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The State as a Stakeholder

Public Involvement in the Dutch Banking

Sector Arrangement

George N. van Erp

Master Thesis Political Science: Political Economy

Research Project: Transnational Sustainability Governance

June 2018

11850507

Supervisor: Philip Schleifer

Second Reader: Jasper Blom

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Table of Contents

Acknowledgment ... 6

1. Introduction ... 7

1.1 Research Overview ... 7

1.2 Academic and Societal Relevance ... 8

1.3 Structure ... 9

2. Literature Review ... 11

2.1 Transnational Sustainability Governance: What’s in a Name? ... 11

2.2 Public Involvement in Transnational Sustainability Governance ... 12

3. Theoretical Framework ... 16

3.1 Central Concepts ... 16

3.2 Analytical Approach ... 18

4. Methodology ... 23

4.1 Objective and Research Design ... 23

4.2 Case Selection ... 24

4.3Methods and Data Sources ... 24

4.4Operationalisation of Concepts ... 25

4.5 Validity, Generalizability, Reliability and Replicability ... 26

5. The Dutch Banking Sector Arrangement ... 28

5.1 The Context: Guiding Principles, Guidelines and a Declaration... 28

5.2 The Agreement ... 30

5.3 The Means: Conducting Due Diligence ... 32

5.3.1 Standardizing Policies ... 33

5.3.2 Transparency and Information Exchange ... 33

5.3.3 Enabling Remediation ... 34

5.3.4 Increasing Leverage ... 36

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6. Facilitating the Construction of Governance ... 37

6.1 Governmental Facilitation Techniques ... 37

6.1.1 Agenda Setting ... 37

6.1.2 Convening ... 38

6.1.3 Assistance ... 40

6.2 Conclusion ... 41

7. Advocacy of Responsible Business Conduct Abroad ... 42

7.1 Increasing Leverage ... 43 7.1.1 Agenda Setting ... 43 7.1.2 Convening ... 44 7.1.3 Assistance ... 44 7.1.4 Endorsement ... 45 7.2. Scaling Up Governance ... 45 7.2.1 Agenda Setting ... 46 7.2.2 Coordination ... 47 7.3 Conclusion ... 48 8. Conclusion ... 50 8.1 Summary ... 50 8.2 Generalization ... 50

8.3 Academic and Policy Implications ... 51

8.4 Limitations and Directions for Research ... 52

8.5 Final Comment ... 53

Bibliography ... 55

Appendix ... 62

Description of the Parties ... 62

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Abbreviations

ACM – Autoriteit Consument & Markt CNV – Christelijk Nationaal Vakverbond CSR – Corporate Social Responsibility DBSA – Dutch Banking Sector Arrangement FNV – Federatie Nederlandse Vakbeweging ILO – International Labour Organization

IRBC – International Responsible Business Conduct MF – Ministry of Finance

MFA – Ministry of Foreign Affairs

NGO – Non-Governmental Organization NVB – Nederlandse Vereniging van Banken

OECD – Organization for Economic Cooperation and Development OHCHR - Office of the High Commissioner for Human Rights RBC – Responsible Business Conduct

SER – Sociaal Economische Raad SRI – Social Responsible Investment

TSG – Transnational Sustainability Governance UN – United Nations

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Acknowledgment

I would like to acknowledge the support that I received during this research project of my supervisor, Philip Schleifer. His thoughtful comments were indispensable to the development of this thesis. Furthermore, I am particularly thankful to Andries Bakker, Thijs van Brussel, Jacqueline Cramer, Maryse Hazelzet, Fred Polhout, Peter Ras, Tessel van Westen, Jeanet van der Woude and Hansje van der Zwaan for their time and for providing me with the opportunity to learn about this interesting and vibrant partnership. Finally, I would like to thank my father for helping me articulate my thoughts during this research project, as well as during the rest of my academic career.

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1. Introduction

1.1 Research Overview

Who is responsible for attaining global sustainable development? The 17th Sustainable Development Goal, ‘’revitalize the global partnership for sustainable development’’ (United Nations, 2018), calls upon governments, the private sector and civil society to integrate their efforts to reach the other 16 goals. These three groups of actors have a shared responsibility to address the major social and environmental challenges of the twenty-first century, such as climate change and enduring human rights violations. Such partnerships can complement traditional, enforceable (inter)national regulations in coordinating and constraining the behaviour of states, firms and individuals. Nevertheless, the distinct roles that states, businesses and NGOs will have to enact in these partnerships for sustainable development has to be explored by these actors themselves. In the Netherlands, the government has initiated a series of International Responsible Business Conduct (IRBC, Internationaal Maatschappelijk Verantwoord Ondernemen) covenants, arrangements with multi-national corporations and non-governmental organizations (NGOs) that aim to promote social and environmental responsible entrepreneurship by Dutch companies abroad. These covenants form national implementations of international guidelines, including the United Nations Guiding Principles (UNGPs) and the Guidelines for Multinational Enterprises of the Organization for Economic Co-operation and Development (OECD Guidelines). Although public-private partnerships are far from new, this series of covenants demonstrates that a government can enact a remarkable role in partnerships for sustainable development. This thesis investigates this innovative governmental contribution to Transnational Sustainability Governance (TSG) through a case study of the Dutch IRBC covenant governing the banking sector: the Dutch Banking Sector Agreement (DBSA). The thesis is steered and delimited by the following research question: - How does the Dutch government contribute to Transnational Sustainability Governance of

the financial sector in the ‘’Dutch Banking Sector Agreement’’?

Through a qualitative analysis of this covenant using policy documents and expert interviews, this study provides a thick description of what constitutes the Dutch governmental contribution. The theoretical framework of orchestration theory (Abbott, Genschel, Snidal, & Zangl, 2015), traditionally used to explain governance by international organizations, is applied to identify and

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understand the different governance techniques that the Dutch state used during the construction and implementation of the DBSA.

The findings of this research indicate that the Dutch governments primarily contributes to the DBSA by enacting two roles: as a facilitator of the construction of the agreement and as an advocate for IRBC abroad. As a facilitator, the Dutch government played an important if not critical role in the creation of the DBSA, both in the initiation and the negotiation phase. As an advocate, the Dutch government employs its diplomatic influence to support the implementation of the agreement and bring about similar IRBC regulations in other countries and at multilateral fora. In addition to describing these roles, this thesis argues that the state is particularly suited to enact these roles. The state proves to possess a set of capabilities, which private actors do not possess, that allow it to make this distinct contribution to TSG.

