The Dutch Diamond Dynamic: doing business in the context of the new sustainable development goals

June 8, 2016 - nr.99
Summary

Conclusions and recommendations

Conclusions

In September 2015, the UN General Assembly adopted a comprehensive agenda for sustainable development, with related goals on a better environment, climate action and improving well-being and human rights. The new agenda applies to all countries and achieving the SDGs will require close coordination, nationally and internationally.

The complexity of the agenda calls for new forms of cooperation. Its implementation will depend on the participation of a wide range of actors. Besides central and local authorities and international institutions, major efforts will be asked of companies, civil society organisations, knowledge institutes and financial institutions. Together, they form the public domain that is responsible for achieving the SDGs. In other words, governance is no longer the sole prerogative of public authorities, but takes place in interaction between all those involved.

The AIV acknowledges that a number of large Dutch companies are international pioneers in their contribution to sustainable development. Their intrinsic motivation to incorporate sustainability in all parts of their operations reflects a transition that is also taking place in society at large: from a defensive approach to sustainable development as side issue, to awareness that a society based firmly on sustainability is the only way to safeguard prosperity and economic development now and in the future.

However, these pioneering companies still run up against stiff restrictions. None of them can boast a fully sustainable business model. Their good intentions are hampered by the reality of competition and the market. For these companies, too, it is an ongoing challenge to reconcile their internal business interests with sustainable development. The AIV also observes that small and medium enterprises, social entrepreneurs and financial institutions still contribute little to sustainable development outside the Netherlands.

Especially in respect of human rights, companies fail to fulfil their responsibilities in important areas. They may be showing a greater interest in the working conditions and terms of employment of their own employees and, increasingly, of other companies in the supply chain, but that attention seems to be driven mainly by defensive considerations. Fear of reputation damage and liability risks are important incentives. The UN Guidelines may have acquired the status of a ‘regulatory ecosystem for business and human rights’,1 but compliance by companies is still voluntary. The AIV therefore welcomes the steps that have been taken internationally to create a legally binding agreement on human rights and corporate sustainability.

In the AIV’s view, another point that merits attention is the financial sector’s ‘wait-andsee’ attitude regarding the financing of initiatives promoting sustainable development. With the exception of certain pension funds (e.g. ABP) and institutions like the FMO, Triodos Bank and ASN Bank, the sector is still giving little priority to sustainable development. Particularly undesirable is the large-scale tax avoidance by multinational companies. This costs governments worldwide, and especially those in developing countries, billions of dollars every year. The AIV calls on the government to give its full support to the measures recently proposed by the European Commission in this regard.

Now that the international agenda for sustainable development and the SDGs have been laid down, Dutch policy needs to be aligned to the agenda in terms of what the Netherlands is to achieve domestically and through its foreign policy. Devoting attention to the expected contribution of Dutch businesses will encourage them to mirror their corporate sustainability strategies to the sustainable development agenda.

The Dutch government has launched a number of interesting initiatives to support Dutch businesses that are active abroad in making the transition to corporate sustainability. Two prominent instruments are public-private partnerships and voluntary agreements on ICSR in high-risk sectors. Nevertheless, the AIV is of the opinion that the government is not yet tapping the full potential of its economic diplomacy policy. The link between trade and development cooperation and the top sector policy, for example, could be made more robust.

The government’s fourfold role as legislator, partner, grant-provider and market manager makes high demands on coordination – not only within the Ministry of Foreign Affairs but also in its relations with other ministries and actors. Experience shows that the timing and coordination of interventions is more important than their scale. A varied approach proves to have the greatest effect.

With regard to partnerships as instrument, the AIV observes that it is difficult for the government to combine the role of grant-provider (facilitation) and partner. It is important to prevent government’s role as partner from negatively affecting its other roles and responsibilities. In a partnership, other actors may cease to see the government as standing above all the parties involved. The partner role can also negatively affect the government’s motivation to tighten up legislation. The AIV considers that this demands constant vigilance and action.

The role of market manager also needs to be further developed. The AIV notes that current competition policy (legislation) is currently inadequately linked to the tasks of facilitation and, perhaps, endorsement of partnerships. This calls for a wider concept of prosperity (see chapter IV.4) and, as experience of partnerships shows, a different assessment and perhaps also a different definition of ‘market distortion’. A partnership intended to contribute to sustainable development may distort the market in the short term but can also create a new market in the long term and thus prevent a race to the bottom.

