II. Sharing of experiences and practices in social development

A. Framework of cooperation

5. For the purposes of the present report, cooperation involves collective and collaborative efforts at the national and international levels among partners/stakeholders for the realization of their agreed social development objectives. In the face of deep-rooted problems, including poverty, unemployment and social
exclusion, as well as many other social challenges, significant joint actions are clearly needed.

6. At both national and international levels, there are differences in the approach of Governments and other stakeholders to agendas and modalities of cooperative efforts in the social field, and there are often substantial differences in expectations regarding such cooperation, especially at the national level. Practices of, and participation in, decision-making among the partners may also take different forms, from consultation and information sharing to actual control of resources directed at the problems. Interaction, reciprocity and mutual influence among the partners are crucial elements of effective cooperation at all stages, from the framing of problems to the setting of objectives, or the implementation of a project or a policy. When partners are unequal, such mutuality will, however, be elusive. When the strategy of cooperation is well conceived, properly implemented and managed, and is based on mutual respect, transparency and realism, it enhances the chances of successful results. It also contributes to building trust among partners, thus facilitating the achievement of agreed objectives.

7. National public policy frameworks vary, reflecting as they do a mixture of goals and means. They are influenced by such factors as the private-public mix in the administration, provision and funding of social programmes and services, community participation and ownership and attention to the principles of universality, solidarity, equity and efficiency. Attention to these matters often determines the relative importance of social ministries in the national governance structure. Approaches differ along a continuum that ranges from free market “fundamentalism” and trickle-down distribution, to full government responsibility for the provision of social services. Governments have the flexibility to make choices along this continuum. It is notable, however, that neither extreme has proved to be free of inefficiencies and inequities, and that serious attention to social development often requires profound institutional reforms as well as considerable upgrading of operational and administrative aspects of programmes. Capacity-building, which is especially important in this respect, is a topic to which the present report will turn (see paras. 10-16 below).

8. At the international level, the patterns of cooperation and collaboration include both bilateral and multilateral efforts. Common socio-economic problems of Member States are dealt with in a variety of ways, both binding and non-binding. Negotiations resulting in binding international agreements coexist with the adoption of non-binding resolutions, declarations and recommendations intended to enhance various forms of cooperation among countries. Furthermore, the United Nations promotes the establishment of specific programmes of assistance to Governments and, by implication, to their peoples as well as collecting and disseminating information on socio-economic issues and developments.

9. With the impact of social development policies and programmes often taking many years, even decades, to materialize, a considerable strain is placed on maintaining cooperation and collaboration at all levels. Furthermore, social development requires not only multidimensional and integrated approaches, but also consistency among policies and priorities and adequate financing. Many social development programmes result in important public goods, including education, health, security, solidarity and a sense of equity and justice. The role of government is thus crucial to effective policy formulation and implementation, oversight and regulation. The commitment of the State is fundamental to the fulfilment of the above-mentioned principles of universality and equity. This also means that Governments should take primary responsibility for the financing and provision of social services and programmes. Taking the provision of public goods to its logical conclusion, it can be argued that social development may be considered a global public good in itself, with the inescapable corollary that the international community should be fully committed to promoting such development everywhere. Viewed this way, donor Governments, multilateral agencies, development foundations and other international non-governmental organizations (NGOs) have a key role in providing financial and non-financial resources to support the social development agenda of nations and regions, a view that is, at least implicitly, embodied in the Millennium development goals, with their international commitment and responsibility to deliver substantial improvements in the world’s social agenda, as first spelled out at the World Social Summit in 1995.

B. Capacity-building

10. In addition to encompassing physical infrastructure such as transportation, communications, water supply and sanitation, housing and environmental protection, capacity-building also addresses the capacity of social institutions, including: the family and wider social networks; the provision of services, such as education and health care; and the legal system and public administration. Changing values and norms, including a strong commitment to human rights and gender equality, are also dependent on capacity-building.

11. Furthermore, strengthening domestic financial institutions and regulatory agencies and promoting transparency, appropriate supervision, oversight and accountability in the processes of economic policy-making and public finance can also help to reduce macroeconomic vulnerability while securing financing for social development.

