Europe’s regulatory red tape is protecting its companies from the DEI backlash embroiling U.S. peers

Good morning, Peter Vanham here in rainy Geneva.

This summer, some Fortune 500 CEOs backed away from their diversity, equity, and inclusion (DEI) and environmental, social, and governance (ESG) initiatives under pressure from activists like Robby Starbuck. Ford, Lowe’s, and John Deere were among those to retreat and publicly state they were focusing instead on what they consider the fundamentals of business. Ford CEO Jim Farley, for instance, said the automaker would be “taking care of our customers, our team, and our communities versus publicly commenting on the many polarizing issues of the day.”

In Europe, companies are landing in a different place. Their social responsibility revolution is discrete, but it will happen through the rather boring systems of accounting and reporting.

European companies don’t speak out about their social commitments as loudly as their American peers because they face a different reality. Europe didn’t have a Bernie Sanders or Elizabeth Warren in politics, nor did it have a (lasting) George Floyd movement. And it doesn’t have a Robby Starbuck.

European companies also remain quieter on such issues because they have regulatory compliance to keep up with. Europe’s Corporate Sustainability Reporting Directive , aimed at strengthening “the rules concerning the social and environmental information that companies have to report on," took effect this year. Detractors say it’s another example of Europe’s reliance on red tape since it will require companies to report on more than a thousand data points annually, many of them non-financial such as discrimination incidents and waste generated. But the silver lining is that it means DEI and ESG reporting is essentially mandatory, leaving companies less vulnerable to the demands of a Starbuck-type figure.

Some European companies are also starting to experiment with measuring their social responsibilities by accounting for their social, human, and natural capital. It’s a concept Roche Vice Chairman Andre Hoffmann and I explore in our new book, The New Nature of Business , and in an excerpt of it for Fortune . We argue that companies should consider their impacts and dependencies on factors like natural resources and their employees’ communities. Such inputs are as critical to a running a healthy, sustainable company as financial capital , regardless of industry, customers, or shareholder base.

Business’s changing political, regulatory, and social environment will be on the agenda at the Fortune CEO Forum in London on Oct. 23-24, and the Fortune Global Forum in New York on Nov. 11-12. If you’d like to attend either, let us know.

Peter Vanham
peter.vanham@fortune.com
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This story was originally featured on Fortune.com