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Regulation & Governance (2020) 14, 674–697 doi:10.1111/rego.
12240
The challenges of upward regulatory harmonization:

The case of sustainability reporting in the European Union
Daniel Kinderman
Department of Political Science and International Relations, University of Delaware, Newark, DE, USA
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 har-
monization, 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 negotia-
tions: Germany was the most hardline opponent, France the strongest supporter, and the United Kingdom was somewhere in-
between. For most countries, private sector adjustment costs determine government support and opposition for upward harmo-
nization at the supranational level, but the analysis shows that partisan politics and varieties of capitalism also matter.
Keywords: adjustment cost, corporate accountability, corporate reporting, EU regulation, transparency.
1. Introduction
Crises can generate pressure for change – and the crises of the past decade are indispensable for understanding what
led the European Union (EU) to mandate non-financial or sustainability reporting for large firms.1 After decades of
neoliberal orthodoxy, the United States (US) subprime and Eurozone crises have shaken the ideologies of shareholder
value and efficient markets and increased support for the re-regulation of markets. Corporate malfeasance has also
played a role: the Rana Plaza factory collapse that killed more than 1,100 Bangladeshi workers and the BP Deepwater
Horizon spill that dumped 750 million liters of oil into the Gulf of Mexico are just two of the more egregious exam-
ples. For many observers, these events are symptoms of glaring deficiencies in corporate accountability. At its core are
“widening gaps between the scope and impact of economic forces and actors, and the capacity of societies to manage
their adverse consequences” (Ruggie 2014, p. 6). There is widespread agreement that corporations often assume the
role of “externalizing machines,” maximizing profits while externalizing costs onto society and the environment.
While the underlying causes of this externalization dynamic are complex, it has been exacerbated by the asym-
metry between financial and non-financial reporting. Whereas financial reporting is required by law, non-financial
disclosure (NFD) is typically voluntary, a matter of complete discretion. This paper is concerned with NFD regula-
tions that require companies to report on their social and environmental impacts. Mandating NFD can help to
address corporations’ disregard for their social and environmental consequences. Of course, transparency require-
ments are not the same as coercive laws that mandate changes in corporate practice, impose liability for harm
(Mares 2018), or provide rights of formal legal redress to victims of corporate malfeasance: “reporting is only the
tip of the iceberg” (Stormer S 31 July 2015, personal communication). Nevertheless, it is a step in the direction of
greater accountability, and one that is “less costly in political terms than direct regulation” (Sheehy 2015, p. 627).
By providing more complete and higher quality information about companies’ social and environmental
impacts, mandatory NFD “can influence internal decision-making” (Eccles & Serafeim 2015, p. 158) and help
external stakeholders, such as investors and civil society organizations, to push companies in a more sustainable
direction.2 Although clearly insufficient to resolve the current governance crisis, mandating NFD can help: “In
Correspondence: Daniel Kinderman, Department of Political Science and International Relations, University of Delaware,
304 Smith Hall Newark, DE 19716, USA. Email: kindermd@udel.edu, dpk24@cornell.edu
Accepted for publication 4 January 2019.
© 2019 John Wiley & Sons Australia, Ltd
Politics of upward regulatory harmonization D. Kinderman
order to have an effective market, market participants must be informed and be able to evaluate and also com-
pare ‘how good is good’… We need information that is reliable, valid, and allows trustworthy comparisons across
companies” (Jackson 2014, p. 27). Whereas disclosure in a voluntary system is selective and has the potential to
damage the reputations of firms with above-average performance compared to those that do not disclose, a sys-
tem of mandatory disclosure has numerous advantages (Hess 2007, p. 468). Mandatory NFD leads companies to
adopt significantly more socially responsible corporate activities (Jackson et al. 2019) and has “strong positive
effects” on countries’ corporate social responsibility (CSR) performance (Jackson & Bartosch 2016, p. 12, p. 46).
Despite its importance, we do not have a good understanding of the politics of upward regulatory harmoniza-
tion and more stringent supranational regulation. Upward regulatory harmonization entails the “creation of new
international rules to harmonize existing divergent domestic rules and then decrease the negative externalities that
these engender,” or the “tighten[ing of] already existing international rules” (De Bièvre et al. 2014, p. 273). What
are the prospects for upward regulatory harmonization? How do governments, firms, and other interest groups
respond when public authorities, such as the EU, try to pass supranational regulations that increase corporate
accountability? Why do some countries support and other countries oppose more stringent regulatory standards?
To answer these questions, this paper analyzes the negotiations and political struggles over the EU’s new Cor-
porate Transparency Law 2014/95/EU. The passage of this legislation has been called “a historic date in the tran-
sition to business sustainability for all” (Howitt 2014) that “may be an important step towards more
accountability” (Bueno 2018, p. 17). According to EU estimates, Directive 2014/95 mandates ~6,000 companies
in Europe to report on their social, environmental, and human rights impacts and the risks that their business
activities pose for third parties. Companies are now required to track their performance on social and sustainabil-
ity metrics, not just financial ones. Prior to this legislation, NFD had been voluntary in almost all EU member
states and countries across the world: whereas companies must report their revenues, profits, and losses, they
have been able to choose whether or not to report on their social and environmental impacts. As a result of
2014/95, CSR reporting is legally mandated for large companies in the EU.
By increasing the quantity and quality of NFD and by requiring companies to identify their due diligence pro-
cedures for identifying, preventing, and mitigating the risks their operations and supply chains pose for third
parties, the Directive represents a “paradigm shift” in reporting (Spießhofer & Eccles 2014, p. 27). While no silver
bullet, the Directive will increase the pressure on businesses to clean up their operations and manage their
impacts. It represents a meaningful step toward integrating financial and non-financial disclosure, functioning
markets, corporate accountability, and a more long-term orientation.
This legislation is relevant to scholarly debates that focus on the interests and roles of different actors in sup-
porting and opposing more stringent regulation.3 The EU’s diverse member states offer an empirical laboratory
to advance our understanding of these issues. This paper builds on interviews with decisionmakers,4 an analysis
of key documents, and bivariate correlations to examine the dynamics of the negotiations, as well as countries’
underlying motivations of support and opposition. My overriding goal is to advance our understanding of the
politics of upward regulatory harmonization and more stringent supranational regulation.
Monciardini (2016, 2019) shows that a loosely organized “transparency coalition” or NGO-investor-union (NIU)
coalition consisting of non-governmental organizations (NGOs), sustainable investors, and trade unions played a key
role in supporting the Directive. This captures the overall EU-level dynamic well but leaves a number of empirical
puzzles unresolved. The “NIU Nexus” was a formidable force in Brussels, but much weaker at the member state level.
Furthermore, the circumstances for the Commission’s proposal were favorable, yet it was significantly weakened dur-
ing the course of the negotiations in spite of the advocacy of the NIU Nexus. As we will see, a lot of the action took
place in the Council. Germany was the staunchest, most hardline opponent, France was the strongest supporter, and
the United Kindgom (UK) was somewhere in-between. Why did the governments in these countries take such diver-
gent positions? Exploring this variation will help us to determine “what determines national preferences over multilat-
eral institutions,” an issue over which there “is still little consensus among scholars” (Fioretos 2001, p. 215).
1.1. Overview of the paper

The goal of this paper is twofold: to explain the weakening of the initial text as well as the divergent member state
positions. My analysis aims to explain these positions and explore the motives that shape government
© 2019 John Wiley & Sons Australia, Ltd 675
D. Kinderman Politics of upward regulatory harmonization
preferences. Three motivations and configurations of forces are indispensable for gaining a full understanding of
the struggles over the EU’s NFD Directive and the politics of upward regulatory harmonization: first, adjustment
costs to regulation; second, domestic politics; and third, varieties of capitalism and domestic capitalism. These
three influences jointly account for the divergent positions of different member states in the negotiations.
The minimization of adjustment costs (Drezner 2007) was a powerful motivator of government support and
opposition. As Gerasimos Georgopoulos, a member of the Greek Council presidency who negotiated the Direc-
tive, recalls, governments asked themselves: “What is the cost? … [They] did not want to put an extra burden on
companies.”5 The three states that had domestic NFD requirements in place when the negotiations began
(France, Denmark, and the UK) all supported EU-level regulations and sought to upload their domestic regula-
tions to the EU-level to create a “level playing field.” Conversely, the fact that ~90 percent of EU member states
lacked domestic NFD requirements and were faced with higher adjustment costs explains their ambivalence or
opposition to EU-level regulations and goes quite far to explain the weakening of the final text. While the mini-
mization of adjustment costs is the core of my explanation, this explanatory factor does not by itself provide a
complete picture. Two countries without domestic NFD regulations (Belgium and the Netherlands) nonetheless
supported the Directive. Left-wing cabinet ministers in these countries provided support in spite of business
opposition. Contrary to the received wisdom, managers and business interest groups do not necessarily prevail in
low-salience realms of “quiet politics.” Partisan politics matter there too.
This paper’s research design centers on member state positions in the negotiations; in variable terminol-
ogy, this is the “dependent variable.” In the following sections, we will see how a variety of influences and
factors, such as the size of capital markets, socially responsible investors, and firm size, shaped government
positions in the negotiations over the EU NFD Directive. This paper draws on an analysis of key documents
related to the negotiations and interviews with key protagonists, as well as bivariate correlations. This
approach offers distinct advantages, including sensitivity to causal complexity and statistical outliers. To pro-
vide one example: Germany’s particularly harsh opposition is explained at least in part by its unusually large
Mittelstand or medium-sized enterprise sector, but this variable does not seem to matter for other countries
in my sample.
Regarding debates over comparative capitalism/varieties of capitalism (VofC), the evidence in this paper
suggests that liberal market economies (LMEs) tend to support and coordinated market economies (CMEs)
tend to oppose mandatory NFD. This paper also suggests that business interests in regulation are malleable
and are influenced by the political and regulatory environment. Mainstream business organizations fight
against regulations including mandatory NFD requirements, but once domestic regulations are in place, these
organizations support the push for upward regulatory harmonization at the supranational or transnational
level (DeSombre 2000).
The paper is organized as follows. Section 2 provides an overview of the historical evolution of the politics of
corporate transparency at the EU-level. Section 3 discusses the positions of interest groups at the EU-level regard-
ing the Directive. Section 4 discusses the positions of countries and national-level business organizations.
Section 5 provides a brief literature review and introduces 10 propositions for the empirical analysis. Section 6
provides a more systematic analysis using bivariate correlations. Section 7 concludes the paper. Before proceed-
ing, a brief note on methodology: this paper uses a multimethods approach. The first half of the paper (Sec-
tions 2–3) is qualitative, while the second half of the paper (Sections 5–6) is quantitative. The first half of the
paper provides important information about the trajectory of the negotiations and the positions of the main
actors. The second half of the paper focuses on the determinants of government support and opposition for
2014/95/EU.
2. The historical backdrop and the dynamics of the negotiations

