The new Legislation for mandatory disclosure of Corporate Responsibility information and important details that each company needs to be aware of

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Many companies in the EU are already required by national laws in the country where they operate to regularly disclose financial and non-financial information.  However, as there are very different laws on national level, the existing requirements regarding non-financial information are often regarded as unclear and ineffective. Given the situation, the European Union Council decided to adopt its new Directive in October 2014, as an amendment to the Accounting Directive which was released in June 2013. The Directive 2014/95/EU (or the “2014 Directive”) establishes new environmental, social, and governance (“ESG”) reporting requirements for covered enterprises, including companies based in the United States.

To be more specific, the directive targets “large” companies, defined by reference to the number of employees, balance sheet total, and net turnover. It is applicable to all companies incorporated in EU Member States as well as U.S. companies that are EU exchange-listed, and have a significant presence in an individual Member State.

The European Union Council defines “large” companies as those that:

  • Have more than 500 employees;
  • Are “public-interest” organizations, which are defined to include EU exchange-listed companies as well as some unlisted companies, such as credit institutions, insurance undertakings, and other businesses selected by Member States, based on size, number of employees, and/or activities.
  • Have a balance sheet total of at least EUR$20 million (approximately USD$25 million) or a net turnover of at least EUR$40 million (approximately USD$50 million).

There are some facts that each large company should know about EU 2014 Directive Reporting requirements. To begin with, companies are required to submit ESG disclosures (“non-financial statements”) either within the annual corporate report or as a separate filing. In case a separate filing is made, it should either be published with the management report or be made publicly available on the company’s website (within six months of the balance sheet date) and referred to within the management report. The non-financial statement can be filed by the group/parent company, rather than individually by all affiliate companies.

Furthermore, covered companies are required to prepare and provide information about:

  1. Environmental matters (e.g. current and foreseeable impacts on environment, health, and safety issues, the use of renewable and/or non-renewable energy, greenhouse gas emissions, water use, and air pollution)
  2. Social and employee-related aspects (e.g. gender equality, implementing fundamental conventions of the International Labor Organization, trade union rights, health and safety at work, and engagement with local communities)
  3. Human rights
  4. Corruption and anti-bribery issues
  5. Diversity in the company’s board of directors

Fortunately, the Directive gives companies significant flexibility to disclose relevant information in the way that they consider most useful. Companies may use international, European or national guidelines which they consider appropriate (e.g. the UN Global Compact, ISO 26000, or the German Sustainability Code).

By the end of 2016, the EU 2014 Directive will be transformed into national law which then applies to fiscal years beginning in January 2017 and thereafter. Therefore, companies concerned will have significant time to adapt to the new requirements, and will start reporting as of their financial year 2017.

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