European Commission calls on employers to act on corporate social responsibility

The European Commission launched a renewed EU strategy on corporate social responsibility in October 2011, covering 2011 to 2014. It includes a call for all large companies across Europe to sign up to international standards in this area.

Strategy relaunched

The Commission launched an EU strategy for promoting corporate social responsibility (CSR) with a Green Paper in 2001. This resulted in significant initiatives such as the creation of a European multi-stakeholder forum on CSR in 2002 and a business-led European alliance for CSR in 2006.

On 25 October 2011, as part of the EU's overall Europe 2020 jobs and growth strategy, the Commission relaunched its CSR work with a Communication entitled "A renewed EU strategy 2011-14 for corporate social responsibility" (PDF format, 136K) (on the Europa website).

According to the Commission, the current economic crisis and its social consequences have "to some extent damaged consumer confidence and levels of trust in business" and "focused public attention on the social and ethical performance of enterprises". By renewing efforts to promote CSR now, the Commission aims to "create conditions favourable to sustainable growth, responsible business behaviour and durable employment generation in the medium and long term". The Commission argues that helping to mitigate the social effects of the crisis, including job losses, is part of the social responsibility of companies.

Basic approach

The Commission formerly defined CSR as "a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis".

The Communication sets out a new definition of CSR as "the responsibility of enterprises for their impacts on society". Respect for applicable legislation and collective agreements is a prerequisite for meeting this responsibility. Enterprises should have in place a process to integrate social, environmental, ethical, human rights and consumer concerns into their business operations and core strategy in close collaboration with their stakeholders. The aim should be to:

• maximise the creation of "shared value" for their owners/shareholders and for their other stakeholders and society at large; and
• identify, prevent and mitigate their possible adverse impacts.

The complexity of this process will depend on factors such as the size of the company and the nature of its operations. For most small and medium-sized enterprises (SMEs), the CSR process is likely to remain "informal and intuitive".

To maximise the creation of shared value, the Commission encourages companies to adopt a long-term, strategic approach to CSR, and to explore the opportunities for developing innovative products, services and business models that contribute to societal wellbeing and lead to higher-quality and more productive jobs.

To identify, prevent and mitigate their possible adverse impacts, large enterprises, and companies at particular risk of such impacts, are encouraged to carry out risk-based due diligence, including in their supply chains.

The Commission argues that CSR covers, as a minimum:

• human rights;
• labour and employment practices, such as training, diversity, gender equality and employee health and wellbeing;
• environmental issues, such as biodiversity, climate change, resource efficiency, life-cycle assessment and pollution prevention; and
• combating bribery and corruption.

Community involvement and development, the integration of people with disabilities, and consumer interests, including privacy, are also part of the CSR agenda. The promotion of social and environmental responsibility throughout the supply chain, and the disclosure of non-financial information, are important in CSR, as is good tax governance.

The development of CSR should be led by enterprises themselves, with public authorities playing a supporting role through voluntary policy measures and, where necessary, complementary regulation. Companies must be given the flexibility to innovate and to develop an approach to CSR that is appropriate to their circumstances. Many enterprises nevertheless value the existence of principles and guidelines that are supported by public authorities, to benchmark their own policies and performance, and to promote a more level playing-field.

Agenda for action

The Communication sets out an agenda for action between 2011 and 2014. It focuses on the following priorities:

• enhancing the visibility of CSR and disseminating good practices;
• improving and tracking levels of trust in business - for example, by addressing misleading marketing related to the environmental impacts of products, and by carrying out periodic surveys of citizens' trust in business;
• improving self-regulation and co-regulation processes;
• enhancing "market reward" for CSR (that is, using EU policies in areas such as public procurement to reward responsible business conduct);
• improving disclosure of social and environmental information by companies;
• integrating CSR into education, training and research;
• emphasising the importance of national and subnational (regional or local) CSR policies; and
• better aligning European and global approaches to CSR.

Below, we highlight the actions proposed by the Commission that are of greatest significance for employment and company practice.

Enhancing visibility and disseminating good practices

The Commission will promote dialogue with companies and other stakeholders on issues such as employability, demographic change and active ageing, and on "workplace challenges" such as diversity management, gender equality, education and training, and employee health and wellbeing. It will focus in particular on sectoral approaches and on the dissemination of responsible business conduct throughout supply chains.