The EU’s quest to mandate non-financial reporting began in the late 1990s,6 and continued with the 2003
Accounts Modernization Directive.7 Two years later, Commission staff member Dominique Bé advocated
mandatory NFD – his reasoning was that “requiring transparency about companies’ sustainability performance
without mandating any level of performance can be a very powerful driver for improvement” (Bé 2005). This
agenda was blocked by the first Barroso Commission and by powerful business associations that opposed the
676 © 2019 John Wiley & Sons Australia, Ltd
adjustment costs regulation would entail and favored a purely voluntary approach: policy was “outsourced” to
business and regulation was off the policy agenda (Kinderman 2013). By contrast, the circumstances leading
to the recent breakthrough were favorable and in many ways a “perfect storm.” The financial crisis and the
Great Recession increased support for the re-regulation of markets, as one official close to the NFD file
recalls:
[M]y feeling is and was that the financial crisis did create certain conditions that allowed such regulation to
be considered and then approved … In my view the crisis somewhat weakened the position of those [who]
tended to argue that any regulation was by definition bad, a burden and to [be] avoided. The dynamic of the
debate seemed to change – not a lot, but enough to help legitimize – for a time – the idea of stronger regula-
tion of business as a whole. (Anonymous 28 September 2016, personal communication)
In 2009, at the peak of the financial crisis, the Commission launched a series of workshops and consultations
on NFD disclosure.8 Underlying this shift was a growing realization that the system of voluntary reporting had
failed to deliver the expected results (Hess 2007). The so-called business case, which stresses voluntarism and cor-
porate self-interest as drivers for disclosure, “simply leads to selective and strategic disclosure designed to protect
the corporation’s legitimacy” (Hess 2014, p. 12). While regulation has long been anathema in business circles, a
growing number of responsible business thinkers stressed its importance. In its renewed strategy for CSR
2011–2014, the Commission expressed its desire to implement new regulations promoting transparency
(European Commission 2011b).
When the Commission announced its NFD proposal in 2013, Commissioner Barnier made it a high political
priority. Indeed, an official close to the file explains that it is hard to underestimate Barnier’s importance (see also
Monciardini 2016):
The fact that Commissioner Barnier was the Commissioner responsible both for the financial sector (and its
post-crisis re-regulation) and for the NFD legislation is not a complete coincidence. Here’s a question though:
What was [the] most important political influence: the financial crisis, or the arrival of Commissioner Barnier
in a position where he was responsible for NFD? To me it is clear that a different Commissioner may have
chosen not to regulate NFD, irrespective of whether the financial crisis had happened or not. And would
Commissioner Barnier have been successful in trying to regulate NFD if the crisis has not happened? Maybe,
I don’t know. (Anonymous 28 September 2016, personal communication)
None of the major political parties in the European Parliament (EP) rejected binding regulation from the very
start, and other Directorates Generals did not block the text during inter-service consultation. The civil society
organization European Coalition for Corporate Justice (ECCJ) launched a hard-fought campaign for mandatory
NFD, and trade unions and socially responsible investor organizations with trillions in assets joined them
(Monciardini 2016, 2019). To avoid antagonizing business, the Commission did not make its proposal overly
ambitious.9 Rather than mandating particular CSR policies or the achievement of specific accountability bench-
marks, the Commission “made substantial efforts to ensure that the administrative burden imposed on compa-
nies is minimal, by developing this policy over the course of several years and in close consultation with all
relevant stakeholders, including the business community” (Barnier 2014, p. 18). One example of this is the use of
the “comply or explain” principle, which allows companies not to report on certain issues, provided they explain
their reasons for doing so.10 “The intensity of public pressures for more risk-adverse regulations” as well as “the
political preferences of influential policy makers” (Vogel 2012, p. 294) and the “greater autonomy [public authori-
ties have] in devising policy solutions … in times of crisis” (Murphy 2004, p. 252) should have led to a strong
text. In many ways, it is hard to imagine more favorable circumstances for upward regulatory harmonization and
more stringent supranational regulation.
Yet the Commission’s proposal faced harsh resistance, and it was significantly weakened during the course of
the negotiations. As Stefanos Komninos, Secretary General in the Ministry in Greece who negotiated this Direc-
tive in the capacity of the Greek Council Presidency, recalls: the proposal was “close to failing” and it was “very
difficult to negotiate this Directive.”11 His colleague Georgopoulos remarks “it was not obvious that we would
have a Directive because of the very strong negative positions of some member states.”12
The interactions in the Trialogues between the Commission, the Greek Council Presidency, and the EP were
particularly difficult because of the hardline bargaining tactics used by the Directive’s opponents in the Council.
As a source near the Council Presidency recalls:
The EP was much more ambitious content wise. Both the rapporteur and the shadows of the political groups
concerned tried to push for amendments by going back to the initial Commission proposal or even beyond
the initial provisions and make the text more robust. They were not successful at all. The hard players in the
Council knew very well that the EP wanted a stricter legislation, but most of all wanted a legislation adopted
within the very tight time constraints … The Presidency – supported by the Commission – was also in favor
of a more ambitious text, but [was] at the same time it was also committed to deliver on the file within its
mandate. This was a weakness that the enemies of the Directive based their strategy on. (Anonymous source
near the Council presidency 16 September 2015)
In February 2014, the negotiations reached an impasse. A letter to the Greek Council presidency from EP
member Raffaele Baldassarre, who led the negotiations for the EP, describes the state of negotiations:
Bearing in mind the importance of this piece of legislation, the Parliament negotiating team has been as flexi-
ble and pragmatic as possible … with the aim of reaching a satisfactory agreement. For this reason, the Parlia-
ment has substantially revised its initial position.
Baldassare describes in detail half a dozen changes and concessions the Parliament made in response to the
Council’s demands before writing: “I deeply regret that the compromise text finalized during our last trialogue
has not been endorsed by the Council.” Baldassarre discusses a new proposal to restrict the scope of the Directive
to public interest entities and writes:
I have no doubt that you are fully aware of the difficulty of reaching a majority in Parliament for a more lim-
ited scope, which … is far off Parliament’s initial position … I hope that member states will endorse the alter-
native compromise text with a revised scope. Alternatively, they should be ready to take the political
responsibility for a possible failure of the agreement. (Baldassarre, 2014)
An agreement was reached in the end, but at a cost. The most notable change concerns the scope of the
requirements. The initial proposal would have applied to all companies with more than 500 employees with a
€20 million balance sheet, or €40 million net turnover, ~18,000 firms across Europe. The final compromise
applies only to public interest entities13 with over 500 employees, ~6,000 companies in total, or a third as many
as the Commission’s original proposal.14
When asked for an assessment of the final text shortly after the establishment of the final compromise,
Jerôme Chaplier, who then served as coordinator of the ECCJ (a coalition of leading civil society organizations),
remarked, “the glass is half empty. The compromise is very far away from what we were pushing. The end result
is disappointing.”15 The European Sustainable Investment Forum (Eurosif), which represents over 60 sustainable
investment organizations across Europe, stated that it was “disappointed that the text of the legislation was signif-
icantly weakened during the course of trilogue negotiations” (European Sustainable Investment Forum [Eurosif]
2014a). Quinn and Connolly stated “the Directive represents a significant missed opportunity” (2017, p. 21).
Szabó and Sørensen found that the disclosure regime adopted in 2014/95/EU “appears to be in line with the cur-
rent best practices” and “is definitely a step forward on the EU level” (2015, pp. 339–340). However, they quali-
fied their enthusiasm because “a low-cost approach based on minimum harmonization, not supported by detailed
rules and standards on the collection and processing of the information, is not likely to have a significant effect”
(Szabó & Sørensen 2015, pp. 339–340). Table A1 (see Appendix) summarizes some of the key differences between
the Commission’s original proposal and the final compromise. Why was the Commission’s original plan watered
down, even though the environment was conducive to an ambitious proposal?
In order to understand what led to this weak compromise, we need to examine the political struggles and the
constellation of interests surrounding the Directive at the EU-level. We also need to understand what led member
states in the Council to support and oppose the Commission’s proposal, which ultimately led to the watering
down of the Directive. We need to ask: “Which socio-economic and political actors supported or opposed this
reform and why?” (Monciardini 2016, p. 1). The remainder of the paper takes on these tasks. The next
section examines the positions of EU-level interest groups, countries, national organizations, and firms regarding
the Directive.
3. The positions of interest groups at the European Union level