12. In building capacities, the processes involved should be open, participatory and directly linked to grass-roots experience. Transparency and the full involvement of stakeholders at all levels contributes to building an informed citizenry, promoting a sense of fairness and increasing public acceptance and support, all of which are prerequisites for effective policies and programmes. These considerations apply not only to government agencies but also to national and international NGOs.

13. In promoting the social components of capacity-building such as knowledge, skills, institutions and systems of management, policies and programmes at the national level often focus on two important objectives of development: education and justice. Improving opportunities and raising the level of educational
performance, often seen as a gateway to future economic prosperity, requires fostering broad-based participation in scientific and technological transformations and in the benefits they bring. It also requires constitutional structures and governance that guarantee fundamental rights and freedoms.

14. Capacity-building combined with decentralization can considerably enhance transparency and face-to-face accountability. Many of the best examples of effective action by citizens in calling their politicians and public officials to account have taken place at the level of local government.10 Soliciting citizens’ views on government services and building local capacity to design and conduct such programmes, for example, public opinion surveys, have become instruments of accountability at the local level. National experiences vividly demonstrate that encouraging more active citizen participation, bringing citizens into the political arena and making local governments accountable to those they govern not only enhances national capacity to deal with social issues but also brings desired empowerment to women and minorities. Programmes aimed at promoting democratization at the local level have often struck a sympathetic chord with the donor community, leading to increased funding.

15. Because capacity-building is increasingly seen as key to development, it has become one of the fundamental pursuits of the United Nations system’s operational activities. It has evolved significantly over time and continues to do so, especially with the adoption of the Millennium Declaration, which implies that all countries should have, or should acquire, the capacity to achieve the development goals contained in it.

16. It is clear that the role of Government in social development is crucial. Each country must design its own policies to develop on the basis of its own unique circumstances. It is also clear, however, that countries where the chances of lasting social development are best are those that strive to create a democratic society with broad popular participation, fulfil human rights, pursue economic policies to reduce poverty and have sufficient capacity to implement such policies.

C. Information and evaluation

17. Adequate, timely and accurate information is essential for the formulation of meaningful policies and effective programme management. Quality information assists not only in identifying and testing alternative approaches but in evaluating the suitability of policies and their effectiveness and efficiency in programme implementation. Information and evaluation also provide a foundation for accountability. Regular feedback from programme operations can guide directions for change.

18. The utility of information is a function of its fairness, objectivity and independence. Those groups of the population most affected by the impact of policies and programmes should be engaged in their evaluation. Carefully designed quantitative and qualitative surveys of statistically adequate samples and participatory processes are preferable to relying on the observations of officials in charge and conversations with selected beneficiaries. Scientifically designed and conducted surveys are more costly, but far more reliable and useful. Making the results of these evaluations public contributes greatly to transparency and public trust.

19. Commitments by Governments to specific targets and goals and a willingness to publicly disclose progress towards achieving them is becoming increasingly common at the national level, despite the associated political risks. From the citizen’s point of view, such a strategy provides a framework both for calling Governments to account and for judging whether the entitlements being offered are legitimate and acceptable.

D. Priority-setting and financing

20. While cooperation, capacity-building and information and evaluation are all necessary conditions for successful social development, the many dimensions of social development also require sustained and adequate financing. In the face of perennial resource constraints, particularly in developing countries, priorities should be carefully set.

21. Setting priorities for social development implies joint consideration of policies affecting economic opportunities, investment in human capital and social protection schemes. This requires close coordination and cooperation among the finance and social ministries (including social security, labour, health and education). Once the importance of integrated approaches to economic and social policy is recognized, priority-setting by policy makers will become more informed. Such an approach will lead to a paradigm change, from a “sequential” (or so-called “growth-first”) model of development to a “synergistic” one, in which socio-economic development is seen as both a means and an end rather than as a by-product or outcome of the attainment of certain economic goals.

22. Priority-setting should not overlook broader goals of empowerment of partners and participatory collaboration, including involvement of groups most affected by proposed policies, projects or schemes. Gender mainstreaming must be taken into account in any type of collaboration. The need to sequence and time programmes as well as to balance the interests of various segments of the population and different generations is especially important in priority-setting for social development.

