CSR in the EU: Time to Make It Mandatory?

Authors

• Charlotte Bancilhon

  Former Director, Sustainability Management, BSR

The European Commission’s third Communication on CSR has been a long time coming.  With mid-October the new projected release date, it’s a good time to look at what may be on the table.

The big question is whether the Commission will continue the existing trajectory of promoting CSR as a soft-law voluntary concept or whether it is ready to take its approach to new levels with more powerful initiatives, including regulatory measures.

Efforts toward fostering greater responsible business practices in the EU started in 2002, when the Commission organized the multi-stakeholder Forum on CSR. Since its establishment, the Forum, which brings together businesses, trade unions, NGOs, and others, is home to a heated debate on whether CSR should be defined as a voluntary concept or whether aspects of CSR should be made mandatory. While businesses have argued that CSR should be a business-led effort applied on a voluntary basis, allowing each company to adopt the measures that is most suitable to individual needs, the NGO community has countered that the credibility of CSR relies on defining legally binding measures.

Up until now, the Commission has always promoted CSR asa voluntary concept. In its 2006 Communication on CSR, CSR is defined 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." NGOs left the Forum in protest, stating in a letter to the Commission that “a voluntary approach will not guarantee accountability” of businesses.

In the last few years, we’ve seen a wave of new regulations on CSR-related topics across the United States and Europe: the U.S. Dodd-Frank Act on conflict minerals, the California Transparency in Supply Chain Act on eradicating slavery and human traffickingo, and even the Energy Labeling and Eco-design directives at the European level. In addition, there are a variety of soft-law initiatives such as the newly revised OECD Guidelines on Multinational Enterprises and the UN Guiding Principles on Business and Human Rights. With this in mind, it appears that the time is ripe for the European Commission to review how it defines CSR and its role in promoting it.

We’ve already seen signs of this. After boycotting the multi-stakeholder Forum in 2006, NGOs subsequently reentered the Forum in 2009 when the Commission promised they would look beyond voluntary commitments on CSR. Last April, the Commission also committed to issue a proposal on non-financial disclosure of companies. The proposal, expected in 2012, is based on a 2010 stakeholder consultation and a forum on ESG reporting. Considering some member states such as France and Denmark have already crafted their own laws on CSR reporting, the debate now is less a question of whether EU regulation will come but more a question of how.

The release of the Communication will undoubtedly spark a renewed debate on the role of regulation in promoting responsible business and sustainability. But this time around, the debate could be less black and white with more emphasis on where regulation works and where it doesn’t.