Private environmental governance as ensemble regulation: A critical exploration of sustainability indexes and the new ensemble politics

Theoretical Inquiries in Law

Volumn 12, Issue 2, 2011, Pages

  Perez, Oren ^a  

^a BAR ILAN UNIVERSITY   (Israel)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 80051525794     PISSN: None     EISSN: 15653404     Source Type: Journal    
DOI: 10.2202/1565-3404.1279     Document Type: Article

References (206)

1. E.g., ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, OECD GUIDELINES OF MULTINATIONAL ENTERPRISES (2001), available at http://www.oecd.org/dataoecd/56/36/1922428.pdf;
2. INTERNATIONAL CHAMBER OF COMMERCE, THE BUSINESS CHARTER FOR SUSTAINABLE DEVELOPMENT (1991), available at http://www.iccwbo.org/id1309/index.html.
3. E.g., INTERNATIONAL STANDARDS ORGANIZATION (ISO), ISO 14001: ENVIRONMENTAL MANAGEMENT SYSTEMS (1996); Regulation (EC) No. 1221/2009 of the European Parliament and of the Council of 25 November 2009, the Voluntary Participation by Organisations in a Community Eco-Management and Audit Scheme (EMAS);
4. Responsible Care, INTERNATIONAL COUNCIL OF CHEMICAL ASSOCIATIONS, http://www.responsiblecare.org (last visited Feb. 28, 2011).
5. E.g., Certification Scheme, FOREST STEWARDSHIP COUNCIL, http://www.fsc.org/ certification.html (last visited Feb. 28, 2011);
6. Energy Star, U.S. ENVIRONMENTAL PROTECTION AGENCY, www.energystar.gov (last visited Feb. 28, 2011).
7. E.g., the GLOBAL REPORTING INITIATIVE (GRI), SUSTAINABILITY REPORTING GUIDELINES (2006), available at http://www.globalreporting.org/ReportingFrame work/G3Guidelines/;
8. see also ACCOUNTABILITY, AA1000 ASSURANCE STANDARD (2008), available at http://www.accountability.org/standards/aa1000as/index.html.
9. Green financial schemes include codes regulating lending practices and "ethical" investment standards. Green indexes include, for example, the Dow Jones Sustainability Indexes and the FTSE4Good series.
10. Some of the foregoing instruments, such as the GRI GUIDELINES, 4, also cover non-environmental issues. There are similar instruments covering other aspects of the corporate responsibility issue, such as SOCIAL ACCOUNTABILITY INTERNATIONAL (SAI), SA8000 (2008), available at http :// www.sa-intl.org/ -data/n-0001/resources/live/2008StdEnglishFinal.pdf (dealing with workers' rights);
11. see also Sandra Waddock, Building a New Institutional Infrastructure for Corporate Responsibility, 22 ACAD. MGMT. PERSP. 87 (2008).
12. This process of polycentric evolution also characterizes other global domains. See Oren Perez, Purity Lost: The Paradoxical Face of the New Transnational Legal Body, 33 BROOK. J. INT'L L. 1 (2007);
13. Gunther Teubner & Andreas Fischer-Lescano, Regime-Collisions: The Vain Search for Legal Unity in the Fragmentation of Global Law, 25 MICH. J. INT'L L. 999 (2003-2004).
14. See, e.g., Suzanne Benn, Lindi Todd & Jannet Pendleton, Public Relations Leadership in Corporate Social Responsibility, 96 J. BUS. ETHICS 403 (2010);
15. Graham Hubbard, Unsustainable Reporting, Paper presented to the CR Debates, The Royal Institution of Great Britain (London, Mar. 27 2009), available at http://www.corporateregister.com/crra/2008- ceremony/media/ UnsustainableReporting.pdf.
16. For a definition of greenwash, see Thomas P. Lyon & JohnW. Maxwell, Greenwash: Corporate Environmental Disclosure Under Threat of Audit (Ross Sch. Bus.Working Paper No. 1055, 2006), available at http://ssrn.com/abstract=938988;
17. Greenwash Fact Sheet, CORPWATCH (Mar. 22, 2001), www.corpwatch.org/ article.php?id=242. For a discussion of concrete "greenwash" cases
18. See Jason Allardyce & Danny Fortson, Sir Sean Connery in 'Worst Ever Greenwash' Campaign, SUNDAY TIMES, Jan. 31, 2010, available at http://www.timesonline.co.uk/tol/news/uk/scotland/ article7009768.ece (criticizing Crédit Agricole's recent green campaign, available at www.credit-agricole.com/greenbanking/english (last visited Feb. 28, 2011));
19. THE COLLABORATIVE GREENWASHING INDEX, www.greenwashingindex.com (last visited Feb. 28, 2011);
20. Greenwash: Exposing False Environmental Claims, GUARDIAN.CO.UK, www.guardian.co.uk/environment/series/greenwash (last visited Feb. 28, 2011).
