This blog will cover some news items related to Sustainability: Corporate Social Responsibility, Stewardship, Environmental management, etc.


The year in global corporate responsibility: A round up of 2005’s biggest business ethics stories

The year in global corporate responsibility
EC Newsdesk
13 Dec 05

GE's 'Ecomagination' initiative was one of the highlights of 2005
GE's 'Ecomagination' initiative was one of the highlights of 2005

A round up of 2005’s biggest business ethics stories

First Quarter: January-March

In January companies began responding meaningfully to the 26 December devastating Asian Tsunami, which took more than 300,000 lives.

, now taken over by Chevron, settled a longstanding case brought under the 1789 Alien Tort Claims Act by 15 Burmese villagers.

In January the World Economic Forum took place in Davos, complete with chilly protestors. Sixty-two companies committed to a “zero tolerance” pact against paying bribes.

At the World Social Forum in Brazil, protestors focused on the theme of water privatisation. .

The EU emissions trading scheme became fully operational.

The Kyoto Protocol came into force, requiring 141 signatory nations to cut their greenhouse gas emissions.

Marsh and McLennan
settled for $850 million charges of bid rigging and breach of duty brought by New York attorney general Eliot Spitzer.

The UN’s Framework Convention on Tobacco Control came into force. Fifty-seven developing countries pledged to ban some smoking ads and increase tobacco taxes.

The United Nations high commissioner for human rights issued a preliminary report noting gaps in existing business and human rights and suggested a future UN statement for the same.

The British Commission for Africa warned that global corporations may continue to get part of the blame for Africa’s continued under-development.

Titan Corporation
, a US defence firm was fined $28.5 million, the biggest ever penalty under US law for bribery.

Second Quarter: April-June

Paul Wolfowitz
was accepted as the new president of the World Bank.

Bernard Ebbers, WorldCom’s former chief executive, was found guilty of fraud.

held its first ever media meeting to hit back at critics.

Johnson & Johnson
introduced a “safety oriented” approach to drug advertising.

The Extractive Industries Transparency Initiative agreed to hold members to tougher guidelines and monitoring.

faced more NGO pressure over its huge Baku-Tbilisi-Ceyhan pipeline project.

The US Environmental Protection Agency decided to exclude greenhouse gases from its scope of regulation.

The collapse of Britain’s last major carmaker, MG Rover, was attributed to a greedy management.

General Electric
launched Ecomagination, a far-reaching move into environmental technology investment.

latest ethical report was lauded for disclosing contractor factories’ details.

secured a deal to buy Absa, South Africa’s biggest retail lender, signalling a return to the country it left under apartheid 19 years earlier.

The United Nations Commission on Human Rights voted to appoint a special representative on business and human rights for an initial period of two years.

was attacked for switching stance on a crucial gay rights bill.

and the US agreed on a plan to cancel $16.7 billion of debt owed by 18 African nations.

Leaders of 12 major global businesses wrote to UK prime minister Tony Blair asking for firm action against climate change.

Bristol Myers Squibb
said it would stop all direct-to-consumer advertising for a year.

Words including “democracy”, “freedom” and “demonstration” on Microsoft’s net service were banned in accordance with Chinese law.

Christopher Cox
was nominated chairman of the US Securities and Exchange Commission.

agreed to pay $2 billion and JP Morgan Chase $2.2 billion over Enron lawsuits.

A record 28.3% of ExxonMobil shareholders urged the company to provide better analysis and disclosure of the financial impacts of climate change.

In a surprise about-face in the US government’s racketeering case against the tobacco industry, the Justice Department settled for a penalty of just $10 billion.

NGO Human Rights Watch reported that South African gold mining firm AngloGold Ashanti paid protection money to Congolese militia groups.

Third Quarter: July-September

A UK legal team signed up dozens of Colombian farmers to “no win, no fee” deals in preparation for a £15 million High Court lawsuit against BP Exploration in London.

, Archer Daniels Midland and Cargill were sued in a US district court for their alleged involvement in the trafficking, torture and forced labour of children.

The Harkin-Engel Protocol adopted by companies to eliminate child labour failed to meet its July deadline to implement a credible system of cocoa farm monitoring and certification.

The resignation of Peter Hartz was accepted by Volkswagen’s supervisory board in mid-July after a protracted scandal at the top of the company.

A record UK Financial Services Authority penalty of £13.9 million was imposed on Citigroup for dumping a controversial number of eurozone bonds on the market in 2004.

“imposed” voluntary environmental-impact reporting guidelines on British businesses. Non-compliance could result in regulatory pressure.

Promises from the G8 summit included doubled aid to Africa worth $25 billion by 2010. The G8 also called on African resource-rich countries to implement transparency guidelines.

The Shell Foundation launched a $100 million fund to assist in the financing and training of African entrepreneurs.

agreed to investigate its much-criticised labour and environmental practices in India and Columbia.

The aviation industry announced plans to cut by half CO2 emissions of new aircraft in the next 15 years.

Lee Raymond, chief executive of ExxonMobil dismissed solar and wind energy as “inconsequential”.

launched a global media campaign to raise awareness of the looming energy crunch.

Harvard professor John Ruggie
was appointed the first UN Special Representative on the human rights responsibilities of transnational corporations and other business enterprises.

Australia opened uranium mining to foreign investment.

US labour groups, the Service Employees International Union and Teamsters, split from the AFL-CIO, the national federation, to form their own rival organisation.

Global Witness
alleged mining company Freeport McMoRan made payments to the Indonesian military.

Benan Sevan
, former director of the UN’s oil-for-food programme in Iraq, was accused of taking nearly $150,000 in cash bribes.

The US Justice Department began investigating allegations of bribery at DaimlerChrysler.

The US pharmaceuticals industry issued voluntary guidelines recommending Food and Drug Administration approval for television advertisements prior to broadcast.

A Russian court rejected Shell’s Sakhalin-II environmental impact review in the lawsuit brought by Sakhalin Environment Watch.

A Delaware judge ruled that Disney directors were not personally financially liable for approving a $140 million severance package for ex-president Michael Ovitz.

Time Warner
agreed to pay $2.4 billion to end shareholder lawsuits stemming from its $124 billion purchase of America Online in 2001.

Scott Sullivan
, former chief financial officer at WorldCom was sentenced to five years imprisonment.

Fourth Quarter: October-December

Corporate response to the disaster unleashed by Hurricane Katrina in August was unprecedented. Business donated close to $100 million in aid.

Stop Climate Chaos
, a coalition of 18 action groups, was formed to pressure the UK government to reduce Britain’s CO2 emissions.

EarthRights International
claimed to have evidence that Chevron’s Nigerian subsidiary paid soldiers who killed several inhabitants of two villages close to the company site.

An Amnesty International report concluded that legal agreements between the ExxonMobil-led consortium of oil companies and the governments of Chad and Cameroon for a World Bank-supported project undermined the countries’ ability to protect their citizens’ human rights.

A Swiss-based network of 900 unions vowed to start organising workers at retailers such as Wal-Mart for better benefits and wages.

Media watchdog Reporters without Borders criticised Yahoo for supplying information to the Chinese government that led to the jailing of a local journalist for “divulging state secrets”.

UK utility Transco paid a £15 million fine for neglecting health and safety laws that killed a family of four in Scotland in 1999. Network Rail and Balfour Beatty also faced major fines over safety standards.

An ISO working group met in Bangkok to discuss a social responsibility guidance standard.

announced major changes to the way it considers environmental issues, worker healthcare and the US minimum wage.

settled with federal prosecutors for a sum of $456 million for selling dodgy tax shelters to customers between 1996 and 2002.

agreed to introduce new corporate governance policies and pay $9.2 million in plaintiffs’ legal fees for misstatement of its oil reserves by some board members in January last year.

California leaders and human rights advocates called on US pension fund trustee Calpers to push companies it invests in to end all business activities that support the Sudanese government’s continuing genocide in Darfur.

Global pharmaceutical firms agreed to post the results of clinical trials of new drugs on a website to suppress criticisms of non-disclosure.

Swiss drugs manufacturer Roche was pressured into allowing restricted production of generic copies of its anti-bird-flu drug, Tamiflu.

Protests forced Google to remove a reference to Taiwan as a “province of China” from its internet map service.

chief executive Dennis Kozlowski and chief financial officer Mark Swartz were sentenced for up to 25 years imprisonment for cheating company shareholders of their money.

The European Commission approved plans to include the aviation sector in the second phase of the EU emissions trading scheme.

Following Nike’s lead, Levi Strauss published the names of 750 of its globally owned and operated contract factories on its website.

With ratification from Ecuador, the United Nations Convention Against Corruption was ready to enter into force mid-December.

became the first of the four big coffee makers to launch a Fairtrade product.

US commodity broker Refco filed for Chapter 11 bankruptcy protection.

Embattled car marker General Motors admitted overstating 2001 results by more than $300 million, blaming accounting mistakes. GM also reached a deal with the United Auto Workers union to reduce its healthcare costs by $1 billion a year. Delphi, its former parts unit, filed for bankruptcy protection.

Gordon Brown
announced the UK government’s requirements for 1300 listed companies in Britain to provide a forward looking statement on non-financial risks would be cancelled.

A study claimed that CO2 levels on Earth are at their highest for 650,000 years.

A PetroChina plant near Harbin, China, leaked noxious chemicals into the Songhua river, causing chaos.

The UN Climate Change conference took place in Montreal, Canada, the first since the Kyoto accord came into force.

An Indonesian court threw out a $133 million civil lawsuit against Newmont mining over pollution claims.

China is the largest cause of rainforest destruction due to its timber demand, said a new report from Greenpeace

The “cheeseburger bill” was passed by US Congress, making it harder for individuals to sue food companies.

A Nigerian judge ordered oil firms to stop burning gas in the Niger Delta.

Richard Scrushy
, chief executive of HealthSouth, was indicted on bribery charges.

South African
prosecutors indicted two units of the French state-owned defence group Thales on corruption charges in an arms bribery scandal.

The European Parliament finally voted for a watered down version of the EU chemicals regulation bill, Reach.

The UK government said it would rework Company Law, suggesting greater responsibilities on directors and allowing investors to sue negligent bosses more easily.

Trade ministers met in Hong Kong for a WTO meeting. Protestors say richer nations are blocking the progress of poorer countries.

Business responsibility - As Chinese companies“go global”, campaigners are increasingly concerned about Beijing’s model of international development

Business responsibility - The China model
Ben Schiller in London
19 Dec 05

China's growth is thirsty work
China's growth is thirsty work

As Chinese companies “go global”, campaigners are increasingly concerned about Beijing’s model of international development

In need of post-war reconstruction funds, Angola’s government was last year negotiating a new loan with the International Monetary Fund. With a long history of corruption and poor governance, the IMF was keen to include measures to cut corruption and tighten the country’s economic management.