23. The importance of sustained and adequate financing for social development cannot be overemphasized. Whether such financing should primarily occur at the national level or be decentralized is open to debate. Whatever financing mechanisms are chosen, they should ensure the provision of services as well as fiscal coherence while maintaining macroeconomic balance. If decentralized governance is considered desirable, it is important that the transfer of concomitant mandates be fully financed at each stage in the process and that local governments should simultaneously seek to increase their fiscal revenues from local resources. In general, a suitable regulatory and supervisory framework has to be developed within a decentralized structure encompassing the central, intermediate and local levels. It is also important that centralized and decentralized offices avoid overlap or competition for power or authority.

24. The social services financing is often threatened by economic and financial instability, which should and can be reduced by adopting prudent macroeconomic policies and establishing an effective system of information and economic analysis. Overcoming economic and financial instability, and the structural adjustment measures this often requires, can, however, have severe adverse implications for the financing of social sectors. Thus, policy makers are confronted with a conundrum in which instability negatively affects social services financing and overcoming such instability does not necessarily lead to an improvement in such financing. A World Bank working paper examining the experience of Argentina in the 1980s and 1990s shows that although pro-poor social spending is especially needed during times of fiscal austerity, the actual budget cuts fell particularly hard on social spending targeted at the poor. It is thus important for policy makers to safeguard social spending in general and spending targeted at the poor in particular during periods of economic downturn and fiscal retrenchment. This emphasis does not preclude pursuing sound macroeconomic policies, including achieving lower inflation targets.

25. Besides public finance, there are examples of innovative financing for social development, particularly in private financial markets. These range from the development of microcredit facilities to the introduction of increasingly sophisticated financial instruments and markets. Although not a panacea, the success of microcredit regimes in many developing countries in reducing poverty, promoting education and health programmes and creating economic opportunities for women is well recognized.

E. Official cooperation for development

26. Poverty eradication has been the core theme of the major United Nations conferences and summit meetings convened during the past decade. Combating poverty has become one of the major declared priorities of the donor community, often entailing internal reorganization and changes in methods of delivering
assistance. The growing importance of the “social component” in the overall distribution of development assistance has been demonstrated by the increasing share of aid directed towards social services (14 per cent of official development assistance in 2000 compared to 8 per cent in 1990).14 At the same time, drawing a line between “economic” and “social” goals is often unrealistic, as the “social” goals are an integral part of development efforts such as rural development or infrastructure building, while the achievement of many “economic” goals may also bring about better “social” outcomes. For example, enhanced levels of investment and/or economic growth as a result of international cooperation is an important factor in increasing the welfare of a population, including a reduction of poverty and better provision of social services.

27. While the primary responsibility for the achievement of the Millennium development goals lies with the Governments of developing countries and the bulk of resources will come from their budgets, in many low-income countries the narrow resource base is unlikely to permit the achievement of these goals without additional external resources. The attainment of the goals requires universal access to social services such as basic health care and education, reproductive health and safe drinking water and sanitation, access which has been sorely missing in many developing countries. Official development assistance will be an important source in supplementing the lack of domestic resources.

28. While official development assistance represents only one element of a much broader international cooperation effort, the mobilization of resources for social development through this mechanism has been an important part of international cooperation. Overall, striving for the fulfilment of the agreed donor target of 0.7 per cent of gross national product for official development assistance, and increasing the share of funding for social development programmes commensurate with the scope and scale of activities required to achieve the internationally agreed upon development goals has been an important objective of the international community. However, despite the renewed commitment of the donor countries to meet the agreed target, official development assistance has continued to decline. In 2001, official development assistance from the member countries of the Development Assistance Committee of the Organisation for Economic Cooperation and Development (OECD) declined again to $51.4 billion from $53.7 in 2000. In March 2002, however, prospects for reversing that decline improved following the holding of the International Conference on Financing for Development in Monterrey, Mexico, where some major donors (United States of America, European Union and Canada, among the others) pledged substantial increases in official development assistance to developing countries.

