Image of the EU Parliament building in Brussels, Belgium. The following article is written by Transparency Gate.

EU Transparency Alliance: New Global Standard

EU’s Transparency Alliance is a EU-commitment that strives towards a new global standard, where building trust between decision-makers and the public is achieved by giving the public access to information on their work with decision making and new legislation.

The Transparency Alliance consists of everyone that signed the Transparency Pledge 23th of September, 2021, including all European Union member states, 50 members of the European Parliament, the European Commission and the European Ombudsman.

Since that date many more has signed the Pledge, but is it enough?

The EU Transparency Pledge

At the Conference on the Future of Europe, the Pledge was published by the Transparency Alliance, saying: “Eeach and every one of us pledges to take steps to ensure that the EU’s decision-making process becomes more open”.

Has EU become more open and is the Transparency Pledge fulfilling it’s goal of setting a new global standard for transparency?

Let’s dig deep to find out!

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History of the Transparency Alliance

In 2013, the European Union decided to require forestry companies and extractive industries to report any payments they made to the government. European member states and parliamentarians created an agreement, which paved the way for the final vote to happen in June 2013. This established EU leadership and started a global transparency standard.

The EU Transparency Register

The EU Transparency Register is a tool that allow all European citizens to see what interests are being represented at Union level and on whose behalf, as well as the financial and human resources dedicated to these activities.

Historically, a transparency register has just been a requirement to have a list of significant individuals in private companies officices. With the new EU transparency standard all parts in a decision-making process in EU has a requirement to share information in the EU transparency Register. 

Breaches of this requirement can lead to fines up to €60K and even ban from EU buildings.

Information Requirement

The agreement requires companies to provide information about all payments made to governments in each country where they operate, but only if it’s over €100,000 for the project level. There are no exeptions listed.

With public reporting of such revenues, citizens living in resource-rich countries can see how much the governments are paid, and track whether the funds are used for local and national development. This transparency is crucial to reduce the “resource curse” that many countries experience, which can indicate weak governance and disproportionately large extractive sectors.

Transparency Pledge: Members and Signatures

EU is pushing its alliance for transparency, and many have joined the Transparency Pledge. As of October 21, 2022, these are the ones who are part of this coalition:

• • The European Ombudsman
  • The European Commission
  • The European Parliament (50 members)
  • All European Union member states

The Transparency Pledge tells the world that the EU strives for full trust of all its citizens and wants to be demonstrably transparent, effective, and accountable. Likewise, it wants to engage with the citizens and involve them by letting them see information publicly. In a sense, they should be allowed to learn how the laws are made that affect their lives.

Recently, the EU and other institutions showed a commitment to modernizing legislative working methods within the European Union. In July 2020, the Council decided to take an important step. It’s increasing transparency within legislative work by actively communicating and proactively and frequently publishing EU legislative documents.

However, the EU realizes that there’s more it can do. Therefore, it created a pledge to work for more transparency. Everyone who signed it promises to take appropriate steps to make sure that the decision-making processes are more open. That means citizens can follow the democratic process easily.

Overall, the EU also promised to set a good example internationally. When others see it being inclusive, effective, and transparent without hurting the economy or government, they may do so, as well.

You can view a full list of those who’ve signed here.

This image of the Transparency Pledge was originally published by the European Ombudsman.

What the Pledge focuses on

It can be hard to read through an entire technical document, so let’s break it down for you.

The Pledge’s focus points

The Transparency Pledge primarily focuses on four points, which include:

• • Accountability

    All public officials should be held accountable and allowed to justify their decisions based on relevant and available information.

  • Transparency

    Citizens should be able to understand the decision-making process through meetings and public monitoring. Likewise, groups and individuals should have more freedoms to defend their interests and mobilize against issues. However, the focus is about guaranteeing everyone’s equal opportunity to access information.

  • Openness

    Companies and governments must be open to all the stakeholders that might be involved in the decision. They will set up channels of communication with each of them so that everyone can contribute with information and expertise and rightfully voice their opinions.

  • Fairness

    Each stakeholder has participatory rights, and they must be upheld at all times. They should be able to take part in this process without any unjustifiable distortions or privileges.

How it Affects the Supply Chain

Though there is still work to be done on the EU transparency alliance, most people want the company to be transparent about manufacturing supply chains. They should be able to divulge information about how a product is made, which starts at the decision-making process and goes through shipment, storage, and to the end-users.

Why is Supply Chain Transparency important?

Supply chain transparency can help build stakeholder trust, determine ethical business practices, and assert workers’ rights. Here are the three reasons to consider it:

Primarily, supply chain transparency focuses on human rights. Companies should identify, avoid, and assess potential and actual problematic human rights impacts. This will strengthen its due diligence and ensure that it’s doing what it can to be fair to everyone.