But as bank officials pushed harder for a signature, the government suddenly broke off negotiations. The Angolans had received a counter-offer: a $2 billion loan proposed by China’s export credit agency, Exim Bank. The deal from Beijing came with minimal rates of interest, a generous payback period, and none of the IMF’s “conditionalities”. Luanda accepted China’s offer.

In February, Global Witness sent a letter to the World Bank and IMF complaining that the terms of the contract had not been made public. The UK non-governmental organisation – which has lambasted European banks for providing oil-backed loans to Angola – said the Chinese had undermined the IMF’s position. It said there was a lack of openness in the procurement process for reconstruction work, much of it carried out by Chinese companies.

A corporate responsibility manager at a large European oil firm active in Angola says the Chinese package has effectively lowered transparency standards, making it more difficult for western companies and governments to push for anti-corruption schemes like the Extractive Industries Transparency Initiative. (Angola has signed up to EITI, but has yet to implement it.)
Others have pointed to the terms of the loan that allow Chinese companies to bid on 70% of construction contracts, fearing the money will fail to develop local skills and businesses.

Africa Confidential says some of the loan will probably be used for the government’s re-election campaign in 2006. Notwithstanding a boom in construction, the magazine says: “Spending on education, health and sanitation is way below what is needed to cut poverty.” Angola ranks 160th out of the 177 countries in the UN Human Development Index.

Broad reach

China’s Angolan loan is hardly unique. In recent months, Beijing has been extending soft credit to numerous countries in Africa, Latin America and Asia, as part of its push to secure energy supplies and develop its companies’ interests overseas. Chinese energy companies – CNPC, Sinopec, and CNOOC – have been buying up dozens of oil and gas concessions, including those in Angola. And Chinese construction firms have been building dams, telecoms networks, railways, hotels, airports and other major infrastructure, predominantly in Africa.

China’s aim, observers say, is not necessarily profits – at least in the short term – but rather to build influence in the developing world, undercutting western governments and companies.

Eschewing any “interference” in the internal affairs of foreign states, this model of international development is of increasing concern to NGOs, international financial institutions and Western companies trying to improve transparency and human rights, and develop “capacity” in poor countries. The worry is that Beijing will let nothing get in the way of its “go global” policy, turning a blind eye to the activities of its companies overseas, even as it tightens corporate responsibility standards – on corruption, worker safety and the environment – at home.

In turn, there are those who fear what this will mean for Western companies trying to compete with their Chinese counterparts; whether – backed by cheap loans, diplomatic pressure, arms sales and military assistance – China’s companies will lower the bar for all comers.

“The Chinese’s less transparent, less accountable approach may be a challenge if they have direct competition with other companies,” says Alex Vines, head of the Africa programme at Chatham House, an international affairs think-tank in London.

Emerging norms

Chinese energy companies are only beginning to understand corporate responsibility, according to Jonathan Berman, of Development Alternatives International, which advises corporations and governments operating in developing countries. “The large Chinese energy companies currently have an approach to corporate responsibility that focuses on health, safety and environment, much like early corporate responsibility programmes at many Western energy companies,” he says.

Some observers believe greater engagement with institutions like the World Bank, the need for Western capital (including stock market filing requirements), as well as the reputational benefits of corporate responsibility, will all encourage Chinese companies to begin to take the subject seriously. The question, however, as Berman says, is “not whether the norms will influence the Chinese, but rather whether the Chinese will influence the norms”.

A recent report by the Organisation for Economic Co-operation and Development on corporate governance in China praised the government for instituting reforms to foster private sector activity. But it noted that many state-owned companies remained unincorporated, and have to yet to create essential governance structures such as boards. The report says Chinese corporations lack independence, operating at the behest of powerful officials, government-controlled market regulators and a whimsical judicial system.

Like companies in other post-communist societies Chinese businesses have long been responsible for swathes of social provision, building housing, clinics and recreational facilities for their workers and local communities. Mark Eadie, director of the ERM social consultancy in Beijing, says these activities are often overlooked when corporate responsibility campaigners criticise Chinese firms. He emphasises Chinese progress in recent years in cutting domestic corruption – China has recently imprisoned and executed a number of corrupt businessmen – and in developing environmental management programmes.

Less focus, however, has been paid to Chinese businesses overseas, probably because these companies are only beginning to venture beyond their borders.

China has yet to sign up to international anti-bribery initiatives like the OECD’s Anti Bribery Convention, and the EITI. In 2003, it assented to the UN’s Convention against Corruption, but that compact is seen as much weaker than the OECD treaty.

Peter Rooke, director of the Asia department at Transparency International, believes China is taking corruption seriously – TI recently launched its Business Principles programme in the country – but he sees the need for tougher standards overseas and greater oversight of China’s state-owned enterprises. “As Chinese companies expand their investment into other countries, there is a need for better international standards,” he says.

Oil search

The weaknesses of Chinese corporate responsibility standards are most evident in developing world – where the majority of Chinese investment is now focused – and are frequently oil-related.

In Africa, CNPC, Sinopec and CNOOC have struck exploration deals in Nigeria, Angola, Sudan, Algeria, Gabon and a dozen other states. In Latin America, the “Big Three” are active in Venezuela, Peru, Ecuador, Argentina and Bolivia. In Central Asia, CNPC recently acquired PetroKazakhstan, while CNOOC operates in Burma. In October last year, China agreed to invest $100 billion in Iran’s oil and gas.

Because much of the world’s prime oil supplies are already locked up, China is turning to countries that, for reasons of human rights or ideology, are currently out of favour with Washington. Chinese oil companies have invested at least $2 billion in Sudan, despite US sanctions, the genocide in Darfur and a full-scale divestment campaign by NGOs. Sudan now accounts for at least 5% of China’s oil imports, and Chinese investment is said (by Human Rights Watch, among others) to be funding arms imports and a local arms industry based on Chinese technology.

Beijing has also turned a blind eye in Zimbabwe, another pariah-state. President Robert Mugabe, whose palace is said to be clad in midnight-blue Chinese tiles, has promoted something of a Chinese cult, encouraging his followers to eat Chinese food and learn Mandarin. The state-owned China International Water and Electric has built a 250,000 acre maize farm, and Beijing has supplied fighter jets and military trucks. This summer, running out of friends elsewhere, Mugabe obtained Chinese loans as part of an agreement to sell off his country’s mining concessions to Chinese companies.

The environment

China’s environmental practices have also come under fire. A report from the International Rivers Network and Friends of the Earth in July criticised Exim Bank for funding projects such as the Yeywa Dam in Burma, the Merowe Dam in Sudan, and the Nam Mang 3 Dam in Laos. It says Exim has failed to sign up to the environment guidelines adopted by many export credit agencies from OECD countries, including South Korea and Turkey. Known as the Common Approaches, the guidelines compel ECAs to subject projects to environmental review as well as host country and international standards. In late 2004, Exim adopted environmental guidelines of its own, but as the NGOs point out, they are not available to the public or to commercial banks that arrange funding on Exim’s behalf.

The report notes that Exim also has no apparent policy on human rights, despite loaning to countries, such as Burma and Sudan, with poor human rights records.

Meanwhile, concerns have been raised over the environmental impact of various Chinese-run mining operations in Africa, including copper mines in Zambia and Congo, and titanium sands projects in ecologically sensitive parts of Mozambique, Kenya, Tanzania, Madagascar.

And China is major importer of illegal timber from forests in Indonesia, Cameroon, Congo and Equatorial Guinea. Though accurate figures are hard to come by, the website says up to half of all timber imported to China in 2004 was illegal.

Chinese businesses have also been implicated in ivory smuggling, notably in Sudan and Zimbabwe. According to Care for the Wild International, an environmental group, Chinese companies buy up to 75% of Sudan’s ivory.

White elephants

In its rush to expand, development experts say China is reinvigorating an older, crude style of development, re-establishing an era of “white elephants” and “prestige projects” with little benefit to local people.

In Ethiopia, the state-owned Jiangxi International built $4 million worth of new housing, after a flood left hundreds destitute. But instead of accommodating the homeless, the blocks ended up being used by military officials. A Jiangxi manager later told the Wall Street Journal: “It was a political task for us and so long as Ethiopia officials are happy, our goal is fulfilled.”

Another feature of Chinese investment overseas is the use of Chinese rather than local workers. Thousands of Chinese labourers and engineers have been brought in to build Ethiopia’s $300 million Takazee Dam, for example. In Sudan, Chinese workers have constructed an oil pipeline; 74,000 Chinese remain in the country, 10,000 employed by CNPC.

Chinese workers are also being used in Namibia, Zimbabwe and a host of other African states.

Ross Herbert, Africa research fellow at the South African Institute of International Affairs in Johannesburg, says recruiting from China provides little long-term benefit to local people. He says: “You end up with a stadium, but there’s no knock-on effect, no financial benefit. It all goes back to China.”

Alex Vines, at Chatham House, says: “One of the biggest demands in Africa is for jobs because much of the continent is inhabited by young people. The Chinese are bringing in their own people, and they are paying lip-service to employing Africans.”

Learning its lessons

With such an aggressive push in Africa, Chinese companies are beginning to draw fire from local people, and some local businesses.

In South Africa, for example, textile manufacturers are enraged by a recent World Trade Organisation ruling that has led to a flood of Chinese clothing imports (they call it China’s “textile tsunami”). As a result, local factories have been forced to close in Kenya, Lesotho, Swaziland, Uganda and Madagascar, causing thousands of job losses.

For this and other reasons, Chris Alden, a lecturer in international relations at the London School of Economics, says there is growing unease about Chinese investment in parts of Africa.
“The nature of its closed society and relative wealth may breed resentment and even conflict, as it has in parts of South-east Asia,” he says.

Whether Chinese companies will be able to reverse this trend is an open question.

Martyn Davies, director of the Centre for Chinese Studies, in Cape Town, says Chinese companies need to work harder building relationships with local groups, believing some of the tensions come down to cultural misunderstanding. “A lot of it comes down to a lack of trust. The Chinese are not doing enough to build relationships with civil society,” he says.

Certainly Chinese companies will have to work harder in the coming years if they are to establish themselves as good corporate citizens, seen not only as “can-doers”, but also as responsible actors on the world stage. Judging by the first chapter of Beijing’s “go global” campaign, China’s nascent corporate behemoths will bear watching in the months and years ahead.

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Write to Ben Schiller in London at,
or write to the Editor at

Trade Unions - Banning of brothers: Many governments remain highly resistant to unions and their work

Trade Unions - Banning of brothers
Peter Davis, Politics Editor
20 Dec 05

A need to protect employee rights
A need to protect employee rights

Many governments remain highly resistant to unions and their work, as a new report observes
During 2004, 145 people around the world were killed because of their trade union activity. This is according to the Annual Survey of Trade Union Rights, researched and published by the International Confederation of Free Trade Unions.

