The EU's CSR policy

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 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

In future, companies' sustainability reporting requirements will change significantly as a result of the new EU Corporate Sustainability Reporting Directive (CSRD), which is currently being renegotiated in a so-called omnibus procedure at EU level. The Stop-the-Clock Directive (Directive (EU) 2025/794) delays the date on which certain sustainability reporting requirements would come into effect, as well as the deadline for their transposition into national law. In the meantime, the Federal Government is committed to implementing the requirements of the CSRD as quickly as possible to provide companies with legal certainty.

The CSRD aims to address gaps in existing regulations by introducing broader sustainability reporting, thereby enhancing the accountability of European companies regarding sustainability issues and, for the first time, establishing binding reporting standards at the EU level.

Central elements include:

• Extended, standardised reporting obligations
• Double materiality reporting
• External audit of reports
• Being anchored in the management reports of companies
• Standardised electronic reporting format

EU supply chain legislation initiative

On 23 February 2022, the European Commission presented a proposal for a directive on sustainable corporate governance, the draft Corporate Sustainability Due Diligence Directive (CSDDD), which sets out human rights and environmental due diligence obligations as well as requirements for responsible corporate governance. The objective is to ensure that companies in the EU implement due diligence obligations to avoid the negative impact of their business activities on human rights and the environment in their value chains, both within and outside Europe.

The directive stipulates that companies within its scope must, in future, identify risks throughout their entire value chains, implement preventive and remedial measures, and report on these measures while adequately considering both upstream (e.g. raw material extraction) and downstream (utilisation, recycling, disposal).