This article is part of our special report Corporate Governance.
SPECIAL REPORT / Proposals for disclosure of non-financial information by large companies to beef up corporate social responsibility (CSR) launched by the Commission yesterday (16 April) go too far for business interests, but not far enough for NGOs.
Launched in Strasbourg by Michel Barnier, the internal market commissioner, the CSR proposals would amend three accounting directives that 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.
As a first step, EU member states have been given the possibility to apply the new rules to listed companies only.
Companies failing to do so would be required to explain why they have not included such information, in the first attempt to legally impose such a “comply or explain” regime on larger companies.
The proposals will need the approval of the European Parliament and EU states before becoming law.
Information is not needed for investors, say business leaders
BusinessEurope, a federation that represents Europe’s largest companies, said in a statement that it was “disappointed” by the European Commission’s decision, claiming that the obligations ran the risk of “demotivating all companies that have embarked on genuine CSR activities on their own.”
“This proposal will create red tape and further disadvantage for a large number of European businesses in international markets, running counter to the urgent necessity of re-establishing the conditions for confidence and competitiveness in Europe,” said Jürgen Thumann, BusinessEurope’s president.
He underlined as a key concern business fears that disclosures in corporate annual reports should be aimed squarely at the needs of investors, not other requirements, which are aimed at placating public policy aims, rather than the genuine needs of investors.
“If required solely for public policy reasons, [the information] should be kept out of the annual report,” Thumann said.
Fewer than 10% of companies disclosing proper CSR information
His remarks were echoed by Nigel Sleigh-Johnson, the head of financial reporting at the Institute of Chartered Accountants in England and Wales (ICAEW).
Despite broadly welcoming the proposals, Sleigh-Johnson warned: “If the information is not bespoke and of relevance to investors, it will just lead to clutter and ‘boilerplate’.”
But the Association of Chartered Certified Accountants (ACCA) disagreed.
The global auditing body said in a statement that fewer than 10% of the largest EU companies currently disclose such information either regularly or properly.
“This approach will build trust with stakeholders, attract investors and help with the transition to operating in a green economy,” said Rachel Jackson, head of sustainability at ACCA.
NGOs claim proposals too weak
NGOs welcomed the proposals, but criticised their lack of teeth.
"The private sector has a critical role in the fight against corruption in the EU, and these proposals will help determine if the biggest companies are playing their part,” said Jana Mittermaier, the director of the Transparency International EU office.
She said that few companies currently indicate whether they prohibit “facilitation payments” – bribes paid to officials to speed up routine such as customs procedures – and reporting on the monitoring of anti-corruption programmes tends to be weak.
Meanwhile the European Coalition for Corporate Justice (ECCJ), an NGO, welcomed the proposal but stressed that “the current wording leaves companies too much flexibility.”
“We fear companies will only identify and disclose the risks that affect their economic performance, and won’t take responsibility for the impacts they have on the people and the planet,” said, Jérôme Chaplier, the ECCJ coordinator.