Vote forces European companies to report on sustainability

Annual reports of large companies in the European Union will soon have to include information on social and environmental impacts, after a landmark decision by the European Parliament. Members of the parliament voted by 599-55 in favour of a new regulation that will force companies to report on social and environmental issues in annual company reports by 2017 – or explain why they are not doing so.

The move means that the EU’s accounting directive will be amended to require large listed and public interest companies to include information on ‘policies, risks and results’ in relation to ‘social, environmental and human rights impact, diversity and anti-corruption policies’. Such statements should be made in the management statement of a company’s annual report and should cover not just the businesses own operations but also its supply chain.

Although the exact definition of which companies should and shouldn’t be required to produce such reports has yet to be decided, ‘small businesses’ will be exempted. Nonetheless, the measure is eventually expected to apply to around 6000 businesses, most of them publicly listed. Currently only around 2,500 European companies report on their social and environmental performance in any form.

Richard Howitt, the British MEP who first proposed the change, said the vote was ‘a landmark day in the quest for responsible business’ and should be ‘a major step’ towards the introduction of integrated reporting across the globe. The measure has taken more than a decade to come to fruition, and was first put forward by Howitt, who is a European Parliament rapporteur on corporate social responsibility, in 1999.

The text of the proposed regulation, which will now go to a first reading in the European Parliament, says statements in annual reports should include, among other things:

  • details of ‘current and foreseeable impacts’ of operations on the environment, health and safety, the use of renewable and non-renewable energy, greenhouse gas emissions, water use and air pollution
  • information on relationships with supply chain companies and their subcontractors
  • actions taken to ensure gender equality, good working conditions, and ‘responsible behaviour on tax planning’ 

Once the regulation is passed, the European Commission will develop, by 2018, international standards and non-financial performance indicators to help companies fulfill their new obligations. PRI Policy and Research Manager, Will Martindale said, “This is good news for investors who have long called for greater transparency and accountability of a company’s approach to sustainability within their portfolios.”

 

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