies, 52 percent said theseinitiatives were a response to a moral imperative,while 31 percent saw a clear financial benefit and 17percent felt they were responding to communityneeds. The results of this survey also revealeddifferences in CSR management between large andsmall enterprises. Large enterprises tend to implementCSR management tools, whereas small and microenterprises prefer flexible mechanisms. The mainsystem adopted to evaluate CSR performances isISO9000 certification. Moreover, small and microenterprises do not consider transparent policies in theworkplace important, but a large number of them doconsider internal discrimination an importantproblem. Few SMEs consider a strong commitment tocustomers as important (Prohumana, 2004).The Chilean literature on CSR is rich withpublications (mostly edited by AccionRSE) 41providing information on diverse issues, such asfacilitating a high quality work environment,environmental responsibility and communityrelationships. In addition, in 2005, Foro Empresa 42published a manual focused on CSRimplementation in SMEs titled “Manual RSE: unanueva mirada empresarial”. Lastly, AccionRSEcreated indicators that allow enterprises to selfevaluatetheir strategies, policies and practices inthe areas of enterprise ethics, quality of workenvironment, relationship with the community, andresponsible marketing (AccionRSE, 2002).Chile has adhered to a number of internationalprinciples and has undertaken commitments thatfoster corporate social responsibility. One exampleis the Guidelines for Multinational Enterprises,drawn up by the Organization for EconomicCooperation and Development (OECD), whichChile signed and ratified in the year 2000. 43Additionally, leading firms in Chile 44 have adhered tothe Global Compact, a United Nations initiative thatfocuses on human rights, labor regulation and theenvironment. In recent years, several prizes have beendeveloped, including AmCham’s Good CorporateCitizen Prize for Chilean companies. In 2006, an SMEwas awarded this prize for the first time. 45At the end of the 1980s, there was an evolution oflegislation that stimulated private donations foruniversities and professional institutes (Law18.681), as well as for the improvement ofeducational quality (Law 19.247).The public sector has not promoted CSR issues,even though it has instituted a number ofregulations, largely focused on environmentalconservation. One of the reasons for this low levelof CSR awareness is a strong economic tie to theUnited States, which has a corporate culturenarrowly focused on profit generation.In Chile, CSR implementation could be managed intwo phases. In the first phase, the concept of CSR isintroduced in medium and large enterprisesthrough pilot projects financed by the government.In this phase international organizations bringresources and instruments to build CSR awareness.In the second phase, public organizations thenintroduce the concept to SMEs through pilotprojects for methodology development.Interesting and valuable activities on CSR run byMDIs have already been carried out in Chile. TheIDB has provided US 1.25 million dollars for aproject to support the adoption of CSR by SMEs,particularly with the intention of creating access toexport markets. Sector-specific issues regardingCSR have been discussed in several studies (Blanco,2003) and there is still a need to furthercomprehend similarities and differences to developthe right path for each sector.41 AccionRSE is a non-profit organization that arises from Chilean enterprise sector, with the goal of improving Corporate SocialResponsibility in the country’s enterprises. One sign of the growth of CSR in Chile is the membership of some sixty companies inAccionRSE that, drawn from across different economic sectors, represent just over 25 percent of the country’s GDP.42 Foro Empresa is a is an American alliance of CSR-based business organizations that promotes corporate social responsibility (CSR)throughout the Americas. More information available at: www.empresa.org43 which comprise recommendations addressed by governments to multinational enterprises in a bid to ensure socially responsiblebusiness conduct in line with the applicable legislation44 Such as Banco Santander Santiago, Compañía Cervecerías Unidas, Asociación Chilena de Seguridad and Terranova45 The prize went to a program of workshops for prison inmates, run by Target-DDI, a human resources consultancy firm. Through theseworkshops, led by the company’s own employees, Target-DDI seeks to provide prisoners with skills that will facilitate their reinsertionin society and the labor market, once they are released.Chile 51

CSR area significanceThe following figure illustrates an estimatedpositioning of each one of the CSR areas –marketplace, workplace, community andenvironment. The graph shows the significance ofCSR for SMEs (vertical axis) and the CSR actionsimplemented by SMEs (horizontal axis) in Chile.This positioning is an approximation, developed bythe authors, and it is based solely on theinformation utilized for the writing of this report(interviews, panel discussions and literature review).maxminminMPWPCECSR actual positioning in ChileWPCEMPCSR actions implementationSMEs country positionin the Marketplace areaSMEs country positionin the Workplace areaSMEs country positionin the Community areaSMEs country positionin the Environment areamax3.1 MarketplaceIn the Chilean case, the marketplace area isperceived as highly valuable for SMEs. They thinkthat marketplace issues such as customerrelationships, supply chain management, ethicalbehaviors, quality and compliance may affectcompetitiveness in the mid- and long-term.Competitiveness is the main objective of ChileanSMEs and CSR becomes relevant to this goal whenspecific actions can be linked to the enhancementof competitiveness, i.e. through financial benefits,gains in image, and reputation (SOFOFA, 2004). Inparticular, SMEs believe that CSR issues affect theircompetitiveness when it helps them become part oflarge firm supply chains, and therefore promotinginvestment and credit trust though the developmentof new management tools and strengthening theexport quota of Chilean SMEs. In some cases, thesurvival of SMEs can be directly connected to theirparticipation in a large supply chain, in terms oftheir export quota and their access to credit.In Chile, “dependent CSR” (Prohumana, 2004), orthe supply chain requirements of large companies,is the most common entry point to CSR,particularly in export sectors where approaches toethical trade have been pioneered. Moreover, somesectors, such as food and wine, have pioneeredsimilar responsible behaviors when requested byinternational buyers from North America or Europe.The regulatory framework on marketplace issues iswell diversified and organized:• Several laws and regulations have been launchedand enforced.• Most of the international accountability andreporting standards i.e. Global ReportingInitiative and Accountability’s AA1000 standards;as well as international guidelines and principlessuch as the UN Global Compact, and the OECDcorporate governance principles, have beenintroduced in the country.52 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

• Many CSR tools aiming to measure, evaluate,relate and benchmark SMEs’ activities have beendeveloped and applied.• Several prizes and awards have been launched,i.e. National Quality Prize (Premio Nacionalde Calidad).According to the 2005 ISO Survey, 4,149 enterprisesin Chile are certified against ISO 9000:2001, qualitymanagement system 46 , which is a valuable indicatorof the tendency of companies towards managementsystems application and of the attention paid toquality processes and products in the country.3.2 WorkplaceSMEs in Chile perceive the workplace area asvaluable for their competitiveness in the mid- andlong-term. The general view is that workplace issuessuch as health and safety norms, employmentpolicies, equal opportunities and compliance mayaffect the Chilean economic growth. A growingnumber of cases demonstrate that the workplacearea has directly affected SME competitiveness.Lack of workplace procedures and responsiblebehaviors have been seen as a main constraint forcompetitiveness and development of Chilean SMEs.While informal employment in Chile is widespread,it is also at the lowest rate in Latin America, andthe unemployment rate is only 8.8 percent of thetotal labor force, which is one the lowest in theregion. The regulatory framework in Chile is welldeveloped and enforced in the workplace area.Chile also has several weaknesses in the workplace.Income inequality is relatively high 47 and the laborforce is low in skills. In addition, many youths donot graduate from secondary school, resulting insevere youth employment problems. Most studiesindicate that Chilean social capital is weak and thatthere is lack of trust in others. There is awidespread perception that the legal system isunfair, access to justice is biased in favor of richpeople, and changes are being implemented at aslow pace (World Bank, 2002).3.3 CommunityChilean SMEs do not perceive the community areaas critical for their operations. They think thatcommunity issues, such as consensus building,participation and public-private partnerships mayaffect the overall Chilean economic growth in thelong-term, but not necessarily SMEcompetitiveness. According to the research on CSRin Latin American SMEs (Vives, Corral and Isusi,2005) and the panel, Chilean SMEs do not showdeep interest in the community area of CSR, evenwhen their leaders are widely known, and trusted inthe community and often give donations.Since the 1980s, municipalities have had theresponsibility of managing public schools andhospitals, although they cannot determine salariesor make other fundamental decisions.Municipalities have been supportive in expandingaccess to education and improving its quality. Thecentral government on the other hand, has fundedspecial programs to aid schools in the poorestregions and in rural areas. Municipal governmentsalso have a leading role in the implementation oftemporary employment programs. Within thelimited scope of their influence, municipalities havecontributed to implementing the developmentagenda (World Bank, 2002).In general, civil society organizations in Chile areweak, fragmented, and have limited influence.Several of them depend on funding from the publicsector, but the government has no active policy topromote and strengthen these institutions. Themost active civil society organizations are thoseinvolved with environmental matters, for which Chilehas established an advanced and modern system ofenvironmental assessments and consultations.Trade unions and professional groups are still46 www.inn.cl47 The Gini coefficient—which in 1998 was 0.547—has not changed significantly in the last ten years.Chile 53

powerful, but are mainly involved in protecting thedirect interests of their members, and are notconcerned with strategic development issues.The Government has proposed the creation of a CivilSociety Forum, but the idea is only in the very earlystages of discussion. Government, political partiesand the private sector dominate the Chilean sceneand civil society institutions have little influence onthe strategic development agenda. The weakness ofsocial capital in Chile is an area that merits furtherefforts and activities (World Bank, 2002).3.4 EnvironmentIn the Chilean case, the environmental area isperceived as valuable by SMEs. They believe thatenvironmental issues such as environmentalmanagement, compliance, monitoring and climatechange may affect the overall Chilean sustainableand equitable growth as well as SME economicgrowth in the mid- and long-term.Chile has compulsory environment managementinstruments such as the System of EnvironmentalImpact Evaluation (Law 19.300), laws onenvironmental quality and recommendations, such asinternational agreements. Moreover, there are alsovoluntary environment management instruments forthe implementation of environment managementsystems such as ISO 14001, whose certification wasobtained by 312 Chilean enterprises in 2004 (in 2001there were only 9). In 2005 the certified Chileancompanies, surprisingly, decreased to 277 (ISOSurvey, 2005), which can be attributed to one of thefollowing two explanations: (i) the companies cannotmaintain their ISO 14001 certification because it istoo costly, too time consuming or too difficult; or (ii)Chilean companies are not interested in those type ofsystems, i.e. they are not linked to the bottom lines,not recognized by the local consumers, not demandedby local purchasers, etc. and are thereforeprogressively abandoning certifications.Other voluntary instruments are certifications forforest enterprises, such as the Forest StewardshipCouncil (FSC), Chilean System for Sustainable ForestManagement Certification (Sistema Chileno deCertificación de Manejo Forestal Sustantable -Certfor), Ecotourism Certification, and the Code ofGood Environmental Practices. These instrumentsprovide environmental standards showing wastematerial reduction, energy conservation and resourceoptimization. Voluntary instruments include BiologicAgriculture Eco-labels, Clear Production agreement,and Ethics Codes (Red Puentes Chile, 2004).Environmental concerns and related activities arehighly developed among Chilean enterprises, whichare compliant, proactive in implementingmanagement systems, applying label standards,and able to set up voluntary agreements anddevelop activities beyond the law requirements.The Renewable Energy Index ranks Chile 24 out of109 countries, which means that there is a highlevel of attention to renewable energy productionand procurement.An active engagement in the implementation ofClean Development Mechanism (CDM) projects forthe Kyoto Protocol is another positiveenvironmental indicator, as there are 13 registeredCDM projects in Chile .484 Recommended ActionsThe main actors that are able to strengthen CSR inChile have been classified in the following fourcategories: a) Multilateral Development Institutions(MDIs), b) national governments and local authorities,c) business associations, and d) civil society. Thesefour categories of actors may act via all or some thefollowing strategies, as defined in the IntroductoryChapter, which are: Mandating, Ensuringtransparency, Facilitating, Improving Promotion andAdvocacy, Partnering, and Endorsing. The proposed48 The Kyoto Protocol launched three main flexible mechanisms - International Emissions Trading, Joint Implementation, and CleanDevelopment Mechanisms. CDM have been designed to contribute to achieving the Climate Change Convention goal, to avert thethreat of dangerous global climate change while promoting sustainable development in the South, with priority given to the world’spoor. Per article 12 of the Kyoto Protocol, the purpose of the CDM shall be to assist Parties not included in Annex I in achievingsustainable development and in contributing to the ultimate objective of the Convention, and to assist Parties included in Annex I inachieving compliance with their quantified emission limitation and reduction commitments. Available on www.unfccc.int54 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

actions are by no means exhaustive and only illustratethe types of involvement, which can be easilymodified to meet local needs.4.1 Multilateral Development InstitutionsThis analysis shows that MDIs can have a strongrole in Chile through facilitation, promotion andadvocacy, ensuring transparency and encouragingpartnerships. MDIs may play many roles, 49 such asraising awareness; promoting discussion, negotiationand cooperation; providing technical assistance andsupervision; and providing financial support forsome of these activities through MultilateralFinancial Institutions, which are part of MDIs.a. Ensuring transparency, some recommendedactions for MDIs are:– Help SMEs overcome the obstacles to thedownsizing access to capital markets andfurther increase SMEs penetration of banksthrough a program called “transparency incredit through participation”. This programis an innovative analysis of credit accessrules and procedures applied to two or threesectors, aimed at improving SMEs accessto finance.b. Facilitating, some recommended actions forMDIs are:– Develop a conducive policy environment,which may facilitate private sector initiativesand support voluntary efforts towardsresponsible behaviors.– Pilot a project on the implementation ofquality management systems in the supplychain using a chosen territory or sector.Provide assistance to participants according tothe specific role they play in the supply chain.– Train SME managers on CSR best practices.For example, by providing classes on strategicplanning and on how to write a responsiblebusiness plan.– Create toolkits and guidelines for codesof conduct and ethical behavior withina company.c. Improving Promotion and Advocacy, somerecommended actions for MDIs are:– Apply benchmarking techniques in a specificsector to evaluate actual environmental effortsand activities and to identify best practices.– Start a pilot project to enhance the capacityof SMEs to profit from the Kyoto ProtocolCDM by encouraging Carbon Pooling amongSME sellers.d. Partnering, some recommended actions forMDIs are:– Launch a women’s association that couldeducate SMEs on gender polices, disseminatebest practices and provide scholarships foryoung women in the field of businessadministration and/or CSR.– Provide gender rights counseling bysupporting women at work through directexperience sharing. Arrange guest speakerssuch as leading female mangers, politiciansand entrepreneurs.4.2 Government and Local AuthoritiesThe Chilean government and local authorities haveactive roles as regulators, enforcers and controllers.Many CSR areas are already covered by regulationsprescribing ethical behavior or the application ofinternational standards. This analysis does notpromote mandating roles for Chilean publicauthorities, because of the large amount of lawsalready in place.Not only the government and its ministries areinvolved in CSR policies, but also other organizationssuch as, the National Center for Productivity andQuality (Chile Calidad), the Fund for the Promotionof Cientific and Technologic Development (Fondo de49 Promotion and advocacy, development of a conducive policy environment, financial support and promotion of compliance, reporting,and accounting (Vives, 2004).Chile 55

Fomento al Desarrollo Científico y Tecnológico -FONDEF), and the Technical Cooperation Service(Servicio de Cooperacion Tecnica -SERCOTEC) inthe marketplace arena; the National Service forTraining and Employment (Servicio Nacional deCapacitación y Empleo -SENCE) for workplaceissues; the Association of Municipalities (Associacionde Municipalidades), and the Fund for Solidarityand Social Investment (Fondo de Solidariedad eInversion Social -FOSIS) for the community area;and the National Commission for the Environment(Comisión Nacional del Medio Ambiente -CONAMA)in the environmental area.a. Mandating, some recommended actions forgovernment and local authorities are:– Support the definition of codes of conductand ethical behavior.– Facilitate the training of employees.– Improve local monitoring systems andenvironmental assessment procedures.b. Transparency, some recommended actions forgovernment and local authorities are:– Encourage the responsible behaviors ofprivate firms on issues such as corporategovernance, fair trade, employment relations,taxation, bribery and contractual conditions.– Contribute to CSR by participating ininnovative programs such as 1) transparencyin credit, an innovative analysis of creditaccess rules and procedures applied to two orthree sectors, aiming to improve access tofinance for SMEs and 2) promoting awarenesson accountability and reporting standardssuch as the Global Reporting Initiative; aswell as other international guidelines andprinciples such as the UN Global Compactand the International Labor Organization.c. Improving Promotion and Advocacy, somerecommended actions for government andlocal authorities are:– Raise awareness, disseminate informationand spread best practices among SMEs toindirectly foster CSR.– Facilitate stakeholder engagement as well astraining programs.– Enhance the application of best availabletechnologies, and praise environmentallyfriendly technologies through anEnvironmental Technology Expo.– Take a leading role in the launch of a CivilSociety Forum, which could be a multistakeholderinitiative for the promotion ofCSR awareness and actions in civil society.d. Endorsing, some recommended actions forgovernment and local authorities are:– Endorse the launch of a Responsible ChileanProduct Label aimed at supporting responsibleChilean SMEs in the international markets.– Launch local environmental reportinginitiatives to foster environmentalreporting practices.4.3 Business AssociationsBusiness associations include trade associations i.e.the Chilean Association of Metallurgic Industries(Asociaciòn Chilena de Industrias Metalúrgicas yMetalmecánicas –ASIMET), the Chilean WineCorporation (Corporación Chilena del Vino –CCV),the National Corporation of Wood (CorporaciónNacional de la Madera –CORMA), the Fereation ofFruit Producers (Federación de Productores deFrutas de Chile –FEDEFRUTA), and the Associationof Salmon Industries (Asociación de la Industriadel Salmón -Salmon Chile); territorial associationsand chambers of commerce, including localChambers of Commerce, the National Chamber ofCommerce (Cámara Nacional del Comercio –CNC)and the American Chamber of Commerce (CámaraChileno Norteamericana de Comercio -AmCham);as well as SME Associations, such as exporters i.e.the Association of Exporting Industrialists56 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

(ASEXMA), and the Association of ChileanExporters (Asociación de Exportadores de Chile -ASOEX); or representatives such as the NationalConfederation of Micro and Small Enterprises(Confederación Nacional de la Micro Pequeña yMediana Empresa -CONAMYPE), and theCorporation of Training and Employment(Corporacion de Capacitacion y Empleo SOFOFA).a. Improving Promotion and Advocacy,some recommended actions for businessassociations are:– Lead training activities targeted to managersin the area of workplace. For example, pilotprojects on employee participation indecision making, employees’ role in corporategovernance, and promote innovative servicesfor gender and child labor rights counseling toreduce prejudice among workers and increasethe respect for human rights.– Enhance the application of Best AvailableTechnologies and praise environmentallyfriendly technologies through anEnvironmental Technology Expo.b. Partnering, some recommended actions forbusiness associations are:– Take a leading role on several pilot projectsaimed at enhancing compliance in themarketplace such as: increasing theapplication of environmental managementsystems in specific territories, and supportingthe definition and application of genderpolicies among associated SMEs.– Provide gender rights counseling bysupporting women at work through directexperience sharing, and workshops withwomen who are leading female mangers,politicians and entrepreneurs.c. Facilitating, some recommended actions forbusiness associations are:– Improve local monitoring systems andenvironmental assessments.– Support training programs on CSR for SMEmanagers, with the aim of developing abusiness plan culture through appropriateeducation and assistance in the definition ofcodes of conduct and ethical behavior amongmember SMEs.d. Endorsing, some recommended actions forbusiness associations are:– Pilot a project on the implementation ofquality management systems in the supplychain using a chosen territory or sector.Provide assistance to participants accordingto the specific role they play in the supplychain.– Support the launch of a Responsible ChileanProduct Label aimed at supportingresponsible Chilean SMEs enter theinternational markets.4.4 Civil SocietyThe Chilean civil society has a strong role in all thepolicies except mandating. For the purposes of thisstudy civil society refers to academia, media, NGOs,and people interested, involved or affected by SMEs’activities. In the past five years, academia andNGOs have been the most active participants ofcivil society in Chile (and in general the CSRdrivers in the country) and have driven most of theactions in this area. The following recommendationsinclude activities led by academic institutions andNGOs, and at the same time they intend to increasethe number of civil society representatives involved.Chile 57

a. Improving Promotion and Advocacy, somerecommended actions for civil society are:– Training SME managers on CSR bestpractices, for example by providing classes onstrategic planning and on how to write aresponsible business plan.– Launch an NGO campaign to raise awarenessabout stakeholder engagement that mayinclude an awareness campaign with at leastfive local NGOs and five local SMEs.– Start a voluntary agreements feasibility studythat applies benchmarking techniques in aspecific sector to evaluate actual environmentalefforts and activities and can help identifybest practices.– Develop CSR publications to disseminate theCSR culture as well as best practices in LatinAmerican countries, focusing on Chile.– Promote best practices among SMEs, utilizingbenchmarking techniques.b. Facilitating, some recommended actions forcivil society are:– Promote, through a multi-stakeholdersapproach, the creation of guidelines forethical conduct among SME managers.– Support stakeholder engagement, forinstance: through an NGO awarenesscampaign, the promotion of pilot projects,and the dissemination of gender policiesamong SMEs.c. Ensuring transparency, some recommendedactions for civil society are:– Educate employees to facilitate employeeparticipation in the decision-makingprocesses and promote awareness onaccountability and reporting standards suchas the Global Reporting Initiative; as well asother international guidelines and principlessuch as the UN Global Compact and theInternational Labor Organization.d. Endorsing, some recommended actions forcivil society are:– Pilot a project on the implementation ofquality management systems in the supplychain using a chosen territory or sector.Provide assistance to participants according tothe specific role they play in the supply chain.– Support the launch of a Responsible ChileanProduct Label aimed at supporting responsibleChilean SMEs in the international markets.58 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

BibliographyAccionRSE (2002) ‘Marketing Responsable, Marcas con sentido social’, (Santiago, Chile: AccionRSE).AccionRSE (2002) ‘Reporte Social empresarial’, (Santiago, Chile: AccionRSE).AccionRSE (2002) ‘Indicadores de Responsabilidad Social Corporativa’ (Santiago, Chile: AccionRSE).AccionRSE (2002) ‘¿Qué cualidades de una empresa atraen a los nuevos talentos profesionales’ (Santiago,Chile: AccionRSE).Anselmi, P. (2005) ‘La responsabilità sociale d’impresa: le aspettative e le valutazioni dei cittadini di 21Paesi. CSR Monitor 2005’, (Eurisko, Globescan).Blanco, H. (2003) ‘CSR-ISO. Support to IISD’s participation’, (Santiago de Chile: RIDES).Foro Empresa (2005) ‘Manual RSE: Una nueva mirada empresarial’ (Foro Empresa, IDB, OEA).Fox T., (2005) ‘Small and Medium-size enterprises (SMEs) and Corporate Social Responsibility: a discussionpaper’, (IIED).ISO (International Standard Organization) (2005) ‘The ISO Survey – 2005. ISO and the ISO Survey’,(Geneve, Switzerland: ISO).Prohumana, (2004) ‘Los chilenos opinan: Responsabilidad Social de las empresas’, (Santiago, Chile: Prohumana).Red Puentes Chile (2004) ‘Responsabilidad social empresarial: Experiencias de organizaciones de lasociedad civil y empresas’, (Red Puentes).Riesco, M. ‘Pay your taxes! Corporate Social Responsibility and Mining Industry in Chile’, in (2005) The payyour taxes debate: perspectives on corporate taxation and social responsibility in the Chilean MiningIndustry, Programme on technology, Business and Sociaty Paper N°15, (Geneva: UNRISD).SERNAM (Servicio Nacional de la Mujer) (2006) ‘Informe de Chile- 39° Reunión de la Mesa Directiva de laConferencia regional sobre la Mujer de América Latina y el Caribe’, (Santiago de Chile: SERNAM).Sirtaine, S. (2006) ‘Access to finance by Chilean Corporation’ (Washington: The World Bank).Vives, A. (2004) ‘The role of multilateral development institutions in fostering corporate socialresponsibility’, (Society for International Development).Vives, A., A. Corral, I. Isusi (2005) “Responsabilidad Social de la Empresa en las PyMES de Latinoamérica”.(Inter-American Development Bank and IKEI).The World Bank (2002) ‘Country profile’ (Washington: The World Bank).WEF (World Economic Forum) (2006) ‘The Latin America Competitiveness Review’, (Geneva: WEF).WEF (World Economic Forum) (2005-2006) ‘The Global Competitiveness Index’, (Geneva: WEF).Chile 59

Websites consultedwww.accionrse.clwww.accountability.orgwww.csreurope.comwww.csrwire.comwww.eldis.orgwww.ethos.org.brwww.IDB.orgwww.ifc.orgwww.ilo.orgwww.inn.clwww.iso.orgwww.maplecroft.comwww.mhcinternational.comwww.petchile.clwww.prohumana.clwww.redpuentes.orgwww.rides.clwww.transparency.orgwww.weforum.orgwww.unfccc.int60 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

AppendixThe following stakeholder map has been used to verify that all nine defined stakeholder categories and allfour CRS areas are represented. Stakeholders that were chosen for interviews or as panel participantseither had relevant expertise in the issue or may influence awareness, interests and implementationinstruments relevant to the issue.APPENDIX 1 – CHILEAN STAKEHOLDER MAP1. Internationalorganizations2. Governmentorganizations andinstitutions3. Associations(national, trade andbusiness)Marketplace Workplace Community Environment—OrganizationInternational delTrabajo (OIT)—Inter-AmericanDevelopment Bank(IDB)—Chile Calidad(Centro Nacional dela Productividad yCalidad)—Fondo de Fomentoal DesarrolloCientífico yTecnológico(FORNDEF)—Instituto Nacionalde Normalizacion(INN)—Servicio Nacionaldel Consumidor(SENAC)—Servicio deCooperaciónTécnica (SERCOTEC)—Cámara ChilenoNorteamericana deComercio(Amcham)—Association ofmanufacturingexporters(ASEXMA)—Asociación Chilenade IndustriasMetalúrgicas yMetalmecánica(ASIMET)—Asociación deExportadores deChile (ASIMEX)—CorporaciónChilena del Vino(CCV)—Instituto Nacionalde Normalización(INN)—Ministry of Health—Ministry of LabourSERNAM (ServicioNacional de laMujer)—Public WelfareInstitute—Servicio Nacionalde Capacitación yEmpleo (SENCE)—Asociación Chilenade IndustriasMetalúrgicas yMetalmecánica(ASIMET)—Cámara Nacional deComercio (CNC)—ConfederaciónNacional de laMicro Pequeña yMediana Empresa(CONAPYME)—Federación deproductores deFrutas de Chile(FEDEFRUTA)—Inter-AmericanDevelopment Bank(IDB)—United NationsDevelopmentProgram (UNDP)—Asociación deMunicipalidades(local government)—Fondo deSolidariedad yInversión Social(FOSIS)—Fondo de Fomentoal DesarrolloCientífico yTecnológico(FONDEF)—CorporaciónNacional deConsumidores yUsuarios de Chile(CONADECUS)—SOFOFA(Corporación deCapacitación yEmpleo)—Unión social deempresarios yejecutivoscristianos (USEC)—CEPAL (Comisióneconómica paraAmérica Latina)—Inter-AmericanDevelopment Bank(IDB)—Comisión Nacionaldel MedioAmbiente(CONAMA)—Instituto Nacionalde Normalización(INN)—Asociación Chilenade IndustriasMetalúrgicas yMetalmecánica(ASIMET)—Corporación Chilenadel Vino (CCV)—CorporaciónNacional del Cobrede Chile (CODELCO)—ConfederaciónNacional de laMicro Pequeña yMediana Empresa(CONAPYME)—CorporaciónChilena de laMadera (CORMA)Chile 61