21. Niklas Luhmann, Limits of Steering, 14 THEORY, CULTURE & SOC'Y 41 (1997);
22. Oren Perez, Regulation as the Art of Intuitive Judgment: A Critique of the Economic Approach to Environmental Regulation, 4 INT'L J.L. CONTEXT 291 (2008);
23. See Sander Chan & Philipp Pattberg, Private Rule-Making and the Politics of Accountability: Analyzing Global Forest Governance, 8 GLOBAL ENVTL. POL. 103 (2008);
24. Birgitta Schwartz & Karina Tilling, 'ISO-Lating' Corporate Social Responsibility in the Organizational Context: A Dissenting Interpretation of ISO 26000, 16 CORP. SOC. RESP. & ENVTL. MGMT. 289 (2009) (in the context of ISO 26000);
25. Marianne Beisheim&Klaus Dingwerth, Procedural Legitimacy and Private Transnational Governance: Are the Good Ones Doing Better? (SFB Governance, Working Paper Series No. 14, 2008).
26. On the increasing importance of legitimacy at the transnational domain, see Steven Bernstein & Benjamin Cashore, Can Non-State Global Governance Be Legitimate? An Analytical Framework, 1 REG. & GOVERNANCE 347, 354 (2007).
27. Two good examples of first-generation codes are the Ceres Principles and the Global Sullivan Principles. See Ceres Principles, CERES, http://www.ceres.org/Page.aspx?pid=416 (last visited Feb. 28, 2011);
28. The Global Sullivan Principles of Social Responsibility, LEON H. SULLIVAN FOUDATION, http://www.thesullivanfoundation.org/about/global-sullivan- principles (last visited Feb. 28, 2011).
29. David Lazer, Regulatory Capitalism as a Networked Order: The International System as an Informational Network, 598 ANNALS AM. ACAD. POL. & SOC. SCI. 52 (2005);
30. David Levi-Faur, The Global Diffusion of Regulatory Capitalism, 598 ANNALS AM. ACAD. POL. & SOC. SCI. 12 (2005);
31. Christine Parker & Vibeke Nielsen, The Challenge of Empirical Research on Business Compliance in Regulatory Capitalism, 5 ANN. REV. L. & SOC. SCI. 45 (2009);
32. John Bradford Braithwaite, Neoliberalism or Regulatory Capitalism (RegNet Occasional Paper No. 5, 2005), available at http://ssrn.com/abstract=875789.
33. For the concept of polymorphosis, albeit in a completely different context, see Paul Ilie, Polymorphosis in Sade, 38 SYMP. 3 (1984).
34. Eyal Benvenisti & George W. Downsy, The Empire's New Clothes: Political Economy and the Fragmentation of International Law, 60 STAN. L. REV. 595 (2007);
35. Gerhard Hafner, Pros and Cons Ensuing from Fragmentation of International Law, 25 MICH. J. INT'L L. 849 (2004);
36. Martti Koskenniemi & Paivi Leino, Fragmentation of International Law? Postmodern Anxieties, 15 LEIDEN J. INT'L L. 553 (2001);
37. A good counterexample is the field of international trade law, in which the proliferation of bilateral free-trade treaties poses an increasing risk to the multilateral framework of the WTO. See Jagdish Bhagwati, Reshaping the WTO, 168 FAR E. ECON. REV. 25 (2005).
38. In the context of the global trade regime, see James Scott & Rorden Wilkinson, What Happened to Doha in Geneva? Re-Engineering the WTO's Image While Missing Key Opportunities, 22 EUR. J. DEV. RES. 141 (2010);
39. Bernard Hoekman, The Doha Round Impasse and the Trading System, VOX (June 19, 2010), available at http://www.voxeu.org/index.php?q=node/5206.
40. By insisting on these two features, I exclude from my domain of interest a significant number of global initiatives, which lack one or the other. For a less restrictive portrait of this global private network
41. For further guidelines regarding the implementation of ISO 14001 EMS, see INTERNATIONAL STANDARDS ORGANIZATION (ISO), ISO 14004 ENVIRONMENTALMANAGEMENT SYSTEMS-GENERAL GUIDELINES ON PRINCIPLES, SYSTEMS AND SUPPORT TECHNIQUES (2004).
42. These limitations include, in particular, limited sanctions and lack of transparency. It should be noted that ISO 14001 gives organizations the freedom to choose between self-certification and third-party certification and evaluation, although an increasing number of organizations have chosen the latter option.
43. See Matthew Potoski & Aseem Prakash, Covenants with Weak Swords: ISO 14001 and Facilities' Environmental Performance, 24 J. POL'Y ANALYSIS& MGMT. 745 (2005);
44. Michael W. Toffel, Resolving Information Asymmetries in Supply Chains: The Role of Certified Management Programs (UC Berkeley, Hass Sch. Bus., Working Paper No. 19, 2005), available at http://ssrn.com/abstract=809406.
45. Steven A. Melnyk, Robert P. Sroufe & Roger Calantone, Assessing the Impact of Environmental Management Systems on Corporate and Environmental Performance, 21 J. OPERATIONS MGMT. 329, 330 (2003);
46. Virginia Haufler, Negotiating International Standards for Environmental Management Systems: The ISO 14000 Standards, GLOBAL PUBLIC POLICY CASE STUDIES 7-9 (2000), http://www.gppi.net/fileadmin/gppi/Haufler-ISO-14000.pdf.