The Commission’s NFD proposal faced stiff resistance from the organized business community. This is particu-
larly true of BusinessEurope, which represents employers and industry federations from across the
EU. BusinessEurope categorically opposed the EU NFD Directive. They maintained that NFD must remain vol-
untary and business-driven: the Directive would create red tape, costs, and administrative burdens; weaken busi-
ness competitiveness; undermine innovation; and transform CSR into a box-ticking exercise (BusinessEurope
2013). Business organizations also feared that mandatory NFD would bring new legal liabilities for companies16 –
and would possibly affect tort law (Mares 2018, p. 206). In addition to this strategy of blanket opposition, Busi-
nessEurope also made a number of specific recommendations, such as restricting the scope to publicly listed com-
panies, eliminating any requirements for external auditing or reporting on risks, and allowing a separate non-
financial report, as well as a broader comply or explain approach than was proposed by the Commission
(BusinessEurope 2013). The response of EuroChambres – which represents local and regional Chambers of Com-
merce across the EU – was similar.
Sustainable investors, by contrast, were supportive. Aviva Investors, the UK’s largest insurer and one of the
world’s largest fund managers and mainstream responsible investors, and Eurosif, which represents over 60 sus-
tainable investment organizations across Europe with over 1 trillion in assets, sought to strengthen the Directive,
or at the very least prevent the dilution of the Commission’s proposal. Along the lines suggested by Monciardini
(2016), Aviva’s Chief Responsible Investment Officer Steve Waygood urged NGOs and investors to move beyond
progressive voluntary initiatives and engage in partnerships to “lobby for greater government intervention to cor-
rect market failures” (Waygood 2013, p. 68). According to Waygood:
We are fast approaching $300 trillion as the global stock of capital, and much of this is invested in a way that
is undermining the goals of long term sustainable development. This is due to pervasive short-termism, mar-
ket failures and market inefficiencies in sustainable development. It is government’s role to step in and correct
this. (11 July 2015, personal communication).17
François Passant, who was the Executive Director of Eurosif at the time, supported joint policy positions with
civil society organizations and trade unions and pushed for mandatory integrated reporting, the publication of
key performance indicators (KPIs), and third party verification.18 The World Business Council for Sustainable
Development, the International Integrated Reporting Council, and the Global Reporting Initiative (GRI) also sup-
ported the Directive.
When analyzing the positions of business, it is important to examine the roles of responsible business organi-
zations, such as CSR Europe. CSR Europe did provide significant support for the Directive, but it did so behind
the scenes. From 2006 until 2009, CSR Europe led the European Alliance for CSR together with BusinessEurope.
Kinderman describes the Alliance as an “outsourcing of policy” to business (2013, p. 710); BusinessEurope saw
the Alliance as a means to forestall and preempt regulation; some commentators have suggested that this was also
CSR Europe’s objective. But the reality is more complicated: while CSR Europe led the Alliance, it also directed a
laboratory on valuing non-financial performance which helped a “silent consensus [on NFD] become a loud con-
sensus” and was a “critical step” toward the Directive according to CSR Europe’s senior advisor Jan
Noterdaeme.19
Vogel (2005) argued that responsible firms should support more stringent regulations and compliance stan-
dards. The negotiations over 2014/95/EU suggest that to some extent they do: CSR Europe played a supportive
role while shying away from strong public statements in support of the legislation. During the actual negotiations
“the help of Jan [Noterdaeme] and CSR Europe was immense. CSR Europe was running all things behind the
scenes,” recalls Komninos, who was in charge of the file for the Greek Council presidency.20 According to uncon-
firmed reports, the reason for CSR Europe’s caution was that not all of its member companies were happy with
the Directive – and that some of these member companies, as well as some of CSR Europe’s National Partner
Organizations (national level CSR associations), have close relations with mainstream business associations and
were hesitant to break ranks with them. As Noterdaeme explains:
Ninety percent of CSR Europe’s work was behind the scenes … We are only a network [and not a lobbying
organization]. We can explain how policy can accelerate best practice. We don’t want it [the Directive] to
generate bureaucratic reporting when it goes into national law … That’s why we are advocating complying
with the Directive in a smart way. The real battle is about capacity building.21
Noterdaeme points out that it is naïve to think that laws, public statements, or position papers will be suffi-
cient to generate responsible business practices and a reduction of negative externalities. CSR Europe played a
key facilitative role. Nevertheless, there was an imbalance between opposition and support – between the hard
lobbying of traditional business organizations and the soft capacity building of responsible business
organizations.
Despite the overweening power and influence of business, the ECCJ, a coalition of corporate accountability
coalitions from across Europe, had a far from trivial impact on the final text. This is noteworthy given the David
versus Goliath imbalance in personnel, power, and resources between the ECCJ – which has just two full-time
staff in Brussels – and firms and business organizations. The ECCJ established itself as one of the “key players” in
the negotiations and had a “significant impact on the final text of the Legal Affairs Committee report” of the EP
(Thaler 2014, p. 45). The ECCJ’s amendments, including development of guidelines on methodology, a redefined
“materiality test” that includes consideration of impacts of companies’ activities on society, explicit inclusion of
supply and subcontracting chains in the definition of risk, issues to be covered in the future revision of the Direc-
tive, and a reformulation of the safe harbor clause, made it into the report of the EP’s Legal Affairs Committee.
In the Trialogue negotiations between the Council and the EP’s Legal Affairs Committee, the latter was at an
inherent structural disadvantage given that many countries in the Council were happy to see the Directive weak-
ened or fail altogether. In spite of this disadvantage, a number of the ECCJ’s proposals made it into the final text,
and even amendments that weaken the Directive22 were reformulated and strengthened from a civil society point
of view.23
Despite disappointing setbacks, it was clear to civil society representatives that letting this reform fail was not
an option. There was simply too much uncertainty regarding the composition of the next Commission and
EP. Despite its shortcomings, Chaplier maintained that the EU NFD Directive “will act as an accelerator,” catalyz-
ing change across Europe and beyond.24 This brief discussion shows that business does not always win, and that
for civil society activists, “there is always a fighting chance” (Streeck 2009, p. 268).
4. The importance of adjustment costs for explaining the positions of countries and national-level
business organizations
This section examines the positions of countries and national-level business organizations in the negotiations and
shows that the presence or absence of national NFD legislation is a significant determinant of government and
business support and opposition for upward regulatory harmonization.
In the vote in the Council at the end of the Trialogue negotiations on 26 February 2014, Germany and Spain
abstained and Estonia opposed the proposal. But this vote does not show the full scale of opposition to the Com-
mission’s original proposal: the text changed significantly during the course of the negotiations, which led oppo-
nents to moderate their positions: “The text is so weak they’re fine with it.”25 According to insiders, Belgium,
Denmark, France, Greece (which held the Council presidency), and the Netherlands supported the proposal while
Austria, the Czech Republic, Germany, Hungary, Ireland, Latvia, Lithuania, Poland, Romania, and Slovakia tried
to weaken or do away with it. Germany, Lithuania, and Poland were outspoken opponents. Three large countries
– France, Germany, and the UK – were most influential during the negotiations. France and Germany’s positions
were diametrically opposed. France was the strongest supporter and attempted to strengthen the Commission’s
initial proposal. Germany took a hardline position of rejecting the entire proposal. The UK played a leading role
proposing amendments to the Commission’s original text.
While a number of the UK’s amendments can be seen as watering down or weakening the proposal, the UK’s
position (discussed further in detail) was very supportive in comparison with Germany’s. This role reversal is
interesting given that Germany is a country with comparatively high social and environmental standards and “a
‘model’ for countries unwilling to subject themselves to the rule of the market in the same way and to the same
extent as Anglo-American economies” (Streeck 2009, p. 21). We are used to the UK blocking attempts by Ger-
many and other continental European countries to regulate finance. When it comes to NFD regulation, these
roles were reversed. A document from the German delegation in the Council Working Party on Company Law
shows the German government’s radical opposition to the Commission’s proposal:
Germany would emphasize that the understanding of CSR as taking over social responsibility in the core busi-
ness of an undertaking on a voluntary basis and above and beyond statutory requirements must be main-
tained. Accordingly, the voluntary nature of CSR as the fundamental element must also be reflected in
reporting … Germany does not accept imposing non-financial reporting obligations above and beyond those
already established. (German Delegation 2013)
Germany not only tried to kill the proposal, it “tried to persuade other member states not to support the
Directive” as well.26 The positions of the German government and business organizations were virtually identical.
In 2011, before the Commission’s announcement of its renewed strategy for CSR and well before the Commis-
sion’s NFD proposal, German business made it clear that they would not accept the regulation of non-financial
reporting:
The central associations of German business reject the Commission’s proposal to compel companies to report
about their engagement. By doing this, the Commission encroaches massively on corporate discretion. Com-
panies engage themselves voluntarily in highly diverse areas – consequently, whether and how they report
should also remain voluntary. The bureaucratic burden – especially for small and medium-sized companies –
would be considerable and greatly outweigh any benefits. (BDA, BDI, DIHK and ZDH 2011, p. 2)
The hard-core opposition of this archetype CME toward mandatory NFD contradicts pronouncements that
Germany is a “relatively statist” enthusiast for CSR that “prefers CSR as mandate” (Gond et al. 2011, p. 656). Ger-
man government and business stressed the burdens an NFD mandate would impose on small and medium-sized
enterprises (SMEs), and Germany’s opposition to the Directive persisted to the end. The German government’s
abstention in the vote in the Council on 26 February 2014 may be the result of conflict within the government
between Sozialdemokratische Partei Deutschlands (SPD) minister Heiko Maas who supported the Directive, and
Sigmar Gabriel who opposed it, which allowed the German ambassador to stand neutral (Komninos 13 April
2016, personal communication).
France, by contrast, was the Directive’s strongest supporter and the only country that tried to strengthen the
Commission’s initial proposal. Vincent Perrotin, the French treasury official who represented France in the nego-
tiations, remarked that since the publication of the Commission’s renewed strategy for CSR in 2011:
We have been a great supporter of an [EU legislative] initiative in this area. We’ve had a positive experience
and it’s important that a similar requirement be adopted at the European level. That’s our basic position on
this text. In addition, we believe that it is essential to have a scope encompassing all large companies, since
large companies, whether listed or not, have an impact on environmental and social issues, especially in devel-
oping countries.27
France pushed not only for a larger scope, but also for external assurance/verification and country-by-country
reporting.28
Domestic regulation is essential for explaining France’s support: France was the first EU country to introduce
comprehensive NFD requirements for private sector firms and has the most NFD requirements in Europe. Article
116, Paragraph 4 of France’s 2001 Nouvelles Régulations Économiques established detailed reporting require-
ments for listed companies, and these were expanded and extended to non-listed companies by the 2010 Grenelle
II law. As a result of this national legislation, the Directive would not impose significant adjustment costs on
French businesses. On this point, Charles Herymann, who served as Director General of the French treasury dur-
ing the negotiations, explained:

