Transparency leads to better performance - New EU directive for non-financial disclosure

European UnionOn April 15th, 2014 the European Parliament adopted the Directive on disclosure of non-financial and diversity information by large companies and groups. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 2016. First reports in accordance with these requirements will be issued in 2017. Approximately 6 000 large companies and groups across the EU will be affected by the new directive on non-financial reporting.

The directive accompanies  "A renewed strategy 2011–2014 for Corporate Social Responsibility" issued in October 2011 and in the Action Plan for Company Law and Corporate Governance adopted in December 2012. It will apply to large public-interest entities, like listed companies and banks, insurance companies with more than 500 employees exceeding either a balance sheet total of 20 million euros or a net turnover of 40 million euros.

Among the information companies will be required to disclose in their annual management report is

  • information on policies, risks and results, including due diligence that they implement and relevant non-financial key performance indicators concerning:
  • environmental aspects,
  • social and employee-related matters,
  • respect for human rights,
  • anti-corruption and bribery issues,
  • diversity on the boards of directors: information on their diversity policy, covering age, gender, geographical diversity, and educational and professional background. Disclosures would set out the objectives of the policy, how it has been implemented, and results.

Companies can choose to comply or explain and are flexible to disclose relevant information in the way that they consider most useful.

Companies reporting on CSR or sustainability matters already can use their reports as an as the annex to the annual management report provided that the report corresponds to the same financial year and covers at least the same content required by the Directive.

Most important:  The EU Directive suggests the use of international or national guidelines, recommending the UN Global Compact, ISO 26000, or the German Sustainability Code.

Non-European companies will also be challenged by it, as they may be obliged to report according to the new law when part of the supply chain or selling to the European market.  European buyers are likely to ask their suppliers to report accordingly, so they can fit the information into their own reporting system.