The challenges of upward regulatory harmonization: The case of sustainability reporting in the European Union

Abstract

What are the prospects for the upward harmonization of regulatory standards, and why do governments support or oppose more stringent supranational regulation? To answer these questions, this paper examines an important case of upward regulatory harmonization, the European Union's non-financial disclosure Directive 2014/95/EU, which requires large firms to report on their social, environmental, and human rights impacts. In spite of favorable circumstances, the Directive's opponents watered down the Commission's proposal during the course of the negotiations. Upward regulatory harmonization is difficult because of the adjustment costs it imposes on the private sector. The paper provides an in-depth analysis of countries' positions in the negotiations: Germany was the most hardline opponent, France the strongest supporter, and the United Kingdom was somewhere inbetween. For most countries, private sector adjustment costs determine government support and opposition for upward harmonization at the supranational level, but the analysis shows that partisan politics and varieties of capitalism also matter.

Sustainability regulation and global corporate citizenship: A lesson (already) learned?

“…The topic of regulation and voluntary and mandatory sustainability reporting has yet to be studied in detail in the Italian context (Cantino, Devalle, Fiandrino, & Busso, 2019; Muserra et al, 2020); moreover, Italy does not consider regulation as a component of the sustainable disclosure process. Previous studies have mainly focused on the compliance to the new law or the effects of the law on the reporting content and quality, and findings of these papers similarly affirm that the quality of sustainability report output by corporations appeared to increase once there was a mandatory requirement to disclose non‐financial information (Carini et al, 2019; Habek & Wolniak, 2016; Ioannou & Serafeim, 2017; Kinderman, 2019; Wang et al, 2018). One recent study on the implementation of the EU Directive for non‐financial information (NFI; Mio et al, 2020) shows that this behaviour is due to different forces that interplay in the regulation setting.…”

The European regulation of corporate social responsibility: The role of beneficiaries' intermediaries

“…Moreover, by drawing attention to the key role of BIs, we complement existing explanatory frameworks, focusing in particular on the role of targets and their intermediaries (e.g. BusinessEurope and CSR Europe) (Kinderman 2013(Kinderman , 2016(Kinderman , 2019Brown & Knudsen 2015).…”

A Text-Mining Analysis on the Review of the Non-Financial Reporting Directive: Bringing Value Creation for Stakeholders into Accounting

“…Directive 2014/95/EU on the disclosure of non-financial and diversity information (NFI) has been acknowledged as a historic breakthrough in the transition towards more accountability in and responsiveness to sustainable development [1,2]. In more detail, it amends Directive 2013/34/EU and obliges public interest entities to report "an understanding of the undertaking's development, performance, position, and impact of its activity, relating to environmental, social, and employee matters, respect for human rights, anti-corruption, and bribery matters.…”