APPENDIX 1 – CHILEAN STAKEHOLDER MAP3. Associations(national, trade andbusiness)4. FinancialinstitutionsMarketplace Workplace Community Environment—Cámara Nacional de —SOFOFA—Federación deComercio (CNC) (Corporación deproductores de—Corporación Capacitación yFrutas de ChileNacional de Empleo)(FEDEFRUTA)Consumidores y —Unión Nacional de—SOFOFAUsuarios de Chile Trabajadores (UNT)(Corporación de(CONADECUS) —Unión social deCapacitación y—Confederación empresarios yEmpleo)Nacional de la ejecutivosMicro Pequeña y cristianos (USEC)Mediana Empresa(CONAPYME)—Corporación Chilenade la Madera(CORMA)—Confederación de laProducción y delComercio (CPC)—Federación deproductores deFrutas de Chile(FEDEFRUTA)—Salmón Chile(Asociación de laIndustria delSalmón de Chile)—SOFOFA(Corporacion deCapacitacion yEmpleo)—Union social deempresarios yejecutivoscristianos (USEC)—Banco delDesarrollo—Banco Estado—Banco SantanderSantiago—CORFO (Corporaciónde Fomento de laProducción)—BCI (Bancodedicado a la bancapersonal y deempresas)—Transbank —Transbank —Banco delDesarrollo—Banco Estado—Banco SantanderSantiago—CORFO (Corporaciónde Fomento de laProducción)—BCI (Bancodedicado a la bancapersonal y deempresas)62 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

APPENDIX 1 – CHILEAN STAKEHOLDER MAP5. MultinationalcompaniesMarketplace Workplace Community Environment—Aguas Andinas —Indumac—Indumac—Aguas Andinas—Anglo American —Grupo Polpaico —Grupo Polpaico —Anglo American—Antofagasta minerals—Antofagasta—BHP Billitonminerals—CMCP—BHP Billiton—Chilectra—CMCP—Gerdau Aza—Chilectra—Grupo Nueva—Gerdau Aza—Grupo Polpaico—Grupo Nueva—Indumac—Grupo Polpaico—Minera Escondida—Indumac—Polpaico (Holcim)—Minera Escondida—Shell Chile—Polpaico (Holcim)—Shell Chile6. Media —America—EconomíaDiarioPyme.cl—Ediciones Financieras—El Mercurio—Revista Capital—Induambiente7. NGOs —Accion RSE—Forum Empresa—Fundes—Organización de deConsumidores yUsuarios de Chile(ODECU)—Regional andinternational workinggroup (RING)8. Academia —Escuela de ingenieríaPUC—Universidad Católicade Chile—Universidad Católicade Valparaíso—Universidad de Chile—Vincular (organizationcreated by the CatholicUniversity ofValparaiso with theaim of developing andimplementing CSR).9. CSR consulting firms —ABSG Consulting—Axis RSE—Concordia–Pricewaterhousecoopers—Siyanda—Prohumana—Regional andinternationalworking group(RING)—UniversidadCatólica de Chile—UniversidadCatólica deValparaíso—Quinta Era—Avina Foundation—AccionRSE—MaitenesFoundation—MORI Chile—ProhumanaFoundation—Red Puentes RSE—Regional andinternationalworking group(RING)—Sociedad Activa—UniversidadCatólica de Chile—UniversidadCatólica deValparaíso—ABSG Consulting—Gestión social—Greenpeace—Defensores delBosque—CODEFF—Consejo de todas laterra—Regional andinternationalworking group(RING)—The NatureConservancy—Programa deEstudios eInvestigaciones enEnergía (PRIEN)—UniversidadCatólica de Chile—UniversidadCatólica deValparaíso—ABSG Consulting—Casa de la PazChile 63

Chapter 4: Colombia1 Executive SummaryIn Colombia the need for private sector participation indevelopment issues is evident by the high levels ofpoverty and violence. Lack of employment is one of themain factors causing these problems; therefore as SMEsrepresent 90 percent of the country’s economy they cancontribute to the solution. SMEs that act as suppliers forlarge domestic and international firms have alreadyrecognized CSR as providing a competitive edge in themarket. However, the majority of Colombian SMEs stillthink of CSR as a way to enhance the economic growthof the country, not as a business managementtechnique that can affect their profits.Multilateral Development Institutions (MDIs) have thestrongest role in fostering CSR, as MDIs already raiseCSR awareness, finance pilot activities and providetechnical assistance to SMEs. MDIs also support thepublic authorities’ roles by encouraging public-privatepartnerships and providing basic and technicaleducation. MDIs could lead the development of aconducive policy environment, which may facilitateprivate sector initiatives and support voluntary efforts.MDIs may consider financing pilot projects on qualitymanagement systems and publishing the results ofhealth and safety programs and of environmentalmanagement systems. MDIs should also encouragepartnerships between large and small enterprises.The Colombian government and local authorities havea fundamental role in most of the recommendedactions, since they were perceived as the most reliableinstitutions by the stakeholders interviewed. Publicauthorities should define standards, establish targets,enforce compliance and monitor activities for businessperformance embedded within the legal framework.Public institutions should promote informationcampaigns, conduct training programs and support pilotprojects in order to help SMEs reach compliance. Publicauthorities can also facilitate, monitor and legitimizecorporate accounting, governance and transparencystandards. Finally, ensuring transparency throughvoluntary programs may strengthen firms’ responsiblebehavior in regards to issues such as compliance, fairtrade, employment relations, taxation, bribery andcontractual conditions.Colombian business associations can also play animportant role through capacity building, raisingawareness and creating incentives. In particular,business associations should finance actions thatimprove compliance, develop responsible brands andlabels and finance training programs on CSRmanagement and planning for SMEs.The role of civil society in enabling an environmentfor CSR is frequently emphasized. For the purpose ofthis report, civil society includes academia, media,NGOs and the local communities. In Colombia,academia and NGOs are the most effective and activeactors within civil society. These two groups willlikely implement most of the proposed actions. NGOsand academia can act as the link between companiesand government, translate the terminology of socialdevelopment into a language comprehensible tobusiness and provide information on SME activitiesto the public (Petkoski and Nigel, 2003).Colombian civil society has supporting roles inpromoting environmental assessments, supporting anNGO engagement awareness campaign, promotingpilot projects and participating in innovative activitiessuch as, ethical behavior evaluation procedures andeducational programs. Civil society may take aprominent role in stakeholder engagement programsand networking with market players to develop amore conscious application of CSR in SMEs. A leadingrole can also be taken in rewarding corporateresponsibility in the marketplace and workplace.2 Economic and SocialFrameworkColombia is a country with 43 million inhabitants 50and a territory of 1.1 million km. 2 it has a GrossDomestic Product (GDP) of USD 82.4 billion and a percapita GDP of USD 1,890. 51 After several decades of anaverage growth rate of 5 percent, the Colombianeconomy lost some of its dynamism towards the end ofthe 1990s, and growth has remained moderate in thefirst few years of the twenty-first century (FTAA 2003).Agriculture accounts for 13 percent of GDP, while50 2002 projections based on the census of 1993.51 World Bank figures, 2001.Colombia65

industry accounts for 30 percent and servicesaccount for 57 percent. 52 Unemployment in Colombiais 13.6 percent of the total labor force.Inflation has been falling notably since 1991, from26.8 percent in that year to single digit rates since1999. It fell to 6 percent in 2002. This drop wasachieved thanks to policies instigated by the Bankof the Republic in coordination with the nationalgovernment and was also boosted by low levels ofinternal demand (FTAA, 2003).In 2005, a survey on SME behaviors and employers’opinions in Colombia, conducted by the Corporationfor Technological and Socioeconomic Investigation inColombia (Corporacion para la InvestigaciónSocioeconómica y Tecnológica de Colombia 53 ), showsthat SME economic conditions are improving: 38percent of them increased exports, 35 percent hirednew employers and 66 percent created (indirectly)employment in the last year.The following chart shows competitivenessindicators supplied by the World Economic Forum(WEF). All data is from 2005 and the chart is sortedby indicator ranking. The chart shows that taxrates, the business costs of crime and violence,bureaucratic regulation, the low quality of scientificresearch institutions and technological readiness arethe main obstacles to Colombia’s competitiveness.In contrast, research and development capabilities,innovation and the employment of women arecontributing to improve Colombia’s competitiveness.OrganizationIndexNumber of Countriesin the IndexColombia’s RankingWEFUniversity/industry researchcollaboration 117 30WEFPrivate sectoremployment of women 117 36WEFCompany spending onresearch and development 117 39WEF Capacity for innovation 117 49WEF Reliability of police services 117 52WEF Hiring and firing practices 117 52WEF Efficiency of legal framework 117 58WEF Local equity market access 117 58WEF Global Competitiveness 11758 (5 out of 21in Latin America)WEFTime required tostart a business 117 61WEF Technological readiness 117 70WEFQuality of scientific researchinstitutions 117 76WEFNumber of proceduresrequired to start a business 117 92WEF Business costs of violence 117 97WEF Extent and effect of taxation 117 100WEFBusiness costsof organized crime 117 11552 Colombian agricultural activity suffered a serious decline due to security problems and the revaluation of the exchange rate to real levelswhich continued into 1998. From then on, the correction of the exchange rate, the creation of credit instruments for the agricultural sector,and the current security policy have revitalized the sector without, however, solving the problems of rural poverty that accumulated duringthe 1990s. (FTTA, 2003)53 Corporacion para la Investigacion Socioeconomica y Tecnologica de Colombia is a non-profit organization that implements projectsin environmental, social, technological and economic areas with the aim to promote SMEs.66 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

In addition, corruption is a widely spreadphenomenon in Colombia, as evident fromthe following WEF and TransparencyInternational indices.OrganizationWEFWEFWEFTransparencyInternationalIndexNumber ofCountriesin the IndexColombia’sRankingJudicialindependence 117 66Public trustof politicians 117 77Favoritism indecisions ofgovernmentofficials 117 80CorruptionPerception 159 56In 2004, the Confederation of Colombian Chambersof Commerce (Confederación de Cámaras deCámaras de Comercio e Industria-CONFECAMARA)conducted the ‘Probidad III’ survey (Gomez, 2004)on corruption practices in interactions with thegovernment. The survey revealed that:• 34.2 percent of enterprises have a low level of trusttoward public institutions, in particular towardpublic institutions in their city (40.3 percent), and50 percent of enterprises think that negotiationswith public institutions are not transparent.• 62 percent of entrepreneurs interviewed said thatcorruption practices had increased since 2003,including frequent corruption through thesubdivision of contracts (22.7 percent), favoringcontractors’ monopolies (37.5 percent) andadjustment of conditions (33 percent).• 40 percent of interviewed entrepreneurs believedthat the economic sector has a high capability ofinfluencing governmental decisions.• 30 percent of them think that the use of apolitical contact for the advancement ofobjectives is frequent and only 11.8 percentdenounce irregularities.• 72.3 percent of the interviewees think that thepublic sector and private sector should jointlycreate a program against corruption.Colombia is seriously distressed by an armedconflict that has deterred investments and reducedthe GDP; in fact, it is estimated that between 1.5percent and 4.5 percent of GDP is lost due to theconflict. The lack of respect for human rights andthe levels of poverty in Colombia are alarminglyhigh. Although Colombia’s child labor index isexcellent, according to United Nations Children’sFund (UNICEF), as many as 14,000 children in thecountry are members of illegal armed groups.Number ofOrganization IndexCountries inthe IndexColombia’sRanking(ILO 2005) 54 Child Labor 191 28UNDP 55UNICEFILO 56HumanResourceInstitute,AmnestyInternational,US Dept ofStateWorld BankInstitute(2004)HumanDevelopmentIndexChild RightsRiskHealth andSafetyHumanRights Risk117 69192 113187 139194 192Political Risk 209 136There are few countries in the world with theethnic, linguistic and cultural wealth of Colombia.The country is home to more than 80 differentindigenous groups that represent over 700,000people (1.5 percent of the total population) andactively use 67 native languages. 57 The NationalDevelopment Plan “Towards a Community State”54 www.maplecroft.com55 Idem56 Idem57 The Afro-Colombian population consists of 12 million people (26 percent of the population), and there are also between 5,000 and8,000 gypsies in the country as well as various groups of immigrants, who have made significant contributions to the country'sregional cultures.Colombia67

2002-2006 points out that Colombian ethnic groupshave been marginalized socially, politically,economically and culturally. It also stresses that, eventoday, these communities are not able to reap thebenefits of development and that they are in a far lessfavorable situation than the rest of the Colombianpopulation. They have far higher rates of poverty,illiteracy, mortality, displacement and violence thanthe rest of the population. In addition, their socialfabric is suffering fragmentation and the developmentof human capital amongst these groups is weak.Colombia is divided into two vastly differentregions: (i) one is represented by the rural areaswhere armed conflicts, drug traffic, displacedpeople, and consequent self regulation preventforms of responsible behavior beyond thosedirected towards survival; (ii) the other region isgeographically connected to cities and industrialdistricts, where CSR is best known and many pilotprojects have been run. The latter is confirming thestrong efforts of educated civil society, large andmedium enterprises, SMEs in exporting sectors,business associations and governmental institutions.3 Current State of CSRColombia is a very open country economically,focused on free trade and promotion of the privatesector. The current administration has improvedmacroeconomic indicators, increased privateinvestment and, at the same time, challengedterrorism and enhanced public security.In the short-term Colombian SMEs are not likely tobecome more actively involved in CSR or to leadthe country on its path toward social responsibilitybecause SME productivity is quite low and as aresult, SMEs cannot reach their potential. Most ofthe Colombian SMEs are merely surviving and areunable to grow to the point of wealth generation.However, some local experts say that a primaryground for CSR among small businesses alreadyexists. For example, the Corporate SocialResponsibility School for SMEs 58 was created by anSME to promote a CSR culture among other SMEs,improve their competitiveness and the quality oflife through private sector initiatives.Colombian public authorities are working to improvethe business environment, which helps improve thelegal framework. In 2002, a law was passed to promotemicro and SME development. This law may contributeto CSR promotion among SMEs, since the fiveaspects of SME development in this law may beconsidered preconditions of responsible behaviors.Gutierrez, Avella, and Villar (2005) point out that theprivate sector 59 has an important role in Colombiabecause it could finance private programs to fostersocial responsibility and channel investments towardCSR through the activities of non-profit organizations.The authors claim that in recent years many privatesector voluntary programs have become regulationsand thus (i) corporate activity has been praised and(ii) their voluntary actions and tools becamerequired by the law. Moreover, private financing ofnon-governmental organizations was increased.The following figure illustrates an estimatedpositioning of each one of the CSR areas –marketplace, workplace, community andenvironment. The graph shows the significance ofCSR for SMEs (vertical axis) and the CSR actionsimplemented by SMEs (horizontal axis) inColombia. This positioning is an approximation,developed by the authors, and it is based solely onthe information utilized for the writing of this report(interviews, panel discussions and literature review).3.1 MarketplaceIn Colombia, the marketplace area of CSR isperceived by SMEs as valuable for their business.Their perception is that marketplace issues, such as58 The school received academic support from Universidad de los Andes, Universidad Externado de Colombia, Pontificia UniversidadJaveriana, La Universidad del Rosario and Centro Colombiano para la Responsabilidad Empresarial-CCRE (Colombian Center forCorporate Responsibility) and is part of a strategy called “benefit redistribution based upon minimal ethics.”59 According to the Confederation of Colombian Chambers of Comerce (CONFERCAMARA) there are 431,000 micro-enterprises and 47,000small and medium-sized companies in Colombia; they contribute 38 percent of industrial production and between 56 percent and 70percent of sales in the service and retail sectors, employing 70 percent and 75 percent of the labor force in these sectors respectively.68 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

CSR area significancesupply chain management, compliance, qualityassurance, good corporate governance, andmanagement capacities may affect theircompetitiveness in the mid- to long-term. However,many SMEs still believe that ethical behaviors are notlinked to profitability. In general, most of the SMEsthat embrace CSR are in exporting sectors. Inparticular they think that CSR issues affect SMEs’competitiveness when SMEs are part of a supplychain, which fosters better management capacitiesand may lead to increased exports if the supplychain is international.maxminCSR actual positioning in ColombiaminWPCMPECSR actions implementationmaxAccording to Vives, Corral and Isusi, (2005)Colombian SMEs, in contrast with large firms, lackeconomic resources, governance capacity,management culture, expertise and awareness aboutmanagerial tools (i.e. social balances, CSR indicators,voluntary management systems and ISO standards).On the other hand, foreign enterprises and investorsoperating in Colombia demand CSR activities andassurances as prerequisites for the formation ofalliances. The 2005 ISO Survey shows that there are4,926 ISO 9001 certified enterprises in the country.Several entities have created programs for fightingcorruption in the marketplace. Among these are: (i) thePresidential program for the fight against corruption,which is made up of four sectors – Inter-institutionalCoordination, Legality Culture, Social and Citizencontrol, and Regional strategy, (ii) the Chambers ofCommerce, which promote items of business ethicsand anti-corruption, and provide training services toassociated enterprises, (iii) Universities, which havecreated departments of Corporate Social Responsibilityand business ethics - in particular Javeriana Universitycreated ethics indicators for the implementation ofCSR in SMEs, (iv) the Transparency Internationalchapter in Colombia (Transparencia por Colombia),which implemented a program for Business Ethics inSMEs, titled Towards Integral and Transparent SMEs 60(Rumbo Pymes Integras y Trasparentes) has beenimplemented through participative actions and hasabout 140 SMEs involved.MPWPCESMEs country positionin the Marketplace areaSMEs country positionin the Workplace areaSMEs country positionin the Community areaSMEs country positionin the Environment areaColombia has an important number of CSR bestpractices. For example, in the coffee industry, coffeegrowers have united for purposes of exporting goods,consequently, the state created the National CoffeeFund, by which all members contribute to thedevelopment of infrastructure in the coffee region. Inaddition, the ice cream company Meals de Colombiapromotes an extensive scholastic program thatincludes public institutions in rural areas with highrates of indigenous and Afro-Colombian population.Its aim is to match businesses with schools.60 The program presents 10 modules: Guide to the program implementation, Measurement of internal ethic environment (through theuse of a specific software), ethic compromise, principles for the prevention of bribe, ethic leadership, training in business ethic,Strengthening of communication channel, administration of family companies, ethic solution of conflict, and Decision taking throughan ethic sense.Colombia69

3.2 WorkplaceThe CSR workplace area is not perceived, by SMEs,as relevant for the survival and competitiveness oftheir business in the short term, mainly because ofthe high level of unemployment and informalemployment. However, they think that in the longtermworkplace issues, such as employment policies,child labor rights, health and safety norms, genderpolicies and compliance may affect both SMEcompetitiveness and Colombian economic growth.While the development of activities in theworkplace area, aimed at improving conditions foremployees, has not yet begun in Colombian SMEs,it has begun in other types of organizations such aslarge companies, financial institutions and stateorganizations that are already engaged in humanrights campaigns and in better workplace practices.The efforts of these organizations serve as anexample for society and the organizations often tryto engage SMEs in their programs.Since November 2004, the Government ofColombia has continued to advance the social andlabor agendas. In addition to carrying out actionssupported by the Labor Reform and a SocialDevelopment Policy Loan (World Bank, 2006), newinitiatives have been undertaken in several sectors,most notably in the education sector with greateremphasis on pre-school and post-secondary (nonprofessional)education. The government continuesto experiment with employment programs to supporthard-to-employ workers, and a renewed initiative toidentify and correct the structural constraints.There are only 50 companies in Colombia whosehealth and safety management systems are certifiedagainst OHSAS 18001 (Colombian SecurityCouncil, 2006).3.3 CommunityIn Colombia, the community area of CSR is notperceived as valuable, by SMEs. Their opinion isthat community issues such as public-privatepartnerships are not widespread and are perceivedas affecting only the overall sustainabledevelopment and not SME development at present,or in the mid- to long-term.The research on CSR in Latin American SMEs(Vives, Corral and Isusi, 2005) emphasizes thatColombian CSR activities directed towards localcommunities is low compared to those in otherLatin American countries. For example, educationalactivities (run outside the enterprises) are backed by9.7 percent of interviewed Colombian companies,compared to 23.6 percent overall in Latin America;actions directed towards disabled and poor peopleaccount for 9.6 percent in Colombia compared to26.7 percent in the region; and participation inpublic activities accounts only for 5.5 percent inColombia compared to 18 percent in Latin America.3.4 EnvironmentIn Colombia, SMEs perceive the environment areaof CSR as valuable for their operations. They thinkthat environment issues such as environmentalmanagement, regulation 61 and compliance,monitoring and climate change may affect theireconomic development in the mid- to long-term.In a recent survey of the Andean region, whichcompares Colombia to Ecuador, the researchersclaim that Colombia is by far the country with thestrongest and best-developed environmentalregulatory institutions. The results of regressionanalysis 62 and qualitative responses from firmsconfirm that government regulatory pressure is themost important influence on firm behavior.61 For a complete overview of the environmental regulatory system, see Blackman, A., Hoffmann, S., Morgenstern, R., and Topping, E., 2005.62 www.cid.harvard.edu/esd/programs/urbanmgt/envcost.html70 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

However, market pressures, primarily exportmarkets, persist as a significant determinant ofenvironmental behavior, despite the strong role ofthe state. In this sense, trade is good for theenvironment. Those firms with a greaterparticipation in export markets rely more oninnovative solutions to pollution reduction ratherthan end-of-the-pipe technologies, which treatpollution at the end of the production process. 63Moreover, considerable public and private resourceshave been committed to the reduction of pollution,resulting in improvements in water quality. 64The Renewable Energy index ranks Colombia 23 outof 109 countries (World Health Organization; WorldResource Institute, 2005; and International EnergyAgency, 2001) 65 . Moreover, there are only 275 ISO14001 certified enterprises in Colombia (ISO 2005).As for Colombia’s engagement in the Kyoto Protocol,there are three registered Clean DevelopmentMechanism projects in the country 66 .Colombia’s emissions of Greenhouse Gas (GHGs) arevery modest (0.2 percent of global emissions, with 0.6percent of the global population). With these lowintensity emissions, opportunities exist to mitigateemissions in key sectors. Opportunities for GHGmitigation are being pursued in renewable energy,wastewater treatment and energy efficiency (Jepirachi,Amoya, Rio Frio and Furatena projects). Adaptationmeasures are also being explored and implementedthrough the Amoya region and the recently approvedIntegrated National Adaptation Project. Still, theNational Strategic Study and the first NationalCommunication estimated that 21 percent of GHGemissions in the country are due to land use changeand that over 40 percent of the opportunities for GHGmitigation in the country are related to reforestation.Yet, so far, only one carbon sink project for the KyotoProtocol is in the portfolio (World Bank, 2006).Even in Colombia’s delicate environment,environmentally responsible activities are perceivedby companies as related not to preservation orconservation, but to the improvement ofcompetitiveness because of their ability to reduce costsand promote efficient consumption (Gutierrez, 2004).On the other hand, Colombian NGOs are particularlyactive on environmental preservation campaigns. 67The Colombian Council for Sustainable Developmentdefines Environmental responsibility as ‘Eco-efficiency,’described as “the continuous process of maximizationof productivity of resources minimizing waste andemissions, and generating value for the company, forits customers, shareholders and others stakeholders”.Environmental activities include, among others,minimization of waste generation, control and integrityof the process, the control and mitigation throughsecondary reductions, adequate monitoring systemand waste management, impact assessment,and reclamations.The results of a study in Colombia 68 confirm theeffectiveness of using information as a tool forpromoting pollution abatement. The simple act ofgranting the public access to pollution monitoringinformation of industrial firms proved to be a significantfactor in encouraging environmental activities. This is alow cost and easily replicated strategy that should befollowed in other CSR areas as well.4 Recommended ActionsThe main actors able to strengthen CSR in Colombiahave been classified in the following four categories:a) Multilateral Development Institutions (MDIs), b)national governments and local authorities, c) businessassociations, and d) civil society. These fourcategories of actors may act via all or some thefollowing strategies, as defined in the Introductory63 The survey shows also that in Colombia well over half of the firms that engaged in pollution reduction activities did so with some kind ofchange in the production process. Water pollution reduction entailed more end-of-the-pipe technology while air pollution was morefrequently accomplished through change in processes. Almost 2 out of 3 firms that reduced water pollution improved their long-termcompetitiveness in doing so. For air, the prospects are even more positive, with 4 out of 5 firms improving their long-term profitability.64 For a complete analysis, see the valuable Project Enhancing Competitiveness While Protecting the Environment, run by Universidad delos Andes in Bogota, Colombia; Escuela Superior Politécnica del Litoral (ESPOL) in Guayaquil, Ecuador; and Universidad del Pacífico inLima, Colombia and sponsored by Corporacion Andino de Fomento, visit: www.cid.harvard.edu/esd/programs/urbanmgt/envcost.html65 www.maplecroft.com66 www.unfccc.int67 NGOs are also active in areas of conflict, generally where there is an internal armed conflict, i.e. Peace Brigades International (PBI),Consultancy for Human Rights and Displacement (CODEHES),68 www.cid.harvard.edu/esd/programs/urbanmgt/envcost.htmlColombia 71