29. It has been widely recognized that mobilization of additional resources is required to bridge the gap between current levels of official development assistance and the estimated funding needed to achieve the Millennium development goals. The scale of donor assistance to specific social sectors in recipient countries
inevitably varies, reflecting numerous trade-offs and different priorities of partners. One good example of the magnitude of the current funding problem, against the background of the existing needs, is official development assistance for health and population programmes in developing countries: at the end of the 1990s, donor assistance averaged $2.55 billion per year (or just 0.01 per cent of donor GNP), while the desirable level was estimated to be at least $27 billion per year. Even if this hypothetical increase materializes by 2007, as proposed by the Commission on Macroeconomics and Health, the total bilateral flows in this area would amount to only 0.1 per cent of the GNP at the respective donors, or one penny for every $10 of donor GNP compared to one penny for every $100 of donor GNP now.

30. The case for development assistance rests, in the broadest sense, on grounds of morality, politics and self-interest. Moral and ethical considerations are often used to make a case for both corrective and distributive justice through international cooperation. The rectification of past wrongs coexists with calls for the redistribution of wealth or income according to criteria of either need or merit. The assumption is that international or national economic interdependence creates benefits and costs that are unevenly distributed, calling for corrective action. Humanitarian or charitable considerations are particularly important in development cooperation in the face of various crises where human life is at risk.

31. The rights-based approach to development can be seen not only as a moral but also as a political justification for international cooperation. People throughout the world are seen to have certain inalienable rights and Governments have an obligation to facilitate the enjoyment of these rights and to work towards the
creation of appropriate domestic and international environments and conditions that will lead to their realization. In this view, there is a simultaneous relationship between development and human rights: lack of development is a denial of human rights, but lack of human rights makes it very difficult for development to take place.

32. In addition to moral and political reasons, there are numerous economic arguments underpinning the need for international development cooperation. In an increasingly integrated world economy, and in the face of numerous cross-border challenges, the provision of “global public goods” is vital for the achievement of positive outcomes, including the reduction of negative external factors. Some challenges, including environmental degradation, drug trafficking and the spread of diseases such as HIV/AIDS, have become global in nature. The cooperation of all interested/affected parties in addressing these challenges is indispensable for the achievement of immediate results, as well as for the maintenance of global stability and peace. Furthermore, some temporarily localized threats (e.g., a looming food crisis or ongoing conflicts at the local/regional level) may have the potential to “spill over” and affect other countries. Under such conditions, cooperation at both the national and international level becomes a factor of paramount importance for mutual social and economic well-being.

33. The case for national and international cooperation is also supported by considerations of self-interest. In the final analysis, nations pursue policies in their own interest, especially in such areas as efficiency of resource allocation. Pursuing such self-interest does not necessarily lead to a zero-sum game. For example, there are many areas where international cooperation leads to a more efficient allocation of global resources or to the expansion of the global market. This has advantages for all countries, as higher levels of economic growth and per capita income increase demand for goods and services, creating a “virtuous circle” in the long run.

34. In view of the various arguments above, it is not surprising that the task of making official development assistance a more effective instrument for the improvement of human well-being has long been on the agenda of national aid agencies. Many of these institutions, responding to calls from domestic constituents to increase the effectiveness of assistance and facing reappraisal of their mandates, have widened the scope of their operations from macroeconomic stability and/or economic growth to areas such as employment promotion, poverty reduction, gender equality and good governance. Mutual responsibility of donors and recipients has
become an integral part of aid provision. While efficient utilization of official development assistance by recipient countries is seen as essential by the donors, it is also recognized that donors should pursue consistent and coherent policies, especially in the areas of trade and aid. Competent delivery of assistance is as important as competent use of such aid. Consequently, the main challenge faced by donors is not simply selecting countries that should receive their aid, but rather to select those who, within the recipient countries, should receive aid, and what policy objectives the donors should support.