In response to the specific questions in the request for advice, the AIV concludes as follows:

  • Lack of a level playing field: This situation, caused by globalisation and the economic emergence of Asia, presents an extra challenge for Dutch companies which find themselves faced with competition from businesses that work under other legal frameworks and have a different perspective on sustainable development. And yet it also presents opportunities. Experiences in relation to the environment have shown that the absence of a level playing field can also work as an incentive to use innovation to acquire a better competitive position. Sooner or later, all countries will have to play the sustainability card. Imposing increasingly strict requirements encourages companies to adapt and innovate so as to remain both sustainable and competitive. The better businesses benefit from this. But it does not change the fact that action must be taken to create a level playing field, which will only be possible if legislation and monitoring of compliance are harmonised internationally.
  • Public-private partnerships: Promising experiences disguise the fact that many partnerships are still a work in progress when it comes to sustainability. A positive aspect of the Dutch approach is that the government supports and initiates a wide range of initiatives. That may have led to fragmentation, but also offers good scope for experimentation. At the moment, programmes’ internal focus is mainly on the efficiency and effectiveness of individual partnerships. What is missing is a regular, systematic (internal) study of possible gaps across the board – a study addressing all the components of the agenda for sustainable development.
  • Competition law: the request for advice assumes that current legislation on competition is a stumbling block for many sustainability initiatives. That is not always the case. The interviews conducted by the AIV show that the restrictive nature of competition law can be seen partly as an ‘emotional factor’. More is possible than businesses are aware of or prepared to admit. It is important that a clear distinction is made between what is and what is not permitted. The AIV expresses its appreciation for the fact that the government has entered into consultations on this issue with the market parties concerned. The AIV would also note, however, that the broad concept of prosperity used is still relatively limited and that more scope could be provided for weighing aspects such as market creation (rather than market distortion) and for a broader understanding of pre-competitive cooperation, international coordination and especially the interests of the chain as a whole.

Recommendations

On the basis of these findings, the AIV advises the Minister for Foreign Trade and Development Cooperation as follows:

To provide regulation where self-regulation is inadequate, nationally and internationally

  • Given the importance of sustainable development for society at large and the fact that companies are served by clear legislation, the AIV advises the Dutch government to (continue to) give priority to its regulatory task in its efforts to achieve the SDGs over its other roles of facilitating, stimulating partnerships and acting as market manager.
  • This regulatory role demands international coordination, starting at EU level. The AIV calls on the government to continue to advocate common frameworks with European partners, UN bodies like the Human Rights Council and international financial institutions, in at least three areas:
    - Making international chains more sustainable and creating a level playing field: as a follow-up to the international conference ‘EU and Global Value Chains’ and the joint meetings of European ministers for development cooperation and trade (on 7 December 2015 and 2 February 2016 respectively, both in Amsterdam), the AIV strongly urges the Dutch government to work towards an EU action plan by, for example, initiating a broad discussion with European partners (companies, trade and industry organisations, and experts on sustainable development and competition law) on the legislative obstacles reported by those in the field, with the aim of making legislation more transparent and creating the conditions for a level playing field. Further harmonisation of competition law at European level is a special point for attention.
    - Respect for human rights: Given the observed limitations of self-regulation in this area, the AIV advises the government to give its unreserved support to the creation of an international legally binding agreement on human rights and corporate sustainability.
    - Combating tax avoidance: The AIV also advises the government to give its full support to implementation of measures recently presented within the EU to curb tax avoidance by multinational companies. A special concern here is further harmonisation of certain elements of competition law.
     

To use the Dutch Diamond and actively involve the relevant actors

  • The AIV advises the government to ensure that, besides companies and knowledge institutions, civil society organisations and financial institutions are also actively involved in formulating and implementing policy. This will help optimise the effectiveness of the Dutch Diamond approach.
  • The AIV urges the government to closely monitor progress on the voluntary agreement on ICSR in the financial sector to ensure that it includes concrete provisions on transparent reporting.
  • The AIV advises that other layers of the public sector also be actively involved in the plans for implementing the agenda van sustainable development. The authorities in large cities have internationally relevant expertise on, for example, urban agglomerations in delta and coastal areas threatened by climate change.

To ensure that diplomacy is more focused on sustainable development

  • Businesses and the wider public should be made more aware of the international agenda for sustainable development and of what contribution the Netherlands is expected to make, in what areas and by whom. The AIV notes that it is worth considering drawing up a vision document that stands above political and other parties and explains how the Netherlands will contribute to achieving the SDGs in the years ahead.
  • Linked to this, the AIV calls for the international agenda for sustainable development to be explicitly taken into account in foreign policy alongside economic interests, and for policy instruments to be aligned with this agenda. The social aspects of sustainable development, especially human rights, should be emphasised.