Chapter, which are: Mandating, Ensuringtransparency, Facilitating, Improving Promotionand Advocacy, Partnering and Endorsing. Theproposed actions are by no means exhaustive andonly illustrate the types of involvement, which canbe easily modified to meet local needs.The best tool to stimulate CSR in Colombia would bea concerted effort to advance educationalopportunities within the country, making educationnot the privilege of a few, but the right of all. As aresult, SMEs would have access to a more skilledworkforce, allowing for enhanced wealth generationand the ability to become more involved in CSR.Additionally, leveraging education as a means ofachieving social equity would serve as a factor forcohesion and for a better alignment of commoninterest within the community, allowing SMEs to leada united effort to address targeted social issueswithin the communities.Vergara (2005) shows that to enhance thecompetitiveness of SMEs and assure development inthe mid- and long-term, it is necessary to create theframework and adequate conditions through (i) afinancial sector that is sensitive to the benefits ofCSR, (ii) a conscious government that recognizesCSR as an opportunity for the improvement of anenterprise’s management, and (iii) the use of largerenterprises’ supply chains and networks. Thecountry’s textile, flower and coffee export industrieshave incentives to adopt socially responsible policiesdue to the demand from their destination markets.4.1 Multilateral Development InstitutionsMDIs are already playing a crucial role in Colombia.For example, MDIs defined a series of threeprogrammatic loans 69 designed to support theGovernment of Colombia, aimed to: (a) strengthensocial protection; (b) raise human capital formation;(c) increase employability; and (d) enhancemonitoring and evaluation systems for bettertransparency, social oversight and resultsmanagement in the social sectors. World Bank loanshave supported a sustained effort by the ColombianGovernment to implement the social and laborstrategies defined in the 2002-2006 NationalDevelopment Plan.a. Facilitating, recommended actions for MDIsinclude:– Develop a conducive policy environment,which may facilitate private sector initiativesand support voluntary efforts towardsresponsible behavior.– Pilot a project on the implementation ofquality management systems in the supplychain using a chosen territory or sector.Provide assistance to participants according tothe specific role they play in the supply chain.– Promote, finance and disseminate results oftraining activities on health and safetymeasures in the workplace to SME managersand employees.– Promote, finance and disseminate results oftraining activities on environmentalmanagement system applications. Start apilot project for a chosen sector onenvironmental management systemsaccording to ISO 14001 at the district level.– Improve monitoring systems andenvironmental assessments in SMEs throughthe development of the Life Cycle Assessmentapproach in a specific sector (through thesupply chain).b. Improving Promotion and Advocacy,recommended actions for MDIs include:– Engage with SMEs, public authorities andcivil society in addressing and disseminatingCSR best practices.– Apply benchmarking techniques in a specificsector to evaluate environmental efforts anddefine best practices.69 The loan in this series were referred to as Programmatic Labor Reform and Social Structural Adjustment Loans, which is the LaborReform and Social Development Policy Loan (formerly known as the PLaRSSAL III).72 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

– Sponsor a human rights campaign that raisesawareness about child labor in SMEs by usingmultimedia sources to present internationaland national figures addressing child laborissues.– Facilitate employee participation in decisionmakingprocesses and promote awareness onaccountability and reporting standards suchas the Global Reporting Initiative, as well asinternational guidelines and principles suchas those of the UN Global Compact and theInternational Labor Organization.c. Partnering, recommended actions for MDIsinclude:– Facilitate the development of partnershipsbetween large and small sustainableenterprises and at the same time increasecapacity building for SMEs.– Form networks among SMEs to develop CSRmarketing strategies, including brands andlabels, to widen markets and increase exports.– Fund programs addressed to different ethnicgroups, which can enhance their interactions,and grouping capacity, developing a commoncorporate ethical behavior.4.2 Government and Local AuthoritiesColombian Government and local authorities have afundamental role in most of the actions proposed,since the majority perceives them as the mostreliable stakeholder.a. Mandating, recommended actions forgovernment and local authorities include:– Define standards, establish targets, enforcecompliance and monitor activities forbusiness performance embedded within thelegal framework.– Promote business registration throughsimplification of administrative andbureaucratic procedures.– Provide gender rights counseling by supportingwomen at work through direct experiencesharing. Arrange guest speakers such as leadingfemale managers, politicians and entrepreneurs.– Promote information campaigns and trainingactivities on CSR and supervise pilot projectsin the field and endorse compliance programs.– Facilitate, monitor and legitimize corporateaccounting, governance and transparencystandards.b. Ensuring transparency, recommended actionsfor government and local authorities include:– Promote awareness of accountability andreporting standards such as the GlobalReporting Initiative and internationalguidelines and principles such as those of theUN Global Compact and the InternationalLabor Organization, through campaigns,conferences, workshops and publications.c. Facilitating, recommended actions forgovernment and local authorities include:– Improve energy efficiency in SMEs by workingwith district municipalities to design anawareness campaign on waste and energymanagement.– Develop team-building initiatives acrossethnic groups through municipalities orprovinces that aim to develop a commoncultural ground among different ethnic groupsworking for SMEs in certain territories.d. Endorsing, recommended actions forgovernment and local authorities include:– Recognize the efforts of enterprises and rewardcompanies’ participation in CSR activities.– Promote voluntary agreements on health andsafety procedures in industrial sectors.– Promote environmental monitoring,management and communication amongSMEs through voluntary agreements betweenSMEs and local public authorities.Colombia 73

4.3 Business AssociationsBusiness associations include trade associations,territorial associations, chambers of commerce andSME associations. Colombian business associationsplay an important role in Facilitating, Improving,Promotion and Advocacy, Partnering and Endorsing.a. Facilitating, recommended actions forbusiness associations:– Conduct a risk analysis to identify the directand indirect costs of non-compliance based oncase studies. Then, form a pilot group of SMEsto draft a compliance program specifyingtiming, resources and expected results.– Form networks among SMEs to developCSR marketing strategies, including brandsand labels, to enter international marketsand increase exports.– Finance training programs on CSR inmanagement and planning for SMEs.b. Improving Promotion and Advocacy,recommended actions for businessassociations:– Create CSR training programs for SMEmanagers in rural areas.– Apply benchmarking techniques in a specificsector to evaluate environmental efforts anddefine best practices.– Publish results of training activities on healthand safety measures in the workplace for SMEmanagers and employees aimed atdemonstrating the benefits.c. Partnering, recommended actions for businessassociations:– Help build partnerships between large andsmall sustainable enterprises and facilitatecapacity building in SMEs.d. Endorsing, recommended actions for businessassociations:– Promote voluntary agreements on health andsafety procedures in industrial sectors for SMEs.– Promote environmental monitoring,management and communication amongSMEs through voluntary agreements betweenSMEs and local public authorities.– Cooperate in the publication of CSRmaterials, aimed at disseminating the CSRculture and practices in Latin Americancountries, focusing on Colombia.4.4 Civil SocietyIn Colombia, academia and NGOs are the mosteffective and active proponents of civil society.These two groups will likely implement most of theproposed actions. These two groups can also act asa bridge between companies and government,translate the terminology of social development intoa language that businesses understand, and provideinformation on enterprises’ activities to the public(Petkoski and Nigel, 2003).a. Facilitating, recommended actions for civilsociety include:– Promote, finance and disseminate results oftraining activities on environmentalmanagement system applications.– Start a pilot project for a chosen sector onenvironmental management systemsaccording to ISO 14001 at the district level.– Promote business registration andcompliance through the simplification ofadministrative and bureaucratic procedures.74 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

. Improving Promotion and Advocacy,recommended actions for civil society include:– Sponsor a human rights campaign that raisesawareness about child labor in SMEs usingthe media to present international andnational figures addressing child labor issues.– Improve monitoring systems andenvironmental assessments in SMEs throughthe development of the Life Cycle Assessmentapproach in a specific sector (through thesupply chain).– Launch an NGO engagement awarenesscampaign to raise awareness aboutstakeholder engagement. Start a pilotengagement awareness campaign with at leastfive local NGOs and five local SMEs.c. Partnering, recommended actions for civilsociety include:– Promote stakeholder engagement throughtraining programs and dissemination of bestpractices such as benchmarking techniques.d. Endorsing, recommended actions for civilsociety include:– Reward responsible market behaviors incertain sectors at a CSR conference.– Promote voluntary agreements on health andsafety procedures in SMEs in industrial sectors.– Provide introductory seminars on CSR tofuture SME managers.– Cooperate in the publication of CSR materialsaimed at disseminating the CSR culture andpractices in Latin American countries,focusing on Colombia.Colombia 75

BibliographyBlackman, A., Hoffmann, S., Morgenstern, R., and Topping, E. (2005) ‘Assessment of Colombia’s NationalEnvironmental System’, (Washington: Resources for the Future).CONFECAMARAS (Confederación Colombiana de Cámaras de Comercio) (2005) ‘Guía para la gestión éticaen PYMES’, (Bogotà, Colombia: Confecámaras, RETHOS, CIPE).FTAA (Free Trade Area of Americas), Consultative group on smaller economies, (2003) ‘COLOMBIAnational strategy for strengthening trade-related capacities’, (Bogotà DC: FTAA).Gomez, E.M. (2004), ‘Probidad III’, (CONFECAMARAS, Datexco S.A.).Gutierrez, C. (2004) ‘Environment, Social Responsibility and managerial activity’ in CCRE articlesCostruyendo Confianza (Bogotà: CCRE).Gutiérrez, R., Avella, L.F.,Villar, R. (2005) ‘Contributions and challenges in corporate social responsibilityfor colombian social development’, (Fundación Restrepo Barco).ISO (International Standard Organization) (2004) ‘Small and medium–size enterprises’, (Geneve,Switzerland: ISO).ISO (International Standard Organization) (2005) ‘The ISO Survey – 2004. ISO and The ISO Survey’,(Geneve, Switzerland: ISO).Petkoski, D., and Nigel T.,(2003) ‘Public Policy for Corporate Social Responsibility’, WBI Series onCorporate Responsibility, July 7–25 2003 (Washington D.C. :World Bank Institute).The World Bank (2006) ‘International Bank for reconstruction and development program document for aproposed Third Labor and Social Structural Adjustment Loans (LarRSDPL III)’, Report n° 35739(Washington: World Bank).The World Bank (2006) ‘Republic of Colombia. Mitigating Environmental Degradation to Foster Growth andReduce Inequality’, Report No. 36345-CO Environmentally and Socially Sustainable DevelopmentDepartment, Latin America and the Caribbean Region, (Washington DC: World Bank).Transparency International (2005) ‘Report on the Transparency International Global Corruption Barometer’,(Berlin: Policy and Research Department Transparency International –International Secretariat).Vergara, H. (2005) ‘Responsabilidad Social Empresarial, el nuevo paradigma para las PYMES en la región’,(Forum EMPRESA).Vives, A., A. Corral, I. Isusi (2005) “Responsabilidad Social de la Empresa em las PyMES deLatinoamérica”. (Inter-American Development Bank and IKEI).WEF (World Economic Forum) (2006) ‘The Latin America Competitiveness Review’, (Geneva: WEF).WEF (World Economic Forum) (2005-2006) ‘The Global Competitiveness Index’, (Geneva:WEF).76 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

Websites consultedwww.accountability.orgwww.andi.com.cowww.ccre.org.cowww.cde.org.arwww.cid.harvard.eduwww.cinset.org.cowww.compartamos.orgwww.csreurope.comwww.csrwire.comwww.eldis.orgwww.fundacioncorona.org.cowww.fundacionexe.org.cowww.IDB.orgwww.ifc.orgwww.ilo.orgwww.iso.orgwww.maplecroft.comhttp://sparta.javeriana.edu.co/portal/principal/index.jspwww.transparenciacolombia.org.cowww.transparency.orgwww.unfccc.intwww.weforum.orgwww.worldbank.orgColombia 77

AppendixThe following stakeholder map has been used to verify that all nine defined stakeholder categories and allfour CRS areas are represented. Stakeholders that were chosen for interviews or as panel participantseither had relevant expertise in the issue or may influence awareness, interests and implementationinstruments relevant to the issue.APPENDIX 1 – COLOMBIAN STAKEHOLDER MAP1.InternationalOrganizations2. GovernmentOrganizationsand InstitutionsMarketplace Workplace Community Environment—InternationalLabourOrganization (ILO)—Ministerio deComercio Exterior—Ministerio deComercio, Industriay Turismo—National PlanningDepartment—DepartmentsMunicipalities—Ministerio deProtección Social—DepartmentsMunicipalities—United NationsDevelopmentProgramme- GlobalCompact (UNDP)—United StatesAgency ForInternationalDevelopment (USAID)—United NationsWorld Food Program(UN – WFP)—Governance andLocal Development(UNDP-GOLD)—Ministerio delInterior y Justicia—DepartmentsMunicipalities—AgenciaPresidencial para laAcción Social y laCooperaciónInternacional—Derechos de losNiños y las Niñas—World Bank—Corporación Andina deFomento (CAF)—Inter AmericanDevelopment Bank (IDB)—Ministerio de Ambiente,Vivienda y DesarrolloTerritorial—National Institute ofNatural RenewableResources,—Ministry of Agricolture—National EnvironmentalCouncil—National TechnicalAdvisory Council—Assessment of Colombia’sNational EnvironmentalSystem (SINA)—Centro Internacional deAgricultura Orgánica—Comisión de Regulaciónde Agua Potable ySaneamiento Básico—Corporación AutónomaRegional Cuencas de losRios CorporaciónAutónoma Regional deBoyacá Negro y Nare—Corporación AutónomaRegional de Caldas—Corporación AutónomaRegional de Chivor—Corporación AutónomaRegional deCundinamarca78 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

APPENDIX 1 – COLOMBIAN STAKEHOLDER MAP3. Associations(national, trade,business)4. FinancialInstitutions5. Multinationaland Local LargeCompaniesMarketplace Workplace Community Environment—Asociación Nacionalde Empresarios deColombia (ANDI)—AsociaciónColombiana dePequeñas yMedianas Empresas(ACOPI)—AsociaciónColombiana delPetróleo (ACP)—Asociación deCultivadores deCaña (ASOCAÑA)—AsociaciónColombiana deFloricultores(ASOCOLFLORES)—Asociación deBananeros deColombia (AUGURA)—AsociaciónColombiana deProductores deAgregados(ASOGRAVAS)—Cámara de Comerciode Bogotá CCB –Foro de Presidentes—Foro de Presidentes—Confederación deCámaras deComercio deColombia(CONFECAMARAS)—Asociación Nacionalde Empresarios deColombia (ANDI)—AsociaciónColombiana dePequeñas yMedianas Empresas(ACOPI)—AsociaciónColombiana delPetróleo (ACP)—Asociación deCultivadores deCaña (ASOCAÑA)—AsociaciónColombiana deFloricultores(ASOCOLFLORES)—Asociación deBananeros deColombia (AUGURA)—AsociaciónColombiana deProductores deAgregados(ASOGRAVAS)—Cámara de Comerciode Bogotá CCB –Foro de Presidentes—Foro de Presidentes—Confederación deCámaras deComercio deColombia(CONFECAMARAS)—CITIGROUP—CORFINSURA—Banco BilbaoVizcaya Argentaria(BBVA)—Cemex Colombia—Holcim Colombia—British Petroleum—Cerromatoso- BHPBilliton—Cerrejon-Angloamerican—Colgate Palmolive—Nestlé Colombia—Carrefour—EmpresaColombiana dePetróleos—ACTUAR—Famiempresas—Banco de la Mujer—Consejo EmpresarialColombiano para elDesarrollo Sostenible(CECODES)—Centro Nacional deProducción Más Limpia(CNPML)—Cámara de Comercio deBogotá CCB – Foro dePresidentes—Foro de Presidentes—Confederación deCámaras de Comercio deColombia(CONFECAMARAS)—Banco Agrario deColombia S.A.Colombia 79

APPENDIX 1 – COLOMBIAN STAKEHOLDER MAP5. Multinationaland Local LargeCompaniesMarketplace Workplace Community Environment—ECOPETROL S.A.—Empresa deTelecomunicacionesde Bogotá (ETB)—Exxon Mobil—PETROBRASColombia Limited—Hewlett Packard—Gas Natural—HENKEL—Conexión Colombia6. Media —Casa Editorial ElTiempo—PublicacionesSemana - RevistaDinero—Radio CadenaNacional - RCN—Revista MisiónPYME—CARACOL – GrupoPrisa7. NGOs —Ashoka ColombiaEmprendimientosSociales—Fundepublico—Tejido Social—Tejido Social—Fundacion AntonioRestrepo Barco—Fundación FES—Trasparencia perColombia—Amnesty Int.l—Colombia INSISTE enlos derechoohumanos—Fundación Éxito—Fundación Corona—Fundación Carvajal—Fundación FES—Fundación Amanecer—Fundación Social—Dividendo PorColombia—FundaciónEmpresarios por laEducación—Fundación Ideaspara la Paz—Fundación RestrepoBarco—FundaciónSaldarriaga Concha—FundaciónSudamericana—Fundación MamonalFundación SocialFUNDAUNIBAN—Fundación Compartir—Fundepublico—Peace Brigade Int.l—Transparencia porColombia—Al Verde Vivo—Ecofondo (groups 130environmental NGOS)—Asociación por laMinería Responsable(AMR)—Fundación NaturaColombia—WWF80 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

APPENDIX 1 – COLOMBIAN STAKEHOLDER MAP8. Academia —Universidad de losAndes - Facultadde Administración -Iniciativa para elEmprendimientoSocial (IESO)—PontificiaUniversidadJaveriana -Instituto deEstudios Sociales yCulturales—UniversidadExternado deColombia –Facultad deAdministración—Universidad ColegioMayor de NuestraSeñora del Rosario—Politecnico IsazaCadavid9. CSRConsultingOrganizaitonsMarketplace Workplace Community Environment—Universidad de los —Universidad de losAndes - Facultad Andes - Facultadde Administración - de Administración -Iniciativa para el Iniciativa para elEmprendimiento EmprendimientoSocial (IESO) Social (IESO)—Pontificia —PontificiaUniversidad UniversidadJaveriana -Javeriana -Instituto de Instituto deEstudios Sociales y Estudios Sociales yCulturalesCulturales—Centro Colombianopara laResponsabilidadEmpresarial (CCRE)—Comportamos conColombia (CCC)—InstitutoColombiano deNormas Técnicas(ICONTEC)—Universidad de losAndes - Facultad deAdministración -Iniciativa para elEmprendimiento Social(IESO)—Pontificia UniversidadJaveriana - Instituto deEstudios Sociales yCulturales—Politecnico IsazaCadavid—Corporación para laInvestigaciónSocioeconomica yTecnológica (CINSET)Colombia 81

82 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

Chapter 5: El Salvador1 Executive SummaryCorporate Social Responsibility (CSR) effortsshould be enhanced in El Salvador since only a fewexporting SMEs, that act as suppliers for largerfirms have recognized CSR as an important factorfor competitiveness in the market. The majority ofSalvadoran SMEs perceive CSR as an important wayto enhance the overall economic growth and benefitsociety at large. However, they do not see CSR as amanagement strategy that can affect their ownbusiness profitability.This analysis shows that Multilateral DevelopmentInstitutions (MDIs) in El Salvador have a strong rolein CSR development, since they already finance andmonitor development policies in several sectors,such as infrastructure, telecommunications andeducation. Since CSR is still a new concept, amongSMEs in El Salvador, MDIs have been proposing newdevelopment policies or including CSR issues intraditional development policies that affect SMEs.MDIs are trying to raise awareness of CSR, financepilot projects and provide technical assistance toSMEs. MDIs can support the public authorities’ rolesby encouraging the application of internationalstandards and promoting public-privatepartnerships. Multilateral Financial Institutions,which are part of MDIs, can also provide financialsupport for some of these activities. MDIs could leadone of the most important roles in CSRdevelopment, which is the development of a“conducive policy environment”, which involvesfacilitating private sector initiatives, encouragingcompliance, supporting partnerships and linkingSMEs to larger domestic and internationalcompanies. MDIs should have a prominent role ininnovative actions aimed at supporting SMEs,through pilot programs designed to help SMEsimplement more strategic management approaches.The central Government has not created incentives tofoster CSR in its own ministries because they haveother critical priorities to address. The public sectortypically plays a catalytic, secondary or supportingrole in CSR (Fox, Ward and Howard, 2002). TheSalvadoran public authorities should be involved inmost of the education and awareness campaigns thatpromote CSR. They may also design awarenesscampaigns on waste and energy management andinnovative education campaigns for NGOs, aimed atincreasing business development services. Finally, thegovernment and local authorities may rewardvoluntary agreements on health and safety proceduresand working conditions in industrial sectors.Salvadoran business associations do not seem to bedeeply involved in CSR and their role inadministrative and business activities seems quitelimited, since they have been quoted neither byinterviewees nor by panelists as a reference forSMEs. They rarely play a leading role, but can makeimportant contributions when involved.In the Salvadoran case, academia and NGOs are theonly active components of civil society. Civil societyhas a supporting role in promoting compliance, forexample, through simplification of processes. Civilsociety can lead human rights and workingconditions campaigns, promote monitoring systemsand environmental assessment campaigns anddesign an NGO-business educational campaign toincrease collaboration and business developmentservices. The Salvadoran civil society may participatein SMEs' or business associations’ stakeholderengagement programs. A leading role can be takenin rewarding responsible market behaviors of SMEsin certain sectors, which would contribute to thedissemination of best practices among SMEs.2 Economic and SocialFrameworkEl Salvador has the smallest area of land and the mostdensely populated land in Latin America, withEl Salvador83

approximately 6.9 million inhabitants (WorldDevelopment Indicators, 2005). With a limited naturalresource base and no remaining agricultural frontier,the country has recently experienced major economicdisruptions as a result of natural disasters (hurricaneMitch in 1998 and earthquakes in 1986 and 2001).Between 1978 and 1990 the country was also torn bya devastating civil war that resulted in approximately80,000 deaths, a half-million people displaced, andanother million fleeing to the United States. 70After a 12-year civil conflict that ended in 1991, ElSalvador undertook significant modernization effortsincluding trade liberalization, financial sectorstrengthening, privatizations of banks and otherstate enterprises, tax reform, pension reform, andimprovements in the environment for privateinvestment. However, while GDP growth averaged5.9 per year between 1990 and 1995, it slowed downto 3.2 percent per year in the second half of thedecade and dropped to less than 1.9 percentbetween 2000 and 2004 (World Bank, 2006). As aresult of this slowdown, impressive socialachievements during the 1990s – e.g. povertydeclined from 64.4 percent in 1991 to 37.2 percentin 2000, while extreme poverty declined from 31.2percent to 15.4 percent – were followed by muchlower rates of poverty reduction in the presentdecade. According to the Research Center onNational Economics (Centro de InvestigacionesEconómicas Nacionales), 55.1 percent of theSalvadorian economy is informal (Dardón andBolaños, 2006). Additionally unemploymentrepresents 6.3 percent of total labor force (WorldEconomic Forum -WEF, 2005).The National Directorate for Statistics and Censusestimated that 41.3 percent of households are stillliving in poverty, while 16.7 percent live in extremepoverty. In rural areas extreme poverty reached 27.4percent and overall poverty 55.4 percent. Thedecrease in poverty during the period from 1991 to1999 was substantial, reaching 18 percent. Thesefavorable results are explained by the steady pace ofeconomic growth and the new opportunities for formalemployment that were created in the maquilaindustries, the increases in social spending, and thehigh levels of migration and foreign remittances. Inspite of the reductions in poverty, El Salvador remainsa country with high inequality. The Gini coefficient ofincome distribution is estimated at about 0.50 71 . In2003, the richest twenty percent of the populationreceived 56 percent of the country's income, while thepoorest twenty percent received only 3 percent (WorldDevelopment Indicators, 2003).On the external front, since the late 1990s the countryhas been hit by a series of negative shocks, includingearthquakes and droughts, declining terms of tradeand the slowdown of the U.S. economy (El Salvador’smain trading partner). On the internal side, the 2004Country Economic Memorandum highlighted thefollowing priority areas to reignite growth: furtheringthe expansion of trade, improving the investmentclimate, removing infrastructure bottlenecks,increasing the level of education of the population,and fostering innovation and technology adoption.Local and foreign analysts have emphasized the latterfactor, arguing that the country’s inability to promoteinnovation has been one of the main factors driving itslackluster growth performance and the limited growthand diversification of exports. This diagnostic isconsistent with the World Bank Investment ClimateAssessment 2005 for El Salvador, which found thatimprovements in the areas of skills, quality andtechnology should be a priority for promotingproductivity and export growth. The assessment alsoshowed that SMEs face worse investment climateconditions than large firms, with hefty disadvantagesin quality and innovation.The following chart shows competitiveness indicatorssupplied by the WEF. All data is from 2005 and thechart is sorted by indicator ranking. As can be seen,research capabilities, costs of crime and violence, andbureaucratic requirements are the main obstacles to70 The transition to peace and economic reform started in 1989 when Alfredo Cristiani of the Republican Nationalistic Alliance (ARENA)party won the presidential elections. The Peace Accords were signed in Chapultepec, Mexico, on January 1992 and the Farabundo MartiLiberation Front (FMLN) agreed to lay down its arms in exchange for political, military, and judicial reforms, although a NationalReconstruction Plan was also broadly defined. The administration of President Cristiani launched an economic program of fiscal austerity,stabilization, liberalization, and privatization, that has been continued by Presidents Armando Calderon Sol (1994- 1999) and FranciscoFlores (elected in 1999), and all members of the ARENA party.71 Data and figures from the World Bank country studies, see www.worldbank.org84 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

El Salvador’s competitiveness. Compared to countriesof similar levels of income, El Salvador hasunderperformed both in its investments in researchand development activities and innovation outcomes(e.g., patents, scientific publications). However, theGovernment - in close collaboration with the privatesector - is developing a new policy framework toreduce these gaps. In May 2005, the Ministry ofEconomy created the Innovation Promotion Group,in charge of coordinating all Government activities inthe field of innovation. 72 Lastly, even with theaforementioned challenges, the Heritage Foundationranked El Salvador as the top free market economy inLatin America and one of the freest in the world. 73OrganizationIndexNumber of Countriesin the IndexEl Salvador’s RankingWEF Capacity for innovation 117 57WEF Global Competitiveness 11760 (7 out of 21in Latin America)WEFTechnological readinessindex 117 63WEFSpecialized research andtraining services 117 73WEFNumber of proceduresrequired to start a business 117 74WEFCompany spending onresearch and development 117 75WEFQuality of the educationalsystem 117 76WEFEfficiency of legalframework 117 78WEF Organized crime index 117 100WEFTime required to start abusiness 117 100WEFUniversity/industry researchcollaboration 117 100WEFBusiness costs of crime andviolence 117 105WEFQuality of scientific researchinstitutions 117 11072 The GPI (Innovation Promotion Group) includes representatives of several Ministries, the FDI promotion agency (PROESA), the NationalScience and Technology Council (CONACYT), the National Training Institute (INSAFORP), and several universities and private sectororganizations. Some of the main innovation policy instruments that the government is contemplating include the creation of fundingmechanisms to support private sector innovation and technology adoption projects, and the strengthening of metrology, standards,testing, and quality (MSTQ) systems. To complement these activities, the Government is also prioritizing investments and reform insecondary education, as a key input to preparing its labor market for the challenges of DR-CAFTA (World Bank 2006).73 2001 Index of Economic Freedom, The Heritage Foundation, Washington, 2000.El Salvador85