1.2 Academic and Societal Relevance

This analysis contributes to the literature on public actor involvement in TSG in two primary ways. First, the usage of the orchestration model of Abbot, Genschel, Snidal and Zangl (2015) in this thesis expands the applicability of this theory. Orchestration refers to soft (non-binding, see Trubek, Cottrell and Nance (2005)) governance, that is implemented in an indirect manner, that is through regulatory intermediaries. This form of regulation consists of five techniques: agenda setting, convening, assistance, endorsement and coordination. Abbott et al (2015) have used this theoretical framework to explain indirect (international) public involvement in TSG. This thesis however illustrates that this fivefold categorization can also accurately capture direct collaboration of national governments with NGOs and businesses. Although the DBSA is not a case of orchestration governance, the findings indicate that the Dutch governmental involvement in the DBSA strongly reflects the governance techniques formulated by Abbott et al. This entails that the insights of orchestration theory are applicable in a broader sense than previously understood. Secondly, the thesis also specifies in what roles these governance techniques are enacted by the state. Previous studies (e.g. Abbott and Snidal (2009)) indicate that in addition to being the central actor in interstate politics, governments can also function as transnational political actors. This thesis refines the academic understanding of how states can contribute to TSG by identifying two specific contributions that it can make. Through facilitation, the state can support the domestic construction of the TSG structures necessary to address transnational problems. Through diplomatic advocacy, the state can support the implementation of TSG and can scale up TSG. The

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formulation of these conceptual roles further develops the academic understanding of the role of the state in TSG.

The argument presented in this thesis that the state contributes in this influential manner to TSG also has societal implications. TSG serves to address the most important social and environmental problems of the twenty-first century. The Dutch governmental involvement in DBSA and the other IRBC covenants attests to the fact that the state can make a significant contribution to addressing these issues through TSG. As states have the power to prevent and mitigate such problems through regulatory structures such as the DBSA, they also have a responsibility to do so due to the seriousness of these problems. The implication of the observation that states can contribute to TSG is that they should do so.

This implication is especially relevant in the specific context of financial sector governance. The financial service industry has a critical function in the global sustainability transition. It is estimated that in order to realize the Sustainable Development Goals, between 4.7 and 6.7 trillion euros is needed annually for various sustainability projects across the globe (European Political Strategy Centre, 2017). In order to realize this, lenders will need to (re)direct investments from economic activities undermining sustainable development (e.g. coal exploitation) to those supporting it (e.g. the solar panel industry). Regulation, either soft or hard, is presumably necessary to bring this shift about. The findings of this research demonstrate how states can collaborate with the financial sector to channel transnational investments towards sustainable activities.

1.3 Structure

This thesis is structured as follows. The following chapter reviews the literature on governmental involvement in TSG. This literature review demonstrates that previous studies cannot provide a comprehensive explanation of the Dutch governmental involvement in the DBSA, justifying this research project. Chapter 3 constructs a theoretical framework that structures the conceptual approach to the data. Chapter 4 will explain, justify and reflect upon the employed research design, case selection and research methods.

Chapter 5, 6 and 7 present and analyse the findings of the research. Chapter 5 presents an empirical description of the DBSA, the context in which it was constructed and how it intends to achieve its goals. It provides an answer to the following sub-question:

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- What are the goals of the Dutch Banking Sector Agreement and what means does it employ to reach them?

Chapter 6 and 7 form the analytical section of this thesis. Chapter 6 analyses how the Dutch public authorities have facilitated the construction of the DBSA. In a similar manner, chapter 7 analyses the role of the Dutch government as an advocate of IRBC abroad. These chapters are steered and delimited by the following sub-questions:

- How has the Dutch government facilitated the construction of the Dutch Banking Sector Arrangement?

- How does the Dutch government advocate the interests of the International Responsible Business Conduct covenants abroad?

Chapter 8 presents the conclusion of the thesis, reflects upon the findings from both an academic and societal perspective and explores prospects for the future.

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2. Literature Review

This chapter presents a review of previous political science research on the topic of public actor involvement in TSG. This review demonstrates that state involvement in TSG remains a relatively underdeveloped topic and that previous studies have not engaged with (similar) political dynamics as observed in the DBSA. By doing so, this chapter justifies further empirical investigation.

In summary, previous research on public involvement in TSG associated with orchestration theory provides a useful framework for understanding what techniques public actors can employ to contribute to TSG. This research has however primarily focussed on international organizations and does not provide a developed conceptual model for explaining state involvement in TSG. This gap in the academic field of TSG motivates this thesis, which is directed by the research question:

- How does the Dutch government contribute to Transnational Sustainability Governance of the financial sector in the ‘’Dutch Banking Sector Agreement’’?

This chapter is structured in two sections. The first section of this literature review provides an introduction in the academic field of TSG and explains the usage of the concept ‘’Transnational Sustainability Governance’’. The second section reviews previous research on public involvement in TSG.

2.1 Transnational Sustainability Governance: What’s in a Name?

Several decades ago, Nye and Keohane (1971) already stressed that political scientists needed to incorporate non-state actors into the analysis of global affairs. Since then, the significance of politics beyond the state has only increased. The incapacity and/or unwillingness of states and international organizations to address certain social and environmental problems has driven the rise of various types of innovative regulatory frameworks incorporating non-state actors (Reinicke, 1998) (Rosenau, 2009). The usage of the concept governance as opposed to government is a common way to emphasize this participation of various non-state actors in politics and the policy process (Rosenau, 2009, p. 8). Governance is often, but not always linked to addressing sustainability issues. Global governance is a broad topic in political science and it incorporates various specialized fields that describe its specific aspects. For example, much has been written on Corporate Social Responsibility (CSR), which refers to the voluntary inclusion of social and environmental concerns in business activity through stakeholder consultation (Marrewijk, 2003, p. 102). Through CSR activities, businesses have become important stakeholders in global governance. Other examples

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of conceptual perspectives from which research on global governance has been conducted, are public-private partnerships, transnational advocacy networks and municipal networks. (see for example, in respective order, Brinkerhoff and Brinkerhoff, (2011), Anderson (2000) and Bansard, Pattberg and Widerberg (2010)).

This thesis approaches and understands the DBSA as a Transnational Sustainability Governance arrangement. The term transnational implies that the governance arrangement both incorporates non-state actors and transcends state boundaries (Nye & Keohane, 1971, p. 332). Although the DBSA is in principle a national covenant, the majority of signatories are transnational operating organizations, it is a local implementation of global guidelines and it governs economic activity that transcends state boundaries. As such, the DBSA is transnational in nature. The term sustainability emphasizes the fact that this arrangement aims to contribute to the global efforts addressing social and environmental problems under the umbrella of the Sustainable Development Goals. Although the DBSA only regards human rights abuses, it can be understood as a part of a broader movement aimed at delivering sustainable solutions for social and environmental issues through transnational governance.

