Transnational Private Regulation Research Articles

Transnational Private Regulation of Environmental Sustainability through Commercial Contracts. Reassessing Contractual Governance in Global Supply Chains

Abstract Sustainability standards are integrated and applied in global supply chains through transnational commercial contracts that have come to play a regulatory function in addition to the conventional exchange task. The design of the architecture of contracting, the coordination among contracts, and the content of sustainability terms along the chain is the result of the cooperation of different actors, led by one or more transnational corporations. The paper describes the distribution of private regulatory power according to the structures of the chains- hierarchical, relational, market -and its impact on the compliance with sustainability standards. It considers the qualification system that regulates entry, exit, and permanence in the chain and the Suppliers codes and General principles of sustainability specified in the general terms and conditions. These represent complementary direct and indirect private regulatory instruments that can be deployed to ensure compliance. The choice of instruments depends on the distribution of regulatory power among the private actors and their exercise. Privity of contract makes it often difficult if not impossible direct regulation by the chain leader and obliges decentralization of regulatory power. The analysis shows that only the complementarity between the two sets of instruments enables control of compliance in complex chains whose actors operate across different jurisdictions with the use of sanctioning and remedial powers. The article analyzes how26 principles of effectiveness, proportionality and dissuasiveness may contribute to a fair and non discriminatory exercise of private regulatory power related to the implementation of sustainability standards through contracts.

Global Finance and the Anthropocene: Regulatory Shifts and Prospective Effects

Financial institutions must play their part in the fight against climate change. In this context, the concept of the Anthropocene becomes relevant for securities markets via terms such as sustainable finance and ESG. These terms are now a core issue for securities regulators around the world. Lack of clarity and standardized disclosure both across and within jurisdictions make the analysis of and comparison between financial products extremely difficult. Investors’ demand for green products exacerbates the need for standardization. Against this backdrop, financial institutions face two hurdles. First, how to properly assess their in-house financing activities. Second, how to guide investors in their investment decisions. The article shows that, due to the increasing complexity and political importance of green finance, we are witnessing a double, simultaneous shift. First, from transnational private regulation to domestic regulatory law, with the EU in the driver’s seat. Second, towards transnational supervisory standards, adopted by IOSCO. Anthropocene, sustainable finance, ESG, IOSCO, transnational securities regulation, Brussels effect, European green deal, green taxonomy, ESMA, EBA

Evolutionary dynamics of transnational private regulation

ABSTRACT This article puts forward an approach to account for the evolution of transnational private rule-makers. Morphing of organisations, procedures, and rules is suggested as a key strength of various forms of private authority. Directing attention towards evolutionary dynamics, and their impact on the goals pursued by transnational private regulators, as well as on the implications for targets and beneficiaries of their rules, brings forward various implications of transnational private regulators. These implications include tensions between the complementary and competitive relations between public and private authority, and question the capacity of the former to effectively enrol, steer and influence the latter. The article discusses the role of regulatory and organisational crises as catalysts for the emergence and evolution of transnational private rule-makers, and how crises affect the relation between public and private regimes. Finally, we reflect on possible competitive challenges that emerge by employing a dynamic perspective to transnational private regulation.

Labour Standards in Global Production Networks: Assessing Transnational Private Regulation and Workers’ Capacity to Act

ABSTRACTDespite decades of growing engagement, there are still questions about the effectiveness of transnational private regulation in labour standards to improve employee welfare in global production networks. The literature shows that some improvement may be expected in outcome standards, such as benefits, working time, health and safety issues, but not necessarily in process rights, such as freedom of association, collective bargaining and employment dialogue. Yet, workers need such rights if they are to have a voice and to participate in the organizational processes by which standards may be improved and compliance monitored. The authors of this article contend that the effectiveness of transnational private regulation in labour standards ultimately rests on workers’ capacity to act. The article is based on analysis of a cross‐country and cross‐sectoral data set from site‐level surveys of 139 suppliers from Brazil and Kenya in the agricultural, manufacturing and service sectors. The analysis provides no evidence that either the presence of standards at a supplier's site, or the awareness of such standards by workers employed at that site, have an impact on workers’ capacity to act. Moreover, the results provide only weak evidence that standards help workers gain influence over matters of relatively minor importance on the agenda of workplace cooperation.

