Corporate Social Responsibility: Back on the EU agenda?

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The financial and economic crises have prompted companies to move away from 'business as usual' social models in an effort to behave more responsibly. The question now is whether the new European Commission will revive the debate on Corporate Social Responsibility (CSR) after a period of stagnation.

Background

With a green paper, two communications and an alliance with industry and relevant stakeholders, the European Commission has been trying for a decade to pave the way towards more responsible corporate behaviour. But for years the debate has been held up by issues like whether measures should be voluntary or mandatory and how much civil society should be involved.

CSR is a concept whereby companies and financial institutions not only consider their profitability and growth, but also the interests of society and the environment by taking responsibility for the impact of their activities on stakeholders, employees, shareholders, customers, suppliers, and civil society represented by NGOs.

As a part of the Lisbon Agenda, the Commission issued a 2001 Green Paper and a 2002 Communication on Corporate Social Responsibility (CSR). 

In October 2002, the Commission launched the EU Multi-Stakeholder Forum on CSR

second communication was published on 22 March 2006. In this paper, the Commission defines CSR as "a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis". 

In response to the Commission's communication, the European Parliament voted on a resolution in which it urges the EU executive to extend legal obligations to some key aspects of corporate accountability.

In their resolution, which was passed by a large majority in plenary, MEPs called on the Commission to re-think its position on CSR and involve all stakeholders in the process.

Civil society organisations, mindful of the resolution, sent a letter to the Commission asking for swift action. But the EU executive reaffirmed in March 2007 its long-held stance that CSR is a uniquely voluntary measure which "should not be regulated at EU level".

Issues

After the publication by the European Commission of a Green Paper (2001) and communication (2002) on CSR, discussions have mainly focused on the issue of mandatory versus voluntary rules. 

Industry stressed that CSR on a voluntary basis would allow individual companies to find the methods suitable for their own cultures and needs.

NGOs, on the other hand, accused the Commission of failing to ensure that the European Union would address the real issue of companies' misbehaving inside and outside the EU. They claimed that social reporting, auditing and labelling were inefficient and lacked credibility without standardised methods or independent monitoring.

To break the deadlock, the European Parliament urged the Commission to extend legal obligations to key aspects of corporate accountability, such as directors' duties, foreign direct liability and mandatory disclosure for lobbyists.

But the call went unanswered, only resulting in a vague commitment from the EU executive to explore regulatory approaches alongside a voluntary vision of CSR.

Calls for regulation growing as crisis bites

The financial crisis, which underlined that self-regulation alone does not work, has amplified calls for greater regulation of the financial sector.

NGOs, however, believe that corporate accountability gaps should not be tackled in the financial sector alone.

According to the European Coalition for Corporate Justice (ECCJ), legal reforms must be directed more firmly at all industries. Accountability must be held up as a primary objective of a political process to rebalance the dominant interests of the private sector and multinational enterprises, the ECCJ argues.

After years of squabbling, the European Commission seems to be aligning its position close to the views expressed by NGOs. On several occasions recently, the EU executive has said that the economic and financial crises put CSR into a different perspective.

Former Enterprise and Industry Commissioner Günter Verheugen pointed out at the end of his mandate that the crisis, "far from signalling the end of CSR, is the moment for it to prove its worth once and for all".

Presenting the European Competitiveness Report in 2008, the EU executive stressed in an accompanying working document that "CSR needs to be part of core business strategies if it to be a competitive differentiator".

With that in mind, the EU executive concluded that if CSR activities remain a peripheral concern, primarily confined to a public relations exercise, companies are "likely to miss opportunities for competitiveness gains".

This argument appears to have been strengthened by a falling level of public trust in business. This year, however, the 2010 Edelman Trust Barometer reports a modest global rise in trust in business, driven by Western economies.

In the wake of the financial crisis, a number of measures may have contributed to boosting trust, said the report. These include a rise in stock markets and a growing trend among US corporations to listen to and engage their stakeholders, to treat their employees well and to play a role in solving major societal challenges, conclude the authors of the report.

Europe 2020 strategy putting responsibility first

Taking stock of this new context, the Commission flagged in its Europe 2020 strategy, published in March 2010, the need for "a new agenda that puts people and responsibility first".   