47. Paulo Albuquerque, Bart J. Bronnenberg & Charles J. Corbett, A Spatiotemporal Analysis of the Global Diffusion of ISO 9000 and ISO 14000 Certification, 53 MGMT. SCI. 451 (2007).
48. Kimitaka Nishitani, Demand for ISO 14001 Adoption in the Global Supply Chain: An Empirical Analysis Focusing on Environmentally Conscious Markets, 32 RESOURCE & ENERGY ECON. 395 (2010).
49. Richard Perkins & Eric Neumayer, Geographic Variations in the Early Diffusion of Corporate Voluntary Standards: Comparing ISO 14001 and the Global Compact, 42 ENV'T & PLAN. A 347 (2010);
50. INTERNATIONAL STANDARDS ORGANIZATION (ISO), THE ISO SURVEY OF CERTIFICATIONS 2008, at 12 (2009), available at http://oudarlesteyn.nl/nieuws/ ISO%20survey%20certifications%202008.pdf.
51. Eric Neumayer & Richard Perkins, What Explains the Uneven Take-Up of ISO 14001 at the Global Level? A Panel-Data Analysis, 36 ENV'T & PLAN. A 823, 835-36 (2004).
52. ASEEM PRAKASH & MATTHEW POTOSKI, THE VOLUNTARY ENVIRONMENTALISTS: GREEN CLUBS, ISO 14001, AND VOLUNTARY ENVIRONMENTAL REGULATIONS (2006) [hereinafter PRAKASH & POTOSKI, THE VOLUNTARY ENVIRONMENTALISTS];
53. Aseem Prakash & Matthew Potoski, New Dependencies: FDI and the Cross- Country: Diffusion of ISO 14001 Management Systems, paper presented at the First Annual Conference on Institutional Mechanisms for Industry Self-Regulation, Tuck Sch. Bus., Dartmouth C. (Feb. 24-25, 2006), available at http://mba.tuck.dartmouth.edu/mechanisms/pages/Papers/prakashpotoski% 20paper.pdf [hereinafter Prakash & Potoski, New Dependencies].
54. ACCOUNTABILITY, STAKEHOLDER ENGAGEMENT STANDARD: EXPOSURE DRAFT (2005), available at http://www.accountability.org/images/content/0/4/047/SES% 20Exposure%20Draft%20-%20FullPDF.pdf.
55. Josephine Maltby, Setting Its Own Standards and Meeting Those Standards: Voluntarism Versus Regulation in Environmental Reporting, 6 BUS. STRATEGY & ENV'T 83 (1997);
56. Carol Ann Tile, The Content and Disclosure of Australian Corporate Environmental Policies, 14 ACCT. AUDITING& ACCOUNTABILITY J. 190 (2001).
57. GLOBAL REPORTING INITIATIVE (GRI), SUSTAINABILITY REPORTING GUIDELINES (2002) [hereinafter GRI 2002 GUIDELINES];
58. GLOBAL REPORTING INITIATIVE (GRI), SUSTAINABILITY REPORTING GUIDELINES (2006) [hereinafter GRI 2006 GUIDELINES]. In the following discussion I will refer to the 2006 guidelines.
59. KPMG, KPMG INTERNATIONAL SURVEY OF CORPORATE RESPONSIBILITY REPORTING (2008).
60. For a comprehensive list of firms using the GRI guidelines, see GRI Reports List, GLOBAL REPORTING INITIATIVE, www.globalreporting.org/GRIReports/ GRIReportsList (last visited Dec. 15, 2010).
61. GRI 2006 GUIDELINES, 35, at 8, 25-34;
62. GRI 2002 GUIDELINES, 35, at 9, 34.
63. GRI 2006 GUIDELINES, 35, at 23, 27.
64. GRI checks for the presence or absence of the criteria in the report that corresponds to the report maker's self-declared Application Level. The GRI Application Level check does not represent GRI's view on the quality of the report and its content; it is simply a statement about the extent to which the GRI Reporting Framework was utilized. In contrast, external assurance is expected to assess whether the report provides a reasonable and balanced presentation of performance, taking into consideration the veracity of data in a report as well as the overall selection of content.
65. Roger Simnett, Ann Vanstraelen & Wai Fong Chua, Assurance on Sustainability Reports: An International Comparison, 84 ACCT. REV. 937 (2009).
66. INTERNATIONAL AUDITING AND ASSURANCE STANDARDS BOARD, INTERNATIONAL STANDARD ON ASSURANCE ENGAGEMENTS (ISAE) 3000:ASSURANCE ENGAGEMENTS OTHER THAN AUDITS OR REVIEWS OF HISTORICAL FINANCIAL INFORMATION (2005), available at http://www.accountability21.net/uploadedFiles/Issues/ISAE-3000.pdf.
67. ACCOUNTABILITY, AA1000 ASSURANCE STANDARD 2008 (2008), available at http://www.accountability.org/images/content/0/5/056/AA1000AS%202008.pdf.
68. Responsible-Care, 2008 Status Report 19-25 (2009), available at http://www. responsiblecare.org/filebank/Status%20Report%2001-05.pdf.