Those who participate in and commit to the Transparency Pledge have three months to take the following steps:

The company must publish information on its website that lists all the sites manufacturing its products. This should be done regularly (twice a year is the top consideration). The list must be available in English and include:

1. 1. Worker numbers for each site
   2. Type of product(s) made
   3. Parent company of the site’s business
   4. Site addresses
   5. Full name of authorized processing facilities and production units

Reduce Risk of Human Rights Abuse

Disclosing lists of factories used doesn’t automatically improve working conditions, but it’s a good first step toward this goal.

If supply chains are confusing, labor rights advocates and workers must spend more time and effort determining where products come from and where there could be human rights abuses. This costs money, puts employees at a risk for retaliation, and may lead workers to continuously be exploited or be part of dangerous business practices.

Public disclosure of that supply chain information can identify global companies that use factories that abuse worker’s rights. Knowing the business that sources from those factories can help labor organizations, workers, and human rights groups to alert representatives and demand that they take steps to stop the abuse and remedy the problem.

Human Rights Due Diligence Assessments

Companies must respect human rights and take steps to prevent abuse throughout the supply chain. This includes identifying abuses and addressing them, even after preventative efforts fail.

It’s hard for companies to monitor labor rights problems and verify corrective action progress if they only focus on labor compliance audits and inspections done by third parties or their own social compliance team. Those tools just aren’t sufficient and can’t detect all abuse instances.

Factory disclosure ensures that companies get credible information from everyone between their periodic audits. It also helps them see if a brand has appropriate influence and leverage to uphold workers’ rights, facilitating brand collaboration and a swift action to prevent or stop labor abuse.

When advocates and workers know who to tell about human rights abuse, it gives companies a chance to intervene quickly to rectify the situation.

Building Trust

Publishing information about supply chains can build trust between labor advocates, workers, investors, and consumers because the company shows that it’s committed to accountability.

Brand transparency is crucial to building consumer trust. This happens at the store level, but it also moves up to supply chains. Likewise, investors often use it as a measurement to evaluate how good the human rights practices are for that company.

This is an image of the infamous Triumpf in Brussels, Belgium. Photography by: Paul Deetman.

The Brussels Deal that cinched it all

The Telegraph talked about the deal in Brussels that might change the face of doing business worldwide. Brussels decided to demand companies to reveal details about payments, digging deep wherever necessary. This happened in April 2013 and was the stepping stone for the new global standard.

Overall, the deal was critical, and it was fought for with great effort. There are four elements of note:

1. 1. The decision-making process used to get to the Brussels agreement
   2. How the EU’s deal could support a similar law in the US
   3. The effect this has on other jurisdictions
   4. What the EU and others now require to finish the global standard

The Credible EU Process

It took a long time to reach this agreement, and it’s encouraging that the EU wants to maintain a transparent and open dialogue with the civil society and representative associations.

The PWYP (Publish What You Pay) coalition has many specialist groups and more than 700 member organizations, including Global Fitness, ONE campaign, and Revenue Watch Institute. They have offered a well-coordinated and effective counterweight to the massive industries and lobbying effects.

Both sides had full access to everything, so the final regulations were based solely on merit and fact. Generally, there must be a compromise decision with loopholes, opt-outs, and gutted rules. That’s not the case here.

An image of a globe with a cargo ship in the background, illustrating the transatlantic tango of transparency legislation.

The Transatlantic Tango

The EU and the United States have been shadowing each other inadvertently over this issue. In the US, there was a Cardin-Lugar amendment to the Dodd-Frank Act (2010), requiring extractive industry companies to disclose payments made to governments. This broke the hold for industry lobbyists to persuade lawmakers.

Then, the EU choose to build on that US law, reviewing two sets of rules to organize how the European companies report and account: The Accounting and Transparency directives. The European Commission added its own impact assessment and proposal in October 2011 to add similar disclosure rules as the United States.

Securities Exchange Commission

Lawmakers in Brussels were already setting up their procedures and agreeing on new laws. However, the SEC (Securities Exchange Commission) focused on its consultative process. This body defines the details of any rules for companies that are part of the US stock exchange.

In August 2012, the SEC adopted its final rules, which was perfect timing. The lead committee for the European Parliament used those to help settle its position for the European Commission proposals. However, the debate continued, and some EU member states didn’t want to support this strong position.

Those EU member states used the support for the leveled playing field for brands as their reason for staying away. The US continued taking forward steps, and it was now clear that the regulation might increase competitiveness. European companies would not be at a competitive disadvantage, causing the skeptics to fall in line.