Under a flagship initiative to draw up a framework for a modern industrial policy, the Commission called for the EU strategy to be renewed to promote CSR "as a key element in ensuring long-term employee and consumer trust".

According to Mattia Pellegrini, responsible for CSR in Commission Vice-President Antonio Tajani's cabinet, CSR is a priority for the new industry and entrepreneurship commissioner.

"When he was commissioner in charge of transport he made passenger rights a huge issue and brought about legislation on it in the space of two years. He wants to do the same for enterprise," said Pellegrini.

Internal Market Commissioner Michel Barnier seems to be on the same wavelength. He recently told the European Parliament that transparency, responsibility and ethics need to be at the heart of the financial sector.

According to sources, the EU executive is poised to appoint a group of commissioners to work together to draw up a communication on CSR, which is likely to appear by the end of 2010 or 2011 at the latest.

CSR: A stable concept or still evolving?

Experts note that CSR broadly stems from the concept of sustainable development, defined as development that meets present needs without compromising the ability of future generations to meet their own.

The blueprint was put together at a 1992 UN conference on the environment and development in Rio de Janeiro (the first Earth Summit). It is based on the principle that development should be economically efficient, socially equitable and ecologically sustainable.

CSR, the initial objective of which was accountability, still largely appears to be an evolving paradigm closely linked to the current transition towards a new economic model, said Christian Noyer, current governor of the Banque de France.

A recent survey by PricewaterhouseCoopers of 140 chief executives of US-based multinational companies found that 85% of them believe that sustainable development will be even more important to their business model in five years' time than it is today.

According to Richard Howitt, the European Parliament's rapporteur on the Commission's 2006 communication on CSR, there are huge limitations to the term 'CSR' as described by the EU executive and particularly Commissioner Tajani. Nevertheless, the next five years should not be spent discussing definitions, he told a recent Brussels event.

NGOs agree with the Parliament. "The EU is the world's biggest economy and has powerful instruments to set environmental targets, reduce inequalities and regulate the market. What is needed now is the political will to make a sustainable and fairer EU a reality, with the support of the strong civil society movements that exist," stated the Spring Alliance of NGOs in their manifesto.

Breaking the voluntary vs. mandatory deadlock

The Commission is aware that the first stumbling block to overcome is the issue of whether the disclosure of environmental and social information should be voluntary or mandatory.

The issue is deeply damaging, said Howitt, stressing that there should be an evolutionary approach to avoid falling into the same trap that has muddled progress in recent years. 

"Where sustainability reports were once perceived as ways of pointing out what businesses were doing wrong, the perception has now changed," Howitt said, adding that there would not be a problem if mandatory requirements followed voluntary best practice.

At a conference organised last November by the Swedish EU Presidency, member states backed a proposal by Harvard Professor John Ruggie, the UN secretary-general's special representative on business and human rights, who said a smart mix of voluntary and regulatory instruments is needed to move forward on the issue.

A joint statement released after the conference by the Swedish-Spanish EU Presidencies indicated that over the years the EU has recognised CSR as a key element in fostering a truly sustainable global economy, and now the time is ripe to take this important work further by developing common frameworks.

"The responsibility is threefold: the state duty to protect – including legislation as well as implementation of human rights obligations, in particular with regard to business; the corporate responsibility to respect human rights; and the responsibility of all parties involved to ensure access to adequate remedies to uphold and develop such human rights," reads the statement.

Howitt, however, is convinced that it would be wrong to come up with new instruments.

There are approximately 20 instruments at the moment, according to the Commission. The most internationally recognised are the UN Global Compact and the OECD guidelines for Multinational Enterprises.

The Global Compact embraces a set of core values in the areas of human rights, labour standards, environmental protection and the fight against corruption.

The OECD guidelines for multinational enterprises sets out voluntary principles and standards for responsible business conduct consistent with applicable laws.

The Danish model: A way out?

Some experts in EU circles think Brussels should look more carefully at the Danish model. After years of voluntary practices, Denmark recently adopted a law making 1,100 largest private and state-owned companies and institutional investors to include corporate social responsibility information in their annual financial reports beginning in 2010.

The new Danish law does not try to reinvent the wheel, but rather use the international framework that already exists for CSR, the UN Global Compact and the UN Principles for Responsible Investment (PRI).

