International CSR policies in developing countries : government practices of the Netherlands in Panama

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International CSR Policies in Developing Countries:

Government Practices of the Netherlands in Panama

Master Thesis Political Science, Political Economy

R.J.C. Legito

06-07-2018 Research Project: Corporate Responsibility and Authority in Global Governance Supervisor: L.F. Fransen Second reader: P. Schleifer

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Abstract

This thesis examines the influence of Dutch international Corporate Social Responsibility (ICSR) in foreign countries. By applying the theoretical framework of Steurer (2010), it is analysed whether national public policy instruments and themes on CSR can be used to promote CSR activities to stakeholders abroad. This establishes the influence of national policy instruments on stakeholder engagement with CSR activities abroad. This thesis expects that national public policy instruments and themes on CSR can be translated into ICSR policy, and that governments promote CSR activities to stakeholders in foreign countries in a similar way as governments do in its home country. Moreover, the prediction is that ICSR policy implementation of governments does not have the desired effect on stakeholders due to the lack of a structured approach and overview on the available ICSR policy instruments. The influence and effects of national public policy instruments are measured through a qualitative policy analysis and in-depth interviews with the Dutch Ministry of Foreign Affairs and relevant stakeholders in Panama.

This thesis concludes that foreign policy instruments and themes on CSR correspond to national public policy instruments and themes and that the theoretical framework of Steuer (2010) can be used to interpret foreign policy instruments. Governments make use of national public policy instruments in the ICSR policy implementation, but the desired policy effects differ per country. Moreover, an overarching theme should be added to the ICSR policy framework. This thesis also shows that the promotion of CSR activities by governments positively affects stakeholder behaviour abroad, but that the influence on Dutch stakeholders abroad is not optimal because policy mostly focuses on informational engagement, whereas the government has sufficient tools to also increase relational and networking engagement. It appears that Steuer’s (2010) framework is useful to categorise ICSR policy instruments and themes, and that the Dutch government is successful in increasing informational engagement abroad. However, the relational and networking engagement of the Dutch government with stakeholders remains limited because the Dutch government does not yet actively improve the due diligence process of stakeholders abroad.

The small sample of this thesis limits the generalisability of this research. Nevertheless, it still identifies opportunities for further research. Therefore, this research recommends to further investigate the influence of ICSR policy instruments in other countries, the effects on a large group of stakeholders, the desired degree of stakeholder engagement and in what way promoting a level playing field and due diligence fit within the framework of Steuer (2010).

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Preface

Dear reader,

I hereby present you the final work of my MSc degree in Political Economy, part of the Political Science programme. I developed a special interest in Corporate Social Responsibility (CSR) and the interaction between the public and private sector during this degree and my internship at the Dutch embassy in Panama. When starting the research project, I realised how important it was to choose a topic which would keep me captivated for a couple of months. However, I never expected to become so passionate about it, even after months of research. Although I believe in the power of business, I do not believe that CSR would have developed that far without government involvement. At the same time, I expected that bureaucracy creates inefficiencies which limit effective CSR policy implementation. I was motivated to deliver useful and informative work with this research, and I hope to expand knowledge of people working in the field, and other people studying the dynamics of foreign CSR policy.

This thesis would not have been possible without support from several people. First, I would like to thank my ex-colleagues at the embassy in Panama. Especially Natasha Risseeuw, who provided me with valuable input since the beginning. Second, I would like to thank the respondents to my email questions and particularly the participants of the interviews: Mirte Ruesen, Bruno Basile, Wiger Franke, Sonia Correa, Olivier van Papenrecht and Glenn Tjon. Thank you for taking the time to provide me with valuable insights into ICSR in Panama. Furthermore, I would like to thank my co-students and friends, Mara, Amelia, Catriona and Willemijn, who have taken the time to provide me with feedback and grammar corrections; Nadieh, Pamela and Romana, for being there throughout the process, whilst providing me with wise advices and suffering with me in the library. I would also like to thank my family, I would not have made it through this degree without their endless support and motivation. I would like to thank my second reader, Philip Schleifer, for taking the time to read this. Lastly, a special thanks goes to my supervisor, Luc Fransen. Thank you for the great seminars and way of teaching, but also for great advices on professional and personal level: thank you for understanding my situation so well.

I dedicate this work to my opa’s. Athough I know they will not read it, they were the biggest support throughout this entire process. Opa, je kleindochter is eindelijk afgestudeerd en mag zichzelf MSc noemen.

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List of abbreviations

CSR – Corporate Social Responsibility CSO – Civil Society Organisation

ICSR – International Corporate Social Responsibility ILO – International Labour Organization

FFP – Financial Foreign Policy MFA – Ministry of Foreign Affairs MNC – Multinational Corporation NCP – National Contact Point

NEA – Netherlands Enterprise Agency NGO – Non-Governmental Organisation

OECD – Organisation for Economic Cooperation and Development PPP – Public-Private Partnership

RBC – Responsible Business Conduct RVO – Rijksdienst voor Ondernemen

SER – Social and Economical Council of The Netherlands SME – Small and Medium-sized Enterprises

SPP – Sustainable Public Procurement SRI – Socially Responsible Investment STI – Sustainable Trade & Investment UN – United Nations

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Chapter 1 Introduction

In recent decades, governments have shown an increasing interest in Corporate Social Responsibility (CSR). The social and environmental problems originating from corporate actions stimulate governments to promote CSR activities to businesses, and have made CSR a priority for many Western governments. The complexity of these problems stimulates the incorporation of multi-stakeholder strategies in public policies. It has changed the relationship between governments and businesses, shifting public governance from hierarchical governance to collaborative governance (Albareda, 2007: 392, 393).

Governments are increasingly engaged with defining and shaping the concept of CSR because it is increasingly being considered as part of national policy. Governments can promote and shape CSR activities with the use of diverging policy instruments. Steurer (2010) identifies public policy instruments and themes on CSR which are established in, and used by, European countries. Just as CSR activities in businesses must be coordinated and implemented in a coherent way, CSR public policy instruments have to be formulated and institutionalised too (Bertelsmann Stiftung & GTZ, 2007: 5). Since governments do not have direct authority in foreign countries they are limited in their ability to exert influence on CSR activities across borders. Yet, states still try to promote CSR activities in foreign countries.