 

IV. Social responsibility of the private sector

65. The private sector has been approached for its cooperation in promoting and implementing measures for social development. Concerns surrounding issues such as the impact of the private sector on public policy, the environment and working conditions in export-related industries of countries hosting transnational corporations have led to demands for greater transparency, accountability and acceptance of responsibility by the private sector. In response, there is a growing interest within the private sector in contributing to social development and environmental sustainability. Many decision makers in the private sector also recognize that the benefits to their companies of assuming responsibilities in these areas exceed the costs.

66. National and international cooperation from the private sector has also been encouraged and required because of what has been referred to as government and institutional deficits. This can occur at the national level because of lack of information as well as lack of government capacity or resources. It is also argued that there is a governance deficit at the international level, as there is no international government to deal with international problems, but rather a series of conventions, treaties and agreements, the implementation and regulation of which remain at the national level. These deficits can make it difficult for Governments to effectively address existing social problems or to promote broad-based development.

67. As a result, the social responsibility borne by the private sector is now seen as an important element of a more cohesive society geared to eradicating poverty and combating social exclusion. A private sector that sees itself as having a broader social responsibility, whether represented by large companies or by small and
medium-sized enterprises, can make an important contribution to social progress and the resolution of social problems.

A. Approaches to the social responsibility of the private sector

68. Corporate social responsibility is a widely used concept to describe specific decision-making policies of the business community that are: linked to ethical values; in full compliance with existing legal requirements; and show respect for people and the priorities of local communities, including environmental protection. This social responsibility, combined with corporate responsibility to a range of stakeholders, notably consumers, employees and their representatives, investors and shareholders, is assessed in terms of meeting a growing range of standards.

69. Corporate citizenship entails a similar approach, and is often used interchangeably with corporate social responsibility, although, it is potentially wider in scope, implying an active role for private sector entities as “citizens”, having both rights and responsibilities. In addition to adopting the business policies and practices of corporate social responsibility, corporate citizenship is geared, in particular, to maximizing private sector contributions to social development without undermining sound business practices. The concept of corporate citizenship goes beyond focusing on compliance, responding to external scrutiny or simply minimizing negative impacts, thereby engaging the private sector in a more proactive way to actively search out and pursue ways to promote social development.

70. While there is a growing awareness of and participation in these approaches by the private sector, the number of businesses throughout the world that are fully integrating and implementing them remains relatively small. Many managers and shareholders have yet to be convinced that these approaches are more than a question of corporate image or that fully integrating policies on social involvement into corporate policies will not hurt profits or shareholder value. One of the key challenges is to find common ground between high standards of social responsibility and accountability on the part of businesses on the one hand, and business
competitiveness and profitability on the other.

71. There has also been, particularly during the 1990s, a proliferation of voluntary corporate codes of conduct, ranging from vague declarations of business principles applicable to their international operations, to more direct efforts at self-regulation, focusing on social conditions and the environment. The drafting of these codes has brought together a wide range of stakeholders likely to be affected by their adoption. In many cases, implementation of these codes remains relatively limited. There is also the risk that these codes may be seen as something more than what they really are, thus deflecting criticism and reducing the impetus for external regulation. It is thus particularly important in the formulation of development strategies to ensure that codes complement, but do not substitute for, appropriate government legislation.

72. The voluntary approach to codes of conduct has evolved in recent years and has assumed new forms that attempt to overcome some of the limitations of older codes and other self-regulatory initiatives. One approach involves the emergence of “multi-stakeholder initiatives”, whereby NGOs, multilateral and other organizations encourage companies to participate in schemes that set corporate social and environmental standards, monitor compliance, promote social and environmental reporting and auditing, certify good practice and encourage stakeholder dialogue and an awareness of social impact.

73. Given the complexity of multi-stakeholder initiatives in terms of reporting, auditing, monitoring and certification, other approaches continue to evolve, such as “complaints-based systems”, under which there are procedures and institutions to detect breaches of agreed standards. Such systems can assume numerous
institutional forms involving, for example, judicial procedures, global collective agreements between companies and trade unions and NGOs that attempt to “name and shame” companies responsible for specific abuses. Several multilateral organizations, such as the World Bank, the International Labour Organization (ILO), the Organisation for Economic Cooperation and Development (OECD) and the secretariat of the North American Free Trade Agreement, have established complaints procedures. In practice, however, these tend to be rather weak. While there are no complaints-based procedures within the United Nations system, some have argued that there may be scope for developing one via the United Nations human rights machinery.

