The contribution of inequality distance in extractive MNEs’ operations to the human right to development

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The contribution of inequality distance in extractive MNEs’

operations to the human right to development

Master’s Thesis

MSc. Business Studies – International Management

University of Amsterdam

Supervisor: dr. M.K. Westermann-Behaylo

Student: Seçil Hatice Durak

Student ID: 10667709

Date: June 29, 2015

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2 Statement of originality

This document is written by Seçil Hatice Durak, who declares to take full responsibility for the contents of this document.

I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it.

The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.

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This study examined how the distance in inequality between MNEs’ home and host country contribute to the violation of the human right to development in extractive industries. A multiple case study was carried out in order to explore the relationship between distance in inequality and the MNE’s contribution to violating the human right to development. Four cases were selected based on MNE size, the alleged human rights violations and the distance between home and host inequality. Data was collected from the CHRD-database, company websites and the World Databank. The findings seem to support the proposition that distance in inequality between MNEs’ home and host country contribute to the

violation of the right to development. It was found that large distance in inequality between home and host country inequality is more likely to contribute to the human right to

development, while small distance was found to be less likely to contribute. Also, it was found that the MNEs from low inequality countries seem to have better knowledge on the human right to development than MNEs from high inequality countries. These findings may have implications for future research to statistically test the generalizability of the

proposed theory. The managerial implication for MNEs is to consider the role that

inequality distance plays in MNE host country operations and the negative contributions of MNE operations on the development of a country.

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5 Key words: development, inequality, distance, human rights violations and multinational enterprises (MNE)

2. Introduction

In the past, foreign direct investment (FDI) and globalization were said to drive economic growth and development and to reduce poverty (OECD, 2014). Poverty is one of the biggest denials of human rights as it deprives humans of the right to development (OHCHR, 2015). The United Nations (UN, 1986) explains that the right to development entails the

improvement of the well-being of individuals in which participation in development is facilitated and benefit. States have the responsibility to make sure that the benefits from development are equally distributed and that individuals can participate in the decision-making on development policies. Considering the fact that the gap between rich and poor continues to grow, the extent to which FDI and multinational enterprises (MNEs) add to the development of humans in resource-rich states has been inconclusive.

In August and December 2008, Shell Petroleum Development Company of Nigeria caused two oil spills that impacted a community of approximately 69,000 people (Amnesty

International, 2011). The spill, that lasted three years and caused the contamination of the creek and soil that the Bodo community depended on for their livelihood. As a result, the community faced loss of income, jobs and food resulting in the exacerbation of poverty and increased inequality in the area. Additionally, the increasing number of people engaging in criminal activities caused public disturbance and violence. The spills have caused multiple human rights to be violated by both the MNE and the Nigerian government. This event is

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6 one of the many representations of the impact that MNE malpractice and governmental failure can have on human conditions and their development.

In 2008, United Nations Special Representative John Ruggie wrote a report on what responsibilities firms and states have in preventing, respecting and curing human rights violations (Ruggie, 2008). In this report, it was outlined that the state plays an integral role in protecting human rights, ascertaining that these are respected and that there are

mechanisms in place that can remedy the violations. MNEs are forced by institutions to have due diligence, which is described as what actions should be taken in order to prevent human rights violations. Also, Ruggie (2008) notes that independently of the states’ ability to control and protect people against human rights violations, MNEs are, under any

circumstance, responsible for upholding of human rights themselves. In the case of the two oil spills in the Nigerian delta, the government failed to secure the human rights of the local community, while Shell, the MNE, failed to respect human rights by impeding the

development of the local community (Caldwell, 2015).

The extractive industry has proven to be the most challenging industry to prevent human rights violations (Wright, 2008; Hilson, 2012). Since the resources in this industry are depleting and scarce, MNEs must go where these resources can be found. This often results in disturbing local communities that live in the resourceful but unstable areas. The

countries that possess these resources usually tend to be conflicted and corrupt developing countries with lower incomes and weaker institutions (Ross, 2006). As a result, MNEs enjoy preferential treatments with little governmental control and low taxes. Instead of bringing wealth into these countries, natural resources appear to add very little to human

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7 development and the reduction of poverty (Sachs & Warner, 1995; Hilson, 2012). The

weakness of the government in this industry becomes apparent in the failure to protect people against human rights violations caused by MNEs.

In the extractive industry, it is suggested that host governments are usually the main

violators of human rights, and MNEs are complicit to these actions (Kobrin, 2009; Wettstein, 2010). In these weak institutional contexts, MNEs are faced with the challenge of avoiding further violations of human rights. Ghemawat (2001) and Berry et al. (2010) found that distance between home and host countries matters as it can affect firm operations. The findings of these studies show that the bigger the distance between two countries, the harder it becomes for firms to execute their operations. Building on this theory, one must explore the role that distance plays in inequality between home and host countries and how distance affects the severity of human rights violations. Through an analysis of four cases the working propositions explore the effect that inequality distance has on MNEs’

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8 3. Literature review

3.1 Human rights

After the Universal Declaration of Human rights in 1948, it was established that every human is equally entitled to the right to life, security, freedom, and also to economic, political, cultural and social rights (OHCHR, 2015). These inseparably related rights are to be enforced by states, which have the obligation to promote and respect human rights regardless of status.

In 1986, the United Nations (UN) declared development to be a right that belongs to every human of all nations. In this Declaration, it is stated that development is a “continuous improvement of the well-being of individuals”, in which their right is to “participate, contribute and enjoy economic social, cultural and political development” (United Nations, 1986).

The right to development is closely related to poverty. The UN (2001: 2) states that: “Poverty is a complex human condition characterized by sustained or chronic deprivation of resources, capabilities, choices, security and power necessary for the enjoyment of an adequate standard of living and other economic, civil, cultural, political and social rights”. Poverty becomes a human rights concern as it directly impacts the right to development.

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9 Economic development is not necessarily a solution to poverty, as economic development can be beneficiary for only a part of the population, this in turn leads to increasing

inequality (UN, 2013). The importance of the role of the State becomes evident in

implementing policies in which income and other benefits are distributed equally without discrimination or marginalization of vulnerable groups. The development processes have to be designed to serve all beneficiaries of development, especially the vulnerable groups (UN, 2013). The Declaration underlines that people are the subjects of development and should, therefore, be the ones that actively take part in the decision-making on development policies and processes. They should also be the ones that benefit from the outcomes (UN, 1948).

