Commission mulls harmonised rules on corporate reporting

Business ethics CSR_Picnik.jpg

The European Commission is considering imposing "standardised mandatory reporting" on how companies communicate about corporate social and environmental issues, in an effort to rebuild citizens' trust in business ethics.

The proposal, due in October, will suggest policy directions on corporate social responsibility (CSR) but will shy away from binding legislative measures at this stage, EURACTIV has learned.

"A key objective is to generate higher levels of trust in business on the part of citizens," says the European Commission in a paper highlighting its motivations for drawing up the initiative.

Previous attempts to define CSR policies at EU level became mired in a dispute on whether or not to make the rules legally binding, with business groups firmly rejecting what they saw as a costly burden on companies.

Environmental groups, meanwhile, slammed CSR initiatives as little more than a "PR operation" and pulled out of a Commission-sponsored stakeholder forum in 2006. They rejoined it three years later on the promise that the EU executive would look beyond voluntary measures.

This time around, the Commission sees the economic crisis as an opportunity to re-launch the process by offering companies a chance to improve their ethical standards and revamp their image.

"A renewed CSR policy will help the EU address contemporary social and environmental challenges, especially as an exit from the economic crisis continues to be sought," says the Commission's explanatory document.

The initiative, it says, will "encourage all businesses to pursue actions with social or environmental objectives as part of their daily activities".

The new CSR strategy will be "based on a deeper understanding of the potential and purpose of business to create shared value for owners/shareholders and for other stakeholders and society at large," the EU executive further explains.

Mandatory vs. voluntary

Beyond the vague wording though, debate is likely to centre once again on the mandatory vs. voluntary issue.

But the Commission seems ready to take the bull by the horns and reopen the discussion. "Reporting is an area where a lot more could be done," said one EU official close to the dossier, speaking on condition of anonymity.

"On the obligation side, standardised mandatory reporting is definitely something we're looking into," the official added. But he admitted that this aspect of the upcoming proposal was "not very concrete yet".

In fact, with the economic slowdown and resistance expected from business groups, the Commission might well be inclined to backtrack on mandatory reporting rules.

"The EU approach to CSR must continue to be based on the awareness that it is driven by business," said BusinessEurope, the European employers' organisation, warning of the costs that mandatory reporting would impose on companies.

"The Commission should avoid setting further, more rigid requirements for companies in terms of disclosure of non-financial information. Current legislation is sufficient."

Speaking to EURACTIV on condition of anonymity, a corporate lobbyist in Brussels said the Commission was likely to insist on the accountability side of the equation by pressing companies to respect international standards such as ISO 26000 or supporting international initiatives such as the UN Global Compact and the UN Principles for Responsible Investment (UNPRI).

However, he said modern CSR policies should encourage businesses to "go beyond existing legislation" by setting higher expectations. Supply chain management, human rights and transparency disclosure are likely to take centre stage in future discussions, the source said.

Frédéric Simon

Jan Noterdaeme, senior adviser at CSR Europe, a European network of around 70 multinational corporations, said he expected the Commission to support CSR with "a smart mix of voluntary and mandatory measures". He told EURACTIV that the Commission should aim to strike a balance between legal obligations and incentives for companies to engage in socially responsible business. The EU executive, he said, should "dare go for market rewards for CSR."

Many countries have already started pioneering ambitious policies at national level, with France and Denmark leading the way, Noterdaeme further pointed out (see Commission compendium of national policies). The risk, he warned, is that European companies end up with a patchwork of legislation to comply with, an argument that the Commission is likely to listen to.

"What we expect is that the Commission will coordinate future national action plans on CSR in order to avoid divergent approaches," Noterdaeme said.

Paul de Clerck, corporate accountability campaigner at Friends of the Earth Europe and a member of the European Coalition for Corporate Justice (ECCJ), said: "The European Commission's approach to CSR has improved over the last few years. We observe increased recognition of the need to address human rights violations in developing countries caused by European companies."

"We are also satisfied to see that the Commission recognises that it can not rely on voluntary commitments of business alone and is preparing legislation to oblige companies to report on their environmental and human rights impacts," de Clerck said.

"We expect an ambitious set of actions to be set out by the Commission that gives companies an unambiguous and mandatory framework for disclosing their environmental and human right impacts," he concluded.

Yolaine Delaygues of the ECCJ said: "Before the summer, the EU declared its support for the UN’s Guiding Principles on Business and Human Rights – the first global standards for business impacts on human rights. Now the Commission must reflect this important milestone in its CSR reforms. The forthcoming CSR Communication must put in place a process to prevent and respond to serious corporate abuses."

"Current reforms must improve access to justice for victims an address parent company's accountability and liability," Delaygues added.

The EU's first attempt at fostering greater business ethics and transparency came in 2002 with a multi-stakeholder dialogue on Corporate Social Responsibility (CSR) that brought together civil society and business groups.

The dialogue ended up in a dispute over whether the forum's recommendations should be made legally binding or not, with NGOs pushing for mandatory obligations that were rejected by business groups.

The Commission published a follow-up Communication on CSR in March 2006, which NGOs again criticised for failing to go beyond voluntary commitments.

In protest, they decided to pull out of the stakeholder dialogue, arguing in a letter to the Commission that CSR was being used as a "public relations operation that will have no serious impact on environmental or social issues."

NGOs subsequently reintegrated the multi-stakeholder forum in 2009 when previous Commissioner Gunther Verheugen committed that the Commission would look beyond voluntary measures when developing CSR policies.

  • Oct.: Commission to present communication on Corporate Social Responsibility (CSR).

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