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How MNCs threaten our environment

Industrial corporations have abundant resources in terms of technological innovations and investment capital in boosting their production. In a period of globalization, privatization and market liberalization, they are seen as one of the most important factors to shape the future of the world. However, those factors have brought not only an increase in wealth but also a detrimental effect on the environment caused by the commercial activities of multinational corporations (MNCs). Generally, the rules of developed countries are much stricter than those of developing countries (Abdul-Gafaru, 2006). It has been persistently alleged that most MNCs of home developed countries conduct their operations in host countries because they offer lax environmental standards. The reason seems plausible as developing countries need to attract foreign investors to create more jobs. There are also legal disputes about which nations laws should apply, which complicates the regulations of environmental practices of MNCs and their subsidiaries. This extraterritoriality problem is inherent in the structure of all MNCs, and forces their operations to become illicit. Thus, transparency in MNCs can serve as an effective risk management tool to impr ove a companys image and also contribute to a more stable investment and rule of law that benefits both the countries and the company. Until the 1980s, most supply-side economists such as Milton Friedman believed that MNCs were legally accountable only to their shareholders. This view considered MNCs as purely profit-minded entities that did not have any legal obligation in incorporating the host societys interests into their activities. From the 1980s, a series of environmental damages associated with the activities of MNCs occured. Most countries rethought the idea to put the long-term sustainability of environment in the form of economic growth, without understating the role of MNCs in society. As time goes on, MNCs become not only the major technology innovators, but also have skills in the safe handling, transport, storage, use and disposal of toxic materials, and in the development of pollution abatement technologies. The fact that MNCs possess clean technologies however makes us doubt whether MNCs technology is safe for host developing countries.

There is also an argument that due to the high environmental standards in developed countries, MNCs systematically shift their environmentally noxious operations to developing countries. For example, they contribute greatly to the environmental degradation and deforestation in Asia-Pacific and South America. In Indonesia, Sinar Mas and Raja Garuda Mas are examples of two of the largest pulp and mills producers (WWF, 2006). Both established holding companies, Asia Pulp and Paper Co. Ltd. (APP) and Asia Pacific Resources International, Ltd. (APRIL) respectively, and utilized Riau province as their main operation sites. It is estimated that some 170,000 hectares of natural forests in the province have been cleared for pulp and mills production. Ironically, this is continuing today, with elephant and tiger habitats being destroyed, and the land is left barren. The latest accusation against these companies came not from just one environmental watchdog. Recently, Greenpeace released a report accusing APP of having destroyed carbon-rich peatlands. This allegation sparked a hard reaction from APP. According to ITS Global, an independent consultant which was assigned by APP to conduct a peer-reviewed audit, Greenpeace used false and misleading information to shatter its credibility. However, the audit result then stimulated further response from the Roundtable on Sustainable Palm Oil (RSPO), an industry body of planters, green groups and consumers, which made the first public censure about APPs behavior breaching the principles of social and environmental impact assessments and destroying peatlands so that it might cost the company a heavy sanction. It is another blow for APP, which is attempting to build a positive image after the cancellation of contracts by food and beverage companies such as Unilever, Kraft and Nestle. If we look back at cases of deforestation in Asian countries, this is not the first time for APP has been associated with illegal logging activities. In 2005, Chinas State Forestry Administration charged APP with illegal tree felling in the southwestern province of Yunnan. At the same time, APP through its subsidiaries in Cambodia was caught illegally logging. However, APP was declared not guilty in both cases. In my opinion, big corporations actually can play a significant role in enhancing environmental sustainability in Indonesia. But, only in the context of legally binding regulations are MNCs forced to conduct business in an environmentally friendly manner.

An example of BPs oil spill in the Gulf of Mexico can be an important lesson for our government, particularly for the ministry of environment and forestry, to take legal action against the ineptitude of MNCs. Here, several contractors and officials related to this case are all convicted. It has so far cost BP US$8 billion in clean-up. But, BP could face a further $18 billion in penalties and compensations. Since the protection of natural resources requires the contribution of many parties, the need of assessment of an integrated set of programs initiated by host countries which matched with those of home countries is essential to halt massive environmental damage. For instance, the 2008 Transparency Internationals report on promoting revenue transparency in oil and gas industries showed that International Oil Corporations (IOCs) such as Shell and BP Group had attained better results in reporting anticorruption programs and ecological operations in host governments due to improvement in their home countries regulations. By doing so, we can measure whether MNCs employ methods to fight corruption in the extractive sector, and whether they have sustainable policies and standard operation procedures in running their business. Without a coordinated global effort, host countries like Indonesia cannot continue with the agenda of adaptation and mitigation in climate change.

The writer is a lecturer at the National University, Jakarta, and an economic policy researcher at Transparency International Indonesia

http://www.thejakartapost.com/news/2010/10/22/how-mncs-threaten-our-environment.html

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