Private actors are the key to achieving net zero. Only by bringing companies and investors on board can capitalism and carbon neutrality be reconciled. It is therefore crucial to understand how private actors' preferences for environmental policies are formed and how they might change once a policy is in place. To this end, we focus on the regulation of corporate sustainability reporting (CSR), a central part of the European Green Deal. CSR allows investors to redirect their investments towards more sustainable technologies and companies. We aim to complement the existing literature, which largely focuses on the preferences of EU member states and NGOs, by addressing the following research questions: What are firms' preferences for CSR regulation and how do firms' preferences for CSR regulation change over time?
We compare the EU's 2014 Non-Financial Reporting Directive (NFRD) and the 2022 Corporate Sustainability Reporting Directive (CSRD). Both directives initially aimed at far-reaching changes in the reporting of non-financial information. However, business was able to significantly weaken the NFRD by limiting its scope to the largest listed companies and preventing common reporting standards. In contrast, the CSRD significantly expanded the scope of non-financial reporting requirements, introduced standardized reporting and will be phased in for SMEs and private companies. We argue that the NFRD significantly changed the lobbying coalitions in favor of CSR regulation through policy feedback effects.
In our earlier quantitative work, we identified actors who changed their position on CSR regulation. In this paper, we interview these actors (firm representatives, consultants) and policymakers to explore the mechanisms that drove them to change their preferences. We use theory-testing process-tracing and argue that political feedback from existing regulation changes the costs and benefits that further CSR regulation imposes on certain types of firms. Once initial reporting requirements are in place, firms begin to build internal expertise, engage in standard-setting, and can draw on a growing pool of specialised external consultants. This creates sunk costs and even a competitive advantage for some firms, which then tend to support further regulation. However, regulation also imposes direct costs, some of which are unanticipated (fog of enactment), which increases resistance. Beyond the cost mechanism, the NFRD triggers calls for a level playing field because it applies only to large and publicly traded companies. Those covered by the NFRD argue for an extension of the original regulation to their competitors. Finally, policy feedback works through an outsider channel by increasing consumer, investor and NGO demand for CSR and raising the reputational costs of nonreporting.
We contribute to the literature by examining how preferences on environmental policies can change dynamically over time through policy feedback effects. In contrast to accounts that focus on the sectoral or country level, we focus on the firm-level and add an important actor-based explanation to the formation of green preferences. Further, we show that well designed policies can incentivize and sustain profitable business models that do not overstretch planetary resources.