When we have to transpose the Directive into French law it will not create more constraints for our compa-
nies. The level of ambition of the text is lower than the level of ambition of our domestic regulation put in
place in 2010. So they do not anticipate any great difficulty when this regulation is put in place contrary to
the companies from other countries that are not used to having CSR reporting.29
Perrotin added: “it’s important to have a level playing field … We won’t deny that having a level playing field
is important for our companies.”30
While stressing that the EU “should not be overly ambitious and should not go beyond what is provided for
by French law” (Mouvement des Enterprises de France 2013, p. 2), the French employers’ association, Mouve-
ment des Enterprises de France (MEDEF), supported the French government’s attempts to enact EU legislation
that is close to French domestic NFD legislation. In the words of MEDEF’s Noémie Delaunay:
We were indeed more supportive of the Directive than BusinessEurope to ensure an equitable level playing
field within the European internal market and to prevent French companies from a major competitive disad-
vantage linked to national administrative burdens. (21 May 2014, personal communication)31
Elisabeth Gambert of the Association Francaise des Enterprises Privées, which represents over 100 of the larg-
est companies operating in France, stated “We are quite pleased with the final version of the EU directive on
non-financial reporting” (15 April 2014, personal communication).
The UK delegation played a leading role in the negotiations – they sought to reproduce their own corporate
governance and non-financial reporting framework in Brussels – the Companies Act. Ilaria Miller from the
Department for Business Innovation and Skills explained the UK’s negotiating positions and their rationale:
An EU-wide approach to NFD regulation is a good thing. We applied the principles [of the revised Compa-
nies Act] to the negotiation of EU principles. We tried to reproduce what we have here in the UK … We
redefined NFD regulation a few months before the Commission published the proposal [and] went through a
very long national process of analysis and assessment which culminated in the updated UK Companies Act
in October 2013. We ... wanted to safeguard our UK regulations. We are very pleased with the result. This
[EU legislation] was the right way to go but not further. This compromise has been considered a success of
the business community in the UK.32
While the UK was clearly more supportive than Germany, it did try to limit the scope of the EU non-
financial reporting regulation to listed companies, as is the case in the UK, and sought to avoid the imposition of
“significant costs and burdens on business.”33 This was also the position taken by the Confederation of British
Industry (CBI) in its response to the proposal. While the CBI proposed more amendments to the Directive than
MEDEF, it was much more supportive (Confederation of British Industry 2013) of the proposal than German
business associations. Unlike the latter, the CBI did not question the rationale of having a Directive. A clear pat-
tern emerges from France, Germany, and the UK: in each case, governments sought to reproduce their domestic
regulations (or the lack thereof) at the supranational level in order to minimize adjustment costs for their
companies.
National business associations play an important role in this dynamic, but government and business positions
are not always aligned. The Belgian and Dutch governments actively supported the Directive in spite of business
opposition and the absence of a domestic NFD requirement. Belgium is an especially interesting case: Belgian
firms’ lower levels of CSR performance and their lower propensity to prepare CSR reports suggests that the
Directive would have been somewhat costly for Belgian businesses. Here the political initiative of a socialist gov-
ernment minister played a decisive role. Johan Vande Lanotte, a “green social democrat” (Carl Devos 2 May
2018, personal communication) who was in charge of negotiations for the Belgian government, describes his
motivations for going against the business community as follows: “It was a quite typical left position I think …
The federation of enterprises was not very happy about that, but that is (was) not a reason to drop our support”
(13 March 2015, personal communication). NFD is a domain of quiet politics, dominated by experts and interest
groups far from public scrutiny, but this does not preclude political initiative; it does not mean that business
always wins.
The Dutch government also supported the Directive in spite of the absence of a domestic NFD requirement
and opposition from the Netherlands Confederation of Industry and Employers (NVO-NCW). According to the
NVO-NCW’s Martin Noordzij, “the rationale behind the Dutch government position on this issue is that many
large Dutch companies are frontrunners on sustainable reporting” (11 March 2015, personal communication).
The data in the next section support this interpretation – the Netherlands’ deep Socially Responsible Investment
(SRI) markets and Dutch companies’ strong CSR performance may have facilitated Dutch Foreign Affairs Minis-
ter Liliane Ploumen’s support of the Directive. However, the fact that the Netherlands pushed for a reduced scope
of the Directive suggests a partial attempt to appease Dutch business organizations or the Dutch Minister of Eco-
nomic Affairs by reducing adjustment costs. In order to increase confidence in these qualitative findings, the next
section articulates propositions for the quantitative analysis. It also expands the scope of the study to cover vari-
ables and countries for which I lack qualitative data.
5. Propositions
Recent years have seen a growing interest in the role of business in standard-setting and regulatory harmoniza-
tion (Haufler 2001; Murphy 2004; Gjølberg 2011). In the literature on Europeanization, “mis-fit” and “adjustment
costs” are central concepts (Börzel 2002). The basic idea of regulatory harmonization is that a plurality of regula-
tory regimes impose costs on export-oriented and import-competing business that can be reduced through har-
monization: “companies that have to comply with myriad environmental standards and rules … may prefer
international harmonization of the rules of the game” (Haufler 2001, pp. 106–107). What factors influence sup-
port and opposition to more stringent rules? This section introduces 10 propositions for the quantitative analysis,
beginning with domestic politics and proceeding to adjustment costs and VofC. They are discussed in sequence,
summarized in Table A2 (see Appendix), and tested in Section 6 of this paper.
There is widespread agreement that contentious politics and civil society activism are key drivers of CSR and
corporate accountability (Vogel 2005). This leads to our first proposition:
Proposition 1: Countries in which civil society organizations are engaged in public campaigning and in put-
ting pressure on their government will tend to be more supportive of upward regulatory harmonization than
countries in which civil society organizations are inactive.
Partisan politics may also matter. Although left wing and social democratic governments have embraced
market-oriented and supply-side policies in recent years, they may still be more willing to support corporate
transparency regulations that impose costs on business than more conservative or right wing governments:
Proposition 2: Countries in which left wing or social democratic governments are in power will tend to sup-
port upward regulatory harmonization whereas countries in which right wing or conservative governments
are in power will tend to oppose upward regulatory harmonization.
Next we proceed to the adjustment costs of regulation. It is widely accepted that regulations are subject to a
cost–benefit calculus and that states and business associations tend to oppose regulations that threaten to impose
costs or “red tape” on business. However, once regulations have been put into place domestically and businesses
have absorbed and internalized the associated costs, business representatives and governments will seek to extend
these standards abroad in order to avoid a competitive disadvantage (DeSombre 2000; Murphy 2004). This sug-
gests a divide between states with and without domestic NFD mandates according to the following schema:
Proposition 3: Countries with domestic regulation in place will support upward regulatory harmonization at
the supranational/transnational level; countries without domestic regulation in place will oppose upward reg-
ulatory harmonization at the supranational/transnational level.
Moving from the broader institutional framework to the firm level, it seems logical that high performing firms
could derive a competitive advantage from mandatory NFD: “Imposing strict standards on lower-regulating
Member States maintains the competitive position of the industry in higher-regulating countries” (Börzel 2002,
p. 196). Mandatory NFD imposes administrative and reputational costs on less sustainable companies by forcing
them to report and making it more difficult for them to hide their inferior performance. Conversely, higher levels
of mandated transparency can help sustainability leaders to showcase their superior performance and prevent lag-
gards from deriving a competitive advantage from their lower CSR performance and higher levels of negative
externalities. External regulation can create a premium for responsible companies, increase costs for irresponsible
ones (Levis 2006, p. 54), and provide protection and safeguard against free riders. Sustainable companies may
have a particular interest in NFD mandates to ensure that their less virtuous competitors do not undercut their
high-road strategies. Conversely, mandatory disclosure could damage the reputations and threaten the competi-
tive strategies of firms with low CSR performance. This leads to our fourth proposition:
Proposition 4: Countries in which leading firms have high CSR performance will tend to support upward
regulatory harmonization; countries in which leading firms have low levels of CSR performance will be more
likely to oppose it.
As the Directive mandates CSR reporting, the difficulty and expense of complying with the Directive will be
lower for firms that already prepare CSR reports than for firms that do not yet prepare such reports. In short,
support should correlate with reporting levels:
Proposition 5: Countries in which a high proportion of large companies prepare non-financial or sustainabil-
ity reports are more likely to support the Directive than countries in which a low proportion of large compa-
nies prepare non-financial or sustainability reports.
The next two propositions relate to domestic capitalism/VofC. The VofC literature (Hall & Soskice 2001) sug-
gests that companies in CMEs tend to rely more on non-market institutions, government regulation, and pursue
high road competitive strategies than companies in LMEs. The VofC literature continues to be influential; accord-
ing to Witt and Jackson it “continues to have a uniquely powerful hold on the field” of comparative political
economy (2016, p. 780). Because it is not entirely straightforward to derive an expectation from this literature, I
formulate two competing propositions. According to the first interpretation, CMEs and NFD are different but
related forms of coordination for social embeddedness, and CMEs place a greater priority on mitigating social
and environmental externalities and have a greater interest in upward regulatory harmonization than LMEs. In
this vein, Favotto et al. (2016) found that firms in CMEs outperform firms in LMEs when it comes to CSR and
non-financial reporting. This leads to our next proposition:
Proposition 6: Countries that are CMEs will tend to be more supportive of upward regulatory harmonization
than countries that are LMEs.
A second interpretation focuses not on what mandatory NFD represents (increased social embeddedness and
a tool to deal with externalities) but on how mandatory NFD gets the job done: through market rather than non-
market coordination. The fact that LMEs tend to rely on markets to deal with externalities suggests an affinity
between LMEs and mandatory NFD:
Proposition 7: Countries that are LMEs will tend to be more supportive of upward regulatory harmonization
than CMEs.
Socially responsible investors may have a vested interest in regulations that increase the quantity and the
quality of sustainability, externality, and risk-related information, which suggests:
Proposition 8: The larger the size of a country’s SRI markets, the greater the likelihood that the government
in question will support upward regulatory harmonization.
Mandatory non-financial reporting requirements are a tool to facilitate better investor-company dialogue. We
should therefore expect that countries with more well-developed capital markets are more supportive of manda-
tory NFD than countries with less well-developed capital markets:
Proposition 9: The deeper a country’s capital markets, the greater the likelihood that it will support upward
regulatory harmonization.
While many large companies have already jumped on the non-financial reporting and sustainability band-
wagon, fewer SMEs have done so. An NFD mandate could be costly for these companies, and unwelcome as their
engagement is driven more by the intuitions and personal values of the owner/entrepreneur in question than by
the formal management structures that are in place in large firms. While no one is expecting lawmakers to
require micro-enterprises to complete fourth-generation GRI reports anytime soon, NGOs had pushed to extend
NFD requirements to companies with 250 employees, and there is speculation that these companies may be
affected by 2014/95/EU through supply chains. While officials have sought to placate SMEs, there is evidence that
their fears are justified and that the Council presidency intended to “do a phase in directive: start with larger enti-
ties, then go to smaller and smaller ones.”34 This leads to:
Proposition 10: Countries with a disproportionately large number of medium-sized enterprises will tend to
oppose the Directive.
For ease of interpretation, the aforementioned propositions are summarized in Table A2 (see Appendix).
6. Toward a more systematic analysis: Bivariate correlations