The survey, which covers 136 countries, also documents more than 700 violent attacks on trade unionists and nearly 500 death threats.

The most dangerous place to be a trade unionist last year, as it was the year before, was Colombia. The survey documented 99 murders there during 2004, together with hundreds of death threats. The ICFTU alleges that the government is trying systematically to undermine the trade union movement.

Many of the countries featuring prominently in this year’s survey prompt little surprise. Among the leading abusers of union rights are Burma, Haiti, Iran, Nigeria, the Philippines and Zimbabwe.

Often, this abuse takes the form of overt violence. For example, 14 people were killed in the Philippines when a bulldozer and armoured personnel carriers were used to break through a picket line. And in Cambodia, the government is accused of a high-level cover-up following the murders of labour leaders Chea Vichea and Ros Sovannareth.

However, it is not always overt violence that is a government’s tool of choice. Often, the ICFTU alleges, the abuse takes the form of intimidation and interference in union affairs. For example, a report by the International Labour Organisation into abuse of unionists in Belarus identified serious violations of freedom of association. In Ukraine the security service is alleged to have systematically intimidated trade unionists, often visiting union offices and questioning members and sometimes visiting their homes.

The ICFTU accuses another of the post-Soviet states, Georgia, of harassing union representatives; detaining them arbitrarily; obstructing union activities; and seizing union assets.

Unsurprisingly, China is one of the countries cited as a major cause for concern. Freedom of association is denied to the country’s workforce. Instead, the All China Federation of Trades Unions is part of the state structure, not a genuine representative of workers.

A Western problem too

However, it is not just emerging markets that are criticised. The ICFTU survey puts a number of industrialised countries under the spotlight. Australia comes under fire once again for its drive to replace collective agreements with individual workplace agreements, and for tabling new legislation aimed at severely curtailing the rights of union representatives to visit workplaces.

Canada, Germany and Japan are all criticised for “serious deficiencies in labour legislation”.

Particular criticism is made of the US, which has yet to ratify the core ILO conventions on freedom of association and the right to collective bargaining.

The ICFTU survey alleges that US employers routinely hire specialist union-busting companies to deter workers from voting for union representation, and use “captive audience” meetings of workers as a platform to threaten workplace closures should the workforce opt to unionise. In particular, Wal-Mart is cited for interfering in a union election by engaging in surveillance of the employees’ union activities; interrogating them about union support; transferring employees between departments to dilute union support; and offering incentives to workers to vote against unionisation on the eve of union elections.

The only continent to receive any creditable mention from the ICFTU was Europe. The Nordic countries were praised for their “strong trade union traditions”, which demonstrate “how respect for workers’ rights can be a foundation for economic success”.

Ironically, this praise comes at a time when some in Europe are starting to ask whether the power of the continent’s unions ought to be curtailed. This is not to suggest that the type of union abuses perpetrated in places such as China are contemplated by Europe’s governments.

Instead, unions are seen by some as obstructing the structural changes in employment rights that are necessary if levels of unemployment are to be reduced, and the long-term solvency of welfare states is to be assured.

As was observed in Ethical Corporation last month, Germany and France are both facing economic challenges. Both have stubbornly high levels of unemployment, and expectations of the welfare state that are not tenable given demographic trends. This is leading to increasing tensions within governments, and between governments and unions.

In the past month, there has also been a show-down in the UK, between the government and public sector unions over plans for an increase in the civil service retirement age.

The ICFTU is right to highlight abuses of unionists around the world: be that by governments or companies. However, as the European example demonstrates, unions may in turn need to ensure that, when they themselves are powerful, the do not end up abusing their power to get their way at the expense of others.

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Cement Makers call for performance based approaches to emission reductions

Cement Makers call for performance based approaches to emission reductions

Montreal/Geneva, 16 December 2005 – Holcim strongly supports the concept of emissions trading, but so far the EU ETS has resulted in very few additional emissions reductions, said Bruno Vanderborgt of Holcim at a UNFCCC COP 11 side event in Montreal. Hosted by the WBCSD, cement makers got together under the premise “Cement makers Unite Against Climate Change” to discuss the activities they are undertaking, and the challenges they face in tackling climate change. Discussions centered around the process and frameworks that hamper the existing emissions reduction systems.

Six years ago, 10 members of the WBCSD (World Business Council for Sustainable Development) launched one of the largest global sustainability programs ever undertaken by a single industry sector pledging action on six high priority areas for sustainable development. Climate protection is one of them.

Michel Picard from Lafarge explained that Cement Sustainability Initiative (CSI) (now including 17 companies), which represents more than half the world’s cement production outside China, has developed key performance indicators (KPIs) to measure the progress of their commitments and published a first progress report earlier this year. Picard highlighted that CO2 inventories exist for 94 percent of the kilns and that three companies have committed to solid emission reduction targets. A sectoral approach is important to facilitate the reduction efforts of individual companies and promote technology transfer in developing countries, noted Picard.

Bruno Vanderborght from Holcim argued that the EU ETS provides inadequate incentives for emission reductions. Equal treatment of existing and new installations, long-term predictability and the integration in a global framework would be key improvements toward stimulating major reductions. He also proposed performance-based allowance allocations instead of the current “grandfathering” approach, which operates with historical absolute emission data and thereby penalizes the more CO2 efficient companies

Outlining the Canadian situation, Angela Burton from the Cement Association of Canada said that the anticipated “Large Final Emitter” system will, unlike the EU ETS, introduce intensity targets on the basis of projected 2010 emissions.

Rob van der Meer from HeidelbergCement recounted his company’s experience with the Clean Development Mechanism (CDM), and concluded that it is not yet attractive for industrial participants in its current form. The procedures are lengthy, complex and only understandable to insiders.

Simplification, standardization and guidance are urgently needed to make the CDM more attractive and successful. “We have significant opportunities to reduce emissions in developing countries through CDM projects but the process in its current form is not as helpful as it should be”, Marco Bedoya from Cemex agreed. He highlighted the importance of migrating towards a ‘performance-based approach’ to generate Certified Emissions Reductions that would reward performance instead of intention or motivation.

Yoshito Izumi from Taiheiyo Cement concluded the session describing voluntary initiatives of the Japanese cement industry and international collaborations in which Japan is playing a central role. He strongly believes that voluntary initiatives in Japan are more effective to ensure GHG emissions reductions than emissions trading. He also agreed that the CDM is necessary for technology transfer but that improvements and more simplified procedures are needed.

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Regional perspectives on climate change: “To get everyone onboard we need to tell our story in a better way”

Regional perspectives on climate change: “To get everyone onboard we need to tell our story in a better way”

Montreal/Geneva, 16 December 2005 - We need consensus on a predictable long term framework. It mustincludes all countries and be based on market mechanisms, more support for new technologies, and better awareness raising by governments to change consumer behavior. These were the overriding messages from the panelists at the WBCSD side event “Regional Views on Current Climate Regimes” at the Climate Conference in Montreal.

The panel was composed of high-level representatives from Canada, Japan, Australia, the European Union and the United States, who offered insights into regional approaches dealing with the climate change challenge.

Bob Page from WBCSD member company Transalta presented the Canadian perspective. He outlined that coal and, because of higher oil prices, oil sands are the predominant energy sources for Canada for years to come. New clean technology will help to greatly reduce CO2 emissions from these sources, and Transalta aims to have zero net-emissions of greenhouse gases by 2024. “The key to our strategy is technology change”, Page said. The challenges, however, are enormous: for greenhouse gases, technology issues are more complicated than for other pollutants such as SO2 or NOx, which can be reduced by applying scrubbers or adding retrofits. “To deal with carbon, from a cost point of view, you have to look at a fundamentally new combustion technology”, Page said.

Masayuki Sasanouchi, reported that in Japan, business and government have agreed on a Voluntary Action Plan, which plays the most important role in reducing CO2 emission from industrial & energy-converting sectors. Kaidanren, the largest Japanese business association, is committed to reduce CO2 emissions to below 1990 levels by 2010.

“We’re looking for clear policy signals to encourage private sector investment in deploying low emission technologies”, said Loraine Stephenson from Origin Energy, describing the Australian/New Zealand perspective. This requires “long, loud and legal frameworks that reduce regulatory uncertainty”, she added. Australia has a complex array of mandatory and voluntary policies and measures to mitigate GHG missions within the framework of the Kyoto Protocol and longer-term. The federal government acknowledges that deep cuts in GHG emissions will be required by mid-century, and the post-2012 policy relies largely on technology innovation. It will consider other options such as emission trading only within the framework of a truly global response to climate change.

“What we need is a meaningful global approach, and we don’t care whether it is called Kyoto or Montreal”, agreed Joachim Hein, who spoke on behalf of UNICE and illustrated the European perspective. He said that the CDM has a prominent role to play, but it is not yet fully operational despite assurances by politicians. “It has taken off the ground, but there are many hurdles and administrative burdens”, he noted. Similarly, the EU ETS has still a number of challenges to overcome. Hein lauded “EU ETS. It is a great achievement given the short time in which it was developed. however its shortcomings need to be addressed.”

Kevin Fay from the International Climate Change Partnership stated that a number of voluntary initiatives exist in the United States on federal, state and city level. What’s missing is an overriding focal point that ties all the initiatives together. The private sector has already achieved significant reductions, but not industry-wide – free-riders are a problem. Fay emphasized the need for the US to engage in a post-2012 regime, but cautioned that the American approach may only change slowly.

Björn Stigson, WBCSD President, who co-moderated the panel together with Nick Campbell from the ICC, concluded the session by noting that business has an impressive track record in reducing emissions and improving efficiencies within the limitations of the current climate change regimes. It does require a unified approach to optimize its efforts. The challenge, however, is that “there is not yet a full understanding of activities by business. We need to tell our story in a better way.”

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The rise of southern multinationals in the global economy: Statement by Kermal Davis, Administrator of the United Nations Development Program

he rise of southern multinationals in the global economy

Statement by Kermal Davis, Administrator of the United Nations Development Program, on the occasion of the Financial Times and International Finance Corporation Conference: “Southern Multinationals: A Rising Force in the World Economy” (Mumbai, India, 9 November 2005)

I would like to begin by thanking our hosts the Government of India, the Financial Times and the International Finance Corporation for organising what is an extremely timely conference which takes place in this most appropriate of locations: India, one of the fastest-growing, most dynamic economies in the world.

Before I start I would like to offer my sincere condolences to all those that have been affected by the South-Asia earthquake. I also would like to say that I share the pain of the families of the victims of the recent bombings in Delhi. Our common humanity is our most precious asset against both natural and manmade disasters. I do remember that the terrible earthquake my own country, Turkey, experienced in 1999, and the smaller earthquake later in Greece, created the opportunity - amongst all the suffering - for these two neighbours to help each other and build new ties. I see and appreciate that this is also happening today in South Asia.

