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8 Colum. J. Eur. L. 529

Columbia Journal of European Law
Summer, 2002

Student Notes

*529 LEGAL ENFORCEMENT OF CORPORATE SOCIAL RESPONSIBILITY WITHIN THE EU


Pall A. Davidsson [FNa1]

Copyright © 2002 by The Parker School of Foreign and Comparative Law, Columbia University; Pall A. Davidsson

I. INTRODUCTION
Recent economic globalization and trade liberalization have given multinational enterprises (MNEs) considerable economic power, matching and often surpassing that of states. As an example, consider that the collective sales of four of the largest MNEs in the world exceed the gross domestic product of the whole of Africa. [FN1] MNEs dominate the global economy, accounting for two thirds of global trade in goods and services. [FN2]
While states are subject to various international and internal mechanisms designed to prevent them from abusing their powers, MNEs are traditionally bound by national laws of limited geographical scope. In the global market, where legislation tends to vary considerably from one country to another, little exists in terms of universal standards applicable to MNEs.
Europe is home to more of the top 100 MNEs in the world than any other continent [FN3] and to the most efficient international human rights mechanism in the world. In the year 2000 alone, the European Court of Human Rights found over 400 violations of the European Convention on Human Rights, [FN4] which is legally binding upon its signatories. Throughout the 42 years of the court's existence, [FN5] states have shown remarkable compliance with its judgments. Almost without exception, states have granted injured parties compensation and undertaken legislative, administrative and judicial measures to avoid repetition of violations identified by the court. The *530 scope of this mechanism is, however, limited to violations committed by state actors. Victims of violations committed by private entities such as MNEs cannot seek remedy before the court unless some kind of state involvement is implicated. [FN6]
The European Union (EU) is a unique forum within which to evaluate corporate social responsibility (CSR) because it unites the large European economy with Europe's commitment to human rights and social values. Although the initial goal of European integration was to create a common market, the European Court of Justice stressed early that respect for human rights forms an integral part of the general principles of Community law. [FN7] This vision was strengthened with the Maastricht Treaty, which states that the goals of the EU include promoting “economic and social progress” while developing “the Union as an area of freedom, security and justice” [FN8] and that the EU “is founded on the principles of liberty, democracy, respect for human rights and fundamental freedoms.” [FN9] As a result, the EU does not see the creation of common markets and enhanced protection of human rights as mutually exclusive. Rather, the EU believes that one cannot be achieved without the other. Economic freedoms “are not absolute, but must be viewed in relation to their social function” [FN10] and with due regard for human rights. [FN11] Economic efficiency must be pursued together with democratic legitimacy and social justice. The EU is therefore not only concerned with the promotion of human rights by their inclusion in the creation of common markets but also with the added value human rights provide to economic and social welfare.
This note will first examine the concept of corporate social responsibility and how that notion ties in with, and even promotes, the goals of profit-oriented businesses. In order to illustrate the growing awareness of corporate behavior, Section III then traces the private and governmental initiatives taken in Europe to set out human rights standards with respect to businesses and to introduce tools to measure social conduct. This interest at the national level has also been evident in Brussels, which-through a series of small steps and declarations discussed in Section IV-is moving toward making concrete proposals for measures to ensure the ethical conduct of corporations. The latest step was taken in July 2001 when the European Commission issued a green paper to promote a framework for corporate social responsibility. [FN12] Section V will discuss the principal contents of the Green Paper, with a focus on the means proposed to promote CSR. A critical stance is taken in Section VI with respect to the Commission's decision to preclude enforcement of corporate social responsibility through law. A number of arguments in favor of and against such legally binding norms are analyzed in particular from *531 the viewpoint of efficiency and specific EU objectives such as economic integration and governance. It will also be argued that legal and voluntary codes of conduct can be applied side by side in a beneficial manner. This discussion will be followed by suggestions of alternative or complementary methods of legal enforcement in Section VII.

II. CORPORATE SOCIAL RESPONSIBILITY


A. Business Case

In general, corporations strive to make profits and increase the value of their shareholders' investments. The traditional view is that a corporation that meets this goal has a beneficial impact on the community where it is based by creating new jobs and by enhancing its economic welfare. As Adam Smith observed, people enjoy their daily bread not because of the benevolence of their baker, but because of his selfish pursuit of profit. [FN13] This straightforward image where making money means doing good has, however, become blurred with the emergence of global markets and increased transnational business. An MNE operates by definition in more than one geographical area, each of which is likely to have different standards with respect to labor, environmental and consumer protection. This gives corporations the opportunity to base their operations in countries where there are few or no requirements in terms of, for instance, minimum working age, working conditions or environmental protection. The corporation and consumers may benefit from this arrangement by way of lower production costs, but the workers themselves (often located on the other side of the world) may suffer because of hazardous working conditions and damage to their immediate environment. Consider, for instance, the serious allegations against European companies (or their subcontractors) of destruction of the land, livelihood and sacred sites of indigenous people in Indonesia or the appalling working conditions in factories in the Philippines with wages below the subsistence level. [FN14]
Corporate social responsibility is a new way of looking at business activities. In the Green Paper, the EU describes corporate responsibility a “concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.” [FN15]
Accordingly, the concept can be read as either a minimum standard to avoid violating human rights or a loftier notion about how to contribute to society. Corporate social responsibility is not only about new responsibilities but also about the advantages it brings. A strong business case can be made for respecting obligations toward society and the environment. Conscientious firms attract the best workers and generate a better working environment. Economic studies conducted by the United Nations Development Programme show that “human rights make human beings better economic actors” and that economic failures such as famine and inefficient capital markets are closely related to the lack of effective protection of *532 human rights and democracy. [FN16] In addition to adequate labor markets, businesses may be dependent on other resources such as clean water and uncongested roads and therefore have a corresponding interest in protecting the environment.
The media and modern communication technologies have brought about increased transparency of business activities at home and abroad. As a result, consumers, stockholders and the broader civil society are more aware of harmful business practices and have come to exact high standards from corporations and to insist that goods be produced not only efficiently but also ethically. Positive attention of consumers and investors increases market opportunities and yields direct economic benefits. A corporation can also derive financial benefits from having its stock listed in an ethical stock market index, thereby strengthening the appeal of the company. Moreover, the investments and core assets of a company, such as brand and image, are less likely to be tainted by revelations of unethical conduct if the corporation pursues a philosophy of CSR.

B. Limits of the Business Case

For the reasons given above, socially responsible conduct has often been described as an economic win-win situation. In some circumstances, however, this view is overly simplistic and misleading. Additional costs are involved in adopting new policies and schemes to align existing company practices with social responsibilities, and these additional costs will not always result in increased profits. Even where consumers or investors reward ethical conduct, practices that are socially harmful could be even more profitable. Accordingly, it is important not to see social responsibility as solely a new way to maximize profits, but also as a reaction to the enormous impact that business has on individual lives, society and nature. Since private enterprise is an inextricable part of global and national communities and because private enterprise benefits from, and depends on, natural and human resources, it has the societal and ethical obligation to respect fundamental human rights and to promote the well-being of the communities in which it operates.
In sum, corporate social responsibility means that private entities act in a socially responsible way because they see themselves as an integral part of society; they consider profits to be the main goal of the company, but not its only raison d'étre. Such companies therefore make investment and strategic decisions with a view toward the longer term.

III. REGULATING THE PRIVATE SECTOR
Many international agreements recognize that private entities have the capacity to infringe on the full enjoyment of human rights. The most notable examples are the United Nations Covenant on Economic, Social and Cultural Rights [FN17] and the United Nations Convention on the Rights of the Child, [FN18] as well as more than 180 multilateral treaties on labor and social standards adopted by the International *533 Labour Organization (ILO). [FN19] However, these agreements do not provide access to enforcement mechanisms such as international supervisory bodies or domestic courts.
Voluntary principles have also been drafted at the international level. The United Nations Global Compact sets out nine principles with respect to human rights, labor standards and the environment. [FN20] The ILO adopted a Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, [FN21] and the Organisation for Economic Co-operation and Development (OECD) has set out Guidelines for Multinational Enterprises. [FN22]