2.2 Public Involvement in Transnational Sustainability Governance

While the Paris Climate Agreement illustrates that interstate regulation remains crucial to address the challenges of the twenty-first century, states also attempt to regulate the global economic and social interaction through TSG. As TSG arrangements have increased in numbers, they have also increased in diversity. The aims, means, scope, the type and amount of participating actors and various other aspects of TSG arrangements can differ immensely. This research focuses on how different (types of) participating actors can support TSG in different manners, exploring the role of the state in this respect. Abbot and Snidal (2009) have formulated a model, a ‘’Governance Triangle’’, that categorizes actors participating in TSG arrangements (to which they refer as regulatory standard institutions) in three actor groups: states, firms and NGOs. Variation in participation of these actor types create seven ‘’zones’’ or categories of TSG arrangements. Depending on which of these actors share what amount of governance responsibility, a TSG can be understood as one of these types. Abbot and Snidal argue that focusing on which actors participate helps us to understand the strengths and weaknesses of these TSG arrangements. For example, TSG arrangements dominated by businesses (zone 2) might value economic outcomes higher than social and environmental outcomes.

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Figure 1: The Governance Triangle of Abbot and Snidal (2009). Various TSG arrangements are plotted in the seven zones of the model.

The rise of TSG in the last decades has naturally drawn attention to the ‘’new’’ regulatory actors on the world stage: businesses and NGOs. Academic research into the nature, effectiveness and legitimacy of corporate and NGO involvement has produced telling insights on how they function as regulatory actors in TSG (see for example Haigh and Jones (2006) and Hahn and Weidtmann (2012)). Acknowledging the importance of private actors in TSG, some authors, including Strange (1996) and Reinecke (1998), have argued that the rise of TSG is associated with declining relevance of the state in the domain of transnational regulation.

However, recent studies (including Abbott and Snidal (2009)) suggest that it is more accurate to state that the rise of TSG transforms rather than dispenses the role of the state. This thesis is embedded in this strand of literature. These studies indicate that governmental resources, authority or initiative prove to be influential forces in TSG. For example, Steurer (2010) explains through an analysis of different European national policies on CSR how public authorities can use various instruments, including legal, economic, informational and partnering instruments, to influence CSR policies.

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Another influential contribution to this field is a series of articles that formulated and advanced a model of orchestration governance (Abbott & Snidal, 2009) (Abbott, Genschel, Snidal, & Zangl, 2015) (Hale & Roger, 2014). This model explains how states and international organizations can use soft power to influence the regulatory activities of other (private) actors, with the goal of influencing third parties. An example of this indirect form of governance is the creation of public-private partnerships through orchestration of the World Health Organization. These partnerships act as intermediaries and implement health services on the ground (Hanrieder, 2015). Through such orchestration governance, public actors can counter regulatory fragmentation, considered a major challenge to the effectiveness of TSG (Biermann, Pattberg, van Asselt, & Zelli, 2009) (Keohane & Victor, 2011). The orchestration model distinguishes five governance techniques that public actors employ to contribute to (and influence) TSG, being agenda-setting, convening, assistance, endorsement and coordination (Abbott et al., 2015, p. 14). As is further explained in Chapter 3, this thesis adopts this model in its analysis of the DBSA. Note that the DBSA is not a case of orchestration, as the Dutch government directly governs (in cooperation with) other actors, rather than regulating them through indirect governance structures. Still, this typology of soft power techniques that public actors can use to steer TSG proves to be very useful to capture the different elements of public involvement.

Research associated with orchestration theory has produced telling insights on how public involvement is a significant political force in the politics of TSG. These studies have however been primarily focused on soft power governance of international organisations (hence the title ‘’International Organizations as Orchestrators’’ of the book of Abbot et al. (2015)). Expanding this model to the national level and investigating governmental involvement in TSG appears to be a step that has yet to be taken. How states, like international organizations, use soft governance techniques to influence TSG and in what governmental role they do so remains unexplored territory. While the insights of orchestration theory have begun to spill over to investigations of other actors (see for example Abbott, Levi-Faur and Snidal (2017)), an investigation of state involvement in TSG through this theoretical lens appears to be a novel contribution to the literature. This research sets out do exactly this and further develop the academic understanding of the interaction between public and private actors in TSG.

This thesis as such is embedded in literature on TSG in general, not in financial sector governance literature in specific. This broadens the applicability of the insights of the conclusions, as is explored in chapter 1 and 8. Nevertheless, several studies on financial sector governance in general and the

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UNGPs and OECD guidelines in specific are included in chapter 5 in order to describe the DBSA and its political context. Furthermore, how the implications of the findings in this thesis relate to financial sector governance in practice is described in chapter 8.

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3. Theoretical Framework

The theoretical framework explained in this chapter identifies which conceptual aspects of the studied phenomenon will be highlighted in the research. The abstraction of these specific aspects of the DBSA serves to produce an explanation of political dynamics that is useful and applicable in a broader sense. This approaches an inductive form of reasoning, as specific observations serve to build a general theory. This contrasts with a deductive approach, in which a general theory is tested through specific empirical observation (Hancke, 2009, p. 110). While this thesis does apply a preconceived theoretical model – the orchestration model - to interpret reality, the empirical observation serves to expand the theory, both in scope and in content, rather than to test it through theoretically formulated hypotheses. To put this more concretely, this research uses this specific case, the DBSA, to depict the conceptual roles in which the state can contribute to TSG, being a facilitator and an external advocate of TSG.

The theoretical approach of the data as described in this chapter is applied to structure the analyses of both chapter 5 and 6. Chapter 4 is descriptive in nature and its findings are not directly used for theoretical generalization. Therefore, chapter 4 is structured differently, providing a summary of the political context wherein the DBSA was created and how the agreement works.

3.1 Central Concepts

The analysis of this thesis examines the relationship between public involvement and the effective and efficient construction and implementation of this TSG arrangement. The argument presented in this thesis is that public involvement – the independent variable - positively influences the successful construction and implementation of TSG, being the dependent variables.

This argument is supported through a thick description of governmental involvement in the role of a facilitator and an advocate of TSG. As such, this study analyses the investigated relationships by describing the processes that constitute these relationships rather than directly measuring the impact of the independent variable on the dependent variables. Therefore, the primary investigated concepts of this research are the processes of facilitation and advocacy. The conceptualizations of these terms are provided in the next paragraphs. Furthermore, the usage and applicability of the concept public is explained. The research design is further explained in chapter 4.

