By Julia Lieser, Responsible Business – Berlin
The financial instability shadowing the Eurozone since the 2008 financial crisis continues to plague the economic fabric of the Union. We have witnessed multiple nation bailouts which were largely the result of financial mismanagement and negligence. Cyprus was the fifth country to be bailed out since Greece in 2012 while pressure continues to build on other member states such as Portugal.
These challenges have exposed a pressing need for all arms of society and government to work in unison, and business is now met with growing expectations to make positive contributions to help solve the growing social unrest in the European Union.
Europe has maintained its reputation for driving sustainability policies forward within and beyond its borders. The last decade has seen growing interest from the private sector and policymakers as to how corporate social responsibility (CSR) can contribute to sustainable development. There is increased awareness of the impacts of environmental and social issues on businesses and CSR has now become a core pillar of the majority of global European companies.
However, doubts remain over whether the European Union has the appetite to enforce laws for mandatory non-financial reporting and tackle wider social and environmental concerns through CSR engagement in Europe and beyond.
One for All, All for One
Each of the 27 member states of the European Union has its own unique undertaking of CSR. The generally accepted definition of CSR by the European Commission states that enterprises are responsible for their impacts on society, however the translation on the ground varies depending on the country, size and type of business implementing it. In general, European countries have different levels of awareness affected by national CSR policies. In countries such as Norway for example, sustainability reporting is mandatory whereas in other regions of Europe, CSR is still in an embryonic stage. This poses a great challenge for policy-makers when defining EU-wide targets and policies to achieve the highest potential of CSR as individual countries continue to focus on locally-specific social and environmental concerns. To encourage a more collaborative effort, the European Commission has recently funded and initiated a Pan-European Award scheme to further promote and award responsible business practices. The first winners of the UK award have already been announced.
To succeed in its 2020 sustainable growth strategy, the EU and businesses rely on an interdependent relationship to achieve the greatest impact. In recent years, policy makers in Europe have started shifting focus to CSR as an innovative method to address the growing socio-economic concerns facing European society. Investors as well as the general public, are more frequently asking companies to be transparent with their environmental issues.
This new age of public accountability is acutely monitored by the watching eye of social media, with sites such as Facebook and Twitter providing a global platform for voicing discontent. Businesses seem to be recognizing this new age and are responding with voluntary CSR and governance measures at the highest levels. The European Union is following the trend by working on frameworks for EU-wide integrated reporting guidelines. In fact, sustainability reporting based on international guidelines has been highlighted as playing an essential role in achieving the EU’s sustainable growth objectives for 2020.
Making Reporting Mandatory
The European Parliament has recently taken steps to advance the implementation of the EU strategy 2011-2014 for CSR by adopting two European parliament resolutions on CSR. These highlighted the need for regulatory measures to avoid differentiating national interpretations and encourage non-financial reporting, with only a small proportion of multinational companies reporting in Europe. According to the Association of Chartered Certified Accountants (ACCA), less than 10% of the largest EU companies currently disclose such information either regularly or properly - leaving much room for improvement and a considerable competitive edge for the 10%.
The most recent amendment to the CSR proposal stressed that larger listed companies must report non-financial information, such as diversity and environmental policies and explanations for omissions in a “comply or explain” manner.
While the recent resolution may indicate a step towards greater corporate transparency, it has also been met with considerable criticism from both business and civil society organizations (CSO). The most prominent rejections came from German industry federations who issued statements saying that reporting on their handling of social issues and risks would expose highly sensitive internal information and go against the voluntary nature of CSR. Conversely, the move has also been applauded as a significant step to enhance corporate transparency and accountability across Europe and to drive more sustainable decision making at home and in supply chains abroad.
Paul Simpson, chief executive of the Carbon Disclosure Project (CDP) was quoted saying, “Ratification of this proposal could accelerate the integration of environmental considerations into companies’ core strategies, dramatically transforming the market and placing Europe in a leadership position on corporate accountability. Further, businesses that disclose are best positioned to manage their environmental impacts, risks and opportunities, building business resilience across the region.”
The proposals will need the approval of the European Parliament and EU states before they are ratified but opposition from major business sectors will provide a significant obstacle and send out mixed signals to business sectors elsewhere that are being encouraged to provide sustainability reporting by international organizations.
CSR, Europe and Beyond
In a world of cross-border investments and global supply chains, the EU must also make sure its CSR policies are in compliance beyond its own borders and ensure that European companies adopt responsible business practices on a global scale. The resolution on CSR dated 6 February 2013 stressed the importance of awareness-raising at corporate level concerning the importance of CSR and the consequences of non-compliance, and noted that this must be accompanied by adequate awareness and capacity building by host country governments. It also noted that in terms of human rights, European companies and the EU Commission have a responsibility to promote ethical conduct in their international operations and global supply chains. It is further remarked that the Commission and the member states should encourage European companies to take initiatives aimed at promoting CSR and exchange good practices with their partners in other countries.
The resolution further encourages the Commission to continue its efforts to promote CSR in relation to other countries and regions around the world.
European companies compete in an increasingly interconnected marketplace, and the social and environmental issues they face are no longer locally focused; corporate social responsibility now has global relevance and a global impact. While companies increasingly recognize their social responsibility, many of them have yet to adopt management practices that reflect this beyond their headquarters.
Call for Action
To reduce the absolute social and environmental footprint in Europe, there needs to be both a stringent review of current political and economic policies as well as propelled action from the side of consumers, businesses and public institutions in the EU member states which will require a paradigm shift of action. There is obviously a delicate balancing act between getting stringent guidelines and membership approval, but CSR initiatives remain the strongest hope of achieving this both in the short and long term.
Source: Responsible Business Magazine