Major trade body says there is ‘no need’ for tighter EU rules on sustainable corporate governance

EuropeanIssuers, which represent more than 70% of European public companies, has said that it “denies the need” for new legislation which would embed environmental and social considerations into EU corporate laws, according to a submission to the European Commission (EC).

The EC is currently mulling new requirements for company directors to take into account the interests of all stakeholders – including local communities and the environment, in addition to mandatory supply chain due diligence. The initiative takes forward the last piece of the EU’s Sustainable Finance Action Plan, Action 10, which is dedicated to ‘sustainable corporate governance’.

In its submission, EuropeanIssuers indicates that it would not take a position on whether a company’s “long term success and resilience” was linked to the interests of communities and the environment within which it operated. It also “strongly disagreed” with proposals which would legally require company directors to manage the possible risks and adverse impacts on such stakeholders.

In subsequent remarks, the body argued that human rights, social, health and environmental aspects were already “sufficiently covered by existing legal requirements” for corporate stewardship and non-financial reporting.

EuropeanIssuers also objected to the introduction of hard law obligations for supply chain due diligence, pointing out that supply chains could easily amount to “hundred and thousands” of suppliers and that smaller companies might be less able to exercise leverage on their suppliers compared to larger players.

However, the body indicated its support for an EU legal framework focusing on supply chain relationships between companies and first tier suppliers – rather than entire supply chains. Such a framework should not introduce legal liabilities that impinge on existing civil law and should not allow “third parties (eg non-governmental organisations)” to bring legal actions against companies, the body said.

It said that any future due diligence requirements should also apply to non-EU companies operating in the bloc to prevent a competitive disadvantage.

EuropeanIssuers and fellow industry body BusinessEurope (which represents members from 13 smaller trade groups) had previously contested the findings of two EU research projects which have been used as a basis for the EC’s consultation and a separate legislative initiative at the European Parliament.

According to the two groups, the studies had used poorly designed questionnaires, inappropriate metrics to gauge corporate short-termism and did to take into account the operations of companies from 11 European countries. In addition, the groups said that due diligence laws would make it harder for companies to rebuild supply chains which have been disrupted by Covid-19.

The two studies, which were conducted by accountancy firm EY, concluded that companies are mainly short-term oriented and focus primarily on profit for shareholders, and found strong support for regulatory intervention on supply chain due diligence.