Green & socially responsible: Europe's new business model?

The role of businesses is primarily to create jobs and profits. However, they are increasingly being asked to be socially responsible and serve the society in which it is based.

oren perez 88 298 (photo credit: Courtesy)
oren perez 88 298
(photo credit: Courtesy)
"Corporate Social Responsibility matters because it mirrors the core values of the society in which we wish to live. It matters to individual companies, big or small, who through innovative products and services, new skills and stakeholder engagement can improve their economic, environmental and social performance in the short- and long-term. It matters to those who work in and for companies, for whom it can help to create a more rewarding and inspiring working environment." [Communication from the European Commission to the European Parliament and to the European Council. Brussels, COM (2006) 136] The role of businesses is primarily to create jobs and profits. However, they are increasingly being asked to be socially responsible and serve the society in which it is based. This mantra is called "Corporate Social Responsibility" (CSR) and last week the European Parliament voted to back a report calling for its practices to be included into EU policies. The European Parliament also is pushing for a type of mandatory "environmental audit" that would mean businesses have to report on the environmental impact of their operation. The report suggests enterprises go beyond minimum legal requirements and obligations in order to address societal needs. It stresses that through CSR, enterprises of all sizes, in cooperation with their stakeholders, can help to reconcile economic, social and environmental ambitions. As such, CSR has become an increasingly important concept both globally and within the EU, and is part of the debate about globalization, competitiveness and sustainability. Since the end of the Cold War, the market economy has prevailed throughout most of the world. While this has opened up new opportunities for business, it also creates a corresponding need for self-limitation and mobilization on the part of the business community, in the interest of social stability and the well-being of modern democratic societies. Within the EU, better regulation and the promotion of entrepreneurial culture are now high on the European agenda, as confirmed by the Commission's 2006 Annual Progress Report on Growth and Jobs (COM (2006) 30). The Commission is promoting these days the competitiveness of the European economy in the context of the relaunched Lisbon Partnership for Growth and Jobs. In turn, it calls on the European business community to publicly demonstrate its commitment to sustainable development, economic growth and more and better jobs, and to step up its commitment to CSR, including cooperation with other stakeholders. Because CSR is fundamentally about voluntary business behavior, an approach involving additional obligations and administrative requirements for business risks being counter-productive and would be contrary to the principles of better regulation. Acknowledging that enterprises are the primary actors in CSR, the Commission has decided that it can best achieve its objectives by working more closely with European business, and therefore announced backing for the launch of a European Alliance on CSR, a concept drawn up on the basis of contributions from business active in the promotion of CSR. The Alliance is reportedly an open alliance of European enterprises, for which enterprises of all sizes are invited to express their support. The Alliance is a political umbrella for new or existing CSR initiatives by large companies, SMEs and their stakeholders. It is not a legal instrument and is not to be signed by enterprises, the Commission or any public authority. It is a political process to increase the uptake of CSR among European enterprises. In a working paper recently published by Dr. Oren Perez from the Faculty of Law in Bar-Ilan University*, a specific part of Green Business, which is Green Finance, is discussed. Dr. Perez claims that Green Finance represents a wide-ranging challenge to the traditional constructs of financial law. In his view, new "green" instruments threaten to transform conventional investment practices ("ethical investment"), lending standards associated with project finance ("environmental/social impact assessment"), and accounting conventions ("green/social reporting"). Dr. Perez suggests that to a large extent this process was inspired and motivated by civic forces: environmentally-socially conscious citizens, environmental groups and private financial institutions. International organizations such as the World Bank and UNEP added further impetus to this process. From a legal perspective, the paper explains, the phenomenon of "green finance," which began as a highly patchy social process, constituted by segregated contractual instruments and uncoordinated organizational routines, is now being controlled, increasingly, by global centres of governance (from the World Bank to the Sustainable Indexes of Down Jones and FTSE, and the reporting guidelines of the Global Reporting Initiative). The trigger to the evolvement of Green Finance, proclaims Dr. Perez, can be traced back to the environmental campaign against the World Bank and the GATT in the 1980s and beginning of 1990s. This campaign received some political support from the US government and other governments (particularly, Japan, West Germany, Netherlands and Denmark) leading to a significant reform at the World Bank, and influencing - although to a less extent - the structure of the newly established WTO. This environmental critique brought to light the linkage between the trade-financial world and the environment, acting as a trigger for the emergence of green-financial instruments. In the US, this environmental sentiment was supported by certain regulatory changes. For example, the enactment of the Super Fund Act which imposed liability for land contamination on banks lending to environmentally sensitive industries. Time will tell if the initiatives taken by the European institutions, in the framework of world effort to broaden environmental regulation and increased business interest in ecological risks, can withstand the inevitable pressures of the global economic system. * Oren Perez, The New Universe of Green Finance: From Self-Regulation to Multi-Polar Governance, February 2007, available at: The writer is head of the International Department at the Joseph Shem-Tov Law firm.