74. The United Nations has been involved in the area of the social responsibility of the private sector in other ways, the most prominent of which is the United Nations Global Compact. The Global Compact is a voluntary corporate citizenship initiative based on nine principles derived from a universal consensus based on the Universal Declaration of Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work and the Rio Declaration on Environment and Development. The nine principles state that businesses should: (a) support and respect the protection of internationally proclaimed human rights within their sphere of influence; (b) make sure that they are not complicit in human rights abuses; (c) uphold freedom of association and the effective recognition of the right to collective bargaining; (d) uphold the elimination of all forms of forced and compulsory labour; (e) uphold the effective abolition of child labour; (f) eliminate discrimination in respect of employment and occupation; (g) support a precautionary approach to environmental challenges; (h) undertake initiatives to promote greater environmental responsibility; and (i) encourage the development and diffusion of environmentally friendly technologies.

75. For a company to be considered a participant in the Global Compact, it must: (a) send a letter from its chief executive officer to the Secretary-General expressing support for the Global Compact and its nine principles; and (b) provide, once a year, a concrete example of how the company is internalizing one or more of the nine principles into management practices and policies. Companies have the added opportunity of participating in a number of initiatives and programmes sponsored by the Global Compact. While NGOs and other non-business participants are not required to submit an example annually, they are asked to participate in other modes of engagement, including partnership projects and global policy dialogues. Since its official launch in July 2000, the Global Compact has evolved into a multistakeholder network composed of United Nations agencies, the private sector (both companies and business associations), trade unions, NGOs and academic institutions.

B. Social responsibility of the private sector and developing countries

76. Discussions about private sector social responsibility are often framed in the context of developed countries or the behaviour of corporations based in developed countries. Because of this, and because of the pressing needs of poverty eradication, employment creation and the delivery of social services, the view of many in developing countries is that the theme of the social responsibility of the private sector is an “issue of the affluent”, or of the “rich North” rather than of the “poor South”. There is also concern that the use of social responsibility principles and policies could be used against developing countries as a type of disguised
protectionism, for example through increased labour or environmental standards, hence raising the cost of doing business in their respective countries and making their exports less competitive and their countries less attractive for foreign investment.

77. Notwithstanding the above, the social responsibility of the private sector is a universal notion applicable to all countries, including developing countries, especially in view of its importance and large potential for social development. It is important, therefore, that, in discussing the social responsibility of the private sector, consideration be given to country-specific circumstances, including particular economic, institutional, cultural and other conditions. Following such considerations and assessments, firms would be expected to move towards best attainable practices in their line of business, taking into account the specific circumstances in their country and/or the context of the geographical region in which they operate.

78. In developing countries, private sector social responsibility is largely concerned with community development projects or corporate social investment, and many companies are still learning about and examining the implications of such concepts as corporate social responsibility and corporate citizenship. In addition, in order for corporate social investment to be relevant, investments should be consistent with local and national development programmes and should result in development projects that are sustainable, serve community goals and transfer skills to the community. Partnership and ownership roles have to be clarified so that partnership projects are not driven solely by company goals.

79. The urgency of resolving economic and social development issues and problems in developing countries requires that debates about public and private sector roles be focused on the building of effective partnerships between these two sectors. This is the case with social protection, in particular, where there has been a continuing debate about the role of the private sector, especially in the financing of delivery of social protection and the provision of social services. Major social problems that demand concerted action and may benefit from public/private partnerships include, but are not limited to, reducing high levels of illiteracy, promoting employment and training activities, preventing crime, violence and drug trafficking and combating the HIV/AIDS pandemic.

C. Socially responsible investing

80. Defined as the integration of social, ethical and environmental values into investment decisions for the purposes of bringing about positive social and environmental change, socially responsible investing is based on the same values that underlie the United Nations Declaration on Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work, the United Nations Global Compact, the Convention on Biological Diversity, Agenda 21 and the OECD Guidelines for Multinational Organizations. This type of investing is carried out by investors who seek to influence corporations to perform in a socially, ethically and environmentally responsible manner.