This section uses bivariate correlations to provide a more systematic assessment of the above propositions and
the factors that influenced countries’ positions in the Council negotiations. To begin, we need scores for our
dependent variable. The following chart assigns a quantitative score to the position of each government in the
negotiations.
I have chosen 12 countries based on data availability, and I have constructed these scores on the basis of gov-
ernment position papers, as well as discussions with Brussels insiders.35 The scores in Table 1 should be inter-
preted as follows: 1 indicates the highest level of support for stringent reporting requirements and a broad scope;
0.1 refers to the most hardline opposition. These scores do not refer simply to countries’ votes on the final,
watered down version of the Directive. They refer to the extent to which a country supported a broad scope and
stringent reporting requirements throughout the negotiations over 2014/95/EU. Scores in the 0.4–0.6 range reflect
the range from ambivalent opposition to ambivalent support. Komninos and Georgopoulos, who negotiated the
Directive for the Greek Council presidency, as well as Chaplier, who served as ECCJ Director, have confirmed the
empirical accuracy of this coding.36
Table 2 shows all of the variables in my quantitative analysis and Table A3 (see appendix) provides a detailed
description of these variables. To facilitate interpretation, I have standardized all of the values into an ordinal
scale between 0.1 and 1 according to the degree of membership in the conceptual category. When it comes to the
SRI, market capitalization, and SME scores, I control for the size of countries’ economies in 2013.37
Now I discuss the results, beginning with P1. Pressure from civil society is a key driver of corporate account-
ability, and the ECCJ was able to shape the final text through the EP’s Legal Affairs Committee. But what impact
did national-level civil society organizations have on their respective government’s negotiating positions in the
Council? Quantifying the level of civil society engagement in a dozen countries is not a straightforward task. The
scores in Table 2 draw on feedback from ECCJ’s Yolaine Delaygues and Chaplier in Brussels and ECCJ’s member
organizations from across Europe, and are based on information such as the number of days devoted to advocacy
and campaigning and the number of meetings with government officials.38 Although positive, the relationship
between civil society engagement and governments’ support is relatively weak. Germany is a case with one of the
most vigorous civil society campaigns and an unsupportive and unresponsive government.39 In the UK, even the
most vigorous civil society campaign in the EU could not prevent British government officials from watering
down the proposal in the negotiations. The case of France shows that vigorous civil society campaigning is not
necessary for strong government support. In a number of other countries, civil society organizations were evi-
dently not convinced that mandatory NFD was worth fighting for. Quiet politics is difficult terrain for civil soci-
ety activists.
Next we turn to P2, partisan politics. Are left wing or social democratic governments more supportive of EU-
wide mandatory NFD than right wing or conservative governments? The correlation is strong, but the qualitative
evidence is more ambiguous. In Denmark and France, social democratic and socialist governments were in power
during the NFD negotiations, but it is unclear whether their agenda had any influence on these countries’ negoti-
ating positions. Several of my interviewees suggested that it would probably not have made a difference if a con-
servative government had been in power in France during the NFD negotiations – after all, the Grenelle II law
Table 1 Countries’ positions in the negotiations over the NFD directive

Ordinal Degree of Support or Opposition Characteristics Country
scale for Strong Regulation
1 Strongest Support Strongest most ambitious and outspoken supporter; played France
the leading role in strengthening the proposal, for example by
mandating reporting on companies’ supply chain and
companies’ impacts on stakeholders. France was also a key
supporter of country-by-country reporting and more robust
verification by independent assurance services providers
0.9 Supporter Strong supporter, played an important role in the Denmark
negotiations, but less ambitious and more business-oriented
than France, in line with Denmark’s NFD regulations
0.8 Supporter Supported France but did not play a leading role Belgium
0.7 Supporter Supported the proposal, but relatively late in the negotiations, Netherlands
and sought to reduce its scope
0.6 Supported, but also played a A pivotal actor, probably the most influential country in the UK
leading role in weakening the negotiations; supportive in principle, but weakened the text by
proposal proposing a safe harbor clause, a reduction in the scope to
listed companies only, and the publication of non-financial
information outside of the annual report
0.6 Soft supporter Supportive from the start but concerned about the imposition Finland
of increased administrative and regulatory burdens on
companies
0.5 Ambiguous position Concerned about Directive’s impact on SMEs; initially against Italy
but more supportive over time
0.5 Ambiguous position Ewa Björling, one of the two Swedish government ministers Sweden
responsible for the NFD file, opposed the Directive; while
supporter Peter Norman, the Minister for financial markets,
won out in the end, it was close, and the Swedish government
opposed reporting on risks and the supply chain
0.4 Ambiguous position Appeared to support the proposal during the negotiations but Spain
abstained in the end
0.2 Strong Opposition Followed the German position of opposing the Directive Austria
during the negotiations, but were willing to support the final
weakened compromise in the end
0.2 Strong Opposition Followed the German position of opposing the Directive Poland
during the negotiations, but were willing to support the final
weakened compromise in the end. Several Eastern Europe
states seemed to follow Poland’s position
0.1 Strongest Opposition Most outspoken, hardcore opponent, categorically opposed to Germany
the Directive throughout the negotiations; abstained in the
final vote in the Council
NFD, non-financial disclosure; SMEs, small-medium enterprises.
was passed by a conservative government. In Belgium, on the other hand, political partisanship made a real dif-
ference. Vande Lanotte served as Belgian cabinet minister and was in charge of the negotiations for the Belgian
government. Vande Lanotte describes his support as “a quite typical left position” (13 March 2015, personal com-
munication). According to Eric Peetermans of the Belgian employers’ federation, the Belgian government “took a
leftist position on this [issue]. Non-socialist ministers are more business friendly and less inclined to push for
social or non-financial disclosure.”40
Germany is an interesting test case. In January 2013, members of the Social Democratic opposition petitioned
the Christian Democratic-Liberal government to support an EU NFD mandate. Their petition was rejected. When
the Christlich Demokratische Union Deutschlands-Freie Demokratische Partei (CDU-FDP) coalition was voted
Table 2 Membership scores
© 2019 John Wiley & Sons Australia, Ltd