A. Corporate Initiatives

Given the absence of legally binding norms addressing social responsibility globally, businesses themselves remain a very important vehicle for promoting CSR. Many industries and individual companies have taken steps to address questions of ethical behavior. The following examples illustrate how diverse private sectors in Europe have attempted to set standards for corporate behavior:
1. Codes of conduct have been adopted throughout the European fashion industry. [FN23] In March 1995, for example, the footwear industry prepared a code prohibiting child labor. Later, the code was extended to cover all fundamental rights at work, namely trade union freedom, collective bargaining, prohibition of discrimination and prohibition of forced labor. The textile and clothing industry adopted a code on CSR in 1997, while the leather and tanning industry signed its code in July 2000.
2. The European toy industry adopted a code of business practices in November 1997. [FN24]
3. The Ethical Trading Initiative, a U.K.-based alliance of companies, nongovernmental organizations and trade union organizations committed to working together to identify and promote ethical trade, issued a code of conduct in 1998. [FN25]
4. EuroCommerce, an association representing the interests of European employers in retail, wholesale and international markets, and Euro-FIET, representing European commercial *534 workers, issued a statement in 1999 urging their members to take the necessary steps to abolish forced labor, child labor and discrimination with respect to employment as well as to ensure freedom of association and collective bargaining. [FN26]
5. The Confederation of Danish Industries has released a set of guidelines on human rights that requires industrial companies to pursue the same level of social responsibility in their host and home countries. [FN27]
B. National Initiatives

In addition to companies, states have taken individual and cooperative initiatives to regulate the conduct of companies under their jurisdictions. A notable example of such cooperation is the Voluntary Principles on Security and Human Rights drawn up by the governments of the U.K. and the U.S., along with leading companies in the extractive and energy sectors as well as nongovernmental organizations (NGOs). [FN28] It merits mention that the governments in question, not industry, took the initiative to convene the working group following criticism of the industry's conduct in the developing world. [FN29] The preamble to the Voluntary Principles states the understanding “that governments have the primary responsibility to promote and protect human rights.” [FN30] This approach describes the traditional function of states under international human rights treaties. Article 2(1) of the International Covenant on Civil and Political Rights [FN31] stresses that each state must “respect and ensure to all individuals within its territory and subject to its jurisdiction” fundamental rights and freedoms. Similar language can be found in Article 1 of the European Convention on Human Rights. [FN32]
The use of the word “responsibility” in the Voluntary Principles in the context of multinational enterprises' conduct in the developing world seems to imply recognition by the governments of the U.S. and the U.K. that their traditional role now extends to an obligation to ensure the ethical conduct of national companies even outside their territorial jurisdictions.
The U.K. and U.S. governments are not alone in voicing responsibility for corporate conduct at home and abroad. The Danish Ministry of Social Affairs has developed a social index for measuring the degree to which companies live up to their social responsibilities. [FN33] French law requires companies to record in their *535 annual reports the social and environmental consequences of their activities. [FN34] In addition, social labeling standards [FN35] have been adopted in the Netherlands, [FN36] Germany, [FN37] Sweden, [FN38] and the U.K. [FN39]
Moreover, British courts have heard cases involving MNEs domiciled in the U.K. based on their conduct outside the United Kingdom. Such cases raise complex procedural questions of venue and jurisdiction. Article 2 of the Brussels Convention on Jurisdiction [FN40] states that a contracting state where the defendant is domiciled is the place of jurisdiction regardless of the defendant's nationality. However, under U.K. law, a defendant can move to stay, or forestall, the action on grounds of forum non conveniens. On this basis, MNEs may request that claims alleging corporate misconduct be tried before courts in the state where the alleged acts took place-and where human rights protection is likely substantially less than before European courts. Differences in national legislation and loopholes that enable companies to avoid liability are powerful arguments for an international effort to promote corporate accountability.
Notwithstanding these initiatives, North America is ahead of Europe in addressing the question of corporate social responsibility. In the United States, 85 percent of large companies have codes of conduct in place. [FN41] In addition, the North American Free Trade Agreement (NAFTA) provides a regional mechanism whereby complaints can be brought against companies for violating workers' rights. [FN42]
While the European initiatives show recognition of the importance of regulating corporate behavior, the lack of cohesion and limited scope of these initiatives are clear signals that the issue of CSR must be addressed in a comprehensive and more global manner. The question is, however, what European forum is best suited to that task and what kind of measures will most likely ensure success.

IV. INVOLVEMENT OF THE EUROPEAN UNION
The institutions of the EU are concerned with all aspects of market behavior within the Community. The initial goal of creating a “common market” [FN43] has gradually been enlarged to “maintaining and developing the Union as an area of freedom, security and justice” in order to “promote economic and social progress.” [FN44] It is not within the scope of this paper to explain the evolution and expansion of the *536 EU's role. It is worth noting, however, that social policy was stated as a Community concern from the outset and has now become one of its more active domains. The EU's social policy covers a wide range of issues, including the promotion of employment, employee protection, equal job opportunities, equal pay between the sexes and workers' health and safety. In the 1990s, the EU took gradual steps toward adding CSR to its list of social concerns.
First, in 1993, Commission President Delors appealed to European businesses to take part in the fight against social exclusion. [FN45] Then, in 1996, the European Parliament in its annual report on human rights called for a code of conduct for European companies operating in third countries. [FN46] In 1997, the European Parliament adopted its report on relocation and foreign direct investment in third countries, in which it reiterated its call for a code of conduct. [FN47] By 1998, the European Parliament's Committee on Development and Cooperation had issued its Howitt Report on “EU Standards For European Enterprises Operating in Developing Countries.” [FN48] The report was drafted based on consultations with numerous interested groups (e.g., business and industry, trade unions, NGOs from both the North and the South, representatives of indigenous peoples, international organizations, independent experts from the academic world and European Commission officials).
In a 1999 resolution, the European Parliament adopted many of the recommendations put forward in the Howitt Report. [FN49] The resolution made several requests upon Community institutions: a) the European Council should develop a joint position on voluntary codes of conduct; [FN50] b) the European Council and the Commission should make proposals to develop a legal basis for establishing a European multilateral framework governing the operations of companies worldwide, [FN51] and c) the Commission should study the possibility of setting up a European monitoring platform. [FN52]
In March 2000, the European Council in Lisbon made a special appeal to European businesses' sense of social responsibility. A strategic goal was set; the EU was “to become the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion.” [FN53] Underlining the important contribution of the private sector in achieving this goal, the European Council addressed businesses directly for the first *537 time in “a special appeal to companies' corporate sense of social responsibility regarding best practices on lifelong learning, work organisation, equal opportunities, social inclusion and sustainable development.” [FN54]
In June 2000, the EU adopted a new Social Policy Agenda. [FN55] It stressed the importance of corporate social responsibility in terms of the employment and social consequences of economic and market integration and the adaptation of working conditions to the new economy. [FN56] The European Council endorsed this social agenda at its meeting in Nice in December 2000. [FN57]
Perhaps the most important development is the Green Paper, issued in July 2001, on promoting a framework for corporate social responsibility. The paper was prepared in the context of the EU's Sustainable Development Strategy for Europe.

V. THE GREEN PAPER
The Green Paper was conceived as a springboard for debate, inviting a wide spectrum of views on how to develop a framework for the promotion of corporate social responsibility.
The Green Paper explains the emergence of social responsibility and the impact it has had on the governance of private enterprises. It notes that companies that recognize social responsibility often fail to examine and address their conduct at all levels, from day-to-day management to long-term strategies. [FN58] In addition, while many MNEs have begun to issue social responsibility reports, these reports tend to address only particular issues. Thus, environmental health and safety reports are common, whereas reports tackling issues such as human rights and child labor are not. [FN59] In sum, the Green Paper takes notice of individual initiatives in the field of corporate social responsibility, but urges a holistic approach in terms of its content as well as its integration at all levels of company management.
The Green Paper makes no concrete proposals, but nonetheless suggests several measures that could be taken and lacunas that ought to be addressed in order to strengthen respect for social responsibility throughout the European Union.

A. Improved Reporting

At present, there are a number of competing rating systems and formulas for measuring corporate behavior. This can result in information overload, which does little good for companies and investors interested in socially responsible ventures. Companies are overwhelmed with duplicative requests from professional trade associations, trade unions and public agencies, each measuring different aspects of CSR. The multiplicity of incompatible benchmarking tools burdens companies with unnecessary costs and makes it difficult for them to reach their stakeholders through *538 reports that are clear and easily understood. At the same time, the lack of consistency in information on CSR performance makes it difficult for investors and consumers to know whether a company's business is being conducted in an ethical manner. Only through harmonization of reporting standards will stakeholders and companies be able to compare the performance of one company to that of others in the same sector.
The Green Paper acknowledges that a “global consensus needs to evolve on the type of information to be disclosed, the reporting format to be used, and the reliability of the evaluation and audit procedure.” [FN60]
Important international initiatives to harmonize CSR reporting have already taken place outside the European Union. Social Accountability International (SAI) has developed a standard, SA 8000, for workplace conditions and a system for independently verifying factories' compliance with that standard. [FN61] Global Reporting Initiative (GRI) is in the process of developing guidelines to measure social and environmental performance. [FN62] That work has been undertaken in collaboration with representatives of trade unions and labor federations, as well as in liaison with the ILO and specialist labor rights groups.
Social performance reports attract some skepticism for being public relations stunts rather than sources of genuine information on corporate conduct. In order to guarantee credibility, the Green Paper stresses the need to have the reports verified by independent third parties according to clearly defined standards. [FN63] Independent verification and audit procedures would ensure that the market has access to reliable information and that companies are accurately informed about how effective their social management and investment strategies are.
Rather than creating a new EU model, the European Union should adopt the initiatives proposed by SAI and GRI and make them applicable to European businesses. Many companies based within the EU operate outside its borders. Their stakeholders and investors are dispersed globally. To reach those groups and to enable comparison between companies inside and outside the EU, universally applicable reporting standards must be implemented.
The EU could contribute to the SAI and GRI initiatives by facilitating the collection, organization and publication of the social and environmental statistics already available to the public. The EU should contemplate making social reporting mandatory or, at a minimum, promote such reporting initiatives and facilitate their adoption by European industry. It should also enter into a dialog to ensure that the needs of European companies are taken into account.