The Common Evolutionary Logic of the Transformation of Government Functions and the Development of Market Regulatory Governance Systems

Regulators have a crucial role to play in the economy and society. This paper presents an approach to taking into account the evolution of transnational private rule-makers. It argues that the governance of business conduct involves important, and often underproblematized, assumptions. The transformation of organizations, procedures and rules is considered as a key strength of various forms of private authority. Space is given to local, national and transnational mechanisms of business governance, aiming to explore the shifting and new roles of government in these mechanisms in novel and theoretically insightful ways. These include tensions between complementary competitive relations between public and private bodies and question the ability of the former to effectively enroll, lead and influence the latter. The article describes how regulator and organizational crises are catalyzing the formation and evolution of transnational private regulators and affect the relationship between public and private regimes. Finally, we consider the potential challenges to competitiveness arising from the use of a dynamic perspective on transnational private regulation. Thus, this piece provides an interpretation of the related historical discourses of the past half century, problematizing key underlying assumptions in the field, and proposes a research agenda for the further exploration of governments in governance, underscoring the implications for management and organizations.

The Place of Voluntary Standards in Managing Social and Environmental Risks in Global Value Chains

Under the notion of human rights due diligence (HRDD), firms are under a responsibility to account for the social and environmental impact connected to their operations across global value chains. This responsibility intersects with the sphere of operation of voluntary sustainability standards (VSS), which certify production against certain social and environmental criteria. With mandatory European rules on HRDD in the making, the question arises regarding the extent of alignment of VSS with HRDD notions and, consequently, the possibility for this form of transnational private regulation to complement European Union (EU) HRDD legislation. After presenting the regulatory effects of HRDD in global value chains and its current transposition in EU instruments, this contribution examines the relationship between private standards and HRDD. By delving into the substantive requirements and policies of several schemes certifying agricultural commodities, this paper studies the extent to which they manage social and environmental risks in global value chains and the possible support they provide to firms subject to the upcoming HRDD obligations.

FSC sustainability certification as green-lane for legality verification under the EUTR? Changes and policy learning at the interplay of private governance and public policy

How do policy-oriented learning and shifting coalitions among private and public actors affect the evolution of the regulatory governance of legal and sustainable global timber commodity production and trade? To answer this question, we study the interplay between the transnational private regulation of sustainable forestry certification under the Forest Stewardship Council (FSC) scheme and the public policy requesting due diligence to prove the legality of global timber trade under the EU Timber Regulation (EUTR). We show that strategic policy-oriented learning and shifting coalitions among NGOs, business companies and state regulators were key shapers in the evolution and interplay of private and public regulations in the forest sector. In particular, environmental NGOs (ENGOs) and some forest-based industries first developed the non-state, market-driven FSC forest certification through a strategic alliance triggered by strategic policy learning about the failures and limitations of global state-based regulatory instruments. Following policy controversies about the eroding legitimacy and the ineffectiveness of FSC certification ENGOs, state regulators and other forest industries responded to these concerns and built a new strategic alliance to design and enforce regulatory bans and due diligence rules under the EUTR. Due to these controversies, shifting coalitions and strategic learning, private certification was not recognized as a green-lane to prove legality assurance under the EUTR. Nevertheless, FSC certification has been included, developed and practiced as part of the due diligence systems under the EUTR. In terms of theory development, our results show that strategic policy learning and processes of making and breaking strategic alliances were based on changes in core empirical beliefs based on evidence and information. However, these changes did not involve changes in core normative beliefs, which acted as main cognitive filters for breaking old strategic alliances and making new ones. These essentially cognitive mechanisms explain much of the evolution in regulatory governance interactions in the forest sector, shifting from public to private, then from private to public, and finally ending up in public-private controversies and adaptations.