According to the Swedish InternationalDevelopment Cooperation Agency (SIDA), themajor problem for the population is the access towater, since 40 percent still lacks access.Additionally, 80 percent of ground water iscontaminated due to lack of purification, whichis a cause of infectious diseases. Moreover, genderequity policies are lacking, and 62 percent ofilliterate people in El Salvador are women(SIDA, 2005).Developing new growth sectors for a morediversified economy has been a challenge in ElSalvador. Like many other former colonies, formany years El Salvador depended heavily on coffeeas the main export. Since the cultivation of coffeerequired the highest lands in the country, many ofthese areas were expropriated from indigenousreserves and given or sold cheaply to coffeegrowers. For many decades, coffee was one of theonly sources of foreign currency in the Salvadoraneconomy. The civil war in the 80's and the fall ofinternational coffee prices in the 90's pressured theSalvadoran government to diversify the economy.On the macroeconomic front, 74 a strong emphasishas been placed on trade integration. 75 El Salvadorwas the first country to ratify Dominican Republic-Central America Free Trade in December 2004,which was bilaterally implemented on January 1,2006. While the treaty will eliminate almost alltrade tariffs with participant countries, the WorldBank suggested that increases in exports andforeign direct investment would depend on theability of the country to implement acomplementary policy agenda, with specialemphasis on improvements in the investmentclimate, trade facilitation and innovation.Recent measures aimed at improving theinvestment climate include a new Competition Lawapproved in December 2004 (expected to becomeeffective in 2006), new legislation approved inAugust 2005 to modernize and streamlineprocedures in the area of consumer protection andthe reduction in the time and cost needed forbusiness registration. There are also efforts tomodernize public registries, as well as the legalframework for facilitating bankruptcy,collateralization of movable assets and e-commerce.In infrastructure, the Government is taking actionsto return to higher levels of investment with newdonor-financed programs in water, electricity, androads (IDB), as well as ports (Japan). Key prioritiesin the Government’s agenda include the port ofAcajutla and cargo operations at Comalapa Airport,the development of a new deep-sea port (Cutuco)and empowerment of the newly created regulatoryagencies for the maritime and aviation sectors(World Bank, 2006). The Government also intendsto improve the main road network and develop anorthern corridor for connecting rural communitiesto potential markets. Finally, the Governmentstrategy assigns a central role to ensuring that thebenefits of trade are accessible to SMEs, bothdirectly through access to export markets andindirectly by developing strategic partnerships withlarge exporters. 76Recent research on CSR in Latin Americancountries (Vives, Corral and Isusi, 2005) providesan overview on the evolution of the importance ofSMEs in El Salvador. In 1992, they were consideredan instrument for the reintegration of repatriatedpeople after the peace agreement. In 1994, SMEdevelopment helped the fight against poverty, withthe support of cooperation agencies, and started to74 El Salvador has one of the lowest tax burdens in the American continent (around 11percent of GDP). Many specialists claim that it isimpossible to advance development programs with such a small public sector (the tax burden in the United States is around 25percent ofthe GDP and in other developed countries of the EU, such as Sweden, it can reach 50percent). The government has focused on improvingthe collection of its current revenues with a focus on indirect taxes. Leftist politicians criticize such a structure since indirect taxes (likethe value added tax) affect everyone alike, whereas direct taxes can be weighed according to levels of income and are therefore fairertaxes. A 10percent value-added tax (VAT), implemented in September 1992, was raised to 13percent in July 1995. The VAT is the biggestsource of revenue, accounting for about 52.3percent of total tax revenues in 2004. (World Development Indicators)75 El Salvador is aware that its viability depends on its integration with other Central American countries. The Central American CommonMarket was initiated in the 1960’s and has experienced ups and downs due to political differences and conflicts among member countries.In October 2000 the Secretariat of the Central American Integration System presented a document with the long-term vision of socialintegration in the region and a Consultative Group for the Transformation and Modernization of Central America was held in Madrid,Spain, in March 2001.76 Some of the instruments for achieving those goals are already in place, including programs for facilitating access to market intelligence(Trade Point), developing and implementing export plans (FAT (Fondo de Asistencia Técnica) and FOEX (Fondo de Fomento a laExportaciones)), and providing training and business development services to SMEs (BONOMYPE and FAT).86 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

ecome key organizations in the battle againstsocial instability. After the economic crisis of 1998,many unemployed people started business activitieson their own, which were classified as microenterprises, and now represent the most commonform of business in El Salvador.Preliminary estimates indicate that theaugmentation of poverty levels due to theearthquakes of 2001 ranges between 2.6 and 3.6percent points. While the most acute poverty waspreviously concentrated in the northern andeastern areas, poverty has now worsened in thewestern and southern regions where the effects ofthe earthquake were greater. The earthquake forcedthe Government to refocus public expendituretowards reconstruction needs and reviving economicactivity in the most affected areas of the country.The following table shows governance andcorruption rankings in public and privateinstitutions in El Salvador.WEFOrganizationIndexNumber of Countriesin the IndexEl Salvador’sRankingFavoritism in decisions ofgovernment officials 117 38WEF Diversion of public funds 117 42WEF Ethical behavior of firms 117 48WEF Reliability of police services 117 56WEF Public trust of politicians 117 60Strength of auditing andWEFaccounting standards 117 61WEF Judicial independence 117 69Private sectorWEFemployment of women 117 75Transparency International Corruption Perception 159 51UNICEF, ILO,US Department State 2005 77ILO 2005;World Bank 2001 78Quality of hiringand firing practices 117 13Health and safetyprograms adoption 187 13477 www.maplecroft.com78 IdemEl Salvador87

As illustrated in the next table, the situation is notmuch better in the human rights arena.OrganizationIndexNumber ofCountries inthe IndexHumanRights Watch(2004) Child Labor 191 143HRW,AmnestyInternational,USDepartmentStateUNESCO,UNDP 79HRW,AmnestyInternational,USDepartmentStateChild Rightsrisk 192 100EducationalAttainment 166 109HumanRightsrespect 194 1103 Current State of CSREl Salvador’sRankingIn 2005, the Business Foundation for Social Action(Fundemas) 80 started a program on theimplementation of CSR in SMEs. The main resultsfrom the program include: (i) there is a clearknowledge of the meaning of CSR; and (ii) theconcept of CSR is far from the concept of charity,because CSR is seen as entrepreneurs’ voluntaryactions that create a better internal quality of life inthe enterprise and CSR refers to responsibility notonly towards shareholders but towards employeesand community.As Fundemas (2004) emphasizes, the concept of CSRin El Salvador has passed through four historicalstages: (1) libertarian thought, (2) the model of selfinterest,(3) the focus on morality and (4) the focuson stakeholders. The first kind of social responsibilitywas philanthropy. After that, CSR took part in a newtrend directed toward modernization andimprovement of business through the guarantee ofsustainable development, and included new elementssuch as respect of ethical values, compliance withlegal requirements, and respect towards people,communities and the environment.Roberto Murray Meza, Fundemas’s president,pointed out the important role of CSRimplementation in the improvement ofcompetitiveness in SMEs. According to Meza, ElSalvador will have many difficulties in competingwith other countries, such as China, on the basis ofcosts, but it could create a CSR mark to distinguishitself in the market and to attract foreign investments.Vives, Corral and Isusi (2005) in their survey to 214SMEs from different sectors, such as trade,manufacturing and services, reveal that 32.2percent of SMEs develop high grade CSR activities,while the others practice low grade CSR activities.As for compliance with laws, only two out of threeenterprises comply with social security laws andonly one out of three enterprises complies withenvironmental laws. Moreover, only 6.6 percent ofthe enterprises interviewed have a social orenvironmental report. Regarding the SMEperception of CSR, half of the enterprisesinterviewed declared that they consider thedevelopment of CSR activities a priority and most ofthem are conscious that society is demanding moresocially and environmentally responsible behaviorfrom companies. On the other hand, the mainreasons why SMEs do not practice CSR are a lack offinancial resources and because they do notconsider CSR activities related to their corebusiness. One of the main problems in CSRimplementation is the lack of information on CSRissues. In fact, only 12.3 percent of the SMEsinterviewed considered CSR awareness and publicinstitutions’ efforts adequate in El Salvador.79 www.maplecroft.com80 Fundemas (Fundacion Empresarial para la Accion Social) is an association whose aim is to contribute to the integral and sustainablehuman development, through areas of health, capability, professional training, environment, infrastructure, and culture.88 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

According to Vives, Corral and Isusi (2005), CSRseems focalized in large enterprises.CSR actual positioning in El SalvadorADOC, one of the region’s largest footwear factories,financially supports a technical education center totrain young people from deprived socialbackgrounds with the goal of increasing futureparticipation in the labor market. Additionally, BonAppetit promotes efficiency among its sales anddistribution service providers by extending financefor the purchase of vehicles. Another example isCessa, the largest cement factory in CentralAmerica, that acting through its foundationpromotes diversification and production of crops,testing crop varieties and making the resultsavailable to small-scale agricultural producers in thearea where the cement factory is located. Lastly, theIDB sponsored project Sinergia promotes CSRthrough the development of micro enterprises andsmall producers. The project’s objective is topromote economic development and social equityamong poor and excluded groups in El Salvador, byfinancing projects that deliver financial, social andcommunity development services.CSR area significancemaxminminWPMPWPCMPECSR actions implementationSMEs country positionin the Marketplace areaSMEs country positionin the Workplace areamaxThe following figure illustrates an estimatedpositioning of each one of the CSR areas –marketplace, workplace, community andenvironment. The graph shows the significance ofCSR for SMEs (vertical axis) and the CSR actionsimplemented by SMEs (horizontal axis) in ElSalvador. This positioning is an approximation,developed by the authors, and it is based solely onthe information utilized for the writing of this report(interviews, panel discussions and literature review).CESMEs country positionin the Community areaSMEs country positionin the Environment areaEl Salvador89

3.1 MarketplaceIn El Salvador SMEs do not perceive themarketplace area as valuable for their businesscompetitiveness. Their general view is thatmarketplace issues related to CSR, such ascompliance, quality assurance, supply chainmanagement, and management capacities mayaffect the overall economic growth, but not SMEcompetitiveness in the mid- to long-term. ManySMEs still believe that ethical behaviors arephilanthropic and not linked to the enterprise’sprofitability and growth. On the other hand, a fewSMEs in exporting sectors (such as clothing andmanufacturing) started including CSR in theircompetitiveness drivers because of customerdemand, mainly the USA. In particular, CSR issuesaffect SMEs’ competitiveness when SMEs are part ofa supply chain, which fosters better managementcapacities and may increase exports if the supplychain is international.The marketplace area offers several opportunitiesthat may help SMEs grow, such as strong interestand investments from MDIs and valuablegovernment efforts. Some of these opportunities are:the practical skills of SME owners and managers andthe capability of formal SMEs to create jobs andincome. CSR could start to be considered a moreimportant issue that is able to affect SMEscompetitiveness in the mid-term. It can assureethical behavior and proper governance conditions -which are prerequisites for partnerships with largedomestic and international companies, MDIs andgovernmental institutions- and can provide fundsand additional incentives for responsible SMEs.Salvadoran SMEs lack resources, governancecapacity, management culture and implementationof voluntary management systems, such as ISOstandards (Vives, Corral and Isusi, 2005). The ISOsurvey 2005 shows that there are only 49enterprises ISO 9001 certified in El Salvador.However, some interesting CSR initiatives are inplace. Among those is the auto-evaluationquestionnaire created by Fundemas to help SMEsmonitoring their engagement in CSRimplementation. The evaluation is structured in away that allows SMEs to analyze activities in eachCSR area. In addition, the Ministries of Economy,Labor and Environment are working on CSR withthree key sectors in the country: apparel, coffee andsugar. For example, a CSR project with the sugarsector is working to develop new strategies withcommunities and stakeholders to produce sugar in asustainable way. 81According to a survey implemented by Fundemas,76 percent of enterprises interviewed choosesuppliers on the basis of quality, price, terms ofdelivery and 96 percent demonstrated a preferenceto work with national suppliers. Most enterpriseshave programs to improve their products andservices, particularly large and medium enterprises.Conversely, only 25 percent of enterprises,generally large enterprises, take care of customers’claims, and only 40 percent have a formalcommunication policy; 89 percent verify whetherthe communication campaign complies withlegislation for customer protection (Fundemas, 2004).3.2 WorkplaceIn El Salvador, SMEs do not perceive the workplacearea as valuable for their operations. Their view isthat CSR issues, such as employment policies, childlabor rights, health and safety, gender policies, andcompliance may affect the overall sustainabledevelopment, but not necessarily SME profitability.To improve local employees’ education and enhancetheir CSR expertise, some activities have beenlaunched. The World Bank became involved with ElSalvador when the local Ministry of Economy askedfor help with CSR education, hoping to improvelabor standards and environmental practices. 82 A81 The sugar cane, coffee, and corn industries in El Salvador provide the most important exports and involve almost 6percent of the nationalpopulation. The sugar cane growers were trying to get higher prices and pay workers a lower wage. Arias says they now distribute theincome on a better basis with 54.5percent of the total income going to the growers and the rest to the mills. The partnership has proved tobe an excellent way for encouraging responsible business practices among the growers and mills (Roberts 2005).82 As well as evaluating the coffee and apparel sectors of the business community there.90 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

subsequent survey, by the World Bank 83 , ofinternational buyers revealed that labor standardsin El Salvador were at the top of the list inimportance to outside business interests, and manybelieve competitiveness in this country willcontinue to have something to do with laborstandards and environmental practices highlightingthe need for an industry-wide approach thatinvolves the public sector (Roberts, 2005).3.3 CommunityIn El Salvador, the community area of CSR is notperceived as valuable by SMEs. Their opinion is thatCSR issues, such as community involvement andpublic-private partnerships are not widespread andaffect only the country’s overall sustainabledevelopment and not SME competitiveness.The most important activities in the communityarea are related to educational programs. ElSalvador’s Education with Community ParticipationProgram (EDUCO) began in 1991, from State andlocal communities’ efforts to create pre-school andbasic education services in rural areas. EDUCObecame a key part of the strategy against aneducation crisis after the 12-year civil war. 84 ManySMEs participate in educational programs, mainlythrough NGOs activities.In 1990, fieldwork by the Ministry of Education(MINED) found that many rural communities hadtaken the initiative and organized themselves toprovide basic education for their children duringthe conflict. Their research generated severalrecommendations: promote linkages betweenschools and communities, teachers training, providebasic educational materials, eliminate allrequirements for uniforms and financialcontributions from families and promote schoolfeeding programs. Genuine MINED commitment,active community involvement and financial andtechnical support from the United NationsChildren’s Fund (UNICEF), World Bank and UnitedStates Agency for International Development(USAID) helped create EDUCO 85 .Salvadoran NGOs are educated and able to providehigh quality service in traditional sectors, such aseducation, assistance to disabled people and peacekeeping after the civil war, but most of them do nothave expertise in negotiation, participation andengagement. Considering the low levels ofattainment and quality in the educational systemand the important implications they may have forEl Salvador’s business community, recent researcharticulates the link between enhanced productivitythrough technology and the educational level ofemployees (Tsukamoto and Twose, 2003).Therefore, Salvadoran NGOs may contribute notonly to the enhancement of basic education (wherethey already play an important role), but also topromoting business education of responsiblebehaviors for SME managers and employees incertain sectors or territories.According to a survey by Fundemas, in thecommunity area, 59 percent of enterprisescollaborate on social projects, a practice that growsproportionally with the size of an enterprise, andmonetary aid (philanthropy) is the preferred type ofhelp. The activities are programs of municipalsupport (13 percent), support for governmentalorganizations’ social programs (50 percent),employment donations and support for educationalprograms. The SMEs claim that the most important83 An earlier World Bank team (Tsukamoto and Twose, 2003) had suggested that CSR in education should focus on the twin themes ofenterprise and employability. Based on this recommendation, several areas of possible involvement were identified including thefollowing: (i) scholarships to promote the completion of secondary education and to connect secondary level graduates with choices in theworld of work; (ii) support to strengthen monitoring and to disseminate information on how the system is performing in relation tospecific performance indicators; (iii) support for strengthening English as a Second Language Programs through policy dialogue and thetesting of incentives; (iv) support for technological skill development (based on a detailed understanding of the nature of technologicalskills that will be required by the private sector); (v) support for strengthening school leadership by creating or deepening connectionsbetween school administrators and private sector managers; (vi) support for creating curriculum and performance standards in areasclosely associated with private sector requirements; (vii) support for efforts to achieve equity with respect to whatever performancestandards are adopted.84 In the context of increasing social consensus and economic recovery, public investment in education grew from 1.5 percent of GDP in1992 to 3.0 percent in 2000 and innovative initiatives led to a nation-wide Educational Reform Process (www.mined.gob.sv)85 EDUCO is based on creation, legalization, and provision of support to local organizations involving parents (Asociaciones Comunales parala Educación – ACE), which help develop new education services in their communities. MINED transfers financing to ACEs to hireteachers and purchase goods and services for their schools. In 1991, 263 ACEs participated, each hired a teacher, and 8,416 studentsbenefited. In 2003, the program included over 2,000 ACEs and rural schools, 7,000 teachers, and 362,000 students. ACEs administeredabout US$50 million dollars (approximately 12 percent of the national education budget).El Salvador 91

internal benefit of these activities is the creation ofa corporate identity, and the most evident externalbenefit is the improvement of the company’s image.As for the public policy area, 33 percent ofenterprises have internal anti-corruption programsand 44 percent of them participate in associationsand forums. However, 90 percent of smallenterprises do not participate, while mediumenterprises tend to participate most frequently insocial responsibility committees (Fundemas, 2004).3.4 EnvironmentThe environment is the only CSR area perceived asvaluable by Salvadorian SMEs. Their view is thatissues such as environmental management,regulation 86 and compliance, monitoring, climatechange, etc. may affect the economic developmentof SMEs in the mid and long term.A valuable activity recently undertaken in this area,is the guide on environmental legislation in ElSalvador, edited by Fundemas, which describes the2005 Environmental Law, including principles ofthe National Environmental Policy. It also describesenvironmental management systems, which allowthe organization to reduce its impact on theenvironment through activities such as recyclingand energy conservation, introduces environmentalassessments, promotes environmental incentivesand eco-labeling and presents the NationalEnvironment Prize (Fundemas, 2004).Additionally, the country reveals a very goodposition in the Renewable Energy Index, where itranks 9 out of 109. There are two registered CleanDevelopment Mechanism (CDM) projects in ElSalvador, but only four companies are certifiedagainst ISO (ISO, 2005).In 2006, the Central American Bank for EconomicIntegration (Banco Centroamericano de IntegraciónEconómica), the Republic of Germany, and the MultisectoralInvestment Bank from El Salvador (BancoMultisectorial de Inversiones) signed two valuabletreaties to provide funds to SME projects that maycontribute to sustainability and biodiversity in thecountry. The treaties are called “Intra-governmentalAgreement on Financial Cooperation" (ConvenioIntergubernamental sobre Cooperación Financiera)and “Agreement on Environmental Credit Line forSmall and Medium Enterprises” (Convenio de Líneade Crédito Ambiental para Pequeñas y MedianasEmpresas). The effects of these treaties will be visiblein the mid-term.According to Fundemas (2004), most of theenterprises interviewed (87 percent) affirm thatthey know the impact of their activities on theenvironment, and SMEs declare that they do nothave negative impacts on the environment. Sixtypercent of SMEs have an emergency plan forenvironmental risks while only 36 percent informcustomers of environmental damage that can resultfrom the use of their products. Several activities forenvironmental protection are implemented, such asseminars on the environment (35 percent),sponsorship of projects directed towards theenvironment (14 percent), recycling programs (25percent), environmental certifications such asISO14000 (only 3 percent), environmentaleducation (19 percent), and investment inenvironmental management improvement (0.9percent). All these activities are more frequentlyimplemented by larger enterprises.4 Recommended ActionsThe main actors able to strengthen CSR inSalvadoran SMEs have been classified in thefollowing four categories: a) MultilateralDevelopment Institutions (MDIs), b) nationalgovernments and local authorities, c) businessassociations, and d) civil society. These fourcategories of actors may act via all or some the86 For a complete overview of the environmental regulatory system, see Blackman et al 2005.92 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

following strategies, as defined in the IntroductoryChapter, which are: Mandating, Ensuringtransparency, Facilitating, Improving Promotionand Advocacy, Partnering, and Endorsing. Theproposed actions are by no means exhaustive andonly illustrate the types of involvement, which canbe easily adapted to meet local needs.4.1 Multilateral Development InstitutionsThis analysis shows that MDIs in El Salvador have astrong role in facilitating, improving promotion andadvocacy and partnering strategies, since they arealready financing and monitoring developmentpolicies in several sectors, such as infrastructure,telecommunications and education. MultilateralFinancial Institutions (MFI), which are part of MDIs,can provide financial support for some of theactivities below.a. Facilitating recommended actions for MDIsinclude:– Lead a “conducive policy environment”which may facilitate SME initiatives, enhancecompliance and support networks.– Pilot a project on the implementation ofquality management systems in the supplychain using a chosen territory or sector, andprovide assistance to participants according tothe specific role they play in the supply chain.– Promote, finance and disseminate results oftraining activities on health and safetymeasures in the workplace to SME managersand employees.– Improve environmental compliance throughthe simplification of environmental regulationby identifying priorities and milestones.– Improve monitoring systems andenvironmental assessments in SMEs throughthe development of the Life Cycle Assessmentapproach in a specific sector (through thesupply chain).b. Improving Promotion and Advocacyrecommended actions for MDIs include:– Lead the dissemination of CSR best practices.– Sponsor a Human Rights campaign that raisesawareness about child labor in SMEs, usingmultimedia sources to present internationaland national figures about child labor.– Facilitate, monitor and enhance corporateaccountability standards.c. Partnering recommended actions for MDIsinclude:– Enhance the support to micro enterprises tocontribute to their survival, through pilotaggregation models that include micro, small,medium, and large companies, which maypromote proactive management approaches.– Circulate CSR policies and develop a CSRculture to enhance the capability ofSalvadoran SMEs to widen domestic andinternational markets, through trade orgeographical networks.4.2 Government and Local AuthoritiesGiven that the central Government has not createdincentives to foster CSR in its own ministries,because there are other priorities that have to beaddressed, the Salvadoran Government and localauthorities still have a fundamental role in most ofthe actions proposed.a. Mandating recommended actions forgovernment and local authorities include:– Define standards, establish targets, enforcecompliance and monitor activities forbusiness performances embedded within thelegal framework.– Promote business registration throughsimplification of administrative andbureaucratic procedures.– Provide gender rights counseling bysupporting women at work through directEl Salvador 93

experience sharing. Arrange guest speakerssuch as leading female mangers, politiciansand entrepreneurs; and promote informationcampaigns and training.b. Facilitating recommended actions forgovernment and local authorities include:– Improve monitoring systems andenvironmental assessments in SMEs throughthe development of the Life Cycle Assessmentapproach in a specific sector (through thesupply chain).– Start a pilot engagement awareness campaignaimed at developing the delivery of businesseducational services with at least five localNGOs and five local SMEs.c. Endorsing recommended actions forgovernment and local authorities include:– Rewarding good health and safety behavior inmicro enterprises at the local level bypromoting voluntary agreements andrewarding schemes on health and safetyprocedures by industry.4.3 Business AssociationsBusiness associations include trade associations,territorial associations, chambers of commerce, andSME associations. Salvadoran business associationsdo not seem to be deeply involved in CSR and theirrole in administrative and business activities seemsquite limited, since interviewees or panelists havenot quoted them as a reference for SMEs. Businessassociations rarely play a leading role on CSRefforts, but often participate in facilitating,improving promotion and advocacy, partnering andendorsing policies.a. Facilitating recommended actions for businessassociations include:– Pilot a project on the implementation ofquality management systems in the supplychain using a specific area or sector identifiedand provide assistance to participantsaccording to the specific role they play in thesupply chain.– Disseminate CSR policies and develop a CSRculture to enhance the capability ofSalvadoran SMEs to widen domestic andinternational markets, through trade orgeographical networks among SMEs.b. Improving Promotion and Advocacyrecommended actions for business associationsinclude:– Provide training programs on competitivenessand CSR for SMEs managers.– Promote, finance and implement trainingactivities on health and safety measures inthe workplace, and CSR related issues,directed to SMEs managers and employees.c. Partnering recommended actions for businessassociations include:– Contribute to support micro enterprises toenhance their survival capacities, throughpilot aggregation models including micro,small, medium, and large companies, whichmay promote more proactive managementapproaches.d. Endorsing recommended actions for businessassociations include:– Reward good health and safety behavior inmicro enterprises at the local level bypromoting voluntary agreements andrewarding schemes on health and safetyprocedures by industry.– Promote environmentally responsiblebehaviors through an awareness campaignabout strengths and opportunities in theenvironmental arena. Partner with otheractors to disseminate CSR publications.94 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

4.4 Civil SocietyIn this study, civil society includes academia, media,NGOs and local communities. In the Salvadoran case,academia and NGOs are the most effective and activecomponents of civil society. These two groups willlikely implement most of the proposed actions.a. Facilitating recommended actions for civil societyinclude:– Improve environmental compliance throughsimplification of environmental regulation byidentifying priorities and milestones.– Promote business registration and compliancethrough simplification of administrative andbureaucratic procedures.b. Improving Promotion and Advocacyrecommended actions for civil society include:– Lead a human rights campaign that raisesawareness about child labor in SMEs.– Start an engagement awareness campaign aimedat developing NGO’s capacities in the delivery ofbusiness educational services with at least fivelocal NGOs and five local SMEs.– Improve environmental compliance throughsimplification of environmental regulation byidentifying priorities and milestones.c. Partnering recommended actions for civil societyinclude:– Participate in SMEs' or business associations’stakeholder engagement programs.d. Endorsing recommended actions for civil societyinclude:– Help other actors to disseminate CSR publications.– Reward good health and safety practices in SMEsat the local level by promoting voluntaryagreements and rewarding schemes on healthand safety procedures by industry.– Endorse the organization of a CSR course in alocal business school.El Salvador 95

BibliographyDardón, B., Bolaños, R.M. (2006) ‘Economía: Informalidad, un reto a discutir’, in PrensaLibre.com,available on www.prensalibre.com.Fox T., Ward H., Howard B, (2002) ‘Public sector roles in strengthening corporate social responsibility: abaseline study’, (Washington: the World Bank).FUNDEMAS (Fundación Empresarial para la Acción Social) (2004) “Indicadores Fundemas idad SocialEmpresarial”, (La Libertad, El Salvador: Fundemas).FUNDEMAS (Fundación Empresarial para la Acción Social), EMPRESAL (Programa Empresa Salvadoreñapara la Responsabilidad Social) (2004) ‘Áreas de la RSE. Casos prácticos de El Salvador’, (La Libertad, ElSalvador: Fundemas).FUNDEMAS (Fundación Empresarial para la Acción Social), EMPRESAL (Programa Empresa Salvadoreñapara la Responsabilidad Social) (2004) ‘Guía práctica para la empresa. Ley Mercantil’, (La Libertad, ElSalvador: Fundemas).FUNDEMAS (fundación Empresarial para la Acción Social), EMPRESAL (Programa Empresa Salvadoreñapara la Responsabilidad Social) (2004) ‘Inventario de Prácticas de Responsabilidad Social Empresarial enEl Salvador’, (La Libertad, El Salvador: Fundemas).FUNDEMAS (Fundación Empresarial para la Acción Social), EMPRESAL (Programa Empresa Salvadoreñapara la Responsabilidad Social) (2004) ‘Guía legal del medio ambiente’, (La Libertad, El Salvador:Fundemas).ISO (International Standard Organization) (2004) ‘Small and medium–size enterprises’, (Geneve,Switzerland: ISO).ISO (International Standard Organization) (2005) ‘The ISO Survey – 2004. ISO and The ISO Survey’,(Geneve, Switzerland: ISO).Roberts, J. (2005) ‘El Salvador Uses CSR to Rebuild After Years of Civil War’, (BAWB, case School ofManagement).SIDA (Swedish International Development Cooperation Agency) (2005) ‘SIDA Country Report 2004. ElSalvador’, (Guatemala: SIDA).The World Bank (2006) ‘El Salvador data profile’, (Washington: World Bank).Transparency International (2005) ‘Report on the Transparency International Global Corruption Barometer’,(Berlin: Policy and Research Department Transparency International –International Secretariat).96 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

