3 Mar 14

EU companies to report on social, environmental, supply chain and human rights impacts - update on EU non-financial reporting reform

After weeks of negotiations, EU government representatives reached a last minute compromise on the reform on non-financial reporting during the Coreper meeting last week. This compromise, between EU member states and the European Parliament, means that the European Commissions’ draft Directive for large companies to start reporting non-financial information will go to final vote in April. 

This is an important step in improving corporate transparency and accountability across the EU. This law, if passed, means that around 6,000 companies will for the first time have to report on environmental, social, anti-bribery & corruption, diversity and human rights issues. The non-financial reporting obligation will also apply to companies’ supply chains and they will be required to disclose their due diligence policies that support the information they report. 

In order to become law, the Commission's proposal needs to be adopted jointly by the European Parliament and by the EU Member States in the Council. The final vote on this Directive is expected to take place at the European Parliament’s plenary in April 2014. The European Commission will issue guidelines for companies on how to report under the new reform following this decision.

Below is a summary of the key points of the Directive:

  • Reporting will no longer be voluntary but mandatory so companies can no longer choose whether or not they issue an annual report covering key non-financial information, including principal risks.

  • Approximately 6,000 companies will be affected; large public-interest entities (mainly listed companies and financial institutions) with more than 500 employees

  • For the first time, companies will have to explicitly report on environmental, human rights, social, corruption, and diversity issues

  • The reform will draw on authoritative international standards, namely the United Nations Guiding Principles

  • Reporting will cover the policies companies have in place to manage their risks – the definition used in the proposal includes risks on the environment and society at large, not only financial risks

  • For the first time, reporting will cover companies’ due diligence policies – mechanisms in place to identify, prevent, mitigate and account for adverse impacts they may have on workers, communities, and the environment

  • The reporting scope will include companies’ supply chains (principal risks in “business relationships”)

Read the press release from the European Commission here.

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