B. European Employment Index

Employees as well as employers are coming to recognize the importance of socially conscious conduct for the quality of jobs and the creation of a satisfactory *539 working environment. The Green Paper proposes annual publication of a list of the best European employers as an instrument to reward companies seeking to become good workplaces. [FN64] The Green Paper also supports the idea of introducing a European award for particularly progressive companies. [FN65]

C. Social Labels

The Green Paper acknowledges the importance of consumers' knowing a company's commitment to social responsibility when buying products or services. Although companies, NGOs and governments have taken independent efforts to introduce social labels, such social labels are generally restricted to particular products and tend to lack transparency and independent verification. Without standardization, the growing number of social labels risks causing confusion among consumers, thereby failing to have the desired effect. The Green Paper makes no concrete proposals to address this problem, but recognizes the efforts of Fairtrade Labeling Organizations International (FLO) in introducing a single international Fairtrade Label. [FN66] This recognition may suggest a willingness by the EU to subject social labeling practices of its Member States to FLO.

D. European Indices for Social Investment

The increased demand for socially responsible investment funds [FN67] in Europe has led, in turn, to an increase in their numbers. At the same time, information about such funds is often confusing and inaccessible due to a lack of standardized tools and metrics to measure their number, size and performance. Although some efforts have been taken, [FN68] there is a need for further standardization, harmonization and transparency in the methods used by screening agencies. The Green Paper recommends the development of European market indices that identify companies with the strongest social and environmental performance, combined with external audit and internal quality assurance procedures to monitor these companies. [FN69]

E. Global Scope of Corporate Social Responsibility

The EU describes itself as a community encompassing fundamental human rights, including labor rights and social values. The essence of universal human rights is that they belong to all and are recognized by all regardless of frontiers and cultures. Just as governments are criticized and held liable for human rights *540 violations outside their territorial borders, [FN70] rules of corporate social responsibility should apply to conduct that takes place outside, as well as within, the Community. It is not possible to consider a company socially responsible for maintaining good employment practices within the Community if it acts in a socially exploitative manner (or condones the same through its supply chain) in developing countries.
Since the EU and its Member States collectively represent the world's largest aid donor, the issue of regulating the conduct of MNEs outside EU territory merits additional examination. [FN71] Provision of aid to suffering populations would be hypocritical if the EU did not take measures to ensure that companies under its jurisdiction do not aggravate the situation through human rights violations. The ultimate goal of all foreign aid must be to give Third World countries a greater chance of attaining sustainable development. Many economists argue that developing countries remain poor notwithstanding their wealth of natural resources because of the lack of human rights guarantees and the absence of liberal trade and competition laws. [FN72] Indeed, economic history confirms the central insight of Adam Smith's Inquiry into the Nature and Causes of the Wealth of Nations-that economic welfare is essentially a function of legal guarantees of economic liberty, property rights, legal security and open markets. [FN73] Thus, a clear link emerges between respect for human rights and economic welfare. Economic aid alone cannot achieve sustainable development; it must be accompanied by corresponding developments in human rights and the rule of law. Given the EU's involvement in developing countries, it is not feasible to limit its assistance to the provision of aid alone. The EU should also introduce a framework for ensuring that companies under its jurisdiction that operate in the developing world respect the fundamental values and rights the Community seeks to protect.
Although the Green Paper does not argue for the global reach of corporate social responsibility in the terms set out above, it clearly states that-in a world of multinational investment and global supply chains- corporate social responsibility must extend beyond the borders of Europe. [FN74] Multinational enterprises must respect the local setting upon which they depend for access to labor markets and natural resources. The Green Paper also stresses that the scope of social responsibility is not limited to the conduct of the companies themselves: “Companies should be aware that their social performance can be affected as a result of the practices of their partners and suppliers throughout the whole supply chain.” [FN75]
*541 While it is essential that companies respect social responsibilities both inside and outside the EU, it is important that the search for a universally applicable code on CSR not result in adopting the lowest common denominator. Europe has stood as an example to the world in setting up international mechanisms for human rights protection-in particular, through the European Court of Human Rights and through the economic and social integration taking place within the EU. These accomplishments were achieved by going far beyond the minimum requirements of their times. The EU should maintain that ambition also with respect to corporate social responsibility.

F. Content of Codes of Conduct

The Green Paper also lays out several suggestions on the content of codes of conduct. It advocates that codes be based on the ILO's fundamental Conventions, as outlined in the ILO Declaration on Fundamental Principles and Rights at Work, [FN76] and the OECD Guidelines for Multinational Enterprises. [FN77] In addition, the Green Paper suggests that regulation of corporate activities should extend beyond issues of labor rights. [FN78] There is growing recognition of other kinds of human rights violations committed by private entities. The Green Paper mentions especially the collaboration of companies with state security forces with a record of human rights abuses. [FN79] Concerns about such collaboration led the governments of the U.K. and the U.S. to initiate the preparation of voluntary principles on security and human rights for companies in the extractive and energy sectors. [FN80]
With regard to affirmative measures to improve corporate conduct, the Green Paper suggests that companies not limit themselves to the letter of the ILO conventions concerning child labor. [FN81] It is not sufficient to dismiss contractors that use child labor; the underlying factors, such as poverty, must be addressed by promoting the education of children or by taking similar measures.

VI. ENFORCING CORPORATE SOCIAL RESPONSIBILITY THROUGH LEGALLY BINDING NORMS
The principal purpose of the Green Paper is to launch a debate and raise awareness of corporate social responsibility, thus building a partnership for the “development of a new framework for the promotion of corporate social responsibility, taking account of the interests of both business and stakeholders.” [FN82] It is more an opening for discussion than a concrete proposal on the EU's role in promoting CSR. The consultation period ended in December 2001, by which time a number of comments and suggestions were made by public authorities, international *542 and national organizations, companies, social partners and advocacy groups as well as academics and other interested individuals.
The Commission stresses in the Green Paper that “the word ‘framework’ should be given a broad interpretation.” [FN83] The next sentence, however, contradicts this open approach laying out that “proposals should build on the voluntary nature of corporate social responsibility.” [FN84] Thus, the Commission insists on a solely voluntary approach to CSR that is repeated throughout the Green Paper, explicitly excluding consideration of ideas to promote corporate social responsibility through legally binding norms.
By limiting the EU's involvement to voluntary codes, the Commission has ignored the European Parliament's calls for establishing a European enforcement mechanism. In one resolution, the Parliament suggested that the Commission and European Council “make proposals ... to develop the right legal basis for establishing a European multilateral framework governing companies' operations worldwide.” [FN85] The Parliament also stressed that “voluntary and binding approaches to corporate regulation are not mutually exclusive” and urged “an evolutionary approach to the question of standard-setting for European Enterprises.” [FN86] From this, it is clear that the Parliament favors introducing a legal framework to govern corporate behavior and that the Commission should at least consider the advantages of legally binding standards over voluntary principles.
The debate on CSR within the EU, in particular comments sent to the Commission on the Green Paper, includes a number of arguments in favor of and against using legal standards. This note will examine the value of both sides of those arguments in turn.