Tsukamoto, M, Twose, N., (2003) ‘Ministry of Education Framework for a CSR National Action Plan’,(Washington: World Bank).Vives, A., A. Corral, I. Isusi (2005) “Responsabilidad Social de la Empresa em las PyMES deLatinoamérica”. (Inter-American Development Bank and IKEI).WEF (World Economic Forum) (2006) ‘The Latin America Competitiveness Review’, (Geneva: WEF).WEF (World Economic Forum) (2005-2006) ‘The Global Competitiveness Index’, (Geneva:WEF).World Bank Investment Climate Assessment 2005 for El Salvador. (Washington: World Bank)World Development Indicators for El Salvador, 2000 – 2006. (Washington: World Bank)Websites consultedwww.accountability.orgwww.business-humanrights.orgwww.csrwire.comwww.earthtrends.wri.orgwww.eldis.orgwww.fundemas.orgwww.fusades.com.svwww.IDB.orgwww.icd.org.uywww.ifc.orgwww.ilo.orgwww.iso.orgwww.maplecroft.comwww.transparency.orgwww.unfccc.intwww.weforum.orgwww.wri.orgwww.worldbank.orgwww.wikipedia.orgEl Salvador 97

AppendixThe following stakeholder map has been used to verify that all eight defined stakeholder categories and allfour CRS areas are represented. Stakeholders that were chosen for interviews or as panel participantseither had relevant expertise in the issue or may influence awareness, interests and implementationinstruments relevant to the issue.APPENDIX 1 – EL SALVADOR’S STAKEHOLDER MAP1.InternationalOrganizations2.Governmentorganizations andinstitutions3.Associations(national,sectoral/gremial,business)4.Financialinstitutions5.MultinationalcompaniesMarketplace Workplace Community Environment—United Nations —World Bank —Inter-AmericanDevelopmentDevelopment BankProgramme(UNDP)(IDB)—Comisión Nacionalde la Micro yPequeña Empresa(CONAMYPE)—Ministerio deEconomia (MINEC)—Defensoría delconsumidor (DC)—Cámara de Comercioe Industria de ElSalvador(CAMARASAL)—AsociaciónNacional de laEmpresa Privada(ANEP)—Banco Agricola,S.A. - AgricolaBank—Banco Cuscatlán,S.A. - CuscatlanBank—Asociación deFondos de PensiónConfía—TABACALERAEl Salvador(Philips Morris)—Ministerio delTrabajo y PrevisiónSocial (MINTRAB)—InstitutoSalvadoreño deFormaciónProfesiona(INSAFORP)—Ministerio deEducación (MINED)—Cámara de Comercioe Industria de ElSalvador(CAMARASAL)—American Chamberof Commerce(AMCHAM)—AsociaciónNacional de laEmpresa Privada(ANEP)—Banco Agricola,S.A. - AgricolaBank—Banco Cuscatlán,S.A. - CuscatlanBank—Asociación deFondos de PensiónConfía—AMANCO—Microsoft ElSalvador—CESSA—TABACALERAEl Salvador(Philips Morris)—Futurekids—Ministerio delAmbiente y losRecursos Naturales(MARN)—Cámara de Comercioe Industria de ElSalvador(CAMARASAL)—Banco Agricola,S.A. - AgricolaBank—Banco Cuscatlán,S.A. - CuscatlanBank—AMANCO—CESSA—TABACALERAEl Salvador(Philips Morris)98 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

APPENDIX 1 – EL SALVADOR’S STAKEHOLDER MAPMarketplace Workplace Community Environment6. Media —YSKL —TCS—TV 12—YSUCA—TELECOM—La Prensa Grafica—El diario de Hoy7. NGOs —CDC Centro deDefensa delConsumidor—FundaciónEmpresarial para laAcción Social(FUNDEMAS)8. Academia —UniversidadCentroamericanaJosé Simeón Cañas(UCA)—Universidad DonBosco (UDB)—Amnesty Int.l—FundaciónEmpresarial para laAcción Social(FUNDEMAS)—Save the Children—CARE El Salvador—FundaciónEmpresarial para laAcción Social(FUNDEMAS)—FundaciónSalvadoreña deApoyo Integral(FUSAI)—FundaciónEmpresarial para elDesarrolloEducativo (FEPADE)—FundaciónSalvadoreña deDesarrollo Social(FUSADES)—Save the Children—UniversidadCentroamericanaJosé Simeón Cañas(UCA)—Universidad DonBosco (UDB)—Universidad Dr.José MatíasDelgado (UJMD)—UniversitadFrancisco Gavidia(UFG)—UniversidadTecnológica (UTEC)—CARE El Salvador—FundaciónEmpresarial para laAcción Social(FUNDEMAS)—FundaciónSalvadoreña deApoyo Integral(FUSAI)—SalvaNATURA—Centro Salvadoreñode TecnologíaApropiada (CESTA)—UniversidadCentroamericanaJosé Simeón Cañas(UCA)—Universidad DonBosco (UDB)El Salvador 99

100 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

Chapter 6: Mexico1 Executive SummaryIn Mexico, to foster CSR among SMEs, the mostimportant efforts should be made in the workplaceand marketplace areas. Some exporting SMEsalready recognize CSR as an important factor fortheir competitiveness in the market. Therefore, itcan be expected that more SMEs will come to thesame realization as labor conditions, employeeeducation and respect for labor rights becomenecessary prerequisites for partnerships with largecompanies and to become part of supply chains.In Mexico, Multilateral Development Institutions(MDIs) and business associations are the biggestplayers in fostering CSR. MDIs cannot interfere withlaws and regulations, since only Mexican publicauthorities may apply mandatory policies. However,given the shortcomings of existing rules andregulations and the lag in the adoption ofinternationally accepted norms, MDIs have animportant role to play in fostering CSR in Mexico.MDIs could lead efforts to start a CSR informationdesk in local Chambers of Commerce or similarbusiness associations, to overcome the lack ofawareness about CSR management tools, theirimplementation and potential results. MDIs shouldprovide incentives for Mexican SMEs to engage withthe CSR agenda by developing a policy environmentthat will facilitate private sector initiatives andsupport voluntary efforts towards responsiblebehaviors. MDIs should disseminate best practicesand promote pilot projects to develop responsiblemanagement tools.This analysis does not promote any mandating rolesfor Mexican public authorities. In fact, given the lowlevel of formalization, compliance andtransparency, as well as the low level of trust inpoliticians and administrators, fostering CSRthrough norms and regulations is perceived asineffective. Public authorities can foster CSR amongSMEs by helping to define a code of conduct andethical behavior, improving monitoring systems andenvironmental assessment procedures, andfacilitating the implementation of gender and childlabor policies. Public authorities may encouragetransparency by addressing issues such ascompliance, fair trade, employment relations,taxation, bribery and contractual conditions.Mexican public authorities may participate in twoinnovative actions, which are credit access throughprivate guarantees and promotion of reportingstandards such as the Global Reporting Initiativeand international guidelines and principles such asthe Global Compact and the International LaborOrganization. Mexican public authorities may alsosimplify administrative and bureaucraticprocedures to encourage compliance.In the past five years, NGOs have been the mostactive participants of civil society on CSR issues.Currently academic involvement is weak, and thestakeholders interviewed suggested universities andresearch institutes to take a more supportive andproactive role in fostering CSR. Mexican civilsociety has leading roles in activities such asencouraging stakeholder engagement, facilitatingNGO awareness campaigns and editing CSRpublications. Civil society may take a leading role inthe definition of guidelines for a code of conductand ethical behavior and may support other actionssuch as compliance efforts, the improvement ofenvironmental assessments and the launch of acenter for environmental technology transfer.Business associations play a prominent role incapacity building through pilot projects, trainingprograms and promoting management tools toSMEs. Pilot projects may be aimed at fosteringcompliance in the marketplace, training activities inthe workplace, promoting counseling on gender andchild labor policies and enhancing the applicationof environmental management systems.Mexico 101

2 Social and EconomicFrameworkThe Institutional Revolutionary Party (PartidoRevolucionario Institucional - PRI), after itsfoundation in 1929, monopolized all the politicalbranches. The PRI did not lose a senate seat until1988 or a gubernatorial race until 1989. It was notuntil July 2, 2000, that Vicente Fox of theopposition "Alliance for Change" coalition, headedby the National Action Party (Partido AccionNacional - PAN), was elected president (Riding,1984/2000; Preston and Dillon, 2004). Although PRIregimes achieved economic growth and relativeprosperity in the 1970s, the economy collapsedseveral times and political unrest grew in the latesixties, culminating in the Tlatelolco massacre in1968. Economic crises affected the country in 1976and 1982, after which the banks were nationalized,having been blamed for the economic problems. 87For much of the 1950s-1970s, Mexico practiced animport-substitution industrialization policy in orderto reduce dependence on foreign imports oftechnology and other goods and services and tocreate an indigenous industrialized state. In the1980s two important changes occurred. First, amajor shift to expand the role of the private sectorbegan and, second, foreign investment and tradedeclined after the State's expropriation of foreign oilassets in 1983. Currently the state still plays animportant role, particularly in sensitive economicsectors such as oil production.Exports from Mexico increased from US$26.8billion in 1990 to US$164.9 billion by the end of2003; much of this increase is related to the signingof the North American Free Trade Agreement(NAFTA) 88 on January 1, 1994. Although, Mexicohas 12 other free trade agreements with over 40countries including, Guatemala, Honduras, ElSalvador, the European Free Trade Area and Japan,almost 90 percent of its exports go to the UnitedStates. According to the U.S. CIA Fact book for 2006,Mexico has a free market economy that recentlyentered the trillion-dollar class. It contains a mixtureof modern and outmoded industry and agriculture,and it is increasingly dominated by the private sector.Per capita income is one-fourth that of the U.S. andincome distribution remains highly unequal.In addition, Mexico undertook a significantprivatization program and the number of Stateownedenterprises decreased from 1,155 in 1982 to219 by the end of 1994 (Rogozinski, 1998). Asurvey conducted by the Centre of EconomicResearch on Private Sector (Centro de EstudiosEconómicos del Sector Privado - CEESP) revealedthat 75 percent of enterprises interviewed declaredthat the informal economy damages their activities,above all the smuggling of goods. 89 According to theMexican Secretary of Economy, 99.7 percent ofenterprises in the country are SMEs and theyemploy 72 percent of the working population(Vives, Corral and Isusi, 2005). Mexico’sunemployment is only 3.9 percent of the total laborforce and the informal economy is quite high at30.1 percent of GNP (Shneider, 2002).The following chart shows competitivenessindicators supplied by the World Economic Forum(WEF). All data is from 2005 and the chart is sortedby indicator ranking. As can be seen in the chartbelow, the unreliability of police services, highbusiness costs of crime and violence, and the smallnumber of private sector employment of women arethe main obstacles to Mexico’s competitiveness. Onthe other hand, Mexico’s small number ofprocedures to start a business, the financial marketsophistication and the research collaboration hashelped enhance the country’s competitiveness.87 On both occasions the Mexican peso was devalued, and until 2000, it had been normal to expect a big devaluation and a recessionaryperiod after each presidential term ended every six years. The crisis that came after a devaluation of the peso in late 1994 threw Mexicointo economic turmoil, triggering the worst recession in over half a century.88 See www.inegi.gob.mx.89 According to Bosch and Maloney (2006) informal and regulated workforces coexist in the Mexican labor market because they havedifferent labor cycles and in downturns the informal sector is able to absorb more of the labor force.102 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

OrganizationWEFWEFWEFIndexNumber of Countriesin the IndexMexico’s RankingNumber of proceduresrequired to start a business 117 27Financial marketsophistication 117 40Research collaborationbetween industry anduniversities 117 50WEF Growth Competitiveness 117 55WEF Ethical behavior of firms 117 56Quality of scientific researchWEFinstitutions 117 57WEF Technological readiness 117 5859 (6 out of 21WEF Global competitiveness 117in Latin America)WEF Judicial independence 117 60WEFCompany spending onresearch and development 117 63WEFFavoritism in decisions ofgovernment officials 117 71WEFExtent and effectof taxation 117 80WEFTime required tostart a business 117 81WEF Public trust of politicians 117 86Quality of hiringWEFand firing practices 117 97WEF Reliability of police services 117 102WEFBusiness costs ofcrime and violence 117 115WEFPrivate sectoremployment of women 117 108Corruption is considered one of the main problemsfor SMEs’ competitiveness. In fact, according to LuisSilva, officer of the Unit for Transparency of theMinistry of Public Administration (Unidad deVinculación para la Transparencia de laSecretaría de la Función Pública - SFP), 23 percentof Mexican SMEs have to close because ofcorruption and fraud (2006). A survey on businessMexico103

development and governance conducted by CEESPin 2005 shows that 20 percent of enterprises paybribes and 34 percent of them use approximately 6percent of their resources for this purpose. On theother hand, from 2002 to 2005 these illegalpractices decreased from 40 percent to 20 percent.Fifty-seven percent of enterprises interviewedjustify bribery by declaring bureaucracy tooburdensome as well as dishonesty of public officers.To prevent and reduce this problem, the IntersectoralCommission for Transparency and FightAgainst Corruption activated about 240 projects inthe same number of institutions (CEESP, 2005). In2001 Transparencia Mexicana created the NationalCorruption and Good Governance Index (ÍndiceNacional de Corrupción y Buen Gobierno - INCBG),which grades the corruption of public institutions.The closure of Mexico’s education gap incomparison with the rest of the world was hastenedin part by the country’s economic stagnation.Mexico’s real GDP per capita in the mid-1990s wasroughly the same as it had been in the first half ofthe 1980s. Nevertheless, this should not detractfrom the remarkable increase in schooling thatoccurred during the 1980s. While the average levelof schooling in Mexico increased by roughly a yearper decade during 1960–79 (from 2.76 to 4.77years), it increased by two years during the 1980s.This acceleration was the result of concerted effortsto increase the coverage of basic education,combined with advances made in the reduction ofprimary school repetition and dropout rates (López-Acevedo, 2006). Educational shortcomings mainlyaffect rural indigenous children, who often cannotattend school and do not have enough teachers intheir communities (Human Resource Watch, 2005).Lastly, Mexico has a poor record regarding respectof human rights. As demonstrated in the chartbelow, Mexico ranked very poorly for the humanrights risk as well as for health and safety.OrganizationUNDP 90UNICEFUNESCO andUNDPIndexNumber ofCountries inthe IndexMexico is characterized by great social inequalities.In order to address social inequalities effectively,experts claim that access to education must beincreased 91 and the skills of the labor market mustbe improved. Mexico must address these economicand social issues to prevent them from exploding.3 Current State of CSRMexico’sRankingHumanDevelopment 177 53Child RightsRisk 192 74EducationAttainment 166 77ILO/UNICEF Child Labor 191 125WEFQualityof theeducationalsystem 117 79ILO/WorldBankHuman RightWatch,AmnestyInternationalHealth andSafety Index 187 171IntrinsicCountryHuman RightRisk 194 183The concept of CSR is a relatively new concept inMexico. The private sector has traditionallyassumed a focus much more akin to that one foundin the United States, with a narrow focus on thebottom-line. Recent research on CSR in LatinAmerican SMEs edited by the IDB (Vives, Corraland Isusi, 2005) based on more than 250 interviewswith Mexican SMEs presents valuable results. First,90 Dates available on www.maplecroft.com91 A proposed recommendation is to create a clearinghouse for best practices (maybe launched by universities).104 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

there is a general confusion about CSR. Specifically,there is no knowledge about CSR among MexicanSMEs, which often confuse the concept withphilanthropy and/ or ethics. This deficiency iscaused mainly by the lack of cooperation betweenpublic and private institutions that foster CSR. Themain efforts come from private and third partysectors, while they are only beginning to develop inthe public sector. Another obstacle is the lack ofintegration of CSR activities among large companiesand SMEs. Institutions prefer to work with largeenterprises because they have resources toimplement CSR activities, as opposed to SMEs,which can barely face the heavy tax burden.A survey conducted by the SMEs Observatory (CIPI,2002) of approximately 1,000 Mexican SMEsprovides a profile of a typical Mexican SME:• SME managers are between 40 and 59 years oldand a major portion of them have a high level ofeducation.• SMEs are primarily family oriented.• Ninety percent of SMEs are not certified againstinternational standards.• A major portion of SMEs does not know about theFederal government or municipal programs forSME support – only 1.8 percent of them know ofthese programs and use them.Since the year 2000, the Mexican Center forPhilanthropy (Centro Mexicano para la Filantropía- CEMEFI) has organized –in partnership with otherorganizations i.e. business magazine Expansion andSocial Union of Mexico’s Entrepreneurs (UniónSocial de Emprendedores Mexicanos)- a contest toacknowledge CSR best practices in the areas ofquality of life in the workplace, environment,community development and business behavior.Such practices must have been appliedcontinuously and must have assessment andmonitoring mechanisms. 92An important example of private-public cooperation,according to Agüero (2002) is provided by theChihuahuan Enterprise Foundation (Fundación delEmpresariado Chihuahuanense -FECHAC).Business owners established it with support from theMexican Government and the State Congress inorder to create a vehicle for CSR. According toFECHAC, the activities are conducted throughdonations or directly by enterprises; the priorityareas for these activities are education (52 percent),health and well being (42 percent), productivedevelopment (4 percent) and CSR (2 percent).According to a survey conducted by the CSRMonitor in Mexico, 42 percent of the peopleinterviewed think that CSR means to assure safeand reliable products, 67 percent think that CSRmeans to not damage the environment, and 57percent think CSR means to treat workers properly.Only 12 percent of the people interviewed considerit necessary to introduce laws to ensure thatenterprises go beyond their economic role, but onthe other hand, only 32 percent think thatenterprises commit themselves to building a bettersociety for all (Anselmi, 2005).In Mexico, there are several awards that encourageenterprises to implement CSR, such as the CEMEFIPrize for Socially Responsible Enterprises (PremioEmpresa Socialmente Responsable), the Ethics andValues in the Industry Prize (Premio Ética y Valoresen la Industria) awarded by the Confederation ofMexican Chambers of Industry (Confederacion deCamaras Industriales de los Estados UnidosMexicanos - CONCAMIN), and Aliarse’s Prize forthe Best Socially Responsible Practices (AliarsePremio de Mejores Prácticas de ResponsabilidadSocial). Also, the Pollution Prevention Fund (Fondopara proyectos de prevención de la contaminación- FIPREV) is a fund created by the MexicanFoundation for Innovation and Technology Transferin SMEs (Fundación Mexicana para la Innovacióny Transferencia de Tecnología en la Pequeña y92 www.cemefi.orgMexico 105

Mediana Empresa) and the Comission forEnvironemental Cooperation in North America(Comisión para la Cooperación Ambiental deNorte América) to finance SME projects forenvironmental protection (Sosa-Reyes, 2000). 93In Mexico, adhesion to the Global Compact isparticularly important. This program is a network ofenterprises from all over the world, and promotesten principles of corporate responsibility, dividedinto four areas: human rights, workers conditions,environment and anti-corruption. From 2005 to2006, about 420 enterprises in Mexico joined theGlobal Compact; from which 282 were SMEs. 94In 2004, the Mexican chapter of TransparencyInternational (Transparencia Mexicana) made theMexican Business Reputation Index, whichquantifies enterprises’ reputation from differentsectors and can be used by enterprises to improvetheir own reputation. The Index focuses on thepreoccupation for shareholders, compliance withlaws, attention to suppliers and customers, respectfor the environment, workers’ rights, relationshipwith the community and competition, as well asengagement in the country’s development. The firstimplementation effort was conducted duringNovember and December 2003 and involved 108enterprises form 12 different sectors. 95During the III Inter-American Conference on CSR -organized by the IDB and held in September 2004in Mexico- Carlos Muñoz along with his colleaguesMarisol Rivera and Vicente Ruiz of the NationalEcology Institute (Instituto Nacional de Ecología),presented a program on classification of firms usinga self-evaluation tool and the possession of threecertifications: Certificate of Clean Industry,Certificate of Environmental Compliance andCertificate of Environmental Excellence. Between1992 and 2004, the use of this categorization hasincreased rapidly, as some 3,250 firms haveobtained one of these three certifications. The studyindicates firms’ fondness for the program because ofthe advantages they obtain, such as the access toforeign investments, enhanced reputation and thepositive effect on their value chain. The NationalEcology Institute emphasized that voluntary auditsare more common in large (34 percent) andmedium-size enterprises (44 percent); the mainreasons for taking part in this type of voluntaryaudit are savings in consumption of energy, water,and other resources, as well as the firm’spreparedness for new regulations and the interestsof customers (Peinado-Vara and Vives, 2004).Finally, the Mexican case shows limited progress inCSR practices. Some hypotheses made by CardozoBrum (2003) that may explain the slow expansionof CSR in the country include:• Slow development of the business sector becauseof strong government protection.• Company’s belief that PR benefits and socialprestige are the only economic contribution of CSR.• Absence of deeply rooted links with the nation’ssocial fabric in the business class.• Limitations resulting from the small and mediumsize of most Mexican companies.• Incentives for executive promotion in bigcompanies are not conducive for CSR.The following figure illustrates an estimatedpositioning of each one of the CSR areas –marketplace, workplace, community andenvironment. The graph shows the significance ofCSR for SMEs (vertical axis) and the CSR actionsimplemented by SMEs (horizontal axis) in Mexico.This positioning is an approximation, developed bythe authors, and it is based solely on theinformation utilized for the writing of this report(interviews, panel discussions and literature review).93 It provided loans to approximately 40 SMEs. These companies have reduced the environmental impact of their operations and haveimproved their environmental performance.94 www.pactomundialmexico.org.mx95 Enterprises with the better Business Reputation Index were Industrial Group Bimbo (0.90), Instituto Tecnológico y de Estudios Superioresde Monterrey (0.88), Cemex (0.86), Nestlé (0.85) and Iberoamerican University (0.84) according to Transparencia Mexicana (2004).106 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

CSR area significancemaxCSR actual positioning in MexicoMPE Cand may lead to an increase in exports if the supplychain is international.Even if the value chain presence is quite goodin Mexico ranking 50 out of 117 (WEF, 2005),many research institutes and experts emphasizethe necessity to establish effective partnershipbetween large companies and SMEs aimedat increasing the export quotas. This impliesthe necessity of increasing transparency inorder to gain trust and develop effectivepartnerships between public and privatecompanies and, where possible, NGOs tomove towards sustainability.minWPminMPWPCECSR actions implementationSMEs country positionin the Marketplace areaSMEs country positionin the Workplace areaSMEs country positionin the Community areaSMEs country positionin the Environment areamaxCOMPITE is a nonprofit association for theimprovement of SMEs’ production and qualitystandards. It organizes courses on theimplementation of ISO9000 as well as on CSR.In 2002, an initial program was implementedin 50 enterprises, and the next year it wasimplemented in 500. Since 2004, COMPITEhas given 7,339 courses, which were addressedto micro enterprises (68 percent), as well asto small (20.7 percent), medium (8.3 percent)and large enterprises (2.5 percent) 96 . In Mexicothere are 2,890 companies certified against theISO9001 standard (ISO Survey, 2005), whichis very low in comparison with other LatinAmericans countries such as Brazil with 8,533firms and Colombia with 4,926 firms (ISO, 2005).3.1 MarketplaceIn Mexico, the marketplace area is perceived ashighly valuable by SMEs. They consider thatmarketplace issues, such as customer relationships,supply chain management, quality and compliancemay affect their competitiveness in the mid- andlong-term. In particular, CSR issues affect SMEs’competitiveness when SMEs are part of a supplychain, which fosters better management capacitiesCEMEFI also created a brand/label titled SocialResponsible Value Chain, which is attributed tothose enterprises who succeed in the applicationof CSR management systems: at least 10 SMEshave to participate, playing all the roles in thesupply chain (suppliers, distributors, andcustomers) and they must be willing to obtainthe ESR mark 97 in no more than two years.The ESR mark is awarded to those SMEs wholead CSR activities in areas such as theimprovement of quality of life, protection of the96 www.compite.org.mx97 Socially Responsible Company Recognition (Distintivo Empresa Socialmente ResponsableMexico107

environment and ties with the community. Since2006, CEMEFI has awarded the ESR mark to 125enterprises. Moreover, CEMEFI organizes an eventto recognize the best CSR activities every year 98 .Business elite Carlos Slim Helú, recognizing thepotential social unrest, led the Chapultepec Accord(National Agreement for Unity, the State of Law,Development, Investment and Employment) tounite all sectors of society, including public, private,and civil sectors, to define the current challengesand a strategic response. The accord was signed onSeptember 29, 2005 when a group of leadingMexican entrepreneurs convened with Slim inChapultepec Castle to discuss the needs of thecountry's business community and the ways inwhich those needs coincided with the needs of thenation. The result was a brief document calling for:a private-public partnership in support of the rule oflaw, public security, greater private investment,accelerated economic growth, greater employment,and the development of the country's physical aswell as social capital, including health, educationand housing. The pact was at once a statement thatprofitable private investment must be the drivingforce of economic growth and a recognition thatsuch growth has to be embedded in a legitimatesocial order, one thought of as “just,” in which asignificant percentage of the population has theirbasic needs satisfied. This accord has receivedbroad-based support and is a significant example ofthe growing role of the private sector in addressingsocial inequities.3.2 WorkplaceIn Mexico, the workplace area is not perceived asvaluable by SMEs. They think that workplaceissues, such as health and safety norms,employment policies, equal opportunities andcompliance may affect the overall Mexicansustainable development, but not the profitability ofSMEs. However, in the research on CSR in LatinAmerican SMEs (Vives, Corral and Isusi, 2005) andaccording to the panel, Mexican SMEs show stronginterest on the workplace area, where they developmost of their CSR activities and have positive,strong relationships. 99Panelists and experts claim that labor regulationsexists but are not often implemented, because SMEsare driven by short-term profits. Therefore, CSRworkplace actions can be determined by a focus onsustainability and workplace equity rather than bytheir capacity to enhance SME development.However, since globalization requirescompetitiveness, and this requires productivity incontinual progress, Cardoso Brum (2003)demonstrates that even in the Mexican case it is notpossible to obtain the latter without the workers’loyalty to the enterprise, something that isaccomplished when they are able to fulfill theirwelfare needs. The social situation is, thus, aconsequence of economic development and, at thesame time, a requirement for it. This appears to beunderstood at the macroeconomic level, but hasgained little ground at the business level, whichconstitutes its basic unit.3.3 CommunityMexican SMEs perceive the community area of CSRas valuable. SMEs perceive that community issues,such as participation and public-private partnershipare well spread and may affect the Mexicaneconomic growth, including efforts to gain andassure equity in the mid- to long-term.Surveys and reports that have examined theinteraction between SMEs and local communitiesstress the importance of the strong ties that are partof the Mexican culture and history and of itstradition of community help and solidarity. A keytheme of Logsdon, Thomas, Van Buren (2006) isthat, because Mexican culture expects business towork towards the achievement of public purposes98 www.cemefi.org99 Namely, cooperation in labor-employer relations (WEF rank 53 out of 117) is progressing positively.108 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

and because of institutional voids that exist atvarious levels of government, CSR in Mexico tendsto focus on meeting employee and direct communityneeds and facilitating economic development. Inaddition, particular types of philanthropy exist asalternatives to government-provided services. Inshort, CSR expectations faced by businesses inMexico are formed through direct interactions withparticular stakeholder groups, rather than beingmediated by the government or civil-society sectors.3.4 EnvironmentIn Mexico, SMEs perceive the environment area asvaluable for their operations. They considerenvironment issues, such as environmentalmanagement, compliance, monitoring and climatechange as factors that may affect Mexican sustainablegrowth and development in the mid and long term.Environmental issues are reinforced by regulatorysystems defined by national laws and internationalagreements, as well as diverse civil societypressures and business opportunities. In Mexico,the major driver for environmental protection is theGeneral Law of Ecological Balance andEnvironmental Protection adopted in 1998, whichdefines the criteria of decentralization for the activeinvolvement of the three levels of government(federal, state and municipal) on environmentalmatters (Díaz, Quezada and de Waard, 1995).Mexico shows a very good position by hosting a highnumber of international projects for emissionreduction. Mexico was the first country ratified inthe Kyoto Protocol among Non Annex 1 countriesand it already hosts 21 CDM registered projects(UNFCCC, 2006). Recently, the Secretary ofEnvironmental Affairs (Secretaria de MedioAmbiente) launched a proactive monitoringcampaign on greenhouse gases (GHG) generated byindustrial Mexican companies 100 (Semarnat, 2006).In the Renewable Energy Index, Mexico ranks 37out of 109 (World Health Organization and WorldResources Institute, 2005). Additionally, there are422 IS0 14001 certificated enterprises (ISO, 2005)in the country.CSR in Mexico is currently growing within themedium and large size firms, which have becomeincreasingly interested in the business case for CSRrather than in philanthropic approaches. There is agrowing level of environmental concern withinMexico, as Mexico City is highly contaminated.Additionally, erosion in the south of Mexico is alarge concern, as is water and the contaminationof watersheds.4 Recommended ActionsThe main actors able to strengthen CSR in Mexicohave been classified in the following four categories:a) Multilateral Development Institutions (MDIs), b)national governments and local authorities, c)business associations, and d) civil society. Thesefour categories of actors may act via all or some thefollowing strategies, as defined in the IntroductoryChapter, which are: Mandating, Ensuringtransparency, Facilitating, Improving Promotionand Advocacy, Partnering, and Endorsing. Theproposed actions are by no means exhaustive andonly illustrate the types of involvement, which canbe easily modified to meet local needs.Most of the actions proposed are applicable to thebest-developed parts of the country, while all theawareness, education and information activitiescould be implemented in the rural areas.Logsdon, Thomas, and Van Buren (2006) proposethat the standard for assessing CSR should be basedin large part on consistency with local stakeholderexpectations and political culture, and thisapproach is consistent with the recommendedactions that follow.100 15 enterprises participated to the voluntary inventory. The result of the research is that they are generating around 90 million of tons ofGHG.Mexico 109