To take more account of its own role in setting an example

  • Demanding that companies and the wider public make every effort to contribute to sustainable development is only credible if the government itself sets a good example. In the opinion of the AIV, the government still falls short in this regard. It must address major issues, like pressure on the environment (through energy generation, water management, etc.) and the government’s own procurement policy. The AIV recommends that the government take more serious account of the role it plays in setting an example in the area of sustainable development and show initiative by taking coherent action.

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1 According to Professor John Ruggie at the 3rd UN Forum on Business & Human Rights, Geneva, 3 December 2014.
Advice request

Professor Jaap de Hoop Scheffer
Chairman of the Advisory Council
on International Affairs (AIV)
P.O. Box 20061
2500 EB The Hague

Date    31 December 2014
Re       Request for advice on the private sector’s role in achieving sustainable development goals

Dear Professor De Hoop Scheffer,

The government is writing to ask the AIV’s advice on how the private sector can optimise its contribution towards achieving international sustainable development goals.

The question is an important one, because the private sector has become an increasingly significant and influential partner in development cooperation. Of the world’s 100 largest economic entities, 40 are companies – not countries – and for governments, achieving sustainable development goals is difficult without private sector knowledge and expertise. The increasingly significant and influential role played by businesses has correspondingly increased their opportunities to focus on sustainable development goals, and a number of businesses have recognised and shouldered this responsibility. They are motivated not only by a desire to act in the public good, but also by enlightened self-interest; for instance if the secure supply of raw materials is threatened. The public’s demand for more transparent production processes is also encouraging businesses to adopt a more sustainable approach.

Dutch businesses operating internationally are contributing in many ways towards the achievement of sustainable development goals. Moreover, they are expected to exercise due diligence by complying with the OECD Guidelines for Multinational Enterprises, which incorporate the UN Guiding Principles on Business and Human Rights, to prevent poor working conditions, child labour, damage to the environment, corruption and human rights violations in their supply chains as much as possible. Interestingly, an increasing number of businesses are showing a deeper commitment to corporate social responsibility. They are developing innovative business models to ensure they proactively contribute to increasing global sustainability, for instance by reducing poverty and protecting the environment. In light of the above, the government asks the AIV to draw up an advisory report on how companies doing business internationally can optimise their contribution towards achieving sustainable development goals. This principal question can be divided into three sub-questions:

  1. What opportunities and obstacles does the business community face when seeking to increase or optimise its contribution towards achieving sustainable development goals? This could include issues like the lack of a level playing field or insufficient market power in production and marketing chains. What can the Dutch government do to encourage and assist the private sector in this regard?
     
  2. What role do public-private partnerships (PPPs) play in achieving sustainable development goals? Can PPPs sufficiently ensure sustainable development goals are achieved?
     
  3. What obstacles can legislation, and competition law in particular, create for businesses aiming for more sustainable production processes? Please see the explanatory notes (Annexe 1) for greater detail.

The government looks forward to receiving your report.

Yours sincerely,

Lilianne Ploumen
Minister for Foreign Trade and Development Cooperation

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Explanatory notes

The World Summit on Sustainable Development (WSSD), held in Johannesburg in 2002, gave a major boost to the role played by the private sector in achieving sustainable development goals. Public-private partnerships (PPPs) came into the picture as a way of better defining this role. Ten years later, at the UN Conference on Sustainable Development (UNCSD/Rio+20) in Rio de Janeiro, the responsibility of the private sector – along with other players – was even more clearly recognised. It was decided that business needed to shoulder its responsibility of achieving greener growth, with a focus on sustainable development and poverty reduction. PPPs are an important instrument in making this a reality.1

The Rio conference also noted that the private sector requires government support to carry out this task. Government must devise policies and enact legislation that enable business to promote sustainable development, for instance by making it easier to invest in clean energy technologies.

In recent years, increasing attention has been paid in the Netherlands to the role the private sector could play in helping solve societal problems. The EU research and innovation programme Horizon 2020, with its ‘grand challenges’, serves as a good example of what the Netherlands could do. The way the Netherlands looks at societal challenges is shaped mainly by the government’s top sector policy, in which government, the private sector and knowledge institutions work closely. The Advisory Council for Science and Technology Policy (AWT) believes that government must demonstrate even more vision and commitment in charting a course for the other parties involved.2

Public-private partnerships are a specific instrument allowing the private sector to work together with other partners to achieve sustainable development goals. PPPs are cooperative undertakings between government and business for which both parties assume the risk and responsibility, and where both sides provide resources and expertise. In the Netherlands, this form of cooperation has existed since the 1980s.

The general focus of the type of PPP that has existed since the 1980s has been on creating or improving public or social infrastructure. The type of PPP proposed at the World Summit on Sustainable Development in Johannesburg in 2002 was different, with a focus on broader development goals. The Dutch government has played a strong role in encouraging this type of PPP.

