Commission urges greater Corporate Social Responsibility in Europe

Source: EU, 18 July 2001

Shortly after the European Commission’s communication on quality of work, Commissioners Anna Diamantopoulou (Employment and Social Affairs) and Erkki Liikanen (Enterprise and Information Society) today presented a Green Paper on promoting a European framework for Corporate Social Responsibility(1), whereby companies decide voluntarily to contribute to a better society. The paper, intended as a launch pad for debate, takes up the "triple bottom line" concept, whereby companies voluntarily take on board social and environmental concerns besides their economic ones. In line with the Commission’s proposal for a Sustainable Development Strategy for Europe, recently endorsed by the Gothenburg European Council, the paper argues that all three elements can dovetail to create more productive and profitable business. Announcing its publication, Commissioners Diamantopoulou and Liikanen said, "More and more firms are realising the link between profitability and best ethical and environmental practice. Conscientious firms not only attract and retain the best workers, they can also get ahead in the technology game, vital for that all-important competitive edge." The paper is a direct contribution to the goal, backed by EU leaders at the March 2000 Lisbon European Council, of making the EU "the most competitive and dynamic knowledge-based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion." Part of this challenge lies in combining business profitability with the twin concepts of sustainability and accountability. It is also about striking the appropriate balance between flexibility and responsibility in creating a business-friendly environment.
Corporate social responsibility within firms

Recent high-profile announcements of large-scale redundancies have put the spotlight on the way firms interact with their employees in such situations, and management of change is one of the key aspects of corporate social responsibility that the Green Paper discusses.

The year 2000 saw a high incidence of restructuring, with more mergers and acquisitions than ever before. Studies show, however, that few restructuring operations achieve their goal of reducing costs, increasing productivity and improving quality and customer service as they are often carried out in a way which damages the morale, creativity and productivity of employees. Responsible downsizing, the paper argues, means to seek the involvement and participation of those affected through open information and consultation and should include a plan to safeguard employees’ rights and enable them to undergo vocational retraining where necessary.

More generally, the debate on corporate social responsibility takes place in the wider framework of the Commission’s proposal for a European strategy on sustainable development, broadly endorsed at the Gothenburg Summit in June 2001. The strategy’s basic message is that long-term economic growth, social cohesion and environmental protection must go hand in hand. This has numerous implications for companies’ relations with their employees. Socially responsible i.e. sustainable or vis-à-vis the society in general human resource management, another key area highlighted in the paper, involves a commitment to aspects such as lifelong learning, health and safety, a better balance between work, family and leisure, greater workforce diversity, gender-blind pay and career prospects, profit-sharing and share ownership schemes. These practices can have a direct impact on profits through increased productivity, lower staff turnover, greater amenability to change, more innovation, and better, more reliable output. Indeed, a major thread throughout the paper is that companies often have an interest in going beyond minimum legal prescriptions in their relations with their stakeholders. Peer respect and a good name as employer and firm are highly marketable assets.

Corporate social responsibility and society at large

Corporate social responsibility is also about the relationships companies choose to have beyond their premises – locally, nationally, European and world-wide. Good relations with their local setting are important for companies: they recruit most of their staff from the local labour markets and for most companies the local market is also their main market. Companies profit from an ability to accumulate social capital, which means to develop networks around them and to create links to other businesses. Large companies increasingly use these relations to support the integration of their affiliates into the various markets in which they operate. For example, they can promote this integration by coaching start-ups and SMEs or by taking minority stakes in such companies, so-called "corporate venturing". In particular at local level there is a strong tradition of social responsibility by small and medium-sized enterprises. Where consumers are concerned, companies are expected to provide products efficiently and ethically. Those which focus on building lasting relationships with customers and seek to provide products or services of superior quality can expect to be more profitable. Corporate social responsibility also has a strong international dimension. One reason why is that companies’ supply chains are increasingly global. An growing number of firms are adopting codes of conduct covering working conditions, human rights and environmental aspects, especially in their dealings with subcontractors and suppliers. They do so not only to assume their corporate social responsibility but also to improve their corporate image and reduce the risk of adverse consumer reaction.

Part of this involves adherence to the relevant International Labour Organization (ILO) and Organization for the Economic Co-operation and Development (OECD) guidelines. The Green Paper also makes clear, however, that codes of conduct do not substitute for national and international laws, but can complement them. In addition, their effectiveness depends on proper implementation, which in turn requires greater transparency, improved monitoring and measures to assist companies in voluntary adoption.

A holistic approach to corporate social responsibility

A successful commitment to corporate social responsibility means instilling it fully in business culture from planning, implementation and staff policy to day-to-day decision-making and being seen to do so. Although many multinational companies do already publish corporate social responsibility reports on environmental or health and safety issues, less attention is paid to areas such as human resource management, staff consultation, child labour and human rights. The paper therefore advocates for greater consensus on the type of information companies should be ready to disclose and for more comprehensive coverage in social accounting, reporting and auditing. This is in line with the recent invitation by the Commission in its Communication on a sustainable development strategy that all publicly quoted companies with at least 500 staff publish annual "triple bottom line"-reports(2).

The paper mentions ethical labelling as another all-round development whose effectiveness needs to be exploited. As a response to rising consumer demand for corporate social responsibility, a growing number of these labels have originated from either individual manufacturers or industries, NGOs and governments, with guarantees relating to, say, sourcing or labour standards. In order to extend their use beyond niche products, it is necessary to make them more effective, the paper says, with mechanisms introduced to verify their ethical claims.

Likewise, socially responsible investing (SRI), in which funds are directed to firms which comply with specific social criteria and away from others which do not, has seen a strong surge in popularity and is potentially a powerful tool for promoting Corporate Social Responsibility. If it is to prove more useful, however, investors would need to have a clearer picture which more standardised social reporting could bring and the paper calls for greater harmonisation of evaluation tools for SRI.

The consultation process

The aim of the Green Paper is to trigger debate on all aspects of corporate social responsibility. Public authorities, including international organisations, businesses of any size, social partners, NGOs, other stakeholders and all interested individuals are invited to send in their views on ways of developing a partnership approach to Corporate Social Responsibility. Comments should be sent by December 31st 2001 to:

European Commission
Corporate Social Responsibility Green Paper consultation
Rue de la Loi/Wetstraat 200,
B-1049 Brussels

view the Commission green paper