4.1 Multilateral Development InstitutionsThis analysis shows that MDIs in Mexico have astrong role in facilitating as well as in promotion andadvocacy policies. MDIs cannot interfere on laws andregulations, since only Mexican public authoritiesmay apply mandatory policies. However, given theshortcomings of existing regulations and the lag inthe adoption of internationally accepted norms, MDIshave an important role to play in fostering CSRpractices in Mexican SMEs (Vives, 2004).a. Facilitating, recommended actions for MDIsinclude:– Develop a conducive policy environment,which may facilitate private sector initiativesand support voluntary efforts towardsresponsible behaviors.– Conduct a risk analysis to identify the directand indirect costs of non-compliance in themarketplace and the workplace based on casestudies. Subsequently draft a complianceprogram specifying timing, resources andexpected results.– Pilot a project on the implementation ofquality management systems in the supplychain using a chosen territory or sector.Provide assistance to participants according tothe specific role they play in the supply chain.– Promote, finance and disseminate results oftraining activities on environmentalmanagement systems application. Start apilot project for a chosen sector onenvironmental management systemsaccording to ISO 14001 at the district level.– Fund health and safety training programstargeted to both managers and employees inthe workplace.– Start an engagement awareness campaignaimed at developing the capacities of NGOs inthe delivery of business educational serviceswith at least five local NGOs and five localSMEs.– Provide suggestions for the development of acode of conduct and ethical business behavior.– Fund incentive programs for excellent SMEs,in which SME owners and employees receiveeducation and training as a reward for theirethical behavior in conducting business.b. Improving Promotion and Advocacy,recommended actions for MDIs include:– Disseminate best practices on CSR, bymaking the business case for CSR in alanguage that SMEs can understand.– Start a pilot project to enhance the capacityof SMEs to profit from the Kyoto ProtocolCDM by encouraging Carbon Pooling amongSME sellers.c. Partnering, recommended actions for MDIsinclude:– Launch a women’s association that couldeducate SMEs on gender polices, disseminatebest practices and provide scholarships foryoung women in the field of businessadministration and/or CSR.– Women should be supported at work throughexperience sharing and workshops withwomen who are leading managers, politiciansor entrepreneurs.4.2 Government and Local AuthoritiesThis analysis does not promote any mandating rolesfor Mexican public authorities. In fact, given the lowlevel of formalization, compliance and transparency,and the even lower level of trust in politicians andadministrators, fostering CSR through norms andregulations is perceived as ineffective.a. Facilitating, recommended actions forgovernment and local authorities include:– Write guidelines for a code of conduct andethical behavior in business.110 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

– Improve monitoring systems andenvironmental assessment in SMEs throughthe development of the Life Cycle Assessmentapproach in a specific sector (through thesupply chain).– Fund incentives for excellent SMEs, in whichSME owners and employees receive educationand training as a reward for their ethicalbehavior in business.– Facilitate gender and child labor rightscounseling through the competent andefficient efforts of INMUJERES 101 , and organizeworkshops with women who are leadingmanagers, politicians or entrepreneurs.b. Ensuring Transparency, recommended actionsfor government and local authorities include:– Strengthen private firms’ responsiblebehaviors by addressing issues such ascompliance, fair trade, employment relations,taxation, bribery and contractual conditions.– Help SMEs access credit through private valuechain guarantees.– Promote awareness on accountability andreporting standards such as the GlobalReporting Initiative, as well as otherinternational guidelines and principles such asthe Global Compact and the InternationalLabor Organization.c. Improving Promotion and Advocacy,recommended actions for government andlocal authorities include:– Promote business registration and compliancethrough simplification of administrative andbureaucratic procedures.– Facilitate stakeholder engagement oneducation and training programs.d. Endorsing, recommended actions forgovernment and local authorities include:– Recognize the efforts of specific enterprisesthrough award or labeling schemes.– Participate in specific CSR activities with thegovernment endorsing the outcomes.– Lead the launch of a study about the MexicanCSR identity aimed at understanding how todevelop more responsible behaviors amongSMEs.4.3 Business AssociationsThroughout history the Mexican State has beensimultaneously strong and weak, leading in some casesto an illegitimate state – particularly with regards togovernment regulation of business. Although a vocalanti-corruption movement has long existed, corruptionstill permeates Mexican life. Consequently, businessleaders have assumed an increased responsibility to fillprominent social roles, such as providing for economicand social development.Business associations include trade associations,territorial associations, chambers of commerce andSME associations. Their role is prominent incapacity building through piloting projects, raisingawareness, developing new tools and promoting CSRto SMEs.a. Improving Promotion and Advocacy,recommended actions for businessassociations include:– Support client participation projects, in whichthe client has input in the decision makingprocess of the manufacturing of goods and/ orservice delivery.– Fund health and safety training programstargeted to both managers and employees inthe workplace.– Conduct a risk analysis to identify the directand indirect costs of non-compliance in themarketplace and the workplace based on casestudies. Then based on the results, form apilot group of SMEs to draft a complianceprogram specifying timing, resources andexpected results.101 Mexican Institute of Women (Instituto Nacional de las Mujeres) www.inmujeres.gob.mxMexico111

– Facilitate gender and child labor rightscounseling actions through the competent andefficient efforts of INMUJERES, and organizeworkshops with women who are leadingmanagers, politicians or entrepreneurs.– Promote efforts to start a CSR informationdesk in local Chambers of Commerce orsimilar business associations, to overcomethe lack of awareness, information andknowledge about CSR tools, theirimplementation and possible results.b. Partnering, recommended actions forbusiness associations include:– Conduct a risk analysis to identify the directand indirect costs of non-compliance in themarketplace and the workplace based on casestudies.– Promote, finance and disseminate results oftraining activities on environmentalmanagement systems application. Start apilot project for a chosen sector onenvironmental management systemsaccording to ISO 14001 at the district level.– Support a women’s association that couldeducate SMEs on gender polices, disseminatebest practices and provide scholarships foryoung women in the field of businessadministration and/or CSR.c. Facilitating, recommended actions forbusiness associations include:– Fund incentives for excellent SMEs, in whichSME owners and employees receive educationand training as a reward for their ethicalbehavior.– Lead the improvement of monitoring systemsand environmental assessments in SMEsthrough the development of the Life CycleAssessment approach in a specific sector(through the supply chain).– Lead the process of writing guidelines for acode of conduct and ethical behavior.d. Endorsing, recommended actions for businessassociations include:– Pilot a project on the implementation ofquality management systems in the supplychain using a chosen territory or sector.Provide assistance to participants accordingto the specific role they play in the supplychain.– Develop a help desk for environmentaltechnology transfer to help SMEs find theproper technology for their business andlearn the proper application.4.4 Civil SocietyCivil society, for the purpose of this study, includesacademia, media, NGOs, and the people interested,involved, or affected by SMEs’ activities. In the pastfive years, NGOs have been the most activeparticipants of civil society in Mexico and havedriven most of the CSR projects. The participationof academia is scarce, and some of the stakeholdersinterviewed asked for a more intense, supportive,and proactive role on CSR by universities andresearch institutes. One important issue is the rolethat advisors, researchers and consultants have infostering CSR among SMEs. Unfortunately the costof consultancy and advice are perceived as too highfor small companies.a. Improving Promotion and Advocacy,recommended actions for civil society include:– Fund training targeted to both managers andemployees in the workplace, emphasizinghealth and safety issues.– Facilitate stakeholder engagement ineducation and training programs such as CSRbenchmarking.– Start an engagement awareness campaignaimed at developing NGO capacities in thedelivery of business educational services withat least five local NGOs and five local SMEs.112 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

– Participate in the publication of CSRmaterials to disseminate the CSR culture andgood practices in Latin American countries,focusing on Mexico.– Support the promotion of businessregistration and compliance throughsimplification of administrative andbureaucratic procedures.– Support gender and child labor rightscounseling actions through the efforts ofINMUJERES, and organize workshops withwomen who are leading managers, politiciansor entrepreneurs.– Advance multi-stakeholder initiatives toexplore the role of CSR in Mexican culture.– Pilot projects to enhance the capacity ofSMEs to profit from the Kyoto Protocol CDMby encouraging Carbon Pooling among SMEsellers, where civil society operates as thecontent provider and as a participatingstakeholder.b. Facilitating, recommended actions for civilsociety include:– Lead the definition of guidelines for codes ofconduct and ethical behavior in business.– Fund incentives for excellent SMEs, in whichSME owners and employees receive educationand training as a reward for their ethicalbehavior in business.– Improve monitoring systems andenvironmental assessments in SMEs throughthe development of the Life Cycle Assessmentapproach in a specific sector (through thesupply chain).– Launch a center for environmentaltechnology transfer to help SMEs find theproper technology for their business andlearn the proper application.c. Endorsing, recommended actions for civilsociety include:– Create an award for environmentaltechnology innovation to enhance the imageand reputation of SMEs.d. Partnering, recommended actions for civilsociety include:– Support client participation projects, inwhich the client has input in the decisionmaking process of the manufacturing of goodsand/ or service delivery.– Promote, finance and disseminate results oftraining activities on environmentalmanagement systems application. Start apilot project for a chosen sector onenvironmental management systemsaccording to ISO 14001 at the district level.– Promote workplace compliance, such ashealth and safety training programs targetedto both managers and employees in theirworkplace.– Support a women’s association that couldeducate SMEs on gender polices, disseminatebest practices and provide scholarships foryoung women in the field of businessadministration and/or CSR.– Support women at work through experiencesharing and workshops with women who areleading managers, politicians or entrepreneurs.Mexico 113

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Websites consultedwww.accountability.orgwww.anahuac.mxwww.bancomundial.org.mxwww.cemefi.org.mxwww.compite.org.mxwww.earthtrends.wri.orgwww.eldis.orgwww.fechac.org.mxwww.ganarganar.com.mxwww.IDB.orgwww.ifc.orgwww.ilo.orgwww.imnc.org.mxwww.iso.orgwww.it.wikipedia.orgwww.maplecroft.comwww.pactomundialmexico.org.mxwww.redpuentes.orgwww.revistacontacto.com.mxwww.sa-intl.orgwww.siem.gob.mxwww.usem.org.mxwww.transparency.orgwww.unfccc.intwww.weforum.orgwww.wri.orgwww.worldbank.org116 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

AppendixThe following stakeholder map has been used to verify that all eight defined stakeholder categories and allfour CRS areas are represented. Stakeholders that were chosen for interviews or as panel participantseither had relevant expertise in the issue or may influence awareness, interests and implementationinstruments relevant to the issue.APPENDIX 1 – MEXICAN STAKEHOLDER MAP1. Internationalorganizations2. Governmentalorganizations andinstitutionsMarketplace Workplace Community Environment—Inter-American—United NationsConference onIndustrialSocial SecurityDevelopmentUnited NationsOrganizationIndustrial(UNIDO)Development—International CivilOrganizationAviation(UNIDO)Organization—International Labor(ICAO)Organization (ILO)—Inter-AmericanDevelopment Bank(IDB)—Centre for LatinAmerican MonetaryStudies ComisiónEconómica paraAmérica Latina(CEPAL)—Organization forEconomic Cooperationanddevelopment(OECD)—Secretaría deEconomía ComisiónNacional Bancaria yde Valores (CNBV)—Instituto Mexicanode Normalización yCertificación, A. C.Nacional Financiera(NAFINSA)—Confederación deCámaras Nacionalesde Comercio,Servicios y Turismo(CONCANACO/SERVYTUR)—ConsejoCoordinadorEmpresarial (CCE)—Secretaría de laFunción PúblicaSecretaría delTrabajo y PrevisiónSocial ComisiónNacional delSistema de Ahorropara el Retiro(CONSAR)—Instituto Federal deAceso a laInformación(INFONAVIT)—Instituto Nacionalde las Mujeres(INMUJERES)—ProcuraduríaFederal de laDefensa del Trabajo—Secretaría deDesarrollo Social(SEDESOL)—World Bank PanAmerica HealthOrganization (PAHO)—United NationsDevelopmentProgram (UNDP)—Comisión Económicapara América Latina(CEPAL)—United NationsEducational,Scientific, CulturalOrganization(UNESCO)—Global Compact- UN—Instituto Federal deAceso a laInformación (IFAI)—Instituto Nacionalde Desarrollo Social(INDESOL)—Secretaría deDesarrollo Social(SEDESOL)—Instituto Nacionalde las Mujeres(INMUJERES)—Secretaría de MedioAmbiente y RecursosNaturales ComisiónNacional del Agua(CNA) CONAE—Istituto Nacionalde Ecologia (INE)—Ministry for theEnvironmentMexico 117

APPENDIX 1 – MEXICAN STAKEHOLDER MAP3. Associations(national, sectoral,business)4. Financialinstitutions5. MultinationalcompaniesMarketplace Workplace Community Environment—Instituto Mexicano —AMEDIRH —Asociación —AsociaciónEjecutivos deFarmacéutica FarmacéuticaFinanzas (IMEF)Mexicana,Mexicana, A.C.—Fundación del(ANAFAM) —Fundación delEmpresariado en—Instituto Mexicano Empresariado enMéxicode Doctrina Social México(FUNDEMEX)Cristiana(FUNDEMEX) Centro—Fundación(IMDOSOC)Mexicano para laMexicana para la—Centro Mexicano FilantropíaInnovación ypara la Filantropía (CEMEFI)Transferencia de(CEMEFI)Tecnología en la—AsociacionPequeña y MedianaMexicana deEmpresa (FUNTEC)Administradoras de—ConfederacionFondos para elNacional (USEM)Retiro (AMAFORE)—Banco BX+ GrupoFinanciero—Banamex GrupoFinanciero—BBVA BancomerGrupo Financiero—HSBC GrupoFinanciero—Scotiabank Inverlat—ServiciosAdministrativosWal-Mart, S.A. deC.V.—Colgate Palmolive,S.A. de C.V.—Procter & Gamblede México, S.A. deC.V.—Coca Cola - FEMSA,S.A. de C.V.—Grupo Bimbo, S.A.de C.V.—Nestlé México, S.A.de C.V.—CementosMexicanos S.A. de—C.V. (CEMEX)Industrias Peñoles,S.A. de C.V.6. Media El EconomistaEl FinancieroEl Mercado de ValoresDiario Oficial de laFederación5. Revista Ganar-GanarEntrepreneur—Afore ProfuturoGNP—Afore XXI—Banobras—Johnson & Johnson—Medical de México,—S.A. de C.V.NovartisCorporativo, S.A.de C.V. Pfizer, S.A.de C.V.—Wyeth, S.A. de C.V.Revista Contacto deUnión EmpresarialCuestión Social—Banobras—Grupo FinancieroBanamex—Grupo FinancieroBBVA Bancomer—Agribrands Purina—México, S.A. de C.V.México DesconocidoCuestión SocialEntrepreneur118 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

APPENDIX 1 – MEXICAN STAKEHOLDER MAPMarketplace Workplace Community Environment7. NGOs Fundación Merced Fundación Pro EmpleoProductivo, A.C.TransparenciaMexicana(TransparenciaInternacional IT)Cáritas Mexicana,I.A.P.Fundación Azteca A.C.Fundación Coca – ColaFundación León Xlll,I.A.P.Fundación VamosMéxico, A.C.ASUMPMATOMAEcologia yCompromisoEmpresarial (ECOCE)Greenpeace MéxicoA.C.8. Academia International Centerfor Trade andSustainableDevelopment, (ICTSD)UniversidadPanamericana (UP)International Centerfor Trade andSustainableDevelopment, (ICTSD)UniversidadPanamericana (UP)International Centerfor Trade andSustainableDevelopment, (ICTSD)Instituto TecnológicoAutónomo de México(ITAM)Instituto Tecnológicoy de EstudiosSuperiores deMonterrey – (ITESM)Universidad AnáhuacUIAUniversidad NacionalAutónoma de México(UNAM)UniversidadPanamericana (UP)International Centerfor Trade andSustainableDevelopment, (ICTSD)Commission forEnvironmentalCooperation (CEC)Centro de CalidadAmbiental) of theInstituto Tecnológicoy de EstudiosSuperiores deMonterrey – (ITESM)Mexico 119

Chapter 7: Peru1 Executive SummaryMultilateral Development Institutions (MDIs) inPeru, together with local public authorities and civilsociety, have a strong role in fostering CSR amongSMEs. Currently SMEs in Peru show mixedbehaviors, while medium enterprises highlyimplement CSR actions regarding environment andworkplace areas, micro and small enterprises aremore involved at the community level.MDIs could lead several strategies to encouragePeruvian SMEs to engage in CSR efforts and to drivesocial and environmental improvements. One of themost important roles of MDIs is to help create apolicy environment that stimulates CSR drivers.Several actions can be promoted by MDIs, such asfinancing training programs on competitiveness andCSR, financing pilot projects on quality managementsystems and publishing results of workplace trainingactivities to SME owners and employees. MDIs couldconvene conferences, workshops and other events todiscuss best practices and exchange ideas andexperiences of the different parties involved. MDIs inPeru may have a role in promoting reportingstandards such as the Global Reporting Initiativeand international guidelines and principles such asthe Global Compact and the International LaborOrganization. MDIs should have a prominent role inbuilding partnerships between large and smallenterprises in similar sectors or regions, thusincreasing supply chain collaboration and enhancingSME managerial skills. Finally, MDIs may promoteCSR through Alternative Dispute Resolution (ADR)centers throughout the country, which are oftenused by SMEs because they are faster, cheaper andhelpful in finding compromises among parties.Given the high rate of informal employment and noncompliancein the country, mandating policies are notsuggested as the most effective policies for publicauthorities. Instead, authorities may foster CSRamong SMEs through the simplification of procedures.Public institutions should promote informationcampaigns and training activities, supervise pilotprojects and endorse programs to reach compliance.Public authorities can also facilitate, monitor andlegitimize corporate accounting, governance andtransparency standards. Even without compulsoryprograms, public authorities may strengthenresponsible behavior in firms on issues such as fairtrade, employment relations, taxation, bribery andcontractual conditions. Peruvian public authoritiesmay promote awareness of reporting standards,participate in conferences and workshops and publiclypraise the importance of SMEs’ efforts on these issues.Peruvian public authorities may promote a feasibilitystudy on financial incentives for CSR and design anawareness campaign on waste and energymanagement. Finally, public authorities may take aleading role in funding the Peruvian Carbon Facility,which may enhance clean investments and improveSMEs’ environmental responsibility.Business associations have leading roles throughcapacity building, raising awareness, engagingbusinesses in CSR related activities, fundingprojects and creating incentives. In particular, thefollowing actions can be easily achieved by Peruvianbusiness associations: supporting and financingefforts that improve compliance, training programson CSR in management and planning for SMEs,training programs on competitiveness and CSR forSME managers, supporting CSR benchmarkingtechniques and disseminating best practices amongSMEs. Business associations may also contribute tothe promotion of voluntary agreements on healthand safety procedures in industrial sectors,communication between SMEs and local publicauthorities, promotion of ADR utilization amongSMEs and dissemination of CSR publications.The role of civil society is frequently emphasized inenabling a favorable environment for CSR. In thePeruvian case, academia and NGOs are the mosteffective and active advocates of civil society. ThePeru 121

Peruvian civil society has a strong role in developingworkplace human rights campaigns andenvironmental assessment campaigns and preparingevaluation procedures such as benchmarking andalternative dispute resolution techniques. Civil societymay take a leading role in activities such as rewardingresponsible market and workplace behaviors of SMEsin certain sectors, rewarding accurate environmentalreporting, organizing CSR courses in a local businessschool as well as contributing to the development andpublishing of CSR content.2 Economic and SocialFrameworkThe main macroeconomic indicators have beencollected to understand the Peruvian scenario andits influence on SMEs. Among those, to be noticedis that 75.9 percent of workers in Peru areemployed by SMEs, which account for about 43percent of Peru’s GDP. In particular, SMEs arerelevant in the service sector, where 66 percent ofbusinesses are small. In contrast, only 14 percent ofthe activities in the industrial sector are constitutedby small businesses (Vives, Corral and Isusi, 2005).Most of the Peruvian SMEs seem to be informal anddo not follow a structured and convenient sociallyresponsible behavior. According to TransparencyInternational (2002) only 3 percent of smallbusinesses effectively comply with the law, 62percent are not compliant at all and 32 percent arecompliant only in “some cases”. Businessregistration and compliance are usually consideredprerequisites for the development of a CSR culture.However, it is possible to explain the Peruvianinformality following Villaran (1998) and De Soto(1986) who suggested two main causes. The firstone is a structural interpretation, which claims thatthe non-traditional sector is unable to absorb all ofthe labor supply in the country, which inducespeople to set up their own (informal) businesses.The second interpretation emphasizes the role ofbureaucracy in the state and in legal institutions,which raises the cost of legalization to unaffordablelevels for many small and micro entrepreneurs.A Proetica survey (2004) shows that the mostrelevant issue affecting development in Peru isunemployment (97 percent), ranked also as the mainissue to be addressed by the Government (47percent). Other relevant issues are the economicsituation (97 percent), criminality (96 percent), drugabuse (95 percent) and drug traffic (92 percent).Pollution is considered “serious” and “particularlyserious” by 86 percent of the people interviewed.Most SMEs consider these issues as major barriers tobusiness development, as they create a high level ofinsecurity and reduce foreign investment.Moreover, the level of economic development andcompetitiveness is negatively influenced by thepresence of corruption. Research conducted byTransparency International, indicates that Peruoccupies the 65th position (out of 158 countries) inthe Corruption Perception Index rank for 2005. Theproblem of corruption influences relationshipsbetween small businesses and the judicial system andis considered as one of the causes for the informalityof small business. Perhaps, as a consequence, ADRmechanisms have been put in place across Peru. ADRare methods used to resolve disputes out of court,including negotiation, conciliation, mediation and themany types of arbitration. The common denominatorof all ADR methods is that they are faster, less formal,cheaper and often less adversarial than a court trial.The wide use of ADR mechanisms in Peru is uniqueand above all is an expertise to leverage (Hendersonand Herrero, 2004).The following chart shows competitivenessindicators for Peru supplied by the WEF. All data isfrom 2005 and the chart is sorted by indicatorranking. The following indices reveal a positive statefor Peru’s competitiveness and market development.122 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