The government’s policy of creating synergies between trade and aid was a new stimulus for establishing PPPs, especially for the food security and water priorities. In 2014 the Ministry of Foreign Affairs, together with a number of external parties, created the PPPLab, a project which aims to increase understanding of how PPPs work and the role they play.3 These efforts to increase expertise around PPPs are in keeping with a recommendation made by the Policy and Operations Evaluation Department (IOB) in 2013.4 Two concerns raised in the IOB evaluation are relevant to the question of what contribution the private sector can make to towards achieving sustainable development goals. The first is the need to measure the impact of PPPs on pre-agreed goals, as current information on PPP effectiveness is rather sparse.5 The second is the need for a sustained involvement in PPPs on the part of the Dutch government to protect the public aspect of such partnerships. In the IOB’s view, this involvement must above all be expressed through establishing and maintaining systems (including safety, quality and accessibility standards, etc.).6

However, even when the private sector is encouraged to contribute towards achieving sustainable development goals by improving production processes, legislation can still stand in the way. One example is competition law, intended to prevent cartels, abuse of dominant market position by individual companies, and unwanted market concentration created through mergers and takeovers. Cartels come about when businesses enter into agreements with one another on production levels and prices; preventing such agreements is in the consumer’s interest, as prices are kept lower.

However, the ban on agreements can sometimes conflict with attempts to improve production methods in the interest of corporate social responsibility. Corporate social responsibility means, by definition, setting standards that go beyond those legally required. For businesses, this means it is more attractive for entire sectors – rather than individual companies – to commit to higher standards.

This leads to the question of whether there can be exceptions to competition law for agreements between businesses to make production more sustainable. In competition law, the question is to what extent non-economic interests constitute grounds for such an exception. In recent years, demonstrably more attention has been paid in the Netherlands to the role of non-economic interests when applying this law.7

However, there is still insufficient scope for businesses to enter into agreements on greater sustainability in various areas. These include more transparency on the origin of raw materials, preventing child labour and increasing the sustainability of food production.8

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1 For more information, see: <http://www.un.org/en/sustainablefuture/>.
2 AWT, Waarde Creëren uit Maatschappelijke Uitdagingen [Create Value from Societal Challenges], The Hague, 2013.
3 PPPLab Food & Water, Public-Private Partnerships: a Brief Introduction, The Hague 2014, p. 25.
4 That is, ‘Systematic analysis of PPP performance could provide more insights in the success and failure factors underlying PPP effectiveness.’ IOB, Public-Private Partnerships in Developing Countries: A Systematic Literature Review, The Hague, 2013, p. 13.
5 Idem, p. 45.
6 Idem, p. 39.
7 See Social and Economic Council (SER), Making Sustainable Growth Work, 2010. For more on this issue, see Tom Ottervanger, ‘Socially Responsible Competition: Competition Law in a Changing Society’.
8 For this last topic, see the parliamentary committee meeting on food of 9 December 2014.
Government reactions

Government response to the AIV advisory report ‘The Dutch Diamond Dynamic: Doing Business in the Context of the New Sustainable Development Goals’

1. Introduction

The government thanks the Advisory Council on International Affairs (AIV) for its thorough advisory report on how the Dutch government can support businesses in contributing to the 2030 Agenda and the sustainable development goals it contains (referred to below as the Global Goals and SDGs). The advisory report, entitled ‘The Dutch Diamond Dynamic: Doing Business in the Context of the New Sustainable Development Goals’, has three main conclusions: (1) the lack of a level playing field for Dutch companies operating abroad must be combatted by harmonising legislation and monitoring compliance internationally; (2) systematic study is needed of the wide range of public-private partnerships and fragmentation in the area of sustainability; (3) the current interpretation of the broad concept of prosperity is too limited, and more weight could be given to factors such as market creation (rather than market distortion), a broader understanding of pre-competitive cooperation, international coordination and especially interests that are important for the chain as a whole.

The government welcomes the report. The report confirms the importance that the Netherlands attaches to dialogue and cooperation with the private sector in national and international policy, on the basis of businesses’ own responsibility to operate according to the principles of corporate social responsibility (CSR), in an open relationship with society and in dialogue with other businesses in worldwide chains. The government also agrees on the importance that the report attaches to formulating, harmonising and enforcing legislation internationally on issues including human rights, environmental protection and commerce. The government therefore endorses much of the report’s content. Where the government holds a different opinion than the AIV, this is made clear in the discussion below of the report’s specific main conclusions and recommendations.

