Stephen Timms MP

Commonwealth Business Council Conference

I have in the last few weeks taken on responsibility within the UK Government for energy and sustainable development issues, alongside my existing and continuing role as Minister for Corporate Social responsibility. I apologise that pressures on my diary as a result mean I cannot join you for longer today.

Corporate Social Responsibility spans a huge range of issues reflected in the wide ranging and ambitious programme, which you have for this conference. And I entirely agree that what we are talking about here is beyond philanthropy - CSR is not an add on - it must be about the very way in which we do business both at home and overseas. That is the only way in which CSR will survive and will make a difference to our long-term wealth and prosperity.

In September in my constituency, Tesco opened a big new supermarket. When they were planning the store they established a partnership with the local council, the jobcentre and the local further education college. The Jobcentre identified long term unemployed people in the area interested in working at the store. An impressive training package was put together for delivery by the local College and others. Over three months, a group of over 100 people were intensively trained in using computers, dealing with customers, first aid and other topics. What was unique about it was that everybody getting through to the end of the training was guaranteed a job at the store.

At the end of August I presented certificates to those who had come through the training and it was a very impressive occasion. They included a man who had been unemployed for 13 years following an injury at work, and quite a number of Asian women who had never had a job at all - never had the confidence to look for a job - but all of them received certificates and are today in jobs at the store. They were proud of what they had achieved, and rightly so, and appreciative of the effort which had been invested in them.

I was impressed by their commitment. A young Asian man who I didn't know came to see me to ask for help obtaining a visa for his fiancée to come from India for the wedding. Normally it is the other way round so I asked him why he wasn't going to India to get married. He looked shocked. "Out of the question", he said. "I'm only half way through my Tesco training".

100 people came straight off the unemployment register and directly into work. That was good news for my community. But that is not why Tesco did it. They did it because they have found that the partnership approach is a good way to recruit staff for stores - that people recruited this way are more committed and more enthusiastic. They respond very positively to the trouble, which has been taken to give them a chance - they are better employees than those recruited by less costly, more conventional routes. So there is a real business driver to encourage the company to behave in this socially responsible way.

I think those examples illustrate very well the kinds of opportunities we need to be looking for in this field of Corporate Social Responsibility. It is an approach that gets away from the old idea that economic, social and environmental goals are always in conflict. What we need to work out is how progress on any one of those fronts can support progress on the others. Our aim is to see business, the voluntary sector, and public bodies all working together, not doing so grudgingly, but because each sees it as advancing its own key interests to do so, as well as the interests of others.

Whether we call it CSR or social responsibility or corporate citizenship. We will all recognise the increasingly important role that business is playing and must play. Not just in economic development, in wealth and job creation but also in the environmental and social spheres. The question is: how do we make sure that the potential for this wider contribution to society is realised. What is it we want from business and what should governments be doing to encourage, to help and to guide.

I would like to speak first about the context for the role of CSR at the wider international level.

Last week Patricia Hewitt made an important speech to the Fabian Society on the government's approach to globalisation and the role of trade in achieving global justice. The context was the forthcoming trade talks in Cancun and essential need for progress on the Doha Development Agenda. But Patricia also emphasised more general themes and aims.

She stressed our Government's strong views on the need for a trading system that is fair as well as free. Our view is that that the best way to combat poverty and injustice is not to turn off world trade but to reform world trade and expand it.

And as Patricia pointed out, more investment is critically important for developing countries, and crucial if we are to meet the Millennium Development Goals and enhance poverty. The business contribution is indispensable. Foreign companies not only provide additional capital, but also help to transfer new technologies, increase local skills and generate employment. Governments need to play their part too. The evidence shows that companies are attracted to countries with a record of good governance and that businesses are more likely to make investments if a country has clear and transparent regulations.