A. Arguments Against Legally Binding Standards


1. Voluntary nature of CSR

Before examining the advantages and disadvantages of a legally binding code on CSR, a fundamental question must be answered about the nature of CSR: Is it by definition only voluntary, or can it also include principles set down by law?
One argument favoring a voluntary interpretation of CSR stresses that if its principles were incorporated into law they would lose their defining characteristic as “social responsibility” and simply become “legal obligations.” From this perspective, it would be illogical to speak of regulating CSR since its very nature encompasses only activities lying beyond regulation. In other words, CSR denotes actions reflecting a cultural change within companies to act more responsibly, not mere compliance with legal standards.
The Commission considers CSR as taking on voluntary commitments “which go beyond common regulatory and conventional requirements.” [FN87] The Commission thus reflects the widely held view that, in terms of corporate legitimacy, society and *543 stakeholders like to see companies go beyond what is required by law. CSR is accordingly a form of “best practice,” a goal to be attained rather than a legal obligation with which to comply.
The uncertainty about the nature of CSR results from the fact that as of yet there is no single and universally accepted definition of CSR. The idea that private enterprises have some responsibilities toward their immediate stakeholders, such as their employees, has been around for some time. However, the idea to extend social responsibility to issues going beyond labor, such as human rights and the environment, is much more recent. The notion of corporate social responsibility has developed to encompass a number of factors that are hard to put down in a single definition. In this respect, the NGO Africa Now draws an analogy with the notion of famine-few scholars can agree exactly what it is, but all recognize a case of famine when they see it. [FN88]
Businesses have different understandings of what their social responsibilities are. The textile industry, for instance, focuses on labor rights, which may be attributed to the nature of its work and the negative public coverage of the industry's role in child labor and sweatshop practices. [FN89] Allegations of human rights abuses by oil companies such as Shell in Nigeria prompted the adoption of voluntary principles by the extractive and energy sectors in the U.S. and the U.K. [FN90] The voluntary principles of the oil industry focus on human rights violations committed through use of force and security issues in the developing world. These diverse approaches to the obligations imposed on businesses by society should not be taken to mean that only one or the other qualifies as CSR. It is helpful to draw a comparison from the domain of human rights. While the Western world traditionally focuses on civil and political rights, such as the right to vote and freedom of expression, the old communist countries stressed the importance of economic, social and cultural rights such as the right to work and the right to equal remuneration for equal work. Although the emphasis on the categories of rights differs, all are considered human rights. Indeed, the Universal Declaration of Human Rights encompasses both civil and economic rights. [FN91] As states have chosen to emphasize different aspects of human rights, private businesses have focused on that facet of social responsibility most relevant to the nature of their work or to the problems they have faced in the past.
Given that there is no clear definition of CSR, it is hard to argue that its nature precludes enforcement through legally binding codes. The nature of CSR is still undergoing debate and development, in practice as well as in the academic realm. Statements that CSR has a purely voluntary quality must therefore be taken as a point of view rather than a statement of fact.
This raises, in turn, the question of whether limiting the notion of CSR to a voluntary approach is unnecessarily restrictive. In one sense, the development of *544 CSR takes place through a process in which the private sector defines its social role through voluntary principles. But this is only part of its development. In another sense, national and international authorities seek means to promote CSR and search for methods to ensure that the private sector respects its social obligations. Stakeholders are also asking what guarantees they may have to ensure that the principles of CSR are respected and what remedies they can pursue in case those principles are breached.
A determination that CSR lies exclusively outside the domain of law would raise serious questions about the role of national authorities in enforcing CSR. At this early stage, such a limitation on the development of the concept is unnecessary. A more beneficial approach would be to allow all players-those in the private as well as the public sector-to examine the means available to ensure respect for social responsibility, including enforcement through law. The boundaries of CSR would thus be determined on the basis of experience and active dialog instead of premature limitation.
Moreover, several conceptual problems stand in the way of the argument that CSR cannot encompass principles safeguarded by law. According to such an understanding, a distinction must be made between a socially beneficial activity based on whether it is regulated or not. Such a distinction does not appear to serve any purpose and risks being irrational when it leads to different interpretation of the same act performed under different legal regimes. For instance, when a company implements equal health standards in two countries, it would not be reasonable to consider that policy socially responsible solely when it exceeds what is required by law and not socially responsible when the policy merely meets the minimum legal standards. Again, a useful comparison can be drawn from the field of human rights.
The underlying objective of human rights is to protect the inherent dignity of all members of the human family. [FN92] As mentioned above, states focus on different categories of rights to protect human dignity. Moreover, human rights are enforced through a variety of mechanisms. Some remain in vague declarations without any binding effect. Others are guaranteed by law in national constitutions or regional conventions, such as the European Convention on Human Rights, and are enforceable before national or international courts. The existence of different means to implement human rights does not alter the fact that regardless of whether human rights are stipulated in soft law or binding legal regimes, they remain human rights.
CSR should be analyzed and defined in the same manner as human rights. The objective of CSR is to ensure that companies integrate social, environmental and human rights concerns into their business operations. Whether that goal is reached through a legal or a voluntary mechanism is only a question of remedies and enforcement, not of the nature of CSR. One scholar has suggested that the two are merely different sides of the same coin. [FN93] On the one hand, there is an objective approach to business ethics focusing on laws and codes that set standards for corporate behavior. On the other hand, there is a subjective approach to business ethics, which emphasizes the moral content of corporate behavior. Accordingly, a *545 voluntary approach is only one method in a range of techniques and approaches for implementing CSR.
From a conceptual perspective, it is also difficult to accept the argument that CSR loses its “social responsibility” characteristic once it is incorporated into law. Such a statement would seem to imply that laws have no social or even moral value by themselves. This implication is untenable since social concerns and morals are at the core of many laws. Consider, for instance, legislation imposing sanctions on parents for neglecting their children or legislation that protects the inviolability of individuals' sexual lives. It is true that some legislation has no links with moral or social obligations; laws setting up and naming governmental departments are just one such example. But that can in no way be interpreted to mean that other legislation that is drafted to protect moral principles removes the societal obligation to respect those principles. Society imposes moral expectations on parents to care for their children regardless of what the law says. The existence of laws laying down parental obligations does not change the moral and societal obligation; it reinforces it by providing remedies such as access to court, compensation for victims and sanctions against violators.
Finally, in practice, laws already enforce corporate social responsibility. Laws impose, for instance, mandatory reporting requirements and liability rules at the level of the individual company or by business sector. [FN94] Moreover, European legislators have a long tradition of integrating social concerns into business operations. Environmental protection, minimum wages and workplace safety regulations are solid examples of such legislation.

2. Reluctance to interfere with the private sector

One reason for the Commission's reluctance to introduce a legally binding code may lie in the skepticism of some EU Member States toward further social integration. They fear infringement on the liberty of business. The slow integration of social policies into the EU's agenda, combined with the U.K.'s opting out of the Social Chapter of the TEU, provides evidence of the obstacles facing initiatives within the social field.
The treaties underpinning the European Union [FN95] do not preclude enforcing CSR through law. Indeed, the treaties impose various obligations on private entities and provide grounds to hold them legally accountable. Examples of EU law that protect individuals against the conduct of private entities as well as public actors include Article 81 of the TEC, which prohibits anticompetitive behavior, and various Council directives on competition. [FN96] Moreover, EU law grants individuals a range of rights protecting them against abuse of both political and economic power. Citizens of the European Union are thus guaranteed civil rights (such as the right to move and reside freely within the EU), [FN97] political rights (such as the right to vote in municipal *546 elections), [FN98] economic rights (such as freedom of trade and competition) [FN99] and social rights (such as the right to equal pay for equal work). [FN100] These examples show that the EU's regulatory authority includes the establishment of legally binding rules for the conduct of private actors to prevent them from breaching human rights and freedoms. Therefore, the EU treaties themselves do not pose an obstacle to regulating the private sector; where the political will exists, such rules can and have been set.

3. Equivalent to a European version of the Helms-Burton Act

The EU's Committee on External Relations has voiced the concern that implementing mechanisms and punitive measures against European firms would be tantamount to an “EU Helms-Burton Act.” [FN101] It is understandable that the EU is wary of undertaking measures similar to those it reproached the U.S. for enacting, but the comparison is inappropriate. The Helms-Burton Act [FN102] targets companies that invest in property that had belonged to U.S. companies prior to the communist revolution in Cuba and that was subsequently expropriated by the Cuban government. Sanctions under the Helms-Burton Act extend to investors regardless of whether they are based in the U.S. or are wholly foreign. The Helms-Burton Act accordingly extends the jurisdiction of U.S. courts to foreign companies involved in transactions taking place outside U.S. territory. Under such circumstances, the only link to the U.S. is that the property in question formerly belonged to U.S. companies. Such extraterritorial jurisdiction is a highly diluted application of the passive nationality principle in international law. Under this principle, national courts can assert jurisdiction on the basis of the nationality of the victim. [FN103]
Here, however, it is difficult to argue that U.S. interests are directly harmed by the impugned transactions since the property in question was expropriated by the Cuban government a considerable time ago, generally without any involvement at all by the company targeted by the Helms-Burton Act. While the domestic courts of some states have asserted jurisdiction on the basis of the nationality of the victim in very limited circumstances, [FN104] the application of the passive nationality principle against someone other than the perpetrator goes well beyond its traditional use. In fact, the U.S. has customarily been very reluctant to accept the passive nationality principle. The Restatement (Third) of Foreign Relations suggests that U.S. courts may exercise jurisdiction against foreigners abroad for very serious crimes, such as terrorist activities, but explicitly excludes its application for ordinary torts and crimes committed by noncitizens abroad. [FN105]
*547 A legally binding code for CSR within the EU would not raise the problems of jurisdiction discussed above with respect to the Helms-Burton Act. A legal code would solely target foreign companies to the extent they operate within the Community. The application of the code beyond the EU would therefore be strictly limited to European companies subject to the jurisdiction of European courts by virtue of the nationality principle. The rule that a state may enforce its laws against one of its nationals for acts committed anywhere in the world is universally accepted. Under international law, a legally binding code on CSR would therefore not raise the same jurisdictional issues as the Helms-Burton Act.
Second, the purposes of the Helms-Burton Act and of a binding code of conduct are fundamentally different. The former penalizes companies for engaging in transactions involving property expropriated by a foreign government. The link between the conduct of the penalized company and its role in the expropriation is highly remote, if not wholly absent. A code of conduct, however, would serve the purpose of targeting the company itself, or its subcontractors, for engaging in acts that violate the human rights of its employees or other persons in the immediate vicinity of its operations. A close nexus between the interests protected and the violation would thus exist, which is missing in the case of the Helms-Burton Act. In sum, a legal code for CSR targets the company committing the violation, whereas the Helms-Burton Act targets principally businesses dealing with the violator (Cuba), but not the violator itself. Legally binding rules on social responsibility would therefore directly affect business practices, whereas the Helms-Burton Act would have solely an indirect effect on the conduct of businesses and governments intent on expropriating U.S. property.