Two decades ago, the Dutch government determined that national policy had been internationalised, while at the same time foreign policy had been nationalised (Tweede Kamer, 1995: 36). This raises the question whether this also applies to policy instruments, and whether national CSR policy instruments and themes can be used for international CSR (ICSR) policy implementation too. The existing literature does not seem to raise our understanding of the influence of foreign economic policy on CSR activities, and does not give any insights on the policy instruments used by governments to promote CSR abroad. Scholars often merely focus on national policymaking when analysing public policy instruments. Since embassies, consulates and permanent missions play a key role in the implementation of public policy in other countries, public diplomacy is pivotal for governments to promote CSR abroad. The influence of public diplomacy can be increased through strategic stakeholders, and scholars argue that stakeholder engagement is a crucial element of CSR in emerging markets (Zaharna, 2011: 1, 7).

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To bridge the knowledge gap regarding the policy instruments that governments use to promote CSR activities in foreign countries and to gain more insight in the effects of these instruments on stakeholder behaviour in CSR related matters, the following research question is formulated:

“What is the influence of national public policy instruments on stakeholder engagement with CSR activities in foreign countries?”

In order to answer this question, the ICSR policy of the Netherlands will be examined to identify the policy instruments which are currently in place and whether these correspond to national policy instruments. Panama will be used as a case study in this research, and accordingly the Dutch government’s policy implementation in Panama will be examined in order to determine whether there is compliance with current ICSR policy. Next, the instruments which are effectively1_{used will be analysed, and assessed as to what influence it has on}

stakeholders. This research contributes to the existing literature in several manners. The analysis will provide insights into the use of CSR public policy instruments in practice, and whether these have the intended effects on stakeholder engagement with CSR as aspired by the Dutch government. Theory on public policy instruments only concentrates on national policy instruments, and no research has been conducted yet on foreign policy instruments for CSR promotion in foreign countries. The theoretical contribution to date posits that an existing theory on national CSR policy is applied to ICSR policy, which may lead to an extension of the theory to foreign policy. In this way, the research will bridge the knowledge gap on how governments influence CSR activities in foreign countries. This thesis argues that Dutch ICSR policy is well developed, but that policy instruments could be used more strategically. Enhanced scrutiny could increase the effective use of available instruments, since the Dutch government misses several opportunities to promote CSR activities in Panama.

This research is structured as follows. The remainder of Part I contains the research framework that will be examined in this thesis. The second chapter will discuss the existing literature on CSR public policies and public diplomacy, then present the hypotheses and research questions, and introduce the key concepts and Steurer’s (2010) theoretical framework. The third chapter consists of a methodological approach. Firstly, the elements of this research and criteria for the selection of the case study will be elaborated.

1_{Effectively: “having as a certain result in reality, though not in theory” (Cambridge Dictionary). This research}

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Secondly, the methods used in this research, the data gathering process and operationalisation of the research will be presented. Lastly, the implications for the validity and reliability of the chosen methodological approach for this research will be discussed.

Part II consists of empirical findings and is divided into three chapters. The fourth chapter will analyse the public policy instruments in the current ICSR policy of the Netherlands and connect these to the theoretical framework. Chapter five will examine policy implementation in foreign countries and in this way, allow a determination of which instruments are used and in which areas of action the Dutch government works abroad. Chapter six will further elaborate on the practices of the Dutch government in foreign countries and investigate whether the intended instrumental effects genuinely influence stakeholder behaviour on CSR activities. Part III will discuss the findings of this research, will conclude and propose recommendations.

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Chapter 2 Research Framework

This chapter will start with a discussion of the existing literature on CSR public policies and public diplomacy. It will then present the hypotheses and the research questions, after which it will introduce the key concepts of this research. The chapter will conclude with an elaboration on the theoretical framework by Steurer (2010) on the public policy instruments and themes on CSR.

2.1 CSR public policies

Existing literature approaches CSR public policies in diverse ways. Albareda et al. (2007) analyse the formation and implementation of CSR public policies in Western European countries through the categorisation of different policies. They connect different stakeholders within civil society, public and private actors and classify them within different policy categories. However, research shows that each government takes a different approach in establishing CSR policies. They all set different goals regarding governmental involvement with CSR activities and therefore, there are divergent instruments identified in the literature. This in turn explains the variation in CSR policy implementation between countries (United Nations, 2007).

Nevertheless, literature focuses on national public policy instruments to increase and promote CSR activities within state borders. This does not give any insight on the foreign public policy instruments that governments have at their disposal to promote CSR activities across borders. Moreover, it is restricted solely to advanced Western countries. A study by the Bertelsmann Stiftung & GTZ (2007) expands this to an analysis of public policy instruments which are in place in developing countries, providing recommendations on policy instruments in both developed and developing countries. However, it still typically focuses on national public policy instruments rather than ICSR policy instruments. A different approach is taken by analysing the impact of CSR instruments from multinational corporations (MNCs) on sustainable development in the Global South (Barkemeyer, 2008). It provides valuable insights on the connection between CSR instruments and sustainable development in the Global South. Yet, it does not increase our understanding on governmental instruments and the corresponding effects on stakeholders’ engagement with CSR in the Global South.

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2.2 CSR and public diplomacy

CSR public policy literature mostly concentrates on the national variety in CSR policies and does not elaborate on ICSR policy instruments. The Ministry of Foreign Affairs (MFA) directs all governmental activities in foreign countries and diplomats are responsible for implementing foreign policy in host-countries. Therefore, their practices should reveal which ICSR policy instruments are used and what effect these have on stakeholder engagement with CSR activities abroad. Scholars have identified key stakeholders, ways of interaction between public diplomacy and stakeholders, and instruments to engage with stakeholders through public diplomacy (Zaharna, 2011). Moreover, there exists literature on the inclusion of CSR in foreign policy. It discusses the intentions established in foreign policy to promote and increase sustainable development through cooperation with other countries (Hanlon, 2012). However, there are no measurable outcomes as yet, and it does not specify instruments to increase sustainable development. It appears that current literature concentrates on public diplomacy in general, without defining public diplomacy instruments to promote CSR activities. Hence, public diplomacy literature does not suffice either in order to bridge the knowledge gap, as it does not establish a link with CSR.

