New EU proposals on non-financial reporting

Corporate responsibility (CR) reporting is now firmly on most corporate agendas with 95% of the 250 largest companies in the world reporting on their CR activities.

However, despite promising statistics such as these – not to mention the increasing proliferation of CR standards and non-financial reporting guidelines – the European Commission estimates that only a fraction of Europe’s largest companies formally disclose non-financial information on a regular basis. As a result, the Commission set out proposals earlier this month to amend the existing EU accounting legislation relating to social and environmental disclosures by large firms.

The proposals would require companies with 500 or more employees to disclose information on the environmental and social relevant to their businesses, and what the steps they are taking to mitigate those risks. Specifically, companies would be required to report on carbon emissions, human rights, anti-corruption and bribery issues, and boardroom diversity. If a company chose not to report on a particular topic, it would have to adopt a ‘comply or explain’ approach—setting out the reasons why the issue in question was not relevant to its business operations.

Whilst this ‘comply or explain’ approach is positive—as it allows companies some flexibility in determining what is material to its operations and the needs of its stakeholders—we are concerned by the increasingly prescriptive reporting requirements in the proposals.

European policymakers must take care to avoid the proposals setting a precedent for an ever-growing laundry-list of specific reporting requirements. Such moves could have the unintended consequence of pushing companies towards a box-ticking approach to disclosure, which would ultimately be a step backwards for corporate transparency and sustainability reporting.

At ICC UK we are closely tracking developments at EU level, and trying to bring clarity to the slightly vexed question of how new EU disclosure rules might intersect with the UK’s own incoming narrative reporting regime. Should any more information on this work be of interest, please contact Emilie Boman (eboman@international-chamber.co.uk).

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