Power and the Practice of Transnational Private Regulation

ABSTRACT Corporations, NGOs, and private regulatory initiatives have taken on functions once assumed to be the domain of the state and inter-governmental organisations. While researchers are racing to assess the impacts of private rules, theoretical statements remain focused on the design, legitimation, and intermediation of private initiatives or the hegemony of neoliberal governance. This paper instead highlights the grounded practices of transnational private regulation, and it argues that much about these practices can be explained through a straightforward (but multi-faceted) analysis of power. Specifically, unpacking the practice of private regulation requires a focus on (1) the distinctive power struggles that animate different types of standard-setting projects (which should not be reduced to a single logic), (2) the saturation of private regulation with corporate power (not merely the capture of particular intermediaries), and (3) the construction of compliance in ways that accommodate state powers at the point of implementation. These points are illustrated with examples from research on private rules for land and labour and accounts of standards wars more generally.

Evolutionary Dynamics of Transnational Private Regulation

This contribution puts forward an approach to account for evolution of transnational private rule-makers. Morphing of organisations, procedures, and rules is suggested as a key strength of various forms of private authority. Directing our attention towards evolutionary dynamics, their impact on the goals pursued by transnational private regulators, as well as on the implications for targets and beneficiaries of their rules, bring to the fore various implications of transnational private regulators. These implications include tensions between the complementary and competitive relations between public and private authority, and question the capacity of the former to effectively enrol, steer and influence the latter. The article discusses the role of regulatory crises and organisational crises as catalysts for emergence and evolution of transnational private rule-makers, and possible effects on the relation between public and private regimes. It reflects on possible competitive challenges that emerge by employing a dynamic perspective to transnational private regulation.

The place of voluntary standards in managing social and environmental risks in global value chains

Under the notion of human rights due diligence (HRDD), firms are under a responsibility to account for the social and environmental impact connected to their operations across global value chains. This responsibility intersects with the sphere of operation of voluntary sustainability standards (VSS), that certify production against certain social and environmental criteria. With mandatory European rules on HRDD in the making, the question arises about the extent of alignment of VSS with HRDD notions and, consequently, the possibility for this form of transnational private regulation to complement EU HRDD legislation. After presenting the regulatory effects of HRDD in global value chains and its current transposition in EU instruments, this contribution examines the relation between private standards and HRDD. By delving into the substantive requirements and policies of several schemes certifying agricultural commodities, it studies the extent to which they manage social and environmental risks in global value chains, and their possible support to firms subject to upcoming HRDD obligations.

Empiricism, Constructivism, and Grand Theory in Sociological Approaches to Law: The Case of Transnational Private Regulation

AbstractSociological approaches to law in both Germany and the UK have been characterized by internal divisions and divergent methodologies and aspirations. While, in the UK, empirical socio-legal studies have been a prominent way of studying how law shapes and is shaped by social institutions, in Germany, the “grand theory” of systemtheoretical approaches to law has had a lasting impact. In this Article, I discuss the epistemological contrast between these two sociological approaches to law by focusing on how they address transnational private regulation. Empirical socio-legal studies share an epistemic commitment to an objective and knowable social reality, and they tend to see human actors as the motors of history. Thus they focus on the interrelational dynamics within Global Value Chains (GVCs), searching for “what works” in transnational private regulation. On the contrary, systemstheory oriented sociological jurisprudence views social reality as constructed and fragmented into the epistemes of different social systems. GVCs are understood as selfreferential normative orders, in which the question of agency and human actors is secondary—the emphasis is on communications and anonymous forces of ordering. Attempting to inspect the possibilities for synthesis, I ask how “big” we can and should think in law and society. I thus attempt to outline an approach that starts from the materiality of social structures to investigate processes beyond individual agency and to uncover elements of normative reconstruction of the particular area of social activity.