2. Global Goals

The AIV provides a clear analysis of trends in recent years in work on sustainable development. The adoption of the Global Goals gives tangible form to the comprehensive ‘People-Planet-Profit’ (later ‘People-Planet-Prosperity’) approach to sustainability recommended by the Brundtland Commission in 1987. The 17 Global Goals are organised around core values like human dignity, justice and global solidarity. The goals have a universal significance, meaning that – unlike the Millennium Development Goals – they also apply to developed countries like the Netherlands.

The AIV advises the government to draw up a vision document on the long-term implementation of the Global Goals. The government believes, however, that the goals provide a clear framework and prefers to adopt a pragmatic approach to implementation based on this framework. It is thus taking immediate action to implement the goals, in concert with other social actors. To this end, a National Coordinator for the Implementation of the Global Goals was appointed in February 2016.

One of the coordinator’s tasks is to involve ministries and other social actors in implementing the Global Goals. The government attaches great value to the willingness of civil society organisations, business and knowledge institutions to contribute to achieving the Global Goals. That calls for closer cooperation, as endorsed by a large number of actors in the SDG Charter and the Major Alliance. Seventy businesses and civil society organisations work together in the SDG Charter.1 The Major Alliance2 brings together funds, businesses and government to increase the impact of social initiatives.

The AIV believes that the Netherlands should base its own policy on the Global Goals, especially as the government has to set an example. The government is prepared to do this in all respects. The coordinator has now drawn up a survey of the steps the Dutch government is taking or will take to achieve the goals. Statistics Netherlands (CBS) will also complete a survey at the end of this year to clarify what indicators are available for assessing Dutch implementation of the Global Goals and to measure progress towards sustainable development in the Netherlands. The coordinator will also draw up a plan of action for implementing the Global Goals in the Netherlands and will make recommendations on how they can be achieved.3 The government’s new procurement policy, which is devoting steadily increasing attention to sustainability, is evidence that it genuinely seeks to set an example.4

The government has already outlined how it intends to integrate the Global Goals into its policy on foreign trade and development cooperation, on the basis of the policy document ‘A World to Gain’5 and the letter to Parliament on ‘Inclusive Development in Dutch Foreign Trade and Development Cooperation Programmes’.6

3. The roles of the private sector and government in achieving the Global Goals

The AIV gives government and the private sector considerable responsibility for achieving the Global Goals and believes that both parties could do more in this respect. Government should provide more regulation, it states, and the private sector falls far short of making the contribution it could make.

To address the performance of the private sector first, the AIV observes that many leading companies are not yet completely sustainable and that 30% of small and medium enterprises (SMEs) are still paying no attention to corporate social responsibility (CSR). The government appreciates the private sector’s efforts on CSR and the support of trade associations and businesses for the Global Goals. At the same time, they need to be more ambitious: more businesses have to draw up CSR plans and put them into practice with visible results. They should also do more to integrate their potential contribution to sustainable development into their visions, missions and central business strategies.

The government regularly calls Dutch businesses to account about their social responsibilities. That means that the government expects businesses to comply with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. That minimises violations in supply chains as far as possible in areas like working conditions, child labour, the environment, corruption and human rights. Where necessary, businesses can count on public support in developing their national and international CSR or ICSR strategies, for example through CSR Netherlands, which receives government funding. The government is also working on sector-wide voluntary ICSR agreements (see section 5), urging industries where possible to involve foreign businesses as well. Businesses seeking to work with or receive support from the Dutch government are asked to make their CSR efforts transparent and step them up where necessary.

The government believes that individual citizens and consumers also have an important role to play in achieving sustainable development. Through their buying behaviour, consumers influence how and what businesses produce. The more responsible their consumer behaviour, the greater their impact on sustainability. As voters, these same consumers determine the parameters within which government pursues sustainability. Making domestic consumption more sustainable is also important for the credibility of the Netherlands’ international efforts to promote sustainable development. These dimensions are included in the voluntary ICSR sector agreements between businesses, civil society organisations and the Dutch government. The government will therefore urge the partners to the agreements to communicate more extensively with consumers on the content of the sector agreements. Consumers can then make an informed choice to buy products that have been made with the greatest possible respect for people, animals and the environment. Together with the private sector, CSR Netherlands and other organisations, the government plans to organise a round-table meeting to chart new paths for this communication.

The government is making consumption more sustainable not only through the voluntary agreements but also by increasing the sustainability of supply chains for products including cocoa, wood and palm oil. It is making agreements with businesses, retailers and supermarkets to increase the range of certified sustainable products on offer. It is also promoting the transparency and quality of information on the social and ecological aspects of the production of goods and services.

Government and the business community have a leading role to play in achieving the Global Goals. The goals clearly summarise the challenges facing all countries. Rich countries can help low- and middle-income countries to achieve the goals. That requires aid, but also trade and investment. For the Netherlands, there are growth markets in the themes that the various Global Goals address, including water, food, health, energy, infrastructure, logistics, sustainable urbanisation and waste treatment.