To motivate companies to join the UN instruments, Danes allow member companies to refer in their annual reports to their UN-led Communication on Progress in lieu of reporting under the new governmental rules.

According to the Danish Government Centre for CSR, the number of Danish members of the Global Compact have more than tripled (from 54 to 163), just like the number of PRI members (4 to 18).

"Corporations are more aware than ever that it makes good business sense to integrate CSR into their business model. However, while some have taken major strides in this direction, many are still looking for guidance on what they should be doing and how best to communicate it to their customers," said Catherine Starkie of Weber Shandwick, a public affairs consultancy in Brussels.    

Not without civil society

Following the Commission's communication on CSR, an Alliance for Business was created. But NGOs refused to participate in this and created their own European Coalition for Corporate Justice.

"There was a polarisation of stakeholders in 2006: that saw the NGOs boycotting the communication forum," explained Howitt. "Now we should try getting the NGOs back into the discussions and an inclusive process needs to be put in place – this will provide a fresh opportunity and impetus to advance the debate at EU level," he added.

Positions

BUSINESSEUROPE Director General Philippe de Buck said: “The newly appointed Commission should maintain the principles and spirit of the 2006 communication, supporting CSR as a voluntary mechanism for companies to integratesocial and environmental concerns in their business operations and in interaction with stakeholders".

According to de Buck, CSR should continue to be business-driven, focused on practical, company-level solutions which take into account the diversity of company approaches to CSR.

"The Commission should support the CSR Alliance, which has produced concrete results. The tools developed by the laboratories will assist companies in further developing their CSR practices. BUSINESSEUROPE is committed to continuing the dialogue with other stakeholders through the Multistakeholder Forum. We will also continue discussions on transparency and disclosure of information by companies, as follow-up to commission workshops on these issues,” added de Buck.

Commenting after the introduction of Denmark's law, Danish Economic and Business Affairs Minister Bendt Bendtsen said "many Danish companies are skilled in combining good business and responsibility. By introducing this action plan, we will help companies become even better – and not least more accomplished in spreading the message to customers, business partners and consumers".

In its contribution to the Europe 2020 consultation, the European Coalition for Corporate Justice (ECCJ) stressed that the financial crisis had clearly illustrated that self-regulation does not work. Amplifying calls for heavier financial sector regulation, it said clearer rules and more oversight by public authorities are needed. 

However, the ECCJ was also quick to underscore that widely discussed gaps in corporate accountability are not and cannot be limited to the financial sector. The NGO coalition stressed that the existing EU legal framework allows parent companies to legally receive benefits from unlawful acts of company subsidiaries and commercial partners. "Suspending these principles would close a loophole through which unlawful acts become illegal and this would realign profit making with the law," they said, proposing EU legislation to make parent companies of multinational enterprises with significant business operations in the EU liable for violations by subsidiairies abroad.

Speaking at the CSR Forum in Brussels last year, Günther Verheugen, former vice-president of the European Commission responsible for enterprise and industry, said: "The task of rebuilding trust in business has to start now. It has to be a priority for the business community. And it has to include a deeper understanding of the purpose of business in society."

"Sometimes, I have the feeling that people consider that the fall of the communist regimes in 1989 meant that liberal capitalism has won the battle of ideologies once and for ever. Thinking that the market economy system is always to be accepted no matter how it is actually working and whether it is regulated or not is a serious mistake. Many who have been saying for years that markets are best when left completely alone have recently been proven wrong. We all have to learn some lessons from what has happened in the financial markets and create rules which effectively enable markets to operate in the interests of society," he said. 

Verheugen added: "Clearly, in a market economy, business has to make a profit. However, a genuinely European view holds that to achieve this objective in a sustainable way, the economic activities must ultimately serve the interests of society. Enterprises do this through the wealth they generate, the jobs they provide, and the goods and services they offer, while taking care of the environment and local communities where they operate."

The commissioner also stressed his view that CSR should remain a voluntary concept. "I will not make any proposals that would risk undermining that principle. But let me be clear – defining CSR as a voluntary concept does not mean that its boundaries are fixed once and for all – regulation and CSR while being mutually exclusive are dynamic and evolving. CSR in twenty years will certainly encompass some other commitments than it does today."