ISO 45001 and controversial transnational private regulation for occupational health and safety

AbstractThis article analyses the genesis of the ISO 45001 standard on occupational health and safety, a new initiative of transnational private regulation. The authors draw a picture of controversy from interviews with stakeholders involved in its design, approval and initial dissemination, and from a qualitative content analysis of the internal documentation of the committee responsible for its approval. Like its predecessors relating to environmental management – ISO 14001 – and corporate social responsibility – ISO 26000 – this new standard raises serious concerns among stakeholders given that it deals with substantive political, social and legal issues.

The Role of Transnational Private Regulation in Mitigating Artificial Intelligence Risks

The paper explores the role of transnational private regulation like certification in addressing human rights challenges posed by artificial intelligence (AI). It first explores the human rights challenges AI may pose. It analyses to which extent and under which conditions transnational private regulation may be effective in addressing human rights risks in general. It then turns to the role of transnational private regulation in connection with AI. It emerges compliance with human rights should partly be embedded in AI and partly be shaped through external risk management when developing and deploying AI. Transnational private regulation may play a role in both. For example, it may indicate which aspects of human rights compliance should be embedded (and provide tools to realize this) and which aspects should be implemented through external risk management. In connection with the latter it is observed human rights due diligence as incorporated in the United Nations Guiding Principles on Business Human Rights (UNGP) or OECD Guidelines for Multinational Enterprises may provide guidance to support external risk management.

Orchestration as a Form of Public Action: The EU Engagement With Voluntary Sustainability Standards

EU authorities have come to engage with transnational private standards in the domain of sustainability in forms which are different from the traditional interplay based on agency relations and incorporation by reference. This phenomenon is evident in the domain of global value chain sustainability where the employment of voluntary sustainability standards (VSS) is permitted in certain EU measures. This contribution depicts the main features of orchestration as a distinct form of public action involving transnational private regulation. It lays down the reasons underpinning public ‘use’ of forms of public authority, it highlights the potential for orchestration in publicising transnational private rules and it exposes the hidden dynamics stemming from the interplay between public and private rules. It discusses the conditions under which orchestration can enhance the effectiveness of public measures, and how orchestration can transform transnational private regimes by steering their substance and procedures.

Orchestration as a form of public action: The EU engagement with voluntary sustainability standards

AbstractEU authorities have come to engage with transnational private standards in the domain of sustainability in forms which are different from the traditional interplay based on agency relations and incorporation by reference. This phenomenon is evident in the domain of global value chain sustainability where the employment of voluntary sustainability standards (VSS) is permitted in certain EU measures. This contribution depicts the main features of orchestration as a distinct form of public action involving transnational private regulation. It lays down the reasons underpinning public ‘use’ of forms of public authority, it highlights the potential for orchestration in publicising transnational private rules and it exposes the hidden dynamics stemming from the interplay between public and private rules. It discusses the conditions under which orchestration can enhance the effectiveness of public measures, and how orchestration can transform transnational private regimes by steering their substance and procedures.

WTO REGULATION OF TRANSNATIONAL PRIVATE AUTHORITY IN GLOBAL GOVERNANCE

AbstractFollowing the proliferation of private standards in the global supply chain trade, it has become clear that these can have adverse effects on international commerce and world welfare in the same way that government-imposed mandatory regulations do. However, the scope of the obligation of WTO Members in relation to the regulation of private standards remains vague and open to divergent interpretations under WTO law. This article starts from the premise that the debate should move beyond the search for a reasonable interpretation of relevant WTO disciplines and instead begin to consider normative questions concerning the legitimacy and accountability of transnational private regulation in global governance and the potential role of the WTO in regulating such private authority. The article explores what justifies the role of the WTO, a multilateral intergovernmental organization, in regulating transnational private standards and how a regulatory mechanism might be designed and implemented in practice.

