Public policies on CSR in the Netherlands : an assessment of governmental influence on Dutch clothing businesses

Public Policies on CSR in the Netherlands: An Assessment of

Governmental Influence on Dutch Clothing Businesses

Master thesis Political Science, International Relations

Research Project: Transnational Policies of Sustainability

June 2016

Lara Deckers [10276181]

Supervisor: Luc Fransen

Second Reader: Philip Schleifer

Word count: 17.979

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Table of Content

List of Abbreviations

4.

1. Introduction

5-6.

2. Theoretical Framework

7-11.

2.1. Corporate Social Responsibility 7-8. 2.2. Government involvement in CSR practices 8-11. 2.3. Business Characteristics 11.

3. Methodological Approach

12-18.

3.1 Case Selection 12-13. 3.2 Elements of Study 13. 3.3 Data & Method 13-15. 3.4 Sampling 15. 3.5 Operationalization 15-16. 3.6 Validity & Reliability 16-17. 3.7 Theoretical & Social Relevance 17-18.

4. Governmental Influence Mechanisms

19-33.

4.1 Broader Vision & Policy of the Dutch Government 19-21. 4.2 Governmental Instruments 21-31. 4.2.1 Financial Instruments 22-23. 4.2.2 Informational Instruments 23-24. 4.2.3 Partnering Instruments 24-26. 4.2.4 Hybrid Instruments 26-31. 4.3 Conclusion 32-33.

5. A Business Understanding of CSR

34-40.

5.1 Defining CSR 36. 5.2 Focus in CSR Policies 36-37. 5.3 Establishment of CSR Policies and the Underlying Motives 37-39. 5.4 Conclusion 39-40.

6.

The Perception of Governmental Instruments

41-50.

6.1 Familiarity 42-43. 6.2 Perceptions of Government Involvement 43-45. 6.3 Reactions to Government Involvement and Business Expectations 45-47. 6.4 Mutually Variations 47-48. 6.5Target 48-49. 6.6 Conclusion 49-50.

7. Conclusion & Discussion

51-53.

8. Acknowledgment

54.

9. Bibliography

55-61.

10. Appendix

62-64.

10.1. Case Description 62-63. 10.2. Contact information 64.

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List of Abbreviations

BSCI –

Business Social Compliance Initiative

CSR – Corporate Social Responsibility EIA – Energy Investment Deduction FWF – Fair Wear Foundation IDH – Sustainable Trade Initiative IFC – International Finance Corporation ILO – International Labor Organization TSE – Top Sector Energy MIA – Environment Investment Deduction NGO – Non-Governmental Organization OECD – Organization for Economic Cooperation and Development PIU – Purchasing Innovation Urgency SAC – Sustainable Apparel Coalition SDE+ – Stimulation of Sustainable Energy Production SER – Social and Economical Council of The Netherlands SME – Small to Medium-sized Enterprises UN – United Nations VAMIL – Arbitrary Depreciation of Environmental Investments

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1. Introduction

The news of the collapse of the Bangladeshi factory complex Rana Plaza in April 2013 shed light on distressing conditions in the garment industry. The growing global desire for cheap and fast fashion showed its true cost by killing 1,127 workers (The Guardian, 2013). The collapse is, in some way, a poignant example of the problematic changes that occur in the context of trade liberalization, the neo-liberal principle of free market and the globalization of production in which states became less willing and less able to regulate the economic system (Jenkins, 2001: 1). Over the years, the production shifted away from the center of consumption towards developing countries, where large work forces were willing to work for low wages (Wetterberg, 2011: 64). Due to the highly competitive nature of the garment industry, businesses were constantly looking for cheaper possibilities to produce, even though this happened at the expense of labor standards, which became harder to guarantee in the transnational production. The protection of labor standards is the responsibility of national states and states lack the jurisdiction to impose their laws on the countries where the productions take place (Idem: 64-65).

Businesses were confronted with the conditions that occurred in their production chain because of events such as the collapse of Rana Plaza factory complex. They had to justify their choices to external parties such as non-governmental organizations (NGOs). This, combined with the growing awareness of the effects of production among consumers, resulted in a growing willingness among businesses to improve the conditions in which they operate. It was in this context that there came an increasing emphasis on self-regulation: the corporate social responsibility (CSR) of companies and the rise of private regulatory standards (Jenkins, 2001: 1). In the absence of government involvement, a shift towards private regulatory standards to govern the transnational supply chain was witnessed. This way businesses could voluntary adopt a stricter set of social, environmental and economical standards to stimulate and support sustainable development in their production chain (Marx & d’Hollander, 2012: 5).

Today, the emergence of these kinds of standards has grown spectacularly and the question of how governments can interact with these standards is increasingly relevant (Ibid). In recent years, governments have started to interact and engage little by little with private regulatory standards, resulting in policy strategies to stimulate the development or adoption of these standards (Idem: 5, 48). Governments have started to experiment with new ways of governance to promote and support the uptake of standards by businesses. National governments, for one

can still be regarded as the ultimate regulators; with the power to enforce laws with legal and economic instruments (Steurer, 2013: 7-8). This combined their ability to strengthen the

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potential impact of the standards by providing incentives (Marx & d’Hollander, 2012: 5), makes them potentially powerful stakeholders. Although CSR has been frequently the focus of studies, it is a relatively new and a still developing research field. Certain questions remain unanswered. Since governments only recently have started to get involved in the subject, the effectiveness of state involvement regarding business activity on social and environmental standards could be further explored. The objective of this thesis is to provide more insight into the influence governmental instruments have on the CSR business activities of Dutch clothing businesses. Consequently, the following research question is formulated:

“To what extent do governmental instruments influence the social and environmental aspects of the Corporate Social Responsibility of Dutch clothing businesses?” By shedding light on government involvement, not only a better understanding of the different types of governmental interventions is obtained but also whether these are successful and for whom. It shows how CSR is embedded on a national scale and tells us more about the particular issues and patterns in the case of the Netherlands. Making a distinction between the social and environmental aspects of CSR allows for looking specifically at the differences of government influence between these aspects. This provides an insight whether governmental interventions show differences in these two problem areas.