Country Degree Domestic Adjustment costs to regulation Varieties of capitalism and domestic capitalism
of politics
Politics of upward regulatory harmonization
support
Civil Left Domestic Asset4 % CME LME LME SRI SRI Market Share SMEs
society Govt NFD man Overall Reporting (S&P (S&P (S&P norms-based exclusion capitalization of without
pressure date CSR KPMG 2012 2012 2012 screening investments SMEs Germ
yes/no Score fuzzy) crisp) fuzzy)
France 1.0 0.35 1 1 0.95 0.99 1 0 0.1 0.44 0.13 0.59 0.31 0.31
Denmark 0.9 0.8 0.78 1 0.72 0.99 0.1 1 1 0.70 0.55 0.60 0.62 0.62
Belgium 0.8 0.3 0.41 0 0.75 0.68 1 0 0.1 0.04 0.33 0.52 0.31 0.31
Netherlands 0.7 0.6 0.48 0 1 0.82 0.3 0 0.7 1.00 1.00 0.69 0.50 0.50
UK 0.6 0.95 0 1 0.84 0.91 0.1 1 1 0.03 0.14 1.00 0.58 0.58
Finland 0.6 0.25 0.52 0 0.98 0.81 0.7 0 0.7 0.27 0.28 0.54 0.42 0.42
Italy 0.5 0.2 0.46 0 0.74 0.77 0.7 0 0.4 0.18 0.18 0.20 0.19 0.19
Sweden 0.5 0.25 0 0 0.88 0.79 0.4 0 0.7 0.82 0.88 0.89 0.27 0.27
Spain 0.4 0.25 0 0 0.98 0.81 0.4 0 0.7 0.01 0.05 0.64 0.27 0.27
Austria 0.2 0.2 0.53 0 0.68 0.55 1 0 0.1 0.01 0.05 0.23 0.62 0.62
Poland 0.2 0.1 0.12 0 0.40 0.56 0.7 0 0.4 0.00 0.00 0.31 0.42 0.42
Germany 0.1 0.8 0.00 0 0.77 0.67 1 0 0.1 0.00 0.18 0.37 1.00 ----
CORRELATION 0.20 0.67 0.62 0.44 0.79 −0.26 0.34 0.26 0.60 0.38 0.44 −0.37 0.00
CME, coordinated market economies; CSR, corporate social responsibility; LME, liberal market economies; NFD, non-financial disclosure; SMEs, small-medium enterprises; SRI,
socially responsible investment.
D. Kinderman
687
out of office and replaced by a CDU-SPD coalition in December 2013 during the final and most intense phase of
EU NFD negotiations, SPD ministers were in charge of the ministries responsible for the NFD negotiations –
ideal conditions if they had wanted to support the Directive. But as noted above, while the German government’s
position did change slightly (from opposition to abstention), there was “no fundamental change … no 180 degree
shift in Germany’s position”41 – and a disagreement within the SPD over what to do with this file. Perhaps the
SPD had more important political priorities than the NFD Directive?42 To sum up the results for domestic poli-
tics, political partisanship was a stronger determinant of support than civil society activism. We now proceed to
adjustment costs.
Regarding P3, the association between countries with a domestic NFD mandate for private sector companies43
and support is quite strong, which underlines the importance of domestic hard law for the politics of upward reg-
ulatory harmonization. We will return to this point. P4 states that firms with high levels of CSR performance will
support mandatory NFR, while firms with low CSR performance will tend to oppose it. To what extent do gov-
ernment’s negotiating positions reflect the sustainability performance of their leading companies? The CSR data
are derived from Refinitiv, formerly known as ThomsonReuters’ Asset4 database, the newest and most compre-
hensive CSR database in existence, which measures 4,300 firms’ environmental, social, and governance perfor-
mance along a variety of dimensions.44 There is a positive association between firms’ sustainability performance
and their governments’ political support for mandatory CSR reporting, but it is not particularly strong. Polish
firms’ comparatively low CSR scores could conceivably provide a rationale for the Polish government’s opposi-
tion, but Belgian and German firms’ sustainability performance cannot explain their governments’ positions,
because Germany – the Directive’s most hardline opponent – has higher CSR scores than supporter Denmark.
Supporter Belgium also has lower CSR scores than opponent Germany. Spain was unsupportive in spite of high
CSR performance.
Next we turn to P5, the relationship between CSR reporting rates and support for the Directive. CSR or sus-
tainability reports cost something to prepare, although exactly how much is a matter of dispute.45 Companies that
do not yet prepare CSR or sustainability reports will be more likely to oppose non-financial reporting require-
ments than companies that already prepare such reports. Governments in countries where a large proportion of
companies already prepare non-financial reports should be more supportive of mandatory NFD than govern-
ments in countries where new requirements would force a large number of companies to prepare such reports
from scratch. Derived from KPMG (various years), the data show the proportion of the largest 100 largest com-
panies in each country that produced non-financial reports in 2013.
This correlation is the highest of any in Table 2, and it supports P5 and this paper’s argument about adjust-
ment costs. Denmark and France, the Directive’s two strongest supporters, have the highest reporting score while
Germany and Poland, the Directive’s two strongest opponents, have the lowest. The bivariate correlations suggest
that adjustment costs, particularly domestic regulation and reporting rates, were significant determinants of sup-
port for 2014/95/EU.
To develop this point, it is worth exploring whether domestic regulations increase CSR reporting rates. The
fact that the three countries with domestic NFD mandates – Denmark, France, and the UK – have the highest
100
80
60
40
20
0
2002 2005 2008 2011 2013
Germany UK Denmark France
Figure 1 Corporate social responsibility (CSR) reporting rates of 100 largest companies in France, Denmark, the United
Kindgom (UK) and Germany.
rates of non-financial reporting is suggestive, but data over time would be preferable. Figure 1 shows the CSR
reporting rates (as a proportion of the 100 largest companies) in the three supporter countries that introduced
domestic NFD mandates (Denmark, France, and the UK), as well as in Germany, a country that adhered to vol-
untarism, from 2002 through 2013.
The figure suggests that domestic NFD legislation significantly increases the share of large companies that
prepare CSR reports. In 2002, a larger proportion of the largest 100 companies in Germany prepared CSR reports
than in either France or Denmark. By 2011, Denmark, France, and the UK had introduced NFD mandates and
their CSR reporting rates had overtaken Germany by a substantial margin. Domestic NFD legislation is essential
for explaining these countries’ gains. To sum up, the evidence in this section provides strong support for adjust-
ment costs to regulation and some support for domestic politics. Next, we turn to VofC and domestic capitalism.
We begin with P6, which states that CMEs are more likely to provide support than LMEs. The association
between CMEs (coded as crisp [dummy] variables according to Hall and Soskice 2001), and government support
for 2014/95 is 0.005.46 The association for P7 between LMEs (coded as crisp [dummy] variables according to
Hall & Soskice 2001), and government support for 2014/95 is 0.06. There does not appear to be any association
between CMEs or LMEs as coded by the original version of VofC and political support for the Directive. Perhaps
this is not surprising.47
Before accepting the null hypothesis, I use Schneider and Paunescu’s (2012) revised and more fine-grained
coding, which uses more up-to-date data and allows for gradations of membership – hybrid and LME-like econo-
mies – between CMEs and LMEs. Coding the countries using categorizations from Schneider and Paunescu’s
(2012, p.740)’s most recent year generates the following results: the association between CMEs and support for
the Directive is −0.26, and the association between LMEs and support is 0.26. Although the association is not
strong, LMEs have a stronger affinity for corporate transparency laws than CMEs. This is an interesting and
potentially problematic finding for the EU, which has proclaimed support for the social market economy model
as well as mandatory NFD requirements. While this evidence does not show that CMEs and mandatory NFD are
incompatible, it does point to potential tensions.
Moving on to P8, there are many different types of SRIs. Drawing on Eurosif (2014b) data, I limit my analysis
to two well-developed SRI markets in the EU: CSR Integration – the integration of environmental, social, and
governance factors into investment markets – and then Norms-based Screening – which screens and potentially
excludes companies based on their adherence to CSR norms.
Although the correlation between SRI and government support varies significantly depending on the type of
SRI, and countries with deep SRI markets (such as Sweden) have not necessarily provided strong support, sup-
porter countries do tend to have deeper SRI markets than opponents. Germany, in particular, has undeveloped
SRI markets. Interestingly, although the results support P8, it does not appear that national SRI organizations in
supporter countries lobbied their governments to support the Directive (an important exception is Aviva Inves-
tors in the UK).
Well-developed stock markets are frequently considered to be a defining feature of LMEs, and the data pro-
vide a moderate level of support for P9, the proposition that the deeper a country’s capital markets, the greater
its support for the Directive. Opposing countries tend to have less well-developed capital markets than supporter
countries.
Finally, are countries with a disproportionately large number of SMEs especially likely to oppose the Direc-
tive, as stated by P10? I focus here on medium-sized enterprises, defined by the EU as firms with between 50 and
249 employees, because these so-called mid-caps are much more likely to be affected by mandatory NFD require-
ments in the near future than small or micro-enterprises.
There is a negative correlation between the share of medium-sized enterprises and government support – but
this relationship is driven by one outlier, Germany, and the correlation (of −0.37) disappears once Germany is
removed (it then becomes 0.00). Germany has by far the largest medium-sized enterprise sector, controlling for
the size of the economy. Perhaps we should take German officials’ claims at face value: the size and political clout
of Germany’s Mittelstand, along with the fact that Germany (unlike Denmark) had no existing NFD mandates, is
a major reason why Germany fought so hard to kill the EU NFD Directive. The adjustment costs for this sector
of German firms could be considerable if they are forced to prepare CSR reports, and unless these SMEs jump on
the CSR reporting bandwagon, their opposition may continue to shape the German governments’ position in the
foreseeable future. To sum up, in addition to adjustment costs, domestic politics and VofC are important to gain
a full understanding of the politics of upward regulatory harmonization.
7. Conclusions
This paper analyzes the negotiations over the EU’s sustainability reporting Directive 2014/95/EU. It uses multiple
methods – document analysis, elite interviews, and bivariate correlations – to answer two specific questions: What
are the prospects for upward regulatory harmonization? and Why do governments support or oppose more strin-
gent supranational regulation? The fact that the Commission’s proposal was watered down in the negotiations in
the Council, despite favorable circumstances, yields a general lesson: upward regulatory harmonization is difficult
because of the adjustment costs these regulations impose on the private sector. In areas that are more costly than
CSR reporting, the political obstacles to upward regulatory harmonization will be even greater than those docu-
mented in this paper.
The divergent positions taken by governments during the negotiations show the central importance of adjust-
ment costs for the politics of upward regulatory harmonization. Countries with existing domestic NFD regula-
tions, with high sustainability performance, or with a high proportion of companies already preparing CSR
reports tended to be supportive, whereas countries where the business community anticipated high adjustment
tended to be opposed. The fierce opposition that 2014/95/EU encountered in the Council reflects the large num-
ber of countries that anticipated significant adjustment costs (many of which were not included in this paper), as
well the existence of a large and powerful state (Germany) on the opposing side. I find that Germany’s hardline
opposition to the NFD Directive is partially attributable to the adjustment costs feared by its large SME sector.
The importance of adjustment costs is of course widely acknowledged in the political economy literature; this
paper reinforces this conventional wisdom and shows that it extends to domains of “new governance,” such as
corporate transparency and NFD mandates.
Domestic regulations helped to construct business support for upward regulatory harmonization. Three of the
five prominent supporting countries had domestic NFD mandates in place, and all of the countries that had these
mandates supported the Directive. Domestic regulation thus emerges as a sufficient condition for support for
upward regulatory harmonization. I have suggested that this legislation helped to construct a coalition of interest
groups who support, or at least tolerate, more stringent regulation. Business associations in Denmark, France,
and the UK initially resisted domestic NFD regulations, but once they were in place they became supportive of
upward regulatory harmonization at the supranational level. The upshot of this analysis is that domestic politics,
hard law, and adjustment costs are important for upward regulatory harmonization at the supranational/transna-
tional level.
While most governments aligned their positions with industry and business associations that sought to mini-
mize adjustment costs, this is not the whole story. With regard to the broader institutional framework and
debates over VofC, the evidence in this paper suggests that LMEs tend to support mandatory NFD whereas
CMEs tend to oppose these regulations. Along these lines, deeper capital markets and socially responsible inves-
tors are associated with government support for mandatory NFD. This paper contributes to the VofC literature
by suggesting that there are institutional complementarities between the LME variety of capitalism (and high
levels of market capitalization and SRI) and mandatory NFD.
My paper also underlines the importance of partisan politics even in areas of low salience. The Belgian gov-
ernment supported the Directive in spite of the opposition of Belgian business federations and the fact that the
EU NFD Directive will impose short-term costs on Belgian business. The Belgian minister responsible for the
NFD negotiations, Vande Lanotte, stated that the Directive “was not a very important topic … so I didn’t need to
convince so many people in the government and [I could] follow my own way” (13 March 2015, personal com-
munication). A growing body of recent literature (e.g. Culpepper 2011; Baeckgaard et al. 2015) has argued that
managers and business interest groups tend to prevail in low-salience realms of “quiet politics.” The negotiations
over 2014/95/EU show that business does not always win in conflicts of low political salience. Left wing or green
social democrats can support upward regulatory harmonization and NFD laws in the face of business opposition
and in spite of the low political salience of this issue area. To relate this discussion to the central argument of this
paper, the Belgian case suggests that partisan politics are an additional explanation where adjustment costs can-
not account for the outcome.48
This paper raises a number of additional questions for future research. Despite the overwhelming importance
of adjustment costs, the underlying reasons for business opposition are still unclear. Do many businesses oppose
mandatory NFD because of the administrative costs it imposes on firms? Or are they opposed because they worry
about the reputational costs of disclosing material they would rather hide? Scholars should take seriously the
claims of businesspeople that mandatory NFD could “cannibalize the business case” (Jackson 2014, p. 31) as CSR
“leaders would lose the reputational benefit of reporting” (Deegan & Shelly 2014, p. 516). Following the passage
of 2014/95/EU, researchers could conduct empirical research to answer these questions.
Now that 2014/95/EU has been transposed into national law across the EU, will business associations become
more accepting and supportive of regulations? The evidence is ambiguous so far. On the one hand, even after the
passage of 2014/95/EU, large EU businesses organizations continued to publicly express their opposition to this
Directive (Kinderman 2016), and fueled by business opposition, the vast majority of EU member states have
transposed the Directive in a minimalist way. On the other hand, the experiences in Denmark, France, and the
UK provide grounds for cautious optimism.
While the analysis covers the largest EU member states and the countries that were most influential in
the negotiations, it is legitimate to ask how reliable the findings are in view of the limited number of cases.
It would be fruitful to expand the analysis to all EU member states. Fuzzy set qualitative comparative analy-
sis could help to expose the multiple pathways that lead to government support and opposition for upward
regulatory harmonization. In addition, it would be fruitful to apply the arguments of this paper to other
empirical cases. We can expect to see similar patterns in other cases of upward regulatory harmonization in
the EU. If we expand our focus from multilevel governance to a domestic political economy context, we can
expect to see similar patterns when it comes to national level corporate transparency and mandatory disclo-
sure laws. Insights from this paper may also apply to due diligence and liability provisions, as listed by
Bueno (2018).
It remains to be seen whether the passage of 2014/95/EU will end up as “a paper tiger” (Spießhofer 2014,
p. 1281), “a hollow victory” (Mares 2018), or whether it will make a lasting and meaningful contribution to cor-
porate accountability across Europe and beyond. Further research is required to develop theoretically and empiri-
cally rigorous explanations of the politics of upward regulatory harmonization.
Acknowledgments
I am grateful to Matthew Dimick, Orfeo Fioretos, Philip Klages, Jette Steen Knudsen, David Monciardini,
Gerhard Schnyder, Nadine Zeibig, David Levi-Faur, and five anonymous reviewers for their comments on an
earlier draft of this paper. I am especially grateful to Jerôme Chaplier, without whom this paper would never have
been possible; and to countless interviewees for their invaluable insights into this subject matter. The responsibility
for errors is mine alone.
Notes
1 Sustainability reports are sometimes understood as a subset of non-financial or corporate social responsibility (CSR)
reports; at other times, these terms are used synonymously. The differences between these reports are not important for
my argument, so I use these terms interchangeably in this paper.
2 Management-based regulation is relevant here: What is the relationship between stakeholders, transparency, decisionmak-
ing, and outcomes? See Coglianese and Lazar (2003).
3 As opposed to EU Regulations, Directives leave a significant amount of leeway when it comes to transposing the legisla-
tion into national law. However, they raise the floor, and 2014/95/EU will lead to more stringent minimum standards
than had previously existed across the EU.
4 See the Appendix for a full list.
5 Interview 24 March 2016.
6 British Labour MEP Richard Howitt first proposed this policy in a 1999 European Parliament resolution.
7 2003/51/EC article 46 was amended, but left it up to managers to decide when non-financial reporting was appropriate,
which has had a negligible effect on the quantity and quality of non-financial reporting in the EU.
8 These exposed a deeply divided arena (see European Commission 2011a). While majorities of NGOs, users, and a large
majority of academics/individuals considered the prevalent voluntary NFD disclosure regime to be poor/very poor,
approximately four-fifths of companies/preparers, and an even higher proportion of public authorities/standard-setters
considered it to be sufficient.
9 An unpublished transcript of a meeting between Commissioner Barnier and several supporters of the NFD proposal
dated 8 November 2012 states “Commissioner Barnier doesn’t believe this [proposal] is too ambitious.”
10 This exemption does not (at least not explicitly) extend to reporting on risks.
13 Publicly listed companies, as well as non-listed banks and insurance companies.
14 I am referring here to the basic text of the Commission’s Directive and to a 1:1 transposition of that basic text into
national law in EU member states. Of course, the latter have the option of transposing the Directive in a more ambitious
way and with a more expansive scope, which has occurred in Denmark and Sweden.
15 Interview 18 March 2014. More recently, Chaplier has qualified this view by stating that: “It’s a mixed result. The hard-
fought compromise between [the] EP and [the] Council shows several improvements to the Commission proposal but
some Member States managed to insert or maintain some loopholes which we were firmly against, such as the reduced
scope, the safe harbor clause and the possibility to have the non-financial report disconnected from the financial report.
The most important for civil society – and a clear result of coordinated campaigning efforts – is that the general philoso-
phy remains good and the new rules are expected to embed the responsibility of companies to address the risks they pose
to society. Yet it can be feared that the loopholes and some elements which remain subject to interpretation will give
excessive flexibility to companies, and could be detrimental to the initial objectives.” As Georgopoulos, who negotiated
the Directive for the Greek Council presidency, recalls: the safe harbor clause was seen as particularly important for spe-
cial sectors such as military corporations, which exist in almost every member state (Interview 24 March 2016).
16 Gerasimos interview, 2016.
17 Waygood also convened the Corporate Sustainability Reporting Coalition, a coalition comprising investors, financial
institutions, professional bodies, and NGOs with US$2 trillion under management; and as a member of the EU’s experts
group on disclosure of non-financial information by companies, he pressured European policymakers in the run-up to
the Commission’s first announcement of NFD regulation (in the 2011–2014 renewed CSR strategy) and in the run-up to
the NFD proposal. Waygood also had regular discussions with the UK’s Department of Business, Innovation and Skills
during the negotiations.
18 Interview, 2014.
19 Interview 27 August 2014.
21 Interview 27 August 2014.
22 Regarding comply or explain and the safe harbor clause.
23 On comply or explain, it was requested that companies must provide a “clear and reasoned explanation” for not report-
ing; and that comply or explain remained limited to the disclosure of policies, and was not expanded to cover the disclo-
sure of risks. Concerning the safe harbor clause, as a result of ECCJ’s critiques, it was added that member states may
allow information not be disclosed in exceptional cases, “provided that such omission does not prevent a fair and bal-
anced understanding of the undertaking’s development, performance and position and of the impact of its activity.” I am
grateful to Jerôme Chaplier (personal communication, August 10, 2015) for these insights.
24 Interviews, 2014.
25 Chaplier interview, 18 March 2014.
26 Georgopoulos interview, 24 March 2016.
27 Interview, 2014.
28 A 2013 report suggested that the annual losses in tax income to the French state through transfer pricing and creative
accounting by multinational corporations exceeded 1 billion euros.
29 Interview, 2014.
30 Interview, 2014.

