The EU's strategy clearly demonstrates that the positive development of the European economy is closely related to Europe's companies putting sustainability and corporate responsibility into practice on the ground and that these issues have to be driven by these very companies. To facilitate this, the EU is creating a shared political framework and promoting the discussion on CSR.
The debate on sustainability started in the last decades of the 20th century (Gothenburg 2001). For the past 15 years (green paper on CSR) the EU has been clearly pursuing the goal of putting sustainable development at the heart of its policies and corporate responsibility at the heart of all business strategies.
CSR benefits both companies and society
A good example was the communication on a renewed EU strategy 2011-14 for Corporate Social responsibility, which was published in October 2011. Its revised definition of corporate social responsibility describes CSR as "the responsibility of enterprises for their impacts on society".
This new definition amounted to a paradigm shift by the European Commission on CSR. It corrected its previous understanding of CSR by doing away with the voluntary component and by giving priority to the responsibility of enterprises for their impacts on society. In doing so, the Commission brought its understanding in line with the updated understanding of CSR as laid down in other international frameworks such as the UN Guiding Principles on Business and Human Rights and the revised OECD Guidelines for Multinational Enterprises. Here are some other core components of the EU's 2011 CSR strategy:
- The development of CSR should be led by enterprises themselves.
- But public authorities should play a supporting role through a smart mix of voluntary policy measures and, where necessary, complementary regulation, for example to promote transparency, create market incentives for responsible business conduct, and ensure corporate accountability.
- Enterprises must be given the flexibility to innovate and to develop an approach to CSR that is appropriate to their circumstances.
The Commission implemented the smart mix of voluntary policy measures and binding rules with its directives on non-financial reporting and public procurement. The key motivation behind the EU's CSR strategy is the conviction that CSR is good for companies. But CSR is also an asset for Europe's economy and society, since it stands for more stability, sustainability and innovation. For example, the EU fosters the necessary dialogue on shared values and goals with the help of a multi-stakeholder forum, which it convened and which serves as a discussion platform bringing together civil society and companies.
The Commission's strategy aims to promote the visibility of CSR and the sharing of best practices and to improve trust in the private sector and in the ability of companies to regulate themselves. As an important stepping stone to reaching this goal, the EU promotes and requires reporting and disclosure of CSR-relevant information.
More visibility for responsibility and sustainability
The directive on non-financial reporting sets out the contours of the binding reporting obligations concerning non-financial information applicable to a certain category of companies. The directive applies to large undertakings which are public-interest entities such as publicly-listed companies, banks and insurers employing more than 500 staff members. In their reports they are expected to disclose information on their strategies in the fields of the environment, social and worker concerns, human rights, the fight against corruption and boardroom diversity.
In its 2011-2014 CSR strategy, the Commission stresses that social and environmental concerns are to to be given a greater bearing on public procurement. For example, the revised version of EU procurement law creates the option of doing more to leverage tenders in support of strategic goals such as the promotion of social, environmental and innovative objectives. This is a boon to companies whose corporate responsibility extends all the way to their production and supply chains, and it creates incentives for companies to comply with international corporate responsibility standards (e.g. ILO's core labour standards).
Revision of the CSR Directive: reporting obligations to be expanded significantly
Under Ursula von der Leyen, in late 2019 the European Commission committed to re-examining the existing CSR Reporting Directive within the new European Green Deal. The legislative proposal put forward by the Commission in April 2021 aims to pave the way for more extensive disclosure of sustainability aspects by companies operating in Europe. The goal is to improve the quality, transparency and homogeneity of the reported information. The scope of the directive is also to be significantly expanded: In the future, publicly traded small and medium-sized enterprises with 250 or more employees will also fall under the Directive, as will companies from third countries that are listed on a stock exchange in the EU. The number of companies required to submit reports would then increase from 11,600 to 49,000. After approval by the European Parliament and the European Council, the arrangement could be in force as early as the fiscal year 2023.
The Commission's proposal requires reporting companies to provide significantly more detailed qualitative and quantitative information: for example, concerning the business model, the robustness of the corporate strategy, the impact of the business activity, risk management and due diligence processes.
In the future, the information is to be integrated into the report and auditing will be mandatory. More information on the plans for CSR reporting in the future can be found on the Commission's website.
Germany’s Presidency of the Council of the European Union in 2020 was dedicated to sustainable supply chains - For the first time all 27 EU member states call for European due diligence legislation
In this context, the Commission recently also spoke out in favour of introducing a European due diligence standard for companies. Because it is a strong exporting nation, Germany is very interested in participating actively and shaping the Commission's plans both in the context of the Green Deal and of the protection of human rights in global supply chains.
On 1 July 2020, Germany assumed the Presidency of the Council of the European Union (EU) for six months. The Federal Ministry of Labour and Social Affairs made human rights and decent work in global supply chains a priority during Germany's Presidency of the Council of the European Union. As a result, for the first time ever all EU member states voiced unanimous support for European due diligence legislation in the joint conclusions of the Employment Council on 1 December 2020. The member states issued a clear call for the Commission to submit a proposal for a European legal framework for sustainable corporate governance, including cross-sectoral due diligence obligations for companies in their global supply chains. The Commission is also expected to develop a comprehensive action plan combining a binding due diligence standard with support for European companies in the form of a "smart mix".