69. THE "EQUATOR PRINCIPLES": A FINANCIAL INDUSTRY BENCHMARK FOR DETERMINING, ASSESSING AND MANAGING SOCIAL & ENVIRONMENTAL RISK IN PROJECT FINANCING, PRINC. 10 (2006), available at http://www.equatorprinciples. com/documents/Equator-Principles.pdf.
70. See also Disclosure Based on EP 10, EQUATOR PRINCIPLE, http://www.equator-principles.com/reporting.shtml (last visited Feb. 28, 2011).
71. See FTSE, THE INDEX COMPANY, FTSE4GOOD INDEX SERIES INCLUSION CRITERIA 3 (2006), available at http://www.ftse.com/Indices/FTSE4Good-Index-Series/ Downloads/FTSE4Good-In clusion-Criteria.pdf;
72. DOW JONES SUSTAINABILITY INDEXES, DOW JONES SUSTAINABILITY WORLD INDEX GUIDE BOOK, VERSION 11.4, at 11 (2010), available at http://www.sustainability- index.com/djsi-pdf/ publications/Guidebooks/DJSI-World-Guidebook-11-4.pdf.
73. See, e.g., UNITED STATES ENVIRONMENTAL PROTECTION AGENCY (EPA), ENFORCEMENT ALERT 4 (2001), available at http://www.epa.gov/comp liance/resources/newsletters/civil/enfalert/sec.pdf;
74. Oren Perez, Facing the Global Hydra: Ecological Transformation at the Global Financial Frontier: The Ambitious Case of the Global Reporting Initiative, in CONSTITUTIONALISM,MULTILEVELTRADE GOVERNANCE AND SOCIAL REGULATION 459, 468-70 (Christian Joerges ed., 2006).
75. See, e.g., Toxics Release Inventory Program, UNITED STATES ENVIRONMENTAL PROTECTION AGENCY, www.epa.gov/tri (last visited Dec. 15, 2010);
76. THE EUROPEAN POLLUTION EMISSIONS REGISTER, http://prtr.ec.europa.eu/ (last visited Dec. 15, 2010);
77. National Pollutant Release Inventory, ENVIRONMENT CANADA http://www.ec.gc.ca/inrp-npri (last visited Dec. 15, 2010).
78. Several European countries have taken a more radical step by adopting regulations requiring large or state-owned companies to publish sustainability reports.
79. See, e.g., Lene Espersen, Danish Minister for Economic and Business Affairs, Proposal for an Act amending the Danish Financial Statements Act (Report on social responsibility for large businesses) (Oct. 8 2008), available at www.eogs.dk/graphics/Samfundsansvar.dk/Dokumenter/Proposal-Report-On-Soc ial-Resp.pdf;
80. STEVE LYDENBERG & KATIE GRACE, INNOVATIONS IN SOCIAL AND ENVIRONMENTAL DISCLOSURE OUTSIDE THE UNITED STATES, REPORT PREPARED FOR DOMINI SOCIAL INVESTMENTS (2008), available at http://www.domini.com/common/pdf/ Innovations-in-Disclosure.pdf.
81. Social Investment Forum, 2005 Report on Socially Responsible Investing Trends in the United States: 10-Year Review, 2 (2006), available at http://www.socialinvest. org/pdf/research/Trends/2005%20Trends%20Report.pdf.
82. EU-COMMISSION, GREEN PAPER ON PROMOTING A EUROPEAN FRAMEWORK FOR CORPORATE SOCIAL RESPONSIBILITY 20-21 (2001).
83. For concrete examples, see Green Funds, JUPITER, www.jupiter online.co.uk/PI/Our-Products/Green-Funds/Green+Funds.htm (last visited Dec. 17, 2010);
84. Corporate Responsibility Report 2009, FRIENDS PROVIDENT, http://www.friendsprovident.com/cr/ (last visited Dec. 17, 2010).
85. For further discussion, see Oren Perez, The New Universe of Green Finance: From Self-Governance to Multi-Polar Governance, in RESPONSIBLE BUSINESS: SELFGOVERNANCE IN TRANSNATIONAL ECONOMIC TRANSACTIONS 151 (Olaf Dilling, Martin Herberg & Gerd. Winter eds., 2008).
86. See Aaron K. Chatterji & David I. Levine, Breaking Down the Wall of Codes: Evaluating Non-Financial Performance Measurement, 48 CAL. MGMT. REV. 29 (2006).
87. See SAM Group, Research Corporate Sustainability Assessment Questionnaire, questions 38-41 (2009) (on file with author).
88. For additional codes which were not included in the table for lack of space
89. There are close links between the Equator Principles and the GRI Financial Services Sector Supplement.
90. See infra Part III, for further discussion of the role Eiris and SAM in this context.
91. There is some competition between ISO 14001 and the FSC rules. See Christina Stringer, Forest Certification and Changing Global Commodity Chains, 6 J. ECON. GEOGRAPHY 701 (2006).
92. FUTERRA SUSTAINABILITY COMMUNICATIONS, THE GREENWASH GUIDE 8 (2008) (quoting OXFORD CONCISE ENGLISH DICTIONARY (10th ed. 2002)).