This study is structured in three parts. The first part consists of the theoretical framework and the methodological approach. In the theoretical framework the concept of CSR and its different components are discussed, as well as the existing literature on the influence of governmental policy instruments regarding CSR. In this second chapter the defined sub-questions are presented. The third chapter concentrates on the methodological approach; the research design and its implications on the validity and reliability of the study, as well as the theoretical and social relevance of this study. The second part contains the empirical findings, starting with the chapter 4 Governmental Influence Mechanisms, in which the governmental instruments provided by the Dutch government are described and the first sub-question is answered. Chapter 5 Business Understanding of CSR offers an examination of the business perceptive on CSR and answers the second sub-question. In chapter 6, Business Community and Government Involvement, the way the government and the business community interact is discussed to answer the final three sub-questions. The third part of this research includes the conclusion and the discussion of the findings.

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2. Theoretical Framework

2.1. Corporate Social Responsibility In academic debates and business environments there has been disagreement on concepts and definitions of a more humane, more ethical and more transparent way of doing business (Van Marrewijk, 2003: 95-96). CSR, also Corporate Citizenship, Sustainable Business or Corporate Accountability, are used to describe the relationship between businesses and society (Jackson & Apostelakou 2010: 373). Nowadays the concepts are considered to be synonyms (Van Marrewijk, 2003: 102).

CSR has been discussed thoroughly and it became a widely used concept, open to many different interpretations. A definition that is characterized by its simplicity is that of the European Commission: “CSR is the responsibility of enterprises for their impacts on society and outlines what an enterprise should do to meet that responsibility” (European Commission, 2011). Its simplicity leaves room for someone’s own interpretation and makes it approachable. A broad definition of CSR “refers to company activities – voluntary by definition – demonstrating the inclusion of social and environmental concerns in business operations and in interactions with stakeholders” (Van Marrewijk, 2003: 102). Although still in part undefined, the given distinction between the social and environmental problem areas gives more direction. In addition, it underlines the voluntary nature of CSR. It is based on the notion that CSR revolves around the company’s impact on, the relationship with and its responsibilities to society as a whole (Idem: 101) and is not limited to either social welfare issues or environmental issues.

By emphasizing on a society as a whole and including the social and environmental aspects of CSR, the focus is on the role of companies regarding the broader issue of sustainability. The question here is how a business can be socially just and economically viable in the long term, using non-renewable resources as efficiently as possible, being ecologically compatible, producing healthy products for human consumption at a fair price, and taking animal welfare into account (Van Bruchem et al., 1991: 146). This can also be translated to the production of clothing; companies can be socially just by paying their sewers a fair wage; animal welfare can be taken into account regarding the use of fur or angora wool; limiting the use of certain chemicals; or, the responsible use of resources, since producing fibers such as cotton requires water and land; and to produce synthetic fabrics oil is required.

The debates around the concept and the definition of CSR have led to a wide range of different interpretations, not only by the academics studying the topic but also businesses trying to implement CSR. Why clothing businesses adopt CSR and how they implement it, differs among

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businesses. Sometimes businesses want to do what is right or apply it simply because they gain something from it. Whatever the motives are, it has an impact on the perception of what CSR is, making it a wide concept open to many different interpretations. 2.2. Public Policies on CSR and Public Meta Governance The role of the government is, increasingly, the focus of study. Firstly, Academics focused mainly on the nature, the definition and the development of the term CSR and the emerging of private regulatory standards in the global trade governance (Qu, 2007: 582 and Marx & d’Hollander, 2012: 5). Whereas now, as governance systems have become more complex and governments are increasingly active in promoting and shaping CSR, there is a greater emphasis on government involvement. The importance of government involvement is emphasized by the democratic legitimacy of the government (Steurer et al., 2011:207, see also Bell & Hindmoor, 2012; and Marx & d’Hollander, 2012: 5). Governments are potentially powerful stakeholders with the ability to define the scope of CSR by setting mandatory minimum standards (Steurer et al., 2011:207). Mandatory initiatives refer to “means that legislatures, ministries or public agencies define rules that are binding for all (or for all members of a particular group), and that the executive and judicial branches of government (or the agencies themselves) monitor and enforce compliance” (Steurer, 2013: 7). Mandatory initiatives can consist of a legal (laws/decrees) or an economic (taxes/fees/cap-and-trade schemes) component (Ibid).

In addition to this, governments can also shape and promote CSR activity by using a variety of voluntary policy instruments (Steurer et al., 2011: 207). Voluntary instruments are rules that are not legally binding but suggest certain behavior, politically (Steurer, 2013: 8). Voluntary instruments can replace or complement mandatory initiatives or can in case of politically contested issues compensate for the lack of mandatory initiatives (Steurer et al., 2011: 207). These instruments can be legal, financial and informational. Legal instruments have a more recommending character and are not obligatory or do not foresee sanctions in case of non-compliance (Steurer, 2013: 8). Financial instruments try to influence behavior through financial incentives and market forces and consist of subsidies, awards or public procurements (Steurer et al., 2011: 208). Informational instruments are based on knowledge and use moral and factual persuasion to highlight options and the possible consequences (Steurer et al., 2011: 209). Examples of informational instruments are endorsements, benchmarking reports, brochures, guidelines, websites, and media campaigns (Steurer, 2013: 8). In the context of CSR, there are two more policy instruments that play a vital role, namely: partnering and hybrid instruments

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(Steurer et al., 2011: 208). A partnering instrument is an instrument that brings government, businesses and other stakeholders together in public-private partnerships, stakeholder forums, or negotiated agreements to exchange resources or avoid mandatory regulations (Ibid). A hybrid instrument is a combination of two or more instruments described above (Ibid). The CSR policy instruments can be applied in four different fields of actions that reflect what the government can do to promote CSR activity (Idem: 209): 1. Raise awareness, build capacities, and put capacities into action; 2. Improve disclosure and transparency; 3. Facilitate socially responsible investment; 4. Lead by example

The different instruments can be characterized by more than one thematic field of action (Steurer, 2010: 59).

