Window dressing vs reduced business risks and impacts – which to choose?

Companies have impacts – on people, on the environment – some positive, some negative. Sometimes the negative impacts become very obvious and very negative – for example when a textile factory in Bangladesh collapses. Sometimes the impacts are less visible, displacement of people from their land, discharge of toxic chemicals, or exploitation of fossil fuels.

There are many way of addressing these impacts, including direct legislation, standards & labelling. One approach that sounds promising at first sight – but is yet to really deliver – is company reporting:

  • Every year companies must produce financial accounts – so why shouldn’t they also disclose their social and environmental impacts, and what policies they have to reduce them?
  • Won’t this encourage them to reduce these impacts, and encourage investors to penalise those companies that aren’t managing these risks?

This is the theory – unfortunately the practice is rather different. There are a profusion of different reporting standards, and these standards are generally too vague to lead to informative, comparable reports. This has been described as ‘fuzzy reporting’ by a former chair of one of these standards, the Global Reporting Initiative.

The EU to the rescue?

There has been a discussion on company reporting around the EU for some years, which has culminated in a legislative proposal (draft law) from the European Commission, published on 16th April 2013.

The legislative proposal is an important start, but as European Coalition for Corporate Justice (ECCJ) said at its launch, “The proposal would allow companies too much discretion about how to report and what on, it lacks concrete indicators and does not include sanctions to ensure companies actually comply with the requirement

Friends of the Earth Europe (who are members of ECCJ) worked with ECCJ to put on a conference in the European Parliament on 14th May to discuss the new proposal – the Parliament is very important in this process, as the law will have to be agreed by both Parliament & EU Member States (see this page for a brief intro to the process).

The conference was well attended, with speakers from the European Commission, Parliament, Aviva Investors, Oxfam, Marks & Spencers, WRAP, International Trades Union Congress – and from ECCJ & Friends of the Earth.

ECCJ’s summary of the meeting is available here, and there is a brief report on the Friends of the Earth Europe site. A few things that stood out for me were:

  • There was a lot of support for strengthening the law, including the need for clearer requirements and guidance on reporting, to avoid ‘window dressing’ reports that can’t be compared (“mandatory window dressing” as one participant put it). You need some flexibility, but not too much.
  • A lot of the requirements of company reporting are actually served by the company doing proper due diligence, for example knowing what the likely risks of a mine could be, and acting to avoid them.
  • There are massive opportunities for companies to increase their resource efficiency, and company reporting (“what’s measured gets managed“) is a way to achieve this;  my presentation is here.

The proposal will now be examined in detail by the European Parliament, and by all EU governments. Any part of it can be amended, and the law will either be finalised just before next year’s European Parliament Elections in May 2014, or by the new Parliament in 2015.

You can track the progress of this proposal on its page at the Parliament’s legislative observatory.

Friends of the Earth Europe are now working with ECCJ & others to make this a more effective proposal – for investors, people, the environment & for companies themselves.

For more information:

  • ECCJ have produced a detailed briefing for policymakers on the proposal, available here.
  • Friends of the Earth Europe also produced a briefing in October 2012, looking particularly at company reporting & resource use.
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