Reforms will make CSR mandatory not voluntary but weak wording and loopholes could prevent meaningful change, writes *Jerome Chaplier*
The negotiations were long and painful, but in the end a deal was done. EU member states finally agreed to back reforms that will mean large listed companies are required to report on their environmental and social impacts.
Pending final approval by the European Parliament and the European Council, corporate social responsibility has moved from being voluntary to mandatory. As such, this deal could be a momentous step forward – a significant victory snatched from the jaws of defeat. But, weak wording and loopholes have left many members of the European Coalition for Corporate Justice (ECCJ) wondering if the victory is hollow – whether the reforms agreed will in fact be enough to drive meaningful change.
The potential is there. After a heated stand-off, the deal done in Brussels will enshrine a duty in law to report on the non-financial impacts of business activities. Some 6,000 large companies will be required to report on their policies on diversity, social issues and on corruption, as well as the risks they pose to human rights and to the environment, including through their supply chains. As such they will be making themselves accountable not just to their shareholders, but to stakeholders as well.
But opposition from some member states, particularly Germany, Poland and the UK, mean the requirements will not apply to the majority of large companies – according to estimates just one in seven large companies will be required to report. Companies will also be free to choose which indicators and standards they use for reporting – making comparisons between companies meaningless. Reports will be audited, but not verified – and no sanctions are in place for companies that fail to comply.
Disagreements over whether the reform should be mandatory or voluntary nearly killed the whole package – and the result is a compromise giving companies a huge amount of flexibility in how they comply with the reform.
Yet there is little disagreement within business about the value of non-financial reporting. A recent study by PWC showed that three in four CEOs agreed that it contributed to their long-term success. Identifying risks to a business – whether financial, social or environmental – has long been recognised as crucial for investors, and more progressive companies recognise that their relationship with other stakeholders is also important.
Some companies, including Ikea and Unilever spoke out in favour of the reforms – but there were also signs that industry dinosaurs were actively lobbying against the reform, scaremongering about the costs and bureaucracy of a mandatory approach. BusinessEurope, the Europe-wide lobby group, argued vociferously that corporate social responsibility can only work if it is voluntary. The German government's position appeared to echo this line.
No doubt some companies will remain blind to the advantages of the reporting regime. They will continue to brush aside the adverse impacts of their business and ignore the potential costs in their business plans. It is unlikely that the reforms will transform business behaviour overnight. Serious abuses will still remain unaccounted for. But the onus is now on business leaders to make these reforms work for business. Meaningless reports will indeed be "more red tape"– but meaningful data will be valuable for everyone.
Demands for greater transparency and accountability are growing – from investors and from civil society. Intelligent business leaders have already recognised that these reforms can be a useful tool that they can use to their advantage. By complying with the new requirements, they will have an enhanced understanding of the risks they face, and will act to reduce these risks. This will not only be of benefit to their reputation, but also benefit their long-term survival business and in all probability, their bottom line. These companies have a key role to play in driving the market towards greater transparency.
ECCJ members have always been very clear that a voluntary approach would not lead to more sustainable and fair society. Corporate social and environmental reporting must be mandatory to be taken seriously – and must be meaningful if it is to avoid the pitfalls of "greenwash". It is not, of course, a panacea. Identifying the safety risks in a factory is just the first step in removing the danger. If problems are not even acknowledged, they will never be addressed.
Jerome Chaplier is the coordinator of the European Coalition for Corporate Justice (ECCJ) – a network of more than 250 NGOs, trade unions, consumer groups, and academics promoting greater corporate accountability
*Join the community of sustainability professionals and experts. Become a **GSB member** to get more stories like this direct to your inbox* Reported by guardian.co.uk 11 hours ago.
The negotiations were long and painful, but in the end a deal was done. EU member states finally agreed to back reforms that will mean large listed companies are required to report on their environmental and social impacts.
Pending final approval by the European Parliament and the European Council, corporate social responsibility has moved from being voluntary to mandatory. As such, this deal could be a momentous step forward – a significant victory snatched from the jaws of defeat. But, weak wording and loopholes have left many members of the European Coalition for Corporate Justice (ECCJ) wondering if the victory is hollow – whether the reforms agreed will in fact be enough to drive meaningful change.
The potential is there. After a heated stand-off, the deal done in Brussels will enshrine a duty in law to report on the non-financial impacts of business activities. Some 6,000 large companies will be required to report on their policies on diversity, social issues and on corruption, as well as the risks they pose to human rights and to the environment, including through their supply chains. As such they will be making themselves accountable not just to their shareholders, but to stakeholders as well.
But opposition from some member states, particularly Germany, Poland and the UK, mean the requirements will not apply to the majority of large companies – according to estimates just one in seven large companies will be required to report. Companies will also be free to choose which indicators and standards they use for reporting – making comparisons between companies meaningless. Reports will be audited, but not verified – and no sanctions are in place for companies that fail to comply.
Disagreements over whether the reform should be mandatory or voluntary nearly killed the whole package – and the result is a compromise giving companies a huge amount of flexibility in how they comply with the reform.
Yet there is little disagreement within business about the value of non-financial reporting. A recent study by PWC showed that three in four CEOs agreed that it contributed to their long-term success. Identifying risks to a business – whether financial, social or environmental – has long been recognised as crucial for investors, and more progressive companies recognise that their relationship with other stakeholders is also important.
Some companies, including Ikea and Unilever spoke out in favour of the reforms – but there were also signs that industry dinosaurs were actively lobbying against the reform, scaremongering about the costs and bureaucracy of a mandatory approach. BusinessEurope, the Europe-wide lobby group, argued vociferously that corporate social responsibility can only work if it is voluntary. The German government's position appeared to echo this line.
No doubt some companies will remain blind to the advantages of the reporting regime. They will continue to brush aside the adverse impacts of their business and ignore the potential costs in their business plans. It is unlikely that the reforms will transform business behaviour overnight. Serious abuses will still remain unaccounted for. But the onus is now on business leaders to make these reforms work for business. Meaningless reports will indeed be "more red tape"– but meaningful data will be valuable for everyone.
Demands for greater transparency and accountability are growing – from investors and from civil society. Intelligent business leaders have already recognised that these reforms can be a useful tool that they can use to their advantage. By complying with the new requirements, they will have an enhanced understanding of the risks they face, and will act to reduce these risks. This will not only be of benefit to their reputation, but also benefit their long-term survival business and in all probability, their bottom line. These companies have a key role to play in driving the market towards greater transparency.
ECCJ members have always been very clear that a voluntary approach would not lead to more sustainable and fair society. Corporate social and environmental reporting must be mandatory to be taken seriously – and must be meaningful if it is to avoid the pitfalls of "greenwash". It is not, of course, a panacea. Identifying the safety risks in a factory is just the first step in removing the danger. If problems are not even acknowledged, they will never be addressed.
Jerome Chaplier is the coordinator of the European Coalition for Corporate Justice (ECCJ) – a network of more than 250 NGOs, trade unions, consumer groups, and academics promoting greater corporate accountability
*Join the community of sustainability professionals and experts. Become a **GSB member** to get more stories like this direct to your inbox* Reported by guardian.co.uk 11 hours ago.