A dynamic perspective on how public actors shape transnational private regulatory regimes

This paper addresses recent calls to research interactions concerning private and public forms of governance in the transnational sphere. To date, the involvement of government has either not been considered, been promoted as a solution to the regulation proliferation problem or been conceptualized in the singular – one government interacting with numerous non-state actors. We extend these perspectives by studying the dynamics of a transnational regulatory field involving numerous government and intergovernmental actors. By means of 34 interviews and 474 archival sources covering a twenty-five year period, we examine public involvement in the development and evolution of private regulatory coalitions addressing sweatshop issues in global supply chains. Our findings disaggregate “government” from a temporal perspective, revealing the organizational and political dynamics that underpin transnational private regulation. We propose a process model of field-level change that takes into account the involvement of public actors over time, and draws attention to the inherent tensions between social policy (labor issues) and trade policy (harmonization of PRIs). These findings also contribute to practice and policy. We discuss the circumstances when the involvement of multiple governments lead to problematic and counterproductive outcomes at the field level and undermines the reasons for government creation of multi-stakeholder roundtables.

The Dutch Banking Sector Agreement on Human Rights: An Exercise in Regulation, Experimentation or Advocacy?

The role of banks in projects which result in adverse human rights impacts has been brought to the fore in recent years. However, there are serious obstacles to regulate the (often extraterritorial) financing activities of banks under national law. The UN Guiding Principles on Business and Human Rights and OECD Guidelines for Multinational Enterprises attempt to respond to this ‘governance gap’, stipulating that all business enterprises have a responsibility to respect human rights. However, banks’ compliance with such standards has been frustrated by a failure to understand how these standards apply to them.In 2016, the Dutch Government collaborated with the Dutch banking sector and civil society to create the Dutch Banking Sector Agreement: a multistakeholder initiative initiated to improve adhering banks’ performance with respect to the UN Guiding Principles on Business and Human Rights and the OECD Guidelines on Multinational Enterprises. This article reviews how the actors involved drafted the Agreement in light of prevalent divergences in understandings over how human rights apply to banks’ financing activities. It then looks to scholarship on transnational private regulation, experimentalism governance, and social constructivism in mapping three roles the Dutch Banking Sector Agreement could play: regulation, experimentation, and advocacy.

Using Private Contracts for Climate Change Mitigation

Regulation of climate change is caught up in a stalemate. Differences between developed and developing countries prevent reaching an international agreement. Transnational private regulation has unclear legitimacy, effectiveness and enforcement. National efforts are valuable, but their limited geographical reach creates incentives for companies to outsource environmentally heavy activities to countries with weaker regimes, the socalled “carbon leakage” effect. As a result the carbon emissions among international supply chains amount to multiple yearly emissions of some developed countries. This gap needs to be closed if we aim for effective global solutions to climate change. The majority of scholars agree that no single regulatory tool alone can remedy the situation, but that a combination of public and private, mandatory and voluntary regimes is necessary. The author proposes that supply chain contracts are the missing piece in the international climate change regulatory matrix. The article discusses why, despite their potential, supply chain contracts have hitherto experienced only little attention and why they can be successful where other regulation fails. It concludes that the potential of private contracting should be triggered by adequate regulation.

Convergences and Divergences: Comparing Contractual and Organizational Models in International Regulatory Cooperation

Transnational private regulation has dramatically grown in the past decades. Many private regimes spurred, sometimes as a response to fragmentation and proliferation of public domestic regulations. Different forms of regulatory cooperation among private actors have emerged, often supported by international organizations. On the one hand the model of multistakeholder organizations, including various constituencies whose interests are divergent and at times conflicting. On the other hand agreements between regimes’ owners which have designed forms of cooperation ranging from mutual recognition to common standard setting. A third pathway is creation of private meta-regulators, entities which regulate private regulators. The paper describes and compares the three models providing possible explanations about the drivers of each form and the evolutionary patterns driving from ‘contractual’ to organizational forms of regulatory cooperation. It deploys the conventional contract/organizational alternative to explain different patterns of regulatory cooperation based on the degree of divergence and convergence of regulatory objectives amongst the various transnational constituencies. It concludes with some policy recommendations concerning the governance of multistakeholder organizations engaged into regulatory cooperation and the features of regulatory agreements among private regulators.