Proportionality in the Application of Mandatory and Voluntary Controls: A Way to Ensure Sustainability and Wellbeing

Dear Colleagues,

Proportionality is a fundamental principle of the mandatory and/or voluntary controls for ensuring the sustainability of the world economy and social wellbeing and a key constituent of arriving at any identified objectives. The intention of proportionality is to allow national supervisory authorities (NSAs) and organizations, whether they are public or private, to apply a proportionate application of requirements imposed by mandatory regulations and other soft law or controls, relating them to the scale, nature and complexity of their activity, as well as the social needs, environmental needs and economic requirements. This ensures a balance between the three P’s of sustainability—the planet, the people, and profits.

However, in practice, this principle is not always applied by controllers, mostly due to noise by disruptions, politics, greed, culture, hubris, etc., and there is a need for clarification, objectivity, and consistency in its application, so as to avoid unnecessary costs, which, in turn, will be passed on to the customers and avoid creating barriers for smaller undertakings, which will be driven out of business due to excessive requirements in relation to their business activity. Therefore, a rebalancing of the pillars of sustainability is required to ensure that the controllers are applying requirements in a proportionate way.

Proportionality is a fundamental principle (POP) of the European Union (EU) Regulations, which is provided in the Treaty of the European Union, Article 5(4), 2007. In fact, in Articles 3b, 1, and 4 of the EU Lisbon Treaty, 2007, it is explained that “the use of Union competences is governed by the POP” in terms of “the content and form of Union action shall not exceed what is necessary to achieve the objectives of the Treaties” and that “the institutions of the Union shall apply the principle of proportionality as laid down in the Protocol on the application of the principles of subsidiarity and proportionality”. However, this principle is open to subjectivity in the interpretation of what is considered proportional. The various controllers might provide their experience, knowledge, biases, and political pressures and interpret things differently, creating confusion about what is correct. On the one hand, objectivity in controls might create a position of over controlling and micromanaging, and, on the other hand, might be what is required for ensuring the standardization of interpretation and ensuring the wellbeing of everyone. However, the question here is—does a one size fits all approach really ensure sustainability and wellbeing or does it result in increased perfunctory obligations, which will ultimately result in no benefit except that of further blurring of the true objectives and increasing the burden of compliance, creating unnecessary jobs and increasing the potential of  fraud and corruption.

The application of the “rule of common sense” principle, wherein an administrative authority will have to use their experience and expertise to determine what needs to be done to measure an organization’s or country’s risk, can be very subjective.

No matter what action is taken, the measuring of uncertain future events and modelling risks and their respective controls will never be perfect and have a certain degree of inaccuracy and bias. However, it is important to determine and measure the model error and assumptions that may result from any valuation technique.

This Special Issue aims to collect recent results in the research area of proportionality in controlling and risk management and the tools and functions available for making sustainable decisions. We invite papers presenting original research, case studies, literature reviews, and commentaries on related topics, including, but not limited to, the following:

• Should the POP be based on the relevant risk, activity, people, culture or product and not the overall size of the company/group? That is, should the POP be applied at an individual level and not generalized for the whole world or region?
• Is there a need for a non-exhaustive list of predefined specific simplified measures, waivers, and guidelines (a proportionality toolbox with objective criteria for the automatic application of the POP) and ensure consistency in its application?
• Can control functions, such as the internal audit, the risk management, the regulatory, the forensic, the enforcement, and the compliance, help create a balanced and proportionate function?
• What is the function carried out by the internal audit, the risk management, the regulatory, the forensic, the enforcement, and the compliance in ensuring sustainability and wellbeing?
• What is the consequence of over-regulating or under-regulating?
• Do we really have control, since there are no angels in this world, and until angels govern do we need to have controls?
• Are controls reaching their goals or increasing the risks of social-washing and green-washing?
• Should the application of proportionality be simple and automated, so that organizations are not compromised or discouraged by costs and would make it easier to fulfil the requirement itself?

Prof. Dr. Simon Grima
Prof. Dr. Inna Romānova
Dr. Kiran Sood
Dr. Amit Mittal
Guest Editors

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• proportionality
• overregulation
• underregulation
• internal controls
• internal audit policies
• soft law
• forensic science and related policies
• risk management policies
• policies
• procedures
• social and green washing
• hush washing
• proportionate enforcement
• national regulatory authorities