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Corporate Social Responsibility

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Topic: Corporate Social Responsibility

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Corporate Social Responsibility: Making sure European companies do not undermine development

In a globalized world, companies operate in many different countries and sometimes their profits are even bigger than the GDP of these countries. Their influence on development can be huge. Companies can affect the local economy, the environment and social welfare positively, but also negatively through, for instance, allowing child labour in their supply chain. The recent trend across Europe and within the European Commission is to emphasize the involvement of the private sector in development cooperation.[1] European policies can stimulate Corporate Social Responsibility (CSR) and help companies contribute to development and eradicate malpractices. However, for European companies to contribute to development, several incoherent policies need to be resolved.

Problem 1: Opening markets for companies without eradicating malpractices

The European Union, through its trade policy, creates new markets for companies to invest in. Free Trade Agreements (FTAs) and Economic Partnership Agreements (EPAs) are being negotiated or signed with several countries and aim for more development through trade and creating growth both in the European Union as well as in third countries (see also our case and recommendations about EPA’s). With these agreements it becomes easier for businesses to trade with or invest in developing countries. When the European Union takes this role in opening up markets for European businesses it should also be aware of the pitfalls investment in developing countries can have. Negative impacts of investments could include environmental damage, bad labour conditions and even human rights violations. The European Union should take responsibility for facilitating the opportunities for companies investing in developing countries. Therefore the European Union should not only open up markets, but also demand information about the social, environmental and human rights impacts activities of companies and their sub-contractors have on the lives of people in developing countries. A first step has been made, with the European Commission’s proposal on Non-Financial reporting. Unfortunately the European Parliament has weakened the proposal, and in this way reporting on CSR will stay voluntary in its nature.

Problem 2: European Investment Bank supporting malpractices

Not only European companies, but also the European Union itself must take up its social responsibility and set the right example. The European Investment Bank (EIB) has a mandate to contribute to development cooperation objectives and external policies objectives of the EU [2]. Included in these policies is among others the protection of human rights and the environment. Despite of this mandate the EIB has a track record of supporting projects which turned out to have a negative impact on the environment and development [3]. The current framework in which the EIB tries to make sure their activities are carried out responsible in the field of social, environmental and human rights effects, lacks the social safeguard function it should have. Especially in the External mandate of the EIB this is the case. The EU should establish a legally binding framework, in which the EIB has to disclose information about impacts their activities have in developing countries. This is important, because it can help to prevent EIB loans to have negative effects on development. Mandatory transparency of companies’ social, environmental and human rights impact can help the EIB in lending responsibly.

Problem 3: Public Procurement

The EU can not only influence Corporate Social Responsibility through their status as legislative body, but also by their status as a big consumer. Public authorities in the EU spend around 1.500 billion on public procurement [4]. The projects and activities supported by these procurement investments should benefit companies that carry out sustainable productions throughout their whole supply chain. It is essential that public procurement does not support malpractices in developing countries, such as human rights violations as the result of activities of European companies. In current directives about public procurement attention is paid to CSR. Besides awarding a contract to the ‘ most economically advantageous tender’ also environmental and social factors are legitimate criteria. The EU is on the right track supporting CSR in their public procurement activities. But more transparency of companies is needed to be sure that public money does not support malpractices in developing countries.