The disclosure of information about the social, environmental and human rights impacts of companies’ activities is an important step towards responsible behaviour. It enables workers, communities, civil society, shareholders and policymakers to understand the impacts of businesses and hold companies to account.
Reporting that builds on companies’ due diligence processes is an essential management tool that improves risk identification and long-term social, environmental, as well as financial performance. A robust implementation of the new EU rules on non-financial reporting has the potential to enhance business responsibility globally.
State of play / EU activity
Today, the impacts of the activities of European multinational companies on the environment and human rights remain generally opaque. Very little relevant information is available, especially on impacts hidden in global supply chains of transnational companies. If the right information is not collected, analysed and duly disclosed, it is difficult for affected people, the general public, consumers, investors, or even the very management of these companies, to understand the scope and impact of their operations on society.
Non-financial reporting has long been voluntary and as a result, only a small portion of large European companies report on an annual basis. Also, in the absence of clear standards, the data is often incomparable and fails to include the vital information needed to assess a company’s impacts on society.
Civil society has been advocating for many years for a strong mandatory framework for the disclosure of non-financial information by large companies that would improve the quantity and quality of reporting and set a level playing field for European business. ECCJ, together with other civil society organisations, made a significant contribution to the EU process that resulted in the adoption in 2014 of a new Directive on Non-financial Reporting.
This first EU-wide requirement is part of a fundamental shift in measuring corporate performance and marks a significant step forward for improved corporate transparency. It will oblige over 6,000 large EU companies to report annually on their principal risks regarding environmental, social and employee matters, respect for human rights, anti-corruption and bribery issues, and board diversity. Companies will have to disclose this information in relation to both their own operations and their supply chains and business relationships. They will have to communicate on the due diligence policies in places for dealing with those risks and adverse impacts, and the outcomes of these policies.
This legislation is the first step in embedding into EU law the corporate responsibility to respect human rights and the environment as it is expressed in the UN Guiding Principles on Business and Human Rights and OECD Guidelines for Multinational Enterprises. Despite some gaps and limitations, this simple and flexible framework lays the foundation to a new model of corporate reporting that complements financial information with information necessary for understanding the impact of company activity on people and the planet.
Member States are required to transpose the new EU Directive into national law by the end of 2016 and should seize this opportunity to show their commitment to ensuring corporate responsibility and accountability. Companies will start implementing these rules in 2017, and include the requested information in their annual reports from 2018 onwards. The Commission will publish non-binding guidelines on the methodology for reporting by the end of 2016.
Learn more about how the Non-financial Reporting Directive works with our infographics:
- Corporate reporting
- Corporate governance
- Risk identification and management
- Due diligence reporting
- Human rights
- Corporate Social Responsibility