B. Arguments Favoring Legally Binding Standards


1. Enhancement of economic integration

Europe has learned from its history that economic, political and legal freedoms cannot be separated. The collaboration of industry with the Nazi regime in Germany is a powerful example of the fact that private economic power can be no less dangerous to human dignity than abuses of political power. [FN106] The EU recognizes this danger by combining economic integration with human rights protection. It seeks to promote human welfare through a combination of economic and social factors, which render the EU a powerful forum for promoting human rights through the activities of private businesses inside and outside the Community.
In addition, the EU has the unique capacity of issuing regulations and directives with legal effect on its Member States. This has the clear advantage of making legally binding rules applicable to all companies within the Community at more or less the same time. Conversely, voluntary principles, by definition, are only adopted if and when a given company sees fit. The principal vehicle for ensuring compliance *548 with voluntary principles is pressure from consumers and investors, which unfortunately is not uniformly applied. The receptiveness of businesses to social concerns greatly depends on how public they are and on how well-known their brand names are. Large corporations, like Nike and Shell, for instance, are subject to much more media and NGO scrutiny than an unknown corporation distributing a highly specific, nonconsumer product. Nike and Shell are therefore more likely to adopt a voluntary code on social responsibility than the “unknown” corporation. [FN107]
Being socially responsible is not without costs. Improved supervision, increased reporting and new management practices do not always yield immediate benefits in terms of access to larger markets. Indeed, the added costs for these changes may eventually be reflected in higher prices, making the socially responsible company less competitive. This difference may tilt the balance of the market in favor of corporations that choose not to adopt and implement a code of conduct or that are based in a Member State where the market or the state imposes fewer social obligations on companies. That situation invites strategic choices about the location of businesses, which runs contrary to the EU's efforts to equalize competition for corporations through harmonization of the regulatory framework applicable to them. A legally binding code on CSR would remedy this problem through its uniform application, regardless of the management in place or the particular brand's vulnerability to public scrutiny. A legal code would serve to harmonize market rules, imposing the same social standards on all companies and thereby enhancing economic integration within the Community.

2. Beyond existing global efforts

Should the Commission insist on a voluntary approach, the risk exists that the EU will simply add yet another code of conduct to an already extensive body of initiatives undertaken by various NGOs, international organizations and industry groups-potentially leading to little more than confusion and code overload. The United Nations' Global Compact sets down nine broad principles on corporate social responsibility with respect to human rights, labor standards and the environment. [FN108] The ILO's Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy covers employment issues such as nondiscrimination, security of employment, training, wages, benefits and working conditions, health and safety, freedom of association and the right to organize strikes. [FN109] The OECD has produced Guidelines for Multinational Enterprises setting out standards of practice covering disclosure of information, workers' rights and industrial relations, environmental protection, bribery, consumer protection and science and technology. [FN110] These international agreements are either already applicable to EU Member States or open to their ratification, since all are members of the United Nations (UN), the ILO and the OECD. It is clear that the content of these agreements covers a wide range of issues that fall under CSR. None of them is, however, legally binding on states or *549 businesses. The question is therefore what the EU can add to the UN, ILO and OECD agreements if it too chooses to pursue a voluntary conception of CSR.
The EU's strength lies in its unique ability to issue binding regulations and directives. Thus, although the EU has less focus and expertise in the realm of human rights and although its geographic scope is substantially more limited than the UN, the ILO or even the Council of Europe, a decision not to use the EU's impressive regulatory power should only be taken following a thorough comparison of voluntary and legislative approaches to CSR. Should the Commission insist on a voluntary approach, it ought to ensure that the EU's actions do not undermine other voluntary initiatives taken at a more global level.

3. Efficiency

The arguments laid out above demonstrate that nothing in the nature of CSR or the EU imposes obstacles to implementing CSR through a legally binding code. The question of a legal or a voluntary conception of CSR therefore boils down to what means are the most effective and beneficial to all stakeholders. A number of comments submitted in response to the Commission's Green Paper that deal with this question reveal-perhaps unsurprisingly-a clear division of views between business groups and human rights organizations.
The International Chamber of Commerce believes that good corporate practices are spread more effectively by example rather than by binding codes and regulations. [FN111] A commitment to responsible business conduct must be adopted by consensus, conscience and conviction within a company, not by a judgment on any absolute standard. [FN112] CSR Europe argues along similar lines, emphasizing that social responsibility of business needs to be unregulated in order to ensure the flexibility it needs to address the diversity of European corporate culture. [FN113]
Major human rights organizations such as Amnesty International, Global Witness and the environmental group World Wildlife Fund (WWF) argue that the only effective means of ensuring socially acceptable governance is through binding norms. WWF, for instance, indicates that given the scale of industrial, economic and social transformation necessary to meet the challenge of sustainable development voluntary commitment is not sufficient. [FN114] Market forces would not be adequate to let businesses abandon profitable but socially harmful practices and make the necessary contributions to sustainable development. [FN115] Amnesty International has evaluated current practices in the use of voluntary codes and found that exclusive reliance on them would not bring about the changes required by society and market forces. [FN116] Global Witness is also of the opinion that legislation plays an important *550 role in ensuring that business takes CSR seriously. [FN117] At a minimum, the Commission should adopt a regulatory approach to ensure transparency and to set minimum standards of disclosure among European multinational companies for all countries in which they operate. [FN118]
The EU-India Network for Corporate Social Responsibility believes that an EU initiative would be helpful in addressing asymmetries in European corporate policies regarding the practice of CSR at home and abroad. [FN119] While European firms generally follow OECD guidelines on CSR within OECD countries, they feel little pressure to observe those guidelines elsewhere, where enforcement is weak and pressure from civil society and consumers is as yet limited. [FN120] Traidcraft, the largest fair trade organization in the U.K., shares that view and stresses that legislation acknowledging parent-company liability is needed to stop the current abuses of corporate power and the race to the bottom in terms of labor and environmental standards in the global market. [FN121] A legal code of conduct may therefore be the most effective means to prevent corporate excesses by powerful businesses operating in countries with a weak rule of law and little democratic accountability.

4. Governance

Corporate social responsibility touches upon a number of areas fundamental to human welfare. Although its scope has not been set down in one operating principle, the theme remains constant. The core of CSR concerns compliance with internationally proclaimed human rights, such as the right to life and physical integrity and respect for basic labor standards including the prohibition on the use of child workers or other forms of forced labor. [FN122] At the outer edge of this core, CSR encourages responsibility of businesses toward the environment and the communities in which they operate.
These principles are in alignment with the principal tasks of the EU as set out in the TEC. Among the goals of the Community are the promotion of sustainable development, a high level of employment and social protection as well as the protection and improvement of the environment and economic and social cohesion among Member States. [FN123]
The question of how to promote CSR within the Community is not about adding a new task to the EU's ever-expanding agenda. The harmony between CSR and the EU's objectives make CSR essential in the creation of a common market where social values and human rights are to be respected. The section above raised efficiency as an important consideration for the EU. This section stresses that EU must also examine questions of governance: i.e., whether the EU is willing to leave *551 decision-making in the hands of multinational enterprises as to how they operate in global markets and as to whether they respect European social values, the Universal Declaration of Human Rights and ILO business standards. The essence of such questions is whether the private sector or the public sector is the appropriate authority to ensure compliance with principles of CSR.
Modern human rights were conceived following the horrors of World War II to provide guidelines on the conduct of states toward their citizens as well as toward other nations. At the end of World War II, states wielded most of the world's economic power and were the principal perpetrators of human rights violations. Today, this picture has changed considerably. Businesses have come to exercise global influence and possess economic power often surpassing that of states. The private and public sectors have reacted to this shift in power by setting down rules to govern the conduct of businesses in the global market and to ensure their compliance with social values wherever they operate.
Europe reacted to the burgeoning conception of universal human rights by making a number of them legally binding on states through domestic law as well as through the European Convention on Human Rights and the European Court of Human Rights. The European enforcement mechanism has remained unique on the global stage and has proven extremely beneficial to Europe and its citizens. [FN124] Once more, Europe faces a decision about how to participate in the global movement for the protection of human rights, and once again it has the opportunity to take unique measures in that respect. CSR touches upon the EU's core values: if the EU considers those values too fundamental to be left to the discretion of private entities, it must seriously consider applying all means at its disposal, including regulatory power, to ensure that companies based within its jurisdiction meet its social standards in their business activities.

