EU Parliament adopts ESG disclosure Directive for large companies and groups

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16 Apr, 2014

Members of the European Parliament have adopted the Directive on disclosure of non-financial and diversity information by large companies and groups. The objective of the Directive “is to increase EU companies’ transparency and performance on environmental and social matters and, therefore, to contribute effectively to long-term economic growth and employment”.

The EU Commission proposed amendments in this area in April 2013.  These were subsequently approved by the Legal Affairs Committee (JURI) of the European Parliament in December 2013.­ 

The new Directive, which amends the Accounting Directive (Directive 2013/34/EU), applies to large public-interest entities with more than 500 employees.  Public-interest entities include listed companies as well as some unlisted companies, such as banks, insurance companies and other companies that are so designated by Member States because of their activities, size or number of employees. 

Such companies will be required to disclose information in their annual reports on environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters.  The disclosure will need to include a description of the policy pursued by the company related to these matters, the results of these policies and the risks related to these matters and how the company manages those risks.  

The European Commission highlight: 

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.  Furthermore, disclosures may be provided at group level, rather than by each affiliate within the group. 

The European Commission clarify that “this Directive does not require companies to comply with Integrated Reporting”.  The requirements in the Directive also need not be applied where a company already includes in its annual report a comprehensive report relying on prescribed frameworks (such as the UN Global Compact, ISO 26000, the German Sustainability Code, or GRI guidelines) covering the information required.

The new rules complement the narrative reporting regulations in the UK which apply for periods ending on or after 30 September 2013.  Through complying with the narrative reporting regulations UK quoted companies will already be disclosing specific information on the company’s strategy, business model, human rights and gender diversity in their strategic report and disclosing information on greenhouse gas emissions in their Directors’ report.  The new Directive will extend the level of disclosures required on diversity (for example policies on age, gender, educational and professional background and professional background) and will specifically require reporting on bribery and corruption matters for the first time.

The Financial Reporting Council comment:

The approval by the European Parliament of the new non-financial disclosure requirements for EU companies is a positive move for investors and complements the FRC’s work on UK Guidance on the Strategic Report.

The Department for Business, Innovation and Skills (BIS) provide further support for the Directive commenting that it strikes “the right balance between ensuring companies report useful information whilst avoiding imposing unnecessary burdens on business”. 

The rules must still be formally adopted by the Council of Ministers which the European Commission expects to happen “in the coming weeks”.  BIS indicate that the rules will likely be brought into force in the UK by 2016. 

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