81. One way that socially responsible investing seeks to influence corporations is through portfolio screening, which evaluates investment decisions on the basis of criteria such as employee relations and records of community involvement and environmental impacts. Corporations that meet the screening criteria are rewarded by attracting investment in their stocks and by an enhanced corporate image among both investors and consumers. This type of investing also seeks to influence corporations through shareholder advocacy, which involves exercising the full rights of stockowners to influence how a company is run by engaging management in a dialogue on issues of concern as well as by filing, co-filing and voting on shareholder resolutions in order to direct companies towards socially and environmentally responsible practices.

82. Socially responsible investing can entail community investing as well, that is, generating resources and opportunities for economically disadvantaged people in communities under-served by traditional financial institutions. Community investors make it possible for organizations to create jobs, to provide financial services to low-income individuals, to supply capital to small businesses and to provide affordable housing and community services.

83. While small compared to the traditional investment market in developed market economies, where the majority of socially responsible investing is carried out, this form of investment has been growing rapidly, both in overall assets and in the number of investment choices available. Socially responsible investing also
continues to evolve, both in terms of the number and types of portfolio screenings used as well as in terms of the impact of shareholder advocacy. There is increasing evidence that social, ethical and environmental screening of investment portfolio decisions does not have a negative impact on the financial performance of companies. Research is also being conducted to determine whether screened portfolios outperform unscreened portfolios over the longer term. As awareness of socially responsible investing practices has increased and has gained recognition and popularity, the attitudes of companies have changed, resulting in more room for dialogue between management and investment managers and investors who use such practices.

D. The role of government

84. Increased involvement of the private sector in social development does not, of course, absolve the State from its responsibilities. Private sector social responsibility is not a substitute for effective government and a well-functioning public sector; it should be seen as a potentially useful complement. While the private sector has comparative advantages in the private sphere, it cannot claim the legitimacy or authority of a democratically elected government. Neither can it assume the broader scope of responsibility of Governments, since its fiduciary obligations are to its shareholders.

85. Thus, while social responsibility of the private sector offers much promise for social development, it is not a panacea. In the final analysis, business is motivated by profit. The challenge is to reconcile the high standards of social responsibility and accountability on the part of businesses with their interest in competitiveness and profitability.

86. Both the public and private sectors are in agreement on the need for government involvement and effective governance. The role of the State in creating an appropriate enabling environment is especially important in the promotion of social responsibility of the private sector.

87. The creation of an appropriate enabling environment entails addressing the role of the State vis-à-vis markets and privatization. The increased reliance on market forces and the privatization of State assets has paradoxically made the role of the State more, rather than less, important. Relying on market forces and embracing privatization require strong oversight and institutional support by the State. Its role is essential in policy formulation, creating institutional frameworks, enacting legislation, adopting tax incentives and disseminating public information, in particular if it wants to promote greater participation of the private sector in contributing to social development. Reviewing existing regulations or institutions and how they need to be changed or adapted to new circumstances, as well as identifying missing regulations and justifying their introduction, are some of the crucial tasks faced by the State.

88. Governments also have a role to play as facilitator, including the creation of conditions to make self-regulation viable, effective and robust. For example, public policy can influence and help shape market processes and voluntary action in ways that enhance the social responsibilities of the private sector. This is particularly so in the context of a governance deficit, in cases where there is no Government, such as at the international level, or where government at the local or national level is, for whatever reason, weak and ineffectual. In this regard, globalization has had a profound impact on the relationship between government and business, as government is constrained in its ability to handle all the complex issues of corporate regulation, including laws promoting competition, without recourse to international and intergovernmental institutions.

89. Finally, in the field of policy-making, there is a need to identify the most desirable and decisive policies that maximize their intended effect while minimizing and mitigating any negative consequences. In this context, policy makers and policy advisers need to be aware and informed of the timing and sequencing of policy implementation. Recommending or attempting to implement too many policies at once, or regulating too soon or too late with respect to the actual conditions, can lead to a loss of credibility or much weaker than desired results.