31 This does not mean that MEDEF supported every element of the French government position. They did not support
country-by-country reporting, for example.
32 Interviews, 8 April 2014, 20 July 2015.
33 Miller Interview, 2015.
34 Komninos interview, 18 March 2016.
35 EU member state governments frequently prepare position papers to articulate their positions to the Council presidency
and to other delegations in the negotiations. Although they are not written for public consumption, it is possible to access
them by contacting relevant government officials or Brussels insiders in the negotiations, as I have done.
36 CSR Europe’s Noterdaeme also read a draft of this paper and he did not see anything amiss. I am extremely grateful to
all for their feedback, advice, and insights, but wish to stress that I alone bear the responsibility for the accuracy of this
coding.
37 I did this by dividing each nation’s gross domestic product by the total gross domestic product of the 12 countries in the
year 2013.
38 Chaplier and Delaygues, who jointly coordinated and oversaw civil society organizations’ campaigns regarding 2014/95/
EU across Europe, coded the level of engagement of civil society organizations independently of each other and I took
the mean of both scores.
39 Which is not to say that civil society had no influence: it is possible that NGO pressure contributed to changing the Ger-
man government’s position in the negotiations from rejection to abstention.
40 Interview, 2014.
41 Anonymous interview, 2014.
42 It is also possible that the two months that elapsed between the formation of the new government and the final Trialogue
negotiations was insufficient for the new government to change the German government’s position in the negotiations.
43 My analysis suggests that disclosure requirements that are limited to state-owned companies do not result in private sec-
tor support for mandatory NFD.
44 See https://www.refinitiv.com/en/financial-data/company-data/esg-research-data Accessed on February 1st, 2019.
45 There is no consensus on just how costly as the estimates of the Commission and of CSR advocacy groups are far lower
than those of BusinessEurope and industry lobby organizations.
46 I have omitted these results from Table 2 due to space constraints.
47 While Hall and Soskice (2001, p. 52) do predict that governments’ “stance toward new regulatory initiatives will be influ-
enced by judgments about whether those initiatives are likely to sustain or undermine the comparative institutional
advantage of their nation’s economy,” nothing in their theory suggests that mandatory NFD would have any such impact
on the comparative advantages of these countries. As Fioretos (2009, p. 1175) pointed out, “states are expected to be more
concerned with how international rules affect core areas of their particular variety of capitalism … than with areas that
are not as integral to the sustainability of the institutional complementarities that are the core of what defines diverse
market economies.”
48 I am grateful to one of the reviewers for this point.
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APPENDIX
Author interviews
Chaplier, Jerôme: 18 March, 16 July, 18 August 2014.

