Corporate social responsibility is big business in Europe. In November last year, French energy company Electricite de France launched a €1.4 billion green bond to fund renewable energy projects that would further the company’s business ambitions. The issue was twice oversubscribed, an indication of just how highly European investors now value CSR initiatives at public companies.
Given this focus by the market, companies are understandably eager to communicate the extent of their CSR achievements. The question is, who should oversee the reporting, communication, and implementation of a company’s CSR programs? While some companies have created a specific executive function to handle the role, other companies consider CSR as under the purview of compliance.
“We have seen quite a wide diversity of options,” says Vincent Brenot, a partner at law firm August & Debouzy in Paris who advises corporate clients on environmental reporting issues. “CSR is handled either by the legal department, or the sustainable department or by a wholly dedicated division of the company—there’s not one rule.”
British supermarket chain Wm Morrison Supermarkets PLC has rolled CSR into the responsibilities of Stephen Butts, head of corporate responsibility. Butts says Wm Morrison’s CSR program is formally incorporated into all the company’s governance structures. “Development and progress in our sustainability agenda are reported at the highest level to the Corporate Compliance and Responsibility Committee (CCR),” he says.
The CCR performs an oversight, monitoring, and advisory role for key areas of corporate governance and development, including health, safety, environment, competition, regulatory ethical compliance, and corporate responsibility. Meanwhile, management is accountable for the development and implementation of strategy, financial performance, reporting and control, risk management, and the development of corporate policies and procedures for the group.
“Companies now see CSR as a tool with which to communicate with their clients, because customers are more and more interested in CSR as they become more concerned about environmental and ethical standards.”
Vincent Brenot, Partner, August & Debouzy
“Put simply, our corporate responsibility strategy is our business strategy, which is to be fit for the future by managing resources efficiently, minimizing our impact on the environment, maximizing social benefit, looking after our people, and providing great service for our customers,” Butts says.
At a cosmetics company L’Oréal Group in Paris, Chief Sustainability Officer Alexandra Palt reports directly to the company’s CEO, with the support of a team of specialists working in sustainability, compliance, operations, and other relevant areas. In keeping with Wm Morrison’s program, the goal is to influence the business practices of every area of L’Oréal’s business. “We believe that a sustainability strategy can only be successful if it is part of all business decisions made and as such, the responsibility of every employee,” Palt says.
While the program doesn’t fall under the compliance department’s direct responsibilities, compliance plays a vital role in the success of L’Oréal’s program by providing vital support and feedback. “Compliance knowledge can help to understand external expectations and integrate them into the company’s overall strategy,” Palt says. “Compliance managers work closely with the sustainability teams to contribute to the group’s sustainable development. We believe that sustainability is an essential part of today’s business. Consumers are more and more interested in knowing about the impact of the products they buy, not only on environmental aspects but also with regard to social aspects. This is true across all industries and sectors.”
Compliance is already intrinsically linked to CSR in Europe, and its role as a reporting entity is only likely to expand. Article L225-102-1 of the French Commercial Code results from the 2001 NRE Act requires public companies with over €100 million in revenues and/or 500 employees or more to issue a social report, says Marie-Hélène Bensadoun, a partner at August & Debouzy specializing in the labor side of CSR. “It is therefore crucial to clearly identify the objectives, the means, and resources employed to implement CSR so as to determine which legal risks can arise and how to tackle them. Legal advice has a major role in the development of CSR,” she says.
Indicating how seriously French regulators take the issue, CSR reports must be verified by an independent counsel. “As this mandatory obligation is linked with the annual accounts publication and business report establishment, the responsibility of establishing the CSR report will logically be added to corporate compliance department,” says Christophe Bourdel, a partner at law firm Granrut Avocats in Paris.
Why the focus on France? Because what has been codified in French regulations for the better part of 15 years is serving as a blueprint for CSR disclosure requirements across the European Union, at least for public companies with over 500 employees, but also banks, insurance companies, and other companies that are so designated by because of their activities, size, or number of employees. It is estimated that the new reporting regulations will affect more than 6,000 entities across the European Union as member states adopt the new requirements, with a deadline of April 2016.
OFFICIAL JOURNAL OF THE EU
Below is an excerpt from the directive 2014/25/EU of the European Parliament and of the Council, which addresses procurement requirements and will go into effect in 2016.
(1) In the light of the results of the Commission staff working paper of 27 June 2011 entitled ‘Evaluation Report — Impact and Effectiveness of EU Public Procurement Legislation’, it appears appropriate to maintain rules on procurement by entities operating in the water, energy, transport and postal services sectors, since national authorities continue to be able to influence the behavior of those entities, including participation in their capital and representation in the entities’ administrative, managerial or supervisory bodies. Another reason to continue to regulate procurement in those sectors is the closed nature of the markets in which the entities in those sectors operate, due to the existence of special or exclusive rights granted by the Member States concerning the supply to, provision or operation of networks for providing the service concerned.
