By Paul Davies and Alice Gunn
The European Commission is currently consulting on how large public-interest entities should disclose environmental and other non-financial information, as required by Directive 2014/95/EU Corporate Social Responsibility (CSR) Directive.
The obligation to disclose a non-financial statement applies to large undertakings which are public-interest entities and have over 500 employees. Public-interest entities means listed companies, credit institutions, insurance companies and companies that are designated public-interest companies by Member States, such as entities that are of significant public relevance because of the nature of their business, their size or the number of their employees.
A non-financial statement must contain the following information:
- Details of the current and foreseeable environmental impact of the company’s operations, and, as appropriate, details relating to health and safety, the use of renewable and/or non-renewable energy, greenhouse gas emissions, water use and air pollution.
- Actions taken by the public-interest entity to ensure gender equality and successful implementation of fundamental conventions of the International Labour Organisation, which includes: working conditions, social dialogue, respect for the right of workers to be informed and consulted, trade union rights, health and safety at work and the development and protection of local communities.
- Processes in place to prevent human rights abuses and practices which exist to fight corruption and bribery.
The CSR Directive was adopted in November 2014 as part of the Commission’s drive to improve corporate governance in Europe. Member states have two years to transpose the CSR Directive into national legislation, with reporting set to start in the financial year of 2017. Under the CSR Directive, the Commission is required to publish guidelines by 6 December 2016, instructing firms on reporting requirements and compliance with the directive.
Increased Disclosure to Attract Investment
Investors are increasingly interested in non-financial information in order to better understand a company’s position and performance, and to factor this data into investment decisions. The CSR Directive is non-prescriptive, which allows public-interest entities to rely on national frameworks, union-based frameworks, such as the Eco-Management and Audit Scheme (EMAS), or international frameworks, such as the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises. The Commission’s anticipated guidelines will improve the consistency and comparability of such information.
The consultation will close on 16 April and invite stakeholders to provide feedback on the proposed guidelines including:
- Whether guidelines should set out general principles or detailed solutions.
- How certain disclosures should be treated in the guidelines, such as the business model, due diligence process, business relationships and principal risks.
- The approach to disclosure of key performance indicators.
- Whether specific sectoral issues, such as supply chain management, should be included.
- How the guidelines should interact with existing national, European and international frameworks. For example, the UK Modern Slavery Act 2015 requires large businesses to issue an annual public statement in relation to the action they have taken to ensure that their business and supply chains are slavery free, for financial years ending on or after 31 March 2016.
It is estimated that the CSR Directive will affect 6,000 large companies and groups across the EU. According to the Commission, companies, investors and the society at large will benefit from increased transparency and stronger long-term performance. In addition, the CSR Directive will boost Europe’s long-term competitiveness as well as job creation.
The consultation document and response questionnaire are available on the Commission website.
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