There are some very interesting examples of companies coming together voluntarily and imposing a code of responsible conduct on themselves. For example, the Ethical Trading Initiative, including major UK retailers turning over between them around £100 billion, has drawn up a base code for all their suppliers to comply with, in every part of the world. The code is based on the principles set out by the International Labour Organisation - and it stipulates for example that every employee in a supplier company should be free to join a trade union, is paid in accordance with a fair minimum wage for that country and so on. This is proving a very effective way to raise standards of employment in developing countries. There is a rigorous enforcement procedure, and if companies do not meet their obligations then they will be ejected from the Initiative.

Another example is the Fair-trade Foundation, which sets out what it describes as a fair price for a range of goods - above the market price, and stable - so that whatever the conditions in the international market growers will receive a price for their produce which will enable them to make ends meet and provide adequately for their families. In the DTI, we now insist that all the coffee we buy is Fair Trade coffee, and we are encouraging companies to take the same approach. The Fair Trade approach is being applied to other products too - to tea, chocolate, wine and fruit.

Let me set out our approach to CSR within the UK. First, we have deliberately placed CSR in my competitiveness brief in DTI. This signals our belief that CSR supports business productivity and competitiveness. There need not be a conflict between the interests of the wider social and environmental goals of the community at large and of those of successful business. Indeed, there is growing evidence that responsible business practice will serve the long-term interests of sustainable business growth. So what is good for communities and customers will be good for business too.

That view is not yet shared by everyone in business. On the other hand, while we will not make progress simply through regulation - you cannot compel virtue through the law - Governments can set standards and a framework to encourage and support good business practice. Responsible behaviour for any organisation must start with legal compliance but we are looking for business to move beyond compliance to build their business in ways that draw on their own particular strengths and interests to contribute to our wider social economic and environmental goals as well as to their own proper economic self-interest. And key to this is building their relationships with those they deal with including the communities in which they operate, with their suppliers, their customers and their employees as well as their shareholders.

For this to be a reality rather than what is sometimes called "greenwash", business transparency and good governance are vital. That is why this Government is proposing to require the largest companies to prepare an operating and financial review or 'OFR'. The objective of the OFR is to ensure, through transparency, the responsible governance of companies.

The Government recognises that, in deciding in good faith what would be most likely to promote the success of the company, directors need to take account of a wide range of factors within and outside the company that are relevant to achieving its objectives. These factors will include the company's impact on the environment and the wider community.

The OFR proposals would require information on these and any other CSR issues, where in the view of the directors they are relevant to an assessment of the company's business. This will help give members the information they require to hold directors to account.

The UK Government has also, in common with the rest of the world, been urgently reviewing the way that the financial reporting system works, following the events at Enron and elsewhere last year. The collapse in the US of a number of major listed companies including Enron, and the demise of one of the largest audit firms, Andersens, in its wake, shook the public's trust in the system. We must restore that trust. In the UK, we have announced a comprehensive package of measures that strengthen the existing regime. We are strengthening the role of non-executive directors and of audit committees. We are simplifying the oversight regime for accountants and auditors, making it stronger and more independent. We are bolstering enforcement of accounting standards, and we are working with the accountancy profession itself to ensure much greater transparency.

One of my priorities is to promote and facilitate good CSR practice internationally as well as in the UK. And one of the ways in which I can do that is by raising awareness of the OECD Guidelines for Multinational Enterprises that are an integral part of the UK Government's policy towards Corporate Social Responsibility. This is increasingly important, as there are expectations of business in environmental and social responsibility, and in high standards of corporate governance wherever they operate. The OECD Guidelines can have a strong positive impact on business's contribution to economic, environmental and social progress, helping to ensure that the benefits of foreign investment are felt more widely and representing firm government expectations of business conduct - expectations which are shared by all 33 adhering countries. And I'm starting to be pressed by mainstream investment funds to raise the profile and the priority of the Guidelines.

The UK government has also commissioned a project by the Royal Institute of International Affairs, our hosts today, to follow up the WSSD commitments on CSR. I hope this will give us a strong basis on which to identify and promote the most effective way forward on spreading the benefits of CSR among developing countries.

You will be hearing more later about the Extractive Industries Transparency Initiative but this is an excellent example of a very specific initiative aimed at practical action - again based on stimulating voluntary action. I'd like to talk a bit about the background to this initiative and recent progress to implement it.

