Approximately 6,000 large organisations in the EU may soon be required to make new non-financial disclosures on environmental and social issues as a result of a new directive adopted Tuesday by the European Parliament.
Public-interest entities with more than 500 employees, including listed companies, banks and insurance firms, will be required to disclose information in their management reports on policies, risks and results regarding:
- Environmental matters.
- Social and employee-related issues.
- Respect for human rights.
- Anti-corruption and bribery issues.
- Diversity on boards of directors.
The directive will become law if it is also adopted by the EU Member States in the Council. The Council is expected to vote on the proposal within weeks, according to the European Commission.
The directive requires companies to provide concise, useful information rather than a full-fledged, detailed report. Disclosures may be provided at a group level rather than by each individual affiliate within a group.
Companies will have the flexibility to disclose relevant information in the way that they consider most useful and may use a separate report for the disclosures. In preparing the disclosures, companies will have the choice of using international, European or national guidelines such as the UN Global Compact, ISO 26000 or the German Sustainability Code.
The European Commission also has been charged with developing guidelines to facilitate the disclosure of non-financial information.
Large listed companies will be required to provide information about the diversity policies for their boards. Disclosures will describe the objectives of the policy, how it has been implemented and its results.
Stephen Haddrill, chief executive officer of the UK Financial Reporting Council (FRC), said in a statement that Parliament’s approval complements the FRC’s work. Haddrill said the directive is tailored to remove the risk of boilerplate to ensure that investors receive only relevant, proportionate information.
“By limiting the scope to large public-interest entities with over 500 employees and only including material information, this will help to ensure that these increased transparency requirements will encourage better corporate conduct and better-informed investment decisions,” Haddrill said.
—Ken Tysiac (firstname.lastname@example.org) is a CGMA Magazine senior editor.