Scholars reformulated the classical concept of diplomacy due to discernible developments in recent decades. Modern diplomacy no longer involves solely state-to-state relations; sub-national, supranational and non-state actors are also increasingly important in forming international relations. This creates the need to (re)formulate the responsibilities2_of

“post-modern diplomats” (Saner and Yiu, 2001: 11, 24). This research adopts the modern diplomacy perspective, since multi-stakeholder cooperation is crucial in the promotion of CSR activities. Moreover, aforementioned responsibilities appear to correspond with government strategies to promote CSR activities. Yet, specific instruments to fulfil these responsibilities, and consequently ways to measure the actual effect on stakeholders, are often missing in current literature. The modern diplomacy perspective is taken further by scholars who argue that governments and businesses should cooperate more to spread their message in foreign countries. MNCs possess valuable expertise and resources for public diplomacy, and could be crucial actors in spreading national ideas (White, 2015: 308). However, the question remains whether the message that governments want to spread to foreign countries always reaches businesses, i.e. whether ICSR reaches business at all.

2_{The complete list of basic responsibilities and tasks of post-modern diplomats can be found in the article by}

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2.3 CSR public policy in the Netherlands

The Netherlands is internationally known for its efforts to promote CSR activities both within and across state borders. There are various ICSR policy documents that elaborate on the contribution of the Netherlands to CSR activities abroad. Moreover, Dutch public institutions have undergone reforms and have changed strategies, and existing literature analyses these changes and discusses the policy developments (Collet, 2015). However, the results and actual effects of the ICSR policy have not yet been measured. Therefore, it is interesting to investigate which instruments and themes are used in ICSR policy by the reformed Dutch MFA by using the theoretical framework of Steurer (2010). In this way, control and visibility will be offered in the available ICSR policy instruments and themes of the Dutch government.

Where some scholars make the connection between public policy and CSR, they tend to concentrate on national public policy instruments, whilst others only focus on public diplomacy instruments without making the connection with CSR. The rise of modern diplomacy has increased the number of stakeholders involved in diplomacy, and one could argue that cooperation between governments and businesses is crucial for the promotion of CSR activities abroad. Yet, this still does not clarify the origination of cooperation on CSR activities between governments and stakeholders, whether this is influenced by ICSR policy of the initiating government and what the actual effects of ICSR policy are on stakeholders. This clearly reflects the missing link in the literature between CSR, public policies and diplomacy. Therefore, this thesis will provide in-depth research on the use and effects of ICSR policy instruments abroad to address the knowledge gap. It will investigate whether these correspond to the national public policy instruments that governments use, and analyse how current ICSR policy relates to stakeholder engagement with CSR activities. Finally, this thesis aims to make recommendations on the use and implementation of ICSR policy instruments in order to contribute to existing knowledge on CSR public policies.

The general proposition of this research is that most of the national public policy instruments are used by governments to promote CSR in foreign countries. However, the influence on stakeholder engagement remains limited because of the lack of a clear strategy for the implementation of the policy instruments. This leads to the following hypotheses:

H1. Descriptively, the expectation is that there is no differentiation between national public policy instruments and themes and foreign policy instruments and themes on CSR.

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H2. The ICSR policy framework of governments is formulated differently, however, they make use of the national public policy instruments in the ICSR policy implementation and aspire to reach the same effects.

H3. Due to the lack of a structured approach for ICSR policy implementation and the lack of a clear overview on the available ICSR policy instruments, the promotion of CSR activities in foreign countries does not have the desired effect as established by governments.

2.4 Research questions

This research will expand existing knowledge regarding ICSR policy instruments by seeking an answer to the following research question:

“What is the influence of national public policy instruments on stakeholder engagement with CSR activities in foreign countries?”

To answer the research question in an accurate way, three sub-research questions are formulated. The framework by Steurer (2010) will be used to better understand the current ICSR policy, and the first part of the empirical analysis contains a public policy document analysis to identify the policy instruments established in the Dutch ICSR policy. Subsequently, it will assess whether these instruments and policy objectives correspond to the instruments as identified by Steurer (2010). In this way, an answer will be provided to the first sub-research question:

“To what extent can national public policy instruments and themes on CSR be translated into ICSR policy?”

The second part of the analysis will examine to what extent ICSR policy is implemented in practice, because policy may turn out differently in the implementation phase than initially planned. Since embassies are the official representation of governments in foreign countries, their practices will be assessed in this research. This allows to determine which instruments are used for the implementation of ICSR policy, in which areas of action the Dutch government works and whether they aim to reach similar effects with ICSR policy as argued by Steurer. Due to the limited scope of this research the analysis will focus on one country, Panama. The sub-question posed in this section is:

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The final part of the research will elaborate on the Dutch government’s practices to promote CSR in Panama and whether this influences stakeholder engagement with CSR activities. In order to analyse the effects of ICSR instruments on stakeholder engagement, the research has relied on proxies to measure the actual influence on stakeholders (Checkel, 2006: 367). The Dutch government has identified various ways in which companies can contribute to sustainable development, and it considers their ICSR policy to be successful when stakeholders have improved their “due diligence process.” This process consists of different subsequent steps: identifying potential and actual harm; ceasing, preventing or mitigating harm; verifying, monitoring and validating progress; and communication to the public and stakeholders (Ministry of Foreign Affairs, 2018a: 14-16). To this end, the third part will examine the organisational commitments and behavioural changes of stakeholders since the establishment of the embassy of the Kingdom of the Netherlands in Panama (Hereafter, the embassy) in 2013, and whether the instruments genuinely influence stakeholder behaviour on CSR activities in Panama. In this way, it can be established whether this behaviour is stimulated by the Dutch government, which will assist with the formulation of the ultimate conclusion. This will answer the final sub-question:

“How does the promotion of CSR activities by governments in foreign countries affect stakeholder behaviour?”

2.5 Concepts

Corporate Social Responsibility (CSR)

In 1962, renowned economist Milton Friedman famously stated that “there is only one social responsibility – to use its resources to engage in activities designed to increase its profits so long as it stays within the rules of the game” (Friedman, as cited in Hanlon, 2012). While free market activists still support Friedman’s belief, it is difficult to find any large and powerful company which does not commit at least a little to CSR nowadays, even if this is just in the shape of words. CSR is no longer a new concept, and although there are numerous ways of conceptualising it, businesses have taken similar paths towards more socially responsible behaviour in most parts of the world (Barkemeyer, 2009: 3).