The responsibilities of the States consist of implementing development policies in which participation of all individuals is stimulated and distribution of benefits is done fairly. Additionally, States are expected to promote peace, diminish impediments that hinder development, and to implement policies and legislation by cooperating internationally (UN, 2013). It appears that States play an important role in addressing development issues.

3.2 Ruggie’s framework

The growing number of human rights violations by MNEs has caused a growing awareness of the role that firms and governments can play to avoid these violations. In 2008, Ruggie conceptualized the ‘Protect, Respect and Remedy’ framework in which the responsibilities of different actors in human rights are clarified. According to this framework, national governments have the responsibility to protect human rights by setting up rules,

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10 regulations and institutions that monitor the upholding and securing of human rights and to act upon violations. Firms, on the other hand, have the responsibility of respecting, and avoiding violation of these basic human rights.

Ruggie (2008: 199) states that firms should engage in due diligence, which in his

framework is described as what actions companies should undertake to prevent human rights violations from happening. Not only should they investigate the context and the human rights involved, but they should also investigate what the firms’ contribution and negative impact will be on these human rights (Ruggie, 2008). Firms are, therefore, expected to describe and implement their human rights policies.

Finally, in his framework Ruggie (2008) describes the importance of remedy of human rights. He mentions that the state’s responsibility is to “investigate, punish and redress” the abuses, but that other third mechanisms can also take action. On one hand, these

mechanisms can enforce the state to take action and, on the other hand, can hold firms accountable for their actions. As a final note, Ruggie (2008) notes that there are still plenty of individuals that do not have access to these kinds of mechanisms that could remedy the impact of the human rights violations caused by firms. This is due not only to bad

information flows, but also to functional limitations in the functioning of current mechanisms in these states.

3.3 Resource-rich states and human rights

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11 to hold 28 per cent of all human rights violations (Wright, 2008). An explanation for this high rate is that their operations cause damage mainly in areas where the interest of local communities are often neglected and where the existing institutions and regulations are weak (Canel, Idemudia & North (2011: 3). The demand of local communities can only be met in countries where the institutions and regulations are strong (Canel, Idemudia & North, 2011). It is necessary to have mechanisms present within these institutions that can enforce these regulations. Additionally, these institutions must create an environment in which corporations can uphold human rights. When sustainable corporate practice is not prioritized in countries, it is hard for firms to enhance such a policy themselves (Idemudia & Ite, 2006).

Hilson (2012: 133) poses that developing countries could use these resources as a way to reduce poverty and to raise the living standards in that country. However, it appears that these resource-rich countries grow slower than resource-poor countries. Despite the fact that these developing countries are rich in resources, these resources contribute very little to the economic growth and development of the country. This phenomenon is also referred to as the resource curse of natural resources (Sachs & Warner, 1995). Sachs & Warner (1995) show that in many cases the resource curse is a result of weak open trade policies of the government rather than solely the result of natural resource industries.

The countries that rely on natural resources tend to be non-OECD countries, which overall have: lower incomes, higher child mortality rates and higher risks of civil war (Ross, 2006). The susceptibility to civil wars can be linked to the unstable regions that extractive firms are forced to locate to. In some cases, civil wars in these regions are results of the extractive

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12 firms, as they are expected to change or engage in “secessionist conflicts” (Ross, 2006: 8). As a result, instability and the level of corruption rise which in turn interfere with extractive firm operations.

Ross (2001) confirms that the failure to reduce poverty correlates with a lack of democracy in the extractive sector. It was found that mineral wealth negatively influences democracy in poor countries. It appears that when governments in this sector become bigger seeing the gross domestic product, they are more inclined to prevent the transition to democracy. This effect is most present in developing countries (Ross, 2001: 347). Another problem for resource-rich states, Ross (2004: 31) notes, is that economies which rely on natural

resources are more susceptible to economic shocks as prices for commodity goods are more volatile. As a result, these factors inhibit the stimulation of economic growth and reducing poverty and consequently human rights violations. In these contexts, firms are challenged to not impede in the right to development of humans.

3.4 FDI and human rights

Liberalization and privatization are both highly stimulated in the globalizing world, as they are seen as drivers of economic growth and development. By opening up markets the international flows of goods, capital and labor are stimulated. The Organization for

Economic Cooperation and Development (OECD) claims that the in- and outflow of foreign direct investment (FDI) is a stable and “development-friendly” source of investment, that provides local firms with the opportunity to access international markets through linking with MNEs (2014: 74). However, the discussion on the extent that FDI leads to development

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13 is still ongoing.

The contribution of MNEs to globalization becomes apparent in the diffusion and transfer of goods, capital and knowledge onto developing countries. As a result, jobs were created, economic growth was stimulated, goods became cheaper and the costs of living were reduced (Stiglitz, 2007). Though, Jenkins (2005) poses that FDI only leads to economic growth provided that income inequality does not grow. Increased income inequality causes a widened gap between rich and poor, where the rich become richer and the poor become poorer. As a result, the development of the poorest is impeded. The MNEs responsibility is, therefore, to prevent their operations from aggravating current conditions in poor

countries and to abstain from impeding their development.

One of the most important economists to raise questions about globalization, FDI and the effects on poverty and development was Stiglitz (2007). In his book ”Making Globalization Work”, Stiglitz (2007) denounces globalization, stating that it has mainly been beneficial for developed countries, who are blamed to manage globalization for self-interest only. At the same time, the poor countries were being disadvantaged with values and regulations shifting in favor of developed countries and their multinational corporations. In these deliberations developing countries were either excluded or hardly present, which resulted in developed countries taking the lead in FDI and FDI policy. Contrarily, current data show that in 2012 times have changed. It seems that international capital flows from developing countries are now bigger than those of developing countries (OECD, 2014).

In a recent study, Lehnert et al. (2013) found that FDI contributes positively to human development and diminishes the effects of poverty. In this study, the impact of FDI inflows

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14 on a host country’s welfare and human development were illustrated. The results showed that FDI has a positive effect on the country’s welfare. This is linked to the new resources that come with FDIs, which enables governments and households to invest in improving living standards, health and education (Lehnert et al., 2013). However, the technological gains of FDI still remain doubtful. It was found that technology and FDI are negatively correlated due to existing knowledge gaps between developing and developed countries, which hinders the transfer of technological know-how.

Lin et al. (2013) confirm the positive role of FDI to economic growth, as it provides

opportunities which otherwise would not have been present. However, they also found that in countries where there is a large inequality disparity, FDI is mostly beneficial for the highly skilled workers than for the population as a whole. In countries with high human capital, FDI hinders income growth of the poorest relative to others, while in countries with low human capital the poorest are not affected as much. These findings suggest that MNEs add to economic growth by increasing employment in the wealthier levels of society, while inequality continues to grow between the rich and the poor. The level of technological know-how and education is important for countries with poorer populations, as they are then able to benefit from FDI and have a higher level of income. This is, because the higher the level of technological know-how, the more skills the general population is able to acquire.

