This article is part of our special report Corporate Governance.
SPECIAL REPORT / The EU executive is due today (16 April) to accuse corporate Europe of lacking innovation and diversity as a result of “group think”, as it unveils new proposals requiring larger companies to disclose information on a range of environmental and social impacts.
The proposals – to be launched in Strasbourg by Michel Barnier, the internal market commissioner – will echo global efforts to introduce new corporate social responsibility reporting obligations through a United Nations initiative.
Barnier’s CSR plan, according an 11 April draft seen by EURACTIV, proposes amending three accounting directives to require larger companies to report on non-financial areas, such as their diversity and environmental policies and to explain why they have not done so where necessary.
“Company boards with members who have a similar educational or professional background, geographical diversity, age or gender, may be dominated by a narrow ‘group think’,” the document says.
Lack of diversity hampers innovation
The EU executive claims that such attitude lessens challenges for management decisions, and “can also lead to a harder acceptance of innovative ideas accepted by management.”
The degree of flexibility and enforceability will be fiercely argued. The draft proposes that smaller companies should be required to comply with fewer bureaucratic reporting requirements. For larger companies, however, the proposal would represent the first introduction of “comply or explain” reporting requirements for non-financial information.
“I hope that we will see some progress on measures to increase information to consumers and investors whilst at the same time keeping CSR firmly in the hands of businesses and with as little red tape as possible, especially for SMEs,” said Swedish MEP Cecilia Wikström (Alliance of Liberals and Democrats for Europe).
The European Commission has had a difficult experience with CSR, but is hoping to put the matter back on the agenda.
The EU executive’s moves echo international attempts to develop similar obligations.
A high-level UN panel is considering introducing CSR reporting in its successor to the Millennium Development Goals (MDGs), which expire in 2015.
Call for action at Rio
Calls for global CSR reporting standards were also raised at the UN’s Conference on Sustainable Development last June in Rio de Janeiro, Brazil.
The Corporate Sustainability Reporting Coalition (CSRC), representing financial institutions, professional bodies, NGOs and investors, called at the Rio summit for the UN to commit to developing an international framework on non-financial reporting.
The Rio summit's final declaration included recognition of the importance of corporate sustainability reporting.
An official attending a 27 March meeting of the UN’s high-level panel on the Post-2015 Development Agenda in Indonesia told EURACTIV on condition of anonymity that CSR reporting was discussed with a view to keeping the issue on the UN agenda for inclusion in the post-2015 discussions.
The proposal under consideration is to develop a CSR convention comprising a commitment by UN member states to develop regulations, codes or listing within the annual report of all listed and large private companies.
Companies electing not to prepare such a report would be permitted to opt out but would be required to explain why they had done so to shareholders, creditors and other stakeholders.
CSR compels companies and financial institutions to not only consider their profitability and growth, but also environmental and social impacts of their supply chain, production and services.
Current EU legislation, such as the Fourth Company Law Directive on annual accounts, addresses the disclosure of non-financial information in a way that companies may choose to make public certain information on environmental, social and other aspects of their activities.
With a green paper, two communications and an alliance with industry and relevant stakeholders, the European Commission has been trying for more than a decade to pave the way towards more responsible corporate behaviour. However, it remains to be seen whether the rules are voluntary or obligatory.
- 16 April: Commission to publish proposal for a directive on social and environmental reporting
- Rio+20 Earth Summit 2012 Towards an agreement on global corporate responsibility reporting PDF (108KB)
- The Corporate Sustainability Reporting Coalition overview PDF (60KB)