The government shares the AIV’s opinion that it is not always simple for the Dutch business community to give priority to sustainable development, given the lack of a level playing field for Dutch companies operating abroad. On the internal EU market, some principles of sustainability are embedded in legislation and/or taken for granted by consumers. In other parts of the world, however, the competition often has lower standards of sustainability. At the same time, the government believes that the strength of Dutch businesses, abroad as at home, lies in supplying quality on the basis of socially responsible production.

The challenge, particularly for a country like the Netherlands, is to continue to distinguish itself through quality and sustainability and still get a fair price in the market. Dutch businesses will benefit by not only competing on price but also, in countries where there is less support for sustainability, using quality and features linked to sustainability – such as motivated employees, efficient use of energy and natural resources, supply chain oversight and guarantees of safety and food security – as selling points.

The government helps Dutch businesses with a leading position to maintain and further strengthen that position, especially if they have to compete with businesses that are less concerned about sustainability. The government agrees with the AIV’s comment that a sustainable product or production method does not necessarily have to be more expensive – in the longer term – and can even save on costs.

For the government, the AIV report provides an extra stimulus to support businesses in their efforts to operate more internationally, explicitly in combination with a contribution to sustainable and inclusive economic development. Dutch businesses can obtain advice from the Netherlands Enterprise Agency (RVO.nl), diplomatic support and possibly financial support for their business plans, especially if they offer innovative solutions to the challenges of sustainable development in low- and middle-income countries.

The AIV recommends allocating more funds to the innovation of products and services that promote sustainable development in low- and middle-income countries. The government agrees that such innovation is important and is investigating ways to facilitate this more effectively. The current range of instruments already offers opportunities to support business innovation. The BoP Innovation Center (BopInc), for example, receives support for advising businesses on how to develop products and services focused on the ‘base of the pyramid’. BopInc benefits from low- and middle-income countries’ increasing interest in working with the Netherlands to develop innovative answers to their specific economic and social needs. The government will investigate whether existing programmes and schemes are sufficiently accessible and tailored to support ecological and/or social innovation by businesses and knowledge institutions, including those that still have a limited track record and/or operate in higher-risk international markets.

One idea is to set up challenge funds for specific development challenges. The government agrees with the AIV that businesses should comply strictly and consistently with legislation on, for example, human rights, environmental protection and commerce. Governments need to take responsibility in this respect and deliver (and monitor compliance with) legislation that is internationally coordinated and effectively promotes sustainability.

4. The financial sector

The AIV refers to the contribution that the financial sector can make to promoting corporate social responsibility and sustainable development. The government endorses this point. On the basis of its letter to the House of Representatives on ‘Business for Development’, the Netherlands promotes access to financial services for SMEs and poor groups in low- and middle-income countries, especially through the Dutch Good Growth Fund (DGGF), the Entrepreneurial Development Bank’s MASSIF fund and initiatives of multilateral organisations, like the International Finance Corporation’s SME Facility. To this end, the government supports a broad range of activities aimed at effective legislation, and financial institutions like banks, investment funds and insurance companies. Where necessary, this occurs through broad alliances (such as the NpM Platform for Inclusive Finance, which supports impact investment) or partnerships with businesses and civil society organisations, which the AIV also advocates.

The sector itself is aware of its significance for sustainable development, as became apparent during the Sustainable Finance Seminar on 27 November 2015 where, in his opening speech, the President of De Nederlandsche Bank (DNB, the Dutch central bank) emphasised that a stable financial sector and sustainable economic growth are only possible if the sector integrates sustainability into its processes and business models. DNB is currently working with the financial sector to explore ways of setting up a Sustainable Finance Platform to strengthen cooperation on making the sector more sustainable. The government welcomes this potential contribution from the financial sector.

The AIV notes further that the financial sector considers that it is only indirectly involved in ICSR risks and has only limited impact on businesses it has cofinanced. The government wants to help the sector shoulder its responsibility by concluding a voluntary ICSR agreement. Such an agreement would give the sector a basis for cooperation in exerting its influence, with the assistance of the government and civil society, so that it can fulfil its responsibility more effectively. The government shares the AIV’s opinion on the need to make agreements on transparency and reporting in the financial sector’s voluntary agreements and will take steps to achieve this. The government also calls for stricter sustainability criteria to be applied to policy at EU level and internationally. At the Global Value Chains conference on 7 December 2015, for example, a session was devoted to the European financial sector and sustainability, and the Netherlands is contributing to the development of an OECD guideline that will further elaborate the Guidelines for Multinational Enterprises for the financial sector.