Liberalization also has other implications for growth and development. Bharadwaj (2014) remarks that when markets are considered to be open, countries tend to be more affected by the higher demands of labor by MNEs. Poor countries are then inclined to have more

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15 low-skilled workers that cannot match the level of technological knowledge that are

required by MNEs. As a result, unemployment rates increase due to technological developments that make low-skilled labor superfluous (OECD, 2011).

MNEs dispose of a lot of resources, which provides them with a powerful position in developing countries. In some cases, MNEs receive a preferential treatment in which governments lower taxes and payments in exchange for support (Hilson, 2012). Kobrin (2009) and Wettstein (2010) note that MNEs, mainly in the extractive industry, are rarely accused of being the main violator of human rights. On the contrary, they are accused of being complicit to host country governments (Kobrin, 2009; Wettstein, 2010).

Wettstein (2010) recognizes four types of corporate complicity: direct complicity, indirect complicity, beneficial complicity and silent complicity. Direct complicity refers to MNEs directly contributing to human rights violations, while indirect complicity refers to MNEs facilitating or supporting human rights violations by third parties. Beneficial complicity merely means that MNEs knowingly benefit from the human rights violations from a third party without contributing. Silent complicity, on the other hand, refers to the actions that MNEs may undertake to encourage human rights violations by a third party (Wettstein, 2010). By engaging in complicity, firms, per se, impede human rights.

The detrimental contribution of MNEs to human rights becomes apparent when they engage in activities that undermine development by directly cooperating with host

governments. Renouard and Lado (2012) assert that firms can negatively affect inequality. Firms operating in poor countries often cooperate with corrupt governments and leaders in order to avoid taxes. When governments support corruption, the resources needed to

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16 stimulate human development disappear in the pockets of the rich, which ultimately leads to an ever-increasing gap between rich and poor.

Additionally, Renouard and Lado (2012) note that firms pay community leaders and provide them with more opportunities in order to maintain good relations with the

community to continue firm operations. These extra payments and opportunities are only beneficiary for the leaders, which in turn leads to unequal distribution of income. However, exposure of extra earnings could raise awareness of the inequality in treatment and cause community revolts (Renouard & Lado, 2012). This would cause even more human rights to be violated.

The role of the host government should not be underestimated in their contribution to development and the fight against human rights violations. Reiter and Steensma (2010) found that governments could affect how FDI contributes to economic growth. By using its power, the state can influence and control foreign investors by enacting laws that protect local economies (Reiter & Steensma, 2010). However, Reiter and Steensma (2010) found that FDI only stimulates human development and growth if these are aligned with FDI policies that promote human development. In other words, the positive contribution of FDI to human development is more likely when human development is incorporated in

governmental policy.

3.5 FDI and distance

Until 2012, the share of FDI was unevenly distributed as most FDI flows were coming from OECD-countries. A recent report on World Investment showed that 50 per cent of the top

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17 20 FDI inflows come from developing and transition economies (UNCTAD, 2014). FDI

outflows are also growing in these economies. In least developed countries (LDCs), FDI is also increasing, but reveals mixed results (UNCTAD, 2014). This shift in FDI inflows and outflows illustrates that the distance between developing and developed countries is becoming smaller. It also suggests that the economies are interconnected and that economic distance appears to be a less determinant factor of FDI.

When firms consider engaging in cross-border activities, there are several difficulties that need to be considered. While in the past firms only considered long-term suitability, Ghemawat (2001) determines that there are more costs and risks that are accompanied with doing business abroad. Ghemawat (2001: 3) poses that distance in FDI not only refers to economic distance but also to cultural, administrative or political and geographic

distance. The distance in these levels can determine the attractiveness and the suitability of moving operations to other countries. Accordingly, Ghemawat (2001) proposes that the larger the distance, the more difficult it is for firms to carry out firm operations.

The economic, cultural, administrative and geographic dimensions on distance are said to influence different businesses and industries in different ways. Cultural difference refers to the set of norms and values, language and religious beliefs that are set within a country that give meaning to daily life and influence how people interact. Administrative or political distance refers to distance that is created through historical and political developments (Ghemawat, 2001). Positive political ties between two countries could increase the trade between two countries (Ghemawat, 2001). Negative ties, on the other hand, can cause trade tariffs and barriers to be raised.

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18 The involvement of governments in industries can impact the level of distance.

Governments can choose to raise trade barriers in order to protect that country’s domestic industry and natural resources, in the case that industry requires ‘high sunk-cost

commitments’ or when the weak institutional infrastructure causes cross-border activities to decrease (Ghemawat, 2001: 6). In addition to these types of distances, Ghemawat (2001) mentions geographic distance as the third level of distance. Beyond physical distance, this type of distance also points to the availability of communication, waterways and

transportation infrastructure and the size of a country (Ghemawat, 2001: 7).

The economic distance is one of the most considered indicators of distance between countries, as it gives insight into the wealth of consumers in a country. This distance can give an indication on the level of cross-border activity. In this study, it was found that rich countries tend to engage more in economic activities abroad than poor countries

(Ghemawat, 2001). Also, it was argued that in countries where the consumers have a higher income, the cross-border activity increases with similar wealthy countries. If cross-border activities take place with a similarly wealthy country, it is easier to replicate their business model. At the same time, in some industries firms choose to engage in cross-border

activities in countries with bigger economic distance to reduce costs. In industries where economies of scale are key, for instance, firms choose to displace their production to countries where wages are low. In doing so, wage costs for the firms from wealthier countries are reduced (Ghemawat, 2001).

In a study by Berry et al. (2010) the findings show that distance can be a decisive factor for FDI. In addition to Ghemawat (2001), Berry et al. (2010) show the importance of

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19 considering multiple distance dimensions rather than merely one. Next to the four

dimensions of Ghemawat (2001), Berry et al. (2010) added the dimensions on demographic, knowledge, connectedness and financial distance. Through more usage of distance

dimensions, a deeper understanding of the influence of cross-national distance on organizational and governmental decision-making was realized.

