Covenants are voluntary contracts between the government and industrial sectors that address environmental impacts common to a large number of companies, such as the production of packaging waste (EPE 1996). The government typically negotiates with trade associations to meet industry-wide targets, and individual firms then sign on to sectoral covenants via letters of declaration.

The concept of voluntary business-government agreements began in the Netherlands and caught on across Europe in the early 1990s. As of 1996, there were 305 such agreements, with two thirds of them in the Netherlands and Germany (Harrison 1999:24–27). In the Netherlands, covenants have been negotiated with 18 industrial sectors responsible for most of the nation’s industrial pollution, but there are dozens of other covenants that address energy efficiency and other environmental issues (Harrison 1999:24). In fact, these contracts have become a key mechanism in the government’s environmental strategy.

Although voluntary industry-government agreements may be a valuable complement to traditional government policy and a means of engaging corporations directly in problem solving, they haven’t traditionally emphasized transparency or accountability. In most cases, there are no sanctions for corporate failure to achieve commitments. A study of 154 covenants, including 85 in the environmental field, concluded that the majority lacked sufficient safeguards to ensure their success. In most, companies agreed only to “strive to achieve” their obligations rather than to actually achieve them. In half the cases, deadlines for achievement were unclear, and only one in seven required public reporting of results (Harrison 1999:25).

Even where clear provisions for sanctions are incorporated into agreements, the interconnectedness of European and world trade means that negotiating covenants is not simply a national matter. As part of the third Dutch packaging covenant, the Dutch government and the packaging industry agreed that by the end of 2003 businesses would reduce the number of beverage cans and bottles thrown away by two thirds. If the reductions were not met, a compulsory deposit of 0.25 euro (US$0.23) would be placed on cans and bottles on 1 January 2004. However, some European governments and industry groups have challenged the mandatory deposit fees, arguing that they are contrary to European Union law and a possible barrier to free trade (BAE 2003:11).

Another criticism of the covenant approach to regulation is the lack of third-party involvement in their crafting. Corporations and governments frequently agree upon pollution reduction goals with little opportunity for participation by citizens and nongovernmental organizations (Harrison 1999:45). And, unlike laws, informal agreements can be crafted by unelected government officials, with little involvement of democratically elected legislatures—again decreasing their openness to public input (Harrison 1999:17).

Analysis of covenants in Europe in 1997 found that environmental groups participated in the negotiation of only one in five agreements. Just two thirds contained any provision for monitoring, and just over half contained any provisions for verification of this monitoring by government officials (Harrison 1999:24–25). More recent agreements have placed greater emphasis on clarity of commitments, monitoring, and legal formality.