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The Communication is titled "A renewed EU strategy 2011-14 for Corporate Social Responsibility" ('2011 CSR Communication.) The nature of this EU instrument makes it in essence legally non-binding. This does not mean that the Communication should be disregarded by Member States or the business community, as it does set the seeds for a new policy direction in the field of Corporate Social Responsibility (‘CSR’). The Commission has perceived the concept of CSR along with the concept of “corporate governance” as central to furthering the internal market.[1]

In 2001, the Commission already defined CSR as “a concept whereby companies decide voluntarily to contribute to a better society and cleaner environment”.[2] The corollary of CSR was that “companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”.[3] Building on earlier CSR instruments at the EU and international levels, the Commission in its 2011 CSR Communication proposed a new approach to CSR which emphasizes companies’ need to set up a process for reflecting ethical, human rights, environmental, social and consumer considerations into their day-to-day business operations and corporate strategy. The new Communication insists that CSR capture human rights, employment practices, the fight against bribery as well as environmental questions (e.g., resource efficiency, biodiversity, pollution prevention and climate change). The bulk of the new approach centers around: (i) the importance attached to the integration of a “core business strategy” into any business model; (ii) the emphasis on “creating shared value”; and (iii) the express insertion of “human rights and ethical considerations” into the conceptual definition of CSR[4] (even though the scope of CSR at the EU level already covered human rights pursuant to the Commission’s 2001 Green Paper).[5]

The Commission, in its 2011 CSR Communication, also strives for greater corporate disclosure of environmental information, in particular that pertaining to climate change, with a view to better involving stakeholders and unfolding “material sustainability risks”. The latter transparency concern will lead the Commission to issue a legislative proposal[6] whose objective would be to provide a generic regulatory framework for the corporate disclosure of social and environmental information across all sectors.[7] The Commission had already initiated a Public Consultation on Disclosure of Non-Financial Information by Companies on 22 November 2010, a procedure which was closed on 28 January 2011. This consultation procedure involved not just Member States’ representatives but also private stakeholders such as social partners from national and international unions, professional federations and academics.[8] On the question of whether institutional investors ought to be bound by non-financial disclosure requirements,[9] most stakeholders involved responded that these investors “should disclose information on environmental, social and other aspects and explain how these considerations influence their investment decisions” subject to a proportionate and size-based approach.[10] Most of the stakeholders were also of the view that qualified external auditors should audit corporate disclosure of environmental information, a requirement which should also be tempered by a sized-based approach (e.g., exemption for SMEs).[11]  

The 2011 CSR Communication is overall discreet on the relation between CSR and climate change, which could arguably be explained for two main reasons.

First, the relation between the two had already been tackled in more detail in the “Energy Efficiency Plan 2011” Communication in which the Commission implicitly drew a direct link between CSR and one of the three principal pillars of the EU climate change policy.[12] Here, the Commission encouraged recourse by large companies to an energy management system such as that embodied in the EN 16001 standard, and invited the industry and energy-intensive sectors to enter into voluntary agreements for the implementation of energy efficiency processes and systems. Such agreements would be premised on concrete targets, clear methodologies and effective monitoring schemes.[13] The Energy Efficiency Plan 2011 especially targeted energy performance or ‘ecodesign’ measures as the way forward towards promoting “innovation in energy efficient European technologies”.[14]

Second, the 2011 CSR Communication is drafted, to some extent, on the basis of the renvoi technique: it encourages all large EU-based companies to ensure that, by 2014, they attend to the UN Global Compact, the OECD Guidelines for Multinational Enterprises or the ISO 26000 Guidance Standard on Social Responsibility when fashioning their CSR position. The 2011 OECD Guidelines do contain some language on climate change compliance strategy. They invite multinational enterprises to set up a “sound environmental management” system premised on three layers of good corporate governance: (i) effective and efficient gathering/assessment of information on the environmental impacts of business activities; (ii) setting out measurable objectives and, if applicable, targets for improved resource utilization and environmental performance; and (iii) periodic monitoring of progress towards completing these environmental objectives/targets. At a more substantive level, the OECD Guidelines encourage multinational companies to aim for higher standards of environmental performance, amongst others, through the development of strategies on biodiversity or resource efficiency or for GHG emissions reduction. The OECD through its 2011 Guidelines interprets the expression “sound environmental management” in the most extensive way: it covers “activities aimed at controlling both direct and indirect environmental impacts of enterprise activities over the long-term, and involving both pollution control and resource management elements”.[15]

There is scope for substantial improvement as regards companies’ adhesion to CSR codes of conduct and Member States’ adoption of CSR incentivizing programs. The Commission has indicated that the number of EU companies officially endorsing the ten UN global Compact CSR principles had increased from 600 (2006) to 1900 (2011). It has also reported that only 15 out of the 27 EU Member States had put in place some form of CSR policy framework.[16]  
 

This past week, South Dakota issued a draft permit for Best Available Control Technology for greenhouse gases under the Clean Air Act (CAA) to the Hyperion Energy Center. Project owners describe the facility as a “HEC is a 400,000-barrel per day (BPD) highly-complex, full-conversion refinery which will produce clean, green, transportation fuel such as ultra-low sulfur gasoline (ULSG) and ultra-low sulfur diesel (ULSD).” South Dakota regulatory officials found that significant energy efficiency improvements to the refinery were the most cost-effective manner to move forward.  The officials considered carbon capture & storage as an alternative path, but decided that while the technology is technically feasible it is not cost-effective or environmentally appropriate in this instance.  EPA will now have 30-days to review the decision, but don’t expect any radical changes to the State-level decision. Construction will create an estimated 4,500 jobs and when finished, 1,826 permanent jobs will be created for the ongoing operation of the refinery and associated utility plant according to company officials.