Berry et al. (2010) suggest that distance matters the most when firms are expanding to host countries without prior experience. It was found that cultural, administrative and

demographic distance influence firms positively to engage in low-income countries rather than high-income countries. This paper did not only state that distance matters but it also emphasizes the importance of how distance can affect FDI (Berry et al., 2010). Confirmative of Ghemawat’s (2001) propositions, Berry et al. (2010) show that the larger the distance the harder it becomes for firms to operate. From these statements, one can deduce that when the distance on different levels is small, firms are more likely to engage in cross-border activity than when the distance is large.

3.6 Inequality

Poverty is one of the biggest deprivations of the human right to equality and development, of which income is the biggest indicator. Inequality refers to the gap between poor and rich. This gap can be further analyzed on two levels, i.e. country or global level (OECD, 2011). The larger this gap is, the more the poor are disadvantaged in their development. According to the OECD (2011), the average income of the richest 10 per cent of the population is about nine times that of the poorest 10 per cent and it continues to rise (OECD, 2011: 19). This

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20 income gap is not only expanding in developing countries but also in developed economies. Recent research has shown that economic growth is not necessarily the only remedy for the reduction of poverty and inequality.

The OECD (2011) recognizes two important factors that influence the rise of income

inequality. Firstly, globalization is seen as a factor for growing inequality. Globalization has caused FDI inflow and outflow to increase tremendously. When measuring globalization the OECD (2011: 26) found that financial flows and technological advancements have an impact on inequality, while trade integration and financial openness appeared to have no effect at all (OECD, 2011).

Secondly, governmental policy is considered as a factor that can impact the distribution of income, as institutions can pose reforms that regulate employment and wage distribution. However, it was found that governmental policies can both positively and negatively contribute to the reduction of inequality. In some cases, it caused wage distribution to become more unequal; while in other cases it positively affected the level of employment (OECD, 2011). Foster (2012) found that governmental spending on health care and education reduces inequality and that in least developed countries the most beneficial spending in human development is education. This seems self-evident as least developed countries seem to be affected the most by lack of technological knowledge.

It was previously assumed that the poorest people suffer more from social problems as a result of the high inequality level of the home country. However, nowadays Wilkinson and Pickett (2009) pose that in rich countries these problems are not caused by a lack of income,

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21 but rather by people wanting to live up to a certain social standard. Wilkinson and Pickett (2009), therefore, consider income inequality to reflect the level of hierarchy in societies.

Firstly, it is posed that when income differences increase the social distances also increase. In other words, when the “social gradient” is steeper the more it is linked to inequality (Wilkinson & Pickett, 2009: 51). Furthermore, it was found that in some areas health was worse than in others, but only in relation to the rest of society. This indicates that material differences make up the social hierarchy within society and, therefore, contribute to the increasing levels of inequality.

The consequences, which stem from rising inequality, are divergent. Inequality limits growth and development as it restricts countries to seize economic opportunities. Lynch et al. (2000) state that inequality influences the allocation of resources, meaning that

inequality in certain developing countries can limit the amount of money invested in infrastructure, health and education. However, these are not necessarily the only factors that are influential to health as there are many other factors that can affect health.

Wilkinson & Pickett (2009) found that in countries where inequality is high there are more health and social problems such as mental illnesses, anxiety and stress. Kondo et al. (2009) confirm that there is a correlation between high-income inequality and worsened health and mortality risk. Kondo et al. (2009) note that because of the high inequality a big part of the society is impoverished. Consequently, a big part of the society has limited access to health care leading to increased risk to mortality. Additionally, high inequality was found to affect the rates of violence and imprisonment and the presentation of opportunities and

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22 higher education (Wilkinson & Pickett, 2009). The negative outcomes of inequality lead to higher costs and consequently reduce economic growth and limit development.

3.7 Inequality and MNEs

As was mentioned before, distance between home and host countries can affect MNE operations. Ghemawat (2001) and Berry et al. (2011) study suggest that large distance between a MNEs’ home and host country can hinder firm operations. Building on these theories, it is expected that distance in inequality between MNEs’ home and host country can affect MNEs’ contribution to development.

Poverty undermines human development as it denies humans of meeting a certain living standard (OHCHR, 2015). An indicator of poverty is the lack of income (OECD, 2011).

Income inequality indicates the gap between rich and poor in one country. This gap is not a determinant of the level of development of a country, but rather provides a representation of the distribution of income. Despite the fact that the United States is one of the world’s most developed countries, its score on inequality is relatively high (OECD, 2011).

Countries with high inequality tend to have more social problems and health issues than countries that are more equal (Wilkinson & Pickett, 2009). It was found that inequality impacts the growth and development of humans and countries as it limits them in seizing opportunities. Additionally, inequality is said to influence governmental expenditure in infrastructure, health and education (Lynch et al., 2000). Foster’s (2012) findings

emphasize that governmental spending on health care and education reduces inequality. The role of the government is important when fighting inequality, as they can implement

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23 and promote policies to reduce the gap between poor and rich.

Development, on the other hand, is a different concept as it refers to the sustained improvement of human well-being (UN, 2001). In the Declaration of the human right to development it was stated that development is fulfilled when there is an equal and fair distribution of the benefits of development (UN, 1986). In other words, the positive

outcomes should be equally shared and benefit among humans without discrimination. So, when inequality grows in countries, this inevitably suggests that the development of people in the lowest socioeconomic positions is impeded.

There is little consensus on what the contribution of MNEs is to development and human rights violations. Recent research of Lin et al. (2013) demonstrates that firms contribute to growth as they bring new opportunities and knowledge into countries that otherwise

would not have been present. However, these opportunities can only be beneficial when the countries possess a certain level of education in order to properly profit from them.

In contrast, it is posed that a MNEs’ presence can increase the country’s inequality by the increasing demand for higher-skilled workers, while leaving the lower-skilled workers behind (Bharadwaj, 2014). Additionally, MNEs can indirectly contribute to human rights violations by being complicit to a third party such as a host country government. By

engaging with corrupt governments and leaders human development is often undermined. The resources that were meant for development purposes disappear in the pockets of the rich and powerful causing MNEs to impede development and increase inequality

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24 In the extractive industry, the reduction of inequality appears to be more difficult as these countries tend to be less developed with weak institutions, non-democratic governments, low incomes and higher child mortality rates (Ross, 2001; 2006). Furthermore, weak institutions and unstable governments prevent the implementation of the ‘Protect, Respect and Remedy’ framework of Ruggie (2008) (see chapter 3.2). This framework can only be successfully implemented once institutions are strong and functioning.

Ghemawat (2001) and Berry et al. (2010) found that distance is a decisive factor for FDI. Both argue that large distance can hinder firm operations. Deducing from these theories, it is expected that distance in host and home inequality can be a decisive factor for MNEs’ contribution to human rights violations. By using the distance theory, it is aimed to explore the relationship between inequality and the violation of the human right to development.

