By G&A Institute
In April, the European Commission (EC) acted on a proposal calling for new rules – officially, to implement, for a Directive of the European Parliament and of the Council to mandate disclosure of non-financial information and diversity information by large companies (500+employees).
The proposal (prepared by a working group) calls for mandating publication of non-financial information to be included in annual and consolidated financial statements and related reports.
The effect: Large companies in the EU will have to also include [non-financial] information related to environmental and employee matters.
These amended rules are seen as an opportunity to enhance corporate transparency of “S” and “E” information (to be provided by all large companies /all sectors) which in concept would level the playing field for such information disclosed by EU companies across the EU (in member states).
Think of this as “impact on society” reporting, the mandating of expanded disclosure intended to help companies better manage non-financial risks and opportunities. Civil society players could then use the information to assess the impacts of the operation of corporations.
The proposal for the changes that were adopted in April noted that not all EU companies are now reporting on ESG performance, and that existing (and credible) global frameworks — such as the GRI — are readily available for corporate non-financial reporting. (The group’s finding was that only 2,500 of 42,000 EU large companies are reporting non-financial information on an annual basis, and that the quality of information disclosed does not meet the need of report users.)
Some of the EU member states have had “report or explain” models; there are other states pointing companies toward global (accepted) reporting frameworks but not having requirements to report. Some European countries have required state-owned enterprise to report. The “level playing field” would come with all EU member states requiring uniform reporting under a Europe-wide process. The advantages: Companies operating in more than one member state should be able to publish one report which would apply across the union (the “Single Market”).
Addressing corporate governance, the working group observed that there is insufficient board diversity – which results in “group think,” as the proposal notes, not good for the company or society in the view of the authors. Companies with “insufficient board diversity and lack of transparency” can be “less well managed, less inclusive, less innovative, and contribute less to growth…”
The Commission in effect approved amendments existing Articles and Directives previously adopted by the EC governing bodies to create new rulesof-the-road for disclosure by large corporations (500+employees). More information is available online: http://eur-lex.europa.eu/
Why You Should Stay Tuned
Decisions made in Europe regarding mandating ESG reporting are sure to reverberate in other capital markets – yes, including the U.S.A. corporate and investing communities. This action by the EU should be a force in moving large companies toward integrated reporting not only in the EU states – but beyond.
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