In Louisiana, State regulators recently approved an air quality construction and operating permit that includes emissions control requirements for greenhouse gases as well.  The permit clears the way for an iron production facility, the initial phase of the construction of a larger Nucor iron and steelmaking facility in St. James Parish. Under the permit granted, the greenhouse gas limits rely on energy efficiency measures and set a 13 million British thermal units of natural gas per metric ton of direct reduced iron. State regulators estimate the plant will emit 3.39 million metric tons of carbon dioxide per year.  500 construction jobs and 150 permanent jobs will be created according to Nucor, although they would like the facility to be larger and note regulatory uncertainty as a cause of concern. On the other hand, some environmental groups including the Tulane Law Clinic may challenge that the permit is not strict enough. EPA will now conduct a review here as well.

Congress would be well-advised to consider these case studies as it moves forward in its deliberations.

In a conference call today, Secretary of Energy Steven Chu reiterated President Obama’s comments that the U.S. faces a “Sputnik moment” where it must make a concerted commitment in clean energy to compete with China, Europe and other countries. With regard to a CES, Secretary Chu acknowledged that the President’s proposal was “ambitious” but “not over-the-top.” Secretary Chu noted that the details of a CES proposal will be left to Congress and that any legislation will require bipartisan support.   

President Obama’s State of the Union address, coupled with Secretary Chu’s press conference, could provide momentum to energy legislation. Despite environmental organizations prior opposition to nuclear, some mainstream environmental organizations like the Pew Center on Global Climate Change and the National Resource Defense Council reacted favorably to President Obama’s CES proposal. The renewable energy industry also praised the President’s comments and argued that a CES can help fuel job growth. Senator Lindsay Graham (R-SC) is planning on working with a bipartisan group of Senators on drafting a bipartisan energy bill that includes a CES.  Senate Majority Leader Harry Reid (D-NV) is also indicating that energy policy will be a top legislative priority this year. 

 Yet prospects for passage of a CES still faces considerable challenges. Senator Richard Lugar (R-IN), a key swing vote on energy legislation, remains undecided as to whether to endorse a CES. He introduced legislation last year that included a similar “diverse energy standard,” but he noted that he is reassessing this standard in light of concerns expressed by utilities. Emboldened conservatives, particularly in the House, will likely be highly skeptical of any mandate even if it were to include nuclear, clean coal and natural gas. Notably, House Energy and Commerce Chairman Fred Upton (R-MI) released a statement after the President’s speech criticizing a call for increased federal mandates. A CES bill could also become a legislative vehicle for contentious debates on other issues like EPA’s GHG regulations and offshore drilling. 

To pass a CES, President Obama will need to build and sustain a tenuous alliance of Democrats, moderate Republicans, environmentalists, and utilities, among other stakeholders. The success of the President’s push will depend on his ability to argue that clean energy is essential to “win the future,” as he stated last night, and keep America as an economic leader in innovation and competitiveness. 

Climate Regulations

The controversies regarding EPA’s climate regulations, particularly the Agency’s “tailoring” rule, have been ongoing for the past year. These controversies, however, would be amplified with a Republican majority, especially with large emitters becoming subject to the regulations in January 2011. A Republican-led House would likely target the rule by considering legislation to block the “tailoring” rule or strip funding for its implementation. If the House were to pass this type of legislation, and assuming that it could also pass through the Senate, then it would spark a veto battle with the Obama Administration. Republicans could also target other climate regulations, including a draft guidance proposed by the Council of Environmental Quality earlier this year that would require that federal agencies consider climate change in conducting environmental reviews under the National Environmental Policy Act.

Funding for Clean Energy Programs

The Administration has made the transition to a clean energy economy a priority, evidenced by increased funding for clean energy programs. Republicans have criticized these programs for failing to create the jobs promised by the Administration. Campaigning on the need to reduce federal spending and the government’s role in the economy, a Republican-led House could propose reducing or eliminating funding for some of these programs.   The Administration will likely oppose efforts to reduce funding for these programs. At the same time, the Administration will be under pressure to also reduce federal spending, and it will be interesting to see how hard the Administration is willing to fight to sustain funding for some of these programs. Additionally, with subpoena power, Republicans could hold Committee investigations and hearings into alleged mismanagement by the Department of Energy into stimulus funding. 

Nuclear Incentives

The Obama Administration and Congressional Republicans generally agree in the importance of nuclear energy to our nation’s energy future, one of the few issues where there is at least some consensus. A Republican-led House could work with the Obama Administration on incentives and other regulatory reforms to spur growth in the nuclear industry. That being said, the Administration’s support for closing Yucca Mountain as permanent storage site for nuclear waste could become a major issue in a potential debate over nuclear energy.

As this blog outlines, House Republicans and the Obama Administration have starkly different views over energy and climate policy. If Republicans win the House in November, one can expect some bitter battles to occur over these and other energy and climate issues.