OrganizationWEFWEFWEFWEFWEFWEFWEFNumber ofCountries inIndex the IndexGlobalcompetitiveness117However, Peru does not rank high in all categories.The country faces problems to achieve economicgrowth including political instability, inefficientgovernment bureaucracy and a high level ofcorruption. The following indices show some of themain issues impeding competitiveness. All data isfrom 2005.3 Current State of CSRArgentina’sRanking68 (12 out of21 in LatinAmerica)Growthcompetitivenessindex 117 77FDI andtechnologytransfer 117 30Quality ofthe educationalsystem 117 110Degree ofcustomerorientation 110 47Breadth ofinternationalmarkets 110 53Financialmarketsophistication 110 49OrganizationWEFWEFWEFWEFWEFWEFWEFWEFWEFTransparencyInternationalWEFWEFWEFIndexNumber ofCountries inthe IndexArgentina’sRankingBusinesscompetitiveness index 117 81Informalsector 117 114Burden ofgovernmentregulations 117 114Ethicalbehaviorof forms 117 75Efficiencyof legalframework 117 107Businesscosts ofcrime andviolence 117 104Judicialindependence 117 110Public trustof politicians 117 110Access tocredit 117 60CorruptionPerception 158 65Companyspending onresearch anddevelopment 110 89Capacity forinnovation 110 79Technologicalreadiness 117 62Research on CSR in Latin American SMEs (Vives,Corral and Isusi, 2005) reports wide differences inbehaviors between micro, small and medium sizedenterprises in Peru. Medium-sized Peruvian firmshave good practices on internal CSR issues (i.e.workplace), they also monitor their emissions to theWEFUniversity/industryresearchcollaboration 117 89Peru123

environment, and they have waste treatmentprocesses in place and implement environmentalmanagement systems. On the other hand, micro andsmall enterprises show higher interest on communityissues, it is common that owners and managers arewell known and support their communities, but donot call this “social responsibility.”The Universidad del Pacífico considers that thecritical economic situation is unlikely to changesignificantly in the years to come. Hence, the degreeof CSR implementation in SMEs looks stable and notpromising. The most important weakness relates toprofitability, which of course is the main explanationfor lacking compliance. Besides the economic factors,the survey highlights the lack of CSR promotionefforts and the very little involvement of the mediawith only large companies benefiting from it.There are however other more positive views,Benavides and de Gastelumendi (2001), in a surveyabout CSR awareness of executives and businessmenin Peru, indicate a positive trend towards progress indifferent aspects of CSR. It was observed that anincreasing number of companies, 40 percent,understood that CSR is part of the managerialpractice of the company and that internal andexternal policies need to be articulated. Only 5percent of the interviewed executives consideredthat social policies and CSR activities are of nobenefit to the company. As a main reason for notparticipating in CSR, 46 percent indicated the lack ofvision of the company, i.e. the lack of decision of theexecutives rather than the lack of resources ordifficulties with the legal framework of the country.Despite this, there is still a significant gap betweenthe understanding of the concept and actual CSRpractices. The majority (60 percent) of interviewedcompanies had a clear social concern but do not yetincorporate CSR to the management of its business.marketplace, workplace, community andenvironment. The graph shows the significance ofCSR for SMEs (vertical axis) and the CSR actionsimplemented by SMEs (horizontal axis) in Peru.This positioning is an approximation, developed bythe authors, and it is based solely on the informationutilized for the writing of this report (interviews,panel discussions and literature review).CSR area significancemaxminminWPMPWPCECSR actual positioning in PeruECMPCSR actions implementationSMEs country positionin the Marketplace areaSMEs country positionin the Workplace areaSMEs country positionin the Community areaSMEs country positionin the Environment areamaxThe following figure illustrates an estimatedpositioning of each one of the CSR areas –124 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

3.1 MarketplaceThe marketplace area is perceived as highly valued bySMEs. Moreover marketplace issues, such as customerrelationship, supply chain management, quality andcompliance are seen as factors that affect SME survivaland competitiveness in the mid- to long-term.SMEs perceive criminality as a significant obstacle todoing business (Vives, Corral and Isusi, 2005) andapproximately 40 percent of SMEs classify it as amajor obstacle. Moreover, as already mentioned,many micro and small enterprises in Peru are notregistered with the government, which is due to theexcessive cost of compliance, including highadministrative and bureaucratic costs (Villaran,1998). Accordingly, CSR issues have been consideredrelevant not for their capability to influence theoverall scenario, but for their ability to improveSMEs’ capacity to reach their goals and priorities.CSR issues such as supply chain participation,market rules compliance, links with customers andquality management are perceived as factors thataffect Peruvian SMEs survival and can enhance theircompetitiveness in the local and global markets.These issues would provide SMEs with opportunitiesto better their management capabilities, learnthrough cooperative approaches within integratedsupply chains and enhance their reputation.There are 352 Peruvian companies ISO 9000certified out of a total of 17,154 in Latin America(ISO, 2005), a valuable regional figure that influencesthe trend towards quality in Peruvian companies.3.2 WorkplaceSMEs in Peru do not perceive CSR workplace issues asrelevant for their survival and competitiveness, this ismainly due to a high supply of workforce, highunemployment rates, and lack of regulation andcontrol. The general view is that workplace issues,such as health and safety norms, employment policies,equal opportunities, human rights and compliancemay affect the country’s economic growth in the midtolong-term, but not necessarily affect SMEs.Moreover, CSR actions are perceived as too costlycompared to the benefits gained, yet, health and safetyaccidents have decreased in the last years.In Peru the workplace area of CSR is affected byseveral issues, lack of employment was perceived asthe major issue by 97 percent of the peopleinterviewed (Proetica, 2004). Other issues are thelimited local availability of specialized research andtraining services (ranked 84 by WEF), extent of stafftraining (ranked 75 by WEF) and quality of theeducational system (ranked 110 by WEF). Otherinputs come from Peruvian microeconomic figures,such as hiring and firing practices (WEF rank 85)and cooperation in labor-employer relations (WEFrank 89), which convey the perception of employershaving a great deal of power when it comes togovernance, decision making and control. The localdocumental analysis emphasized the need forregulation on labor rights and work conditions.Recently, Peru ratified the International LaborOrganization (ILO) convention aimed at eradicatingchild labor. Still many SMEs are not compliant evenwith the basic policies for child labor eradication.3.3 CommunityThe community area of CSR is perceived asvaluable by Peruvian SMEs. Community issues,such as local development, consensus building andpublic-private partnership are considered as factorsthat may affect the Peruvian sustainable growth anddevelopment in the mid- and long-term. Thepanelists interviewed recognize that SMEs alreadyshow a strong interest on community issues. SMEsoften support the local community without callingthese activities social responsibility.Local community pressure does not seemprominent and does not influence SME operations.Peru 125

Not even the lack of relations and networks with thelocal community is considered relevant by SMEs.The document analysis and stakeholder interviewsemphasized the lack of public-private partnerships,and in particular the lack of SMEs and associationscreated to solve community problems.The low interest in cooperation with other entities,such as universities and civil society, is notconsidered an issue for SMEs survival orcompetitiveness, mainly because of the very lowlevel of innovation and technological interests ofPeruvian SMEs (World Economic Forum, 2006).Accordingly, WEF ranked university/industryresearch collaboration 89 out of 117.Furthermore, SMEs cannot count on efficient,timely and accessible mechanisms to resolve theirlegal and commercial disputes. The negativeperception of the judiciary’s performance implicatesthat only 15 percent of SMEs use the courts toresolve disputes. ADRs are generally preferred bySMEs, which demonstrates a higher level of trust incivil society than in government.3.4 EnvironmentPeruvian SMEs do not perceive the environmentalarea of CSR as relevant for their operations. Theythink that environmental issues, such asenvironmental management, compliance,monitoring and climate change may affect thecountry’s sustainable growth and development inthe mid- and long-term, but do not directly affectSMEs and their competitiveness. The earlier ismainly caused by the lack of environmentalregulation and awareness.CSR actions in the environment arena are mainlydriven by the ethical personal attitudes of SMEowners. Nevertheless, SME managers interviewed,claimed that medium sized Peruvian firmsimplement responsible environmental behavior,monitoring their emissions, having wastetreatments in place and implementingenvironmental management systems.Environmental damage is considered a seriousproblem, but not a priority for government action.There are only 25 companies ISO 14001 certified inPeru (UNEP, 2003) out of 1,359 in Latin America;they increased to 78 in 2004 and then reduced to 36in 2005 (ISO, 2005). Although several public bureaushave been created to protect the environment–Natural Resources Institute (Instituto Nacional deRecursos Naturales), National Council for theEnvironment (Consejo Nacional del Ambiente),Bureau of Environmental Affaires of the Ministry ofEnergy and Mines (Oficina de Asuntos Ambientalesdel Ministerio de Energía y Minas)- the Peruvianlegal framework in relation to the environmental areaof CSR is still in an early stage. NGOs seem to havestrong familiarity with the main environmentalissues and are the most advanced and educatedorganizations in relation to environmental programs,in comparison to any other Peruvian organization.It is worth highlighting that the mainstreaming of CSRin the environment area comes from internationalconventions, above all from the Kyoto Protocol, whichlists Peru among the Clean Development Mechanisms(CDM) project host countries. Adopting the KyotoProtocol measures can contribute to Best AvailableTechnology transfers, thus improving environmentalperformances, widening international networks andincreasing environmental responsibility practicesamong SMEs that want to be part of national or globalsupply chains.4 Recommended ActionsThe main actors able to strengthen CSR in Peruhave been classified in the following four categories:a) Multilateral Development Institutions (MDIs),b) national governments and local authorities,126 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

c) business associations, and d) civil society. Thesefour categories of actors may act via all or some thefollowing strategies, as defined in the IntroductoryChapter, which are: Mandating, Ensuringtransparency, Facilitating, Improving Promotionand Advocacy, Partnering, and Endorsing. Theproposed actions are by no means exhaustive andonly illustrate the types of involvement, which canbe easily modified to meet local needs.Some interesting programs for SMEs recentlylaunched were aimed at:• Promoting best business practices and qualitystandards for local products• Integrating SMEs into the production chains oflarge companies• Improving education and awareness throughtraining programs• Strengthening local organizations and productionconglomerates• Financing building renovations and technologicalimprovements• Increasing the level of SME cooperation withinstitutions, NGOs, municipalities and localcommunities. 1024.1 Multilateral Development InstitutionsMDIs have an important role to play in fosteringCSR practices in Peruvian SMEs (Vives, 2004),given the shortcomings of existing norms andregulations and the lag in the adoption ofinternationally accepted norms. This positionallows MDIs to play many roles 103 such as exercisetheir ability to engage parties, raise awareness onCSR, partner and finance pilot activities andprovide technical assistance and supervision. MDIsshould support the public authorities’ roles,encourage public-private partnerships, fosterparticipation and support transparency campaigns.Moreover, Multilateral Financial Institutions (MFI),which are part of MDIs, can also provide financialsupport for some of these activities.One of the most important roles of MDIs is throughthe development of a conducive policy environment,which may facilitate private sector initiatives andsupport voluntary efforts towards responsiblebehavior. In a policy environment that stimulatesCSR drivers, such as competitiveness, transparencyand accountability, stakeholders may express theirpreferences for responsible firms 104 and contributeto the enhancement of SMEs conditions.a. Facilitating, some recommended actions forMDIs include:– Pilot a project on the implementation ofquality management systems in the supplychain using a chosen territory or sector.Provide assistance to participants accordingto the specific role they play in the supplychain.– Finance training programs oncompetitiveness and CSR for SME managers.– Publish the results of training activities onhealth and safety to SME managers andemployees.– Distribute results of training activities onenvironmental management systems. Start apilot project for a chosen sector onenvironmental management systems.– Fund monitoring systems and environmentalassessment campaigns.b. Improving Promotion and Advocacy, somerecommended actions for MDIs include:– Cooperate with SMEs, public authorities andcivil society to disseminate CSR bestpractices, including CSR benchmarking.– Convene conferences, workshops and otherevents to raise awareness and exchange ideaswith the different parties involved.– Sponsor a human rights campaign that raisesawareness about child labor in SMEs by usingmultimedia sources that present internationaland national figures about child labor.102 A good example of this kind of programs comes from Villa El Salvador, where the industrial association, together with the Municipalityand with other Institutions, such as local NGOs, public authorities and MDI are cooperating for the improvement of products, sales andoverall productive conditions in the area.103 Promotion and advocacy, development of a conducive policy environment, financial support and promotion of compliance, reporting andaccounting (Vives, 2004).104 For example by supporting a competitive environment, MDIs are allowing consumers to have the choice and to express their preferencetowards responsible firms. MDIs can promote competition policies and institutions that can become drivers for CSR practices, becausethey can be used as a tool for product improvement, quality and differentiation. (Vives, 2004)Peru 127

– Create awareness of accountability andreporting standards such as the GlobalReporting Initiative and internationalguidelines and principles such as the GlobalCompact and the International LaborOrganization.c. Partnering, some recommended actions forMDIs include:– Build partnerships between large and smallenterprises in similar sectors or in the sameregion on CSR, with the purpose ofdeveloping SME managerial skills andpotentially involve SMEs in the supply chain.d. Endorsing, some recommended actions forMDIs include:– Finance the development and strengthening ofthe networks of Alternative DisputeResolution (ADR) centers, which have beenconsidered an innovative way to overcomedelays in the judicial system, findcompromises among parties and solve issues.4.2 Government and Local AuthoritiesThis report does not recommend a mandating rolefor the government and local authorities in order toimprove the level of CSR in SMEs. Instead, PeruvianGovernment and local authorities may have apositive role in Mandating, Ensuring Transparency,Facilitating and Endorsing. Authorities may fosterCSR among SMEs through the simplification ofprocedures. Public institutions should promoteinformation campaigns and training activities,supervise projects and endorse programs to reachcompliance. Public authorities can also facilitate,monitor and legitimize corporate accounting,governance and transparency standards. Evenwithout compulsory programs, public authoritiesmay strengthen responsible firm behaviors onissues such as fair trade, employment relations,taxation, bribery and contractual conditions.a. Mandating, some recommended actions forgovernment and local authorities include:– Define standards, establish targets, enforcecompliance and monitor activities forbusiness performance embedded within thelegal framework.– Promote business registration throughthe simplification of administrative andbureaucratic procedures and, wherepossible, reduce delays in payments foradministrative costs.– Facilitate, monitor and legitimize corporateaccounting, governance and transparencystandards.b. Ensuring transparency, some recommendedactions for government and local authoritiesinclude:– Strengthen responsible behavior in firms onissues such as compliance, fair trade,employment relations, taxation, bribery andcontractual conditions.– Promote awareness on accountability andreporting standards such as the GlobalReporting Initiative and internationalguidelines and principles such as the GlobalCompact and the International LaborOrganization.– Participate in conferences and workshops andpublicly praise the importance of SMEs effortson these issues.– Lead campaigns on issues such as thedevelopment of appropriate CSR managementtools and guidelines for SMEs.c. Facilitating, some recommended actions forgovernment and local authorities include:– Promote a feasibility study on financialincentives for CSR.128 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

– Design, with district municipalities, anawareness campaign on waste and energymanagement in specific territories.– Increase awareness about the different typesof waste management and help SMEs choosethe most suitable system for their needs.d. Improving Promotion and Advocacy, somerecommended actions for government andlocal authorities include:– Take a leading role in funding the PeruvianCarbon Facility, which may enhance cleaninvestments and improve SMEs’environmental responsibility.e. Endorsing, some recommended actions forgovernment and local authorities include:– Recognize the efforts implemented by smalland medium enterprises.– Promote voluntary agreements with SMEs onhealth and safety procedures in industrialsectors.– Promote voluntary agreements onenvironmental monitoring.4.3 Business AssociationsBusiness Associations include trade associations,territorial associations, chambers of commerce andSMEs associations. Peruvian business associationsplay an important role in Facilitating, ImprovingPromotion and Advocacy, Partnering andEndorsing.a. Facilitating, some recommended actions forbusiness associations include:– Lead capacity building efforts, help raiseawareness, engage businesses in CSR relatedactivities, fund activities and createincentives.– Support and finance actions that improvecompliance.– Pilot a project on the implementation ofquality management systems in the supplychain using a chosen territory or sector.Provide assistance to participants accordingto the specific role they play in the supplychain.– Finance training programs on CSR inmanagement and planning for SMEs.b. Improving Promotion and Advocacy,some recommended actions for businessassociations include:– Train SMEs on competitiveness and CSRissues such as benchmarking support.– Publish the results of training activities onhealth and safety to SMEs managers andemployees.c. Partnering, some recommended actions forbusiness associations include:– Support partnerships between large and smallenterprises on CSR.d. Endorsing, some recommended actions forbusiness associations include:– Reward good health and safety practices atthe local level by promoting voluntaryagreements and reward schemes on healthand safety procedures by industry.– Promote environmental monitoring andcommunication among Peruvian SMEsthrough voluntary agreements between SMEsand local public authorities.– Promote ADR utilization among SMEs.Cooperate in the dissemination of CSRpublications.4.4 Civil SocietyFor the purpose of this report, civil society includesacademia, media, NGOs and the local communities.In the Peruvian case, academia and NGOs are themost effective and active exponents of civil society.Peru 129

These two groups will likely implement most of theproposed actions, and can act as a bridge betweencompanies and the government. They couldtranslate the terminology of social development intoa language understandable to business and provideinformation on enterprises’ activities to the public(Petkoski and Twose, 2003).a. Facilitating, some recommended actions forcivil society include:– Publish results of training activities onenvironmental management systemapplications to SMEs employers and managers.– Promote business registration andcompliance through simplification ofadministrative and bureaucratic procedures.b. Improving Promotion and Advocacy, somerecommended actions for civil society include:– Lead a human rights campaign that raisesawareness about child labor in SMEs by usingthe media to present international andnational figures addressing the negativeconsequences of the worst forms of child labor.– Create and evaluate benchmarking procedures.– Support the implementation of monitoringsystem and participate in environmentalassessment campaigns.c. Partnering, some recommended actions forcivil society include:– Participate in stakeholder engagementprograms.d. Endorsing, some recommended actions forcivil society include:– Reward responsible market behaviors (i.e.supply chain) of SMEs in certain sectors.– Reward positive health and safety practices inSMEs at the local level.– Reward accurate environmental reporting.– Organize CSR courses in local businessschools and provide content to create CSRawareness.130 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

BibliographyBenavides de Burga, M., and De Gastelumendi, G. (2001) ‘Responsabilidad social empresarial: uncompromiso necesario’, (Lima: Pacific University, SASE, Perù 2021).De Soto, H. (1986) ‘El otro sendero. La revolución informal’, (Bogotá: Instituto Libertad y Democracia).Development Observatory, UNEP (United Nations Environment Program) (2003) ‘Geo-Lac 2003’,(Mexico: UNEP).Henderson, K., and Herrero, A. (2004) ‘The Cost of Resolving Small-Business Conflicts. The Case of Peru’,(Washington: Inter-American Development Bank, Sustainable Development Department Best PracticesSeries, D.C).ISO (International Standard Organization) (2004) ‘Small and medium–size enterprises’, (Geneve,Switzerland: ISO).ISO (International Standard Organization) (2005) ‘The ISO Survey – 2005. ISO and The ISO Survey’,(Geneve, Switzerland: ISO).Petkoski, D., and Twose, N. (July 2003) ‘Public Policy for corporate social responsibility’, (World BankInstitute, the World Bank, IFC).PROETICA (Consejo National para la Etica Publica) (2004) ‘Opinión pública. Secunda encuesta nacionalsobre corrupción’, (Lima: Apoyo Opinión y Mercado Perú).Transparency International (2005) ‘Report on the Transparency International Global CorruptionBarometer’, (Berlin: Policy and Research Department Transparency International –InternationalSecretariat).Villarán, F. (1998) ‘Riqueza Popular. Pasión y gloria de la pequeña empresa’, (Lima: Congress of Perupublishing).Vives, A. (2004) ‘The role of multilateral development institutions in fostering corporate socialresponsibility’, (Society for International Development).Vives, A., A. Corral, I. Isusi (2005) “Responsabilidad Social de la Empresa em las PyMES deLatinoamérica”. (Inter-American Development Bank and IKEI).WEF (World Economic Forum) (2006) ‘The Latin America Competitiveness Review’, (Geneva: WEF).WEF (World Economic Forum) (2005-2006) ‘The Global Competitiveness Index’, (Geneva:WEF).Peru 131

Websites consultedwww.accountability.orgwww.apec.orgwww.earthtrends.wri.orgwww.eldis.orgwww.IDB.orgwww.ifc.orgwww.ilo.orgwww.maplecroft.comwww.sase.pe.orgwww.proetica.org.pewww.peru2021.orgwww.Transparency.orgwww.weforum.orgwww.wri.orgwww.unrisd.org132 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

AppendixThe following stakeholder map has been used to verify that all eight defined stakeholder categories and allfour CRS areas are represented. Stakeholders that were chosen for interviews or as panel participantseither had relevant expertise in the issue or may influence awareness, interests and implementationinstruments relevant to the issue.APPENDIX 1 – PERUVIAN STAKEHOLDER MAP1.Internationalorganizations2. Governmentorganizations andinstitutionsMarketplace Workplace Community Environment—International LaborOrganization (ILO)—InternationalFinanceCorporation (IFC)—Center ofpromotion of thesmall and microbusiness(PROMPYME)—Commission for thepromotion ofexports (PROMPEX)—Ministry of theProduction—Ministry of ForeignTrade and Tourism(MINCETUR)—Ministry of Laborand Promotion ofthe Employment—Ministry of Health—Ministry of Energyand Mines—InternationalFinanceCorporation (IFC)—United NationsDevelopmentProgram (UNDP)—Swiss Foundationfor TechnicalCooperation(Swisscontact)—Swiss agency fordevelopment andcooperation(COSUDE)—Belgian technicalcooperation—Inter-AmericanDevelopment Bank(IDB)—Fund ofCooperation for theSocial Development(FONCODES)—Oxfam América—Inter-AmericanDevelopment Bank(IDB)—National Counselfor theEnvironment(CONAM)—Ministry of Health—Bureau ofEnvironmentalAffairs of theMinistry of Energyand Mines(DGAA/MINEM)—National Service ofAgrarian Health(SENASA)—The National Fundfor theEnvironment(FONAM)—Natural ResourceInstitute (INRENA)Peru 133

APPENDIX 1 – PERUVIAN STAKEHOLDER MAP3. Associations(national, sectorial,business)4.Financialinstitutions5. MultinationalcompaniesMarketplace Workplace Community Environment—NationalConfederation ofUnions of the Microand Small Businessof Peru(CONAMYPE)—Chamber ofCommerce of Lima—Committee of SmallIndustrial Businessof the NationalSociety of Industries(COPEI – SNI)—Area of small andmicro-business ofthe association ofexporters of Peru(PYMEADEX)—Federation ofBusinessmen ofGamarra (FEDEGA)—Association ofSmall Industrialistsof Villa El Salvador(APIVES)—Association offootwear-makers,related andcomplementaryarticles (APEMEFAC)—National Camera ofthe Production andEntrepreneurship(CANPRODEM)—FinancialCorporation ofDevelopment(COFIDE)—Fund of Guaranteefor the SmallIndustry (FOGAPI)—Mibanco Bank—Municipal Banks—Rural Banks—Mining companyAntamina—Mining companyYanacocha—Mining companyBHP BillitonTintaya—Mining companyAntamina—Mining companyYanacocha—Mining companyBHP BillitonTintaya134 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

APPENDIX 1 – PERUVIAN STAKEHOLDER MAPMarketplace Workplace Community Environment6. Media —Newspaper “ElComercio”—Newspaper“Gestión”—Newspaper“Expreso”—Newspaper “LaRepública”—Magazine“Business”—Magazine “Ideele” —Magazine “Ideele”7. NGOs —COPEME—CEPEFODES8.Academics CSRexperts—Pacific University—ESAN University(Graduate Schoolof BusinessAdministration)—Center ofInnovation andDevelopment,PontificiaUniversidadCatólica del Perú(CIDE – PUCP)—Labor—Oxfam América—PERU 2021—Group of Analysisfor theDevelopment(GRADE)—Cooperacción—Avina Foundation—Institute of LegalDefense (IDL)—Institute ofDevelopment of theInformal Sector(IDESI)—COPEME—Entorno—CARE PERU—Proetica—PRISMA—Pacific University—CEAS—Oxfam América—Cooperacción—Labor—PERU 2021—ProNaturaleza—ITDG—Center ofInnovation andDevelopment,PontificiaUniversidadCatólica del Perú(CIDE – PUCP)Peru 135

Chapter 8: Venezuela1 Executive SummaryThe concept of CSR is developing in Venezuela.The administration of President Chavez has beenactive in the advancement of social policies andprograms that have affected the private sector inseveral ways. First, they have created theexpectation that the private sector will supportthese efforts and, second, the private sectorhas made a concerted effort to promote its ownsocial agenda.The international community, in particular MDIs,has been taking an increasingly reduced role inVenezuela. However, when possible, MDIs shouldtry to facilitate a dialogue between the public andprivate sectors by sponsoring forums andworkshops to discuss and clearly define the rulesgoverning the private sector.The Government should focus on:(i) strengthening the regulatory and institutionalframework and providing a safe and transparentjudicial service for SME competitiveness;(ii) formulating and updating norms to improveentrepreneurial administration throughtechnological modernization and promoting thedevelopment of productive value chains;(iii) supporting the development of financialmechanisms for SMEs (regarding terms andcosts) and promoting their competitivenessimprovement.Business Associations’ activities should continueto create a positive impact on enterprises byenhancing compliance with laws, increasingproductivity, reducing costs and time ofproduction and reducing absenteeism. Inaddition, business associations in partnershipwith government may be able to help develop thetourism sector.The role of the civil society in enabling a positiveenvironment for CSR is frequently emphasized.Civil society, for the purpose of this report,includes academia, media, NGOs and the localcommunities. In Venezuela, academia and NGOsare the most effective and active proponents ofcivil society. These two groups will likelyimplement most of the proposed actions. Theycan also act as a bridge between companies andgovernment, translate the terminology of socialdevelopment into a language understandable tobusiness and provide information on theenterprises’ activities to the public (Petkoskiand Twose, 2003).2 Economic and SocialFrameworkOil is the lifeblood of the Venezuelan economy.It accounts for about half of the total governmentrevenues and about one third of GDP. Venezuelaproduces about three million barrels of crude oilper day and exports about 75 percent of its totalproduction. Of the country's $3 to $4 billion inannual foreign investment, almost all of it ischanneled into the energy industry (EnergyInternational Agency report, 2002). The oilsector operates through the government-ownedcorporation PDVSA (Petróleos de Venezuela).In recent years, Venezuela's oil output hasbegun to stutter, largely because of difficultiesat PDVSA. 105In Venezuela, the community expects a lotfrom the oil industry in terms of resources,assistance and employment. In addition to thegenuine issue of a fair distribution of oilresources, which falls within the responsibilityof the nation’s administration, the key issue isthe diversification of the economy and the abilityto launch self-sustaining projects. Around theoil fields it is easy to find poor people, a damaged105 Of course SMEs are not oil producers, but some of them are in the oil supply chain and apply or should apply the larger companies’conditions to operate.Venezuela137

environment and conflicts in the localcommunity. These conflicts usually relate tothe community’s frustrated expectations ofemployment, as the oil companies are unableto utilize local labor force due to the low levelsof education. This could be overcome throughdialogue, training and capacity building. Forexample, the VenAmCham’s 106 Social AllianceCommittee launched a corporate responsibilityproject directed at the people living aroundthe Jusepin facilities. This project has the aimof creating sustainable agricultural activitiesin the community and restoring theagricultural tradition to alleviate thetense situation in the area.Vives, Corral and Isusi (2005) illustrate thatthe informal economy is a major problem formicro enterprises, as only 4 percent of microenterprises are registered with an officialinstitution such as the National IntegratedService of Customs and Tax Administration(Servicio Nacional Integrado deAdministración Aduanera y Tributaria) orthe Venezuelan Institute of Social Security(Instituto Venezolano de los Seguros Sociales).Only 20 percent of registered Venezuelanenterprises are SMEs, and they employ 20percent of the labor force. Most of theseregistered SMEs are in the trade and servicesectors and only 2 percent of them areexporting companies. In Venezuela,unemployment counts for 15.1 percentof the total labor force and informalemployment represents 36.6 percent ofthe GNP (Schneider, 2002).Observatorio Pyme 107 estimated that thereare about 480,000 enterprises in Venezuelaof which 98 percent are micro enterprisesand SMEs. It also pointed out that in the lastfew years SMEs have had to cope with areduction of productivity, an increase ofinformality (the informal economy isapproximately 55 percent of the totaleconomy), and limited access to informationand communication technologies – 88.4percent of them are not connected to theinternet (CEATPRO, 2004).The difficult economic situation is perceivedby SMEs as the major obstacle for CSRimplementation. In 2004, Fundes 108 conducteda survey of Venezuelan SMEs and noted thatonly 36 percent of the interviewed SMEscomply with labor legislation, 26 percentcomply with social security and 41 percentcomply with workers’ contract legislation.SMEs are also characterized by temporaryemployment.The following chart shows competitivenessindicators, mostly supplied by the WorldEconomic Forum (WEF). All data is from 2005and the chart is sorted by indicator ranking. Ascan be seen in the chart below, Venezuelaperforms poorly regarding market efficiency.Policy instability is considered the greatestproblem for Venezuela’s competitiveness.106 VenAmCham is the Venezuelan – American Chamber of Commerce and Industry107 Observatorio PYME is a study of small and medium enterprises in Venezuela as wel as the new Information and CommunicationTechnologies developed by a group of professionals from the Central University of Venezuela. The study reaches the complete country.108 FUNDES is a regional NGO with offices in different countries in Latin America that promotes the development of small and mediumenterprises. www.fundes.org138 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