German government official: 19 July 2014.
Georgopoulos, Gerasimos: 24 March 2016.
Komninos, Stefanos: 18 March 2016.
Miller, Ilaria: 8 April, 20 July 2014.
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Peetermans, Erik: 12 August 2014.
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Stormer, Susanne: 1 September 2014.
Waygood, Steve: 5 August 2014.

Table A1 Key differences between the Commission’s original proposal and the final compromise
Issue area Commission’s original proposal Final compromise
Scope Large listed and non-listed companies with Public interest entities with over 500 employees
over 500 employees
Form of the report The Commission proposed that the Companies may avoid including non-financial
(inside/outside non-financial statement should be part of the statement in their management (annual) report It
management reports) management (annual) report can be published separately and made available on
the internet within 6 months after the balance
sheet date
Materiality None Companies should provide information to the
extent necessary to understand the undertaking’s
development, performance, position, and impact of
its activity
Table A2 Propositions.
Domestic Politics
P1. Countries in which civil society organizations are engaged in public campaigning and in putting pressure on their
government will tend to be more supportive of upward regulatory harmonization than countries in which civil society
organizations are inactive.
P2. Countries in which left wing or social democratic governments are in power will tend to support upward regulatory
harmonization whereas countries in which right-wing or conservative governments are in power will tend to oppose upward
regulatory harmonization.
Adjustment Costs to Regulation
P3. Countries with domestic regulation in place will support upward regulatory harmonization at the
supranational/transnational level; countries without domestic regulation in place will oppose upward regulatory
harmonization at the supranational/transnational level.
P4. Countries in which leading firms have high CSR performance will tend to support upward regulatory harmonization;
countries in which leading firms have low levels of CSR performance will be more likely to oppose it.
P5. Countries in which a high proportion of large companies prepare non-financial or sustainability reports are more likely to
support mandatory NFD than countries in which a small proportion of large companies prepare non-financial or
sustainability reports.
Varieties of Capitalism and Domestic Capitalism
P6. Countries that are CMEs will tend to be more supportive of upward regulatory harmonization than countries that are
LMEs.
P7. Countries that are LMEs will tend to be more supportive of upward regulatory harmonization than countries that are
CMEs.
P8. The larger the size of a country’s SRI markets, the greater the likelihood that the government in question will support
upward regulatory harmonization.
P9. The deeper a country’s capital markets, the greater the likelihood that it will support upward regulatory harmonization.
P10. Countries with a disproportionately large number of medium-sized enterprises will tend to oppose the Directive.
CME, coordinated market economies; CSR, corporate social responsibility; LME, liberal market economies; NFD,
non-financial disclosure; SRI, socially responsible investment.

Table A3 Description of variables

Variable/indicator Source
Civil society pressure These scores were compiled by Yolaine Delaygues and Jerôme Chaplier, who were national
officers in the European Coalition for Corporate Justice at the time of the negotiations and who
jointly coordinated and oversaw civil society organizations’ campaigns regarding 2014/95/EU
across Europe. Delaygues and Chaplier coded the level of engagement of civil society
organizations independently of each other and I took the mean of both scores. The scores are
based on information such as the number of days devoted to advocacy and campaigning and the
number of meetings with government officials.
Left government Cabinet posts of social democratic and other left parties in percentage of total cabinet posts.
Weighted by the number of days in office in a given year. Source: Armingeon et al. 2017.
Domestic NFD mandate Indicates whether a domestic NFD mandate is in place for private sector companies. Source:
yes/no Author.
Asset4 overall CSR score Source: ThomsonReuters Asset4 CSR Database.
% Reporting The proportion of the 100 largest companies that produce CSR reports in a given country in a
given year. Source: KPMG. (The figure for Austria, [which is not covered in these reports], was
provided by Peter Ertl and Michaela Kegel, KPMG Austria, 14 August 2017)
CME fuzzy This indicator is constructed using Schneider and Paunescu’s coding of countries for their most
recent year, 2005 (2012, p. 740). CMEs are coded as 1, hybrid economies as 0.7, LME-like
economies as 0.4, and LMEs coded as 0.1.
LME crisp This indicator is 1 if a country is coded as an LME by Schneider and Paunescu (2012, p. 740), and
a 0 if it is not.
LME fuzzy This indicator is 1 if a country is coded as an LME by Schneider and Paunescu (2012, p. 740), 0.7
if it is coded as LME-like, 0.4 if it is coded as a hybrid economy, and 0.1 if it is coded as a CME.
SRI norms-based This indicator) measures the size of countries’ markets for socially responsible investments that
screening use norms-based screening. Source: Eurosif 2014b.
SRI exclusion This indicator measures the size of countries’ SRI markets that remove irresponsible or
investments underperforming companies from the investment portfolio. Source: Eurosif 2014b.
Market capitalization This indicator measures the total value of all listed shares in a stock market as a percentage of
GDP in the year 2012. Source: World Bank (https://data.worldbank.org).
Share of SMEs Share of medium-sized enterprises as defined by the EU as companies with between 50 and
249 employees. Source: SBA Fact Sheet, European Commission 2013.
CME, coordinated market economies; CSR, corporate social responsibility; EU, European Union; LME, liberal market econo-
mies; NFD, non-financial disclosure; SMEs, small and medium-sized enterprises; SRI, socially responsible investment.

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Regulation & Governance (2020) 14, 674–697 doi:10.1111/rego.

The challenges of upward regulatory harmonization:

1.1. Overview of the paper

2. The historical backdrop and the dynamics of the negotiations

3. The positions of interest groups at the European Union level

© 2019 John Wiley & Sons Australia, Ltd 681

6. Toward a more systematic analysis: Bivariate correlations

Table 1 Countries’ positions in the negotiations over the NFD directive

© 2019 John Wiley & Sons Australia, Ltd

692 © 2019 John Wiley & Sons Australia, Ltd

BusinessEurope (2013). Position Paper: Disclosure of Non-Financial Information. Brussels. 5 July.

Chaplier, Jerôme: 18 March, 16 July, 18 August 2014.

© 2019 John Wiley & Sons Australia, Ltd 695

696 © 2019 John Wiley & Sons Australia, Ltd

Table A3 Description of variables

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