(2) In order to ensure the opening up to competition of procurement by entities operating in the water, energy, transport and postal services sectors, provisions should be drawn up coordinating procurement procedures in respect of contracts above a certain value. Such coordination is needed to ensure the effect of the principles of the Treaty on the Functioning of the European Union (TFEU) and in particular the free movement of goods, the freedom of establishment and the freedom to provide services as well as the principles deriving therefrom, such as equal treatment, non-discrimination, mutual recognition, proportionality and transparency. In view of the nature of the sectors affected, the coordination of procurement procedures at the level of the Union should, while safeguarding the application of those principles, establish a framework for sound commercial practice and should allow maximum flexibility.
(3) For procurement the value of which is lower than the thresholds triggering the application of the provisions of Union coordination, it is advisable to recall the case-law of the Court of Justice of the European Union regarding the proper application of the rules and principles of the TFEU.
(4) Public procurement plays a key role in the Europe 2020 strategy, set out in the Commission Communication of 3 March 2010 entitled ‘Europe 2020, a strategy for smart, sustainable and inclusive growth’ (‘Europe 2020 strategy for smart, sustainable and inclusive growth’), as one of the market-based instruments to be used to achieve smart, sustainable and inclusive growth while ensuring the most efficient use of public funds. For that purpose, the public procurement rules adopted pursuant to Directive 2004/17/EC of the European Parliament and of the Council and Directive 2004/18/EC of the European Parliament and of the Council should be revised and modernised in order to increase the efficiency of public spending, facilitating in particular the participation of small and medium-sized enterprises (SMEs) in public procurement and to enable procurers to make better use of public procurement in support of common societal goals. There is also a need to clarify basic notions and concepts to ensure better legal certainty and to incorporate certain aspects of related well-established case-law of the Court of Justice of the European Union.
(5) When implementing this Directive, the United Nations Convention on the Rights of Persons with Disabilities should be taken into account, in particular in connection with the choice of means of communications, technical specifications, award criteria and contract performance conditions.
(6) It is appropriate that the notion of procurement is as close as possible to that applied pursuant to Directive 2014/24/EU of the European Parliament of the Council, having due regard to the specificities of the sectors covered by this Directive.
(7) It should be recalled that nothing in this Directive obliges Member States to contract out or externalise the provision of services that they wish to provide themselves or to organise by means other than procurement within the meaning of this Directive. The provision of services based on laws, regulations or employment contracts, should not be covered. In some Member States, this might for example be the case for the provision of certain services to the community, such as the supply of drinking water.
Source: European Commission.
Directive 2014/95/EU on disclosure of non-financial and diversity information, which amends Accounting Directive 2013/34/EU, will require large companies to disclose in their management reports information on policies, risks, and outcomes regarding environmental social, and employee programs, plus human rights, anti-corruption, and bribery issues, and diversity in boards of directors, which is intended to provide investors and other stakeholders with a more comprehensive picture of a company’s performance.
It doesn’t end there. EU Directives 2014/24 and 2014/25, which both address procurement requirements, will require that companies that contract with member states meet minimum CSR standards. These also come into effect in 2016. Furthermore, 79 banks in 35 countries have made demonstrable CSR standards a key factor in their decision to make capital available to companies. Known as the Equator Principles and considered part of a risk management framework, member organizations’ loans now account for over 70 percent of international project finance debt in emerging markets, which focuses on the long-term investment potential of infrastructure projects rather than the balance sheets of their sponsors.
In effect, what started almost as a punitive measure aimed at outing abusers of the environmental or workplace standards has now become a badge of honor for the companies keen to report the outcome of their CSR programs. CSR reporting requirements were “just complying with strict anti-corruption rules, or you cannot damage the environment beyond certain levels, and so on. So the companies were trying to avoid criminal activities,” Brenot says. “Companies now see CSR as a tool with which to communicate with their clients, because customers are more and more interested in CSR as they become more concerned about environmental and ethical standards.”
Indeed, “In Europe and globally, sustainability is becoming increasingly more important, and consumers are expecting companies to act responsibly,” L’Oréal’s Palt says. “According to studies, the young generation, the millennials, are concerned about economy, environment, and health issues and want business to take measurable action in all these domains of sustainability, in its widest economic meaning. They also want to be an active part of the change, together with businesses.”
A case in point, according to a report by index provider MSCI, which examined the boards of more than 6,500 companies globally, public companies with women on their boards are less likely to be hit by scandals such as bribery, fraud, or shareholder battles. Careful to point out that it was diversity that made the difference, not gender, MCSI notes that the number of women on a board should be seen as “a single data point in a matrix of progressive governance indicators.”
Regardless of whether it is compliance or a specific CSR function that handles implementation and reporting, CSR is now an inescapable factor in doing business with consumers and investors in Europe, says Bourdel. He recommends that compliance at companies that have yet to set up robust CSR programs take the initiative. And why wait? “CSR will one day be a common standard,” Bourdel says, and that day is coming soon.