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First, the usage of the concepts public or governmental involvement in this thesis refer to involvement of a stakeholder that is subject to public law and that represents a general interest. This contrasts with private stakeholders, which are subject to private law and can represent general as well as specific interests. This is a fairly broad conceptualization of public stakeholders, as it not only incorporates governmental organizations such as ministries, but also includes semi-governmental and independent administrative organizations. In the specific context of this research project, this conceptualization incorporates both the ministries involved in the DBSA, being the Ministry of Finance (MF) and that of Foreign Affairs, as well as the Social Economic Council (SER, Sociaal Economische Raad), an advisory organisation representing both the interests of employers and employees. As will be described, the SER is extensively involved in the construction and implementation of the Dutch IRBC policies. The Ministries mentioned are of course directly subject to the public authorities. Although the SER is established by public law, it is an independent organization and is not funded through governmental but through private financing (SER, 2018). Nevertheless, it is characterized in this research as public as it acts in the general interest, has a public juridical status and, as the empirical section will describe, its role and responsibilities in the process of negotiating and implementing the DBSA characterize it as a public organization.

Secondly, facilitation in defined in this thesis as supporting a (political) process of negotiation of a governance agreement. This includes both supporting the initiation of the negotiations as well as the process itself. The case of facilitation investigated is of course the negotiation of the DBSA. As negotiating such a multi-stakeholder agreement often involves bridging conflicting interests, competent facilitation can be prerequisite to reaching an agreement.

Previous academic studies indicate that governmental facilitation is an important factor in TSG. On global governance in general, Rosenau (2009, p. 20) affirms that state sponsorship will presumably remain an important factor in the creation of transnational governance arrangements. A famous case that illustrates the significance of governmental facilitation is the Ottowa Treaty, an international agreement (with transnational aspects) on the prohibition of anti-personnel mines. The active and determined involvement of the Canadian government (and several NGOs) was critical for the success of the conference that lead to this far-reaching treaty (Maslen & Herby, 1998). This illustrates the influence that strategic usage of governmental resources can have on TSG.

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Thirdly, advocacy refers to representation of interests using soft power. In practice, only governmental advocacy vis-á-vis foreign actors is analysed. Chapter 7 demonstrates how the Ministry of Foreign Affairs supports the implementation of the DBSA through advocacy abroad. While the investigated case of facilitation only serves one goal (reaching an agreement), this thesis distinguishes two goals that the Dutch MFA tries to pursue through advocacy in the context of IRBC. First, the MFA tries to increase the collective leverage of the parties to the IRBC covenants. Through leverage, the parties to the DBSA can influence other actors and persuade them to address (risks of) human rights violations. Secondly, the MFA intends to bring about IRBC policies in other countries. By urging other states and international organizations to formulate IRBC policies, the Dutch government seeks to enlarge the collective impact of IRBC.

Advocacy is particularly interesting from a theoretical perspective as it has been a subject of political science research for decades, only not in the manifestation analysed in this thesis. Both corporate and non-governmental advocacy are significant political forces and constitute developed fields of political science. Corporate advocacy (usually referred to as interest representation or lobbying) has been the subject of extensive political and academic debate since authors such as Olson (1965) and Stigler (1971) pointed out that it is a powerful force with potentially negative political, economic and social consequences. The academic field of non-governmental advocacy is more directly related to TSG. While NGOs usually do not have direct control over political decisions and economic activity, their transnational advocacy campaigns are proven to be powerful instruments that constrain behaviour of states, businesses and even other NGOs (see for example Risse, Ropp and Sikking (2009)). The governmental involvement in the DBSA however indicates that advocacy in twenty-first century politics is not an instrument exclusively used by private actors.

3.2 Analytical Approach

In order to understand how governmental facilitation and advocacy supported the DBSA, the different governance instruments that constitute these roles need to be distinguished. This research employs the orchestration model of Abbott et al. (2015) to analyse the different aspects of these roles. To reiterate, this research is not a deductive test of this model, but an inductive expansion. Employing the orchestration model to capture these types of public actor involvement has two primary advantages as opposed to alternative models (such as that of Steurer (2010) or formulating a new model. First, this model is specifically constructed to explain (soft) public actor involvement in TSG and therefore exceptionally well equipped to explain the data. By applying the

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orchestration model, this research employs established knowledge on the subject to explain new types of public actor involvement. The refined and developed model is well suited to depict the governmental involvement in a comprehensive manner while contrasting differences between techniques. Secondly, employing such an established model allows the abstract findings of this research to be easily embedded in the broader academic understanding of the subject. By using the same typology of governance techniques, the governmental roles of facilitation and advocacy can easily be related and compared to other types of public involvement in TSG.

The research highlights two processes the Dutch government uses to contribute to the DBSA, being facilitation and advocacy. Both facilitation and advocacy are analysed using a fivefold typology of governance techniques, being agenda setting, convening, assistance, endorsement and coordination. The following series of paragraphs defines each of these concepts, reflects on their usage in previous studies and looks forward to their usage this study. One single governance technique can include both material elements, such as financial support, and immaterial elements, such as providing information. As the empirical analysis demonstrates, it is not necessary that all these governance techniques are present in one of the two types of public involvement. The following definitions are directly drawn from or are slight alterations of the typology of Abbot et al. (2015, p. 14).

- Agenda setting refers to efforts of bringing attention to certain issues in order to shape the goals and activities of others. By drawing attention to specific issues and possible policy solutions to address such issues, agenda setting can be an influential governance technique. Previous investigations of public agenda setting in TSG primarily serve to address very broad issues. For example, Viola (2015) describes how the G20, the informal group of most powerful states, sets the agenda regarding renewing financial regulation for the international financial institutions after the 2008 global financial crisis. On the contrary, public agenda setting in the context of the DBSA is far more focused. In its role as a facilitator, the Dutch government puts IRBC on the agenda of the NGOs, unions, and especially the banks. In its role as an advocate, the government uses its diplomatic channels of influence to draw the attention of foreign actors to business related human right violations and the potential and importance of national IRBC policies.

- Convening is defined in this thesis as bringing and keeping different actors together in coalitions. As public authorities have privileged access to various actors, they can empower others by creating connections between actors. In addition to this, governmental convening

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in the form of mediating negotiations can be critical in keeping coalitions together. Bringing (private) actors together is a public capability that has been highlighted in previous studies. Lugt and Dingwerth (2015) explain how convening of the UN lead to the formulation of the Principles of Responsible Investment, a broad set of principles promoting Socially Responsible Investment (SRI). SRI regards refraining from investing in certain forms of undesirable economic activity (e.g. weapon production) (Haigh & Hazelton, 2004, p. 1). In a similar manner and in a similar policy domain, the Dutch public authorities have convened the Dutch financial sector in the IRBC covenants. Furthermore, this thesis expands the concept of convening by drawing attention to how the SER not only brought the parties to the DBSA together, but also how mediation of the SER significantly contributed to the success of the negotiations.