As the field of promoting and shaping CSR business activity takes place in a complex and multi-actor governance system (Steurer, 2013:15), the role of private or state actors and non-state initiatives cannot be ignored. These actors and initiatives interact with each other and with governmental instruments and the government as a whole in variety of ways (Gunningham, 2005: 5). In this complex system, governments use public meta-governance or the governance of governance to serve their public policy objectives (Steurer, 2013: 16). Governance is a concept referring to the various forms of steering by states and non-state actors at all geographic levels and across them (Idem: 3). In this research, meta-governance refers to the overseeing, reflecting on and orchestrating different types of regulation (Steurer, 2013: 16, see also Jessop, 2009). Governments pursue meta-governance to direct and control the interplay of various types of regulation coming from whatever societal domain on a particular issue. By doing so, governments are able to utilize the capacities of private, non-state actors and other institutions to accomplish their policy goals (Gunningham, 2005: 5 and Steurer, 2013: 16). Meta-governance differs from hybrid policy instrument as it aims to influence more indirectly; steering actors that steer actors. Governments can use public meta-governance to provide adequate resources that lower costs and empower network actors (Sørensen & Torfing, 2009:250). To illustrate on the basis of the clothing sector, meta-governance enables governments to influence clothing businesses through private regulatory standards.

Steurer et al. provide a plain description of how governments aim to promote CSR by distinguishing between five policy instruments and four fields of action. This description forms the conceptual basis of the analysis of the Dutch governmental instruments in chapter five. The focus of the article by Steurer et al. - like a substantial number of his colleagues - lies on varieties

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in national political-economic configurations and varieties in CSR practices (Steurer et al., 2011: 206, see also Fransen, 2013: 213-214). Previous studies were not able to identify what particular aspects of national policies affect CSR activity and how favorable these policies are in promoting CSR (Idem: 214, 225). This makes it interesting to study to what extent CSR is nationally embedded, what role governments play in shaping CSR practices and how appropriate specific governmental instruments are (Idem: 214).

In addition to this, previous studies mainly focused on the social aspects of CSR (see for example Marx, 2008; Wettenberg, 2011; Fransen & Burgoon, 2014; Fransen & de Winter, 2015). Therefore, the focus in this research is on both environmental and social aspects of CSR. A distinction is made between the different aspects of CSR in order to examine what extent governmental instruments focus on certain aspects. A difference in focus is expected based on three assumptions regarding the involvement of the government. For one, since the collapse of the Rana Plaza factory complex in Bangladesh the social conditions in which the employees had to work, received a great deal of attention from the media. It can, therefore, be expected that the government put a greater emphasis on improving the social aspects (Fransen & Burgoon, 2015). Secondly, a distinction could be expected in the area of the environmental aspects. It is easier for businesses to verify environmental aspects (for example, by becoming organic certified), making it perhaps more attractive to improve the environmental aspects because businesses can more easily ‘score’ points from the consumer (Merk, 2011). Lastly, the government could put a greater emphasis on environmental aspects as a concern for the public health, because some chemical substances used in production may have negative consequences for the consumer. In light of these assumptions, it is interesting to make the distinction between social and environmental aspects. This provides unique insights of the specific ways governments intervene. This revolves around the extent instruments focus on a certain aspects and whether or not the government favors one over the other. As a result, the following research question is formulated: “To what extent do governmental instruments influence the social and environmental aspects of the Corporate Social Responsibility of Dutch clothing businesses?” In order to answer the research question in applicable way, the research question is divided in a number of sub-questions:

“What governmental instruments are in place regarding the Corporate Social Responsibility of Dutch clothing businesses?”

“To what extent do the definition and focus of CSR from businesses and the government correspond?”

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“How do Dutch clothing businesses experience the governmental instruments and respond to them?”

2.3 Business Characteristic

Literature reveals that businesses characteristics are important in understanding the willingness of businesses to improve their CSR activity. Size, market segment and ownerships type are all elements affecting CSR business activity.

The size of a business has a positive influence on the degree of CSR activity (Jackson & Apostolakou, 2010: 280). The share of a business in the market determines how sensitive a business is to societal pressure (Fransen & Burgoon, 2014: 598). Large businesses have a high public profile and are more vulnerable to negative publicity. They are, therefore, more likely to adept a more stringent CSR (Jenkins, 2001: 8, Cramer, 2005: 92). In addition to this, the market segment can affect the decision of businesses to improve their CSR activity. Businesses producing products for the higher market segment have a different consumer audience then businesses focusing on the medium or lower market segment (Fransen & Burgoon, 2014: 598). The corporate preferences to improve CSR are lower for businesses in a lower consumer market (Idem: 608). Literature also revealed the importance to take ownership types into consideration. Publicly owned businesses are expected to be more concerned about the effects of negative publicity, because attacks to the reputation of the brand can have negative effects on the share prices (Marx, 2008: 253). It is important to take the businesses characteristics into account because they have an effect on the willingness to improve CSR activity and, therefore, might affect the degree of influence the Dutch government has on businesses. In light of this two additional sub-questions were formulated:

“How do Dutch clothing businesses differ in responding to the governmental instruments?”

“To what extent does the Dutch government target a specific group of businesses in influencing the clothing sector?”

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3. Methodological Approach

In this thesis, an inductive qualitative approach is used as theoretical approach. Inductive approach starts with the observations and theories are formulated towards the end of the research and as a result of observations. The researcher considers different possibilities that could explain the phenomenon and digs deeper into the subject. Rather than testing the validity of an existing explanation, an inductive approach exists of intermediate evaluations of the findings that could give an indication of what will happen in the next stage of data gathering (Fransen, 2011: 170). This is significantly different from a deductive approach, in which an explanation for a certain phenomenon is tested. The inductive approach corresponds to the aim of this thesis to contribute to our understanding of the impact of government involvement on the business activity and behavior regarding CSR. An inductive approach provides a great in-depth in the findings by leaving room for unexpected explanations and outcomes and identifying underlining patterns through observations. 3.1. Case selection The research design is a single case study. Single case study analyses focus on one single case (N=1) that is expected to provide an insight into a causal relationship across a larger population of cases (Gerring & Seawright, 2007: 86). Studying one single case makes it possible to examine the complexity of the situation. The case of the clothing sector is interesting because this sector is a high-impact sector. Meaning that the risks concerning the environment, labor, human rights, corruption and tax obligations are more elevated then in other sectors (KPMG, 2014: 8). Because of these elevated risks, the sector is labeled by the Dutch government as a priority sector (Idem: 7). As a result, it is expected that the government will be increasingly involved in improving CSR activity in this particular sector. Characterizing for this sector is a constant pressure for brands and suppliers to adapt their offers to seasonal and fashion changes (Fransen, 2011: 5). In addition, the sector is hard to regulate because it has many small suppliers with fierce competitions among them. Suppliers are often confronted with large orders with tight deadlines, putting pressure on the workers (Ibid). Studying the Dutch case is interesting because the Netherlands has been taking the lead internationally as a government promoting CSR policies (Fransen & de Winter, 2015: 18). In the Netherlands is a national political environment in which actors expect progressive action on labor standards from businesses. In their turn, Dutch businesses were in 2009 ranked among the top 5 of European countries in terms of their endorsement of voluntary human rights, social and environmental standards and their commitment to transparency in sustainability reporting (Ibid).

