On 3–4 February 2015 the Corporate Social Responsibility (CSR) Multi-Stakeholder Forum took place at the European Commission in Brussels. The aim of the forum was to gather input from all relevant stakeholders – businesses, public authorities and civil society organisations – in anticipation of the drafting of the Commission’s renewed CSR strategy for the period 2015-2020. Between April and August 2014, the Commission had also held a public consultation. The Forum in February 2015 comprised general (plenary) sessions for all delegates, to discuss stakeholder collaboration and the next steps for CSR. There was also a choice of panel sessions. The summary below reflects both the general sessions, and those attended by ACCA staff (Vikte Andrijauskaite, public affairs and media relations officer – Brussels, and Paul Cooper, corporate reporting manager – London).
Parliamentary support for the Forum comes chiefly from MEP Richard Howitt (UK, S&D Group, and Rapporteur on CSR). In his opening remarks, MEP Howitt stated that the key issue is to change business culture away from the fatal short-termism of recent years, and to support business to be genuinely sustainable in the long-term – both for itself, and for people and the environment in general.
The opening remarks reminded delegates about other EU initiatives and concerns. For example, there is the Non-Financial Reporting Directive, which completed all stages of its adoption as recently as December 2014, and the transposition and implementation of which – in spirit, as well as in its legal form – will play a very important part in the next phase of CSR. MEP Howitt also touched on the high levels of youth unemployment in parts of the EU. He commented that CSR should include a youth guarantee: “There is a real danger that too many young people are becoming alienated and disenfranchised from what we like to call common European values”.
1. A worldwide perspective
European companies need to look to global initiatives, in particular the UN guiding principles on business and human rights, the OECD guidelines on multinational enterprises, and the concept of Integrated Reporting.
The proposed Transatlantic Trade and Investment Partnership (TTIP) agreement between the EU and the US also needs a CSR element. As MEP Howitt commented: ‘a commitment to high labour and environmental standards is a necessary part of maintaining public support for an open trading agenda for Europe.’
Pierre Delsaux, deputy director general at DG GROW (the EU directorate responsible for matters concerning the internal market, industry, entrepreneurship and small and medium-sized entities [SMEs]) noted that UN Secretary-General Ban Ki Moon has made the following proposal: ‘All countries should consider requiring companies to undertake mandatory economic, environmental, social and governance reporting, accompanied by regulatory changes that ensure that investor incentives are aligned with sustainable development goals.’
It was agreed at the Forum that CSR principles need a worldwide reach, in order to reflect their impact and to respond to issues in an increasingly global economy. This raises the question of whether the Commission’s initiatives on CSR can have a wider influence. A panel member at one of the sessions described below expressed confidence that Europe can achieve this. One practical way of doing so is by EU-headquartered companies promoting CSR in other countries in which they operate, for example, through their policies on human rights.
2. The approach for business (including voluntary versus mandatory frameworks)
In order to make CSR effective, enterprises not authorities should take the lead, deciding how to tackle the various aspects of CSR applicable to them (such as labour rights and environmental protection). The Commission envisages a co-ordinating role through an advisory framework. It was highlighted that a certain degree of legislation is necessary, but that duplications and undue additional burdens must be avoided, especially for SMEs.
The Commission maintained its current preference for a 'smart mix' between voluntary and mandatory approaches, and a number of individual companies represented at the Forum (including Unilever, Telefonica, Coca Cola and Ikea) concurred with this overall. Pierre Delsaux explained: ‘We advocate a non-prescriptive approach to CSR policy. We have to strike a balance which upholds human rights and environmental and social objectives in a way which, at the same time, minimises burdens on businesses and maintains competitiveness and economic growth’.
The desirability of a public commitment to CSR by the Commission was raised a number of times during the Forum, primarily through the suggestion that it should arrange award ceremonies to recognise innovation in CSR, and adherence to its principles.
3. The impact of CSR policies in practice
There was a consensus that CSR-type principles should be adopted by companies, and that the Commission is well-placed to provide leadership, such as through encouraging innovation and the skilling of young people.
However, Amnesty International raised concerns about the actual effectiveness of a mainly voluntary approach in creating accountability, and moving power away from commercial organisations by, for example, providing accessible redress mechanisms for the victims of corporate failures (as envisaged by the United Nations).
As in other areas, a risk-based due diligence process can reduce the perceived burden of CSR regulation. In the wrap-up session at the conclusion of the Forum, the idea was also raised of an improved ex-ante process. This increases the likelihood of securing a remedy without going to court.
