As recently as two decades ago, the term “corporate social responsibility” was just starting to be tossed around in certain economic circles. Companies offered evidence of social good works on a voluntary basis, if they offered it at all, and governments and regulatory agencies were themselves powerless to enforce these standards.
Today, however, CSR has made its way into the mainstream thanks to a couple of factors. First, the information age ushered with it a glut of knowledge about how companies source materials and labor, manufacture their goods, treat their employees and, ultimately, distribute their products to the public. For consumers, this information caused a collective redefining of expectations. Suddenly, customers were asking not just for the best product at the lowest price, but were also taking these new considerations into account when making their purchases.
Whether an apparel company exploiting cheap and child labor in Asia or a fast-food conglomerate sourcing their meat from suspect farms, consumers became keenly aware of what was going on behind the curtain, and the companies often suffered when they didn’t like what they discovered. Now, those companies for whom social responsibility is encoded into the very DNA are faring much better than the ones struggling to catch up to the new standard.
The European Union has long been a proponent of CSR among the companies under its jurisdiction, and has for many years encouraged the larger of them - those with 500 or more employees, for example - to disclose information that goes beyond the bottom line into the larger impact of their back-end. This voluntary disclosure has made certain strides, but in 2016 a mandate will be enacted that will require all of roughly 6,000 large European companies to provide “an annual assessment of their social and environmental impact.”
Having worked in the financial sector throughout my entire career, I can understand - if not agree with - the inevitable protestations from these large multinational companies. Many will say that these initiatives have no immediate impact on the profit margin, and are often expensive to retrofit a company’s vertical integration to get up to standard. However, rather than looking at the European Commission’s legislation as yet another draconian bureaucratic requirement, these companies should view it as a chance to invest in an accountability that is increasingly a requirement for long-term success.
Nobody wants to be the next Nike or McDonald’s, companies who were the subject of massive protests and boycott campaigns when it was discovered they were violating human and environmental rights to fatten profit margins. Rather, the mandate will give all companies a chance to update their systems to compete in the new economy, in which consumers have become activists and, thanks to the internet, social media and ultra-connectivity that can lay a company low if it deems its labor practices unfair or its environmental impact despicable.
The European Union is not rolling out a prohibitive measure based on scant evidence; Rather, they are simply keeping up with the current marketplace and helping the continent’s companies thrive on more levels than simply the end-of-year bank statement.