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Since Dutch initiatives have taken the lead on CSR and the Netherlands is renowned for a progressive CSR policy agenda (Idem: 20), this case can be understood in terms of an extreme case in which the highest outcome can be expected. A problematic part of selecting an extreme case is that the probability of the representativeness of the case is low, relative to other cases (Gerring & Seawright, 2007: 104). It is therefore not the aim to generalize the findings of this thesis to a broader level. However, it provides an insight which contributes to further developing the literature on how public policy and business activity relate to each other; and gives a better insight of how government involvement has effect and why, which is relevant to policymakers. 3.2. Elements of Study

Although the Netherlands is the sample, the units of analysis in this thesis are Dutch governmental instruments regarding the social and environmental aspects of CSR activity of the clothing sector. These initiatives could be financial support; setting up knowledge based network organization, or initiating public-private partnerships. The unit of analysis is part of a larger population of cases, namely the governmental instruments implemented by the Netherlands to strengthen the overall CSR activity of the private sector.

In this thesis, the observation is twofold. On the one hand, the focus is a more descriptive examination of what kind of governmental instruments are in place. On the other hand, it is a process-oriented examination of the actual impact of these governmental instruments on the social and environmental aspects of CSR business activity of Dutch clothing businesses and how these businesses respond to them.

3.3. Data and Method

The case study consists of primary and secondary data. To answer the first two sub research questions: “What governmental instruments are in place regarding to the social and environmental aspects Corporate Social Responsibility of Dutch clothing businesses?” and “What is the impact of these governmental instruments on the social and environmental aspects of the Corporate Social Responsibility of Dutch clothing businesses?” a qualitative content analysis of policy documents is used. This provides the opportunity to get a clear outline of what governmental instruments are in place. It shows the context in which the CSR of Dutch clothing businesses is implemented. A content analysis of policy documents leaves open the ability to see whether a distinction is made between the social and environmental aspects of CSR and what the intended impact is on these aspects. The data gathered from the documents is

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complemented by an interview with two senior policy advisors from the Ministry of Foreign Affairs, Marielle van der Linden and Jos Huber. The content analysis of policy documents will serve as an input for the interviews that will be conducted to answer the third and fourth sub-questions: “How do Dutch clothing businesses experience the governmental instruments and respond to them?” and “To what extent do Dutch clothing businesses vary in how they respond to the governmental instruments?”.

Regarding these interviews, semi-structured interviews will be conducted. In semi-structured interviews the predetermined questions are structured in such a manner that the respondents have the ability to speak in their own words and include other relevant information. Semi-structured interviews give the opportunity to ask process-focused questions in a more structured way. It allows for more flexibility to adjust the order in which the questions are asked and to add questions depending on how the conversation goes. In two cases interviews are conducted by e-mail (with Kings of Indigo and G-Star). To ensure the validity of the e-mail interviews, information from secondary sources is used, such as interviews with the founders of Kings of Indigo and G-Star. The interviews are conducted in Dutch and the researcher translates all used quotations. To ensure the used quotations are translated correctly or not misinterpreted, they were presented to the respondents. Secondary data from academic literature on the topic offers support of the findings of this study. The information of the different data sources can complement each other. The analysis will be conducted through a combination of process tracing and comparative logics. Process tracing emphasizes on the causal process that leads to certain outcome (George & Bennett, 2005). Process tracing is a suitable method for inductive research when the aim is not to test an existing explanation, but when you are looking for different explanations. Inductive process tracing attempts to map out different causal paths, which results in an open-mindedness that leaves room for unexpected explanations and outcomes. The comparative logics allows for the establishment of the importance of government involvement, by comparing the actual business activity to the purpose of the instruments. The combination of process tracing and comparative logics is a useful method because it allows to inquire detailed empirical data on behaviors by obtaining documents, interviewing subjects and performing content analysis on documents and statements. This is particularly helpful in an environment with a multitude of attitudes (Bennett & George, 1997). In order to study to what extent both environmental and labor aspects of the CSR of Dutch businesses are influenced by Dutch governmental initiatives, the precise sequence of who does what and why needs to be

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established. The combination of process tracing and comparative logics enables to make this distinction.

3.4 Sampling

Eleven companies are approached for the interviews (see for a case description, Appendix 10.1). Based on information from Rank-A-Brand five companies have been selected. Rank-A-Brand made a list in which Dutch clothing businesses were ranked based on their sustainability performance in the year 2015 (Rank-A-Brand, 2016). Frontrunners as well as companies that scored average and the ones that were on the bottom of the list, were chosen to get a complete and representative picture of the Dutch clothing industry. The businesses that are approached are: Kings of Indigo, G-star, King Louie, America Today, CoolCat, MS Mode Sissy-Boy, PME Legend, Cast Iron and Vanguard. The brands PME Legend, Cast Iron and Vanguard are trademarks of Just Brands and have an identical CSR activity. Just Brands has one CSR manager who is representing the three brands. The information on PME Legend, Cast Iron and Vanguard, therefore, comes from one source. America Today, together with CoolCat and MS Mode, are part of the Coolinvestment Group. Although one CSR manager is representing the four brands, the actual CSR activity among the brands differs. In the interview with the CSR manager from the Coolinvestment Group, two sorts of information is gathered; firstly, information regarding the business understanding of CSR (ch.5) that only applies to America Today; and secondly, information regarding the way government involvement is experienced (ch.6) which applies for all three brands. To avoid confusion, it is clearly distinguished when it concerns America Today or the three brands. To increase further representativeness, a combination of small, medium and large businesses is selected. The sampling method used is a combination of snowballing and convenience.