CSR has already existed for many decades. Different authors continue to use new, and divergent concepts, which has transformed it into a complex concept without a single or universal definition. Nonetheless, one can distinguish a central idea in every definition: it implies the responsibilities of businesses towards society beyond simple profit maximization, which includes sacrificing profits for the public interest.

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Whether businesses extend this responsibility to include governments, employees, communities and suppliers as well as shareholders and investors, depends on individual business choices (Shum and Yam, 2010; Bénabou and Tirole, 2009). Therefore, it is best to define CSR as an umbrella term, which refers to responsibilities of businesses towards the society.

The European Commission describes CSR as “the responsibility of enterprises for their impact on society, over and above their legal obligation.” (European Commission, 2011). The definition focuses on the impact of businesses, and their responsibility to not only concentrate on economic aspects but also on social and environmental aspects. This has been referenced by the Netherlands in its CSR policy. The Dutch government states that CSR is an essential part in the management of business, which pays off for both businesses and society. CSR is not just about compliance with legislation, it also concerns the behaviour of businesses above what is imposed on them by law. According to the Dutch government CSR is about the dynamics between “People, Planet and Profit”, and how businesses consider opportunities, challenges and dilemmas regarding these matters (Ministry of Foreign Affairs, 2013a, 1; 2018b, 29).

CSR should be seen as both an opportunity and responsibility according to the Dutch government. They argue that businesses engaging with CSR are more innovative, better aware of social matters and receive more support from stakeholders, which is beneficial for the competitive position in the long run (Ministry of Foreign Affairs, 2013a: 2). However, they also state that Dutch MNCs should be aware of the possible direct externalities of their operations across borders, as well as externalities through their supply chains. The Dutch government refers to ICSR as “the condition for sustainable and inclusive growth. Businesses have a responsibility to society and government monitors their activities to ensure that they fulfil it” (Ministry of Foreign Affairs, 2018b: 29). The formulation of the responsibility of businesses to assess the risks and influence of their activities in foreign countries, makes the Netherlands the first country that employs a separate definition for ICSR. The Dutch government expects Dutch companies doing business abroad to follow similar CSR standards as they pursue in the Netherlands, even in the absence of legislation or enforcement of legislation in the host country (ibid.).

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This research investigates the policy instruments established in Dutch ICSR policy. Therefore, the remainder of this thesis will follow the definition of ICSR stating that it is the responsibility of businesses to society and a condition for sustainable and inclusive growth. This covers sustainability on both social and environmental aspects, and thus also includes human rights and labour conditions.

Stakeholders/ Stakeholder engagement

There are many types of stakeholders, ranging from single citizens to a wide public, and from think tanks or Non-Governmental Organisations (NGOs) to trade unions. Hocking (2006) differentiates between stakeholders in bilateral diplomacy, where they are regarded as targets or consumers, and stakeholders in multilateral or multi-stakeholder diplomacy, where they are considered partners and producers. This research follows the second categorisation for stakeholders as partners and producers. Multi-stakeholder diplomacy forms the basis for the Dutch ICSR policy and the Dutch government interacts with stakeholders as partners when it comes to ICSR.

Stakeholder engagement has become increasingly important in diplomacy. Stakeholders support diplomats to accomplish their goals, since stakeholder engagement often compensates for deficits with regards to access, knowledge and legitimacy (Hocking, 2006: 21). Engagement often refers to participation in public diplomacy practices. One can distinguish three types of stakeholder engagement: informational, relational and networking initiatives. Informational initiatives generally create a minor level of stakeholder engagement, attempting to inform stakeholders or raise awareness on issues. The responsibility lies with the home country, as it conducts research, drafts, implements and evaluates the public diplomacy initiative.

If the home country aims to shape or change ideas regarding a subject, a higher level of engagement is required. This could be with relational initiatives, which focus more on relationship-building and public interaction. It concentrates on participation rather than presentation, in this way creating stakeholder engagement on various levels. Relational initiatives facilitate interpersonal and reciprocal communication, and sometimes even include stakeholders in decision-making processes. This type of stakeholder engagement is considered beneficial because it allows stakeholders to share valuable connections or knowledge which the government may not have.

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The highest level of stakeholder engagement can be reached with networking initiatives, where stakeholders do not just share in the decision-making process but take up responsibility as well. The home country develops a platform through which stakeholders can engage, and bears the responsibility for the first progress during the initial phase. Eventually, control will be given to stakeholders, so they further expand the platform (Zaharna, 2011: 8, 12, 14).

Scholars argue that stakeholder engagement with CSR in emerging markets should concentrate on relationship building, starting with the determination of the most important stakeholders affected by CSR policies. Subsequently, governments should establish tangible projects and CSR practices which are in line with the interests of stakeholders. This seems to obtain more recognition and hence stimulates the success of CSR promotion (Zaharna, 2011: 1, 2, 7). The policy analysis in chapter 4 will reveal the intentions of the Dutch government concerning stakeholder engagement with CSR activities abroad. This analysis and the aforementioned types of stakeholder engagement will be used to examine stakeholder behaviour in chapter 6, and explains the way in which the answer to the research question is provided.

2.6 Theoretical Framework

2.6.1 CSR public policy instruments

Steurer (2010) argues that governments are more engaged with promoting and shaping CSR activities, which resulted in the rise of a new policy field (Steurer, 2010: 2). Policy instruments are considered methods through which governments implement their policies, i.e. tools of governance, and these serve to complement or replace binding instruments. Governments possess five types of voluntary policy instruments to promote and shape CSR in divergent areas of action: informational, economic, legal, partnering and hybrid instruments. Western European governments use these instruments to influence stakeholders, and encourage them to engage with CSR and pursue sustainable development (Idem, 16).

Informational, economic and legal instruments are considered standard instruments which governments use to implement policy. Examples of informational instruments are information provided on websites, during trainings or campaigns. These are rooted in knowledge and serve to persuade, as informational instruments are mostly used to depict different options and possible repercussions. Economic instruments could be taxes, subsidies and rewards. These are dependent on money and resources from the national tax authority, and affect stakeholder behaviour through financial impetus and market forces.

