CSR News Update - November 2011

The EU's new draft directives for transparency of payments in the extractive industries sector

 

In October the European Commission presented draft directives requiring companies listed on EU stock exchanges and large private companies based in member states to disclose their payments to governments for oil, gas, minerals and timber. The reporting has to take place on a country-by-country and project-by-project base. With its proposal the European Union aligns itself with the United States, where similar requirements are part of the Dodd-Frank Act[1] which was approved in July 2010. The European proposal goes further than Dodd-Frank as it includes not only the extractive industries, but also the timber sector and as it includes large non-listed companies in addition to those listed on stock exchanges. Furthermore, the EU proposal also foresees the disclosure of payments to sub-national governments.

 

The proposal of the Commission, which still needs the approval of the Council and of the Parliament and which can be amended during the process, also goes further than initially expected. Business immediately complained and claimed that the proposed measures are an overly intrusive burden that exposes commercially sensitive information. Civil society organisations on the other hand pointed out what is missing in the proposal, namely that Dodd-Frank also includes processing and export activities of natural resources, where significant payments to governments also take place, while there is no mention of it in the EU proposal. The EU proposal unfortunately also contains an exception clause, which allows companies not to report on a project-by-project basis for investments in countries where such a level of disclosure is forbidden by law. This might encourage countries to adopt such measures, to prevent the disclosure of payments their governments receive. It has also to be noted that the Commission proposal does not touch upon another aspect of Dodd-Frank, namely due diligence for minerals from conflict areas.

 

Civil society has been calling for the adoption of similar measures for years, as secrecy in payments for oil, gas and mineral resources often led to corruption, violence and even civil war in resource-rich countries. Therefore over the last decade a series of voluntary initiatives, such as Publish What You Pay (PWYP) and the Extractive Industries Transparency Initiative (EITI) have been created[2]. Their effectiveness is obviously more limited than legally binding measures, such as those presented by the European Commission.

 


The EU's new communication on Corporate Social Responsibility

 

In October the European Commission also released its new communication on corporate social responsibility (CSR)[3]. The document is unfortunately disappointing. In general, it is only a communication which, unlike a directive, has no legal value and the content is not particularly remarkable either. The document confirms the voluntary approach to CSR. "The development of CSR should be led by enterprises themselves. Public authorities should play a supporting role through a smart mix of voluntary policy measures and, where necessary, complementary regulation, for example to promote transparency, to create market incentives for responsible business conduct, and to ensure corporate accountability". The only interesting aspect is the intention to regulate the companies' disclosure of social and environmental information. We will only be able to see what this will look like once the actual legislative proposal is presented by the Commission. When this will happen also remains unclear as the Commission has indicated no date.

 

 

Thomas Lazzeri



[1] For more information on the Dodd-Frank Act please also see CSR State of Play - October 2010 at http://www.aefjn.org/index.php/369/articles/csr-state-of-play-october-2010.html

[2] For more information on PWYP and EITI please see Voluntary Initiatives to enhance Transparency in the Extractive Industries at http://www.aefjn.org/index.php/370/articles/voluntary-initiatives-to-enhance-transparency-in-the-extractive-industries.html

 

[3] For an introduction to the concept of CSR see Corporate Social Responsibility - An Introduction at http://www.aefjn.org/index.php/369/articles/Corporate_Social_Responsibility_-_An_Introduction.html

 

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