- Assistance refers to material and organizational support of the public actor for other actors. One organization in a governance arrangement can contribute its own resources to further the goals of the arrangement. Such resources include labour, financing and information. The majority of the studies included in the book of Abbot et al. (2015) feature some form of assistance of international organizations to other actors. In most cases, this assistance is limited as the resources of international organizations are scarce. These authors emphasize the importance of indirect effects of assistance, namely visible endorsement (Abbott et al., 2015, p. 15). The findings of this study however indicate that public assistance itself can constitute a significant contribution. The NGOs and unions indicate that negotiating a covenant is demanding from an organizational perspective. Public assistance (financial and organizational) can lower the threshold for these organizations for participating in such an arrangement. Furthermore, informational assistance of the Dutch MFA proves to be an important contribution to the DBSA.

- Endorsement regards empowering other actors by recognizing them as competent and legitimate, which can strengthen their authority over and influence on third parties. In the context of TSG, endorsement is a significant political force as legitimacy of TSG arrangements is not a trivial matter. The (democratic) legitimacy of TSG arrangements has been questioned due to problematic accountability structures (see for example Hahn and Weidtmann (2012)). Endorsement of a democratically controlled government might strengthen the legitimacy of such an arrangement, as previous studies have indicated that participation of NGOs can positively influence the legitimacy of a TSG structure (Fransen, 2012). Haufler (2015) for example finds that the UN Security Council endorsement of the

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Kimberly Process Certification Scheme for blood diamonds significantly contributed to limiting international trade in these diamonds. In this study however, the impact of Dutch public endorsement is not observed as a very significant force.

- Finally, the concept of coordination refers to synchronizing the activities of other actors. Public actors can assess the functioning of different implementing authorities and policies, and subsequently adjust and steer them. Coordination can be used to prevent gaps and overlap in policy, but also to facilitate exchanges of best practices. For example, one of the roles of the G20 at the start of the financial crisis was that of a coordinator with the intention of increasing synergy among the different international financial institutions (Viola, 2015). Such coordination is, although soft, intrinsically top-down. Coordination as observed in this thesis is however bottom-up: the Dutch government engages in coordination of IRBC policies of other countries, assessing differences between them. Although this does not incorporate enforceable adjustment of policies, the Dutch government can influence other governmental actors through such information exchange. Chapters 5 and 6 analyse public facilitation and advocacy through these five types of governance instruments. Facilitation is categorized in agenda setting, convening and assistance. Advocacy is however analysed in a more complex manner. First, advocacy is divided into activities aimed at increasing leverage and activities aimed at scaling up IRBC. The former consists of agenda setting, convening, assistance and endorsement, while the latter only consists of agenda setting and coordination. This analysis is schematically represented in figure 2. Through this theoretical framework, the relevant aspects of public involvement in the DBSA are abstracted, categorized and understood.

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Figure 2: The analytical segmentation of public involvement in the DBSA in this thesis.

Looking ahead, the findings of the research indicate that public involvement through these governance techniques is a significant political force in TSG. As TSG is a political game with multiple (types of) players by definition, the public role needs to be understood in relation to that of businesses and NGOs. The concept of complementary capabilities, forwarded by Abbott et al. (2015, p. 17) is useful to get a grip on how these interrelationships (should) work. These authors explain transnational (orchestration) partnerships through the notion that different types of actors have different governance capabilities. Through cooperation in governance arrangements, regulation is strengthened as they pool their capabilities. In the case of the DBSA, the government seeks to address (Dutch involvement in) human rights violations globally, but does not have theauthority to regulate these activities. Therefore, it collaborates with banks that are able to address these issues. Conversely, banks can use governmental capabilities, namely facilitation and advocacy, in the creation and implementation process of the agreement. In a similar manner, the NGOs and unions pool distinct, complementary capabilities. The notion that each of these actors can contribute to TSG in a distinct way has a normative implication. As each actor has a distinct role in TSG, it has a responsibility to enact that role if the play is to be successful, considering the seriousness of sustainability issues. Further reflection on this implication is provided in the conclusion of this thesis.

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Facilitation Agenda Setting Convening Assistence Advocacy Increasing Leverage Agenda Setting Convening Assistence Endorsement Scaling Up Agenda Setting Coordination

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4. Methodology

This chapter describes the nature and logical reasoning of the research design that is employed in this thesis. The chapter is structured in five sections. The first section connects the objective of the research to a specific research design, being an extreme case study. The second section justifies the selection of the DBSA as an extreme case. The third section describes what types of research methods and data sources are used in this thesis. The fourth section operationalizes the concepts of facilitation and advocacy. The fifth section reflects on the strengths and weaknesses of this research design in terms of validity, generalizability, reliability, and repeatability.

4.1 Objective and Research Design

As is explained in the previous chapters, the theoretical objective of this research is to describe and explain how the state can contribute to TSG governance. It does so through a case study of a national implementation of the UNGPs and OECD guidelines, being the DBSA. An in-depth analysis of a single case can produce a comprehensive depiction of the complex processes investigated (Hancke, 2009, p. 60). In this investigation of the political interaction between the parties to the DBSA, a qualitative case study can provide a comprehensive description and explanation of how the state can contribute to TSG.

The logic of this case study is based on an extreme case study design. In this research design, an analysis is conducted of the most unusual variation of a studied phenomenon in a population. This contrasts with a typical case study, which is employed to explain or predict how the investigated dynamics play out in general. The logic of the extreme case study is based on the notion that the extreme case will display the most extensive manifestation of the studied phenomenon (Seawright & Gerring, 2008, p. 301). An extreme case as such provides the most and the richest data. This research design is useful in an explorative setting when relatively little is yet known about the subject. Furthermore, describing how a phenomenon can occur in its most developed state is exceptionally useful to illustrate the potential of this phenomenon. This corresponds to the objective of this research: rather than providing a typical account of how the state does contribute to TSG, it provides an extreme account of how it can do so. Through such an investigation, the research illustrates how developed dynamics of public involvement play out in practice. More reflection on the broader significance of the findings is presented in section 4.5 and chapter 8.

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4.2 Case Selection

As the subject of the thesis is governmental involvement in TSG, its universe of potential cases consists of all TSG arrangements characterized by state involvement. There are numerous examples of such cases, ranging from the Roundtable on Sustainable Palm Oil to the Club of Rome.

