WIREDGOV

The European Parliament and the Council have reached agreement on an amendment to existing accounting legislation to improve the transparency of certain large companies on social, environmental and diversity matters. This agreement was endorsed by Coreper. Companies concerned will need to disclose information on policies, risks and results as regards environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues, and diversity on boards of directors.

"Europe needs modern and useful rules on transparency of non-financial information by certain large companies. I am glad to see that the European Parliament and the Council agree and support the Commission as regards the objective of this proposal", said Michel Barnier, Commissioner for the Internal Market and Services. "I want to thank the Members of the European Parliament, particularly its rapporteur, Raffaele Baldassarre, and the shadow-rapporteurs, as well as the Greek and Lithuanian Presidencies for their support. Companies, investors and society at large will benefit from increased transparency. This is important for Europe’s competitiveness and the creation of more jobs. The new rules will only apply to some large companies with more than 500 employees, as the costs for requiring small and medium-sized enterprises (SMEs) to apply them could outweigh the benefits. While I am happy that the Commission has to report back on country-by-country reporting on tax matters by 2018, I am sorry that the spirit of the European Council conclusions will not be taken forward as quickly as I had hoped. I hope that the next Commission might see its way to accelerating this issue.”

Large public-interest entities (mainly listed companies and financial institutions) with more than 500 employees will be required to disclose relevant and useful environmental and social information in their management reports. This includes listed companies as well as some unlisted companies, such as banks, insurance companies, and other companies that are so designated by Member States because of their activities, size or number of employees. The scope includes approx. 6 000 large companies and groups across the EU. The approach taken ensures that administrative burden is kept to a minimum. Companies will be required to disclose concise, useful information necessary for an understanding of their development, performance, position and impact of their activity, rather than a fully-fledged and detailed report. Furthermore, disclosures may be provided at group level, rather than by each individual affiliate within a group.

The draft Directive has been designed with a non-prescriptive mind-set, and leaves significant flexibility for companies to disclose relevant information in the way that they consider most useful, or in a separate report. Companies may use international, European or national guidelines which they consider appropriate (for instance, the UN Global Compact, ISO 26000, or the German Sustainability Code).

The draft Directive provides for further work by the Commission to develop guidelines in order to facilitate the disclosure of non-financial information by companies, taking into account current best practice, international developments and related EU initiatives.

As regards diversity on company boards, large listed companies will be required to provide information on their diversity policy, such as, for instance: age, gender, educational and professional background. Disclosures will set out the objectives of the policy, how it has been implemented, and the results. Companies which do not have a diversity policy will have to explain why not. This approach is in line with the general EU corporate governance framework.

This draft Directive represents a first step towards the implementation of the European Council conclusions of 22 May 2013 on the need for further transparency on tax matters and for ensuring country-by-country reporting by large companies and groups. The Commission supports this objective and will endeavour to deliver effectively on the review clause included in this legislation.

Next steps: In order to become law, the Commission's proposal needs to be adopted jointly by the European Parliament and by the EU Member States in the Council (which votes by qualified majority). It is expected that the European Parliament will vote this legislation in plenary in April, while the Council will formally adopt it subsequently.

Background

On 16 April 2013, the Commission adopted a proposal to enhance business transparency on social and environmental matters (IP/13/330).

This measure was announced by the Commission in the Single Market Act communication in April 2011 (IP/11/469), in the communication "A renewed strategy 2011–2014 for Corporate Social Responsibility" issued in October 2011 (IP/11/1238), and in the Action Plan for Company Law and Corporate Governance, adopted in December 2012 (IP/12/1340).

On 6 February 2013, the European Parliament adopted two resolutions (“Corporate Social Responsibility: accountable, transparent and responsible business behaviour and sustainable growth” and “Corporate Social Responsibility: promoting society’s interests and a route to sustainable and inclusive recovery”), acknowledging the importance of company transparency on environmental and social matters.

Current EU legislation, in particular Directive 2013/34/EU on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, addresses the disclosure of non-financial information in a way that companies may make public certain information on environmental, social and other aspects of their activities. However, the requirements of the existing legislation have proved to be unclear and ineffective, and are applied in different ways in different Member States. Currently, fewer than 10% of the largest EU companies disclose such information regularly. Over time, some Member States have introduced disclosure requirements that go beyond the Directive. For instance: the UK introduced legislation in 2006 and updated it in 2013; Sweden adopted legislation in 2007; Spain in 2011; Denmark amended its legislation the same year and France in 2012.

Costs associated with the required disclosures for large companies are commensurate with the value and usefulness of the information, and with the size and complexity of their business.

More information:

http://ec.europa.eu/internal_market/accounting/non-financial_reporting/index_en.htm