It is a real honour to be here today, and to have this opportunity - following the address by the Honourable P. Chidambaram, Union Minister of Finance - to address such a distinguished audience on this important topic: the rise of southern multinationals in the global economy.

In today’s world of deepening economic integration where the destinies of countries and peoples are inextricably linked, there is perhaps no greater challenge than how to manage globalization so that its benefits are more equitably shared and its costs more evenly distributed. As the UN Secretary-General Kofi Annan has said, “A world where - amid increasing global prosperity - millions still live in desperate conditions will not be a world at peace."

There is no doubt at all that the 19th and most of the 20th Century marked an increasing gap between the richest and the poorest countries in the world. Over the past two centuries countries that were relatively rich in 1800 have generally grown faster than those that were relatively poor, a growth pattern which resulted in a steady increase in the ratio of per capita GDP in rich countries to that of poor countries. In 1820, the ratio of GDP per capita of the richest to the poorest countries was around 3, but by 1973 it had more than tripled to about 10. The GDP of Western Europe, the United States and Japan was 45 times higher in 1973 than in 1820. Fortunately, this pattern of growth began to change around 1980, after which several of the fastest growing countries in the world have also been poor countries. Some countries of the South are growing significantly faster than the North in a sustained manner. As studies by the World Bank have shown, if one divides countries into income quintiles based on 1980 per capita GDP and plots subsequent population-weighted growth rates, growth in the poorest quintile averaged 4 percent per capita, while growth in the richest quintile, mostly OECD countries, was less than 2 percent in the period 1980-1998. The new strength of southern multinationals is part of this change and signals a very important occurrence: the emergence of new poles of innovation, financial capability, technological sophistication and management know-how in “Southern” countries.

Our hope should be that this development becomes the driver of a more balanced, more equitable globalization where in a few decades from now, today’s distinction between the rich Northern “Centre” and the poor Southern “Periphery” will have disappeared or at least be greatly diminished.

Today, I would like to take this opportunity to offer my perspectives on globalization and on the key challenges that we all face, and discuss the role southern multinationals can play in addressing them.

I. Defining Globalization

Some analysts argue that the world economy was just as globalized at the end of the 19th century as it is today. It is true that if you look at some indicators, the world was already very globalized 100 years ago. The ratio of world trade to GDP, or the amount of foreign investment was very high, with the levels reached at the end of the 19th Century as high as or higher on some of these indicators than the levels attained in the 1990s. So in that sense there is some truth in the theory that globalization has existed before in some form.

But after the regression due to the two World Wars, as well as the inter-war depression and the protectionism associated with it, the pace of globalization again accelerated in the second half of the 20th Century, with an even faster impetus brought about with the end of the Cold War. Moreover, the nature of today’s interdependence and interconnectedness has changed tremendously.

In the last fifty years, membership of the World Trade Organization has tripled and world merchandise exports have increased to levels far beyond those reached in the “first age of globalization” at the end of the 19th Century. The ratio of world trade to world GDP was 17 percent in 1900 compared with about 30percent in 2003. But it is not just a question of trade to GDP ratios; it is the nature of trade which has been transformed. In today’s world, trade is increasingly based on globally integrated supply chains that span across countries, organized by the expansion of the presence of multinational corporations across both industrial and developing countries. According to UNCTAD’s World Investment Reports, between 1993 and 2004 there was an over five-fold increase in the number of parent multinational corporations residing in developing countries, rising from 2,700 to 14,000. And in the same period, there was an increase of over 30 percent in the number of parent multinational corporations in industrial countries, from 33,500 to 45,000. In the last twenty years or so, the total assets of foreign affiliates of multinationals in the world have increased 18-fold; their employees have tripled in number; and their exports have quintupled. Today, the impact of integrated production structures in our everyday lives is all too clear. From a notebook computer to a bicycle, products can be co-designed by different teams across the globe. Components are likely to be produced in several countries, and by the time the product is available to the market it could have gone through multiple stages of this worldwide integrated supply process. Today, it is possible for more people to collaborate in production than has ever been the case in human history.

Commerce and financial services are also far more developed and deeply integrated than they have ever been. The most conspicuous aspect of this has been the integration of financial markets made possible, in part, by rapid advances in modern information technology. The average daily turnover in foreign exchange market transactions, globally, was a “mere” $200 billion in 1986. Today, that figure stands at well over $2 trillion. The daily value of financial derivatives transactions, invented in the late 1980s, has reached well over $1 trillion. There is today a real global financial market where billions of dollars can move in just a few seconds.

But in addition to the economic dimensions of globalization, “soft globalization,” as characterized by the extraordinary exchange of ideas and culture and the integration of societies made possible by today’s mass and frequent international travel and modern information and communications technology has truly revolutionized the way we interact and conduct business. In many ways we are all closer and more visible to each other and this visibility also makes inequality more intolerable. As Zbigniew Brzezinski wrote in 2004, “The contemporary world disorder stems more broadly from a new reality. The world is now awakened to the inequality in the human condition…spreading literacy and especially the impact of modern communications have produced an unprecedented level of political consciousness among the masses.”

All in all, the globalization that characterizes the beginning of the 21st century is a very different phenomenon from what the world experienced a century ago. It is my view, therefore, that we are not dealing with globalization cycles, but with a fundamental and irreversible transformation in the nature of the world economy, and with it, in human society.

II. The rise of southern multinationals

At the same time that globalization in all its dimensions has accelerated, it is clear that its benefits have often been far from evenly distributed. The expansion of international trade and the diffusion of knowledge and technology has been a driver of increasing prosperity in large parts of the world. It is also the case, however, that globalization has brought with it a tendency towards “winner take all” markets, with economies of scale and conglomerations concentrating value, accumulation and profit at the centre, namely the North, whilst letting the periphery, the South, participate as producers and sub-contractors, but with low profit margins . Northern Multinationals were for a long time the sole generators of new technologies and therefore the beneficiaries of an ongoing sequence of temporary monopoly profits helping to perpetuate the income gap between the North and the South, despite increasing participation by the South in international trade and in the globally integrated production circuits.

Over the last two decades there has, however, been a shift in the balance of global economic relations. While the North traditionally appropriated the majority of the gains of globalization, the South now not only participates in the global economy but is beginning to break into domains long exclusively held by the North. With the emergence of a number of developing countries that have formed new growth poles and centres of knowledge creation and excellence in the world economy, the North is no longer the dominant location for manufacturing activity and trade, nor does it retain as much of the monopoly of profits associated with know-how and innovation.

Trade statistics show that today, the South is increasingly important as a producer, trader and consumer in global markets, currently accounting for some 30 percent of world trade. Over 40 percent of all goods exported by developing countries, including basic commodities and manufactures, are today directed to other developing countries. South-south trade is increasing at an annual rate of 11 percent - nearly twice as fast as total world trade. The composition of trade between developing countries has changed as well as these countries begin to export more manufactures than primary commodities, their traditional bread and butter. The share of manufactures in developing-country exports has climbed steadily, from 20 percent, $115 billion, in 1980 to nearly 70 percent, $1.3 trillion, in 2000.

The second dimension of this structural change in the world economy is the emergence in the South of accumulation and profit centres able to take advantage of global markets similar to what has existed in the North for centuries. This rise of southern multinationals is a relatively recent phenomenon but it is gathering strength very rapidly. Even in Africa, still the poorest continent, developing country investors and operators in infrastructure account for 38 percent of funds invested in infrastructure between 1998 and 2003. They are also the largest in terms of investments per project, at $104 million, compared to $58 million from local investors and only $35 million from developed country firms.

In public-private infrastructure finance, corporations based in developing countries emerged as important sponsors, with projects accounting for 39 percent of such investment flows to developing countries in 1998–2003. And half the top 10 sponsors for projects implemented in 2001–04 are from emerging market countries such as India, Malaysia, Mexico, the Russian Federation and the United Arab Emirates. Larger and/or more developed developing countries are investing in their neighbours.

From 2002 to 2003, foreign assets, foreign sales and foreign employment of developing countries’ top 50 TNCs grew by 27.4 percent, 45.9 percent, and 50.9 percent respectively.

But whilst the growth of southern multinationals and the increase in South-South trade has been a strong positive force in the global economy, these overall trends still mask the fact that much of this growth is restricted to a small number of countries. More than two-thirds of South-South trade originates from and is destined to developing countries in Asia. The share of intra-developing country exports in Asia rose from 60 percent in 1990 to 66 percent in 2001, while the share of the other developing regions – Latin America, Africa and the Middle East – suffered a decline. And while developing country transnational corporations have also joined UNCTAD´s list of the world’s 100 largest TNCs, a good part of their investment is still concentrated within their own sub regions. In particular, FDI within and between North-East and South-East Asia accounted for almost half of all investment inflows within these sub-regions during 2001-2002, up from 38 percent in 1999-2000.

III. Southern multinationals and inclusive globalization

The rise of southern multinationals will no doubt spread to a greater number of countries and it will lead to the emergence of a world economy where the North will no longer have a quasi-monopoly of oligopolistic profits. The high value-added activities of design, research, and the application of advanced technology which have until recently been concentrated in the North is spreading to the South. Today, for example, Brazil’s successful airplane manufacturer Embraer, is competing with aircraft manufacturers from North America and Europe. Brazil, India and South Africa all have home-grown sophisticated pharmaceutical firms. The creation of these new poles of growth and profit in the South is changing the geography of world production, trade and wealth accumulation. The “centre” is becoming diversified even though this development is still far from acquiring universal reach. The “periphery” is breaking up, with Mumbai, Shanghai, Seoul, Istanbul, Sao Paolo and other cities becoming part of the economic “centre” of the world.

But this is not the end of the story. Some argue that the old geographical centre-periphery relationship is being replaced by a new sociological division, with the economic elites of the South joining the economic elites of the North forming a new global centre sharing wealth, lifestyle, mobility and power, while the sociological periphery remains disempowered, poor and alienated, whether around the big metropolises of the South, the remote rural areas in poor countries, or in the suburbs of Paris. When looking at global income distribution we see many developing countries reducing the average income gap that separates them from the richest economies in the world by growing much faster than the old northern centre. But the distribution of income within these countries is worsening, as is also the case within many of the most advanced economies.

The challenge facing us all is to help make the undeniable geographical spread of globalization into a process that also becomes truly inclusive in sociological terms. The islands of prosperity and financial strength in the South can spearhead a trend towards a more equitable and inclusive globalization if the tendency towards unequalizing growth within the emerging developing economies can be transformed into more inclusive development. At the same time, advanced countries themselves must also address the adjustment costs and distributional problems linked to labour-saving technical change, trade and outsourcing, and migration. Globalization and the diffusion of tremendously powerful technology have unleashed unprecedented growth in vast parts of the world. The potential exists for a global prosperity few could dream of a few decades ago. But I do not think things will simply work out automatically. Markets are wonderful engines of growth, but the invisible hand alone cannot be relied on to meet the challenges we face. I want here to quote Pascal Lamy, the new Director-General of the WTO. He refers to the need to complement the invisible hand of the global market place with a more “visible” dose of global governance. Referring to the feeling of dispossession which he says is spreading among the citizens of the planet, he sees this feeling increasing “the anxieties towards the future. The future becomes an anxiogenic figure because citizens are not convinced that there is a captain to pilot their plane….”