C. How to Implement a Regulatory Framework on CSR

Much of the skepticism leveled against enforcing CSR through law focuses on the need for corporate social consciousness to be free from restraints in order to develop. In addition, many believe that only voluntary codes provide the flexibility needed to address the diversity of European markets. [FN125] It is important to understand that these are not necessarily arguments against legal codes on CSR but rather arguments against excessive legislation in that field.
It is hard to accept the proposition that a company's conscience is held back by environmental or human rights legislation. Child labor, hazardous working conditions and excessive pollution are wrong regardless of whether they are prohibited by law. Legislation does play, however, a very important educational role. Through law, procedures and rules are laid down to protect values not only integral to society but also necessary for its progress. The EU itself is in fact a *552 primary example of such use of law. Through legal instruments, it has set down new rules and ideas aimed at changing how European states and their citizens view concepts traditionally falling within the sovereignty of states (such as border control and the definition of citizenship). The fundamental changes the EU has brought about would never have been achieved without the application of law.
Essentially, the question becomes whether good intentions alone suffice or whether legislation is necessary. Certain aspects of CSR are so critical to human welfare that they cannot be left to the discretion of the private sector. Which aspects these are requires examination into the social and human rights values the EU seeks to protect, the international obligations of its Member States and an extensive dialog with stakeholders.
It is important to understand that voluntary and regulatory approaches are not mutually exclusive. They should rather be seen as complementary. International Alert and the European Centre for Development Policy Management argues that the experience of the U.S. and the U.K. with the Voluntary Principles on Security and Human Rights demonstrates that voluntary principles are important in promoting change and in raising the standards of corporate behavior. [FN126] However, given the predominance of a handful of transnational corporations, there is need for regulation to create a base-level standard for all companies, beyond which further voluntary initiatives can be developed and to which regulation could be raised in due time.
The initial purpose of a regulatory framework should be to raise awareness of CSR and to ensure that companies reflect on their social role. Moreover, a regulatory framework could put in place the appropriate monitoring mechanisms and provide remedies for those who fall victim to the malfeasance of corporations. Amnesty International has made several proposals to this effect: [FN127]
Legislation should be introduced making it mandatory to issue policy statements on social responsibility, human rights and environmental performance. [FN128] These statements could be made by individual companies or, alternatively, by particular industry groups for sectors such as the textile industry or the sporting-goods industry. The effect of such legislation would be very beneficial. It would raise awareness of CSR throughout the business community and launch a thought process contributing to the development of CSR.
Legislation should be implemented requiring mandatory social and environmental reporting. [FN129] In order for social reports to be effective, it is not sufficient that they be harmonized as suggested by the Green Paper, but also adhered to across the board or at a minimum by all major players in each sector. This need can be seen, for instance, in oil operations in the developing world. Global Witness considers transparency to be a central component of CSR and argues that oil companies should publish how much they pay to national governments for lease of land or access to resources. Without this information, civil society in a given *553 country cannot call its government to account for financial mismanagement. [FN130] Today, unfortunately, those companies that would like to publish their payments risk having their contracts terminated and awarded to less scrupulous competitors. [FN131] These problems could be avoided if legislation forced disclosure on all businesses across the board. The host government would then not be given the opportunity to favor one company over another simply because the former had not adopted social reporting practices.
Mandatory reporting should be required in key areas of internationally agreed minimum standards. Reporting should also be set up in a manner that provides a benchmark for comparison from one year to the next within a given sector. This kind of reporting would enable managers to monitor compliance with their stated policies on CSR and would provide socially conscious investors and consumers with an indicator of which companies are socially responsible.
Legal remedies should be introduced for gross violations of CSR. One of the principal advantages of law over voluntary codes is the possibility of enforcement through court or administrative procedures. The remedies could take many shapes and forms. A due diligence provision could, for example, make directors and managers personally responsible for any negligence regarding social and environmental performance of their organizations. [FN132] In addition, mandatory insurance schemes could help ensure that compensation is paid to victims of such negligence.
Legal obstacles that prevent victims of corporate malfeasance from obtaining legal redress should be removed. Laws should be reviewed to overcome issues of forum non conveniens and “foreign direct liability” to grant citizens outside the EU access to European courts for malpractice committed by a subsidiary or joint venture of an EU parent company. [FN133] This would ensure access to fair procedures and a higher level of human rights protection. Conversely, legal obstacles that prevent victims from enforcing judgments issued by courts in their home country against a foreign parent company should also be removed. The home jurisdiction of a victim is usually the most convenient-and sometimes the only-forum available to victims not having the economic resources to pursue justice in Europe.

VII. ALTERNATIVES TO A LEGALLY BINDING CODE
While enforcing corporate social responsibility through law brings unique advantages such as remedies to victims and universal application, the law alone is not adequate for raising awareness and for ensuring compliance with social obligations. The notion of CSR is being continuously developed, as are the means to promote it. The following suggestions are measures that could be applied in conjunction with, or in the absence of, a legal code on CSR.
Reporting is the most efficient enforcement mechanism for companies subject to voluntary codes of conduct. Management, consumers and investors must have *554 access to objective information based on standardized criteria in order to measure the social performance of businesses.
Public opinion and consumer activism are currently the most visible forces driving companies to respect CSR. Companies try to follow the public mood to avoid losing market share and in order to meet the expectations of their consumers. This, however, cannot be the sole basis for the enforcement of CSR given the public's propensity to “mood swings” and its inability to have a global overview of corporate conduct. The public tends to target big names, not necessarily the biggest culprits. A more durable motivation for business would be to understand CSR as a competitive factor and a necessity for social acceptability. In order to bring about this understanding, the EU should raise awareness of the business case for CSR and the added value it brings to businesses.
Raising management's awareness of CSR through training is an additional measure to bring about changes from within. The EU could promote teaching of business ethics and social responsibility. CSR needs to be developed as a management skill and supported by proven management techniques. Clear dissemination of company values is also helpful, especially in situations in which local managers do not have the resources, authority or skills to integrate social responsibility into their daily tasks.
In addition to the “motivational” methods suggested above, the EU could use tangible incentives to encourage businesses to adopt socially responsible practices. Observatoire sur la Responsabilité Sociétale des Entreprises [FN134] and Eurosif [FN135] have suggested harmonizing EU tax regimes with a view to including financial incentives as a tool for respecting ethical and social obligations. While falling short of a comprehensive legal code, such a fiscal regime would enable companies to benefit from tax reductions (or incur penalties), depending on whether their conduct meets certain social standards.
Most important, the EU must integrate CSR into all its activities. In particular, the EU must give due consideration to issues of social responsibility when exercising its regulatory and financial powers. As purchasers of services, the EU and its Member States must be prepared to insist on compliance with social responsibilities as a precondition for contracting with the EU or gaining access to EU funds. CSR requirements should accordingly be a mandatory part of purchasing and contracting arrangements. This approach could be made explicit by requiring that trade agreements include a reference to human rights or the principles of corporate social responsibility.

