On 11/28/22, the Council gave final approval to the Corporate Sustainability Reporting Directive (CSRD). (1) The new directive extends sustainability reporting duties (ESG) to a wider range of companies. As well as revising its contents to incorporate the gaps found in the Non-Financial Reporting Directive (NFRD). (2)
1) Corporate social responsibility, premise. A century of contradictions
The doctrine of corporate social responsibility is attributed to Howard Rothmann Bowen. Who, in 1953, referred to ‘social responsibilities‘ as ‘the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society.’ (3)
The first concrete example of corporate social responsibility on closer inspection dates back to Camillo and Adriano Olivetti. Who, as early as the 1920s, had introduced an organic system of social services to benefit employees’ families and local communities. Entrusting its management in 1948 to an autonomous committee also represented by workers. (4)
1.1) Corporate Social Responsibility, the first steps.
The European Commission, in 2001, published the Green Paper ‘Promoting a European framework for Corporate Social Responsibility‘ (COM(2001) 366). Where they recall:
– the UN(Global Compact, 2000), ILO(International Labor Organization, Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy, 1997-2000), OECD(Organization for Economic Cooperation and Development, Guidelines for Multinational Enterprises, 2000) initiatives,
– the first standards and schemes on social accountability (e.g., SA 8000) and the ‘good intentions’ shared by the social partners that initiated the era of greenwashing, only rarely mitigated by national authorities. (5)
1.2) Greenwashing, the apotheosis
Private certification schemes adopted by many corporations-even in the agribusiness sector, as noted (6)-have amplified the viral deception about the theoretical sustainability of some supply chains, neglecting serious human rights and environmental violations (e.g., deforestation).
Meanwhile, published international standards , such as ISO 26000:2010(guidance on social responsibility) and ISO 20400:2017(sustainable procurement guidelines), could have contained greenwashing and perhaps that is precisely why they have been less successful.
1.3) CSR, the paradigm shift.
The axiom CSR = greenwashing has forced a paradigm shift. Not just terminological, as proposed in 2015 by marketing guru Philip Kotler with the acronym CSV(Creating Social Values), but strategic. With a view to analyzing and preventing external risks-including social, labor and environmental risks-that may impact the organization.
Market instability since the crisis triggered by the subprime bubble (Lehman Brothers et al., 2008) has also prompted European lawmakers to intervene in the nonfinancial reporting duties of large companies. First with the Non-Financial Reporting Directive (NFRD, dir. 2014/95/EU), then with the Sustainable Finance Disclosure Regulation (SFDR, reg. EU 2019/2088) and this directive (7,8). Awaiting ESG due diligence (9.10).
2) Corporate Sustainability Reporting Directive (CSRD) reporting duties.
Sustainability reporting, as redefined in the CSRD(Corporate Sustainability Reporting Directive), follows the sustainability reporting standards adopted and updated at least every three years by the European Commission.
EFRAG, the European Financial Reporting Advisory Group charged with providing technical advice to the Commission, is to pay ‘particular attention to the extent of risks and impacts related to sustainability issues for each sector.’ (11)
3) Sustainability reporting standards
Sustainability reporting principles ‘ensure the quality of the information reported, requiring that it be understandable, relevant, verifiable, comparable and faithfully represented.’
The standards take into account ‘to thebroadest extent possible, the work done in international standard-setting initiatives on sustainability reporting.’
3.1) Environmental factors
Enterprises must report information on the following environmental factors:
(i) climate change mitigation, including greenhouse gas emissions,
(ii) adaptation to climate change,
(iii) water and marine resources,
(iv) resource use and circular economy,
(v) pollution,
(vi) biodiversity and ecosystems.
3.2) Social factors
‘The information companies are required to disclose regarding the following social and human rights factors:
(i) equal treatment and equal opportunities for all, including gender equality and equal pay for work of equal value, training and skills development, employment and inclusion of people with disabilities, measures against violence and harassment in the workplace, and diversity,
(ii) working conditions, including safe employment, working hours, adequate wages, social dialogue, freedom of association, the existence of works councils, collective bargaining, including the proportion of workers covered by collective agreements, workers’ information, consultation and participation rights, work-life balance, health and safety‘.
