Large European companies will be required to disclose environmental, social and governance information as part of their annual reporting under a proposal adopted by the European Commission.
Companies with more than 500 employees will use a report or explain approach to provide information on strategy, results and risks in six areas – environmental, social and employee-related matters, human rights, anti-corruption and bribery. Additionally, large listed companies will be required to provide information on their diversity policy, covering age, gender, geographical diversity, and educational and professional background. Disclosures would set out the objectives of the policy, how it has been implemented, and results. Companies which do not have a diversity policy would have to explain why not.
“Today we are proposing important legislation on business transparency across all sectors,” said Internal Market and Services Commissioner Michel Barnier in a statement. “This is about providing useful information for companies, investors and society at large – much demanded by the investor community. Companies that already publish information on their financial and non-financial performances take a longer term perspective in their decision-making. They have lower financing costs, attract and retain talented employees, and ultimately are more successful. This is important for Europe’s competitiveness and the creation of more jobs. Best practices should become the norm. The new rules will only apply to large companies with more than 500 employees as the costs for requiring small and medium-sized enterprises (SMEs) to apply the new rules could outweigh the benefits.”
According to the proposal adopted by the European Commission, companies are not required to write a fully-fledged or detailed sustainability report, although companies that do so are considered to meet the new standard. The new directive, which amends existing accounting legislation in the Fourth Company Law Directive, allows flexibility in the way companies disclose this information – companies are permitted to use the international or national guidelines which they deem appropriate – UN Global Compact, ISO 26000, or the German Sustainability Code, or the Global Reporting Initiative.
Currently, fewer than 10% of the largest EU companies regularly disclose the ESG information stipulated in the new directive, according to the European Commission. Members states of the European Union have introduced disclosure requirements which go beyond the standards in the Fourth Company Law Directive – the European Commission cites standards in the UK, Sweden, Spain, Denmark and France that have either been adopted or updated.
“This proposal could be the vital catalyst that is needed to usher in a new era of transparency in the largest economic region in the world,” said Teresa Fogelberg, deputy chief executive of the Global Reporting Initiative. “In recent years countries like India, China, Brazil, South Africa and the US have pioneered a number of innovative policies on sustainability disclosure. This proposal is an opportunity for the EU to position itself at the forefront of best practice and regain its global leadership.”
Source: Thesustainabilityreport.com.au