VIII. CONCLUSION
The initiatives taken by the EU toward creating an overall European framework to incorporate social responsibility into business practices are highly positive. They constitute recognition of the need to address the issue in a comprehensive and global manner. The Green Paper raises a number of areas critical for the successful *555 execution of CSR: namely, social reporting, uniform indicators to measure social performance and global application of the principles of CSR. It is, however, regrettable that the Commission has chosen to exclude from the outset any debate on the advantages and disadvantages of enforcing social standards through law.
Human rights NGOs stress that, under current practice, voluntary codes have proven inadequate. Businesses need a stronger framework to remove the temptation of short-term profits for unethical behavior, in particular in the developing world, where the rule of law is weak and governments are prone to corruption.
In addition to arguments of efficiency, this note advances a number of arguments for the position that safeguarding social principles through law is integral to the EU's objectives. A powerful mechanism for CSR will enhance economic integration and strengthen the position that states, not individuals, have the principal responsibility to ensure respect for human rights and social values. The absence of an EU regulation on CSR raises the difficult question of what the EU can do that has not already been done by international organizations with more universal membership and greater expertise in the field of human rights.
The note also examines arguments favoring a legally binding code in the context of fears that a regulatory framework would be excessive. Law can be used in a manner that permits development of CSR and that provides the flexibility needed to address the diversity of modern markets. Laws establishing mandatory social reporting would not have to mandate the content of social responsibilities for which businesses would be held accountable, but could rather allow them to define their own. Where laws do set down material requirements for CSR, they could, and perhaps should, be limited to minimum standards that are integral to the EU as a community embracing human rights and as an economy integrating social values. Higher and more ambitious notions could be left to voluntary codes, at least until a consensus develops within the EU that those rights are essential to human welfare or require greater protection.
Although this note suggests a number of alternatives to a legally binding code, it is clear that legislation provides advantages-such as uniform application and judicial remedies-that voluntary codes cannot offer.
The Commission does not explain in the Green Paper why it has chosen to preclude the use of law to set down and enforce principles of corporate social behavior. This is regrettable since law is very often the most effective method to bring about change and to introduce new policies. The decision of whether to promote CSR through law or through voluntary codes should only be made after carefully weighing the advantages and disadvantages of each approach and to what extent they can be applied in unison. What is more, companies, private individuals, victims of corporate malfeasance and other stakeholders are all entitled to know the reasons behind the method chosen by the Community. Political expediency-an attempt to avoid criticism from the private sector, perhaps because of Member States' reluctance to interfere with business liberties-probably led the Commission to choose its path. Such political considerations are, however, counterbalanced by the direct interests of stakeholders and the goals of the European Union itself. In the developing world, only law can provide adequate protection against powerful corporations, and in Europe only law can achieve the uniform application of CSR needed to promote the economic integration sought by the EU.
*556 Against such weighty arguments, the Commission should have invited comments addressing the whole range of measures available to implement CSR without refusing to consider the use of law from the outset. Its failure to do so may have been borne out of inaccurate assumptions about the rigor and excesses of a legal code on CSR and inadequate information about the business case for CSR. Such assumptions as well as questions about the most efficient and appropriate means to implement CSR within the Community can only be clarified through intensive study and active dialog within which the advantages and disadvantages of legal and voluntary codes are examined on an equal basis.
[FNa1]. LL.M. Columbia University School of Law, 2002.

[FN1]. European Parliament, Committee on Development and Cooperation, Report on EU Standards for European Enterprises Operating in Developing Countries: Towards a European Code of Conduct (Final A4-0508/1998, PE 228.198/fin), 10 [hereinafter Howitt Report].

[FN2]. Id. at 11-12.

[FN3]. Of the top 100 MNEs in the world, 42 are based in Europe, compared to only 35 in North America. Id. at 14.

[FN4]. Convention for the Protection of Human Rights and Fundamental Freedoms, opened for signature Nov. 4, 1950, Eur. T.S. No. 5, amended by Eur. T.S. No. 155 [hereinafter European Convention on Human Rights].

[FN5]. The enforcement machinery of the European Convention on Human Rights was revamped in 1998, creating a single court. Protocol No. 11 to the Convention for the Protection of Human Rights and Fundamental Freedoms, opened for signature May 11, 1994, Eur. T.S. No. 155 (entered into force Nov. 1, 1998).

[FN6]. Cf. Fuentes Bobo v. Spain, (Eur. Ct. H.R. Feb. 29, 2000) at http:// www.echr.coe.int (respondent state was found in violation of Article 10 of the European Convention on Human Rights because the Spanish courts did not enforce the obligation of a television company to respect the applicant journalist's rights to freedom of expression).

[FN7]. See, e.g., Internationale Handelsgesellschaft mbH v. Einfuhr- und Vorratsstelle für Getrcide und Futtermittel, Case 11/70, 1970 E.C.R. 1125, 1134.

[FN8]. Treaty on European Union [TEU] art. 2.

[FN9]. TEU art. 6(1).

[FN10]. The Queen v. Minister of Agriculture, Case C-44/94, 1995 E.C.R. 1-3115, para. 55.

[FN11]. See Lammy Betten & Nicholas Grief, EU Law and Human Rights 70, 120 (John A. Usher ed., Longman 1998).

[FN12]. See Green Paper: Promoting a European Framework for Corporate Social Responsibility, COM(01)366 final [hereinafter Green Paper].

[FN13]. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations 16 (4d ed., Methuen & Co. 1923) (1776).

[FN14]. Howitt Report, supra note 1, at 11.

[FN15]. Green Paper, supra note 12, para. 8.

[FN16]. Human Development Report 2000, U.N. Development Programme, at 74-76.

[FN17]. International Covenant on Economic, Social and Cultural Rights, 993 U.N.T.S. 3, opened for signature Dec. 19, 1966.

[FN18]. Convention on the Rights of the Child, 1577 U.N.T.S. 3, opened for signature Nov. 20, 1989.

[FN19]. General information on ILO treaties can be found http:// www.ilo.org/public/english/standards/norm/index.htm. For a critical assessment of the ILO's mechanisms to promote labor standards, see International Trade and Core Labour Standards, OECD Observer (Org. for Econ. Coop. & Dev. Policy Brief), Oct. 13, 2000, at http://www.oecd.org/publications/pol_brief.

[FN20]. See U.N. Global Compact, The Nine Principles, at http:// www.unglobalcompact.org.

[FN21]. Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy, International Labour Organization, 17 I.L.M. 422, adopted Nov. 16, 1977 [hereinafter Tripartite Declaration].

[FN22]. Guidelines for Multinational Enterprises, Organisation for Economic Co-operation and Development, 15 I.L.M. 969, adopted June 21, 1976 [hereinafter OECD Guidelines].

[FN23]. See http://europa.eu.int/comm/employment_social/soc-dial/news/codes_ en.htm.

[FN24]. See Toy Industries of Europe, TIE Code of Business Practices for the Guidance of Members, at http:// www.citinv.it/associazioni/CNMS/archivio/paesi/tie_codeconduct.html.

[FN25]. See Ethical Trading Initiative, The Base Code, at http:// www.eti.org.uk.

[FN26]. See EuroCommerce and Euro-FIET, Agreement on Fundamental Rights and Principles at Work, at http://www.union-network.org/unisite/sectors/commerce/index_social_dialogue.htm.

[FN27]. See Confederation of Danish Industries, Industry and Human Rights (1998).

[FN28]. See Voluntary Principles on Security and Human Rights, at http:// www.state.gov/www/global/human_rights/001220_fsdrl_principles.html.

[FN29]. See, e.g., Paul Lewis, After Nigeria Represses, Shell Defends its Record, N.Y. Times, Feb. 13, 1996, at A1.

[FN30]. Voluntary Principles on Security and Human Rights, supra note 28 (emphasis added).

[FN31]. International Covenant on Civil and Political Rights, 999 U.N.T.S. 171, opened for signature Dec. 19, 1966.

[FN32]. See European Convention on Human Rights, supra note 4.

[FN33]. See Danish Ministry of Social Affairs, The Social Index, at http:// www.detsocialeindeks.dk/index.asp.

[FN34]. Law No. 2001 -420 of May 15, 2001, J.O., May 16, 2001, p. 7776, art. 46.

[FN35]. The Commission has defined “social label” as “words and symbols on products which seek to influence the purchasing decisions of consumers by providing an assurance about the social and ethical impact of a business process on other stakeholders.” Green Paper, supra note 12, at 25.

[FN36]. See http://www.maxhavelaar.org.

[FN37]. See http://www.transfair.org.

[FN38]. See http://www.raettevis.se.

[FN39]. See http://www.fairtrade.org.uk.

[FN40]. Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, opened for signature Sept. 27, 1968, 1998 O.J. (C 27) 1 (consolidated version).

[FN41]. Howitt report, supra note 1, at 14.

[FN42]. The NAFTA labor provisions include 11 “labor principles,” including freedom of association, freedom from discrimination and minimum wage standards. North American Agreement on Labor Cooperation, opened for signature Sept. 9, 1993, annex I, 33 I.L.M. 1499.

[FN43]. Treaty Establishing the European Community [TEC] art. 2 (as in effect 1958).

[FN44]. TEU art. 2.

[FN45]. Green Paper, supra note 12, para. 2.

[FN46]. European Parliament, Committee on Foreign Affairs, Security and Defence Policy, Report on Human Rights Throughout the World in 1995-1996 and the Union's Human Rights Policy (Final A4-0400/96, PE 218.638/fin), para. 19.

[FN47]. European Parliament, Committee on External Economic Relations, Report on Relocation and Foreign Direct Investment in Third Countries (Final A4-0294/97, PE 222.518/fin) 6.

[FN48]. See Howitt Report, supra note 1.

