17 Jun 14

Supply chain implications of the new EU directive on non-financial reporting?

7183154861_cbc68a7112_zWhen the European Union adopts a new directive on non-financial and diversity information, affected companies and their suppliers all have to respond.  

Large companies’ influence extends far beyond their traditional organisational boundaries and this legislation is therefore destined to have an impact on those companies’ direct and indirect suppliers.

To help you understand what changes this new directive will introduce and how it will impact your non-financial reporting, we’ve summarised the main points below.

Who will this new directive on non-financial information affect?

The directive, which has a report or explain approach to providing the required information, is intended to provide greater transparency and accountability of non-financial information.  It will affect large companies operating in the EU (those with over 500 employees and that exceeds either a balance sheet total of 20 million euros or a net turnover of 40 million euros) – approximately 6000 so-called ‘Public Interest Entities’.

What are the main implications of the new directive?

There are three main implications being adopted as a result of the new directive:

-   It will be mandatory for companies to report on human rights, anti-bribery and corruption, social and employee-related matters, and environmental matters.

-   Companies will have to outline their business model, outcomes and risks of the policies on the above topics. They’ll also need to describe the diversity policy applied for management and supervisory bodies.

-   Companies will be urged to use an acknowledged framework, including GRI, UNGC, the UNGP on Business and Human Rights, OECD Guidelines, ISO 26000 and the ILO Tripartite Declaration.

How does this apply to my supply chain?

The Communication defines CSR as “the responsibility of enterprises for their impact on society". It acknowledges that its development should be led by enterprises themselves, and that companies should have a process in place to integrate social and environmental concerns into their business operation and strategy.

Any attempt to integrate social and environmental concerns into business operations, should also include suppliers. The purchase of goods and services can affect the impact an organisation has on society and increase its exposure to risk. The potential supply chain risks are particularly high in the areas deemed mandatory by the new directive, and so will undoubtedly lead to an increased need for supplier information.

Similarly, the frameworks that are recommended to guide company’s disclosures, all maintain a focus on the supply chain. Therefore, as increasing numbers of ‘Public Interest Entities’ are guided by these frameworks for their non-financial reporting, there will be an increasing need to be able to capture and analyse supplier information.

What is the expected outcome of this directive?

In short, this directive will help improve corporate transparency, benefitting the companies themselves, investors and wider society.

The increase in quality and quantity of non-financial reports will, as highlighted, ensure that there will be a basic level of supply chain transparency within those reports. It is clear from the directive that organisations will need to demonstrate supply chain due diligence, meaning that this area will become central to the success and influence of non-financial reporting. 

Want to find out more about the implications of this new EU directive, or how to improve your analysis of supplier information? Talk to us.

 

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[Image Credit: Graham Detonator

 

 

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