Strategy report shows how businesses can benefit by becoming more responsible and also make Europe more competitive
In the midst of the Euro-zone crisis, it would have been easy to miss the recent publication of the new Communication on Corporate Social Responsibility (CSR) from the European Commission. Publication had been delayed several times as rival camps battled over the text.
The final product will disappoint those calling for far more regulation of business behaviour but it is an intellectually coherent, pragmatic and useful document.
There are a number of important features for those interested in improving their reputations and, therefore, the licence to operate of companies. The report offers a new EU definition of CSR which emphasises that this is about core business purpose and strategy and how business makes all its money – not how it spends a tiny fraction of it in the community.
Specifically, it says CSR is "the responsibility of enterprises for their impacts on society." It's a timely and welcome definition. CSR is about minimising negative environment, social and economic impacts and maximising the positive impacts.
There is a useful clarification of some key aspects of responsible business practice needing more attention, such as companies' tax strategies, human rights and supply chain issues.
In the past, there have been suggestions that the EU should develop its distinctive CSR approach. Happily, such shortsightedness is abandoned in favour of a clear endorsement of global standards such as the OECD guidelines for multinationals, the UN guiding principles on business and human rights, and the new ISO 26000 guidance standard for CSR.
The report also offers a robust defence for a smart mix of laws, market incentives, and collective self-regulation as the best means to advance CSR to maximise shared value for business and society. Indeed supporters of what Michael Porter and Mark Kramer call shared value, or what Adrian Hodges and I termed as corporate social opportunity, will be pleased by the commission's explicit recognition that done well, CSR can deliver value simultaneously to business and to society – and it is by far the most sustainable.
Those following the UK's experimentation with responsibility deals for joint commitments between government and businesses will be pleased to see that the commission plans to identify good practice in the creation of such deals, which it calls the "self or co-regulation exercises."
Despite the inherent difficulties in doing so, there is also a commission commitment to look further at incorporating environmental and social performance criteria within public procurement rules.
Another potentially useful step is the proposal for multi-stakeholders in high impact industries. This could help broker serious discussions about contentious business practices between companies and stakeholders – although whether the EU Commission needs to lead on this could be questioned.
Personally, I am less enthused by proposals for an EU-wide CSR awards scheme. Whilst awards can help showcase and collect good practice, they would need a critical mass of better resources and organisation to become credible.
The section of the report likely to attract most comment is on corporate reporting of environmental, social and governance impacts. Many had expected a more precise proposal on reporting instructions than "the commission will present a legislative proposal on the transparency of the environmental and social information provided by companies in all sectors" at some unspecified date in the future.
As the commission notes, whilst there are important international moves towards the development of Integrated Reporting; and more companies are publishing CR or sustainability reports, this only yet covers a small proportion of the 42,000 multinationals operating in the EU. Following the Danish example of "comply or explain" - requiring large companies to state whether they have a CR policy and if so, to regularly report on progress, is surely the least that should now be expected of large multinationals across the EU.
The commission also invites all large enterprises to make a public commitment by 2014 to one of a number of specified international frameworks, such as the UN global compact. Will it name and shame companies that don't do so?
Overall, the strategy report is an intelligent description of what corporate responsibility is; and offers a realistic set of initiatives to promote more responsible business.
International business has an urgent need to restore trust and the EU to improve competitiveness. Embedding CSR can help to do both.
David Grayson is professor of corporate responsibility and director of the Doughty Centre for Corporate Responsibility at Cranfield School of Management, UK. He is a member of the editorial advisory group forGuardian Sustainable Business.
Dec 30, 2011.