5. Support by the Dutch government

  1. The roles of government
    The AIV calls on the government to strike a good balance between its various roles. The roles it distinguishes are that of regulator, facilitator, promoter of partnerships and provider of public support (endorsement). To achieve that balance, the AIV states that the government must not lose sight of its regulatory role. With this as a starting point, the AIV emphasises the importance of internationally binding agreements on minimum standards for human rights. The report draws attention to the importance of stimulating the large group of businesses that are lagging behind on this point to take steps to catch up. The government agrees with the AIV on the need to safeguard minimum standards for human rights. Governments are primarily responsible for developing, implementing and enforcing statutory frameworks. Businesses, too, have to shoulder their responsibility, individually and together with others. That is especially important in international value chains. The government is making a considerable effort to ensure that the OECD Guidelines for Multinational Enterprises are accepted and properly implemented. The guidelines offer a standard for businesses on how to deal with issues like supply chain responsibility, human rights, child labour, the environment and corruption.
     
  2. Public-private partnerships
    The AIV recommends critically reviewing the now substantial body of public-private partnerships (PPPs) and aiming to achieve greater policy coherence by making a more explicit link to the Global Goals. The AIV also concludes that it is necessary to conduct a regular, systematic (internal) study of possible gaps in partnerships, considering all the Global Goals. The emphasis should be on ‘investing in learning’ rather than purely on monitoring activities.

    The government agrees that PPPs are very valuable in generating knowledge and innovative solutions, and can be useful in achieving the Global Goals. Encouraging examples of international cooperation include broad-based partnerships in the water sector, in which a large group of stakeholders have been brought together and in which the World Bank is also taking part. Another example, from the healthcare sector, is Gavi, the Vaccine Alliance.

    The government also agrees with the AIV that permanent learning can improve partnerships. The government supports this through, for example, the Partnerships Resource Centre at Erasmus University and the PPP Lab. The work of these centres contributes to PPPs’ further development and realisation, for example through the Facility for Sustainable Entrepreneurship and Food Security and the Sustainable Water Fund, both managed by RVO.nl. The government is also looking forward to the AIV publication by Rob van Tulder and Ton Dietz on more than 60 PPPs in Africa. Lastly, the Coordinator for National Implementation of the Global Goals is conducting a full survey of local, national and international public-private partnerships, which he is linking to achievement of the Global Goals. This will show to what extent the partnerships are contributing to achieving the goals and how they can contribute more.

    The AIV sees the Netherlands’ PPP portfolio as the basis for ‘diplomacy focused on sustainable development’ or ‘sustainable diplomacy’. In this way, the AIV aims to place the government’s diplomatic efforts – including economic diplomacy – in a broader context. This means, for example, that within the partnerships the government will have to play all its different roles. In the AIV’s view, that will mean not only supporting the partnerships financially, but also actively participating in them and, where necessary, adapting policy and/or legislation. The government agrees with this wholeheartedly. That is why it participates in various public-private partnerships, such as the ICSR voluntary agreements. The government also promotes the involvement of local governments and/or civil society organisations in low- and middle-income countries. It does this by encouraging them to participate in partnerships or asking them to act in some way on the recommendations that are generated by these partnerships. These can relate, for example, to improving the business climate or complying with legislation on labour and social services. This is a core task for Dutch embassies, which they will pursue in the coming period and, if necessary, expand. The government does not consider it necessary to re-label economic diplomacy as ‘sustainable development diplomacy’, as the AIV recommends.
     
  3. Competition
    The AIV states that current legislation on competition does not always pose an obstacle to initiatives aimed at achieving sustainability. There are however some problems, which is why the government has previously indicated that it will seek the greatest possible scope for sustainability initiatives within the existing framework of competition law. Doing this requires above all providing as much clarity as possible on what is and is not allowed. To achieve this clarity, an administrative rule on competition and sustainability was established on 8 May 2014, intended to enable businesses to make better use of the scope provided by competition law to make agreements on sustainability and offer the Authority for Consumers and Markets (ACM) more guidance. This administrative rule proved inadequate, however, and in December 2015 a draft modified rule was published. Following public consultation on the draft modified administrative rule, which brought responses from various actors, including the ACM and the European Commission, the government is taking three measures. First, a minor modification to the administrative rule, so that it will still comply with European legislation. Second, the drawing up of a bill that will allow for sustainability agreements between businesses to be generally valid. Thirdly, further discussion within the EU aimed at clarifying the scope provided by European legislation.7
     