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Laws, regulations and directives are examples of legal instruments, and these instruments define the preferences of governments regarding actions and decisions of stakeholders. Legal instruments are shaped by the legislative powers of states, as well as by the executive and judicial powers (Idem, 7).

This should be expanded by two additional instruments concerning CSR policies. The first are partnering instruments, which is based on a co-regulatory networking principle because it infers that different actors are eager to cooperate on shared objectives. CSR is based on voluntary action, which raises the expectation that Public-Private Partnerships (PPP), negotiated accords and stakeholder conventions are essential partnering instruments in CSR policies. It gives different actors the chance to complement each other with available resources, and avoid unnecessary regulatory frameworks. Secondly, governments often promote CSR activities by combining aforementioned instruments. Through the orchestration of instruments, it becomes a hybrid instrument, and these have proven to be crucial in the promotion of CSR. Examples of hybrid instruments through the combination of informational, economic, legal or partnering instruments are CSR strategies and CSR platforms or centres (ibid.).

2.6.2 Areas of action in CSR

The aforementioned CSR public policy instruments can be employed by governments in different areas of action. Steurer (2010) identifies four themes, i.e. areas of action, which cover the desired effects of the instruments. Obviously, the CSR policy field will continue to expand and this might lead to reforms of the themes. However, one can currently determine four effects that are invoked by the use of the instruments. The instruments and the corresponding effects are described per theme in the sections below.

Raise awareness and capacity building for CSR

Firstly, the use of the policy instruments by governments may raise awareness and build capacities of CSR. This is an important activity for governments, since the type of corporate performances or activities on CSR pursued by companies and stakeholders depends on how social and environmental concerns are received. Informational, partnering and hybrid instruments are most relevant to raise awareness and build capacities of CSR. Informational instruments are sources such as CSR reports, governmental guidelines based on international standards or educational funding and activities. Partnering instruments involve the actual agreements bargained by governments and businesses, facilitating transparency between all parties and dissolving hierarchy.

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It comprises, amongst others, (international) multi-stakeholder gatherings or national partnerships between various ministries and other stakeholders in order to raise awareness regarding CSR activities. Building capacities and raising awareness through hybrid instruments could be by way of combining informational and partnering instruments. Examples are CSR awards and CSR platforms or centres which promote CSR activities, spread information and stimulate partnerships or discussion between important stakeholders (Idem, 11, 12).

Legal instruments are not commonly used to raise awareness and build capacities of CSR. Occasionally, economic instruments such as export subsidies or tax schemes are used. Examples would be when governments authorise subsidies when certain CSR standards are fulfilled, or dispense tax exemptions with certain CSR-related expenditures. In this way, governments build capacities for CSR because they link CSR to foreign investments and stimulate companies to take a critical stance (Steurer, 2010: 11).

Improve disclosure and transparency

Secondly, governments may improve disclosure and transparency with CSR policy instruments. Instruments can be used to advance and develop the quality and diffusion of CSR reports, labels and engagement of important stakeholders with CSR policy. An example of informational instruments would be the publication of national guidelines linked to international standards. Economic instruments are used to improve disclosure and transparency on CSR through the rewarding of satisfactory CSR reports. Legal instruments can establish requirements on social and environmental reporting, i.e. sustainable reporting. However, this is merely based on soft-law because governments do not have sanctions or enforcement measures to oblige businesses to report on CSR. Partnering instruments are used for the organisation of stakeholder forums, especially focussing on businesses which have a great impact on local communities (Idem, 12). However, hybrid instruments are the most effective to increase corporate transparency, as these are the best alternative to compensate for the lack of regulation on sustainable reporting. Examples are labels, since these combine informational and economic instruments by targeting consumers with economic incentives for businesses. Labels are voluntary, but in most cases the use of governmental labels is regulated (ibid.).

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Facilitate Socially Responsible Investment

The third possible effect of the use of CSR policy instruments is the facilitation of Socially Responsible Investment (SRI). Additionally, it fosters SRI by stimulating companies to insert CSR into shareholder operations through the examination of environmental, economic, social and/or ethical concerns before investments. Informational instruments are mostly websites providing information on SRI and economic instruments commonly take the form of tax exemptions for businesses doing investments which meet CSR standards. Legal instruments prohibit investments in companies which are related to violations in specific areas. However, this is also based on soft law principles since there are no sanctions for violations. It also applies to this theme that the biggest impact on the investment culture is created by hybrid instruments through the combination of the aforementioned instruments (Idem, 13).

Lead by example

Lastly, governments can lead by example regarding socially responsible practices. This applies to various areas, starting with the promotion of Sustainable Public Procurement (SPP). SPP was stimulated by the adoption of EU directives to further develop procurement legislation and expand tender specifications. As a result, national governments renewed procurement laws, resulting in a legal instrument for SPP for the Dutch government. Informational, economic, partnering and hybrid instruments are often also used in the context of SPP. Furthermore, governments try to set an example by applying SRI standards to public funds, issuing reports on societal and environmental concerns that relates to behaviour of governmental authorities and by equally adopting CSR audits and management systems in public institutions (Idem, 8, 14). In this way, governments promote CSR and sustainable development by practicing what they preach.

2.6.3 Theoretical justification

It appears that the one instrument is better applicable to certain areas than others. When a country pursues proactive CSR public policies, it might result in governance based on co-regulation with businesses. However, the political salience of CSR differs per country. More importantly, the effects on CSR activities of businesses differ between countries because it may have different implications in distinct circumstances (Idem, 16). Therefore, it is interesting to examine the policy instruments in different countries, whether similar instruments apply to ICSR policy, and whether these instruments create similar effects in different countries.

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This research has chosen to follow the theoretical framework by Steurer (2010) because this framework seems the most suitable to assess such matters. In contrast to other frameworks and theories on CSR policy instruments, Steurer (2010) provides a clear categorisation of available instruments with an extensive description of what these instruments may entail. Moreover, he describes the possible effects on CSR activities after implementation of the instruments: raise awareness and building capacities, improve disclosure and transparency, foster SRI and lead by example. This is helpful for the final part of the empirical research, which examines the actual impact of the ICSR policy instruments. Additionally, at first sight it appears that several instruments used by the embassy in Panama correspond to instruments as identified by Steurer (2010). Therefore, this framework is convenient to analyse this case and it may even expand the current framework since it has not been applied to ICSR policy yet.