3.5 Operationalization

In order to research to what extent governmental instruments influence the social and environmental aspects of the CSR of Dutch clothing businesses, it is important to define and layout the concepts and variables used in this study. The social and environmental aspects of CSR business activity are in this case the dependent variables because the aim is to find out if the governmental instruments – being the independent variables - influence these aspects. In the theoretic framework, CSR was described as a wide concept open to many different interpretations. Since the concept is open to many interpretations, the understanding of what CSR entails exactly may very well differ between various businesses that are the focus of this study. Although this study presumes that CSR contains an environmental and a social aspect, the usage of the concept will be modified during the process.

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The concept of governmental instruments consists of two aspects: governmental and instruments. In this context, governmental is defined as the Dutch national government. This includes the eleven Dutch ministries, however, does not include the local governments, district water authorities or the European Union. Instruments, in this context, are defined as initiatives the Dutch national government undertakes to encourage clothing businesses to get started or improve their CSR. These initiatives may be financial support, setting up knowledge based network organization, or initiated public-private partnerships. The five policy instruments and four fields of action provided by Steurer et al. and described in the theoretical framework, form the conceptual basis of the understanding of governmental instruments in this study. Using these concepts, this study can provide a comprehensive and plain picture of CSR policy-making without describing a more or less random collection of initiatives (Steurer et al., 2011: 209-10).

3.6 Validity and Reliability

Every choice a researcher makes has effect on the validity and reliability of the final product. The decision for a single case study has effect on the internal and external validity. As already mentioned above, to choose the Dutch case creates difficulties with the representativeness relative to other cases. Since it is an extreme single case study, the external validity is low. It is, therefore unlikely that the findings of this study correspond with other cases and it is not the aim to generalize the findings to a broader level. A process tracing method is used to increase the internal validity of this research. This method ensures that the causal connections made are more credible, emphasizing on the causal process. The benefit of inductive process tracing is that it is addressing the problem of equifinality by keeping alternative explanations for the same outcome in mind (Bennett & George, 1997).

Interviewing leads to a kind of paradox concerning validity and reliability: structured interviews are more reliable because they are easier to replicate but are less valid because there is less room for the respondent’s own interpretation and remarks. The same is true for open interviews, however, in the reverse sequence. A compromise is conducting semi-structured interviews. Predetermined questions allow us to ask process-focused questions in a more structured way, which increases the transparency and replicability. However, it also allows for flexibility to adjust questions in response of the development of the conversation and it leaves room for interviewees their own input, which leads to more valid answers.

Qualitative content analysis is often criticized because it might be subject to the researcher’s own interpretation. Therefore, the purpose of documents and the context of the documents should be taken into account. To increase reliability, transparency on the criteria of analysis and results is necessary. Qualitative content analysis allows mapping out the meaning, patterns and

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the underlying themes in the documents, which is easily overlooked by quantitative research (Hsieh & Shannon, 2005: 1278). Since there is only one coder, there is no problem with the inter-coder reliability. Discussing the results and their interpretation with the supervisor of this thesis prevents biased results. Providing clear and transparent explanations of how conclusions are drawn is a guarantee for further validity and replicability. The used documents are all public documents, making them easy to trace for interested readers. Furthermore, by not depending solely on one source of data and combining content analysis with semi-structured interviews and secondary data, triangulation is ensured. Textual evidence can demonstrate the credibility of the study by enhancing the findings of the interpretation (Idem: 1285) and the information of the different data sources can complement each other.

Like other studies, this study has its limitations. In order to guarantee the validity and reliability, several methodological choices were made. The inductive qualitative approach relates well to the ambitions of this study to get better insights into the attitudes of businesses toward governmental instruments and the effects these instruments have on business activities. The combination of process tracing and comparative logics method and the usage of content analysis and semi-structured interviews to gather data are logical choices that are in line with the theoretical approach.

3.7. Theoretical and societal relevance

The findings of this study are relevant in various ways. Theoretically, the findings contribute to a better understanding of the influence that governmental instruments have on the CSR business activities of Dutch clothing businesses. Promoting and supporting the uptake of standards by businesses has increasingly become a complex and polycentred multi-stakeholder governance process (Steurer, 2013:17). By shedding light on the government involvement in this process, an insight is provided on the different governmental instruments that are in place. It also shows to what extent these instruments are favorable in steering business activity toward more stringent social and environmental requirement. Because of their prominent role as regulators with the power to enforce laws, it is of importance to understand government involvement in this process. Making a distinction between the social and the environmental aspects of CSR, provides an insight whether there is a variance across the different CSR problem areas. This is relevant because it says something about the preferences of the Dutch government in promoting particular issues. This thesis contributes to the understanding of how CSR activity is embedded on a national level and what particular patterns and issues can be distinguished that characterize the Dutch case. It could be the starting point for a cross-country comparison that focuses on whether these characteristics are specific to the Netherlands or as well to other coordinated market economies and how this relates to how CSR is embedded on a national level

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in liberal market economies like the United States. This could say something about the relationship between varieties in national political-economic configurations and varieties in CSR practices.

In addition, knowledge on the extent to which governmental instruments influence CSR business activities of Dutch clothing businesses is also relevant for professionals engaging in policies regarding CSR, labor standards and the improving global environmental conditions. Most likely, it is not only relevant for Dutch policymakers to review the effectiveness of the implementation of their policies, but also for policymakers that have to implement such policies yet. The findings of this study could give the latter guidelines about what policies work as opportunities or constraints to CSR activity of businesses. Furthermore, it is relevant for businesses that want to put CSR into practice, as these findings provide an insight on the experience businesses had with government involvement policies and shows which kind of initiatives are in place.

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4. Governmental Influence Mechanisms

This chapter portrays the governmental instruments that are in place with regard to CSR activity of clothing businesses. It is the purpose to answer the following sub-question:

“What governmental instruments are in place regarding to Corporate Social Responsibility of Dutch clothing businesses?”.

As discussed in the theoretical framework, governmental instruments can be understood as initiatives originated by the Dutch national government and can be divided into five CSR policy instruments (legal, economic, informational, partnering and hybrid), which apply to four thematic fields of actions (transparency, awareness on CSR, socially responsible investment and lead by example). It is important to make these distinctions to get a comprehensive picture of CSR policy-making in the Netherlands. This way, public policies on CSR can be organized and understood in such a way that it can both practically and theoretically categorize the governmental activities. As previously established in the case description, the Netherlands is taking the lead internationally as a government promoting CSR policies, therefore, it can be expected that the Netherlands has far-reaching initiatives. However, since the policy letter “CSR pays off” states that CSR is what companies do more than what they are legally obliged to do, and most of the CSR-risks falls outside the boundaries of the jurisdiction of the Dutch government (Ministerie van Economische Zaken & Ministerie van Buitenlandse Zaken, 2013: 1; Huber & van den Linden, 2016), it is expected that most of the governmental instruments are voluntary. Getting an understanding of what governmental instruments are in place and how these are characterized is the first step to learn more about how businesses respond to these kinds of instruments.