This “pilot” that Pascal Lamy and many of us in international institutions refer to is not, of course, a world government. Nation states remain strong and legitimate and will continue to be the crucial constituent elements of the international community. What is needed, however, is a much more advanced and transparent form of international cooperation. Global markets and global business must be embedded in global institutions and a global policy space that provide a sense of direction and that can manage risks and imbalances. The broad multilateral system, with the United Nations providing the overarching framework, and I very much include here the WTO, must try to provide this “missing pilot” that Pascal Lamy refers to, not in the form of a huge centralizing bureaucracy, but rather as a carrier of common values and a rules-based system.

Building this more inclusive globalization is in everyone’s interest. Business cannot survive if society fails. Trade negotiations will not succeed if today’s level of anxiety about our global future persists. In many ways, society is the most important business of business. Weak states and ineffective regulations, poor tax structures and the prevalence of a very large underground economy, social unrest and violent conflict, and general under-development in terms of education and health conditions all impact upon business. Innovative approaches that serve both corporate interests and society’s interests are today increasingly being recognised by the private sector as an intrinsic part of doing business, not an optional extra.

Based on this recognition, many leading southern multinationals have a stake in the social, environmental and governance themes being addressed by the Global Compact, the UN’s voluntary initiative aimed at advancing responsible corporate citizenship. Half of the Global Compact’s 2,300 participating companies are based in developing countries, with strong engagement by companies in Argentina, Brazil, China, Egypt, India, Singapore and South Africa, amongst others. Some of the most innovative examples of corporate responsibility are actually being done by southern multinationals in areas such as provision of affordable housing and electricity, and HIV/AIDS awareness training. Global Compact participants such as CEMEX in Mexico, Eskom in South Africa and India’s own Tata Steel are working to keep environmental and social standards at the forefront of their business operations, to the benefit of both business and local communities.

Private business and the United Nations have thus started to work together with a focus on development and human empowerment around the world. Our overlapping objectives are clear: combating corruption, building the rule of law so that private initiative can flourish, preventing conflict and safeguarding the environment.

Within my own organization, the United Nations Development Programme (UNDP), we understand the importance of working with business to meet these shared goals. UNDP is well-placed to facilitate this through our own Special Unit for South-South Cooperation which works to promote South-South trade and investment for development.

Since 2002, the Unit has been working to prepare a full-scale South-South Trade Forum (SSTF) that would involve all developing regions, as well as other supporting partners, and the first South-South Trade Forum is due to take place in Beijing in May 2006.


From a human development perspective, global economic integration and greater openness in trade is not an end in itself: it is a means to reducing poverty and achieving concrete improvements in the lives of people. Five years ago, all UN Member States agreed in the Millennium Declaration that the central challenge facing the world is to ensure that globalization becomes a positive force for all the world's people. World leaders recognised that only through broad and sustained efforts to create a shared future, based upon our common humanity in all its diversity, can globalization be made inclusive and equitable, and, therefore, legitimate in the eyes of the worlds citizens. Emanating from the Declaration, the world has agreed on concrete, measurable, time-bound objectives - the Millennium Development Goals - which aim to halve extreme poverty and hunger, ensure all children get a primary school education, reduce child and maternal mortality rates and ultimately build a more prosperous and just world for all its citizens.

Given the scale of the challenge we face, there has never been a more critical time for the private sector, together with government, civil society and others to work together to build a better globalization for all.

Southern multinationals are broadening the geographical base of globalization and creating a new dynamic of potential inclusiveness that may be capable of fundamentally changing the unequal nature of the world economy. Southern multinationals cannot, however, do this alone. Their energies, initiatives and strength must be accompanied by public policies, public-private partnerships and approaches to global governance that keep the goal of poverty reduction and inclusiveness firmly at the centre of our attention.

Many thanks for giving me the opportunity to help launch this conference today.

Australia Report Identifies How Gov't Policy Can Help Spur Socially Responsible Investing

Australia Report Identifies How Gov't Policy Can Help Spur Socially Responsible Investing

SYDNEY, Dec. 14, 2005 - The mainstreaming of socially responsible investment (SRI), which comprises both the top-down adoption of SRI strategies by mainstream investment firms as well as the bottom-up growth of traditional SRI into the mainstream, is going global. This mainstreaming largely has been driven by the markets. To what degree does government have some role to play as well?

Researchers at the Institute for Sustainable Futures (ISF) of the University of Technology, Sydney (UTS) posed this question, which they answered in a three-pronged
report. First, they outline international policy approaches to the mainstreaming of SRI; second, they review the policy situation in Australia; and third, they survey the opinions of the Australian investment and corporate stakeholder communities. While it may seem that the first section is the only one of relevance to an international audience, the second two sections offer very interesting examples for navigating the particularities of national policy in encouraging governments to spur the uptake of SRI.

"The opportunity exists for government to create meaningful change by removing existing impediments to SRI and providing incentives to mainstream the practice of including social, environmental, ethical, and governance criteria in investment decision making," state report authors Alana George, Nick Edgerton and Tom Berry.

The report notes that the enactment of policy does not always ensure implementation, however. For example, the
UK Pensions Act of 1995 (amended a decade later) requires pension funds to disclose the extent to which social, environmental, and/or ethical (SEE) considerations impact investment decisions (if at all), though it does not require an explanation of the method of implementation.

"Thus, there appears to be a significant variation between the number of pension funds who have a stated SRI policy and the number that actually implement it," state the report authors.

Likewise, the
Australian Securities and Investments Commission (ASIC) released compulsory guidelines in December 2003 that work in tandem with the Financial Services Reform Act (FSRA) of 2001 to require disclosure of how SEE considerations inform investment decisions.

"The ASIC guidelines take a non-prescriptive approach and neither defines what constitutes an environmental or social consideration, nor how they should be taken into account," states the report. "The guidelines effectively allow product issuers to determine the 'quantity, format, and accuracy of SRI disclosure.'"

"Because of this, some argue that they have failed to support the legislation's aim to promote 'transparency, accuracy, comprehensibility, and comparability,'" the report authors add. "This sentiment backed by findings from our survey."

Indeed, almost half (46%) of respondents were "doubtful" that FSRA has achieved this purpose, with another quarter (25%) "strongly doubtful." The survey elicited 45 respondents, with most (46%) from the finance and investment sectors, more than a third (35%) from related research or consultancy organizations, and the rest from private businesses, nongovernmental organizations (NGOs), and media outlets.

The report notes how the Australian investment and business climate differs from its counterparts worldwide.

"In Australia, investment activity is currently shaped and directed by its regulatory framework more than by external stakeholder pressure," write the report authors. "Furthermore, compared to other countries, Australian business traditionally responds to threats of punitive action more so than to incentives when it comes to changing their behavior."

"As such, the nature of government involvement has so far been typified more by compliance-based legislation than by incentives that reward positive corporate behavior," the researchers continue.

The report notes that the Australian government is studying how best to induce corporate social responsibility (CSR), weighing the balance between regulatory requirements, voluntary incentives, and market-based inducements. The
study requested of the Corporations and Market Advisory Committee (CAMAC) by the Parliamentary Secretary to the Treasurer, released after the publication of the Institute for Sustainable Futures, maps possible paths to navigate this balance.

The Australian situation can serve as a template for other regulation-driven national markets. That said, the Australian example of grappling with the balance between regulation, voluntary corporate action, and market-based solutions can also be instructive to governments and SRI advocates the world over.

Unlocking the Door to Sustainable Profit: Speech by Gerard Kleisterlee, President & CEO, Royal Philips Electronics

Unlocking the Door to Sustainable Profits

Speech by Gerard Kleisterlee, President & CEO, Royal Philips Electronics, at the Global Entrepolis, Captains of Industry Conference, Singapore
(27 September 2005)

Good morning. Thank you for the opportunity to address this group today.

I think that all of us here might agree that these are challenging times. As corporate leaders, we face increasing pressure to outpace the market and outsmart the competition, to balance the need to cut costs with the necessity of investing for growth, to find ways to create more impact with our products and less impact on the environment, to do more with less and to do it better and faster than ever before.

As leaders, we are measured by our ability to create sustainable value. But never has profitability been more complex or more elusive. Never have our stakeholders been so varied or so demanding. And never have we, or the organizations we represent, been under so much scrutiny from so many different quarters.

I'm going to talk briefly this morning about why I believe that continuous innovation is the key to success in this environment and outline some of what Philips is doing to sustain a strong and evolving culture of innovation. I look forward to learning more about how you approach today's challenges during the dialogue we'll have later.

But first, I'd like to briefly introduce my company. Philips has been in business for over 110 years. Our sales today are over 30 billion EUR. Our focus is healthcare, lifestyle and technology. We are a world leader in medical diagnostic imaging systems and patient monitoring. We are number 1 in the global lighting market and in electric shavers, as well as number 1 in Europe and number 3 globally in TV, video and audio products, computer monitors, consumer communications, set-top boxes and accessories. We originated the Nexperia platform for flexible chip design, consisting for example of Nexperia Home that is used in 28% of all DVD recorders and 7 out of 10 DVD+RW recorders. Philips invests more than 8% of its sales in R&D, leading not only to innovative products but also to a strong patent portfolio. By year-end 2004 we had registered over 115,000 patents. Philips is operating all over the world, with a strong focus on Asia as we see great growth potential here. Our aim is to grow with the region.

Returning to my subject of today.... I'd like to highlight two external factors at work today to undermine the profitability of successful companies.

1.a. The innovation-to-commoditization cycle is accelerating

First, the pace of competition has fundamentally altered the landscape to the point where true innovators have less and less time to enjoy the fruits of their labours. Look at the DVD players. Within three years of its 1997 launch, it had become a commodity whose price had dropped considerably as it became more popular.

I'm sure many of you have similar examples from your own corporate history - because what once was true only for the consumer-electronics and computing industries now afflicts almost every sector. From hospitality and media to retail and transportation, the acceleration of the innovation-to-commoditization cycle means that those who invest heavily in R&D now have to work even harder to recoup their investment before the "fast follower" producers catch up.

1.b. Developed markets are saturated, emerging economies are underserved

Second, our markets are shifting. In developed nations we are suffering a temporary "digital glut" caused in part by the collapse of the dotcom boom, in part by a relentless "technology push" that is not matched by a "market pull" from eager consumers. Consumers are increasingly dissatisfied with what is on offer, disenchanted with technology and confused by its complexity.

