Companies will now have to disclose further information on social and environmental matters. According to a recent directive,large corporations are required to disclose relevant non-financial information to the public. The EPP believes that such a measure strikes a balance between the need for more transparency and the importance of limiting administrative burdens for companies.
The new rules come as part of an attempt to increase the amount of information available to investors, as well as to incentivize companies to take a longer-term perspective when planning for the future. The measure was first announced in 2011 and it then had to go through the EU's decision making procedure.
It is argued that increasing transparency in these areas will prove out to be beneficial to corporations. Increased success from increased transparency will come in the form of lower costs of financing, available to large corporations and groups, as a result of increased public approval, as well as broader employee attraction and retention.
There existscurrent EU Legislation addressing the disclosure of non-financial information by companies. However, its application has been inconsistent across the EU. The Fourth Company Law Directive gives companies the choice to make public certain non-financial information directly related to their activities. Member States, however, still found themselves needing to establish their own disclosure requirements due to the current directive's unclear requirements.
Through an extensive consultation with Member States, investors, companies and other interested parties, as well as an Impact Assessment carried out in 2012, the European Commission sought to gather as much insight for this proposal as possible. Several different perspectives and interests were analysed in order to determine the best set of policies to be included in the proposal.
The European Commission is mainly responsible for designing the guidelines to facilitate the disclosure of information by companies. The work done would be mainly based on best practices, international developments, and related EU initiatives.
Even those who often express concern about the cost of overregulation have recognized the cost-effectiveness of this directive. Only those companies which employ more than five hundred employees will be required to disclose their non-financial information. This includes about six thousand large companies and groups across the EU. SMEs are not required to disclose these details because it has been determined that the costs of them doing so exceed the benefits of making this information public.
According to this directive, information on policies, risks and results as regards environmental matters, social aspects, respect for human rights, anti-corruption and bribery issues, and diversity on boards of directors will have to be published on the company´s management report. Firms, however, can decide on how to convey this information according to what they believe is most useful, and will also be able to freely choose among the reporting standards.
Non-financial disclosures under the new directive may be provided at group level, rather than by each individual within a group. Furthermore, while the information required will need to be relevant for the public's understanding, it need not be a long, detailed report. Groups and companies may choose to provide this information in a concise, effective manner as long as it remains useful for society to gain an understanding of their activities and overall development.
The way this directive was crafted is admirable. It effectively addresses the need for greater transparency and increased investor confidence without imposing a large administrative burden on the large firms and groups involved. In other words, it outlines a necessary goal, but provides firms with the necessary freedom to choose how best to accomplish it. This freedom will give those companies and groups involved (mostly listed undertakings, credit institutions and insurance companies) the ability to comply with this regulation using their least costly alternative.
The promotion of best practices will help Europe increase its competitiveness, as well as the number of jobs available to its citizens. This directive represents an important step in achieving this goal.
The directive will enter into force once adopted by the EU Member States in the Council and published in the EU Official Journal. The Council is expected to formally adopt this proposal in the next few weeks.
David Casa is the PN head of delegation in the European Parliament