If like me, you are following how private organisations are communicating about their work with their social and environmental impact, you certainly have noticed that they never have been short of buzzwords. As confusing as they may be, these buzzwords show an interesting dynamic of changing concepts and new trends and priorities for companies.
The old good “corporate responsibility”, which has been challenged after his little brother “sustainability” came into town, has returned riding on the back of the new trojan horses of the European Commission: namely but not limited to the EU Taxonomy, the Corporate Sustainability Reporting Directive, the Corporate Sustainability Due Diligence Directive and the Green Claims Directive.
Under the new sustainability era, the lack of a common framework and definition has given room for companies to define their own way of addressing their external impacts on people and the environment. While corporate responsibility recognizes that any company has negative social and environmental impacts to be identified and addressed, sustainability focused on social and environmental impacts as market differentiator, so a way to increase sales or profitability. We unfortunately have all read slogans such as “sustainability has become a business imperative” or “sustainability as business value creator” etc…
This “corporate made” definition of sustainability lead companies without strong ethical principles, to shift focus from impact mitigation to financial maximization. Efforts and resources have not been allocated to addressing these negative impacts and sectoral systemic issues. Instead, companies have invested in communications and marketing initiatives, emphasizing small showcase innovative projects, and tick box exercises to rank high in selected voluntary ESG rankings and certifications. The main goal being to improve margins, increase revenues and attract cheaper financing.
Recognizing this issue and lack of improvements, the new EU regulations [1] are driving five fundamental changes putting corporate responsibility at the front:
- Identifying and mitigating negative impacts: due diligence principles as defined by the United Nations Guiding Principles for Business and Human Rights and the OECD Guidelines for Multinational Enterprises must be followed by companies to ensure that they identify and address their negative impacts before claiming that they are driving positive change.
- Defining minimum social safeguards and ‘do no significant harm’ as prerequisite: “doing good” to one of the various social or environmental topics (eg. developing capacity for renewable energy production) does not compensate for “doing harm” to one of the others (eg. sourcing materials from vendors with forced labor).
- Expanding the scope of responsibility beyond own operations: material negative impacts happening in the upstream or downstream value chain are also under a company’s responsibility.
- Limiting unsubstantiated green claims: the use of words in a company’s communication which are not specific enough, such as “sustainable” or “responsible”, is restricted, facts and contextualized information is required.
- Standardizing and increasing mandatory reporting: reported qualitative and quantitative information is obligatory, requires technical and professional expertise for assessing impacts and their materiality and is subject to external audit.
The detractors of these EU regulations claim that such requirements are hampering companies’ ability to be financially viable. This is incorrect. These regulations finally offer a level playing field for companies to fully deliver on their corporate responsibility. Not as a burden but as a tool to deliver on their true purpose: serve societies real needs without harming nature.
References
[1] EU Taxonomy, Corporate Sustainability Reporting Directive, Corporate Sustainability Due Diligence Directive, Green Claims Directive, Ecodesign Directive
Karin Simondon is a corporate responsibility professional driving strategic and regulatory programmes at Ramboll Group. She has worked at the intersection of Corporate Strategy and Corporate Social and Environmental Responsibility in the past 10 years, in internal roles and as consultant to private companies.