In the developing world, consumers are eager -- but not for products and solutions built for the digitally privileged. Here, accessibility and affordability are the defining issues. Just consider: half of humanity has never made a phone call, only 12 percent have a PC and less than one twelfth have access to the Internet.

At Philips, we can see enormous potential in both developed and emerging markets and we believe continuous innovation is the key to unlocking this potential, transcending the innovation-to-commoditization cycle, and achieving sustainable profit. To support our vision we are reinventing our business from top to bottom and in the process transforming our industry too.

2. Continuous Innovation

Before I go into how we are changing, let me first outline why we believe in innovation.

Innovation is nothing new at Philips. From 1891 when Gerard Philips set up the company, we have been at the forefront of innovation and technology. Audio Cassette, Medical X-ray equipment, television, integrated circuits, energy saving lighting, the VCR, CD and DVD - we had a hand in all of these breakthroughs. And in 2004 we were first on the World Intellectual Property Organization ranking in new patents for the third consecutive year.

We have focused on innovation throughout our history because we believe that there will always be huge demand for the right product. The issue isn't competition - it's about meeting real needs and matching economic realities. Being innovative, being creative.

2a. There is a huge market for those that can meet developing-world needs

In the emerging economies, the right product is the appropriate product. And in delivering it, we have an opportunity to sidestep the stagnant demand for "latest and best" products in developed countries.

A good example is our Distance Healthcare Advancement project in India. Called DISHA, it is bringing high-quality, low-cost healthcare to the rural poor using advanced technologies - satellite communications, telemedicine and diagnostic equipment in a custom-built tele-clinical van. The pilot project, with just one mobile diagnostic unit, is covering a population of 500,000 and helping us to create a business model for its wider application.

2b. There is a huge market for those that can create new categories

But new growth markets aren't just a matter of physical location: they're about meeting customer needs everywhere by creating new categories of experience.

There is a worrying trend at work today - fewer companies now are engaging in true innovation. According to a major study by the Product Development and Management Association (conducted in the US and released last year, new product innovations decreased from 30 percent of the average new product development portfolio in 1995 to 25 percent in 2004, a 17 percent decrease in nine short years. While R&D budgets have remained fairly flat, what has changed is that companies are now focusing more on minor modifications and improvements to existing products. Obviously, this helps managers to reduce the time-to-market cycle and make short-term financial targets. But at what cost?

According to the study, the best performers - that is, business units in the top three in their industry - generate some 48 percent of sales and 49 percent of profits from new products, more than twice as much as the rest of their industry. Between 1995 and 2004, these top performers have held their new-to-the-world R&D at a consistent 11 percent of the total new product development portfolio, while the rest have slipped 27 percent to 7.3 percent.

True innovation moves us beyond incremental improvement to create new product categories that redefine the borders of our industry and generate new growth and profitability.

Let me give you an example. Philips, together with partner Sara Lee, has developed a totally different way of making coffee with the Senseo coffee maker. The essence of Senseo is that it allows people to make just one or two fresh cups of coffee whenever they want. Up to now we mainly introduced the product in Europa and the US, where it is very successful: we just reached the milestone of 10 million Senseos sold since its introduction in 2001.

2c. Creating new categories by blending products and services

However, new categories aren't just about products. They can result from a blend of products and services.

Take Internet connectivity: The world's fastest take-up of broadband communications in the home is in Korea and, in general, Asia's absorption of technologies based on combinations of broadband and wireless communications is expected to be faster than elsewhere. That is why we have begun the Philips Connected Home Project here in Singapore: transforming the lives of 300 real families in real homes through what we call a "Connected Planet" lifestyle.

Connected Planet is a linked environment of devices and home appliances that can speak to one another, creating greater personalized control, productivity and convenience -- in other words, a more comfortable living environment.

While Asians are taking the lead in grasping the Connected Planet principle, people in Europe still primarily use the Internet to surf the web, and check email. So how do we help Europe's consumers take the next step? The key is a network of effective alliances that expands the marketplace for everyone. What we are doing is packaging Philips products such as home networks and connected entertainment and communication technologies with telecommunications services and third-party content from cable companies and Hollywood studios.

In the medical area, we have started to create partnerships too to serve both the medical professionals and patients. Working together with a cable company in the US Philips allows patients suffering from heart disease to be monitored from home. A recent study found that there is broad acceptance by congestive heart failure patients of TV- based interactive healthcare platform. The system, called Philips Motiva, uses secure broadband technology to connect patients in the comfort of their own homes to their care providers monitoring their condition. Motiva aims to improve the quality of life for the chronically ill while helping drive down the costs of managing chronic disease. In June we started the first 12-month pilot study in Europe with Philips Motiva, working together with one of the largest healthcare insurance companies in the Netherlands.

So a whole new category driven by the Connected Planet vision, has been created, with a different revenue model based on long-term partnerships - and a different role for Philips: that of a service platform provider.

2d. Creating new categories by combining business strengths

Creating new categories is also about putting different parts of your business together in new and innovative ways.

Philips plays across a uniquely broad spectrum of technology activities - as a leading Healthcare, Lifestyle and Technology company we have a range of products across all lines of business including medical systems and solutions, lighting products for any environment and the automotive sector, TV, Audio, domestic appliances and personal care products and semiconductors. Almost right from the start we have been strongly international. Our focus on healthcare, lifestyle and enabling technologies brings us into constant contact with customers everywhere.

It should come as no surprise then that we are drawing on our technology leadership and our deep understanding of customer needs to develop new categories around our vision of a world where technologies are intangible, invisible and seamlessly integrated in our environments. Building on this vision and bundling the know-how and expertise of our medical systems, lighting and semiconductors division as well as our Design unit, we introduced the world's first "ambient experience" radiology suite at a children's hospital in Chicago last year. Our aim was to create a patient-friendly environment that was more medically effective - so the technology is hidden, the lighting is soft, the room has curved walls and the young patient chooses a mood theme, with appropriate lighting and images displayed on the walls to make them more comfortable. As a result, children are less tense and scanning is faster and more accurate and with less radiation and higher efficiency, making medical scanning a more relaxed experience for both the children and medical staff.

Our research on biosensors is another example of how we combine technologies from different parts of our business to create new markets. Biosensors are small, chip-sized healthcare devices meant to detect whether your blood contains molecules that are indicative for certain diseases. Using knowledge on magnetic sensors that we developed for the automotive industry a while ago, we are aiming at making these sensors up to 100 times more sensitive than what is possible with alternative techniques. This shows the added value a wide business variety within the same company can have, but unlocking that hidden value is a great challenge at the same time.

3. New business models are needed

These are just a few of the things that Philips is doing to respond to the increasing pace of competition and our changing markets worldwide. But from these examples, I think you will have already seen how we are doing it. For us, it's about maintaining our investment in true innovation - but with a new twist - and continuing to engage in partnerships - but in new fields and in new ways. And it is about taking our customers insights as our starting point, in order to be able to deliver on our brand promise of sense and simplicity.

So even though we have a very strong history of innovation - and for that matter, of successful partnership - the need for continuous innovation in today's business environment has required that we take a new approach.

And the very heart of our new business model is flexibility.

To succeed today, all global enterprises need to become truly flexible organizations by adapting their design, marketing and technology capabilities to regions and markets. For Philips, it no longer makes sense to own production facilities for all categories, whether located in Europe or in other countries. Instead, excellence in technology and marketing are the keys to sustained profitability, with only high-end manufacturing still part of our business.

3a. Switch from manufacturing to marketing

Thus, over the past four years, Philips has made the transition from a largely verticalized manufacturing organization to a centre of excellence focused on people, sales, and technology.

Along the way, our relationships with our customers and our markets, our suppliers, our industry peers and our competitors have changed radically. Flexibility here means that we are testing out new business models based upon alliances and partnerships.

Take the emerging markets, for example. Like many international companies, we first came to Asia looking for a competitive manufacturing base. We found it. But we also found a huge market where people with aspirations for better quality of life are driving phenomenal growth.

3b. Create new partnerships

The third thing that we found here in Asia - and this perhaps in the long term is the most important - was an outsourcing and partnership network.

Everywhere in the world, Philips partners with great brands to supply components such as optical drives or semiconductor chipsets. It's no different here.

But it is in Asia too that we find one of my industry's best examples of successful cooperation between traditional competitors: the decades-old collaboration of Philips and Sony. Today we also have alliances with companies like LG and TSMC. That's flexibility. We call it "cooperative competition" - companies working side by side in unconventional ways and overturning traditional market share and profit thinking to create new markets that will benefit all. In the same vein we set up joint ventures with companies such as Neusoft in China. Together with Neusoft we can serve the low- and mid-end part of the medical equipment market - which in China is growing. In China, but also here in Singapore and in other places, we build extensive relations with the top universities, not only to tap into the local talent pool, but also to work together on topics that relate to the specific location. Just to give an example, one of our scientists has been appointed visiting professor at the South East University in Nanjing, China, where she will teach students in visual perception, and lead a research program that will investigate regional differences in the perception of display sharpness or color setting preferences.

The same kind of cross-fertilization is our motivation to support the build up of a solid Intellectual Property system in China. We have founded IP academies in three universities, Fudan, Tsinghua and Renmin, exchange of professors between China and EU, give IP seminars and Customs training and so on. Of course it's in our own interest to get a well working IP system running in China, but increasingly Chinese companies are creating their own IP and start to invest abroad and will therefore need protection as well.

These, and all of our partnerships, are tied together in a method of working called Open Innovation. Under Open Innovation, Philips admits that we can no longer do everything ourselves. We need strong and efficient partners on the road of innovation. And we are finding them.

Within Philips too we are taking to heart this emphasis on collaboration. Out of new alliances within our company - through a drive to bring different parts of our business together in new ways - has grown personalized healthcare, telemedicine and Consumer Health and Wellness. With these we create a whole new market that is going to be extremely important to our future profitability in both developed and developing markets.

For Philips then, flexibility is about the switch from manufacturing to marketing, supported by a strengthened commitment to innovative partnership. It's also about adapting design, marketing and technology capabilities to regions and markets.

Since we started setting up R&D centres in the region four years ago, our Asian researchers have filed over 800 patents. Now we have some 1,000 R&D staff in China, including Hong Kong, 1,200 here in Singapore, and 1,300 in Bangalore. In addition, we have local "design competence centres" in all of these locations, where we focus not just on industrial product design but also on packaging, product communication, user interface, and socio-economic research.

In each of our regions, we have different business models, while our technology base remains global.

Indeed, thanks to installations such as the Philips Innovation Campus here in Singapore, which is our largest development centre outside the Netherlands, we are now beginning to see innovations with global applicability coming out of our Asian operations.

3c. Maintain a global technology base

To maintain a global technology base, companies need to rethink how they spend their R&D budget, but cutting back or focusing on incremental improvement is not the answer.

