EU mandatory CR reporting; a 5min guide!

As was widely anticipated the European Commission announced today, via Michel Barnier (MEP), concrete measures to amend the existing Accounting Directives and introduce a fresh Directive mandating the disclosure of non-financial and diversity information by listed and unlisted companies.

Who’s affected?
Current EU research puts the percentage of large companies regularly reporting on non-financial aspects within Europe at 10% (2,500). The proposed legislation will affect all companies with over 500 employees in the EU. That is around 18,000 companies or an increase of around 600%. It will therefore have a wide impact on trans-national corporations operating across Europe.

When will this come into force?
Don’t panic! This is still a proposal but one with staying power. Legislation is unlikely to be activated until 2015 and will only become law, as usual, via national legislation. The first reports needing to comply with the legislation would probably be 2017.

What will be required?
Details are still sketchy; with the emphasis on flexibility of approach. The EU wishes to underpin countries with strong existing responsibility reporting requirements – Barnier mentions Netherlands, Denmark and France – while creating a level playing field across the whole EU. There is also recognition that existing norms would be referenced – again Barnier specifically mentioned UNGC, ISO26000 and the German Federal Sustainable Development Code.

Will it be ‘comply or explain’ legislation?
This legislative approach is widely used by territories already requiring the disclosure of non-financial information, e.g Denmark and India. The Commission seems at pains to distinguish its approach from ‘comply or explain’ while also referencing it. What this means will become clear over time but materiality and avoiding box-ticking are likely to be central to the EU expressed desire to limit administrative burden.

Which issues are covered?
“Companies concerned will be required to disclose in their annual reports relevant and material information on policies, results and risks concerning environmental aspects, social and employee related matters, respect for human rights, anti-corruption and bribery issues, and diversity on the boards of directors”. In his press conference, Michel Barnier (MEP) also specifically referenced diversity of staff, in terms of gender and age-structures, as important elements.

So is integrated reporting being discussed?
The EU makes positive noises about the International Integrated Reporting Council but sees this as a step ahead of this legislation. The use of the plural “annual reports” suggests that CR reports are still considered to be an important vehicle for compliance with new legislation.

Corporate Citizenship will be keeping a close watching brief on the legislation’s successive stages and will report on any new developments.