The European Parliament and the Council have reached agreement on an amendment to accounting legislation which will mean that some large companies will need to report on social, environmental and diversity matters.
Companies concerned will need to disclose information on policies, risks and results as regards environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues, and diversity on boards of directors.
“Europe needs modern and useful rules on transparency of non-financial information by certain large companies. I am glad to see that the European Parliament and the Council agree and support the Commission as regards the objective of this proposal,” said Michel Barnier, Commissioner for the Internal Market and Services.
“Companies, investors and society at large will benefit from increased transparency. This is important for Europe’s competitiveness and the creation of more jobs.”
The new rules will only apply to companies with more than 500 employees, as the costs for requiring small and medium-sized enterprises (SMEs) to apply them could outweigh the benefits. This includes listed companies as well as some unlisted companies, such as banks, insurance companies, and other companies that are so designated by member states because of their activities, size or number of employees. The scope includes approximately 6,000 large companies and groups across the EU. The approach taken ensures that administrative burden is kept to a minimum.
Angelo Chetcuti from the European Commission Representation in Malta said: “The rules would apply to all public interest entities with more than 500 employees, as well as some non-listed compasnies that are considered by national governments to be of significant public relevance. Therefore SMEs will be exempted from the new reporting obligation.”
The drafting of the proposed directive is quite flexible and allows member states to apply the general principle in their national law. It has been designed with a non-prescriptive mindset, and leaves significant flexibility for firms to disclose relevant information in the way they consider most useful. The draft directive provides for further work by the Commission to develop guidelines to facilitate the disclosure of non-financial information by firms, taking into account current best practice, international developments and related EU initiatives.
As regards diversity on company boards, large listed companies will need to provide information on their diversity policy, such as age, gender, educational and professional background. Disclosures must set out the policy objectives, how it has been implemented and the results. Firms that do not have a diversity policy will have to explain why not. This is in line with the general EU corporate governance framework.
To become law, the Commission’s proposal needs to be adopted by the European Parliament and by member states in the Council (which votes by qualified majority). It is expected that the European Parliament will vote this legislation in plenary in April, while the Council will formally adopt it subsequently.