Ethical business blitz

04 January 2012

The European Commission has had a rethink on corporate social responsibility. It previously insisted that CSR could not be forced on firms. But at the end of October 2011, it published a range of proposals that will entail new obligations for companies, writes Stephen Gardner. It has even changed its definition of CSR. Whereas it previously saw CSR as a "concept" that could only be adopted by companies "on a voluntary basis", it has now taken a  more direct approach: CSR is "the responsibility of enterprises for their impacts on society". CSR activists believe the change of tone means they are winning the argument. The European Coalition for Corporate Justice said the plans were "proof" that the European Union "is increasingly recognising the human rights and environmental impacts of European companies around the globe". The Commission is the EU's executive arm. Its proposals will be considered by the European Parliament and EU governments meeting in the EU Council. Any new laws adopted will have an impact on companies across the 27-member EU bloc. The October package covered reporting, transparency and social business. Getting companies to deliver clearer information is a major goal. For example, legislation will be modified so that companies must disclose their use of financial devices beyond standard purchasing of shares that could be used to take major stakes in listed companies. This will close a loophole that can allow companies to secretly build up stakes in other companies. Or, in Commission jargon, it will block the "creation [of] an information asymmetry with possible incorrect market pricing". Another measure will see oil, gas and mining companies required to report financial results for each country they operate in, rather than the current norm of consolidated global accounts. This, according to the Commission, will "provide civil society in resource-rich countries with the information needed to hold governments to account for any income made through the exploitation of natural resources". Or, put more simply, it will be harder to hide dubious payments for mining or logging rights. The Commission also wants to boost so-called "social enterprises". Measures for this include a funding scheme for social businesses, and encouraging public authorities to take into account the broader benefits offered by social businesses when awarding public contracts. On top of all this, the Commission is considering tighter rules on non-financial disclosure, with proposals due during 2012, and is looking into corporate governance issues, such as the presence of women on company boards, and how directors' pay can be made fairer. The various measures are part of the EU's response to perceived irresponsible business behaviour in the run up to the economic and financial crisis. Unsurprisingly business organisations are concerned. Tom Sallis of the Confederation of British Industry's Brussels office said that "prescriptive regulation on CSR could encroach on the ability of companies to deliver CSR policies that are tailored to their specific circumstances". The CBI "is concerned by the regulatory nature" of some of the plans, and the Commission should "reconsider the full implications" of its proposals, Sallis said. A version of this article was published in Ethical Corporation magazine.

 

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