By Louis D Coppola @ G&A Institute..
We have been closely tracking the European Union’s draft directive for the disclosure of non-financial and diversity information by certain large companies.  A major hurdle has just been cleared to adopt this directive,  it has cleared an important stage in the EU legislative process.
On February 26th, 2014 the Council of the European Union’s Committee of Permanent Representatives endorsed an agreement on the draft directive.  The agreement still needs to be formalized by the European Parliament and the Council, this is expected to take place on April 15th, 2014 which is now less than a month away.
This regulation will apply to all companies with over 500 employees in any of the 28 European Union member countries – which represent the largest economic area in the world.  It is estimated that some 6,000 companies will fall under the scope of the directive.  To put this in perspective there are currently ~2500 global organizations Sustainability reports in the GRI Global Database, whichrepresents one of the most comprehensive databases of sustainability reporting.  Full disclosure:  G&A Institute is the exclusive data partner for the US, UK, and Ireland and is responsible for analyzing all reports of organizations HQ in these countries, and feeding that data into the global GRI database.  You can find out more about the Institute’s important data partner role here:  http://www.ga-institute.com/gri-reporting-data-partner.html
Companies will be required to report annually on:

1. Environmental Matters
2. Social Matters
3. Employee-Related Matters
4. Respect for Human Rights
5. Anti-Corruption Matters
6. Bribery Matters
7. Diversity Policy

The report will need to include a description of the policies, outcomes and the risks related to these matters.
Directly from the EU Council press release:

The new measures are aimed at strengthening the company’s transparency and accountability, while limiting any undue administrative burden, and ensuring a level playing field across the EU. They will be incorporated into the directive on the annual financial statements and reports of certain types of undertakings, which was adopted on 26
June 20132

This regulation is modeled after the Global Reporting Initiative (GRI) approach of “Report or Explain”.  Any company that does not pursue policies in the area of these matters, will have to publicly and thoroughly explain/state why it has chosen not to do so.
The GRI is one of the frameworks that is referenced in the introductory part of the legislative proposal and the new G4 covers all of the matters in the proposal from environmental to bribery.
Additional Background from the release:

The necessity to improve undertakings’ disclosure of social and environmental information is a part of the EU strategy to promote corporate social responsibility adopted in October 2011, which acknowledged the importance of businesses divulging certain information with a view to identifying risks and increasing investor and consumer trust.
Non-financial reporting is vital for managing change towards a sustainable global economy by combining long-term profitability with social justice and environmental protection. It also helps monitoring undertakings’ performance and their impact on society.

The European Union sees this as a matter of competitiveness in the global marketplace.  As such, the person heading this initiative is the president of the EU Competitiveness Council, Kostas Hatzidakis.  In the official press release Kostas has this to say:

“this decision provides the European Union with the first legislation on non-financial information reporting. Corporate Social Responsibility is an enabling tool for business productivity and contributes to a smart and sustainable growth. It is not only for shareholders but also for stakeholders and citizens that it adds value”.

And the GRI Deputy Chief Executive Teresa Fogelberg commented on the new steps taken by the Europena Union Committee of Permanent Representatives (COREPER) of the governments of the EU member states:

 “This is a great step towards establishing a more robust EU policy framework for reporting and transparency. I praise the determination and cooperation of the EU institutions, particularly the Greek Presidency and the European Parliament Rapporteur Mr Baldassarre, as well as the other actors involved, for such a positive and encouraging achievement. I am confident that, if adopted, this policy would have a great impact on making progress towards smart, inclusive and sustainable growth in Europe and beyond.”

 

The Governance & Accountability Institute continues to watch this regulation, and many other global regulations as part of its monitoring and research.  G&A contributed the United States portion of the bi-annual GRI research report “Carrots and Sticks” which deep dives into Sustainability reporting policies worldwide, this 2013 report covering 45 countries and regions.
If you’d like to learn more about global regulations you can download the 2013 Carrots and Sticks research publication from our website here:
http://www.ga-institute.com/research-reports/ga-institute-contributes-to-carrots-sticks-iii-2013-edition.html
 
 
The official press release from the Council of the European Union can be seen here: http://gr2014.eu/sites/default/files/Hatzidakis%20COREPER.pdf