As an extreme case, the DBSA serves as an unusually extensive example of state involvement in TSG. The entire series of Dutch IRBC covenants display exceptional governmental involvement in businesses practices in the context of sustainability, both in its initiation, negotiation and implementation. Also in comparison to other national implementations of UNGP guidelines, the Dutch IRBC covenants remain to be characterized by relatively extensive state involvement (Change in Context, 2018). This corresponds with the notion that the Dutch government has been a front-runner in promoting socially and environmentally responsible entrepreneurship (Fransen & de Winter, 2016, p. 18).

Within this series of covenants, the DBSA stands out as an agreement that specifies a broad and integrated role of the public authorities in the agreement as compared with the other covenants. Furthermore, as has been mentioned in section 1.2, investigating how a state can contribute to TSG is particularly interesting in the context of the financial sector. The DBSA provides an example of how a government can collaborate with NGOs and businesses to channel investments towards sustainable activities. As finance is crucial to attaining sustainable development, the selection of the DBSA as a case also contributes to the societal relevance of this study. As such, the DBSA is particularly appropriate to depict extensive state involvement in TSG and in addition to this is an interesting example of how the financial service sector can be governed.

4.3 Methods and Data Sources

The analysis of this thesis of the DBSA predominantly relies on primary data. Two types of data sources are employed: policy documents and expert interviews.

The DBSA itself serves as a point of departure for the document analysis, as the agreement is connected to various other official documents and reports. The research maps and analyses two different ‘’groups’’ of documents. First, policy documents directly related to Dutch IRBC policy were analysed. This regards the IRBC covenants, advisory reports, political strategy documents and policy documents of implementation. Secondly, the documents that constitute the international legal framework of RBC were investigated. These include the UNGPs, the OECD guidelines, the ILO

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declaration, and several international and European policy documents on the implementation of these principles.

As they are experts on the topic, the representatives of the parties to the DBSA were approached for interviews. In total, the representatives of seven of the nine parties to the DBSA were interviewed. In addition to this, a representative of the SER and the chair of the agreement, which are both independent actors and not a party to the DBSA, were interviewed. The nine parties to the agreement form four delegations, being the government, the NGOs, the unions and the sector. Of each of these delegations, at least one party has been interviewed. The sampling method employed was snowballing (Bryman, 2012, p. 202), using an initial contact (the representative from the SER) to reach the other interviewees. The CNV and Save the Children were not approached due to increasing theoretical saturation, signifying that enough valid data was collected for analysis (Bryman, 2012, p. 421). For a complete overview of the interviewees, see the appendix.

The interviews were conducted using a semi-structured format with predetermined questions, but often the interviews departed from the format to focus on relevant aspects that unexpectedly arose during the conversation. The first interviews were relatively open and explorative, while the later ones were more direct and verifying. In general, the interviews were conducted in a flexible manner, allowing the interviewee to highlight the aspects of the topic that he or she viewed as most relevant. This relatively flexible way of collecting information allowed the central argument to develop over time and let the data collection guide the research (Bryman, 2012, p. 470).

The data from these sources is used to depict how the Dutch government has contributed to the construction and implementation of the DBSA. The policy documents are primarily used to provide verifiable, factual information on the responsibilities and the agreements of various actors involved in the construction and implementation of the DBSA. The interviews provide an account of how these processes take place in practice and what roles the different parties assume during the negotiations and implementation.

4.4 Operationalisation of Concepts

As is stated in chapter 3, the primary concepts investigated in this thesis are public facilitation and advocacy. The presence and significance of these concepts is analysed through an empirical assessment of the roles and responsibilities of the public parties in the construction and implementation of the DBSA.

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The analytical chapters unravels public facilitation and advocacy into governmental activities of agenda setting, convening, assistance, endorsement and coordination. The presence of most of these activities is stated in the DBSA itself or related policy documents. The significance of these activities and their impact on the effectiveness and efficiency of the construction of the DBSA has been assessed through the interviews. For example, the significance of governmental agenda setting was identified by asking the interviewees about what led the parties to consider creating an arrangement about IRBC (namely, governmental agenda setting).

4.5 Validity, Generalizability, Reliability and Replicability

A qualitative case study as outlined in this chapter can provide a rich description of the researched phenomenon, but the process of data collection, interpretation and analysis is characterized by specific challenges of validity, generalizability, reliability and repeatability. The following paragraphs will reflect on these issues of this research design in general and in this specific context.

First, validity concerns whether the defined concepts are accurately expressed through the measurement chosen (Hancke, 2009, p. 87). While a qualitative description of investigated concepts can provide strong support for an academic argument, a qualitative research can still produce invalid results if conducted improperly. For example, data from interviewees (as well as policy documents) should be used with caution, as they might not always provide objective information. To ensure that theory and data are connected validly, the research should not rely on one singular data source to measure a concept. Triangulation through the usage of different sources (e.g. multiple interviewees) and different types of sources (e.g. interviewees and public sources) can be used to strengthen the validity of the research. Furthermore, the data has to be collected, analysed and presented in a clear and transparent manner to separate empirical findings from interpretation and to allow others to reflect on the conceptual and methodological choices of this research.

Secondly, generalizability (or external validity) concerns whether or not the findings of this specific case are representative for the broader population (Bryman, 2012, p. 69). For an extreme/outlier case study, the degree of generalizability of the findings is very low. While the dynamics as described and explained in this research might to a certain extent be reflected in other cases, the findings on this case study do not represent the empirical reality of a broader universe of cases. As however is stated in section 4.1, the ambition of this research is not to explain how states do contribute to governance of GVCs, but how states can do so. The low degree of empirical

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generalizability is therefore not problematic regarding the ambition of this research. Further reflection on this subject is given in chapter 8.

Thirdly, reliability regards whether the measurement is stable, in the sense that when measurement is repeated it produces the same result when circumstances have not changed (Hancke, 2009, p. 90). While repeating questions is not very productive, inconsistencies in a single narrative or between two narratives (of two interviewees) can indicate that a measurement is not reliable. Critically reflecting on such inconsistencies and, again, using different sources for triangulation have to ensure that the measurement is reliable.

Fourth, replicability regards whether the execution of the research, including conceptualization, operationalization and data collection is explained clearly, so that anyone could reproduce the research and find the same results. While reliability refers to reflecting on the outcome of the measurement, repeatability regards the method itself. By describing how the data that supports the argument is collected, other scholars could conduct a similar analysis if they would question the validity or conclusions of this thesis. (Hancke, 2009, p. 91) This research draws its findings from two types of sources, being documents and interviews. Assuring that repeatability is possible is straightforward in the context of document analysis, while it is far more complex regarding data collection through interviews. With document analysis, ensuring repeatability is ensured through proper referencing and separating the information drawn from these sources from their interpretation in this research. All the used documents are publically available and their usage in this research can be examined by anyone interested.

