EU’s ‘ethical business’ blueprint raises expectations

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An EU blueprint to increase businesses accountability on environmental and social matters has raised expectations among NGOs that welcomed the "change of tone" in the European Commission's approach but remained cautious on the implementation.

Corporate accountability campaigners were heartened by the Commission's 'Social Business Initiative' and 'Corporate Social Responsibility' strategy, unveiled on 25 October.

"It's a completely different tone" from the EU's previous CSR policy, said Paul de Clerck, a corporate accountability campaigner at Friends of the Earth Europe.

"The Commission clearly stepped away from its purely voluntary approach," he told EURACTIV.

As part of the new CSR approach, the Commission said it will bring forward "a new legislative proposal" in 2012 to improve company disclosure of social and environmental information, a move welcomed by de Clerck who said it would help fight "greenwash".

Companies that "do the right thing" should also be rewarded with updated EU public procurement rules, due by year-end.

"European policy-makers no longer consider that CSR excludes the option of regulating the business sector," said the European Coalition for Corporate Justice (ECCJ), a pressure group where de Clerck is an active member.

Non-financial reporting

One of the key elements of the Commission initiative is to introduce a system of country-by-country reporting for companies active in the oil, gas, mining or logging in order to improve the transparency of their activities abroad.

"Reporting taxes, royalties and bonuses that a multinational pays to a host government will show a company's financial impact in host countries," the Commission explained in a statement.

The initiative goes "well beyond the US Dodd-Frank Act," boasted Michel Barnier, the EU's internal market commissioner, saying it will "help to achieve a new step in the quality of our relations with Africa, based on mutual accountability and transparency."

The Dodd-Frank Act, a sweeping financial reform and consumer protection law enacted in 2010, seeks in part to limit risky derivatives trading and lending practices in the United States.

The new EU approach will be done via amendments to two directives – the Transparency Directive to cover listed companies and the Accounting Directives (1 and 2) to cover large non-listed companies.

The changes to the transparency directive would also prevent companies from secretly building up a controlling stake in a listed company, like when Porsche suddenly revealed in 2008 that it owned or had positions on more than 74% of Volkswagen shares.

But despite the progress made in some areas, NGOs said the plan still contained loopholes. "European headquarters of companies cannot be held accountable for the damage caused by their subsidiaries or in their supply chain in developing countries," noted the ECCJ.

"Nor does the plan clarify how the legal framework can improve access to justice for victims of corporate abuses."

Cutting red tape for SMEs

Amendments to the two accounting directives are also aimed at cutting red tape for small companies.

SMEs listed on the stock exchange will also no longer have to file quarterly financial statements, reducing their costs by a potential €1.7 billion per year.

UEAPME, the European SME employers’ organisation, said it was left with mixed feelings by the Commission's initiatives.

“While the plans to simplify accounting requirements for companies are to be welcome overall, the new strategy on CSR is a step back in terms of policy thinking and may cause additional costs for SMEs if the disclosure of non-financial information by companies is made compulsory,” said Luc Hendrickx, Enterprise Policy Director at UEAPME.

The Association of Chartered Certified Accountants (ACCA) welcomed the deregulation agenda for financial reporting but said it must be tempered by the need to reflect the wider social value of accounting and auditing, for example on bribery.

ACCA welcomed the new emphasis placed on environmental and social reporting but said other areas should not be overlooked. "Wider ethical and human rights concerns should also be part of undertakings’ business operations and core strategy. We argue that CSR should also be about responsible business behaviour in paying debts and dealing with creditors, or about employment policies such as prohibiting child labour," stressed John Davies, head of Technical at ACCA.

The European pharmaceutical industry association EFPIA applauded the Commission's CSR communication, but insisted on self-regulation as the best approach. "My industry has a well-developed system for self-regulation, ranging from disclosure to business conduct," said EFPIA Director General Richard Bergström. "Detailed rules for the promotion of medicines and interactions with health care professionals, as well as patient organisations, are laid down in a code of conduct that is binding for EFPIA members," he said.

The European Coalition for Corporate Justice (ECCJ), a pressure group, welcomed the Commission's new CSR strategy but said it now needed to be followed up. “The EU is increasingly recognising the human rights and environmental impacts of European companies around the globe," said Filip Gregor, chair of the ECCJ. "But more action is needed to really hold companies to account. We believe the EU has a duty to legislate to guarantee human rights are respected and the environment protected wherever European companies are operating."

Paul de Clerck, steering group member of ECCJ, said: “European companies such as Shell, Tesco and ArcelorMittal take the profits from their business in developing countries but don’t want to be responsible for the damage that they cause. The EU must put in place legislation that will hold European companies accountable for the damage caused by their subsidiaries or suppliers and they must take steps to make it easier for victims to go to a European court in case of abuses.”

Amnesty International said the strategy would fail to protect local communities against human rights abuses committed by EU businesses operating abroad. Amnesty cited recent abuses including two oil leaks from a Shell pipeline in the Niger Delta in 2008, and the activities of a British-based firm, Monterrico Metals PLC, which has agreed to compensate 33 Peruvian victims who had been tortured by police after protesting against mining operations of a Monterrico subsidiary.

“It’s not enough for the Commission to invite companies to practise due diligence to prevent harm to human rights”, said Nicolas Beger, Director of Amnesty International’s European Institutions Office. "The Commission and EU countries must each introduce the necessary laws".

CSR Europe, a network of around 70 multinational corporations, said businesses have come a long way since the CSR concept was launched in the mid 1990s, with most companies now taking advantage of sustainability concerns "as a source of innovation and new business opportunities."

"However, integrating CSR into global supply chains and ensuring that business contributes to sustainable development worldwide remains a major challenge for companies," it said in an interview with EURACTIV.

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.

  • 18 Nov. 2011: Commission hosts conference on social economy and social Business.
  • By end 2011: Commission to table review of public procurement directives to better reward socially and environmentally responsible companies.
  • First half 2012: Commission expected to table proposal for improving company disclosure of social and environmental information (under Danish Presidency).
  • 2012-2013: European Parliament and EU Council of Ministers to examine proposals to revise the accounting and transparency directives.
  • Mid 2014: Review of Commission's CSR strategy.

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