This chapter is structured as followed: following the introduction to the broader policy and vision of the Dutch government regarding CSR, the different governmental instruments are discussed in which a distinction is made to see to what extent the instruments are binding. The chapter ends with a summary conclusion of what these results mean to the main research question. Policy documents and an interview with Marielle van den Linden, Coordinating Policy Advisor CSR and Trade of the Ministry of Foreign Affairs, and Jos Huber, Senior Policy Officer Unit Private sector and CSR of the Ministry of Foreign Affairs, form the basis of this chapter.

4.1. Broader vision & policy Dutch Government

The initiatives regarding CSR activity of the clothing sector are part of a broader policy of the national government in the field of CSR, sustainable development, trade and foreign aid. The foundation for the national policies are several international agreements concerning fundamental labor rights: conventions established by the International Labor Organization (ILO),

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the United Nations (UN) Guiding Principles on Business and Human Rights established in 2011 and the Guidelines for Multinational Enterprises of the Organization for Economic Cooperation and Development (OECD) adapted in the same year.

With the establishment of the Guiding Principles and the adaptation of the Guidelines, 2011 marks an important starting point in which various activities related to chain responsibility were established (Huber & van den Linden, 2016). Especially the Guidelines play an important role in formulating national policies (Ibid). Although the name suggests otherwise, the Guidelines are applicable to all businesses that operate abroad, smaller businesses included (Ibid). The Guidelines communicate to businesses what the Dutch government (and the 43 other countries that have subscribed to the Guidelines) expects from them when they are doing business abroad (Ministerie van Buitenlandse Zaken, 2013: 1). This involves that these businesses have the responsibility to, as best as possible, identify, prevent and reduce poor working conditions, child labor, environmental damage, corruption, and human rights violations in their production chain. Summarizing: acting upon the so-called Due Diligence Principle (Ministerie van Economische Zaken & Ministerie van Buitenlandse Zaken, 2013: 2013: 3). How the Guidelines are interpreted by a country and to what extend they are enforced differs from country to country. In the case of the Netherlands the government expects businesses to follow these Guidelines (Huber & van den Linden, 2016). Or in the words of Marielle van den Linden:

“It [CSR] means that businesses should behave responsibly and decently in foreign countries.”

In 2000 the Social and Economical Council of The Netherlands (SER) issued a policy note - Corporate social responsibility – a Dutch approach, in which the Dutch understanding of CSR was describes (Cramer: 2005: 91). CSR is based on the notion that social activities are an inseparable element of the corporate policy and of maintaining relationship with stakeholders, which is based on transparency and dialogue. Central in this understanding is the idea of value creation of 3 levels, namely: people, planet, and profit (Ibid). With the establishment of the policy note a consensus about the concept CSR was reached, in which business communities, civil society organizations and the Dutch government agreed on. In 2013, the Ministries of Foreign Affairs and Economic Affairs issued the vision letter “CSR pays off”. In this letter, the Dutch view on CSR is stated and describing how it can be put into practices with the Guidelines in mind. It also showed the role of the government within in framework of CSR. The interviewees described this role as advising, facilitating, partnering, endorsing and mandating: advising businesses how they can act upon Due Diligence; facilitating by getting all the stakeholders together; creating partnerships with private initiatives such as the Fair Wear

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Foundation (FWF); endorsing initiatives with financial support or other incentives; and mandating as in protecting human right in its own jurisdiction. These different roles are reflected in the governmental instruments and are largely in line with the four thematic fields of action described by Steurer. 4.2 Governmental instruments The Dutch government has set up various instruments related to the CSR of Dutch businesses. These instruments have all different characteristics and together reflect the different goals the government wants to achieve. If looking at how binding the instruments are, a national legislation is in place to protect the citizens from poor working conditions within the Dutch jurisdiction. In the context of globalization, however, the social and environmental conditions fall outside the jurisdiction of the Netherlands. The Dutch government is, therefore, unable to enforce legislation or declare legislation applicable abroad, leaving all instruments voluntary in nature. Although the government cannot make CSR compulsory, it sees CSR as a moral obligation of businesses. As Marielle van der Linden stated in the interview:

“Obviously, we do not want companies operating abroad to discard principles that are considered as self-evident and completely normal in the Netherlands. In the Netherlands you would not hire children, so why allow it abroad?”. Despite of the voluntary nature of the instruments, there are certain requirements subject to the GOVERNMENAL INSTRUMENTS TYPE OF INTERVENTION THEMES

Subsidies Financial instrument Socially responsible investment Sector Risk Analysis Informational instrument Awareness on CSR

Sustainable Trade initiative

Partnering instrument Awareness on CSR & Transparency Foreign Policy Hybrid instruments:

(Informational & financial) Transparency, _{Awareness on CSR}

& Lead by Example Transparency

Benchmark Hybrid instrument (Informational & financial) Transparency & _{Awareness on CSR}

CSR Netherlands Hybrid instrument

(Informational & partnering) Transparency, _{Awareness on CSR &}

Socially responsible investment

Covenant Hybrid instruments

(Legal, informational and partnering) Transparency, _{Awareness on CSR &}

Socially responsible investment Sustainable Public

Procurement Hybrid instruments (Legal, informational and partnering) Transparency, _{Awareness on CSR}

& Lead by Example

Table 4.1: Type of Intervention and Themes the Governmental Instruments represent

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instruments. The following section discusses the instruments, its characteristics and its requirements based on the five types of government interventions and the four fields of actions in which the instruments are applied. The legal instrument type is left out of consideration because none of the CSR initiatives from the Dutch government is solely characterized by this type.