The European Parliament's rapporteur on CSR, British Labour MEP Richard Howitt, said: "The Commission wants Europe to be 'a pole of excellence' in business, but instead has dumped five years of debate and consultation into a black hole. The Commission says that public authorities should create an enabling environment for CSR yet opts out from any proposals for concrete action for itself, simply repeating generalisations which we have all read before."

"The failure to build on extensive work since 2001 creates the risk that companies, as well as other interests, will walk away from the debate. If this is all the Commission can come up with, Europe risks being sidelined on a critical issue for the future of business, while the UN Global Compact and the Global Reporting Initiative take the lead on CSR," Howitt added. 

Friends of the Earth Europe (FoEE) said: "Commissioner Verheugen hijacked the CSR process to his jobs and employment agenda. The paper we received is not about improving the environmental and social impact of European companies, but only on how companies can become more competitive and profitable." 

FoEE complained that "[the] Commission's proposal does not include NGO recommendations: E

  • Ensuring accountability of companies to their stakeholders;
  • Social and environmental reporting requirements;
  • Using public policy measures such as public procurement and public subsidies to stimulate responsible behaviour;
  • Implementing international standards and principles;
  • Involving stakeholders from the early stages of CSR strategy development;
  • Ensuring independent monitoring/verification.

Responding to the publication of the communication, Anne-Sophie Parent, president of the Social Platform at the time, said: "This narrow and exclusionary approach is a dramatic U-turn on CSR from the Commission. The balanced approach to CSR has been hijacked by Commissioner Verheughen to support his 'Jobs and Growth' initiative, ignoring the need to build consensus on this issue."

Arnaldo Abruzzini, secretary-general of Eurochambres, said: "The proposed actions of the Alliance seem to be consistent and aligned with the priorities of the Growth and Jobs strategy: to make Europe a pole of excellence on CSR in support of a competitive and sustainable enterprise and market economy."

The European Trade Union Congress (ETUC) said, "it appears that the debate on the subject of CSR is at risk of taking place without the true participation of the organisations representing the 'social side'".

"Having received no response so far on the points that remained unresolved after the multi-stakeholders forum, the ETUC wants to express its justified concern about the evolution of an unbalanced, unilateral approach to CSR, that takes account of the viewpoint of only one actor: the companies," ETUC continued.

"While acknowledging the voluntary nature of the CSR approach, the ETUC wishes to emphasise that it is indispensable and fundamental that CSR should be governed by guidelines set at European level," it said.

The European Commission said: "NGOs have not been excluded, are not excluded and will not be excluded. They have been part of the broad consultation process and they will be part of the review."

"The Commission will support the organisation of a review meeting with all stakeholders to take stock of progress made in relation to the recommendations of the CSR Forum before the end of 2006. To enhance the transparency, visibility and credibility of CSR practices, the Commission encourages enterprises who support the Alliance to make CSR information available to all stakeholders, including to consumers, investors and the wider public," it said.

Green MEP Jean Lambert said: "By underlining the voluntary basis of CSR, the Commission is giving businesses carte blanche to operate as they want, with scant regard for environmental or social concerns. Seeking to drive up standards, while placing companies under no obligation to do so, is wishful thinking. The voluntary approach plays into the hands of businesses that want to maximise their profits by exploiting their employees or at the expense of the environment. If the EU seriously wants to compete it should be on the basis of quality rather than low pay and weak labour standards."

Timeline

  • 18 July 2001: Commission publishes Green Paper on promoting Corporate Social Responsibility (CSR).
  • October 2002: Launch of the Multi-Stakeholder Forum
  • 22 March 2006: Commission communication on CSR, which was initially foreseen for the end of 2005. At the same time, launch of an 'Alliance on Corporate Social Responsibility' bringing together main industry actors and Commission.
  • December 2006: Commission tried to bring together all interested parties for a review meeting to take stock of EU CSR policies so far. A number of key NGOs did not take part in this meeting. 
  • 13 March 2007: Vote on Parliament's own-initiative report (Rapporteur: Richard Howitt) on the Commission communication. 
  • 26 June 2007: UNDP / EU conference 'CSR in the New Europe: challenges and solutions'.
  • 1 March 2008: European Alliance for CSR Progress Review 2007

Further Reading

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