DRAFT European Commission proposal for a Directive on non ...

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European Commission proposal for a Directive on non–financial information disclosure On 16 April 2013, the European Commission adopted a proposal for a Directive1 – presented by European Commissioner for Internal Market and Services Michel Barnier – to enhance the transparency of certain large companies on social and environmental matters. The proposed Directive amends Directives 78/660/EC2 and 83/349/EEC3, known as the Accounting Directives, which deal with the preparation of annual and consolidated financial statements. This legislative initiative is part of the wider EU strategy on CSR and was announced in the 2011 Single Market Act4 and the 2011-2014 Renewed strategy for Corporate Social Responsibility.5 It follows the European Parliament’s resolutions on CSR6 adopted in February 2013. The rationale behind the proposal is that current legislation (the Accounting Directives), which require companies to disclose certain information on environmental, social and other aspects of their activities where appropriate, has not proved effective. Currently, fewer than 10% of the largest EU companies disclose such information regularly. The objective of the new proposal is to increase the transparency and improve the performance of European companies on environmental and social matters, thereby contributing to long-term economic growth and employment. Specifically, the European Commission aims to increase the quantity of reporters and the quality of the information disclosed, and to enhance diversity in the boardroom. According to the provisions, all large companies in the EU (more than 500 employees, €20 million balance sheet, or €40 million net turnover) will have to disclose information on (a) policies, (b) risks and (c) results regarding: • • • • •

environmental matters social and employee-related aspects respect for human rights anti-corruption and bribery issues diversity on boards of directors7

The proposed measure has a non-prescriptive nature and adopts an approach in line with a ‘Report or Explain’ policy, leaving significant flexibility for companies to disclose relevant information in the way Proposal for a Directive of the European Parliament and of the Council amending Council Directives 78/660/EEC and 83/349/EEC as regards disclosure of non-financial and diversity information by certain large companies and groups [COM(2013) 207]. 1

4th Council Directive of 25 July 1978 on the annual accounts of certain types of companies. 7th Council Directive of 13 June 1983 on consolidated accounts. 4 Communication From The Commission To The European Parliament, The Council, The Economic And Social Committee And The Committee Of The Regions Single Market Act Twelve levers to boost growth and strengthen confidence "Working together to create new growth" [COM(2011)206] http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0206:FIN:EN:PDF 2 3

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committees and the Committee of the Regions - A renewed EU strategy 2011-14 for Corporate Social Responsibility. http://eurlex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0681:FIN:EN:PDF. 6 European Parliament resolution of 6 February 2013 on corporate social responsibility: accountable, transparent and responsible business behaviour and sustainable growth (2012/2098(INI)) and European Parliament resolution of 6 February 2013 on Corporate Social Responsibility: promoting society's interests and a route to sustainable and inclusive recovery (2012/2097(INI)). 7 This requirement only applies to large listed companies. 5

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that they consider most useful. To report, companies are encouraged to use recognized international or national guidance and frameworks such as the UNGC Principles8, the UN Guiding Principles on Business and Human Rights,9the OECD Guidelines for Multinational Enterprises10, ISO 2600011, the ILO Tripartite Declaration of principles concerning multinational enterprises and social policy12, and the Global Reporting Initiative Framework13. The approach ensures administrative burdens are kept to a minimum. The requirements would target around 18.000 large EU companies, while small to medium-sized businesses would be exempt. Additionally, companies which, as part of the annual report, prepare a comprehensive report in the same financial year covering the outlined topics, and relying on the recognized frameworks above, are also exempt from the requirements. The proposal is now being considered by the European Parliament, Council and Member States, which will need to agree upon the final text of the Directive. Once agreed, the new law will amend the 4th and 7th Accounting Directives. Coincidently, as the latter Directive is soon to be repealed and replaced by a brand new Accounting Directive, the legal references will automatically be amended to refer to this ‘new’ Accounting Directive. This proposed Directive, if adopted, would provide a level playing field for those companies that are already reporting, while incentivizing more to embark on their sustainability reporting journey.

This document is part of a series of pagers on topics related to Sustainability Reporting and should be read in conjunction with the Global Reporting Initiative (GRI) non-paper on the Renewed EU Strategy 2011–2014 for Corporate Social Responsibility (CSR) and the European Commission’s proposal for a Directive on non-financial information disclosure available at: www.globalreporting.org/resourcelibrary/GRI-non-paper-Report-or-Explain.pdf GRI contact person Pietro Bertazzi - Senior Manager Policy and Government Affairs +31 (0)20 531 00 64 [email protected]

UNGC 10 Principes : www.unglobalcompact.org/AboutTheGC/TheTenPrinciples/index.html United Nations, Guiding Principles on Business and Human Rights, Implementing the United Nations “Protect, Respect and Remedy” Framework, 2011. www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf. 8 9

Organisation for Economic Co-operation and Development (OECD), Guidelines for Multinational Enterprises, 2011 www.oecd.org/daf/inv/mne/oecdguidelinesformultinationalenterprises.htm. 11 International Organization for Standardization (ISO), International Standard for social responsibility (ISO 26000), www.iso.org/iso/home/standards/iso26000.htm, accessed on 3 April 2013. 12 International Labour Organization (ILO), Tripartite Declaration of principles concerning multinational enterprises and social policy, 2006. www.ilo.org/empent/Publications/WCMS_094386/lang--en/index.htm. 13 The Global Reporting Initiative (GRI), the Sustainability Reporting Framework. www.globalreporting.org/information/about-gri/whatis-GRI/Pages/default.aspx. 10

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The Global Reporting Initiative (GRI) promotes the use of sustainability reporting as a way for organizations to become more sustainable and contribute to a sustainable global economy. GRI’s mission is to make sustainability reporting standard practice. To enable all companies and organizations to report their economic, environmental, social and governance performance, GRI produces free Sustainability Reporting Guidelines. GRI is an international not-for-profit organization, with a network-based structure. Its activity involves thousands of professionals and organizations from many sectors, constituencies and regions.

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www.globalreporting.org