According to their 2005 Energy Policy Act, the US was supposed to have reached a 7.5% target for renewable fuel by 2012. While this may be good for the environment, there is growing concern that national biofuel policies are contributing towards a food crisis. ActionAid are predicting that if all national biofuel targets are met, food prices could rise by up to an additional 76% by 2020, leaving 600 million more people hungry. More than half a billion hungry people are, of course, just as big a threat as environmental degradation.
But the biofuel debate not only shows how policy-setters failed to anticipate how following a sustainability agenda could lead to human rights violations; the fact is that these policies will be delivered by large corporations. It is big business that grows the crops and refines the oil, but it does this in order to maximise profit for shareholders. We have set companies up so that legally they have to think first about the property rights of their shareholders, rather than someone’s right to food, or the environment. The biofuel debate shows that this way of structuring corporations is hindering rather than helping us deal with the kinds of wicked problems that threaten our existence.
Take the example of Malaysia. Malaysia views biofuel as a source of economic development. In 2006, the Malaysian government implemented a National Biofuel Policy as an integral part of its New Economic Model. Both the federal and state governments have a significant financial stake in the sector through government investment funds and pension funds. Terengganu state, for example holds a 65% stake in the palm oil company TDM Berhad and the state of Johor holds a 39% stake in Kulim as part of a land-for-shares deal. The palm oil industry in Malaysia, as elsewhere, is made up of a network of business-state relationships. As Amnesty International argue, governments have a duty to regulate and monitor the activities of the companies they do business with.
Emerging business and human rights frameworks also argue that governments have a duty to design regulatory systems to protect human rights and the new UN Guiding Principles expect governments to require business to explain how they address their human rights impacts. This responsibility clearly also extends to the government’s shareholdings in plantation companies. But the primary regulatory mechanism for the palm oil sector in Malaysia is a voluntary certification program run by the Roundtable on Sustainable Palm Oil (RSPO). While the Malaysian government supports RSPO as part of its New Economic Model, not many of the companies in which the government has a financial stake are members of the RSPO.
Very few of Malaysia’s palm oil companies even mention the food versus fuel debate in their corporate Annual Reports, corporate social responsibility reports, or company WEB pages, let alone report on any government monitoring of their activities. In fact, the majority report a positive business outlook for palm oil as a result of increased food and fuel demand. Put somewhat crudely: they seem to be saying that the price increases which fuel the food crisis are good for increasing shareholder value. This argument seems even more absurd when the government is the biggest shareholder.
But why would we expect corporations to say anything different? What they talk about reflects the way we have set them up to look after shareholders interests, a point made by Kulim in their 2010 Annual Report when they say: “The primary purposes of the Audit Committee are: 1. to ensure openness, integrity and accountability in the Group’s activities so as to safeguard the rights and interests of the shareholders.”
The fuel versus food debate challenges the way we have legally set up companies and the priority given to shareholders’ proprietary rights. It shows we need to change how we think about the governance and accountability of corporations and stresses the inadequacy of voluntary bilateral agreements that encourage corporations to communicate how they address their human rights impacts. However, above all it highlights the need to innovate new models of the corporation and corporate value generation.
Kenneth McPhail is a professor of accounting at LaTrobe University