In the past, little research had been done on the contribution of distance between home and host country inequality based on the human right to development in the extractive sector. Building on the theoretical framework, it is expected that the inequality level of the home country can affect the MNE’s host country operations with respect to human rights. If a MNE is from a low inequality country, it is more likely to know how to contribute to development and reduce inequality, than when a MNE is from a high inequality country. Additionally, the distance between the host country and home country inequality can affect how and to what degree MNEs contribute to human rights violations.

In this paper, it is therefore proposed that MNEs from a low inequality home country are less likely to impede the development of humans and violate human rights, while MNEs from high inequality countries are more likely to contribute to impede the development of

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25 humans and violate human rights. Also, greater distance between home and host country operations is more likely to affect MNEs contribution to violating human rights, while smaller distance is less likely to contribute to violating human rights.

Therefore, the research question is:

How does distance in inequality between a MNEs’ home and host country contribute to the human right to development?

In order to address the research question the following working propositions are developed:

WP1a: MNEs from high inequality countries are more likely to contribute to violating the human right to development in host countries.

WP1b: MNEs from low inequality countries are less likely to contribute to violating the human right to development in host countries.

WP2a: Big distance in inequality between home and host country are more likely to contribute to violating the human right to development in host countries.

WP2b: Small distance in inequality between home and host country are more likely to contribute to violating the human right to development in host countries.

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26 Fig. 1 Conceptual model

WP1a: MNEs from high inequality  + contribute to violating the human right to development

WP1b: MNEs from low inequality  - contribute to violating the human right to development

WP2a: Big distance  + contribute to violating the human right to development

WP2b: Small distance  - contribute to violating the human right to development

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27 4. Methodology

4.1 Research philosophy

Qualitative research is carried out using different paradigms. Guba & Lincoln (1994: 108) state that paradigms are ‘sets of basic beliefs’, which is seen as a human construction of the mind. These paradigms are used to answer three questions in research concerning:

ontology, epistemology and methodology. The ontology question refers to what is perceived as reality and how this reality be known. The epistemological question deals with what can be known in light of the beliefs of the researcher about reality and the subject (Guba & Lincoln, 1994). The methodological question is constrained by how the former two questions are answered. In light of the answers given to the first two questions an

appropriate method should be chosen to find answers to the research questions within the paradigm of the researcher (Guba & Lincoln, 1994).

The paradigm followed in this study is post-positivism. According to Guba and Lincoln (1994) the ontological assumption of post-positivism is critical realism. Critical realism assumes that reality exist independent of human beings, but is subject to human

interpretation. This reality can be uncovered by scientific theories and should therefore be critically examined (Guba & Lincoln, 1994). The epistemological assumption of this

paradigm posits that the world is objective and that its reality can be described and tested by theories and observations (Gephart, 2004). Post-positivists see the observed reality as a sign for patterns and deeper lying-processes that can be probable facts (Alvesson and Sköldberg, 2009). The difference between positivism and post-positivism lies in the idea

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28 that reality can only be known by the falsification of hypotheses (Gephart, 2004).

In this study, propositions were deductively developed from existing theory on distance and FDI. These propositions were tested by looking into the context of predicted

relationships. It was proposed that MNEs from high inequality host countries are more likely to contribute to human rights violations than MNEs from low inequality countries. Secondly, it was proposed that greater distance in inequality between MNE home and host countries more likely to contribute to the violations of human rights in host countries, while small distance is said to be less likely to contribute to human rights violations. By using exploratory content analysis, the distance between inequality levels of MNEs home and host country and their contribution to human rights violations were explained. By selecting MNEs based on distance between home and host country inequality, theory was built upon the contributions to human rights violations of MNEs in host countries.

4.2 Multiple-case study

A multiple case study is an empirical study that deepens complex and contemporary

phenomena within its context by using different types of evidence (Yin, 2014). Studies that use multiple cases, instead of one, give more extensive evidence for the propositions, as they provide deeper understanding of patterns and give a more accurate reproduction of the theory (Eisenhart & Graebner, 2007: 3). The data were theoretically sampled, as sampling provided a suitable representation of the relationships that can be analyzed.

According to Yin (2014), the use of research questions that start with “how” and “why”, enables one to uncover, capture and assess the contextual factors of the case studies. The

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29 research goal of this study is to gain insight on the extent that distance in inequality affects MNEs’ contribution to human rights violations: Why does big distance in inequality affect MNEs’ contribution to human rights violations?; How does distance affect MNEs’

contribution to human rights violations? By answering these questions complex causal links between topics can be explained and demonstrated to expand theory (Yin, 2014).

The use of a multiple case studies provides the possibility to carry out a cross-case analysis (Rose, Spinks and Canhoto, 2014). In order to build theory from multiple-cases replication logic was used. This was done to verify if similar patterns were found across cases

(Eisenhardt, 1989).

The quality of the multiple case study design is based on four tests: construct validity, internal validity, external validity and reliability (Yin, 2014). The construct validity in this study was obtained by using measures that define the inequality levels of the home and host country of the MNEs and the distance between both countries. These measures were collected from multiple sources. The internal validity refers to the causal relationships between the conditions. As this study used a multiple case study, a cross-case synthesis was used to strengthen the reliability of the findings. External validity refers to the extent that the findings are generalizable (Yin, 2014). By using multiple cases, the literal replication was supported by providing similar evidence across cases, which in turn strengthens the external validity. Finally, reliability aims to minimize the biases by providing a clear understanding of the procedure in order to conduct the same study and produce the same insights when replicated (Yin, 2014).

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30 The propositions in this paper suggested that the distance in inequality level of the MNEs’ home country contribute to human rights violations by MNEs in host countries. As the working propositions explore how inequality distance contributes to human rights

violations, the selection criteria were based on: the contribution to human rights violations by top 250 energy company, the level of inequality expressed in GINI coefficients and the distance between MNEs’ home and host countries.

The sample in total consisted of four MNEs that are active in the oil and gas industry. It is proposed that large distance between MNEs contributes to human rights violations, while small or no distance in inequality does not (table 1). In order to develop theory, the

selection of the cases was based on theoretical sampling (Eisenhardt and Graebner, 2007), which means that the cases were selected because they clarify the patterns that underpin the theory.