The Commission's main initiative in this area will be to create "multi-stakeholder CSR platforms" in a number of sectors in 2013. These will bring together representatives of enterprises, their workers and other stakeholders, enabling them to make public commitments on the CSR issues relevant to their industry and jointly monitor progress. The Commission will also launch from 2012 a European award scheme for CSR partnerships between enterprises and other stakeholders.

Improving self- and co-regulation

Companies are often involved in processes whereby they regulate their own CSR performance, or do so in cooperation with others, for example through sector-wide codes of conduct on issues relevant to the industry in question. When such processes are designed in an appropriate way they can gain stakeholder support and be an effective means of ensuring responsible business conduct, the Commission states. However, experience suggests that self- and co-regulation processes are most effective when they:

• are based on an initial open analysis of the issues with all concerned stakeholders, in the presence of and if necessary convened by public authorities such as the Commission;
• result in clear commitments from all stakeholders, with performance indicators;
• provide for objective monitoring mechanisms, performance review and the possibility of improving commitments where needed; and
• include an effective accountability mechanism for dealing with complaints regarding non-compliance.

The Commission will therefore launch a process involving companies and other stakeholders to develop a code of good practice for self- and co-regulation exercises, with the aim of improving the effectiveness of the CSR process.

Enhancing market reward for CSR

Companies face dilemmas when the most socially responsible course of action may not be the most financially beneficial, at least in the short term. The EU should therefore use its policies in the field of consumption, public procurement and investment to strengthen market incentives for CSR.

On public procurement, Directives lay down EU-wide rules on the purchase of goods and services by public bodies, and the Commission is currently reviewing this legislation. As part of this review, the Commission will seek to facilitate the better integration of social and environmental considerations into public procurement, although without introducing additional administrative burdens for contracting authorities or companies, and without undermining the principle of awarding contracts to the most economically advantageous tender. The Commission also encourages public authorities at all levels to make full use of all possibilities offered by the current legal framework for public procurement for rewarding responsible business conduct.

Improving company disclosure of social and environmental information

A 2003 EU Directive on companies' annual accounts requires enterprises to disclose in their annual reports environmental and employment-related information to the extent necessary for an understanding of the company's development, performance or position. Some member states have introduced non-financial information-disclosure requirements that go beyond the Directive's requirements. Further, a growing number of companies voluntarily disclose social and environmental information - the Commission cites research that finds that about 2,500 European companies publish CSR or sustainability reports, although it points out that this is only a small fraction of the 42,000 large companies operating in the EU.

In order to ensure a "level playing-field", the Commission will present a legislative proposal on the transparency of the social and environmental information provided by companies in all sectors. It is conducting an impact assessment for such a proposal. Further, it is developing a policy to encourage companies to measure and benchmark their environmental performance using a common lifecycle-based methodology that could also be used for disclosure purposes.

National and sub-national CSR policies

The Commission acknowledges that many public policy measures to support CSR are best carried out at national, regional and local level. It intends to create with member states in 2012 a peer review mechanism for national CSR policies. Further, the Commission invites member states to develop or update by mid-2012 their own plans or national lists of priority actions to promote CSR in support of the Europe 2020 strategy, with reference to internationally recognised CSR principles and guidelines and in cooperation with enterprises and other stakeholders, taking account of the issues raised in the new Communication.

Better aligning European and global approaches to CSR

The main internationally recognised principles and guidelines on CSR are as follows:

• The Organisation for Economic Co-operation and Development (OECD) guidelines for multinational enterprises (on the OECD website). These are recommendations from governments to multinational companies, which set out principles and standards for responsible business conduct on a range of issues including employment and industrial relations. Adhering governments (including that of the UK) must implement and promote the guidelines, including by setting up "national contact points" whose role includes dealing with complaints about multinationals' behaviour.
   

   

  All large European enterprises are asked to make a commitment by 2014 to take account, when developing their approach to CSR, of the UN global compact, the OECD guidelines and/or the ISO 26000 guidance standard.