4.2.1 Financial Instruments

The subsidies provided by the Dutch government to promote sustainable business activity are financial instruments. The thematic field of the facilitating socially responsible investment characterizes financial instruments. The aim is to integrate social, and environmental concerns into the core of business activity through financial incentives (Steurer, 2010: 63). Figure 4.2.1 offers a summary overview of the financial instruments provided by the Dutch government and the field of action in which it applies. Figure 4.1: Type of Intervention and Themes the Governmental Instruments represent 4.2.1.1 CSR Subsidies

Businesses that comply with the OECD guidelines can receive financial support from the government in international trade and investment activities (Rijksoverheid, 2016a). The Netherlands Enterprise Agency and CSR Netherlands support businesses to fulfill their responsibilities (Huber & van den Linden, 2016). CSR Netherlands (see: 4.2.4.3) provides a subsidy specific for small to medium-sized enterprises (SMEs), the so-called ICSR Voucher. A business that wants advice on ways to improve their CSR, can apply for an ICSR Voucher and the government subsidizes half of the consultancy costs. This offers SMEs the opportunity to take steps they otherwise might not (or could not) take (Huber & van den Linden, 2016). The government has the aim to lower the threshold for businesses to adapt CSR.

The Netherlands Enterprise Agency has four subsidy instruments in place regarding sustainability issues. The Energy Investment Deduction (EIA) is a subsidy instrument for businesses to gain a tax advantage by investing in energy-efficient technologies and renewable energy. Clothing businesses can apply for this subsidy and take steps to lower their energy consumption (RVO, 2016a). Businesses can also apply for the Environment Investment Deduction (MIA) and Arbitrary Depreciation of Environmental Investments (VAMIL). By making

Field of action Governmental Instrument

Type of Intervention

Financial

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use of MIA or VAMIL subsidies, businesses can invest in environmentally friendly products or resources with a fiscal advantage and bring innovative and sustainable products to the market (RVO, 2016b). Another subsidy instrument to promote renewable energy is the Stimulation of Sustainable Energy Production (SDE+). The SDE+ is used to invest in - for example solar panels - but also technologies regarding biomass, geothermal energy, water, wind and (RVO, 2016c). Lastly, businesses can jointly apply with other stakeholders to the Top Sector Energy (TSE), which also focus on renewable energy (RVO, 2016d).

It is interesting to point out that none of these subsidies are specifically targeting the clothing sector. Except the ICSR voucher, the subsidy instruments all focus on the environmental aspects of business activity. Businesses can apply to the subsidies on a voluntary basis. To get the subsidies one must meet certain requirements. In this case, a business has to consider the OECD guidelines. When the guidelines are exceeded, the funding can be withdrawn. However, so far, this has not been done. Until now, there have been critical conversations in which businesses were held accountable and had to explain themselves. Another possible step is to address the case to the OECD National Contact Point. This leads to mediation where compromise is sought (Huber & van den Linden, 2016). These subsidies are considered to be weak economic incentives. Export subsidies with CSR strings or more economic incentive instruments are more successful in raising awareness of CSR among businesses that are usually hard to reach (Steurer et al., 2011: 211-212). Examples of these export subsidies do not exist in the Netherlands.

4.2.2 Informational Instruments

Within the governmental instruments provided by the Dutch governments, The Sector Risk Analysis is considered to be an informational type of intervention. The main purpose of its existence is to highlight options and the possible consequences by using knowledge. Figure 4.2.2 offers a summary overview of the informational instrument provided by the Dutch government and the field of action to which it applies. Figure 4.3: Type of Intervention and Themes the Governmental Instruments represent

4.2.2.1. Sector Risk Analysis In 2014, the Dutch government carried out a “Sector Risk Analysis” with the aim to identify the sectors with elevated CSR risks in order to start a dialogue with the sector about these risks

Field of Action Governmental Instrument

Type of Intervention

Informational

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(Rijksoverheid, 2016a). The Sector Risk Analysis is a clear-cut example of an informational CSR policy instrument that uses moral and factual persuasion by pointing out the CSR risks in sectors (see also Steurer, 2011: 208). The analysis identified thirteen high-impact priority sectors, including the clothing sector. The CSR risks are more elevated then in other sectors (KPMG, 2014: 8). The analysis identified both social and environmental risks that are elevated in the clothing sector. Regarding the social conditions, elevated risks are: child labor; unhealthy and unsafe work environment; low wages; excessive work hours; and violations of trade union rights, freedom of association and women rights (Idem: 154-5). The environmental risks contain: greenhouse gas emissions; animal welfare; water and soil contamination in the production of cotton and textile; the use of chemicals in the cultivation of cotton; the use of chemicals in the process of dying and bleaching the materials (Idem: 8, 154-5).

The analysis also reports on the current situation and the steps already made by the sector. It describes an initiative from the sector, the Action Plan for a More Sustainable Dutch Textile and Clothing Sector. The sector committed on their own initiative to the Action Plan in 2013. This Action Plan is a joint approach to tackle the problems that occur in the supply chain in which act upon Due Diligence in a structural way (Idem: 155). The Risk Analysis points out that although the Action Plan is an important step in the right direction, some risks are underexposed. The clothing sector has traditionally had a strong focus on labor issues, while the sector-wide implementation of environmental activities is limited. This was reflected in the Action Plan. The analysis emphasizes the importance to focus on both aspects equally. Besides providing information on the CSR risks, it highlights the options (without implying constrains) and paves the way for the Covenant Sustainable Clothing and Textile (see: 4.2.4.4) 4.2.3 Partnering Instruments Although partnering instruments play a vital role in the context of CSR, in the Dutch case there is only one initiative that fits the description, the Sustainable Trade Initiative (IDH). The purpose of partnering instruments is bringing government agencies and businesses together. In the case of the IDH, this is in the form of a stakeholder forum. Figure 4.4 offers a summary overview of the partnering instrument provided by the Dutch government and the fields of action in which it applies. 4.2.3.1 Sustainable Trade Initiative The IDH was set up in 2008 and is a publicly funded and government mandated change agent (IDH, 2016a). The IDH was called into being to strengthen sustainable processes throughout the