  4. The Dutch Diamond
    The AIV recommends that the triangle of private sector, knowledge institutions and government, on which the government’s policy on economic top sectors is based, be expanded to include financial institutions and civil society organisations. It thus advocates turning the Dutch Diamond into a five-way partnership. The policy on aid, trade and investment – as outlined in ‘A World to Gain’ – is already taking shape through the involvement of a wide range of actors. That includes not only the three actors participating in a top sector (government, private sector and knowledge institutions), but also financial institutions and civil society organisations, as in the policy framework Dialogue and Dissent. There are countless examples of civil society organisations and businesses working together on specific challenges relating to sustainable development. The agri-food top sector, for example, holds regular consultations with NGOs on a project basis. The government also promotes the involvement of financial institutions, to jointly provide more support, especially to SMEs seeking funding for innovative solutions to sustainable development challenges. In many cases, therefore, groups are already working together, where necessary in multi-stakeholder partnerships. Cooperation with all of these parties simultaneously – as the AIV calls for in the Dutch Diamond – can be necessary if sustainable development challenges are so complex that they cannot be adequately solved in smaller alliances. However, partnerships on the broad scale envisaged in the AIV’s Dutch Diamond require considerable investments by all participants, pushing transaction costs up. The government therefore prefers tailor-made solutions and invests in more complex forms of cooperation only when they can rely on the involvement of all relevant groups and thus achieve specific joint development goals more effectively.
     
  5. Voluntary ICSR agreements
    As the AIV report states, in their efforts to contribute to sustainable development, businesses are increasingly committing themselves to agreements among themselves or with government. Good examples are the voluntary ICSR agreements and commitments to increase the sustainability of trade chains for wood, palm oil, cocoa and other products. The government supports this trend and, where necessary, takes part in drafting these agreements. It also encourages effective monitoring of results, for example through the Sustainability Monitor of the Netherlands that the CBS publishes regularly with social research institutes. The government calls the parties to the agreements to account if they do not adequately achieve their goals. An example of this is the letter sent to the House of Representatives in April 2016 in response to a study by Utrecht University into Dutch companies’ duty of care under the ICSR principles.8 In the letter, the government stated that it would consult the Dutch Social and Economic Council (SER) on how to monitor businesses’ compliance with the voluntary ICSR agreements.
     
  6. Combatting tax avoidance and evasion
    The government agrees with the AIV’s call for greater attention to be paid to tax avoidance and evasion and their impact on low- and middle-income countries. It is already taking a range of measures to improve the situation. The Netherlands is implementing new internationally agreed standards to modify national tax legislation and to exchange more financial data between tax authorities. During its EU Presidency, the Netherlands successfully pressed for political agreement on a proposal by the European Commission for an anti-tax avoidance directive. The government also supports the Commission’s recent proposal on the publication of information on multinationals’ tax bills.

    The Netherlands also contributes technical assistance to low- and middle-income countries to improve their tax policies and enable their tax authorities to collect more taxes. That assistance is provided both bilaterally and through multilateral and regional organisations. In 2015, partly on the initiative of the Netherlands, a group of donor countries and a number of low- and middle-income countries agreed, under the Addis Tax Initiative, to double their efforts in the area of taxation. The Netherlands will consequently be expanding its technical assistance considerably in the coming period. It is also contributing to the review of the OECD’s Transfer Pricing Guidelines. In addition, the Netherlands is prepared to support the UN Committee of Experts on International Cooperation in Tax Matters, which advises low- and middle-income countries in particular on their aims in negotiating tax treaties.

    The Netherlands is playing an active role in reviewing tax treaties, which have been agreed between countries to avoid double taxation and to ensure that people and organisations do not pay too little or no tax. The Netherlands is taking the lead in renegotiating its tax treaties with low- and middle-income countries to incorporate anti-misuse provisions.
 
1 http://www.globalgoalscharter.org/.
2 http://www.maatschappelijkealliantie.org/english-0.
3 See the letter to Parliament on ‘Global Goals: Implementation, Monitoring and Reporting’ from the Minister for Foreign Trade and Development Cooperation (in Dutch), 24 May 2016.
4 https://www.rijksoverheid.nl/documenten/rapporten/2015/06/18/tussenbalans-groene-groei-2015 (in Dutch), p. 10.
5 http://www.traidwheel.nl/media/files/a-world-to-gain-en.pdf.
6 https://www.government.nl/government/contents/members-of-cabinet/lilianne-ploumen/documents/letters/2015/09/28/letter-by-ploumen-to-house-of-representatives.
7 See the letter to Parliament on competition and sustainability from the Minister of Economic Affairs, 23 June 2016.
8 https://www.rijksoverheid.nl/documenten/rapporten/2016/04/21/zorgplichten-van-nederlandse-ondernemingen-inzake-internationaal-maatschappelijk-verantwoord-ondernemen.
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