93. GEORGE ORWELL, 1984, at 36 (1949), available at www.george-orwell.org/ 1984/2.html.
94. In the sense offered by John Dewey, Logical Method and Law, 10 CORNELL L.Q. 17, 26 (1914).
95. The approach presented above - A graded view of vagueness - draws on fuzzy logic. See Vilem Novak, Are Fuzzy Sets a Reasonable Tool for Modeling Vague Phenomena?, 156 FUZZY SETS & SYS. 341 (2005);
96. Lotfy A. Zadeh, Outline of a New Approach to the Analysis of Complex Systems and Decision Processes, 3 IEEE TRANSACTIONS SYS. MAN& CYBERNET 28 (1973).
97. For different attempts to define this matrix, see for example, Kenneth W. Abbott et al., The Concept of Legalization, 54 INT'L ORG. 401 (2000);
98. Martha Finnemore & Stephen J. Toope, Alternatives to "Legalization": Richer Views of Law and Politics, 55 INT'L ORG. 751 (2001);
99. Sylvia I. Karlsson-Vinkhuyzen & Antto Vihma, Comparing the Legitimacy and Effectiveness of Global Hard and Soft Law: An Analytical Framework, 3 REG. & GOVERNANCE 400 (2009);
100. John J. Kirton & Michael J. Trebilcock, Introduction: Hard Choices and Soft Law in Sustainable Global Governance, in HARD CHOICES, SOFT LAW: VOLUNTARY STANDARDS IN GLOBAL TRADE, ENVIRONMENT AND SOCIAL GOVERNANCE 3 (John J. Kirton & Michael J. Trebilcock eds., 2004).
101. This requires us to fuzzify also the systems-theory distinction between normative and cognitive expectations. For the system-theory view, see Gunther Teubner, Two Faces of Janus: Rethinking Legal Pluralism, 13 CARDOZO L. REV. 1443, 1449-50 (1991-1992).
102. One has to distinguish in this context also between the psychic and social processing of expectations. See EMILIOS A. CHRISTODOULIDIS, LAW AND REFLEXIVE POLITICS 122 (1998).
103. Aaron K. Chatterji&MichaelW. Toffel, How Firms Respond to Being Rated, 31 STRATEGIC MGMT. J. 917 (2010);
104. Oren Perez, Yair Amichai-Hamburger & Tammy Shterental, The Dynamic of Corporate Self-Regulation: ISO 14001, Environmental Commitment, and Organizational Citizenship Behavior, 43 LAW & SOC'Y REV. 593 (2009);
105. Rieneke Slager, What Gets Measured Gets Managed: Exploring the Link Between Sustainability Indices and Responsible Corporate Behaviour, paper presented at Oikos PRI Young Scholars Academy: Responsible Investment: Integration, Engagement, Transparency (2009).
106. For the notion of decoupling, see Peer C. Fiss & Edward J. Zajac, The Symbolic Management of Strategic Change: Sensegiving Via Framing and Decoupling, 49 ACAD. MGMT. J. 1173, 1175 (2006).
107. Governance Bodies, GLOBAL REPORTING INITIATIVE, www.globalreporting.org /AboutGRI/WhoWeAre/GovernanceBodies/GovernanceBodiesLandingPage.htm (last visited Dec. 19, 2010).
108. AA1000 Stakeholder Engagement Standard: Revision Process, ACCOUNTABILITY, http://accountabilityaa1000wiki.net/ (last visited Dec. 19, 2010).
109. T.M. Egyedi & S. Toffaletti, Standardising Social Responsibility: Analysing ISO Representation Issues from an SME Perspective, in PROCEEDINGS13TH EURAS WORKSHOP ON STANDARDISATION 121 (K. Jakobs & E. Soederstroem eds., 2008);
110. see also organization, SOCIAL RESPONSIBILITY, http://isotc.iso.org/ livelink/livelink/fetch/2000/2122/830949/3934883/3935096/04- organization/org-str.html (last visited Dec. 19, 2010).
111. Rejecting these simplistic conceptualizations puts into question other derivative distinctions such as the distinction between absolute sincerity and absolute suppression. This distinction is incompatible with the disclosure practices of the CSR world, which is one of degrees, as illustrated in the GRI model of varied application levels.
112. Thomas P. Lyon & John W. Maxwell, Corporate Social Responsibility and the Environment: A Theoretical Perspective, 2 REV. ENVTL. ECON. & POL'Y 240, 241 (2008);
113. Forest L. Reinhardt, Robert N. Stavins & Richard H. K. Vietor, Corporate Social Responsibility Through an Economic Lens, 2 REV. ENVTL. ECON. & POL'Y 219 (2008).
114. Further, from this perspective altruistic CSR is viewed as a case of corporategovernance failure, generated by the ability of under-monitored managers to use corporate resources to advance their ideological agenda.
115. Altruistic CSR is, from this perspective, not very different from the "greed capitalism" which fueled the 2009 financial crisis. The solutions are also similar: the adoption of organizational or incentive-based mechanisms, ensuring that the incentives of the firm's managers and shareholders are aligned.
116. See Lucian A. Bebchuk & Holger Spamann, Regulating Bankers' Pay, 98 GEO. L.J. 247 (2010);
117. Joseph Stiglitz, Regulation and Failure, in NEW PERSPECTIVES ON REGULATION 11 (David Moss & John Cisternino eds., 2009).