Table 1. Propositions framework

Low inequality High inequality

Low inequality No violations Violations

High inequality Violations No violations

First, the MNEs were selected out of Platts Top 250 Energy companies (Top 250 Companies, 2014). The MNEs that were present in the Top 250 Energy companies were looked up in the CHRD database. This database contains data on human rights violations caused by

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31 MNEs in the continents Asia, South-America and Africa, which were collected from 2000 till present date. In this CHRD database, the largest MNEs found in the Platts Top 250 that are accused of violations were selected based on high and low inequality countries. The selection was completed by finding the GINI indices of the MNEs’ home and host countries as estimated by the World DataBank. The GINI index was used, as it is an indicator of the distribution of income among individuals or households whereby a score of 0 represents total equality and a score of 100 represents total inequality (The World Bank, 2015).

Table 2. GINI indices (Worldbank estimate) 2007 2008 2009 2010 2011 2012 Chile … … 52.0 … 50.8 … Colombia 58.9 56.1 55.9 55.5 54.2 53.5 Peru 49.6 46.9 46.2 44.9 45.7 45.3 Spain 32.7 … … 35.8 … … Tunesia … … … 35.8 … …

Source: adapted from Databank.Worldbank.org (2015).

A clear overview of the GINI indices of countries was made by mapping the GINI indices of the home and host country of MNEs found in the CHRD database (table 2). By using this table the selection of extreme cases based on the availability of the GINI index was

facilitated. The date of the accusation of violating MNEs had to coincide with the availability of data on GINI indices. As a result, the following cases with violations were selected:

Table 3. Cases with violations Firm Violation date Home country (GINI) Host country (GINI) Distance

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Repsol 2007 Spain (32,7) Peru (49,6) 16,9

Ecopetrol 2009 Colombia (55,9) Peru (46,2) 9,3

In Figure 2 the changes of the GINI indices over a time span of five years are shown. This figure indicates that the GINI indices are relatively stable, which means that a distance of 9,3 and 16,9 are meaningful.

Fig. 2 GINI indices 2007-2012 from World DataBank

The two other firms were selected from Platts Top 250 Energy companies based on the lack of violations in the CHRD database. The MNEs that lack accusations of violations in the CHRD database were selected based on the distance between home and host country GINI indices.

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33 Table 4. Cases without violations

Firm Home country

(GINI)

Host country (GINI)

Distance

Eni SpA Italy (35,5) Tunisia (35,8) 0,3

Empresas Copec SA. Chile (50,8) Colombia (54,2) 3,4

Table 5. Sample

Low

inequality High inequality Low

inequality Eni SpA Repsol

High

inequality Ecopetrol Empresas Copec SA.

4.4 Data collection

The data used in this research has been collected from different sources. Both quantitative and qualitative data is used to increase the likelihood of the findings (Eisenhardt, 1989). First, qualitative data was collected from the CHRD database on human rights violations caused by MNEs. Second, quantitative data was collected from the World DataBank in which the GINI indices of the host and home countries are stored. Third, archival data was

gathered from company website, annual reports, CSR reports, OHCHR articles and

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34 findings to be supported from different angles This results in increased construct validity increased (Eisenhardt, 1989).

Data was collected from the CHRD database concerning the Development and Poverty human rights violations caused by MNEs in the natural resources sector. This database organizes the accused human rights violations as found on the website of the Business & Human Rights Resource Centre (BHRRC). In this database, the name of the (parent) firm, the date of the accusation and violation, the location of the violation and the place of the violation are described. By using this database, the violations of the MNEs can be easily found and deeper understanding can be reached.

Quantitative data was needed to categorize the inequality levels of the host and home country and to calculate the distance. The World DataBank contains comprehensive data on development and poverty measures across all countries and sectors. The World Databank also provides information about inequality levels in countries expressed in GINI coefficients. In this database, a selection was made including the GINI indices of the required countries; subsequently a table was made (see table 1).

Finally, archival data was gathered. This data was collected from company websites, newspaper articles, CSR reports and annual reports. Archival data limits the bias that can arise from using similar sources. By using sources from a third party the cases can be illuminated from different perspectives, which accordingly enhances the reliability of the multiple-case study.

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35 Miles and Huberman (1994) consider data analysis to consist of three activities: data

reduction, data display and conclusion drawing. Data reduction is a process of selectively choosing data during the complete process of the study. It derives from the decision making of the researcher concerning the research questions, the cases and the theories (Miles and Huberman, 1994). All choices made concerning data belong to the activity of data reduction, which is part of the data analysis. In this study, data reduction derived from the decisions made on the development of the hypotheses, the structure of the theoretical framework, the conceptual framework and the selection of the cases.

The second activity concerned the presentation of the data in a simplified manner, so that data analysis will be advanced and validation can be facilitated. In this study, the computer program NVivo 10.0 was used to organize the data based on the codes that have been determined throughout the study. The codes were inductively derived during the data collection and data analysis process. The following codes were derived: development

initiatives, distance, inequality, knowledge of good practice, human rights and human rights violations. These codes will help to determine the emerging patterns in the data (Yin, 2014).

The final activity concerned drawing a conclusion of the gathered, organized and analyzed data (Miles and Huberman, 1994). This activity concerned validating the insights that derived from the data. In this study the analytic strategy was based on the aforementioned theoretical propositions. It was aimed to look into the MNEs’ home and host country

inequality and argue that inequality distance can cause MNEs to contribute to human rights violations.

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5. Results

In this chapter the results of the multiple case study are presented. First, a within-case analysis was performed followed by a cross-case analysis was carried out. The cases will initially be individually analyzed to see whether distance is recognized to play a

contributory role in human rights violations. In the cross-case analysis a comparison was made between the firms that contributed to human rights violations and their distance.

5.1 Within-case analysis

In this section the results of the data analyses per case will be linked to distance and human rights violations.

5.1.1 Case 1 Ecopetrol: violator from a high inequality home country

The case of Ecopetrol was chosen, as it is a Colombian MNE engaging in operations in Peru, which is a country with lower inequality. The distance between both countries’ GINI is 9,3. In the literature, it was argued that distance in inequality between home and host countries contribute to violating the human right to development. In this case, Ecopetrol allegedly violated the human right by cooperating with another firm.

In 2009, Ecopetrol agreed to jointly engage with the Brazilian Petrobras in the Peruvian Amazon in which indigenous communities are living. The Peruvian government provided both firms with the permission to explore and drill in the areas where these communities are present. In the first block (110) Ecopetrol holds 50 per cent of the share and in the second block (Lot 117) 25 per cent. The two blocks in which these productions will take

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37 place, covers almost all of the reserve set aside for the Murunuha Indians and a part of a proposed reserve for uncontacted Indians (Survival International, 2009). The secluded living of these communities causes them to have a decreased immunity, which makes them extremely vulnerable to contact with outsiders (Survival International, 2009). By providing permission to operate in these areas, the Peruvian government fails to fulfill the states’ responsibility to secure the upholding of human rights to development and the human rights of indigenous people. The firms’ respect towards human rights becomes evident in the accusation of impeding the right to development of these indigenous communities.