American Petroleum Institutes Litigation Proceedings

With a preliminary EU agreement in place, the ball went back to US courts. API (American Petroleum Institute) started litigation proceedings against the SEC because of its final rules. Three other industries joined the company in October of that year.

The API features members who sit on the Extractives Industries Transparency Initiative’s international board. This is a voluntary process where governments can report what they get from companies, but companies must reveal what they’re paying, too. There’s a civil society at the table to monitor the process and build the standard.

Though API went through litigation, Statoil is an EITI and API board member that publicly distanced itself from this lawsuit. Revenue Watch and others have now noted that companies like Shell and BP, which were part of that US lawsuit, have to report payments in the EU. Therefore, support of the lawsuit was moot.

Oxfam American formally assists the SEC and defends its rules. It made quick work of using the EU agreement in various court proceedings. The Economist then captured the duplicity of the company positions on April 13. Shell claimed it supported a global code, though it’s suing the government (US) over similar rules for the EU.

Overall, the spotlight of that transparency legislation revealed how major companies will have to reconcile their private and public commitments on transparency.

Corporate Sustainability Reporting Directive

A few weeks later, in 2013, the Irish presidency started working through details of what’s been agreed upon, which was sent to the European Parliament for that final June vote. It included a timetable for moving to national legislation and started a review process to see the scope of the directives.

On June 21, 2022, the Council, Parliament, and European Commission agreed on the CSRD (Corporate Sustainability Reporting Directive). It included many revisions and reforms, but it should tackle major problems on comparability, consistency, and quality of sustainability information that companies must disclose. Here’s what it says:

1. 1. The scope of legislation was expanded to include large non-listed and listed companies that have over 250 employees. However, they can opt out of this until 2028.
   2. The reporting obligations are now specified. Companies must disclose transition plans for climate neutrality, sustainability due diligence information, and time-bound targets that focus on sustainability.
   3. Key measures of the CSRD focus on adopting and developing mandatory ESG standards for double materiality. This includes the disclosure of how the company’s operations impact the people and planet and what the company plans to do for sustainability matters.

How does Sustainability Correlate with Transparency?

While the EU is focusing on making companies responsible for disclosing payments made to governments, the world wants to be more sustainable. Learning how a business uses resources and where they’re sourced from ensures that it’s more transparent, as well.

Likewise, disclosing payment information tells the citizens and government whether the company is being honest. It also helps them see where the money is going and for what purpose it’s used.

Global Standard for Transparency

The EU and US rules are some of the most potent in the world, but there’s still much more to do before a global standard is attained.

Transparency in the World

Key jurisdictions, including Australia, Canada, Japan, Russia, Brazil, China, India, and South Africa, are outside the fold. Still, those countries will be captured because they receive capital from the EU and US markets.

Canada and Japan are both supporters of EITI, G8 members, and EU strategic partners. Therefore, they will likely be crucial links for the global legislation chain. However, member-state leaders and the EU will have to put direct pressure on Tokyo and Ottawa. The EU is now part of the standard and must be the champion at all costs.

EU’s Impact

Overall, the EU could make a significant impact on the G8. The group wanted to set transparency laws and regulations in place back in May 2011, but then it added that it wished to promote voluntary standards. There cannot be a divide like that if things are to work out. Everyone must agree on rules instead of making things voluntary.

The UK Transparency in the Fossil-Industry

The UK G8 presidency promised to do more in 2013. It wanted greater transparency globally so that revenues from mining, gas, and oil could promote sustainable growth in developing countries instead of focusing on corruption and conflict.

EITI Compliance

Though the EU agreement was pretty much sealed in 2013, the tide then turned. The EITI voluntary standards were often quoted as the reason to not support binding rules. However, others believed it complemented the EITI. That argument was won, and the US committed to joining the campaign. France and the UK weren’t far behind. Norway is already EITI-compliant, but Australia is still in the piloting stage.

EU Transparency and Anti-Corruption

The EU deal is the right step toward a global standard. However, transparency can’t be the solution for corruption. Instead, it offers the momentum needed to encourage action and tell governments in all countries that they’ll be held accountable.

European leaders have managed to create this agreement and must focus on a global effort. Call on G8 partners to follow their lead and focus on disclosure, supply chain transparency, and all the rest.

We are still many years and possibly decades from a global standard, but we will get there!

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Seeing the Value of Due Diligence Assessments

The EU transparency alliance has made that a possibility, but it’s still a long way to go.

When you work with Transparency Gate, you get a software that complies with international laws. Regardless of where your organization operate, you can ensure that you’re compliant with Norway’s Transparency Act and the OECD Guidelines.

Likewise, you can conduct due diligence assessments to ensure that you’re handling human rights and dealing with issues.

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“Eeach and every one of us pledges to take steps to ensure that the EU’s decision-making process becomes more open.”

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