118. Potoski and Prakash's "green club" model, which highlights the reputational benefits of certain voluntary schemes, such as ISO 14001, and Gunningham et al.'s "social license" model, are two examples of attempts to explain the adoption of voluntary codes through economic logic.
119. See PRAKASH & POTOSKI, THE VOLUNTARY ENVIRONMENTALISTS, 29;
120. Neil Gunningham, Robert A. Kagan & Dorothy Thornton, Social License and Environmental Protection: Why Businesses Go Beyond Compliance, 29 LAW & SOC. INQUIRY 307, 329 (2004);
121. Prakash & Potoski, New Dependencies, 29.
122. See Thomas Donaldson, Making Stakeholder Theory Whole, 24 ACAD. MGMT. REV. 237, 238 (1999).
123. The model draws on Niklas Luhmann's communication-based theory of social systems, and on Richard Nelson's concept of "social technologies."
124. See NIKLAS LUHMANN, ORGANISATION AND DECISION (2000);
125. NIKLAS LUHMANN, SOCIAL SYSTEMS (1995);
126. Richard R. Nelson & Bhaven N. Sampat, Making Sense of Institutions as a Factor Shaping Economic Performance, 44 J. ECON. BEHAV. & ORG. 31 (2001);
127. Richard R. Nelson, Why Do Firms Differ, and How Does It Matter?, 12 STRATEGIC MGMT. J. 61 (1991).
128. For example, by increasing the employees' willingness to invoke the new conceptual apparatus introduced by the standard and to implement its routines.
129. See DAN ARIELY, PREDICTABLY IRRATIONAL: THEHIDDEN FORCES THAT SHAPE OUR DECISIONS 67, 80-83 (2008).
130. On the importance of the institutional setting to the understanding of individual belief-formation and behavior, see Yuval Feldman & Oren Perez, How Law Changes the Environmental Mind: An Experimental Study of the Effect of Legal Norms on Moral Perceptions and Civic Enforcement, 36 J.L. & SOC'Y 501 (2009);
131. Chris Von Borgstede & Lennart J. Lundqvist, Organizational Culture, Professional Role Conceptions and Local Swedish Decision-makers' Views on Climate Policy Instruments, 8 J. ENVTL. POL'Y & PLAN. 279 (2006).
132. Some other noteworthy social-environmental indexes are FTSE KLD 400 Social Index, KLD INDEXES, www.kld.com/indexes/ds400index/index.html (last visited Dec. 20, 2010) (formerly known as the Domini Index);
133. VIGEO, www.vigeo.com/csr-rating-agency/index.php?lang=en (last visited Dec. 20, 2010);
134. AUSSI: THE AUSTRALIAN SAM SUSTAINABILITY INDEX, www.aussi.net.au (last visited Dec. 20, 2010);
135. Indexes, SUSTAINALYTICS, www.jantzisocialindex.com (last visited Dec. 20, 2010) (the Canadian Jantzi Social Index);
136. The Calvert Social Index, CALVERT INVESTMENTS, www.calvertgroup.com/sri- index.html (last visited Dec. 20, 2010).
137. Other important related initiatives are ranking schemes, such as 100 Best Corporate Citizens, CORPORATE RESPONSIBILITY MAGAZINE, http://www.thecro.com/ content/100-best-corporate-citizens (last visited Dec. 20, 2010);
138. GLOBAL 100: MOST SUSTAINABLE CORPORATION IN THE WORLD, www.global100.org (last visited Dec. 20, 2010);
139. BUSINESS IN THE COMMUNITY, www.bitc.org.uk (last visited Dec. 20, 2010). I think that the fact that the FTSE4Good and DJSI are not just ranking exercises, but actually act as a focal source for financial decisions, makes them more influential. The institutional structure in which they are embedded is also much more developed.
140. SAM: SUSTAINABILITY INVESTING, http://www.sam-group.com/htmle/main.cfm (last visited Dec. 20, 2010);
141. EIRIS: EXPERTS IN RESPONSIBLE INVESTMENT SOLUTIONS, http://www.eiris.org/ (last visited Dec. 20, 2010).
142. The ranking is performed in each of the DJSI sectors. Similar methodology is employed in the other indexes in the series. See, e.g., DOW JONES INDEXES, 47, at 7, 17.
143. For the full list, see Overview, DOW JONES SUSTAINABILITY INDEXES, http://www.sustainability-index.com/07-htmle/indexes/overview.html (last visited Dec. 20, 2010).
144. See FTSE, 47, at 1;
145. see also FTSE4good Index Series, FTSE: THE INDEX COMPANY, www.ftse.com/Indices/FTSE4Good-Index-Series/index.jsp (last visited Dec. 20, 2010).
146. The FTSE4Good Index Series encompasses four tradable and five benchmark indices, representing Global, European, US, Australia, Japan and UK markets. The FSTE group launched two additional indexes: FTSE4Good Environmental Leaders Europe 40 Index and FTSE4Good IBEX Index.
