Securing the future of European business: SMART reform proposals

Fulfilling the Sustainable Development Goals (SDGs), and more broadly, achieving sustainability, requires reform of EU laws, policies and practice concerning business. The contribution of business is vital to achieving sustainability, and yet we know that business-as-usual currently undermines sustainability goals. To change this, reform is necessary to ensure sustainable value creation within planetary boundaries. This entails reforms that enable business to positively contribute to transitioning our societies to a safe and just space for humanity, while at the same time constraining and mitigating the environmental, social and economic harms caused by business. This is fundamental to securing the foundation for human dignity and protecting vulnerable people within Europe and contributing to doing so in low-income countries outside of Europe.
The Covid19 pandemic, currently affecting most countries around the world, highlights the interconnectedness, complexity and vulnerabilities of our global society. At the time of writing, the EU and many Member States struggle to find out how to mitigate the worst economic and social impacts of the virus and the measures put into place to limit the spread. In the months and years ahead, more economic rescue packages and incentives will be put into place to reboot the economy after this unplanned and unwanted shutdown. It is imperative that this is done in a way that supports the transition to sustainability.
Our reform proposals aim to improve sustainability measures already taken by the EU in the context of trade and investment, and to make these more coherent and credible. We also aim to contribute to facilitating respect for the concerns of policy actors in third countries as well as those in the EU, particularly those who experience challenges relating to development. We advocate that the EU take regulatory action to shape business conduct in trade and investment as in other facets of their operations, and propose changes also to the EU regulatory framework for European businesses, so that it facilitates the shift to sustainability.
Business must shift to sustainable business models and be encouraged to innovate sustainably. As a key issue in our reform proposals, we aim to alleviate the pressure on decision-makers in business to maximize financial returns and refocus on sustainable value creation. We propose to redefine the purpose of business and the duties of the board, to ensure that sustainable value creation is integrated throughout the business. This enables business to move away from linear, unsustainable business models of overproduction and overconsumption. It also mitigates the fragmentation of responsibility across numerous legal entities organized in groups and networks and across global value chains, an important characteristic of the structure of trade and investment. To make sure that it is operationalised properly, we also need to integrate this into the duties of business decision-makers – requiring them to pursue sustainable value within the limits of our planet, and integrating this goal throughout their global value chains. These proposals are supported by our proposals for a comprehensive and reliable reporting framework.
For far too long, the disconnect between business and finance, on the one hand, and humanity and the stability of the biosphere of this planet on which we all depend, on the other, has informed an unsustainable pursuit of profit that is based on environmental degradation and exploitation of people. There is an emerging understanding of the financial risks of continued unsustainability, but it tends to be limited to climate risks.
The proposals presented in this report are interconnected with the proposals in the reports on Finance and on Products. The proposals concerning business are prerequisites for the proposals concerning finance and products, forming the basis also for more sustainable investments and lending, and more sustainable private and public consumption. In turn, the proposals concerning finance and products may act as enforcers and drivers for the timely and successful implementation of the changes we suggest in the way business operates. We welcome comments on all three reports.