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2014 EU DIRECTIVE ON NON-FINANCIAL INFORMATION

DISCLOSURES

28 November 2014

Tineke Lambooy

Associate Professor CSR and Corporate Law

Utrecht University, Netherlands

1 28 November 2014 Ius Commune

28 November 2014 Ius Commune 2

LEGAL + SEMI-LEGAL NORMS

Re: Transparency on CSR

Laws, e.g. annual reporting laws (EU/Indonesia); environmental laws

Semi-legal, e.g. national/international corp.governance codes; accounting rules + guidelines

Voluntary norms (MSI): Global Reporting Initiative (GRI); Integrated Reporting (IIRC)

Thematic disclosures: Water Footprint; Carbon Disclosure Project (& UNGC) 3 28 November 2014 Ius Commune

EU ANNUAL CSR REPORTING NORMS

• Where do we come from?

• Where are we now?

• Where do we go?


ANNUAL FINANCIAL STATEMENTS (1)

• Accounting Directive 2013/34/EU

“on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC “ (4th and 7th Directive)

Implementation in national law (e.g. Company Act / Civil Code / Accounting Act / Commercial Act)


MANAGEMENT REPORT (1)

• (Consolidated) Management Report (= Directors’ Report = Annual Report) should contain:

A balanced & comprehensive analysis of: – developments – results during financial year – position

• Information concerns the reporting company + group

companies


• When necessary for an understanding of the development, performance or position of reporting company + group companies, the analysis shall include: – Non-financial key performance indicators – Including environmental + employee matters

• Description of principal risks and uncertainties

• Information concerns the reporting company + group

companies

• Art. 19/29 of 2013 Directive; same as 2006 Directive

MANAGEMENT REPORT (2)


PROBLEM AREAS

• Gray area: ‘when necessary’; vague terminology (‘environmental’ / ‘employee’)

• No mandatory disclosures required in a systematic way, e.g. on corporate CSR strategy, policies, endorsement of (international) codes of conducts, and other private regulation, CSR strategy implementation, results

• Auditor review – limited scope (‘no inconsistencies with annual accounts’) - hence no mandatory control


New: Payments to governments

• Large undertakings and all listed companies

• active in the extractive industry or the logging of primary forests

• prepare and make public a report on payments made to governments on an annual basis

• Art. 42 of 2013 Dir.


LEGISLATIVE DEVELOPMENTS

• Sweden: state owned companies - CSR reporting

• Denmark: listed companies – CSR reporting or explain

• France (NRE); Norway (…) – info on environmental impact

Check:

• Impact Assessment EU COM 2013 European Commission, Commission staff working document accompanying the document Proposal for a Directive

of the European Parliament and of The Council as regards disclosure of non-financial and diversity information by certain large companies and groups – Impact assessment, SWD/2013/0127 final, available at: http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52013SC0127, accessed at 18 November 2014.

• Report THE STATE OF PLAY IN SUSTAINABILITY REPORTING IN THE EUROPEAN UNION (2011 CREM et al)


http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:52013SC0127





Explanatory Memo for 2014 Dir. (1)

• CSR: “responsibility of enterprises for their impact on society” --> Companies should have a process in place to integrate social and environmental concerns into their business operation and strategy

• Non-financial transparency is therefore a key element of any CSR policy:

- helps companies to better manage non-financial risks + opportunities, and thus improve their non-financial performance

- allows investors and civil society organisations to take better

account of sustainability considerations and long term performance

11

Explanatory Memo (2)

• However:

- Limited number of EU large companies regularly disclose non-financial information

- Quality of the information disclosed varies largely

- Difficult for investors and stakeholders to understand and compare companies’ position and performance

• Amendment aims at ensuring a level playing field across the EU


Explanatory Memo (3)

• Insufficient diversity in the boards similarity of views of the board members (the so-called phenomenon of "group think")

• more resistance to innovative ideas + negative impact on performance of companies

• Enhanced transparency on diversity policies contribute to:

- the promotion of equal treatment

- the fight against any discrimination in corporate decision-making bodies


DIRECTIVE 2014/95/EU

• of 22 October 2014

• amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups

• Published on 15 November 2014 (PbEU L 330/1)

• Implementation by 6 December 2016

• Applicability as of 2017


Content (1)

• Listed companies (> 500 employees) must disclose a “non-financial statement” in their Annual Report

• Including as a minimum information on environmental, social, and employee matters, respect for human rights, anti-corruption and bribery matters

• Regarding these areas, the statement will include (i) a description of its policies (incl. dd process implemented), (ii) results, and (iii) risks related to these matters and how company manages those risks

• If no policy re one or more of these matters, company shall provide an explanation


Content (2)

• Company may rely on national, EU-based or international frameworks + disclose which framework, such as:

- UN Global Compact

- Guiding Principles on Business and Human Rights implementing the UN “Protect, Respect and Remedy” Framework

- OECD Guidelines for Multinational Enterprises

- ISO 26000

- ILO Tripartite Declaration of principles concerning multinational enterprises and social policy

- Global Reporting Initiative

• A company that does not apply a specific policy in one or more of these areas will be required to explain why this is the case


Content (3)

• large listed companies must provide information on their diversity policy for its administrative, management and supervisory bodies

• Including: age, gender, educational and professional background

• Information to be included in the corporate governance statement + contain objectives of the policy, its implementation and the results obtained

• If no diversity policy explain why not 28 November 2014 Ius Commune 17

Where do we go to? • Information on CSR strategy, implementation and results;

risks and prevention methods

• In systematic way

• Topics – broad

• Diversity: clear goals

Comply or explain, ‘shall provide a clear and reasoned explanation for not doing so’ Expected results: level playing field, comparability, improved business performance, long term strategy, avoiding CSR risks and conflicts


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