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Chapter 3 Methodological approach

This chapter will explain the methodological approach taken in this research. It starts with an elaboration on the elements of research and the case selection. It then describes the methods used, the data gathering process and the operationalisation of the research. The last section discusses the implications for the validity and reliability of the methodological approach chosen in this research.

3.1 Elements of research

The unit of analysis in this research is the government. The main focus lies on the CSR public policy instruments used by governments, the ICSR policy implementation by governments in foreign countries, and the effects of governments’ ICSR policy on stakeholders abroad. The sample is the government of the Netherlands, and in specific the Dutch embassy in Panama. The population is all governments which work on promoting CSR activities in foreign countries. The research can be classified as a single case study with a small N (N=1) because it is focused on the public policy instruments and themes used in Dutch ICSR policy in Panama. Since no literature on this area exists yet meanwhile further research will be necessary, it is considered an exploratory case study where observations are assembled from a single case (Gerring & Seawright, 2007: 65). It will be an interpretive case study (disciplined configurative), as it will interpret a particular case guided by the theory of Steurer (2010). This may lead to an evaluation and/or clarification of the theory (Veynesson, 2008: 27).

3.2 Case selection

The reasons why the Dutch government has been chosen as sample are multi-fold. The Netherlands is internationally known for its CSR efforts, and has been taking the lead on CSR issues worldwide. Moreover, it does not only stand out in comparison to other countries with the amount of CSR policies developed by companies, but with the amount of policies drafted by the government too. The Netherlands is well-known for its progressive CSR policy agenda, and has shown that it actively promotes CSR activities both within the country and across borders (Fransen & de Winter, 2015: 18). The above-mentioned reasons explain why this is classified as an extreme case, in which the highest outcomes can be expected.

Additionally, there are multiple reasons to choose Panama as a case study. The Netherlands and Panama have developed strong diplomatic ties, and the relationship between the two countries has rapidly developed in the past five years.

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Their economic relations are increasingly important, which explains why the embassy concentrates on economic diplomacy. The Netherlands considers Panama as a natural partner3_,

which has its effect on the attitude of the government of Panama and other Panamanian stakeholders towards the Netherlands (Government of the Netherlands, 2018). The relationship between the countries is based on openness. The Panamanian government adopts an open attitude towards advice, which makes it relevant to examine whether the Dutch government actually uses this opportunity to influence CSR activities across borders. On a broader note, this research analyses the effects of ICSR policy on a developing country which has recently started the promotion of CSR activities and the development of a CSR strategy. The selection of Panama as a case study was also influenced by the fact that global players are based in Panama. Panama is the gateway to Latin America, which explains why many Dutch companies are based there. Important Dutch MNCs maintain their regional headquarters in Panama, and a noteworthy question raised by this research is whether there is any connection between Dutch ICSR policy and the ICSR actions of global players. Furthermore, this case is chosen because Panama lies within the personal interest of the researcher. More importantly, it is expected that her previous work experience at the embassy facilitates the access to valuable information for this research. This might give better insights on the developments under investigation.

Panama is also classified as an extreme case study in which the highest outcomes can be expected. Firstly, because it cannot be considered a typical country representing developing countries in which the Dutch government operates. Not all diplomatic relations between the Netherlands and foreign countries are organised in this way, and other countries might not be as open as Panama towards foreign stimulation of CSR activities in their country. Since Panama adopts such an open attitude towards the Netherlands, it is more likely that Panama will increase or adjust its CSR activities. Secondly, the organisation of policy implementation by the Dutch government and the desired effects on stakeholder behaviour may differ per country. Each embassy develops its own annual plan, which means that the intentions regarding promotion of CSR activities in Panama may greatly differ from other countries. For instance, the embassy Costa Rica may have a very extensive CSR agenda in comparison to Panama, while the embassy in India also commits to CSR but cannot be as explicit on their CSR agenda (M. Ruesen, personal communication, May 23, 2018).

3_{The embassy always emphasises the similarities between Panama and the Netherlands with the saying}

“Panama y Holanda, socios evidentes”. Literally translated this means that Panama and the Netherlands are natural partners.

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Therefore, it is expected that the research will show the complexity of analysing policy implementation and its effects, as it is unique in every situation.

Accordingly, all cases demand for a careful analysis of the particularities of the situation and time under scrutiny, since additional factors may occur that could have an influence. The risk of choosing an extreme case is that the feasibility of creating representativeness of the case is limited, because it might appear to be difficult to generalise based on this case study (Gerring & Seawright, 2007: 78, 104). Therefore, it will not be the aim of this thesis to make generalisations about the use of ICSR policy instruments in developing countries and its effect on stakeholders’ engagement. However, although the Netherlands and Panama are extreme cases it may increase our understanding on ICSR policy instruments used by governments in developing countries and stakeholder engagement with public diplomacy on CSR activities. This may contribute to further development of the literature.

3.3 Method, data gathering and operationalisation

The research is considered a qualitative research because words and argumentations are more suitable than quantification for the gathering and analysis of data. Qualitative research is the most suitable method, because it allows to provide a deep and holistic understanding on government behaviour in foreign countries and on the effects of this behaviour on stakeholders. It will be a within case analysis, with a temporal variation from 2013 until 2018, investigating the first time span after the opening of the embassy. The research has developed hypotheses and will test whether these can be linked to the existing literature. Therefore, the research uses a deductive logic, as the existing literature will be used as a theoretical framework to further investigate foreign policy instruments and its implementation (Bryman, 2012: 36). To that end, it will be tested whether Steurer’s (2010) theory of public policy instrument and themes applies to Dutch ICSR policy in Panama.

In terms of data collection, different methods have been used to collect primary and secondary data. Data has been collected from academic articles, official government documents, company reports, websites, newsletters, public statements or reports by other actors to conduct literature-based desk research. Secondary data from academic articles will serve as basis for this research. Subsequently, qualitative content analysis of public policy documents has been conducted to establish which instruments are used and which themes are employed by the Dutch government. This will reveal the policy framework through which the Dutch embassy engages with its stakeholders.

