By Bruce Bolger
New EU Law Will Require a New Level of Transparency and Accountability: Audited Reporting
No. 1 Focus—How Marketing Promises Get Delivered and Risk Mitigated
The Critical Role of Customer Voice
The Overall Implications for Marketers
Imagine if every major organization had to publish freely accessible and comparable annually audited corporate sustainability reports requiring them to disclose in detail 1) how they affect their customers, employees, supply chain and distribution partners, and communities and 2) how their products and services have any “material positive and negative or potential impacts; any actions taken and the result of such actions to prevent, mitigate or remediate actual or potential impacts.”
Based on the impact of the EU General Data Protection Regulation (GDPR) on marketing and communications around the world, the new law accelerates the drive the trend toward transparency already underway as a way for well-meaning organizations to enhance organizational trust.
This new law intends to do for general management disclosures what GDPR has done for privacy: establish an international standard to ensure greater transparency, providing people more information on which to base their choices.
Like it or not, more transparency is what’s coming to the world of business with the passage of the European Corporate Sustainability Reporting Directive and the European Sustainability Reporting System designed to support the publication of highly comparable, digitally available sustainability reports on as many as 60,000 of the largest companies. Considered by some a regulatory burden, and by others as a potential competitive advantage, the law will make it exceptionally easy for reasonably informed people to find extensive data not only on the environmental, workplace, customer, distribution and supply chain partner and community management practices of organizations but to easily compare that information with other organizations.
The premise of the law is to require companies deemed large enough to have an impact on society to disclose information on their stakeholder and environmental management practices to “reduce greenwashing” and to “level the playing field” by requiring audited comparable information on an organization’s purpose, goals, and objectives, the methods and metrics used to fulfill them in a manner in which all interested parties can easily access and compare.
The law is consistent with what consumers want from corporations, according to a report by JUST Capital. In an article in Cutter, a publication of Arthur D. Little by Rachael Doubledee, Matthew Nestler, Kelley Frances Fenelon of JUST Capital, “Large majorities of Americans, across demographic groups and the political spectrum, want improved transparency and disclosure from America’s largest public companies. One survey found that 85% of Americans agree that companies should disclose more about their business practices, including their environmental and societal (86%) impact. In another survey, 93% of Americans favored large companies publicly releasing the wage ranges for various types of jobs at their company, and this finding held across the political spectrum, favored by 95% of Democrats, 91% of Independents, and 94% of Republicans. Similar bipartisan consensus was found among the 89% of respondents who favored the release of minimum wage rates for frontline and entry-level workers (94% Democrats, 87% Independents, 87% Republicans).”
The new EU law covers these issues and more, breaking reporting into multiple environmental and human capital components, including end-users and distribution partners, workers, workers in the supply chain and affected communities.
Once the new reports become required in 2025 of the largest companies affected, companies doing business in the EU with 500 or more employees and meeting certain revenue and balance sheet thresholds, marketing executives, if not already deeply involved in the creation of the corporate sustainability reports, will have to develop all their strategies and tactics with a the backdrop of public disclosures never before required about the purpose, goals, and objectives of the organization, and how they are fulfilled.
Of particular note to marketers, “The undertaking shall disclose whether and how it ensures that its own practices do not cause or contribute to material negative impacts on consumers and/or end-users, including, where relevant, its practices in relation to marketing, sales and data use. This may include disclosing what approach is taken when tensions arise between the prevention or mitigation of material negative impacts and other business pressures.”
These new annual disclosures, which take effect in 2026 for companies with 250 or more employees and lower financial thresholds, includes the “nature, type and extent of the undertaking’s material risks and opportunities related to its impacts and dependencies on consumers and/or end-users, and how the undertaking manages them; and the financial effects on the undertaking over the short-, medium- and long-term time horizons of material risks and opportunities arising from the undertaking’s impacts and dependencies on consumers and/or end-users.”
In simple terms this means: what value and risks do organizations create for their distribution partners and customers; what do they do to improve value and reduce risks over time?
The “standard requires an explanation of the general approach the undertaking takes to identify and manage any material actual and potential impacts on the consumers and/or end-users related to its products and/or services in relation to: information-related impacts for consumers and/or end-users (for example, privacy, freedom of expression and access to (quality) information; personal safety of consumers and/or end-users (for example, health and safety, security of a person and protection of children); social inclusion of consumers and/or end-users (for example, non-discrimination, access to products and services and responsible marketing practices).”
Further, “This standard also requires an explanation of how such impacts, as well as the undertaking’s dependencies on consumers and/or end-users, can create material risks or opportunities for the undertaking. For example, negative impacts on the reputation of the undertaking’s products and/or services can deteriorate its business performance, while trust in products and/or services can bring business benefits, such as increased sales or widening of the future consumer base.”
Again, in simple terms, the disclosures seek to understand how its business can be hurt by negative practices or enhanced by good ones.
Voice is a critical component of the new disclosures; that is, how the organization listens to the customer and all stakeholders for that matter. It seeks to understand how an “undertaking engages, as part of its ongoing sustainability due diligence process, with consumers and/or end-users, their legitimate representatives, or with credible proxies, about material actual and potential positive and/or negative impacts that do or may affect them, and whether and how perspectives of consumers and/or end-users are taken into account in the decision-making processes of the undertaking. The undertaking shall describe the processes it has in place to provide for or cooperate in the remediation of negative impacts on consumers and end-users that the undertaking has identified it has caused or contributed to, as well as channels available to consumers and end-user to raise concerns and have them addressed.”
More importantly, the disclosures will require an explanation of action plans to address risks and opportunities. “The undertaking shall disclose its approaches to taking action on material impacts on consumers and end-users, and to mitigating material risks and pursuing material opportunities related to consumers and end-users and effectiveness’ of those actions. The objective of this disclosure requirement is twofold. Firstly, it is to provide an understanding of any processes, initiatives or engagements through which the undertaking seeks to improve consumers and/or end-users’ lives, whether by: working to prevent, mitigate and remediate the negative material impacts on consumers and/or end-users, and/or seeking to achieve positive material impacts for consumers and/or end-users. Secondly, to provide an understanding of the ways in which the undertaking is addressing the material risks and pursuing the material opportunities related to consumers and/or end-users.”
- Marketers will need to have a seat at the table in the development of corporate sustainability reporting, even though most seem currently unaware of the issue, in order to make sure that all external and internal communications in which they are involved aligns with stated principles, processes, and metrics accessible to anyone in a freely accessible database.
- Anyone involved with marketing and communications will need to have a better understanding of a multi-stakeholder approach to make sure there is alignment across all relevant audiences.
- It will become more difficult to overlook issues related to risks, customer support and complaints that could appear in the corporate sustainability report that will, upon its publication, potentially diminish the impact of even the best conceived ad campaign.
- There will have to be more accountability for making sure that any claims in marketing are substantiated with efforts to fulfill them.
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