European Parliament Adopts Resolution on Corporate Social Responsibility

A resolution adopted by the European Parliament on November 25, 2010 increases the likelihood that the days of CSR as a purely voluntary initiative are numbered. Approved by a margin of 480 votes to 48, the resolution on corporate social responsibility in international trade agreements calls on the European Commission to include a CSR clause in all of the European Union’s trade agreements.

Such a clause would require, inter alia, companies to publish “CSR balance sheets,” report on due diligence, and seek free, prior and informed consultation with local stakeholders.  The proposed CSR clause would also provide for monitoring and judicial cooperation in pursuing and punishing breaches of CSR commitments.  More generally, the resolution also calls on the Commission to reinforce its promotion of CSR in multilateral trade policies and to conduct sustainability impact assessments before and after trade agreements are signed.

According to its explanatory note, the resolution was drafted in recognition of the reality that for “ordinary people throughout the world, the expansion in international trade is justified only if it contributes to economic development, to job creation and to improved living standards.”

The note provides moral, socio-economic, and political justifications for Europe to address CSR in the context of its trade agreements:

• First, European companies enjoying the benefits of trade must be asked to conduct themselves in a socially and environmentally responsible manner in developing countries and elsewhere. 
   
• Second, “non-compliance with CSR principles constitutes a form of social and environmental dumping” in developing countries to the detriment of companies and workers in Europe, who are required to meet more stringent social and environmental standards. 
   
• Third, the EU’s trade policy must be consistent with and complimentary of its other foreign policy priorities on matters such as environmental protection and development aid.

Many of the EU’s international trade agreements already address social and environmental concerns. The significance of the proposed CSR clause is that it would place an onus on companies – not just the State parties to the trade agreements – to act in a socially and environmentally responsible manner.  Also, while recent trade agreements concluded by the EU with South Korea, Colombia and Peru vaguely mention the State parties’ intent to promote CSR, the proposed CSR clause would require specific actions by companies.  Among the proposed requirements for the CSR clause are the following:

• Companies would be required to publish CSR balance sheets in two or three year intervals in order to reinforce transparency and reporting and encourage visible and credible CSR practices;
   
• Companies would be required to conduct due diligence in order to identify and prevent  "violations of human and environmental rights, corruption or tax evasion, including in their subsidiaries and supply chains";
   
• Companies would be required to commit to "free, open and informed prior consultation" with local and independent stakeholders prior to commencing a project that impacts a local community.

The resolution envisions that other provisions enforcing implementation of CSR would accompany the CSR clause.  It recommends, for example, that in addition to establishing appropriate investigatory mechanisms, State parties should be willing to "name and shame" companies in serious breach of their CSR commitments.  The resolution also foresees judicial cooperation and training as a means of facilitating judicial redress for victims of inappropriate corporate conduct.

The European Parliament’s resolution is a non-legislative act and thus not enforceable.  It is now up to the European Commission to decide whether to incorporate the Parliament’s proposals into binding legislation.  Although some companies will balk at any attempts to limit the voluntary nature of CSR, others, especially those that already seek to operate in a socially and environmentally responsible manner, may welcome the prospect of all companies being required to operate by the same rules in the context of particular trade agreements