On the 21st May 2015, the Danish Parliament became the first to translate the EU rules on corporate transparency which were adopted in 2014 into national law. In doing this, Denmark has sent a strong message to other European countries, as some aspects of their national rules go beyond the European requirements.
The adoption last year by the European Union of the “non-financial reporting” rules was a major victory. The introduction of these rules places an obligation on 6,000 large European companies to communicate how their activities impact on the environment or human rights, including throughout their supply chains – and what measures they take to address these risks. Today, no other region in the world has similar obligations. These new rules have the potential to give consumers, NGOs and communities more information about how companies contribute to environmental degradation or human rights violations, increasing public’s ability to scrutinise how they truly manage the impacts of their operations across the globe. The rules have been criticized as they apply only to the biggest European companies – approximately 6,000 of the 42,000– and also contain some significant loopholes (see here for a full analysis of the rules).
The European rules set the baseline, Member States should go beyond
When translating European laws into national laws, Member States can go beyond the European minimum requirements. The requirements are often a weak compromise resulting from negotiations between the Commission, the Parliament and the 28 member states. The Danish law on corporate transparency has gone beyond the minimum EU requirements and addresses some of the shortcomings and loopholes of the EU rules.
20 times more companies will have to report
The new law will apply to all Danish companies with more than 250 employees – approximately 1,100 companies – going far beyond the European threshold which would have been limited to only a few dozen companies. The requirements will be gradually introduced. From 2016, state-owned companies and companies on the Danish stock exchange with more than 500 employees – approximately 50 – will have to comply with these new rules. From 2018, the remaining 1,050 Danish companies with more than 250 employees will have to comply. It’s clear that if we are to achieve corporate transparency, EU rules should not be limited to the very big companies, and neither should it be limited to companies listed in the stock-exchange.
It’s also worth noting that the Danish Export Credit Agency will also be covered by the requirements. Furthermore, the Danish Investment Fund for Developing Countries is expected to comply with the EU rules despite the fact there is no legal requirement to do so.
The escape clause has been left out of the Danish law
A major loophole in the EU reporting law is the “safe-harbour clause”. It gives power to Member States’ to allow companies to hold back the disclosure of information relating to impending developments or matters in the course of negotiation if “such disclosure would be seriously prejudicial to the entity’s commercial interest”. The phrasing is vague, and leaves too much room for interpretation. We could imagine that information on serious labour or environmental issues for which companies could face legal charges could fall into this category. The escape clause having been left out of the Danish law is a strong signal that EU rules don’t go far enough.
Excessive flexibility: the devil in the details
Most Danish policy makers want the requirements to be as flexible as possible for Danish companies. Over the past few years, the number of companies using the reporting framework have considerably increased although the standard of information provided differs greatly on purpose, content and definition. The Danish government has committed to develop further guidance and the Danish member of ECCJ – the Danish 92 Group - will be calling for strong guidance to make sure that companies provide appropriate information in their reports.
* Non-financial reporting refers to the disclosure of information on the social, environmental and human rights aspects of a company activity. It is also known as environmental, social and governance (ESG) reporting, sustainability reporting, extra-financial reporting, narrative reporting or non-financial disclosure.