This article is part of our special report Corporate Governance.
SPECIAL REPORT / The Commission’s proposals to introduce new corporate social responsibility (CSR) rules must push companies to incorporate non-financial reporting into their accounts, according to a campaigning executive.
The Commission’s proposed new CSR regime, launched on 16 April, would require larger companies to report non-financial information, such as their diversity and environmental policies and to explain why they have not done so where necessary.
Steve Waygood, the head of sustainable and responsible investment with Aviva Investors, told EURACTIV that he was generally “very pleased” with the proposal, but added: “It is not perfect and would have been better if it had introduced the concept of integrated reporting.”
Integrate reporting into all parts of accounts
“Integrated reporting” would mean applying the non-financial standards to each separate part of the company accounts, rather than writing one CSR–style report and including this as an annex to the accounts, as the Commission’s proposal suggests.
According to Waygood, the CSR data could impact on separate parts of the company accounts that way.
“What if sustainability issues matter to their business, or affect their resources, their employee base? I do not think they will be fully capturing this and implementing it if these things are simply put in an annex to the accounts, they should be across the whole accounts,” Waygood said.
He emphasised how the remuneration report of a company could be affected.
“For example, if health and safety issues were a concern with the firm – for example it might be a mining company – then fatalities or lost-time injury rates could be reflected in the [directors’] financial remuneration,” said Waygood.
A first step
According to the Commission, fewer than 10% of the largest EU companies regularly produce sustainability reports.
Around 18,000 companies will be affected by the new rules, compared to the 2,500 organisations that now disclose environmental and social information.
Two of the most commonly used reporting instruments are the United Nations Global Compact and the Global Reporting Initiative (GRI). For the Commission, enterprises using internationally recognised CSR guidelines and principles are likely to gain in credibility, but three in five companies still do not refer to these instruments.
GRI Deputy Chief Executive Teresa Fogelberg said the solution proposed by the Commission would provide a level playing field for those companies that are already reporting, but also encourage many more to embark on their sustainability reporting journey.
"In time, a tipping point would be reached, with a critical mass of companies playing their part in accelerating the transition to a sustainable global economy."
Make fund managers vote carefully
Waygood said that the Corporate Sustainability Reporting Coalition (CSRC) – a group of some 100 companies campaigning for CSR reporting – will not slow up as a result of the Commisssion’s proposals.
“We are pushing for a [United Nations] sustainable development goal that says by 2020 every mid-cap company is publishing an integrated sustainability report,” he said.
The best way to enforce such an obligation, Waygood believes, is to put the company's CSR report to the general vote of shareholders at the annual general meeting.
“There could be a standardised report that enables a client to see that fund managers meet certain requirements in their voting,” Waygood suggested.
With a green paper, two communications and an alliance with industry and other stakeholders, the European Commission has been trying for more than a decade to pave the way towards more responsible corporate behaviour.
The Commission's 16 April proposal - if made law - would require Europe's largest companies to 'comply or explain' with new CSR reporting obligations for the first time.