As the most powerful policy maker in Europe, the European Commission has a unique chance to influence the future direction of corporate social responsibility. But what should it do? As our Analysis shows, the various parties in the debate have widely differing views and it is clear that this dialogue is unlikely to end in consensus.
The EC definitely needs to do something. The voluntary approach is not working. There are still far too many companies that make little or no attempt to measure or improve their social and environmental performance.
But the solution is not to force them to behave in a more socially responsible manner by introducing regulations directly requiring, for example, mandatory social and environmental reporting. Much better to look to the power of the market, and to the psychological motivation of companies, which are highly sensitive to reputational challenges.
The EC should pursue a policy based on the principle of embarrassment. The UK’s experience shows that this approach works, and points the way to how it might be put into practice. The UK pension disclosure regulation, widely regarded as the single most effective regulation introduced in this area, has worked precisely because it has embarrassed pension funds into taking action, and they are now beginning to apply pressure on the companies in which they invest.
A policy based on embarrassment sounds weak. Yet 24 of the 30 companies publicly named and shamed by Michael Meacher in early 2001 undertook to produce some sort of environmental information by the end of last year. Another advantage is that it targets the laggards rather than forward-thinking companies.
Heavy-handed compulsion will not work in this area. If companies prove immune to embarrassment, the EC can always introduce suitably focused legislation later, as the UK government has said it will do on directors’ pay. As for pressure groups, they should remember that the threat of regulation is often more effective than its implementation.
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see also analysis