EU Transparency Directive outlines new extractives and logging company reporting standards

Country-by-country reporting will encourage accountability and governance of natural resources, says EU.

European companies in the extractives and logging industries will be obliged to report every year on payments made to governments in countries where they operate under a European Union Directive to introduce country-by-country reporting (CBCR). The proposal, outlined in the EU’s Transparency Directive announced yesterday, would bring Europe into line with the US Dodd-Frank Act, which will require oil, gas and mining companies registered with the Securities and Exchange Commission (SEC) to publicly report payments to governments on a country- and project-specific basis. The SEC’s rules are scheduled for adoption by the end of 2011. Transparency campaigners argue that aggregated global figures in existing company reports do not give a true picture of economic performance. They say that country-by-country figures would also clamp down on corruption, bribery and tax evasion, notably in developing countries. Under the EU Directive, which will now be passed to the European Parliament and the EU’s Council of Ministers for adoption, CBCR will require multinationals to disclose financial informationsuch as production shares with governments, bonuses, royalties, and taxes for each country they operate in. The EU said the information would have to be produced within six months of the end of each financial year and would remain public for at least five years. The payments to governments, it said, would be reported at the consolidated group level. The market value of extractive industry companies listed in EU-stock exchanges is more than €2 trillion and they make up a large part of investor portfolios. The EU said payments made by the extractive industry and loggers of primary forests could represent a significant proportion of some country’s revenues, especially those rich in natural resources. It said the Transparency Directive would help “make governments accountable for the use of these resources and promote good governance.” A group of 21 institutional investors representing over €2.1 trillion recently backed the EU’s CBCR plans. The investors belong to the Extractives Industry Transparency Initiative, which has been lobbying companies for several years to adopt voluntary disclosure on the lines of CBCR.