3.3) Human Rights
‘Respect of human rights, fundamental freedoms, and democratic norms and principles set forth in the International Bill of Human Rights and other fundamental human rights conventions of the United Nations. must also be accounted for‘. With specific reference to:
– ‘United Nations Convention on the Rights of Persons with Disabilities,
– United Nations Declaration on the Rights of Indigenous Peoples,
– International Labor Organization’s Declaration on Fundamental Principles and Rights at Work,
– The core conventions of the International Labor Organization,
– The European Convention for the Protection of Human Rights and Fundamental Freedoms,
– European Social Charter and the Charter of Fundamental Rights of the European Union‘.
3.4) Governance
The governance report should include:
(i) the role of the company’s administrative, management and supervisory bodies with regard to sustainability issues and their composition, as well as their competencies and capabilities in relation to carrying out this role or the access of these bodies to such competencies and capabilities,
(ii) the main features of the enterprise’s internal risk management and control systems as they relate to sustainability reporting and decision making,
(iii) business ethics and corporate culture, including combating active and passive corruption, whistleblower protection and animal welfare,
(iv) the company’s activities and commitments related to the exercise of its political influence, including lobbying activities,
(v) the management and quality of relations with customers, suppliers, and communities affected by the enterprise’s activities, including payment practices, especially with regard to late payments to small and medium-sized enterprises. (12)
4) Interim Conclusions
The CSRD(Corporate Sustainability Reporting Directive) prescribes a due diligence approach in the collection, processing and reporting of sustainability factors (ESG. Environmental, Social, Governance).
The provision of ‘prospective, retrospective, qualitative and quantitative information‘ postulates the establishment of new business strategies involving all areas of operation, under the coordination of top management bodies.
Dario Dongo
Notes
(1) Council of the EU. Council gives final green light to corporate sustainability reporting directive. https://www.consilium.europa.eu/en/press/press-releases/2022/11/28/council-gives-final-green-light-to-corporate-sustainability-reporting-directive/ Press release. 28.11.22
(2) Dario Dongo, Elena Bosani. Corporate Sustainability Reporting. ESG reporting requirement for companies kicks off. GIFT (Great Italian Food Trade). 18.11.22
(3) Latapí Agudelo, M.A., Jóhannsdóttir, L. & Davídsdóttir, B. (2019). A literature review of the history and evolution of corporate social responsibility. Int J Corporate Soc Responsibility 4, 1 https://doi.org/10.1186/s40991-018-0039-y
(4) The Olivettian welfare state and the philosophy of a company. https://www.storiaolivetti.it/articolo/95-lo-stato-sociale-olivettiano-e-la-filosofia-di-/ Olivetti Historical Archives
(5) Dario Dongo, Giulia Orsi. Green claim vs greenwashing and misleading advertising, Antitrust guidelines in UK. GIFT (Great Italian Food Trade). 25.6.21
(6) Marta Strinati, Dario Dongo. Palm oil, soybean, wood, coffee, cocoa. What is the purpose of sustainability certification? Greenpeace Report. GIFT (Great Italian Food Trade). 16.5.21
(7) Dario Dongo. Sustainability reporting, ESG and due diligence. GIFT (Great Italian Food Trade). 18.7.22
(8) Dario Dongo, Elena Bosani. Sustainability budgets and responsible investment, ESG and CSR due diligence. Reg. EU 2022/1288. GIFT (Great Italian Food Trade). 29.7.22
(9) Dario Dongo. Due diligence and deforestation, stop unsustainable imports of commodities. Proposed EU regulation, the ABC. GIFT (Great Italian Food Trade). 6.3.22
(10) Dario Dongo. Due diligence and ESG, corporate social and environmental sustainability, the proposed EU directive. GIFT (Great Italian Food Trade). 20.4.22
(11) Directive of the European Parliament and of the Council, amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting https://data.consilium.europa.eu/doc/document/PE-35-2022-INIT/en/pdf (PE-CONS 35/22)
(12) CSRD, Chapter 6a, Sustainability Reporting Standards, Article 29b.
Dario Dongo, lawyer and journalist, PhD in international food law, founder of WIISE (FARE - GIFT - Food Times) and Égalité.
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