The boom of the '90s created an enormous amount of new technologies that have not been fully tapped - in fact nearly $1 trillion have been spent on technology investments over the last 15 years. At Philips alone, we spend over $2.5 billion each year on R&D. Rather than reducing this, we have made the decision to invest in looking at how we can create meaningful innovations - real, new-to-the-world innovations - by applying technologies that already exist to meet needs that already exist but not served. This will open up the market with better products and services and through this create greater value in our business.

3d. Sustainable development

So it's all about change - managing it, internalizing it, profiting from it.

Change is inherent in flexibility. It creates tension because of the need to balance innovation with ethical and moral issues. And this brings me to the final point that I want to make today.

An awareness of this tension has led to "sustainability" becoming an integral element of corporate strategy. In this regard, you can see sustainability as the outcome of an integrated, balanced consideration of economic, social and environmental responsibilities.

Sustainability has really come into it's own in recent years. Once a "green" issue, it is now a fully integrated part of the policy and way of working in many companies. In fact, according to Dow Jones, the average sustainability performance of companies is improving significantly. Sustainability continues to move up the business agenda in all sectors and has reached a high level of sophistication in particularly exposed industries. In our view as Philips, sustainability is no longer an option but an imperative.

What's more, the trend towards socially responsible investment is gaining momentum worldwide. Over the past five years, we have seen more and more institutional and individual investors equating sustainability with good management and good long-term prospects.

And so they should.

Economic sustainability is part and parcel of this imperative. To achieve sustainable profits, we need to go where the growth will be and invest in those parts of the world that represent strong business opportunities. Following the imperative for social responsibility too, this gives us a chance to bridge the divide between the privileged and underserved sections of society, as we have found with projects like our DISHA healthcare initiative in India.

4. Closing

In closing, I'd like to reiterate my belief in continuous innovation as the key to sustainable profitability.

When we implement a more flexible business model - one that enables us to fully benefit from cooperative competition and a broad range of partnerships, and achieve sustainable development - we are creating the conditions in which innovation can flourish.

And through continuous innovation we can pioneer new categories of products and services that transcend the accelerating innovation-to-commoditization cycle, overcome the technology saturation in developed markets and generate real value in emerging economies.

In doing so, we create not only sustainable value for our businesses and shareholder, but real longer-term meaning as well.

Thank you.

Bringing healthcare services to rural communities: Royal Philips Electronics

Bringing healthcare services to rural communities: Royal Philips Electronics

The challenge

The poorer sections of rural Indian households spend close to 12% of their income on healthcare, making the availability and affordability of quality healthcare a major national issue. Nearly 60% of this population takes loans at interest rates of 60-120% per year to pay for either prolonged treatment or for hospitalization.

In India, Royal Philips Electronics aims to provide quality healthcare at an affordable price to the people who need it. In order to reach this goal, the company has custom-built a tele-clinical van complete with diagnostic equipment and dedicated doctors and para-medical staff.

Initiated and run by Philips, with the support of various partners, DISHA (Distance Healthcare Advancement) project aims “to make technology innovations in healthcare and lifestyle accessible to the less privileged: innovations that serve their needs and aspirations and yet are affordable.” DISHA intends to enhance access to primary healthcare services to the people in India who need it.

The initiative is not a philanthropic action, but rather a challenging business value creation process aiming to combine the best of Philips’s capabilities, technologies and expertise with knowledge and experience of various for-profit and non-profit, governmental and non-governmental organizations active in the field of healthcare.


Philips India is using public-private partnerships to bring the DISHA vision to life, in its first pilot being undertaken in Theni district in Tamil Nadu:

  • Apollo Hospitals provides doctors for the van and specialists for free consultations
  • The Indian Space Research Organization (ISRO) provides satellite connectivity from the tele-clinical van to the remote Apollo Hospital. ISRO provides the satellite dish antenna (manufactured by another government organization Electronics Corporation of India)
  • Active in social mobilization, micro-finance and micro-insurance, the NGO Development of Humane Action (DHAN) brings its knowledge of the target local communities to the project (to estimate demand of various diagnostic services) and plays a key role in building trust, credibility and community participation for the project
  • Philips provides the appropriate diagnostic equipment to customize the tele-clinical van (x-rays, ultrasound, ECG devices, blood and urine analyzer, etc.)
Diagnostic tests are conducted in the van itself and, if required, the specialist doctor at the referral hospital is consulted. All the necessary patient information is transmitted via satellite. Video-conferencing is also available for the specialist to interact with the patient and the onsite doctor. An NGO pre-screening team is visiting villages to assess those most in need.

The onsite medical consultation is presently free for users, who pay only for dressings, medicines and specialist diagnostic services. Targeted to be on the road 300 days a year, the DISHA project aims to reach 15,000 people a year. Current users pay only for diagnostic services (average of US $ 1.80), and in addition pay for medicines bought in the van or bought from elsewhere. In the second phase of the project, total care (including diagnostic, medicines, tele-consultation, etc.) will cost an average of US$ 6-7 per user, substantially lower than what is incurred by them in the current private health system.


The advantages of using this service for health seekers include:

  • Gain access to qualified physicians, high quality diagnostics, and specialized healthcare
  • Get faster and reliable diagnosis
  • Eliminate unwanted travel
  • Save money
  • Eliminate or reduce wage loss
  • Increase ability to keep working
  • Learn about disease prevention and treatment
The advantages of using this service for health providers include:
  • Increase visibility of diagnostic healthcare
  • Maximize consultants’ time
  • Increase referral base
  • Facilitate diagnosis, and pre- and post-operative care
  • Reduce crowds at hospitals (tertiary care)
  • Spread knowledge, educate
Expected outcomes of the pilot include:
  • Gain hands-on experience for a better understanding of the local contexts
  • Experience operating conditions firsthand, especially to collect reaction on the offer
  • Develop effective service delivery and revenue models
  • Establish an open mindset in order to manage relationships with non-traditional business partners;
  • Prepare to shift from a product delivery system to a total solution delivery system to overcome the lack of infrastructure (poor roads, unreliable electricity availability, etc.);
  • Adopt a user-centered approach to ensure a thorough understanding of current and potential new community needs and demands;
  • Foresee the necessary time and negotiation processes to get permission concerning the procurement of medicines and their distribution, pre-natal diagnostic testing, radiation control, etc., due to healthcare regulations;
  • Close partnerships with local government and NGOs are essential to the project’s success;
  • Build community awareness through innovative, locally tailored media channels;
  • By providing services rather than equipment, the project will help establish a direct connection with rural customers, making the Philips brand more visible and establishing the company as a healthcare, lifestyle and technology provider in rural communities.
Further information

Making a PC like a TV: the old bugaboo of piracy and how to prevent it on a historically open system could stymie the PC's quest to rule the living room

Friday, December 16, 2005

Making a PC like a TV

PC makers are planning another assault on the living room in 2006.

By Associated Press

SAN JOSE, Calif. (AP) -- It's long been the PC industry's dream, to take center stage in the vast home entertainment market. Success, however, has been elusive.

And so the industry will launch in 2006 its most aggressive effort yet to persuade people to buy computers for wrangling the expanding universe of digital content.

Leading the charge are longtime PC collaborators Intel Corp. and Microsoft Corp., both of which are promising better support for high-definition programming and an improved ability to send video, still pictures and music throughout the home and to portable gadgets.

Macintosh maker Apple Computer Inc. is also widely expected to join the fray and, perhaps, do for entertainment computers what it did for digital music players when it unleashed the iPod in 2001.

But it's not going to be an easy to overcome a checkered past, particularly given the problems that emerged in the industry's first forays.

Most companies haven't taken close enough notice of the what's behind Apple's iPod success, says Rob Enderle, an analyst at the Enderle Group research firm.

''Most of the technology products being thrown at the home market aren't particularly attractive or well priced, and ease of use isn't anywhere in their description,'' he said. ''Until that gets fixed, we're going to have some serious problems.''

Such PCs -- even when decked out with programs that can be controlled from a couch with a clicker -- are criticized for being too complicated for consumers.

People are simply tired and frustrated by computers that take too long to boot, crash, get infected by viruses and demand constant updates with security patches.

Why would they want such a thing controlling their entertainment? Old set-top boxes supplied by cable and satellite TV companies may be dumb and slow but at least they're low maintenance.

Intel's answer is Viiv, a hardware and quality assurance platform that's expected to be launched in the first part of the year. As Intel did with its Centrino brand for notebooks and Wi-Fi hot spots, it will make sure Viiv-stickered PCs, gadgets, services and content play well with one another.

Viiv-branded PCs, not surprisingly, will include Intel chips that should enable smaller and more appealing cases, said Eric Kim, Intel's chief marketing officer. ''Until now, devices (media servers) were PC-like devices with fans, a tower, and lots of noise, and people don't want that in their living rooms,'' he said.

It's also going to build on Microsoft's Media Center Edition of Windows, which has sold more than 4 million licenses since its 2002 debut, including to notebooks and laptops without TV tuners that can't rightly be classified as entertainment delivery vehicles. By way of comparison, analysts have predicted that more than 70 million consumer PCs will ship worldwide in 2005 alone.

''It really hasn't taken off because it didn't meet that threshold for ease of use, the hardware wasn't good enough and there wasn't enough compelling content,'' Kim said. ''What we're doing is bringing all these parties together.''
Microsoft also isn't planning to stand still in 2006. Late in the year, it will launch its long-delayed, next-generation operating system, Windows Vista, as well as a Vista-based update to the Media Center Edition for Windows.

The upgrade will support a technology called CableCARD that will allow users to access all their digital cable channels without having to use the cable box that the cable company supplies -- one of the biggest headaches faced by Media Center owners. (This version of CableCARD will not, however, support video on demand or pay-per-view services.)

Microsoft is expected to stress Vista's capability to handle high-definition programming, which should be more readily available late in the year. And it will coincide with Viiv's marketing, said Roger Kay, president of Endpoint Technologies Associates, a research firm.

''Vista and Viiv are going to be hyped in parallel,'' he said. ''There's at least a billion dollars worth of ads that are going to run as result of this.''

Yet with new content, just as with old, the old bugaboo of piracy and how to prevent it on a historically open system could stymie the PC's quest to rule the living room.

To help entice Hollywood to offer up its programming for home-networked PCs -- and allay fears of rampant HD piracy, Vista will support digital rights management technology that will allow content owners to determine how their works can be used.

One of the more controversial features of Vista will be its empowering content owners to disallow -- or downgrade -- high-definition video unless the graphics card and monitor support protecting the signal from unauthorized duplication.

Marcus Matthias, product manager at Microsoft's Windows Digital Media Division, notes that other consumer devices -- such as a standalone high-def DVD player -- will have to play by the same rules.

But that's not the only ''digital rights management'' technology. Audio CDs are increasingly shipping with programs to prevent excessive copying on PCs, and even Viiv will remain ''agnostic'' to the various forms of DRM deployed now and the future, said Merlin Kister, a technical program manager at Intel.