[FN49]. European Parliament, Resolution on EU Standards for European Enterprises Operating in Developing Countries: Towards a European Code of Conduct, 1999 O.J. (C 104) 180 (adopted Jan. 15, 1999, based on recommendations contained in the Howitt Report, supra note 1) [hereinafter Howitt Resolution].

[FN50]. Id. at 182.

[FN51]. Id.

[FN52]. Id. at 183.

[FN53]. European Council, Presidency Conclusions, Lisbon Meeting 23-24 March 2000, SN 100/00, para. 5.

[FN54]. Id. para. 39.

[FN55]. Social Policy Agenda, COM(00)379 final.

[FN56]. Id. at 17-18.

[FN57]. European Council, Presidency Conclusions, Nice Meeting 7-9 December 2000, SN 400/00, para. 15.

[FN58]. Green Paper, supra note 12, para. 63.

[FN59]. Id. para. 66.

[FN60]. Id.

[FN61]. See Social Accountability International, Social Accountability 8000, at http://www.cepaa.org/sa8000_review.htm.

[FN62]. See Global Reporting Initiative, 2002 Sustainability Reporting Guidelines (draft Apr. 1, 2002), at http://www.globalreporting.org.

[FN63]. Green Paper, supra note 12, paras. 72-73.

[FN64]. Id. para. 77.

[FN65]. Id. para. 78.

[FN66]. Id. para. 82. Further information on FLO is available at http:// www.fairtrade.net.

[FN67]. The Green Paper defines “socially responsible investment funds” as those funds that “invest in companies complying with specific social and environmental criteria.” Criteria can be negative; e.g., the exclusion of tobacco, alcohol and armament industries. Criteria can also be positive, by explicitly including socially and environmentally proactive companies. Green Paper, supra note 12, para. 85.

[FN68]. Social investment forums have been established in the U.K., Germany, France, Italy and the Netherlands. Id. para. 86.

[FN69]. Id. para. 88.

[FN70]. See, e.g., Issa v. Turkey (Eur. Ct. H.R. App. No. 31821/96) at http://www.echr.coe.int (admitted May 30, 2000; not yet judged on the merits). The case concerns, inter alia, alleged violations of the right to life and freedom from torture and inhuman treatment committed by Turkish security forces against Iraqi citizens in Iraq. The European Court of Human Rights asserted jurisdiction and admitted the case for treatment on the merits although the alleged violations did not take place on the territory of any ECHR member state.

[FN71]. Howitt Report, supra note 1, at 14.

[FN72]. See, e.g., Hernando de Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else 40-67 (Basic Books 2000).

[FN73]. Ernst-Ulrich Petermann, Time for Integrating Human Rights into the Law of Worldwide Organizations: Lessons from European Integration Law for Global Integration Law (May 7, 2001) 28, at http:// www.jeanmonnetprogram.org/papers/01/012301.html.

[FN74]. Green Paper, supra note 12, para. 42.

[FN75]. Id. para. 48.

[FN76]. ILO Declaration on Fundamental Principles and Rights at Work, 37 I.L.M. 1236, adopted June 18, 1998.

[FN77]. OECD Guidelines, supra note 22.

[FN78]. Green Paper, supra note 12, para. 55.

[FN79]. Id.

[FN80]. See Voluntary Principles on Security and Human Rights, supra note 29.

[FN81]. Green Paper, supra note 12, para. 57.

[FN82]. Id. para. 89.

[FN83]. Id. para. 90.

[FN84]. Id.

[FN85]. Howitt Resolution, supra note 49, para. 11.

[FN86]. Id. para. F.

[FN87]. Green Paper, supra note 12, para. 3.

[FN88]. See comments from Africa Now on the Green Paper at http:// europa.eu.int/comm/employment_social/soc-dial/csr/csr_responses.htm.

[FN89]. See, e.g., Levy Strauss & Co., Global Sourcing and Operating Guidelines, at http:// www.levistrauss.com/responsibility/conduct/guidelines.htm; Nike Inc., Code of Conduct, at http://www.nikebiz.com.

[FN90]. See Voluntary Principles on Security and Human Rights, supra note 29.

[FN91]. G.A. Res. 217A(III), U.N. GAOR, 3d Sess., 183d plen. mtg., at 71, U.N. Doc. A/810 (1948).

[FN92]. Id.

[FN93]. See comments of Dr. Rosamund Thomas, Director of Centre for Business and Public Sector Ethics, Cambridge, U.K., on the Green Paper at http:// europa.eu.int/comm/employment_social/soc-dial/csr/csr_responses.htm.

[FN94]. See, e.g., the French law on new economic regulations, supra note 34.

[FN95]. TEU and TEC.

[FN96]. An overview of Community competition legislation and policies can be found at http://europa.eu.int/comm/competition/index_en.html.

[FN97]. TEC art. 18.

[FN98]. TEC art. 19.

[FN99]. TEC arts. 28, 29, 81 and 82.

[FN100]. TEC art. 141.

[FN101]. Howitt Report, supra note 1, at 25.

[FN102]. Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996, 22 U.S.C. §§ 6021-91 (2002) [hereinafter Helms-Burton Act].

[FN103]. Peter Malanczuk, Akehurst's Modern Introduction to International Law 111 (7th rev. ed. 1997).

[FN104]. Mexico, Brazil and Italy claim jurisdiction based on the passive nationality principle to try aliens for crimes committed abroad affecting one of their nationals.

[FN105]. Restatement (Third) of Foreign Relations § 402 (1986).

[FN106]. See, e.g.,United States v. Krupp (the “Krupp” case), Case No. 10, Trials of War Criminals Before the Nuremberg Military Tribunals (vol. IX) Oct. 1946-Apr. 1949. The accused were officials of a German corporation that used concentration camp labor. They were found guilty of having employed prisoners of war, foreign civilians and concentration camp inmates under inhuman working conditions, contrary to the provisions of international law.

[FN107]. Both companies have in fact adopted codes of conduct, which can be accessed at http://www.business-humanrights.org/Links-Companies.htm.

[FN108]. See U.N. Global Compact, supra note 20.

[FN109]. Tripartite Declaration, supra note 21.

[FN110]. OECD Guidelines, supra note 22.

[FN111]. See comments from the International Chamber of Commerce on the Green Paper at http://europa.eu.int/comm/employment_social/soc-dial/csr/csr_ responses.htm.

[FN112]. Id. at 1.

[FN113]. See comments from CSR Europe on the Green Paper at http:// europa.eu.int/comm/employment_social/soc-dial/csr/csr_responses.htm.

[FN114]. See comments from WWF on the Green Paper at http:// europa.eu.int/comm/employment_social/soc-dial/csr/csr_responses.htm.

[FN115]. Id. at 3.

[FN116]. See comments from Amnesty International on the Green Paper at http://europa.eu.int/comm/employment_social/soc-dial/csr/csr_responses.htm at 2.

[FN117]. See comments from Global Witness on the Green Paper at http:// europa.eu.int/comm/employment_social/soc-dial/csr/csr_responses.htm.

[FN118]. Id. at 1.

[FN119]. See comments from EU-India for Corporate Social Responsibility on the Green Paper at http://europa.eu.int/comm/employment_social/soc-dial/csr/csr_responses.htm.

[FN120]. Id. at 2.

[FN121]. See comments from Traidcraft Exchange on the Green Paper at http:// europa.eu.int/comm/employment_social/soc-dial/csr/csr_responses.htm at 3.

[FN122]. See also U.N. Global Compact, supra note 20.

[FN123]. TEC art. 2.

[FN124]. By way of example, the Council of Europe has expanded since its establishment by the Treaty of London on May 5, 1949, from 10 member states to 44 today. Membership makes the jurisdiction of the European Court of Human Rights mandatory, which in turn provides victims of alleged human rights violations an international remedy. See European Convention on Human Rights, supra note 4.

[FN125]. See, e.g., comments from the International Chamber of Commerce on the Green Paper, supra note 12.

[FN126]. See comments from International Alert and the European Centre for Development Policy Management on the Green Paper at http:// europa.eu.int/comm/employment_social/soc-dial/csr/csr_responses.htm at 9.

[FN127]. See comments from Amnesty International on the Green Paper, supra note 116.

[FN128]. Id. at 6

[FN129]. Id.

[FN130]. See comments from Global Witness on the Green Paper, supra note 117, at 3.

[FN131]. Id. at 1.

[FN132]. See comments from Amnesty International on the Green Paper, supra note 116, at 7-8.

[FN133]. Id. at 8.

[FN134]. See comments from Observatoire sur la Responsabilité Sociétale des Entreprises on the Green Paper at http://europa.eu.int/comm/employment_ social/soc-dial/csr/csr_responses.htm at 4.

[FN135]. See comments from Eurosif on the Green Paper at http:// europa.eu.int/comm/employment_social/soc-dial/csr/csr_responses.htm at 3.




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