147. The firms are taken from the baseline universe index. The FTSE4Good UK and Europe tradable indices consist of the largest fifty companies in the relevant FTSE4Good Benchmark Index, by full market value. The FTSE4Good USA and Global tradable indices consist of the largest one hundred companies in the relevant FTSE4Good Benchmark Index, by full market values.
148. For further discussion, see FTSE, GROUND RULES FOR THE MANAGEMENT OF THE FTSE4GOOD INDEX SERIES, VERSION 1.3, at 7 (2005).
149. FTSE uses some built-in exclusion criteria, while DJSI which does not rely on negative screening in its general indexes, offers some exclusion indexes.
150. FTSE, 47;
151. DOW JONES INDEXES, 47.
152. This was the phrase used by two of the FTSE interviewees. See infra note 97, for a description of the interviews. For DJSI approach
153. See SAM, THE SUSTAINABILITY YEARBOOK 2010, at 19 (2010).
154. The interviews were conducted between May and August 2010 (using telephone, email exchange and in the Israeli case a face to face meeting). From DJSI: Rodrigo Amandi, Managing Director Indexes, SAM Indexes GmbH and a member of DJSI Advisory Committee) and another member who preferred to remain anonymous.
155. From FTSE4Good: David Harris, Director of Responsible Investment, Jayn Harding, Principal Advisor, Responsible Investment, both from FTSE Group, and Patrick Mallon, International Director and Director Benchmarking and Reporting Business in the Community (member of FTSE4Good Policy Committee).
156. I also met for a background talk with Momo Mahadav, president of Maala, the Israeli CSR index. All of the interviewees whose names are mentioned gave permission to mention their names.
157. See Steven Scalet & Thomas F. Kelly, CSR Rating Agencies: What is Their Global Impact?, 94 J. BUS. ETHICS 69, 80 & nn.12-13 (2010). Other ranking mechanisms, such the influential U.S. News & World Report rankings of law schools and Colleges, provide an insightful analogy.
158. See Michael Bastedo & Nicholas Bowman, U.S. News & World Report College Rankings: Modeling Institutional Effects on Organizational Reputation, 116 AM. J. EDUC. 163 (2010);
159. Wendy Nelson Espeland & Michael Sauder, Rankings and Reactivity: How Public Measures Recreate Social Worlds, 113 AM. J. SOC. 1 (2007);
160. Michael Sauder & Ryon Lancaster, Do Rankings Matter? The Effects of U.S. News & World Report Rankings on the Admissions Process of Law Schools, 40 LAW& SOC'Y REV. 105 (2006).
161. Wendy Nelson Espeland & Mitchell L. Stevens, A Sociology of Quantification, 49 EUR. J. SOC. 401 (2008);
162. Another related area of research focuses on the considerations leading individuals to invest in ethical funds. See Eva Hofmann, Erik Hoelzl & Erich Kirchler, A Comparison of Models Describing the Impact of Moral Decision Makingon Investment Decisions, 82 J. BUS. ETHICS 171 (2008);
163. Eva Hofmann, Katja Meier-Pesti & Erich Kirchler, The Decision Process for Ethical Investment, 12 J. FIN. SERV. MARKETING 4 (2007).
164. Whether the SRI market has an influence on the cost of capital of "sustainable" companies is a debatable issue. See Darren D. Lee, Robert W. Faff & Kim Langfield-Smith, Revisiting the Vexing Question: Does Superior Corporate Social Performance Lead to Improved Financial Performance?, 34 AUSTL. J.MGMT. 21 (2009).
165. Another question, which has been discussed in the literature, concerns the financial performance of ethical financial instruments and sustainable indexes relative to conventional financial instruments. The evidence in this respect is still mixed and I will not discuss it here. See, e.g., Rob Bauer, Jeroen Derwall & Roger Otten, The Ethical Mutual Fund Performance Debate: New Evidence from Canada, 70 J. BUS. ETHICS 111 (2007);
166. Geoffrey M. Heal, Corporate Social Responsibility: An Economic and Financial Framework, 30 GENEVA PAPERS 387 (2005);
167. Darren D. Lee & Robert W. Faff, Corporate Sustainability Performance and Idiosyncratic Risk: A Global Perspective, 44 FIN. REV. 213 (2009);
168. Wim Vermeir, Eveline Van de Velde & Filip Corten, Sustainable and Responsible Performance, 14 J. INVESTING 94 (2005).
169. This issue was raised by the president of Maala.
170. George Cobb, David Collison, David Power & Lorna Stevenson, FTSE4Good: Perceptions and Performance, 88 CERTIFIED ACCOUNTANTS EDUCATIONAL TRUST RESEARCH REPORT 5 (2005).
171. POTOSKI& PRAKASH, THE VOLUNTARY ENVIRONMENTALISTS, 29.
172. Interview with FTSE Director of Responsible Investment and FTSE Principal Advisor, Responsible Investment.
173. This positive assessment of the engagement program was confirmed by another member of the FTSE4Good Policy Committee (Patrick Mallon).
174. SAM, 96, at 19, 21. This evaluation of the DJSI engagement program was confirmed by the Managing Director Indexes, SAM Indexes.
175. Review Summaries, FTSE4GOOD, www.ftse.com/Indices/FTSE4Good-Index-Series/ Index-Reviews.jsp (last visited Dec. 20, 2010). The analysis in this Article uses the subject-headings of FTSE.
