legal aspects of csr and sustainable innovation
Post on 11-Apr-2017
282 Views
Preview:
TRANSCRIPT
PAIGE MORROW, BA, JD, LLM HEAD OF BRUSSELS OPERATIONS, FRANK BOLD VISITING LAW LECTURER, UNIVERSITY OF KENT BSIS
12 FEBRUARY 2016, BERLIN
LEGAL ASPECTS OF CSR & SUSTAINABLE INNOVATION
LEGAL ASPECTS OF CSR & SUSTAINABLE INNOVATION
OVERVIEW
▸ German CSR/ESG legal requirements
▸ EU policy framework
1. CSR Strategy
2. Non-Financial Reporting Directive
3. Promoting long-term & sustainable investment
▸ Obligations of company directors & institutional investors to consider ESG risks & opportunities
LEGAL ASPECTS OF CSR & SUSTAINABLE INNOVATION
GERMAN LEGAL CSR/ESG REQUIREMENTS
▸ Large companies & groups must include extra-financial KPIs in status or group management report as relevant to understand business performance (Commercial Code, ss. 315 & 289)
▸ Sustainability Code creates voluntary comply-or-explain framework for reporting compliance with sustainability (s. 161 AktG doesn’t apply)
▸ BaFin considers reputational risks in its Minimum Requirements for Risk Management
▸ Obligation to report on ESG matters for pensions & direct insurers
▸ BVI Guidelines on responsible investment include voluntary commitment to take measures to consider sustainability
LEGAL ASPECTS OF CSR & SUSTAINABLE INNOVATION
EU POLICY FRAMEWORK - LACK OF POLICY COHERENCE
▸ EU 2020 Strategy, Roadmap to Resource Efficient Europe & 7th Environment Action Programme + Circular Economy Package
▸ SDGs (universally applicable)
▸ BUT Capital Markets Union fails to integrate sustainability
▸ BUT CSR Strategy lacks robust implementation, needs update
LEGAL ASPECTS OF CSR & SUSTAINABLE INNOVATION
EU CSR STRATEGY (2011, TO BE UPDATED IN 2016)
▸ Builds upon UN GC, ILO Declaration, OECD Guidelines for MNEs, ISO 26000 & UNGP on B&HRs
▸ ‘Smart mix’ (?) of regulatory & voluntary mechanisms —> transparency, market incentives & corporate accountability
▸ Key outstanding issues:
▸ (1) human rights due diligence (see French & Swiss draft laws)
▸ (2) access to justice (revise Rome II)
LEGAL ASPECTS OF CSR & SUSTAINABLE INNOVATION
NON-FINANCIAL REPORTING DIRECTIVE (2014/95/EU)
▸ Amends Accounting Directive (2013/34/EU)
▸ Will require large firms to report on environmental, social & employee matters, human rights impacts, anti-corruption
▸ Commission preparing non-binding guidelines: will cover all sectors, general principles, methodology & key KPIs; will not advocate specific reporting framework (eg GRI, <IR>, Shift)
▸ Key outstanding issues: (1) reporting on due diligence; (2) clear definition of materiality
▸ Consultation closes 15 April; Transposition by end of 2016
LEGAL ASPECTS OF CSR & SUSTAINABLE INNOVATION
LONG-TERM & SUSTAINABLE INVESTMENT
▸ Revision of Shareholder Rights Directive: Engagement policy
▸ IORPs: Draft amendments would clarify ‘prudent person’ rule; require consideration of ESG risks & stakeholder consult
▸ DG Justice consultation: closes March 25
▸ BUT Capital Markets Union: aims to integrate EU markets without addressing sustainability (except green bonds)
▸ BUT lack of clarity of scope of fiduciary duties of investors & directors to consider ESG risk & opportunity
LEGAL ASPECTS OF CSR & SUSTAINABLE INNOVATION
FIDUCIARY DUTIES
▸ Analogous concepts of duty of loyalty & prudence exist in EU & national laws across Europe
▸ Often (wrongly) interpreted as duty to maximise short-term financial returns to exclusion of long-term & ESG factors
▸ Importance: Difficult for boards & CEOs to prioritise long-term, sustainable returns when facing ST market pressure
▸ Possible exception: German parity form of co-determination (Davies & Hopt 2013)
LEGAL ASPECTS OF CSR & SUSTAINABLE INNOVATION
FIDUCIARY DUTIES OF INSTITUTIONAL INVESTORS
▸ Trustees/directors must consider duties of loyalty & care when creating investment policies or making investment decisions
▸ Positive duties to integrate ESG, mitigate risk & ID investment opportunities (UN PRI 2015)
▸ Germany: non-binding guidance that profit must be “sustainable”
▸ 2015 US Dept of Labor & IRS statements: US fiduciaries may consider material ESG factors
▸ 2015 Commission study (DG ENVI): “consideration of ESG issues can be seen as being prudent both from a financial & legal perspective”
LEGAL ASPECTS OF CSR & SUSTAINABLE INNOVATION
OPTIONS FOR CLARIFICATION
▸ Legal requirement to consider ESG matters - process-oriented, not outcome-driven
▸ Guidance on interpretation of fiduciary duties to consider ESG (from Commission & Member States)
▸ Mandatory disclosure of sustainable & responsible investment policy (draft Shareholder Rights Directive)
www.frankbold.org
Paige.Morrow@frankbold.org@PaigeMorrowLaw
top related