Repeatability is problematic when it comes to the interviews. Repetition of the data collection process is practically impossible. The semi-structured interviews used in this research often departed from the written questionnaire and focused on relevant dynamics that unexpectedly arose during the interview. Furthermore, the interaction in which the questions and answers were stated is a personal and specific process that could not even be exactly repeated by the same interviewer.

Due to the problems of validity and repeatability associated with interviews, this thesis preferably relies on document analysis to support its empirical statements. The interviews are used to supplement the document analysis and are used if no documented data is available.

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5. The Dutch Banking Sector Arrangement

This chapter describes the context in which the DBSA is constructed, the nature of the agreement and how the DBSA intends to reach its goals. Through this description, it provides an answer to the following sub-question:

- What are the goals of the Dutch Banking Sector Agreement and what means does it employ to reach them?

The analytical structure as presented in section 3.2 is not employed in this chapter, as the chapter’s aim is not to abstract theoretical processes but to make an empirically accurate description of the case. Through this description, the necessary background information for the analysis is provided. As such, this chapter functions as a point of departure for the analytical chapters 6 and 7.

The chapter is structured in four sections. The first section describes the context in which the DBSA has been created as the IRBC covenants are not isolated policy documents, but national implementations of an international legal framework. The second section provides a short summary of the nature of the agreement, the involved parties and the construction process. The third section identifies four primary mechanisms the DBSA employs that strengthen the due diligence procedures of the adhering banks. The fourth section briefly concludes the chapter.

Due to reasons outlined in section 4.5, this chapter is primarily based on document analysis. The DBSA itself is by far the most consulted source in this chapter. Other documents, including the UNGPs, the OECD Guidelines and the ILO declaration are also consulted. Nevertheless, the interviews with representatives of the parties were crucial in guiding this document analysis. Furthermore, secondary sources are incorporated in the first section of the chapter.

5.1 The Context: Guiding Principles, Guidelines and a Declaration

The construction of the IRBC covenants took place in an international framework, consisting of several treaties on the roles and responsibilities of states and businesses with regard to sustainable development. In order to understand what the goals of the DSBA are, the nature of this international framework needs to be clarified. The DBSA primarily is based on the UNGPs and the OECD guidelines. To a lesser extent, the DBSA also draws from the International Labour Organization (ILO) Declaration on Fundamental Principles and Rights at Work (SER, 2016, pp. 9, 24). The United Nations Guiding Principles on Business and Human Rights, formulated by the Office of the High Commissioner for Human Rights (OHCHR), specify the interrelated roles of states and

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business enterprises with regard to human rights protection. The agreement consists of 31 principles, which are synthesized in three general principles (OHCHR, 2011, p. 6). The first principle states that the state has a responsibility to protect against human rights abuses by third parties within its territory. Acknowledging the Universal Declaration of Human Rights (1948), the state should prevent and address human rights violations through appropriate laws and policies. The second principle states that business enterprises have a responsibility to respect human rights and should address adverse human rights impacts in which they are involved. They must avoid causing and contributing to human rights impacts, and seek to prevent or mitigate human rights violations directly connected to their activities. The third principle states that the state should ensure that those affected by human rights violations within their jurisdiction should have access to effective remedy. These remedy mechanisms can be both state-based and non-state-based. Specific advice regarding the application of the UNGPs in the financial sector has also been commissioned by the OHCHR (2017).

The OECD Guidelines for Multinational enterprises (OECD, 2011), first published in 1976 and amended several times since then, specify how responsible business conduct should be implemented by multinational enterprises. The OECD Guidelines regard to human rights protection, but also other social and environmental impacts of business activities. At the time of writing, the OECD guidelines are adhered to by 48 states, and (non-bindingly) apply to all the business enterprises operational in these states. While the UNGPs focus on the interrelated roles of states and businesses, the OECD guidelines primarily focus on the role of the latter. The guidelines specify eight thematic fields of action and provide procedures for businesses to implement these guidelines and integrate them into their business activities. Five annexes have been added to the OECD guidelines specifying what responsible business conduct entails in specific economic sectors, including the financial sector (OECD, 2017).

The ILO declaration (International Labour Organization, 2010), adopted in 1998 and revised in 2010, states that members of the ILO (187 of the 193 UN member states), even if they have not ratified all the conventions of the ILO, have a responsibility and obligation to promote and realize fundamental labour rights.

These fundamental labour rights are defined through four principles, being:

‘’freedom of association and the effective recognition of the right to collective bargaining; the elimination of all forms of forced or compulsory labour; the effective abolition of child labour;

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and the elimination of discrimination in respect of employment and occupation.’’ (International Labour Organization, 2010, p. 7)

In addition to declaring the global applicability of these principles, the ILO declaration launched two follow-up mechanism aimed at monitoring the implementation of these fundamental rights. Together, these three documents form the international framework in which the DBSA and the other IRBC covenants are embedded (SER, 2016, pp. 9, 24). Other supranational actors have stressed the importance of the implementation of these agreements. Specifically, the Council of Europe stated that member states should implement the UNGPs through national action plans in order to effectively reach the UNGPs goals (Council of Europe, 2016). The European Union similarly has been supporting the implementation of both the UNGPs and the OECD Guidelines by funding research on the topic, guiding implementation processes and monitoring member states’ progress in implementation (Faracik, 2017, p. 37).

This emphasis on national implantation illustrates that this international framework only provides the fundament of RBC regulation: national implementation is necessary to realize its potential. The Dutch IRBC covenants can be regarded as an example of successful implementation, but implementation of (I)RBC in many countries remains underdeveloped or entirely absent (Faracik, 2017). While this thesis approaches this issue by highlighting how successful implementation can be achieved through active governmental involvement; other academic reflections focus on how the international framework could be amended. At the international level, Thielbörger and Ackermann (2017) argue that although the current framework definitely does not properly balance the rights and duties of multinational enterprises, improving the enforcements of these standards nationally and internationally is preferable to striving for a new treaty. Furthermore, Augenstein, Dawson and Thielbörger (2018) explain that the European Council also has an important role to play in strengthening and accelerating national implementation processes. Although such improvement of the international context presumably is desirable, it is clear that the role of the national government in the TSG field of IRBC is paramount.

5.2 The Agreement

In September 2016, the negotiations to bring about a national implementation of this international framework in the context of the Dutch banking sector started. Jaqueline Cramer, a former Dutch minister and professor in sustainability at the University of Utrecht, was assigned as an independent chair to lead the negotiations. In cooperation with the chair, the SER mediated the negotiations.