176. 162 out of a total of 242.
177. Stephen J. Fowler & C. Hope, A Critical Review of Sustainable Business Indices and Their Impact, 76 J. BUS. ETHICS 243 (2007).
178. They found that as of December 2003 2.45 billion Euros was managed by funds tracking the DJSI index, with less of that amount using the FTSE4Good. This is a relatively small figure compared with the total SRI funds in the United States. However, since the paper was published the number of index-based financial products has increased significantly and as of the end of February 2010 the assets managed in these products totaled more than eight billion dollars.
179. See Licensing, DOW JONES SUSTAINABILITY INDEXES, www.sustainabilityindex. com/07-htmle/other/licensing.html (last visited Feb. 28, 2010).
180. Aaron K. Chatterji, David I. Levine & Michael W. Toffel, How Well do Social Ratings Actually Measure Corporate Social Responsibility?, 18 J. ECON. &MGMT. STRATEGY 125 (2009).
181. Scalet and Kelly present an empirical study of CSR rating agencies (Innovest and CRO Magazine). They find-contra to Chatterji and Toffel - that being dropped from a CSR ranking appears to do little to encourage firms to acknowledge and address problems related to their social and environmental performance. However, the authors themselves note that their methodology cannot capture all the possible impacts of ranking institutions and consider their study primarily as an exploratory exercise.
182. FTSE Director of Responsible Investment and FTSE Principal Advisor, Responsible Investment.
183. SAM, 96, at 22.
184. I will not be able within the scope of this Article to engage in a critical evaluation of the selection criteria developed by DJSI and FTSE4Good.
185. Dieter Kerwer, Rules That Many Use: Standards and Global Regulation, 18 GOVERNANCE 611 (2005) (on the role of expertise).
186. Unlike Eiris, which is a not-for-profit organization that offers independent assessments of companies and advice on integrating them with investment decisions, SAM is a for-profit investment group (although driven by a strong sustainability ethos).
187. For a list of the Committee members, see Index Rules, FTSE: THE INDEXING COMPANY, www.ftse.com/Indices/FTSE4Good-Index-Series/Index-Rules.jsp (last visited Dec. 20, 2010).
188. The Committee's authority is set in the ground rules for the management of the FTSE, 94.
189. Interview with the Director of Responsible Investment and Principal Advisor, Responsible Investment. I received further confirmation of this view in the interview I conducted with Patrick Mallon, an independent member of the Committee.
190. Interview with the Director of Responsible Investment and Principal Advisor, Responsible Investment. This positive assessment of FTSE engagement program is also shared by external observers.
191. Interview with Patrick Mallon, an independent Committee member.
192. FTSE4GOOD INDEX SERIES, IMPACT OF NEW CRITERIA & FUTURE DIRECTION: 2004-2005 REPORT 8 (2004-2005), available at http://www.ftse.com/Indices/FTS E4Good-Index-Series/Downloads/FTSE4Good-New-Criteria-&-Future-Impact- report.pdf.
193. FTSE4GOOD INDEX SERIES, CRITERIA DEVELOPMENT AND COMPANY ENGAGEMENT PROGRAMME: 2003-2004 REPORT 3 (2004), available at http://www.ftse.com/ Indices/FTSE4Good-Index-Series/Downloads/FTSE4Good- Company-Engagem ent-Report.pdf.
194. FTSE, 94, at 13. The appeals are heard a Controversies Subcommittee which has been combined with the Criteria Development subcommittee. In reality the process tends to be less legalistic, taking the shape of "informed discussion." Interview with FTSE Director of Responsible Investment and FTSE Principal Advisor, Responsible Investment
195. DOW JONES INDEXES, 47.
196. www.sam-group.com/htmle/djsi/advisory-board.cfm (last visited Aug. 1, 2010). With the establishment of the new "SAM Faculty" this data was removed.
197. Interview with Managing Director Indexes, SAM Indexes; email exchange with a member of DJSI Advisory Committee.
198. DOW JONES INDEXES, 47, at 40.
199. As of August 1, 2010, neither the SAM nor the DJSI website has included data about the new body; both continued to refer to the (then) irrelevant Advisory Committee.
200. See Network Overview, GLOBAL REPORTING INISIATIVE, http://www.global reporting.org/AboutGRI/WhoWeAre/NetworkOverview/;
201. ACCOUNTABILITY, 73;
202. THE EQUATOR PRINCIPLES ASSOCIATION, GOVERNANCE RULES, para. 6 (2010), available at http://www.equator-principles.com/documents/EP Governance-Rules- April-2010.pdf.
203. Benedict Kingsbury, Nico Krisch & Richard B. Stewart, The Emergence of Global Administrative Law, 68 LAW& CONTEMP. PROBS. 15, 37 (2005).
204. INTERNATIONAL STANDARDS ORGANIZATION (ISO), ISO 26000 (2010).
205. Radical critique is different, in that sense, from social protest.
206. See NIKLAS LUHMANN, RISK: A SOCIOLOGICAL THEORY 126 (1993) ("The form of protest remains a form that presupposes the other side that is to react to the protest").