OrganizationWEFIndexNumber of Countriesin the IndexVenezuela’s RankingPrivate sector employmentof women 117 20WEF Technological readiness 117 37WEFExtent and effectof taxation 117 55WEFUniversity/industry researchcollaboration 117 63WEFNumber of proceduresrequired to start a business 117 84WEFGlobalCompetitiveness index 11784 (13 out of 21in Latin America)WEF Quality local suppliers 117 92WEF Ethical behavior of firms 117 98Time required toWEFstart a business 117 101WEF Capacity for innovation 117 102WEF Quantity of local suppliers 117 104WEF Organized crime 117 104WEF Educational system 117 105WEF Public institutions 117 106WEF Value chain presence 117 106WEF Labor-employer relations 117 110WEF Level of violence and crime 117 111WEF Public trust of politicians 117 112WEF Judicial independence 117 114WEF Inflation 117 115WEFFavoritism in decisionsof government officials 117 116WEFEfficiency of legalframework 117 117Transparency International Corruption Perception Index 159 130UNESCO Education Attainment index 166 66World Bank (2006) Ease of doing business 175 164Venezuela 139

In regards to human rights, Venezuela hasperformed well in the area of child labor. However,the country received a very poor rating from theHuman Rights Watch for Intrinsic Country HumanRight Risk.OrganizationILO andUNICEFUNICEFMaplecroft 109ILO andWorld BankHumanResourceWatchIndexNumber ofCountriesin the IndexVenezuela’sRankingChild LaborIndex 191 43Child RightsRisk index 192 83Political Riskindex 209 183Health andSafety Index 187 123IntrinsicCountryHuman RightRisk 194 157In a survey conducted by the VenAmCham oneconomic perspectives for 2006, enterprisesinterviewed indicated political uncertainty, judicialinstability and judicial insecurity as the mainobstacles for their business activities 110 .Some intrinsic SME characteristics may inhibittheir development for example: the family-ownedSME structure limits the adoption of bettermanagerial strategies; SMEs have limitedinvestment funds, they experience slow growth insales volume, they lack partnerships and networksin their local environment and they face stronglocal competition. Venezuela’s SMEs are isolatedand do not participate in international value chains,which is a weakness when trying to integrate intothe global market.To solve SMEs' competitiveness problems, theMinistry of Production and Commerce (Ministeriode la Producción y el Comercio) initiated a programto support SMEs, titled “Endogenous DevelopmentPlan” (Plan de Desarrollo Endógeno), which definesthree areas of implementation: (i) IndustrialReactivation, to increase, in a short time, theutilization of the country’s industrial installedcapacity; (ii) Industrial Re-conversion, totechnologically modernize and actualize theVenezuelan industrial sector, and lastly (iii) theprocess of Reindustrialization, to increase theexisting Venezuelan industrial weave.Interesting insights about Venezuela come fromunderstanding cooperatives, which is a distinctiveform of doing business among Venezuelan SMEs.The first Venezuelan cooperatives were formedaround the turn of the 20th century, however mostdisappeared during the Marcos Perez Jimenezdictatorship of the 1950s and the military junta thatpreceded it. With the fall of Jimenez in 1958,cooperatives in Venezuela once more began to gainstrength and a new cooperative law was passed in1966, which allowed for the creation of theVenezuelan National Cooperative Superintendence(SUNACOOP). According to Fox (2006) a largeimpetus for the Venezuelan cooperative came in the1960s from the U.S. initiative Alliance for Progress,which attempted to promote the alternative road ofcooperatives in order to reduce the guerrilla andrevolutionary movements taking place across LatinAmerica. According to SUNACOOP, there arecurrently 153,000 registered cooperatives inVenezuela – the largest number in any country inthe world. Over 60 percent of Venezuela’s registeredco-ops are in the service sector, while around 20percent are in manufacturing. The members of thetraditional co-ops played a large role in the creationof the 1999 Venezuelan Constitution and theformation of the 2001 Cooperative Law, whicheased the process of cooperative formation andallowed for greater sovereignty to be given to thecooperatives themselves (Fox, 2006). 111109 Available on www.maplecroft.com110 www.amcham.org.ve111 Carlos Molina Graterol, President of SUNACOOP, at the conference held in September 2006 declared that “1,634 accusations have beenreceived against Venezuela’s cooperatives and that not all of co-ops are legitimate, that some supposed co-ops only use the laws to evadesocial responsibility and taxes, and that cooperative members do not always understand the principles of cooperativism” (Fox 2006).140 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

3 Current State of CSRCSR actual positioning in VenezuelaVenezuela has a new Constitution that emphasizesthe concepts of social inclusion and access toeducation, which may lead to an increase inresponsible practices in the private sector and inparticular among SMEs. Some experts claim thatone of the greatest obstacles for Venezuela is thesignificant polarization of its social classes and theresultant difficulties in reaching political and socialconsensus. The latter leads to instability andconflicts in some areas, mainly oil fields andrural areas.CSR area significancemaxMPWPVenAmCham's Social Alliance Committee, in itsendeavor to promote CSR, has provided severalstrategies to make Venezuelan companies aware ofthe importance of incorporating CSR as a businessstrategy. The growing number of these actions aswell as their variety and impact, encouraged SocialAlliance to work on the first Directory of SociallyResponsible Companies: a publication that lists over70 CSR actions carried out by companies inVenezuela designed to provide practical guidance tothose who would like to have an in-depthknowledge of this issue. 112minminEMPWPCCCSR actions implementationSMEs country positionin the Marketplace areaSMEs country positionin the Workplace areaSMEs country positionin the Community areamaxThe following figure illustrates an estimatedpositioning of each one of the CSR areas –marketplace, workplace, community andenvironment. The graph shows the significance ofCSR for SMEs (vertical axis) and the CSR actionsimplemented by SMEs (horizontal axis) inVenezuela. This positioning is an approximation,developed by the authors, and it is based solelyon the information utilized for the writing ofthis report (interviews, panel discussions andliterature review).ESMEs country positionin the Environment area112 Besides this database, the publication offers views on CSR in Venezuela: visions, CSR inside the companies: human resources,environment, CSR outside: consumers and customers, suppliers, communities, government, and society as well as experiences in whichCSR has meant an added value in economic, social, and environmental terms for the companies and society.Venezuela141

3.1 MarketplaceIn Venezuela, the marketplace area of CSR isconsidered by SMEs as relevant for their operations,mainly for its ability to influence the overall SMEscenario. Specifically, exporting and supply chainparticipating SMEs, are starting to apply CSR valuesand tools into their daily business. Not all SMEsshow interest in CSR, although, most of thempractice some form of philanthropy.Many researchers show that the major problem forCSR implementation in SMEs is the absence ofstrategic planning, which is present only in 44.8percent of Venezuelan SMEs (Castro, 2000).Additionally, Venezuela lacks CSR promotionpolicies, except for technological innovation,workers’ training, and industrial security policies.Notably, according to 2006 ISO data, around 437companies in Venezuela are ISO 9000 certified,which can be interpreted as an indicator about thetendency of companies towards managementsystems applications and about the overall widerattention to quality processes and products in thecountry. Additionally, based on CONINDUSTRIA 113figures, 7.5 percent of SMEs are ISO 9000 certified.3.2 WorkplaceSMEs in Venezuela do not perceive CSR workplaceissues as relevant for their survival andcompetitiveness. This is mainly because of highunemployment (15.1 percent of total labor force)and high level of informal employment (36.6percent of the GNP). However, in the long-term,workplace issues, such as health and safety norms,employment policies, equal opportunities andcompliance may affect Venezuelan economicgrowth and will become crucial to SME survival.SMEs' CSR activities in the workplace area are rare.According to Armas (2002), only 20 percent ofSMEs actively train their employees and SMEparticipation in external CSR activities is very low,and focus mainly in health and sports activities.Even if many people in Venezuela perceive CSR as a“social industrial work, more strictly referred to theimprovement of internal activities” (Mendez, 2003),SMEs in Venezuela are not the most sociallyresponsible in the region, particularly in labor,health and safety regulation. In 2004, Fundesconducted a survey on Venezuelan SMEs anddiscovered that only one third comply with laborlegislation, merely 26 percent comply with socialsecurity, 41 percent comply with workers’ contractlegislation and SMEs are prevalently characterizedby temporary employment.3.3 CommunityIn Venezuela, SMEs perceive the community areaas valuable for their competitiveness. They believethat community issues, such as consensus building(mainly in conflicts areas such as oil fields and ruralareas), participation, public-private partnership,among others, may affect the overall Venezuelansustainable development and therefore SMEcompetitiveness.According to Vives, Corral, and Isusi (2005)Venezuelan SMEs show strong interest in thecommunity area, where they have strongrelationships and are well known and trusted. Manysurveys and reports have studied the interactionbetween SMEs and their local community, stressingthe importance of strong relationships. There is stilla lack of structured and organized corporate givingpolicies among SMEs.Community relations are pending issues in certainareas, such as oil fields where poor, uneducated andtherefore unemployed people live, as well as in ruralareas where the land reforms and their intrinsicconflicts prevail among large landowners,113 COINDUSTRIA is the Venezuelan Confederation of Industries (Confederación Venezolana de Industriales)142 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

cooperatives and farmers 114 Unfortunately, thegeneral predisposition for cooperation among theaffected parties is undeveloped.3.4 EnvironmentIn Venezuela, the environment area is perceived asvaluable by SMEs. They identify environmentalissues, such as environmental management,compliance, monitoring and climate change asfactors that might affect the overall Venezuelansustainable growth and development in the midandlong-term. In the view of local experts,Venezuela has one of the strongest policies in theregion for the protection of the environment, but itis largely disregarded.On the other hand, according to Fundes, there is ahigh level of ignorance about environmentalresponsibilities among SMEs: most of them do notknow the meaning of waste management (74percent), toxicity of products (72 percent), workers’risks and health issues (67 percent), environmentallegislation (66 percent), or quality standards (59percent). Moreover, 60 percent of SMEs do notattribute importance to management ofenvironmental issues and 69 percent affirmed thattheir activities do not generate impact on theenvironment at all.According to the National Inventory of Emissions 115in 1999 Venezuela represented around 0.48 percentof total CO 2 emissions. Regarding enterpriseperformance, there are only 27 ISO14001enterprises certified in the country. On the otherhand, Venezuela reveals a good use of renewableenergy; in fact in the Renewable Energy Index itranks 22 out of 109 (World Health Organization;World Resource Institute, 2005; and InternationalEnergy Agency, 2001).Some important conservation and protectionactivities have been launched by the Ministry forthe Environment such as the “Tree Mission”(Misión Arbol) for forestry conservation, “AllowGrand Caracas to Shine” (Que brille la GranCaracas) action plan to reduce waste in Caracas,and “Arrau Turtle” (Tortuga Arrau) for turtleprotection, among others.International conventions, mainly the KyotoProtocol, list Venezuela among the CleanDevelopment Mechanisms (CDM) project hostcountries. As of now, there are no CDM projects inthe country (UNFCCC, 2006), but actions to fostertheir development may contribute to the BestAvailable Technology transfer, raising and renewingenvironmental performances, widening of theinternational network, and to the increase of CSRpractices among Venezuelan companies that wantto be part of the supply chain of those new plantsand activities.4 Recommended ActionsThe main actors able to strengthen CSR inVenezuela have been classified in the following fourcategories: a) Multilateral Development Institutions(MDIs), b) national governments and localauthorities, c) business associations, and d) civilsociety. These four categories of actors may act viaall or some the following strategies, as defined in theIntroductory Chapter, which are: Mandating,Ensuring transparency, Facilitating, ImprovingPromotion and Advocacy, Partnering, andEndorsing. The proposed actions are by nomeans exhaustive and only illustrate the typesof involvement, which can be easily modifiedto meet local needs.To overcome the existing difficulties, SMEs couldorganize networks based on horizontal co-operationwith other organizations in the same situation. InVenezuela there are some examples of SMEconsortiums, such as in the plastic sector, which114 In November 2001, Chavez launched a land reform plan called " Return to the Countryside", (Vuelta al Campo), under the Law on Landand Agricultural Development. The goals of this legislation were as follows (Delong 2005): (i) to set limits on the size of landholdings, (ii)tax unused property as an incentive to spur agricultural growth, (iii) redistribute unused, primarily government-owned land to peasantfamilies and cooperatives and, lastly, (iv) expropriate uncultivated and fallow land from large, private estates for the purpose ofredistribution. On the last and most controversial goal, the landowners would be compensated for their land at market value. The NationalLand Institute (INTI) was set up to facilitate these goals by establishing criteria to determine what land could be redistributed and theeligibility of those applying for new land deeds. According to Delong (2005), after a slow start, the Chavez government has redistributedabout 2.2 million hectares of state owned land to more than 130,000 peasant families and cooperatives.115 See www. marnr.gov.ve for more details.Venezuela 143

have been formed to address the supply of rawmaterials. To reach this level of organization,SMEs have to overcome the lack of confidenceand the strong individualism that characterizesthem (ITC, 2003).Regarding economic sectors, a valuable driver forfostering CSR in SMEs in Venezuela could betourism. Tourism in rural areas, the promotion ofmicro and small tourist facilities, agritourism, andresponsible tourism in certain low visibility areascould be a way to develop those poor territories,reduce conflicts (i.e. Land Reform conflicts), andenhance employment for local inhabitants. Theseprivate activities may also attract privateinvestment and donors from other governments,MDIs and international NGOs.4.1 Multilateral Development InstitutionsMDIs are currently playing a marginal role inVenezuela. However, MDIs could still participate inhelping define several strategies to encourageVenezuelan SMEs to engage in CSR activities andhelp drive social and environmental improvements.a. Facilitating, recommended actions for MDIsinclude:– Help develop a conducive policyenvironment, which may facilitate privatesector initiatives and support voluntaryefforts towards responsible behavior.– Pilot a project on the implementation ofquality management systems in the supplychain using a chosen territory or sector.Provide assistance to participants according tothe specific role they play in the supply chain.– Enhance compliance by showcasing thebeneficial results of training activities onhealth and safety programs to SME managersand employees.– Conduct an environmental regulationawareness campaign, to promote knowledgeabout environmental norms and laws. Fundmonitoring systems and environmentalassessment campaigns.b. Improving Promotion and Advocacy,recommended actions for MDIs include:– Collaborate with SMEs, public authorities andcivil society.– Sponsor a human rights campaign that raisesawareness about child labor in SMEs by usingthe media to present international andnational figures addressing the negativeconsequences of the worst forms of child labor.c. Partnering, recommended actions for MDIsinclude:– Build partnerships among large and smallenterprises that belong to similar sectors orto the same region with the goal ofincorporating more SMEs in supply chainsand increasing SMEs managerial skills.– Facilitate tourism policies that can enhancethe capability of Venezuelan micro and smallenterprises to start new businesses inagritourism in rural areas.4.2 Government and Local AuthoritiesThe Venezuelan government and local authoritiesmay have a role in some of the actions proposed,even though most of the interviewees and thepanelists claim that the government and localauthorities have a reduced role in the public sectorand need improvement in their social policies.Given the high rate of unemployment and informalemployment, mandating policies are not suggestedas the most effective policies. The public sectorusually plays a catalytic, secondary or supportingrole (Fox, Ward and Howard, 2002) and theVenezuelan public sector should work as promotersof the application of laws, drivers of CSR awarenessand definers of rules.144 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

a. Mandating, recommended actions forgovernment and local authorities include:– Promote business registration andcompliance through simplification ofadministrative and bureaucratic procedures.b. Facilitating, recommended actions forgovernment and local authorities include:– Design, together with district municipalities,an awareness campaign on waste and energymanagement in specific territories.– Enhance awareness about the different typesof waste management and help SMEs choosethe most suitable system for them.– Facilitate the development of an approach forworkplace compliance, leveraging social helpand solidarity, which are already part of theday-to-day activities.– Sponsor a human rights campaign that raisesawareness about child labor in SMEs by usingthe media to present international andnational figures addressing the negativeconsequences of the worst forms of child labor.c. Endorsing, recommended actions forgovernment and local authorities include:– Recognize efforts of specific enterprises andreward schemes for the participation inspecific CSR activities by companies.4.3 Business AssociationsAccording to CONINDUSTRIA 116 (2004), Venezuelahas more than 50 business associations.CONINDUSTRIA supports companies and SMEsdeveloping quality management systems, adoptingthe Best Available Technology, promotinginnovation, facilitating the articulation of networksof suppliers, developing exports, and enhancingrelationships and partnerships with otherstakeholders. Since 2004, CONINDUSTRIA hassupported 375 enterprises, formed 498 consultantsand created an Export Consortia. Anotherimportant association is the National CooperativeSuperintendence (Superintendencia Nacional deCooperativas - SUNACOOP), which groups andsupervises the 153,000 cooperatives active inthe country.a. Facilitating, recommended actions forbusiness associations include:– Build capacity, raise awareness, engagebusinesses in CSR related activities, providefunding and create incentives for CSR efforts.– Pilot a project on the implementation ofquality management systems in the supplychain using a chosen territory or sector.Provide assistance to participants according tothe specific role they play in the supply chain.– Facilitate the development of agritourism andresponsible tourism micro enterprises inspecific rural areas.– Finance training programs on CSR inmanagement and planning for SMEs.b. Improving Promotion and Advocacy,recommended actions for businessassociations include:– Create training programs on competitivenessand CSR benchmarking for SME managers inrural areas.– Enhance compliance by showing thebeneficial results of training activities ofhealth and safety programs to SME managersand employees.c. Partnering, recommended actions forbusiness associations include:– Support partnerships between large and smallenterprises on CSR.d. Endorsing, recommended actions for businessassociations include:– Contribute to the application ofenvironmental monitoring systems.116 CONINDUSTRIA is the Venezuelan Confederation of Industries (Confederación Venezolana de Industrias)Venezuela 145

– Launch conflict resolution guidelines.– Promote Alternative Dispute Resolution(ADR) 117 among SMEs. The commondenominator of all ADR methods is that theyare faster, less formal, cheaper, and often lessadversarial than a court trial. ADRmechanisms are used in other LatinAmerican countries, such as Peru (Hendersonand Herrero, 2004). Venezuela shouldembrace this alternative form of conflictresolution because it involves private entitiesand not just public authorities, making itmore efficient and trustworthy.4.4 Civil SocietyThe Venezuelan civil society has a strong role infacilitating, partnering and endorsing policies.a. Facilitating, recommended actions for civilsociety include:– Promote, finance and disseminate results oftraining activities on environmentalmanagement systems and benchmarking toSME employees and managers.– Promote business registration andcompliance through simplification ofadministrative and bureaucratic procedures.– Conduct an environmental regulationawareness campaign, to promote knowledgeabout environmental norms and laws.b. Improving Promotion and Advocacy,recommended actions for civil society include:– Lead a human rights campaign that raisesawareness about child labor in SMEs by usingthe media to present international andnational figures addressing the negativeconsequences of the worst forms of child labor.– Improve monitoring systems andenvironmental assessments in SMEs throughthe development of the Life Cycle Assessmentapproach in a specific sector (through thesupply chain).– Launch an NGO engagement awareness pilotproject to raise awareness about stakeholderengagement.c. Partnering, recommended actions for civilsociety include:– Participate in the development of conflictresolution guidelines – multi-stakeholderapproach and the launch of ADR centers.117 ADR is a term that describes a number of methods used to resolve disputes out of court, including negotiation, conciliation, mediationand the many types of arbitration.146 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

BibliographyArmas, V. (1999) ‘Esplendores y miserias de las pymes venezolanas, Debates IESA, Vol. V, No. 1, pp. 35-46.Castro, Y. (2000) ‘Análisis de los momentos críticos del ciclo de vida de crecimiento de la pequeña ymediana empresa en el Estado Táchira’, Táchira Siglo XXI, No. 7.CEATPRO (2004) ‘Observatorio PyME y las Nuevas Tecnologías de la Información y la Comunicación’,(CEATPRO).CONINDUSTRIA (2004) ‘La PyME: Actor Estratégico en el Crecimiento Económico del País’,(CONINDUSTRIA).Delog, S. (2005) ‘More Like Lincoln Than Lenin - Land Reform in Venezuela’Fox T., Ward H., Howard B, (2002) ‘Public sector roles in strengthening corporate social responsibility: abaseline study’, (the World Bank).Fox, M. (2006) ‘Venezuelan Coop Regulatory Body Turns 40, Announces “New Institutionality”’,Venezuelanalysis.comFundes (Fundación para el Desarrollo Sostenible) (2004) ‘Las TIC´s como habilitadores para aumentar lacompetitividad para la Pyme’, (Fundes).Fundes Venezuela (Fundación para el Desarrollo Sostenible) (1999) ‘Un apoyo para las pequeñas ymedianas empresas. Los obstáculos a su desarrollo’, (Fundes Venezuela).Guédez, V. ‘Social programmes around the Jusepin field (Venezuela)Henderson, Herrero, 2004ISO (International Standard Organization) (2004) ‘Small and medium–size enterprises’, (Geneve,Switzerland: ISO).ISO (International Standard Organization) (2005) ‘The ISO Survey – 2004. ISO and The ISO Survey’,(Geneve, Switzerland: ISO).Méndez, C. (2003) ‘Responsabilidad Social en Venezuela durante el siglo XX, Strategos Consultores’,(Caracas).Petkoski, D., and Nigel T.,(2003) ‘Public Policy for Corporate Social Responsibility’, WBI Series onCorporate Responsibility,July 7–25 2003 (Washington D.C. :World Bank Institute).Venezuela 147

Reyna, F. (2005) ‘La Responsabilidad Social Empresarial: una estrategia de negocios’, (Comité de AlianzaSocial de VenAmCham, IESA).Schneider, F. (July 2002) ‘Size and measurement of the informal economy in 110 countries around theworld’, (Washington: World Bank).Transparency International (2005) ‘Report on the Transparency International Global CorruptionBarometer’, (Berlin: Policy and Research Department Transparency International –InternationalSecretariat).The World Bank (2006) ‘Doing Business. Economy rankings’, (Washington: World Bank).Vives, A., A. Corral, I. Isusi (2005) “Responsabilidad Social de la Empresa em las PyMES deLatinoamérica”. (Inter-American Development Bank and IKEI).WEF (World Economic Forum) (2006) ‘The Latin America Competitiveness Review’, (Geneva: WEF).WEF (World Economic Forum) (2005-2006) ‘The Global Competitiveness Index’, (Geneva: WEF).Websites consultedwww.accountability.orgwww.dinero.com.vewww.csrwire.comwww.earthtrends.wri.orgwww.eldis.orgwww.en.wikipedia.orgwww.IDB.orgwww.ibase.org.brwww.icd.org.uywww.ifc.orgwww.ilo.orgwww.iso.orgwww.maplecroft.comwww.transparenciavenezuela.org.vewww.transparency.orgwww.unfccc.intwww.venamcham.orgwww.weforum.orgwww.wri.orgwww.worldbank.org148 Recommended actions to foster the adoption of Corporate Social Responsibility (CSR) practices in Small and Medium Enterprises (SMEs)

AppendixThe following stakeholder map has been used to verify that all eight defined stakeholder categories and allfour CRS areas are represented. Stakeholders that were chosen for interviews or as panel participantseither had relevant expertise in the issue or may influence awareness, interests and implementationinstruments relevant to the issue.APPENDIX 1 –VENEZUELAN STAKEHOLDER MAP1. Internationalorganizations2. Governmentorganizations andinstitutions3. Associations(national,sectoral,business)4. Financialinstitutions5. MultinationalcompaniesMarketplace Workplace Community Environment—United Nations —Inter-American —Inter-American Agency —United NationsDevelopmentAgency for for Cooperation and DevelopmentProgramme(UNDP) Cooperation and Development (IACD) Programme(UNDP)Development(IACD)—FundoIntergubernamental parala Descentralizacion—FIDES—FISCALIA—Ministerio de Energia yPetroleo—Ministerio de laPlanificacion y desarrollo—Confederación Venezolanade Industriales(CONINDUSTRIA)—FEDECAMARAS—SUNACOOP—UNICAM—BANESCO—ALCOA—PDVSA—PFIZER6. Media —UNION RADIO YVENEVISION (TV)—“LA RAZÓN” NEWSPAPER—Direccion deAssistenciaSocial—MinisterioPublico]—FISCALIA—ConfederaciónVenezolana deIndustriales(CONINDUSTRIA)—FEDECAMARAS—SUNACOOP—UNICAM—PDVSA—Consejo Nacional de laCultura - CONAC—Direccion de RedesSociales—Local Municipalities—Ministerio Publico—FEDECAMARAS—SUNACOOP—Banco Provincial-BBVA—ALCOA—PDVSA—Local Municipalities—Ministerio deagricoltura—Ministerio deAmbiente—Ministerio de Energiay Petroleo—ConfederaciónVenezolana deIndustriales(CONINDUSTRIA)—FEDECAMARAS—SUNACOOP—PDVSA—PROCTER AND GAMBLE7. NGOs —FUNDACION VENEZUELASIN LIMITES—VENAMCHAM—Venezuelan Foundationfor the Advancement ofScience (FundaVAC),—FundaciónCisneros—VENAMCHAM—Alcoa Foundation—DIVIDENDO VOLUNTARIOPARA LA COMUNIDAD—Fundación Cisneros—Humana Dignitas—RED DE APOYO—Special OperationsTactical Brigade (BTOE)—VENAMCHAM—Venezuela AwarenessFoundation—Venezuelan Program ofAction and Education inHuman Rights (PROVEA)—UNITED WAY—Alcoa Foundation—Heritage Foundation—VENAMCHAM—VenezuelanFoundation for theAdvancement ofScience (FundaVAC)8. Academia —UNIMET —IESA—UNIMET—IESA—UNIMET—UNIMETVenezuela 149

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