There is a paradox in the extractives sector in some developing countries. Oil, gas and other mineral or metal resource extraction activities in developing countries should be the basis for growth, poverty reduction and sustainable development. The process is to convert 'natural capital' into 'human and social capital' and opportunity. Yet, and here is the paradox, some resource rich developing countries frequently remain amongst those with the highest levels of poverty, giving rise to the question: are these resources a blessing or a curse?

The revenues that these countries receive from mineral extraction may be so great as to undermine more sustainable, long term, non-oil or minerals economic sectors. They consequently serve to lessen the accountability of these governments to their electorate as they dwarf the importance of domestic revenues.

It is reported from Kazakhstan that the regime does not even collect taxes because it has so much in oil revenues.

Even worse than this, the revenues may be mismanaged, embezzled or diverted to fuel conflicts. In the Sudan oil revenues have helped fund a war that has lasted for twenty years.

One thing is clear, the resources are not reaching the people that need them most and have a legitimate claim to their share.

Angola is producing 900 million barrels a day, earning the country billions of dollars, but it languishes at the bottom of the UN Human Development index. It is estimated that one child in three dies before the age of five. According to a leaked IMF report, of the 5 billion dollars that the country earns in oil revenues, about 1 billion dollars was diverted to the private bank accounts of the elite last year. No one knows the true extent of the revenues paid by oil companies to the government where secrecy rules leaving easy opportunities for corruption.

Following the announcement to address this issue made by the Prime Minister Tony Blair at WSSD, the UK Dept for International Development is working with governments, NGOs, extractives companies, international organisations and investors to develop mechanisms to ensure greater transparency.

Companies have been particularly supportive in this exercise. They need to be assured of stable, reliable environments for their investments. In addition they frequently have to 'pay twice' firstly, through revenues to governments and secondly, to provide the social services and infra structure in the communities within which they work because the government are not providing these services. Their reputations are at stake with concerned investors.

The key is to increase the transparency of the legitimate payments that companies pay to governments. This will increase the likelihood that the revenues generated by the exploitation of natural resources are used in an efficient and equitable manner and can support governments in their macro-economic planning.

My colleague Valerie Amos chaired a conference on 17 June, which brought together all the stakeholders involved in the initiative so far. At the conference participants agreed a Statement of Principles and Actions to take the initiative forward. A session in this afternoon's programme will be devoted to exploring the opportunities arising from the conference.

Many companies here trade and invest globally so you will know already that it is in your own interest to have a healthy and well-trained workforce. There are examples of companies who have worked with local communities and partner organisations to tackle some of the most serious health and education issues we face. Let me just mention one example I heard about recently. Standard Chartered Bank operates in 50 countries around the world including a very substantial presence in Africa and Asia. Starting in 1999, the bank has been working in consultation with its employees, Governments and NGOs to develop a programme of health education to tackle HIV and Aids. The first campaign was launched in 2000 delivered by local champions and the programme continues to develop to meet the needs. I was delighted to meet representatives from the company recently when they were recognised for this programme by reaching the finals of the Business in the Community award for Excellence in the field of international impact. Equally global businesses need efficient and effective suppliers that rely in turn on their relationships with and support for the small companies in the local economy. So acting responsibly is not just good for business but for the communities and economies in which you operate.

And there is growing evidence that corporate reputations on these issues are more and more important to both prospective and existing employees who want to work for a company that contributes to eliminating poverty and protecting the environment. People want to feel proud of the organisations they work for and feel they are working to be part of the solution rather than part of the problem.

So we are not looking for a one size fits all solution- the issues are complex and wide ranging, but there is much we can learn from each other. So I very much welcome the focus of this conference on identifying best practice and how we can collectively take forward the lessons learnt from experience. I am sure you will have a stimulating and challenging two days. I look forward to hearing about the outcomes that will offer a very valuable contribution to the Commonwealth Heads of Government meeting later this year.

Thank you all for the contribution you will be making.