   
• The UN global compact (external website). This is a voluntary initiative whereby companies agree to embrace, support and enact, within their sphere of influence, a set of 10 core principles in the areas of human rights, labour standards, the environment and anti-corruption. Some 1,900 EU-based businesses have so far signed up.
• The International Organisation for Standardisation (ISO) 26000 guidance standard on social responsibility (on the ISO website). This provides voluntary guidance for companies on acting responsibly and contributing to sustainable development, in areas including labour practices.
• The International Labour Organisation (ILO) tripartite declaration of principles concerning multinational enterprises and social policy (on the ILO website). This provides guidelines to multinational companies, governments and employers' organisations in areas such as employment, training, living and working conditions, and industrial relations.
• The UN guiding principles on business and human rights (external website). These recommendations seek to provide a global standard for preventing and addressing the risk of adverse impacts on human rights linked to business activity.

The Commission wants EU policy to promote CSR to be fully consistent with this framework of principles and guidelines, and calls on EU companies to renew their efforts to respect them. Specifically, it asks:

• all large European enterprises to make a commitment by 2014 to take account, when developing their approach to CSR, of the UN global compact, the OECD guidelines and/or the ISO 26000 guidance standard; and
• all Europe-based multinational enterprises to make a commitment by 2014 to respect the ILO tripartite declaration.

The Commission will monitor the commitments made by European enterprises with more than 1,000 employees to take account of internationally recognised CSR principles and guidelines.

The Commission expects all European enterprises to meet their responsibility to respect human rights, as defined in the UN guiding principles, and invites EU member states to develop national plans for the implementation of the principles by the end of 2012, which were adopted in June 2011. It will also:

• work with companies and stakeholders in 2012 to develop human rights guidance for a number of sectors, along with guidance for SMEs, based on the guiding principles; and
• publish by the end of 2012 a report on EU priorities in the implementation of the principles, and thereafter issue periodic progress reports.

Follow-up

The Commission will work with member states, companies and other stakeholders to monitor progress with the new CSR agenda. It will publish a report on implementation and hold a review meeting by mid-2014.

The Commission calls on European business leaders, including those from the financial sector, to issue, before mid-2012, an "open and accountable commitment" to promote, in close cooperation with public authorities and their other stakeholders, the "uptake of responsible business conduct" by a much larger number of EU enterprises, with clear targets for 2015 and 2020.

Reactions

The Commission's renewed strategy on CSR has met with a mixed response from employers' groups. For example, EuroCommerce, which represents retail and wholesale companies across Europe, welcomed the promotion of internationally agreed CSR principles and guidance tools such as the OECD guidelines, the UN global compact and ISO 26000. It also supports enhancing the visibility of CSR and promoting the dissemination of good practices, for example through a European award scheme or sector-specific multi-stakeholder platforms.

However, EuroCommerce expressed some reservations. Its director general, Christian Verschueren, said: "We regret that the voluntary engagement of companies is no longer seen by the Commission as a key feature of CSR. The new definition of CSR as 'the responsibility of enterprises for their impacts on society' puts less emphasis on the great voluntary efforts and achievements that can be witnessed in commerce and other sectors."
 
On CSR reporting, EuroCommerce asked the Commission to refrain from measures that would increase administrative burdens and impose additional costs on companies, especially in the current difficult economic circumstances. Verschueren said. "Many retailers and wholesalers already report extensively about their CSR engagement. Commerce companies need to maintain their flexibility on how they disclose information about their social and environmental impacts and commitments."
 
Ueapme, which represents SMEs at European level, said that the new Communication "leaves a lot to be desired". Ueapme's enterprise policy director, Luc Hendrickx, commented: "The strategy does not reflect the voluntary nature of CSR, as was previously the case, and fails to recognise the efforts and specificities of SMEs in the field by concentrating mainly on larger companies."

Hendrickx described the compulsory disclosure of non-financial information by companies as "a no go for SMEs, with estimated costs ranging from €15,000 to €25,000 per company per year". Even if SMEs were exempted from compulsory requirements, those acting as subcontractors or suppliers for larger companies would be obliged to disclose information in the same way. Ueapme hopes that "before putting forward its legislative proposal the Commission will properly assess the impact of compulsory requirements".

This article was written by Mark Carley, international editor.