Friends of the Earth (‘FotE’) echoed the need for access to justice, including in the home countries of multinationals whose victims reside outside the EU. FotE also drew attention to unacceptable corporate environmental behaviour within the EU, despite EU initiatives such as those on non-financial reporting. The Commission was urged to take part in UN initiatives on business and human rights.
FotE considered the involvement in tax avoidance by large companies espousing CSR principles to be especially unacceptable and detrimental to the effectiveness of CSR, due, for example, to the resulting higher tax burden on SMEs.
4. Range of external CSR stakeholders
To be credible, the responsibility for CSR is not confined to companies. It also encompasses politicians, media and civil society. It was agreed that sustainable reporting boosts transparency if done comprehensively and correctly. We therefore need to take into consideration issues of transparency and accountability, and education and governance, for a number of stakeholder groups.
5. Range of internal CSR stakeholders
These include a company’s supply chain, and its employees and their trade unions, particularly under the collaborative approach between unions and employers in certain parts of Europe. Both the German and French government representatives spoke in favour of setting standards around how companies can demonstrate responsible management of their global supply chains.
Supply chains both need to adhere to the organisation’s CSR values, and be treated in accordance with those values. Unilever mentioned that where suppliers are SMEs, CSR principles can ‘trickle down’ to them from larger organisations. Insofar as women are particularly involved in SMEs, there should be a resulting external benefit in terms of societal equality. In return, ‘healthy’ societies make for ‘healthy’ business.
6. Education, including for SMEs and consumers
Some stakeholders stressed the need to educate consumers and create education platforms internationally, in order to promote best practice. Intergenerational dialogue and the communication of values are crucial in the education process.
There was a call for more peer-learning and best practice sharing. The Commission representatives took note of these ideas, and will incorporate them in their future CSR projects.
For SMEs, especially those without connections such as a larger overseas parent, the external education and support aspects are very important. Most SMEs have to rely on the public education system, and are rarely able to provide either additional training for their employees, or dedicated staff in-house.
Consumer education is seen as key to changing corporate attitudes towards competitiveness. The lowest-cost method will not be pursued by companies when end-consumers require products which are sustainably sourced, and accept that they will pay a higher price for this. A more direct form of protection is the adoption of legally-binding agreements by producers, such as those covering garment manufacturers in Bangladesh.
1. ‘CSR as a driver for innovation, competitiveness and growth’
this highlighted some best company practices, and discussed options for the EU’s future CSR strategy. Panellists stressed the importance of an enabling legal framework for innovation. This requires a level-playing field for companies, thereby preventing unfair competition, and reversing the on-going ‘race to the bottom’ in many competitive markets. CSR needs to be embedded into a larger framework, as most companies and organisations currently view CSR through their own sustainability strategy.
2. ‘Promoting CSR among European SMEs – National Perspectives’
This dealt with the need to acknowledge the aspects of CSR which are specific to SMEs. It was also stressed that there is a need to support capacity building in both intermediary organisations (such as regional government, and governmental development agencies) and SMEs. SMEs have the least potential to adopt CSR, and to establish a link between it and sustained profitability; however, they need to understand that it is an opportunity for them.
It was noted that SMEs need more support, and not more guidelines or additional regulation. It became evident from the panel discussion that the support needed varies between EU Member States.
Amongst the positive points made, it was noted that many SMEs do not view CSR as a burden, and that CSR encourages a mind-set of problem-solving and looking ahead which is of benefit to SMEs. By their nature, SMEs are driven by personal values, which can give powerful support to the implementation of an ethos consistent with (and maybe going beyond) CSR principles.
3. ‘Business and Human Rights – fostering EU leadership and implementation’
This session confirmed that we need to do much more in Europe, including to question whether existing laws are enough, and what other provisions might need to be made mandatory. Some organisations suggested that certain identified actions should be considered wholly inappropriate, no matter how financially attractive they are to a company.
4. ‘The role of CSR in facilitating medium / long-term responsible investment’
The panel included a representative of Principles of Responsible Investment (PRI), a members’ organisation for investors. Axa Investment Managers, a member of PRI, was also represented on the panel, and outlined the investment criteria which it adopts to ensure that it can maintain its membership of PRI, whilst also responding to the external economic environment.
The above criteria were mostly developed in-house (in the absence of generally agreed industry principles). The Panel discussed the difficulty of committing to CSR for investment managers, compared to asset owners (investors). Managers need to develop particular team capabilities and incentives, as well as benchmarks for the appropriate selection and monitoring of investments.
Changes to investor attitudes which have complemented the CSR approach include the perceived need to look longer-term following the financial crisis, and the realisation that climate change is now a current problem, as opposed to being seen previously as just a possible threat at some future time.
