- The shift towards a sustainable future requires overcoming resistance to change and finding the right stakeholders to support business leaders in this endeavor
It is universally accepted that the activities and actions of businesses have significant impact on the quality of people's lives, both in the European Union as well as around the world. Impact related to the products and services they offer, jobs, employment opportunities and working conditions, human rights, health, the environment, innovation, education and training. That is why EU citizens expect companies to understand the positive and negative impacts their actions have on society and the environment, as well as manage and prevent the negative ones. In fact, in many cases, they demand companies not only not to have a negative impact but have a positive one. This corporate task can be summed up in three words: Corporate Social Responsibility (CSR).
The European Commission has defined CSR "as the responsibility of enterprises for their impact on society and, therefore, it should be company led. Companies can become socially responsible by: (i) integrating social, environmental, ethical, consumer and human rights concerns into their business strategy and operations and (ii) following the law." (2011). These two concepts, together with others, such as "Environmental, Social, Governance" (ESG), "sustainable business" and "shared value creation", overlap in many ways. Depending on the business model, they can all be useful in trying to integrate the United Nations 17 Sustainable Development Goals (SDGs) locally.
In this article, we will focus on one of the nine regulatory pillars of the ESG criteria in the EU. Specifically, the first ESG related legislation on the Non-Financial Reporting Directive (Directive 2014)/95/EU - NFRD), which came into force in 2017 and across all Member States (MS) by 2018. It is, essentially, the legislation that supports establishment of CSR strategies within an organization (action mapping). It requires large EU companies (including financial services companies) to disclose data on their company's impact on ESG factors and vice versa. In Cyprus, this Directive has been transposed into Companies Law Cp.113 since 2017 and is considered to be a corporate governance milestone.
Notwithstanding the above, on 21 April, 2021, the European Commission presented its proposal of replacing NFRD with a revised, more up-to-date Corporate Sustainability Reporting Directive (CSRD), which will amend the existing reporting requirements included in the NFRD. In particular, the new proposal mainly introduces more detailed reporting requirements as well as a data disclosure requirement, in accordance with mandatory EU Sustainability Reporting Standards.
The EU and public authorities seem to play a supportive role in the enterprises' effort to implement social responsibility actions, as analyzed above, through a smart mix of voluntary policy measures and, where necessary, complementary regulations. Despite these specific efforts, guiding an organization towards a sustainable future requires overcoming resistance to this change as well as finding the right stakeholders who will work together and support business leaders in this endeavor.
At the same time, individual efforts of each and every one of us can make a significant contribution towards advancing the Sustainable Development Goals. Although they may seem insignificant, our individual actions can contribute significantly and positively to achieving long-term sustainability. The commitment and awareness of us all are essential ingredients to achieving a truly sustainable development.
To clarify the difference between the many terms that have been created, the term CSR mainly refers to a management concept whereby companies integrate ESG criteria (social and environmental concerns) into their business activities, on the basis of which they interact with the affected bodies. CSR is essentially a self-regulatory business model that helps an organization be socially accountable -to itself, to stakeholders and to the public (it is not solely linked to charity, although if there is charitable benefit as well, even better).
Basic rule to always keep in mind: CSR is about being accountable for social issues within your organization, while ESG criteria aim to collect and measure environmental, social and governance issues data relevant to business objectives. ESG issues are important to businesses that prioritize Sustainability and to investors looking for socially responsible investment opportunities. To attain ESG status, businesses must design and implement an ESG program, create awareness by participating in ESG rating programs and hit metrics that matter to investors who make long-term profit decisions.
All of the above may sound like a tricky puzzle; however, 2021 is definitely the year in which the transition to a Greener and Sustainable Development model will actually be implemented in practice. Each individual, businesses and society as a whole, must begin to shape their future and not just survive the existing conditions.
Lawyer/Legal Counsel, Alumni of the Institute for Sustainability Leadership, University of Cambridge.