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The negotiating parties formed four delegations. The banking sector was officially represented by the Dutch Banking Association (NVB; Nederlandse Vereniging van Banken), but the three major banks of the Netherlands, being the ABN-AMRO, ING and Rabobank and the Dutch national developmental bank, the FMO, were also present. The Ministry of Foreign Affairs and the Ministry of Finance represented the Dutch government. The unions were represented by the FNV (Federatie Nederlandse Vakbeweging) and the CNV (Christelijk Nationaal Vakverbond), the two largest Dutch labour unions. Civil society was represented by Amnesty International, Oxfam Novib and Pax (SER, 2016). After the agreement was signed at the end of October 2016, Save the Children also joined the DBSA (Save the Children, 2017). The NVB is the only corporate actor signatory to the DBSA, as the banks themselves have signed a declaration of adherence (SER, 2018). A more extensive description of the parties to the DBSA is presented in the appendix.

The implementation process of the DBSA requires continuing (cooperative) governance, guiding the activities of the parties and the adhering banks. A steering group and several working groups were established after the agreement was signed to attend to the implementation process. The steering group consists of two members of each of the delegations and is responsible for establishing agreements about major issues of implementation and create or respond to new projects related to the agreement and amendments to the agreement. The working groups are responsible for specific parts of the implementation of the agreement, for example executing value chain analyses (SER, 2016).

The focus of the agreement is the responsibility to protect human rights, including labour rights (SER, 2016, p. 11). In the domain of sustainable development, this excludes environmental impacts of corporate activities. The IRBC covenants can however have a broader focus, as environmental impacts are for example incorporated in the covenant regulating the garment and textile industry (2016).

The scope of the agreement is corporate lending and project finance activities (SER, 2016, p. 12). This regards both individual loans to specific companies and long-term financing through complex syndicate structures that include multiple loaners and borrowers. Because of the overwhelming quantity and complexity of these financial relationships, the banks have a potential influence in many economic sectors across the globe. At the same time, this entails that establishing responsibility relationships and implementation of the agreement is complex and difficult (M. Hazelzet, personal communication, 2018). The steering group and working groups support these efforts. This scope excludes asset management, which is a major part of finance, but the DBSA does

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declare an intention to address human rights violations through asset management in the future, possibly in cooperation with pension funds and insurers (SER, 2016, p. 12).

The DBSA is one of the five currently operating IRBC covenants in the Netherlands. The other covenants govern IRBC in the textile, gold, forestry and natural protein industries. Furthermore, covenants regarding the Dutch insurance, foodstuffs, metallurgic and floriculture industries as well as pension funds are under construction (SER, 2018).

5.3 The Means: Conducting Due Diligence

Central to the functioning of the DBSA and how it operationalizes RBC is due diligence. Due diligence refers to the idea that actors (businesses) need to identify, prevent and decrease actual and possible negative impacts of their activities and can be held accountable based on how they handle these identified risks. These risks do not only include risks for the company as such, but also risks for other stakeholders, for example workers (SER, 2016, p. 14) (OHCHR, 2011, p. 17). The (corporate) signatories of the covenants are not responsible for every misconduct of their partners, but they can be held accountable if they have not reasonably incorporated the risks of negative social and environmental impacts in their corporate decision-making (SER, 2016, p. 24) (OHCHR, 2011, p. 24) (OECD, 2011, p. 31). In essence, the idea behind this form of RBC is that if a company makes a transparent assessment of the potential risks (of human rights violations) connected to certain business activities, it will address these risks in an appropriate manner. If it fails to do so, it risks public scrutiny and might be forced to remediate the grievances.

In general, conducting due diligence and RBC differs from other forms of CSR as it has to be comprehensively and integrally applied to corporate behaviour. CSR policies can regard accessory, pro-bono projects that do not necessarily address all the external impacts of a corporation. RBC, by definition, does exactly this. In the context of financial service provision, RBC and due diligence also differ from SRI. SRI regards refraining from investing in certain activities (Haigh & Hazelton, 2004, p. 1). Contrastingly, engagement with clients is central to conducting due diligence. Through engagement, dialogue and pressuring, clients can be persuaded to prevent and mitigate social and environmental risks (SER, 2016, p. 14). In practice, SRI and due diligence are not exclusive, as the DBSA also incorporates elements of SRI (SER, 2016, p. 13). How governments, NGOs and businesses address risks through dialogue and pressuring is further examined in chapter 7.

The DSBA has not only been created to commit banks to conduct due diligence, but it also supports the banks in doing so. It seeks to achieve its goals of preventing and mitigating human rights

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violations through cooperatively addressing problems that an individual bank might not be able to solve. (SER, 2016, p. 7). Conducting due diligence is a complex process and there are many practical challenges that often prevent businesses from doing so effectively and efficiently. These challenges include

‘’the lack of adequate and easily available information on actual and potential human rights impacts, lack of insight in the value chains of specific high-risk sectors and on how to use or increase leverage to prevent or mitigate adverse human rights impacts’’. (SER, 2016, p. 7)

The following sections identify four primary methods that the DBSA employs to overcome such challenges and strengthen IRBC of the parties involved.

5.3.1 Standardizing Policies

While many of the corporate parties already had incorporated significant CSR and/or RBC policies prior to the covenant (see for example the extensive non-financial appendix of the ING annual report of 2015 (ING Groep N.V., 2015)), the covenant requires them to implement a standardized, integral RBC policy. This standardization consists of two elements.

First, all the adherent banks need to formulate diligence processes in line with the OECD guidelines and the UNGPs within two years after declaring their adherence. (SER, 2016, p. 13). Secondly, the due diligence processes itself need to incorporate three elements. First, the banks need to assess the actual and potential risks in which they might be involved due to prospective and existing business relationships. Their clients must provide information and clients must be confronted in case of negligence. Secondly, on the basis of these findings appropriate action has to be taken. Depending on the situation, this can imply dialogue with the client, monitored and time-bound improvement plans and/or ending the business relationship. Thirdly, the responses of the clients need to be assessed and monitored (presumably, for learning purposes) (SER, 2016, p. 13). Through these two elements, the DBSA structures the RBC/CSR policies of the adhering banks. This standardization process should integrate RBC in the investment policies of the banks within the scope (corporate loans and project finance) and focus of the agreement (human rights) and as such improve due diligence processes.

5.3.2 Transparency and Information Exchange

The DBSA requires the adherent banks to share information with other parties and the public on various aspects of their financial activities. To be more specific: the DBSA requires banks to make

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