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Several types of Dutch ICSR policy documents were assessed: general CSR policy; sector covenants; private sector development policy frameworks; government procurement frameworks; embassy guidelines; embassy annual plans and international legislation and guidelines on international cooperation (Ministry of Foreign Affairs, 2018a: 8).

The content analysis of the policy documents and the resulting policy implementation by the embassy was used as an input for the interviews. Research which is only based on desk research risks a gap resulting from the lack of information. For this reason, semi-structured interviews have been conducted. Semi-structured interviews are the most suitable for this research because these allow the participants to respond to questions from their own perspective and it gives them the possibility to provide any additional information which they deem relevant. Moreover, semi-structured interviews provide the opportunity to structure the method of questioning and gives flexibility to pose additional questions or adjust the order in which questions are asked.

After the initial literature based research, a selection was made of interviewees. Interviews have been conducted with employees from the MFA, employees of the Dutch embassy in Panama, knowledge institutions in the Netherlands and relevant stakeholders in Panama. A list of interviewees can be found in appendix A. Due to the limited scope and time frame of this research, a selection of stakeholders which seem to be regarded important for the Dutch embassy in Panama has been made. The Panamanian stakeholders chosen in this research are believed to make a decisive contribution to CSR in Panama. The Dutch businesses chosen represent a SME, MNC operating from the Netherlands and an international MNC with a high possibility to be influenced by Dutch ICSR policy.

It is recognised that three companies do not account for a full representation of all Dutch businesses operating in Panama. However, to further increase the representativeness of the research a selection is made of small, medium and large businesses operating in different sectors. Moreover, these businesses all engage with CSR on a different level, which increases the representativeness regarding CSR engagement. Five interviews have been conducted by e-mail to provide more explanatory leverage and in-depth explanations to findings. To ensure the validity of the e-mail interviews, information from secondary resources was used. The interviews are conducted in Dutch, English and Spanish and the researcher translated all used citations. To ensure the correct translation and interpretation of the citations, they were presented to the interviewees with the corresponding context.

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Subsequently, a congruence analysis was done through process-tracing. Process-tracing is “the analysis of evidence on processes, sequences and conjunctures of events within a case for the purposes of either developing or testing hypotheses about causal mechanisms that might casually explain the case” (Bennett & Checkel, 2014: 7). It classifies as a congruence analysis as it concentrates on finding a consistency between theoretically expected and empirically observed outcome(s), but it leaves the process in which the outcome is produced open. This research uses a theory centric version of process-tracing, which deductively tests the theoretical framework of Steurer (2010) (Beach and Pedersen, 2013: 9). The research uses theory-testing process-tracing to evaluate causal mechanisms posited by a given theory in a specific case, in order to find out whether a mechanism operates as expected (Beach and Pedersen, 2013: 15). Through process-tracing the internal validity of the research is increased. This method allows to examine whether (parts of) the causal mechanisms under scrutiny are present or absent in this case study. Moreover, the use of process-tracing facilitates the policy evaluation as it allows a comparison to be made between the goals and the actual achievements of the adopted policy. This will assist with the formulation of a conclusion whether the causal mechanisms lead to influence, and whether the theory by Steurer (2010) can be confirmed or refuted in this case.

3.4 Validity and reliability

Different data sources complement each other, which provides diverse types of evidence to build a more reliable case. This is also known as the triangulation of sources. It allows the development of thorough observations, and this increases the chance that findings can be applied to other settings. Even though the choice of a small N decreases the external validity of the research, this is ameliorated by use of the triangulation method (Bennett & Checkel, 2014: 28). The findings regarding ICSR policy implementation by the Dutch embassy in Panama cannot be generalised for all embassies, since policy implementation differs per embassy and every embassy focusses on different areas. However, this research might provide valuable insights regarding ICSR public policy instruments to promote CSR activities in foreign countries, which in turn increases the external validity.

The reliability of the research is increased with the choice to conduct semi-structured interviews, as this assures a certain level of transparency and makes it easier to reproduce interviews. A point of attention is that the researcher has been personally involved in the process of making the embassy more sustainable, so this could be of influence in interviews and in the content analysis of policy documents. Therefore, transparency in interviews is even more important to increase reliability.

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This also applies to the qualitative content analysis, as there is a high risk of subjectivity because of the personal interpretation of policy documents by the researcher and pre-established preferences due to earlier involvement in a sustainability project while working at the Dutch embassy in Panama. Accordingly, clear explanations are provided to demonstrate how conclusions are derived. Expectations were made regarding possible motives of interviewees who provided evidence, and this was reflected on after examining the actual evidence they provided. Subsequently, this evidence is used to revise the prior expectations and this has then been used to analyse further evidence. Moreover, the official statements made are compared with the private, more spontaneous statements made regarding the subject and this has also been taken into account when assessing the evidence (Bennett & Checkel, 2014: 24, 25). In this way, the internal and external validity and reliability of the research are secured.

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Chapter 4 ICSR public policy instruments

The previous chapters discussed the research framework, the methodological approach and the case selection. The hypotheses which are formulated will be tested with the data gathered in this research. This chapter will first discuss the ICSR policy of the Netherlands to provide background information on the policy content analysis of this research. It will then present a scheme outlining the instruments and themes of Dutch ICSR public policy in the second section. The following sections will provide the contextual analysis of the scheme, explaining the informational, economic, legal, partnering and hybrid instruments which the Dutch government uses in its ICSR policy. These instruments will be further elaborated on in the next chapter on the promotion of CSR activities in foreign countries.

4.1 ICSR policy of the Netherlands

4.1.1 Policy objectives

The Dutch government strongly encourages (international) Responsible Business Conduct (RBC). In accordance with the 2011 EU Strategy for Corporate Social Responsibility, they emphasise that CSR is primarily considered the responsibility of businesses. However, the government fulfils a supporting role by establishing voluntary policy rules and where necessary, this is complemented by regulation (Ministry of Foreign Affairs, 2018b: 21). The current national CSR policy of the Netherlands was established in 2013. The central idea is that “CSR pays off, for businesses and for society as a whole” (Ministry of Foreign Affairs, 2013a: 1). It is divided in two parts; national and international. ICSR policy focuses on the behaviour of businesses in foreign countries with deficient local legislation or where there is a lack of effective enforcement, which is also known as the global governance gap. However, as discussed in section 2.5, CSR as a concept is open to interpretation and it will continue to evolve. Therefore, one could argue that this dichotomy comes from another time. As stated by Mirte Ruesen, Policy Advisor CSR and Trade at the Dutch MFA:

Different governments and even companies use different definitions, but to me it [national and international CSR] means the same, and it just means that companies do business in a fair and responsible manner. And what this exactly means is described in the international guidelines, but Corporate Social Responsibility means that you have to take supply chain responsibility and therefore you have to map your supply chain, which automatically means that you cross borders.