In the International Labour Organization (ILO) Convention no. 169 a legal document was set up that describes what the rights of indigenous and tribal peoples are. As soon as a given country agrees to the convention, it has one year to enforce and align legislation and

policies before it becomes binding (ILO Convention no. 169, 1989). This document recognizes the vulnerability of the indigenous communities and therefore poses that they and their culture should be safeguarded. The ILO recognizes the indigenous customs and traditions and requires that they should be consulted prior on all issues that can affect them. In this Convention the governments are appointed to put mechanisms in place that can protect these rights. Peru ratified this Convention in 1994 (ILO, 2015).

On April 14th_{the ILO pressured the Peruvian government to comply with Convention 169}

that the indigenous people have to be consulted before any activities are allowed to take place on their lands (Survival International, 2009). This implies that even though the state ratified this Convention, it did not comply with the outlined policy, which seems to refer to the state’s failure to live up to its responsibility to secure human rights.

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38 Ecopetrol’s home country Colombia has been appointed as one of the highest human rights risks countries, which continues to grow (Verisk Maplecroft Human Risk Atlas, 2014). On the Human Risks Atlas, Colombia ranks 26th_{in the world list of countries with human rights}

risks, a number which continues to grow. The activities of paramilitary organizations are said to be responsible for a large amount of human rights violations in Colombia (Human Rights Watch World Report, 2015). Peru, the host country, scores 59th_{on the Human Risks}

Atlas index, which is considerably lower. The scores on the index show that the risks for human rights violations in both countries are very high. Not only does the state play a part in reducing these risks but also multi-national firms as well. Ecopetrol’s responsibility as a firm is to respect human rights and remedy violations if they occur.

In the literature, complicity was argued to be MNEs main contribution to human rights violations (Kobrin, 2009; Wettstein, 2010). The findings in this case seem to underpin the assumption as Ecopetrol allegedly contributed to the violation by being complicit to the Peruvian government and the Brazilian firm. In the sustainability report, Ecopetrol refers to “making sure to not be complicit in human rights abuses” (Ecopetrol Sustainable

Management Report, 2013). However, this is contradictory to another statement in which it is stated that until 2013 there were no clauses devoted to human rights included in

partnership contracts.

The obligations of the partners consisted of compliance with laws and legislation in Colombia, the firm’s home country (Ecopetrol Sustainable Management Report, 2013). It suggests that Ecopetrol’s partners were unaware of the human rights policy of the firm, implying that indirect or direct complicity is not ruled out in any other partnership until

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39 2013. Another point is that Ecopetrol had a 50 per cent and a 25 per cent ownership in the joint ventures, which suggests substantial influence in the joint firm operations. If Ecopetrol wanted to stop the operations, it would have had a considerable power to hinder the

operations.

The evidence shows that there is no communication after the allegation. Neither press releases nor references in the Corporate Social Responsibilty (CSR) reports comment on the allegations. It is remarkable that in the CSR report of 2010, which is after the allegation, the MNE publishes that it got its human rights policy approved and joined the United Nations Global Compact. This Compact offers a framework for businesses to implement, develop and disclose principles relating to sustainability like human rights, labor, the environment and corruption (United Nations Global Compact, 2015).

Correspondingly, in 2010 a new policy concerning indigenous people is disclosed in the CSR report. This policy focuses on engaging in dialogue with ethnic minorities. After 2010, the indigenous people policy had gained more importance as it has been implemented in the human rights policy of the MNE. In all following CSR reports, human rights, development and indigenous communities are central topics. These findings suggest that until the violation the MNE was not aware of the importance of implementing human rights policy.

After the allegation the human rights policy has been extensively referred to as an important company objective. Ecopetrol communicates that its objective is to:

“Add value through the promotion of human rights in the company’s operating environments

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dialogue with stakeholders” (Ecopetrol Sustainable Management Report, 2013).

When looking at the evidence, Ecopetrol seems to be aware of the institutional instability in the home and host country and the effect this has on human rights. In the CSR policy of 2013, an important firm objective to prevent the risk to human rights accidents is by strengthening public institutions. Ecopetrol communicates its goal as following:

“Strengthening the capacity of local authorities relating to the protection of human rights … administration and finance“ (Ecopetrol Sustainability Report 2010).

This statement seems to suggest that the MNE is aware of the gap of meeting national and international obligations. Also, Ecopetrol states that it wants to achieve this by doing the following:

“Creating synergies with national, regional and local institutions that contribute to meeting

corporate objectives and to add the sustainable development of the country” (Ecopetrol

Sustainable Management Report, 2013).

The above excerpt suggests that Ecopetrol acknowledges that there are some requirements that still need to be met in order to assist in the positive development of a country. It seems that Ecopetrol wants to create a smaller gap between the different understandings on human rights and improve development. By implementing human rights trainings and increasing dialogue with stakeholders and employees, it seems that Ecopetrol wants to raise awareness on good practices.

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41 strengthening and empowering regional development by collaborating and by raising

awareness of the importance of respecting human rights and peace. On both the company website and the CSR reports Ecopetrol states that it would like to contribute to the

development of countries by creating jobs, educating and training (low-skilled) personnel, participating in local initiatives and stimulating local economic activity (Ecopetrol, 2015). It seems that Ecopetrol values to achieve development by cooperating with authorities. To achieve its developmental goals it stated its cooperation with Ministry of Agriculture, provincial governments, mayor’s offices, chambers of commerce and universities. Ecopetrol’s objective is communicated as followed:

“to participate in guiding public policy generated at the national and regional level, and

strengthen local initiatives at the village and municipal level so as to promote convergence of national and community interests towards the definition of strategic development proposals within the regional competitiveness line”(Ecopetrol, 2015).

5.1.2 Case 2 Repsol: violator from low inequality home country

Repsol is a Spanish oil and gas company with operations in Peru. The GINI distance between Spain and Peru is 16,9. In 2006, Hunt Oil signed a contract with the Peruvian government to explore in Lot 76. Repsol joined the project as a half partner after having signed a contract with the government (Weinberg, n.d.). Repsol has been accused of failing to implement a policy that covers the relations with indigenous people (Weinberg, n.d). In 2007, Repsol allegedly violated human rights with the American based company Hunt Oil. Repsol and Hunt Oil are accused of denying the rights of indigenous people by setting up

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42 camps in protected areas without consulting the indigenous people (Latin American Herald Tribune, n.d.).

