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.