The panel agreed that care is needed to avoid misleading investors in the marketing of responsible investments. The risk of this happening has been evident even with more established products, such as payment protection. The ‘labels’ which distinguish an investment as responsible have to be defined in accordance with generally accepted criteria.
A panellist from the European Bank for Reconstruction and Development (‘the Bank’) explained how investments are selected or excluded for the green bonds issued by the Bank. For example, water projects, wherever located, must meet the standards set by the EU. Bio-fuels are excluded due to the present lack of consensus as to their environmental credentials. The Bank finds that the use of CSR principles in due diligence can be highly pertinent, especially where the bank has become the lender of the ‘last resort’ for projects which have failed to attract finance from other sources.
5. ‘Managing a responsible supply chain’
The key points from this panel session concern the length and potential complexity of the supply chain, the limits of certification and assurance, and the aim for CSR to become more widely known about and used in evaluating companies. On the latter point, a representative of Tullow Oil remarked that the company adopts CSR whether or not its customers currently value this, and that the success of CSR depends ultimately on whether users of the reporting will examine and question its content.
The panellist from SEDEX (the Sustainability Ethical Data Exchange) reported that most companies still only look to the first tier of their supply chain, although risks increase through the second and third tiers. A look further along the supply chain can also highlight a need for specific programmes, such as assisting the welfare of female workers in low-income sectors where they predominate. On the other hand, it may be difficult to trace along the supply chain where, for example, agencies are used to source supplies. Due diligence is seen as a useful tool in these circumstances, by acknowledging that there are risks, and identifying the critical ones.
A number of reservations were expressed about certification and assurance schemes. Certification does not guarantee compliance, and a panellist from the Ethical Trade Initiative reported that breaches of CSR rules still occur frequently, including in Europe.
More frequent compliance audits and greater regulation would not be the solution, when a number of organisations are already subject to many audits each year. Frequent audits may have a negative impact on how trusted suppliers feel, and the extent to which they believe they can be open about problems which they have identified themselves. One of the panellists added that audits tend to be of limited use in identifying and then addressing chronic CSR deficiencies.
6. ‘Scaling up CSR in banking and finance’
This session called on financial institutions to set up systems for benchmarking corporate environmental and social performance.
7. ‘Public procurement’
This covered both the need to include CSR provisions in public procurement contracts and the fact that legally, these provisions can only relate to how the contract is executed. Guidance, such as on the risks involved in complex supply chains, is likely to be helpful in implementing public procurement Directives issued by the EU, though only once experience has revealed the areas in which this guidance is particularly needed.
1. Capital Markets Union (CMU)
The EU has begun this project in order to improve access to finance. The need for Europe to create a CMU that is sustainable was among the conclusions supported at this Forum.
2. Tax avoidance
See major themes coming out of the Forum (section 3.) above.
3. Other reporting bodies and CSR development
The EU recognises the need to work with the International Accounting Standards Board (IASB) and the International Integrated Reporting Council. The IASB’s remit is primarily historical financial reporting. In the case of Integrated Reporting, one delegate at the Forum also cautioned against an over-reliance on financial information.
The Commission is expected to present its new CSR strategy later this year. Its involvement might focus on targeted support (such as education to assist the SME sector, and working with weakly-governed states), leading by example (through its own governance), and maintaining the prominence of CSR (for example through award ceremonies, and sharing – as part of the educative process – any new ideas which are arising).
The Forum confirmed the breadth of potential stakeholder involvement in developing and supporting CSR. For example, consumers could be made aware that they also have an impact as contributors to pension plans. The media also has a role to play. In the end, it is hoped that CSR will be so embedded within companies’ processes as to become intuitive and almost ‘invisible’.
While it is envisaged that CSR will ultimately be subject to guidance more than regulation in the EU, certain necessary ‘parameters’ have been identified. One is consistency with equivalent UN frameworks, such as on human rights. Another is the need for unified ‘labels’, and systems of measurement, in order to describe CSR attributes consistently and meaningfully. While the need for international equivalence has been identified, so has the need to accommodate differences between Member States, in order that CSR will be suitable for, and accepted across differing geographical areas in Europe. This could be achieved through education at the local level.
What we currently term CSR (or ESG – environmental, social and governance) may be covered by a different term in future. Some organisations do not like the inclusion of ‘social’, while others consider the term CSR to be an imperfect description. In concluding the Forum, the alternative term ‘business and human rights’ was mentioned, as was the idea of a term which focuses on the concept of sustainability.