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Figure 4.4: Type of Intervention and Themes the Governmental Instruments represent

production chain. Supporting and working alongside with large and leading corporations, the IDH is trying to accelerate the process of up scaling sustainable production worldwide (Krol, 2016). The aim is to encourage sustainable trade by building result-oriented coalitions between businesses, NGOs, governments and other stakeholders (Rijksoverheid, 2016a). The IDH describes the clothing sector as a sector “where products are sourced in a downward spiral of cheap labor, low quality and exploitative, unsafe and polluting factories” (IDH, 2016b). The IDH argues for a business case for sustainability, in which win-win situation and it becomes economically attractive for all the stakeholders to produce more sustainably (Ibid; Krol, 2016). The IDH can be considered as partnering instrument as it promotes dialogues and partnerships between state and non-state actors (see also Steurer, 2011: 212). In 2010, led by IDH, 54 chairpersons of Dutch and international businesses wrote a letter with their view to the Dutch Government in which they called for a common sustainability agenda for international trade. Especially for facilitating governmental policies regarding to sustainable trade, making public investments and having ministries and embassies promoting sustainable trade (IDH, 2010: 2-3). The only Dutch clothing business subscribed to the letter containing these views was G-Star (Idem: 5). In addition to this, is IDH attempting to bring about a sustainable change with four initiatives. It aims to establish a ‘Race to the Top’ in Vietnam by catalyzing sustainable growth (IDH, 2016c). Secondly, it aims to increase sector collaboration through the Sustainable Apparel Coalition (SAC), a sector-wide group of 80 leading companies and public stakeholderxs (IDH, 2016d) Thirdly, the IDH aims to improve productivity and compliance through the Pakistan Buyer's Forum, a joint initiate with the International Finance Corporation (IFC) and the ILO (ILO, 2016). Lastly, with a joint initiative ‘Clean By Design’ with the IFC and large corporation the IDH tries to reduce the environmental impact of the clothing industry in China (Krol, 2016). Participation to one of the initiatives is on a voluntary basis. The IDH concentrates on large corporations because with their large purchasing power, the IDH initiatives have greater forces. These not always include Dutch businesses. This does not mean

Field of Action

Governmental

Instrument

Type of

Intervention

Partnering

Instruments

Trade Initiative

Sustainable

Awareness on

CSR

Transparancy

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that SMEs are excluded from IDH initiatives; together with the SAC, IDH supports SMEs to join in with large corporation and further up-scaling sustainable production (Krol, 2016). There is currently no public information on Dutch clothing companies’ participation in IDH initiatives. There are Dutch participants in both the Pakistan Buyer's Forum and the SAC, but this is not yet communicated publicly (Krol, 2016).

The focus of the

IDH is in line with international guidelines and treaties. The importance of both social1 _{and environmental aspects is emphasized. However, when the roadmap for the Pakistan} Buyer's Forum is examined, there is a quantitative distinction; the social aspects include 27 topics, in comparison to 8 environmental topics (IDH, 2015: 3-4). This difference can be understood as the social aspects are likely to describe more specific problems (such as maternity benefits or provisions for leave) while environmental aspects are likely to describe risks in a broader sense that cover larger area’s (such as water management, soil erosion or pollution).

4.2.4 Hybrid Instruments

By far, most of the initiatives from the Dutch government regarding CSR are hybrid instruments. Hybrid instruments are combinations of two or more types of interventions. Both the transparency Benchmark and the Dutch foreign policy consist of informational and financial aspects. CSR Netherlands is combination of partnering, informational and financial instruments. Whereas the Covenant Sustainable Clothing and Textile and Sustainable Public Procurement combining legal, informational and partnering instruments. Figure 4.5 offers an overview of the hybrid instruments provided by the Dutch government and the applicable fields of action. 4.2.4.1 Foreign Policy The foreign policy of the Netherlands can be understood in terms of a hybrid instrument, as it is a combination of informational and financial instruments. The government is exerting political influence on local government by its embassies. Embassies support businesses in their efforts in the field of CSR. They also advise businesses on the CSR risks that may occur in foreign markets (Ministerie van Buitenlandse Zaken, 2016:1). They do this by making use of the CSR risk check provided by CSR Netherlands (Rijksoverheid, 2016a). When businesses encounter problems abroad and require local governments to help solving this, the Dutch embassies can play a mediating role by address foreign governments of their responsibility to honor the international agreements (Huber & van den Linden, 2016). CSR plays an important role in the Dutch trade

1 _{The IDH makes a distinction between social and labor conditions. In this thesis labor conditions are}

understood as a part of social aspects of CSR. Therefore, when the social aspects of the IDH are discussed, this includes the labor conditions.

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missions. Businesses that take part in these trade missions have to subscribe to the OECD guidelines and delegations have to raise awareness on CSR in the visiting countries (Rijksoverheid, 2016a). It provides an economic incentive for businesses because participating in trade missions can result in building up a new network of trading partners. Although there are certain requirements imposed on the participation, the foreign policy instrument, again, is voluntary by nature. Businesses have to act conform to the OECD guidelines, which consists of both social and environmental aspects. Therefore, there is no evidence that the government favors one aspect over the other.

The foreign policy strategy of the Dutch government is targeting three fields of action. By playing a mediating role, the government is building capacities among the stakeholders, which is part of the raising awareness action field. By favoring businesses that take CSR reporting seriously, foreign policy stimulates transparency. In addition to this, the government takes up an exemplary role. With CSR as one of the priorities, the government is addressing other governments of their responsibilities.

4.2.4.2. Transparency benchmark

The Transparency Benchmark (hereafter: Benchmark) provided by the Ministry of Economic Affairs is a hybrid instrument combining informational and financial instruments. The aim is to raise awareness about the level of transparency in sustainability reporting by businesses. Since 2004, it has been performed every year. In 2013 the Benchmark was adapted to fit the international developments with regard to CSR (Ministerie van Economische Zaken, 2014: 5). The Benchmark is a study of sustainability reporting among the 500 largest companies in the Netherlands (Transparency Benchmark, 2016a). Businesses assess the degree of transparency of their CSR performance. These self-assessments are checked and used to award companies with points (a total of 200 points can be awarded). There is an equal focus on environmental and social aspects within the criteria of the assessment. To continue to stimulate companies that already report on their CSR performance, the company with the highest score can win the Cristal award. Awards such as the Cristal are widely used financial instruments to promote transparency, but can be considered as relatively weak (Steurer et al, 2011: 211).

By offering guidelines for businesses to assess their performance and supplying information resources, the government uses the Benchmark as an informational instrument. The informational part also consists of a stimulation strategy to target the businesses that do not yet take part in the self-assessments (Ministerie van Economische Zaken, 2014: 5). In the case of the clothing sector, a disadvantage of the Benchmark is that it targets the 500 largest businesses. Therefore, only four clothing businesses take part: Zeeman, Hema, Miss Etam and de Bijenkorf,