Social investors take a step in the Mideast

Private investment is limited because so many Middle Eastern companies are state-owned, according to Elliot Schrage, adjunct senior fellow at the Council on Foreign Relations in New York.

For example, in Bahrain, the freest economy in the region, more than 70 percent of revenues come from state-owned enterprises. Likewise, in oil-rich Saudi Arabia, just 25 percent of business belongs to the private sector.

Thus, short-term investment decisions, Mr. Schrage says, will not drive corporate social responsibility in the region as much as a long-term interest among companies to improve living conditions in the countries where they do business.

"The private sector is slowly recognizing that helping to address social issues in the region will benefit their bottom line over time," Schrage says, noting unemployment, pollution, and the treatment of migrant labor as top issues. "As in other regions, the private sector operating in the Middle East will first address the least culturally sensitive issues and those with the greatest benefit to their business."

Companies with headquarters or operations in the Middle East, Schrage says, are beginning to address social ills as the private sector did during the movement's infancy in North America and Europe - through philanthropy.

Attendees at the Dubai conference will in fact hear much about opportunities for funding local education and public health projects. But the notion of placing women in their own top management positions - a hallmark of socially responsible companies in the West - will not be on the agenda.

Those determined to invest for change in the Middle East will find a highly cautious approach among the multinational corporations that present themselves as beacons of social responsibility in the region. Among the leaders of the corporate social-responsibility movement are the Dubai conference's lead sponsors: Royal Dutch/Shell Companies, British American Tobacco, and McDonald's Corp. In McDonald's case, "responsibility" to date has meant being sensitive to local customs, sharing ownership with local franchisees, and donating to health clinics and hospitals in countries where the company operates restaurants.

Though these initial goals might be modest by Western standards, the region's start-ups in search of capital might hold greater promise in the long run. The Calvert Foundation hopes its microcredit enterprise will enable Middle Eastern companies to hire locally from the swelled ranks of the unemployed.

Still, when potential local partners have to be screened for ties to terrorists, a stable environment to pursue social progress can seem a long way off. "In many cases, places with the greatest need become the hardest places to deploy resources," says Tim Freundlich, director of strategic development for the Calvert Foundation. To this point, even sub-Saharan Africa has been an easier place to find stable investment partners than the Middle East, he adds.

Despite the hurdles, investors with big dreams for the Middle East see private enterprise as the most promising channel. Foreign companies in the region sometimes enjoy freedom to pursue on-site what would amount to a new social order if practiced off premises. In Saudi Arabia, for instance, women are forbidden to drive themselves to work, but those employed by Exxon or other multinational corporations enjoy dispensation to wield managerial authority on the job, according to Tim Smith, president of the Social Investment Forum, an investors' association in Washington, D.C.

"There's a lot of pressure on bigger companies to be good global citizens," Mr. Smith says. "Many of these companies increasingly are making commitments to live up to international standards, wherever they may be doing business."

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