Apple -- the leading seller of music players, online music and video -- also has its own flavor of DRM that it hasn't shared with anyone.

''In as much as Apple is successful, it's a fly in the ointment for everybody else,'' Kay said.

At the same time, there's growing speculation that Apple will make a run for the living room.

In October, it launched new iMac G5 computers with a simply designed program called Front Row that can be controlled from a distance with a six-button remote control.

The computer doesn't support live video, and the iMac's all-in-one design doesn't make it an obvious choice for living rooms outside of dorms and studio apartments.

But Apple does have a small, inexpensive computer, the Mac Mini, which would blend well in an entertainment center.

The Cupertino company also is switching to Intel chips in 2006 -- a move that could help bring down Mac prices. It's not known whether it will participate in Viiv, and neither company is commenting on the plans, if any.

But if computer companies don't succeed, consumers can always stick with set-top boxes that are increasingly gaining more computer-like features.

Advanced models like the Digeo Inc.'s Moxi Media Center are being tested by TV service providers, while Microsoft itself is developing software for boxes used by phone companies' emerging television offerings.

Cisco Systems Inc., the leading maker of networking equipment, said in November that it's buying cable box maker Scientific-Atlanta Inc.

Among other plans, it wants to leverage its Linksys division's home networking products to transmit TV around the house.

''(Cisco) knows if they want to move into the home, it's not going to be on the PC. It's going to be on a set-top box,'' Enderle said. ''Somebody else sets it up, so that makes it easy to use. It's subsidized, which makes the price incredibly aggressive.''

Carbon Market still greenL the success of the scheme is still in question, and only 41 such projects have been approved worldwide

Carbon Market still green

TORONTO, December 13, 2005 (Tierramérica) - The members of the Kyoto Protocol on climate change resolved at their week-long meeting in Montreal to support the treaty’s Clean Development Mechanism (CDM), which allows industrialised countries to obtain credits by investing in clean energy projects in the developing South. But the success of the scheme is still in question, and only 41 such projects have been approved worldwide.

Western Europe, Japan and Canada together may need as many as 3.5 billion metric tonnes of carbon credits in the five years through 2012 -- when the Kyoto Protocol expires -- to meet their commitments to curb greenhouse gas emissions, according to the World Bank.

Up to 1.4 billion of these carbon credits will be needed from the CDM, say estimates by World Bank experts. "Members approved a plan for the executive board (of the CDM) to be self-financing last night," Jane Rigby, policy manager on carbon markets for the governmental agency Environment Canada, told Tierramérica.

The plan involves a 10 to 20 cents on the dollar charge per certified emission reduction unit, but until that kicks in, countries like Canada will have to donate funds to meet the board’s estimated 8.5-million-dollar annual budget.

"We think we will have enough contributions from other countries" to achieve that total, Rigby said.

Under the 1997 Kyoto Protocol, which came into force in February, industrialised countries are required to cut greenhouse gas emissions by an average of 5.2 percent from 1990 levels by 2012.

Canada, whose emissions are up 24 percent since 1990, has decided to allocate at least a billion dollars annually for buying carbon credits starting in 2008. Carbon credits on the European market are valued at about 20 dollars per tonne.

"Canada and other countries desperately need to buy CDM credits," says Matthew Bramley of the Pembina Institute, a Canadian environmental organisation. "Reform is needed in terms of hiring full-time professional staff and providing long-term, stable funding," Bramley told Tierramerica.

Uncertainty about the CDM rules, slow response time, lack of staff and worries about the long-term value of such credits has kept countries and companies from investing, according to Bramley.

Several CDM projects were given the go-ahead during the Montreal meet, which included the 11th Conference of Parties to the United Nations Framework Convention on Climate Change and the first Meeting of Parties to the Kyoto Protocol -- shorthanded to "COP/MOP".

In Montreal last week, Mexico’s first project to win CDM approval was announced: the aim is to capture methane -- a greenhouse gas -- from pig manure at 23 farms. The methane will then be used to generate electricity for use by those farms.

The project would mean reductions of the equivalent of 121,689 tonne a year of carbon dioxide (the standard measure for greenhouse gases), according to the United Nations CDM website.

A similar project in Chile has also been approved, and is to be co-funded by Canada and Japan.

Hydroelectric schemes, wind, solar and other projects have been approved or are part of the more than 400 projects awaiting approval to date.

"The lack of funding was the Achilles heel of the CDM. At the Montreal meeting the scheme’s institutional framework has been reinforced, and now there is an air of optimism," said Jorge Barrigh, coordinator of the Latin American carbon program for the Andean Development Corporation, CAF.

"In Latin America and the Caribbean, the CDM is a very important tool for fomenting renewable energy. We are increasingly seeing wind and biomass projects in the CDM, for example. They are not the majority, but they are on the rise," he said in a Tierramérica interview.

CAF, the inter-governmental agency promoting the CDM in the region, has evaluated some 200 projects in the past two years, which Barrigh says proves there is enthusiasm for this system.

But things may not be as simple as they look. As many as 2,500 projects will be needed annually between 2008 and 2012 to meet the Kyoto goals for emissions abatement, according to World Bank estimates.

Furthermore, "many of these projects need to earn a stream of annual credits for 10 or 15 years to be viable," says the Pembina Institute’s Bramley.

Experts fear that without a post-Kyoto commitment to reduce emissions from industrialised countries, the financial value of carbon credits may plummet after 2012, when the protocol expires.

That prospect could be keeping many potential participants and projects on the sidelines. In addition, CDM projects must meet a series of requirements, like those evaluated by The Gold Standard, says Roger Peters of the Pembina Institute.

The Gold Standard is an independent CDM assessment organisation that audits projects to make sure there are genuine reductions in greenhouse gas emissions as well as benefits to the host country and sustainable development.

Capacity building for smaller countries is also needed, said Peters in an interview. "They can’t get design and develop projects that meet the CDM criteria without some help."

It is unlikely that the nations of the South will agree to setting limits on their emissions in the same way as industrialised nations have under the Kyoto Protocol, for fear that it would put the brakes on development. So other approaches are needed to tackle the problem.

In India, home to 1.1 billion people, 56 percent of the households have no electricity supply, and the problem is growing worse as new connections fail to keep pace with population growth. India wants to reverse this phenomenon.

As part of an international climate effort, countries should help India meet its policy goals using renewable energy, says Robert Bradley of the World Resources Institute.

"It is better to spend a billion dollars helping India bring renewable electricity to its rural poor than buying credits," he argues. Carbon markets are important but not nearly enough to address the climate change challenge, Bradley said.

Stephen Leahy is an IPS correspondent. This article was originally published Dec. 10 by Latin American newspapers that are part of the Tierramérica network. Tierramérica is a specialised news service produced by IPS with the backing of the United Nations Development Programme and the United Nations Environment Programme.

'Green' electricity: Too early for single EU support scheme, says Commission

'Green' electricity: Too early for single EU support scheme, says Commission, 9 December 2005 - The 2001 Renewables Directive requires member states to increase their share of electricity produced from renewable energy sources (RES) to 22.1 per cent by 2010.

A first progress report issued in May 2004 showed member states were off track from meeting this target, estimating only an 18-19% share would be achieved by 2010. At the time, only Germany, Denmark, Finland and Spain were on track to meet their national objective.


Transparent, non-discriminatory grid access to electricity produced from renewable energy sources must be ensured and administrative barriers to their development lifted, the Commission told member states on Wednesday (7 December).

"More than half of the EU member states are not giving enough support to green electricity," the Commission concluded as it published its second progress report on national support mechanisms for 'green' electricity in the EU.

However, the EU executive's assessment of national support schemes concludes that it would be "premature to propose a harmonised European support scheme" for renewable electricity as of yet. Competing national schemes, it argues, "can be healthy in a transitional period, as more experience needs to be gained".

The report found that "feed-in tariffs, which are fixed prices for green electricity and used in the majority of member states, are currently in general cheaper and more effective than so called quota systems, especially in the case of wind energy".

But the electricity grid is still not adapted to 'green' electricity, the Commission points out. "Grid infrastructure development should be undertaken, with the associated costs covered by grid operators," it said.

"Governments need to step up efforts to cooperate among themselves and optimise their support schemes as well as to remove administrative and grid barriers for green electricity," the Commission recommended.


Mechtild Rothe MEP (PES, Germany) agreed with the Commission that a harmonised support mechanism for electricity produced from renewables would be premature. "Any other decision would have had dramatically negative impacts for the further deployment of renewables," said Rothe who is also President of EUFORES, the European Forum for Renewable Energy Sources. But Rothe described as "counterproductive" the Commission's plans to review the need for harmonisation again in 2007. "We rather would like to see new binding and ambitious targets for 2020 as the European Parliament already called for," Rothe said.

The European Wind Energy Association (EWEA) found the Commission recommendations on grid access and administrative barriers in the member states "spot on". However, it found the Commission's 2007 review as "pointless" as it believes harmonisation would not allow countries to fine tune the schemes they have developed in the last few years.

The European Renewable Energy Council (EREC) also sees the administrative barriers and grid issues as "crucial barriers to further renewables development". "This is partly a problem of member states that have not fully implemented the directive in its spirit, but only in its letters," said EREC Policy Director Oliver Schäfer. EREC too said it does not find the 2007 review necessary. "why do they send out this confusing message? What kind of new findings do they expect within not even two years?," asked Schäfer.

Greenpeace said it does not support harmonised national support scheme either. "Wind turbines in the UK would need less support than in the Czech Republic, for example, and solar power fewer incentives in Greece than in Germany. At the same time, we must avoid heading towards a situation where renewable energy types are concentrated in certain regions," said Frauke Thies, renewable energy policy campaigner, at Greenpeace. Thies also welcomed the Commission's call for targets to be set for 2020. ""Ambitious and mandatory targets for 2020 of 25% renewable energy, coupled with efficiency measures, need to be agreed as soon as possible, to demonstrate national and EU commitment to clean energy," Thies said.

Electricity grid operators did not immediately react to the Commission report. However, in a position paper dated March 2005, the European Transmission System Operators (ETSO) highlighted that integrating renewable energy sources in the electricity grid is "a complex issue embracing grid extension and system stability requirements, balancing mechanisms development and their overall impact on cross border electricity transits".

At the time, ETSO said further analysis was needed to assess the impact of renewable electricity on security of supply and on the influence that non-harmonised support schemes have on their integration in the electricity grid.

Eurelectric, the union of the European electric industry, did not immediately react either. However, in a November 2004 position paper, Eurelectric anticipated the Commission's 2005 review as being "extremely important". In the paper, Eurelectric said it "strongly favours" convergence of national support schemes for renewables "and even harmonisation […] in order to contribute to the creation of a level playing-field in the European electricity market."

Latest & next steps:

  • 2007: Commission to produce progress report and review the need for harmonisation of support schemes

EU official documents