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This statement shows that Dutch ICSR policy is based on international frameworks such as the OECD Guidelines for Multinational Enterprises (Hereafter, the OECD Guidelines) and the United Nations Guiding Principles on Business and Human Rights (Hereafter, the UNGPs). These frameworks concentrate on matters like human rights, environment, corruption and labour conditions. The main objectives of ICSR policy are to raise awareness on ICSR and to promote supply chain responsibility, as the Dutch government deems ICSR necessary to reach sustainable, inclusive growth in the world (Ministry of Foreign Affairs, 2013a: 3). To this end, they have determined various areas of action in which they believe governmental intervention will contribute to changing corporate behaviour. These are described in the circle in the figure below, and the boxes describe the corresponding themes as formulated by Steurer (2010).

Figure 1 Dutch ICSR policy themes

It appears from this figure that the areas of action which are established by the Dutch

government are very similar to the ones identified by Steurer (2010). Fostering SRI is the only area of action which is not explicitly mentioned in Dutch ICSR policy. However, the analysis in the upcoming sections will reveal how this theme still seems relevant for Dutch ICSR policy as well. Moreover, one extra theme, promote a level playing field, is included which is not directly linkable to one of the themes as established by Steurer (2010). This will be discussed in the section below.

• Lead by example • Improve disclosure and transparency • Increase awareness and build capacities • Increase awareness and build

capacities Ensure that the

frameworks for CSR are as clear as possible and that businesses are fully informed about them Make other governments aware of their responsibilities, for example through economic diplomacy

Set a good example Promote

transparency and stakeholder dialogue Promote a level playing field for Dutch businesses

Promote a level playing field for Dutch businesses

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4.1.2 Promote a level playing field

The Dutch government attempts to promote a level playing field through the cooperation with stakeholders on international level. A level playing field encompasses equal conditions for national and international businesses, and this is considered an important area of action as well. In the words of Mirte Ruesen:

“One of the bigger tasks of the government is to ensure that there is a level playing field. ICSR does not work without a level playing field, it is really a precondition.”

A level playing field increases the chance of behavioural change, which in turn creates impact on countries within the supply chain. Moreover, it decreases negative competition; it prevents competitive disadvantages resulting from negative externalities for countries who do implement CSR policy, as opposed to countries who do not implement CSR policy and maintain lower product prices (Ministry of Foreign Affairs, 2018a: 17,18). Mirte Ruesen confirmed during the interview that the use of the instruments within the established areas of action all contribute to promote a level playing field. This explains the position of this theme as a connecting element between the other themes in figure 1. The relation between all ICSR policy themes will become clearer in the upcoming sections.

4.1.3 Due diligence

The aforementioned policy objectives should advance sustainable growth. However, the Dutch government is aware that foreign governments initially bear the responsibility to promote CSR themselves. Therefore, they endeavour to create awareness amongst Dutch companies on their responsibility to adhere to the OECD Guidelines and the UNGPs. This is better known as “due diligence”, which means that businesses should recognise, prevent and restrain poor working conditions, environmental destruction, human rights violations and child labour in their supply chains. By promoting due diligence, the government tries to encourage businesses to not just operate responsibly in the Netherlands but abroad as well, using their influence and leverage to move towards a better world (Ministry of Foreign Affairs, 2013a: 4; M. Ruesen, personal communication, May 23, 2018). Due diligence comprises the central idea behind Dutch ICSR policy, as it is considered the ultimate goal of Dutch ICSR policy. Therefore, it is displayed in the centre of figure 1, as it connects the other five themes. However, during a meeting held by the Dutch MFA on April 18, 2018, the researcher observed that the government, knowledge institutions and NGOs are not entirely in agreement on due diligence being the end goal, or whether it should be considered a means to an end.

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Since this research is written from a government perspective, due diligence will be considered an end goal, which should eventually result in sustainable growth.

4.1.4 Multi-stakeholder cooperation and co-regulation

The Dutch government acknowledges that it possesses limited possibilities to regulate corporate behaviour, even more across borders and particularly outside the EU. Therefore, co-regulation is the foundation for the established agreements between the government, businesses and NGOs. The Dutch approach characterises itself by consultation and cooperation during the establishment and implementation of ICSR policy. The adoption of RBC and compliance with ICSR rules by businesses is stimulated by the collaboration with several parties (Ministry of Foreign Affairs, 2018b: 28). The Dutch government believes that it is beneficial to gather parties which target different audiences and interests, and subsequently establish a shared agenda. The established cooperation between these parties will serve to achieve the common goal to contribute to society (Ministry of Foreign Affairs, 2013a: 3, 4).

4.2 ICSR policy instruments in the Netherlands

The Dutch government has a broad range of instruments available to promote ICSR. These instruments are used to encourage businesses to take responsibility for the impact they make on society with their operations abroad and throughout their supply chain. Following Steurer’s (2010) framework, the Dutch government attempts to raise awareness, build capacities, and to improve disclosure and transparency with the use of these instruments. The current policy states that these are direct policies, and explicitly mentions it as areas of action. However, instruments are also used for SRI policies and SPP. These instruments serve the same purpose, but are considered more indirect policies (Ministry of Foreign Affairs, 2018b: 15). It shows that fostering SRI and leading by example play a significant role as well. As commented by Mirte Ruesen during the interview:

“Yes, indeed, to set a good example towards companies is also important. This especially emerged after the collapse of the Rana Plaza.4”

Therefore, these two areas of action have also been incorporated in the schematic depiction of Dutch ICSR policy and themes based on Steurer (2010).

4_{The Rana Plaza collapsed in Bangladesh in 2013, and is considered a structural failure causing the death of}

over a 1000 people and over 2500 people were injured. It is known as the biggest garment-factory accident in history.

International CSR policies in developing countries : government practices of the Netherlands in Panama