Lot 76 is adjacent to two national parks where 16 native communities are living and managing the reserve together with the national government (Weinberg, n.d.). The

indigenous communities do not consent to the operations, yet the government and Hunt Oil continue. The government claims that the “tribes only control the surface rights of the reserve and that the government can lease subsoil mineral rights to foreign companies” (Energy-pedia, 2009). The operations are said to be a threat to the development of Peruvian Indians by building exploration camps near rivers where local communities live off fishing and hunting. The indigenous groups protest these developments as they state that only two communities have met with Hunt Oil and Repsol and the other present communities have not been contacted (Hance, 2009).

As a preventive measure for violent protests, the Peruvian government sent armed forces to the areas instead of listening to the concerns of the indigenous people living in the reserves. It is unclear whether Repsol and Hunt Oil are complicit to the involvement of armed forces. Hunt Oil communicates to have acted lawfully by informing the communities, giving

workshops and by offering a suitable compensation to the communities (Weinberg, n.d.). Community representatives state that they never signed a document.

As a result of a former indigenous uprising, a meeting between the village representatives and Hunt Oil was arranged (Weinberg, n.d.). At the meeting, the village representatives expressed the rejection of the operations on their land (Survival International, 2009). In 2009, FENAMAD (Native Communities Federation of Madre de Dios) had filed two

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43 lawsuits against the operations of Hunt Oil and Repsol in Lot 76. However, until now the operations are still continuing and the lawsuits have not been settled.

The allegations suggest that Repsol is contributing to human rights violations jointly with another firm. When considering the low inequality levels in Repsol’s home country Spain, it could be expected that Repsol would know how to operate rightfully in another country. However, in the literature it was argued that distance matters in a sense that the larger the distance in inequality between home and host country the harder it gets for firms to carry out firm operations in a host country.

Peru is a country that has a relatively high risk of human rights while in Spain the risk is much lower. However, in the year that the alleged violation took place Repsol had a limited policy on human rights and indigenous people. There was little reference to communities except for their objective to “meet community expectations by committing and engaging in dialogue”(Repsol CSR Report, 2008). A distinction was made between the expectations of the OECD communities and the expectations in emerging communities. In the OECD communities it is stated that the expectations of the MNE is to contribute to the Millenium Development Goals, while in the emerging countries expectations are mainly related to increasing equality. This is implied by the communication of Repsol on what the

expectations in emerging communities are:

“Supporting underprivileged groups, fair distribution of the benefits of development, creation

of social awareness on environmental and social issues, education for sustainable development, management of relations with local communities, development of initiatives for the base of the

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pyramid” (Repsol CSR Report, 2008).

This evidence implies that Repsol has knowledge of the right to equality and development and is taking steps to further contribute to development. While Repsol joined the United Nations Global Compact in 2003, the human rights policy was not presented until 2009.

In this year, the main planned activities of the firm were to receive approval for the Regulation for Action in Relations with Indigenous Communities. Repsol also wanted to include training plans that promote and respect human rights (Repsol CSR Report, 2009). The planned activities of Repsol on improving the human rights policies seem to be meager compared to the firm’s statement that is has based its’ policy on the international standards of the ILO Convention No. 169.

In order to enforce the human rights policy throughout the value chain, Repsol states that it will ask its contractors and suppliers to fill out statements concerning labor rights and their adherence to the principles of the United Nations Global Compact (Repsol CSR Report, 2009). The management of human rights is said to be adjusted to the specific

circumstances where these activities take place. This seems to suggest the idea that Repsol is adjusting its responses to human rights violations in specific contexts.

In the CSR report of 2009, there is a separate section dedicated to indigenous communities. Though, Repsol has not provided direct response to the allegations, this adjustment to policy seems to have influenced the firm’s policy. In the CSR report Repsol states that its’ Regulations for Action in Relations with Indigenous Communities has been approved in June. This statement is remarkable, this date was only a couple of months before the firm

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45 was accused of violating human rights. Another peculiar comment that had been made by Repsol concerning indigenous communities is stated in the following:

“To analyze the degree to which the authorities comply with the right to prior, free and

informed consultation. Repsol YPF will ask the authorities to make up for any shortfalls. Repsol YPF will make every effort to cover these if the authorities fail to take action”(Repsol

CSR Report, 2009).

It seems that Repsol recognizes its role as a firm to respect human rights, even though the state fails to secure these. This seems to be contradictory to the accusation that Repsol was being complicit to the Peruvian government and Hunt Oil. Both parties have been accused of violating international laws by continuing the operations in the reserves without the consent of local resident communities. If these accusations are true, it is noteworthy that Repsol has not responded to the allegations in any way. There are no references to Lot 76 or to malpractice in any of their communications.

In spite of the lack of response to the allegation, the evidence indicates that Repsol

considers contributing to development as an important objective. This becomes evident in the following statement:

“We aim to respond to the expectations identified in the community based on criteria such as the fight against poverty and exclusion, the fight against diseases, favoring the most

vulnerable groups, and encouraging education, culture, and sports” (Repsol Local Community, 2009).

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46 operations. This idea seems to be supported in the following statements:

“The diversity of structures in each country and varied distribution of responsibilities in Repsol

YPF make it difficult to define a common policy in this respect. Nevertheless, it should be noted that criteria had already been established in the different areas of activity of the company”

(Repsol CSR Report, 2007).

“We develop corporate plans and country by country based plans to prioritize the activities and resources to be assigned where they are most needed” (Repsol Local communities, 2009).

The first statement is derived from the CSR report before the alleged violation took place. It gives the impression that the firm accepts that different contexts create challenges for the firm. It appears that these country-based plans are used in order to obtain a deeper

understanding of local needs and thus reduce risks. In later editions of Repsol’s CSR Reports, distance seems to play a larger role, as Repsol aims to raise the awareness on human rights policy by:

“Collaborating with authorities to develop and implement effective standards and regulations”

(Repsol Sustainability Plan, 2013).

Repsol provides sustainability reports based on specific host country operations. Since 2012, there is a specific Sustainability Plan for Peru in which a focused action plan is set out. Repsol seems to acknowledge that firm operations might lead to human rights violations. However, it seems that Repsol is trying to limit these effects by providing human rights

The contribution of inequality distance in extractive MNEs’ operations to the human right to development