European Union authorities yesterday (February 26) reached agreement on corporate disclosure of non-financial information – key human rights and environmental issues, including within the supply chain – after a tortuous process through the EU legislative mechanism.
The new rules will apply to large public-interest entities (mainly listed companies and financial institutions) with more than 500 employees. This will also include some non-listed companies, such as banks, insurance companies, and other companies that are so designated due to their size. The scope includes around 6,000 large companies.
It will involve amending existing accounting legislation and means companies will have 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.
The decision has been endorsed by the member state-level ‘Coreper’ (Committee of Permanent Representatives) body in Brussels and follows a period of wrangling during which some observers had feared the reform would not pass. Richard Howitt, the European Parliament’s spokesman on Corporate Social Responsibility, had blasted those resistant to the measure as “dinosaurs”.
Aviva Investors – the UK-based funds house which in 2011 convened the investor-led Corporate Sustainability Reporting Coalition – called the decision “game-changing” as it will drastically increase the amount of information available about the sustainability of a company’s operations.Campaign group the European Campaign for Corporate Justice (ECCJ) said it was “an important step forward as it means citizens and investors will have access to meaningful information from companies – rather than the selective and often misleading data currently provided”.
But it was unhappy that original proposals to extend the law to all large companies were blocked by some national governments – and that what it said were ‘loopholes’ had been inserted which could be used to limit what companies report.
“Companies, investors and society at large will benefit from increased transparency. This is important for Europe’s competitiveness and the creation of more jobs,” said Michel Barnier, Commissioner for the Internal Market and Services who had proposed the measure as part of a larger EU response to the financial crisis. It had been shepherded through the Parliament by Italian MEP Raffaele Baldassarre.
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.
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.
The proposal now needs to be adopted jointly by the Parliament and by the EU Member States in the Council. It is expected that the European Parliament will vote this legislation in plenary in April, while the Council will formally adopt it subsequently. Link