Blog 06.05.20

Sustainability reporting in the EU: What’s the law?

Gone are the days of optional CSR reporting. Indeed, they disappeared a couple of years ago for large companies in Europe – all thanks to the catchily-named EU Non-Financial Reporting Directive.

With this directive now under review, we look at sustainability reporting requirements across the European Union to see where things stand for business.

The background

The European Commission adopted the EU Non-Financial Reporting Directive 2014/95 – to use its full name – back in December 2014. Its roots stem from a realization around 2011 that greater attention needed to be paid to corporate sustainability risks and impacts. EU member states wrote the Directive into national law, with large listed companies (among others) expected to report first, in 2018.

Under the Directive, companies with over 500 employees must publish annual reports detailing risks and policies concerning: environmental protection, social responsibility and working conditions, respect for human rights, anti-corruption and bribery, and diversity on company boards. This non-financial reporting supplements financial figures, providing better insight into a company’s risks.

The Directive is principles-based and does not dictate the format of the reporting – only that companies should make the required information available or provide reasons why not.  

What of the present?

As part of the Green Deal, the EU’s new growth strategy announced in 2019, the Commission states companies and financial institutions need to increase disclosure of climate and environmental data. Only with more data, it is argued, can investors properly understand the long-term health of their investments. This announcement kickstarted the review of the Directive. It’s now under public consultation until 14 May 2020.

So how have the different member states implemented the Directive? And have any introduced stricter reporting requirements that go beyond the Directive? We looked at ten EU member states to find out.

A note on methods

Specifically, we researched Austria, Denmark, France, Germany, Ireland, Italy, Netherlands, Spain, Sweden and the United Kingdom – some of the EU’s largest economic hubs. We focused on statutory reporting provisions, requiring disclosure of environmental and social information to shareholders or directly to the public. Note, we excluded corporate governance reporting requirements.

What must business report?

All ten EU member states reviewed had, unsurprisingly, transposed the Directive into national law. But national variations abound. Governments have tailored policy applicability to suit national contexts, with Denmark and Sweden requiring companies with over 250 employees to report – half that required under the EU Directive.

Variations in the timings permitted for releasing information are also plentiful. For example, companies in Austria must disclose information at the same time as their management report, while companies in Ireland have six months to publish non-financial information. Other variations include where information must be available, how long it must be available for, and the level of guidance on what disclosures should cover.

Some member states have gone beyond the content of the Directive. In terms of mandatory public reporting requirements, France, the UK, and Germany are of note. The topics covered by further legislation break into three camps:

  • Gender pay gap reporting: France, the UK and Germany all require companies to report on metrics related to equalizing differences between genders in the workplace. Requirements vary. For example, following a phased introduction of the provision, French law necessitates companies with over 50 employees to report. Meanwhile UK regulations require reporting from companies with over 250 employees and German law requires status reports from those with over 500 employees. Reporting is required every 3-5 years in Germany, but it’s expected annually in France and the UK.

  • Human rights reporting: Companies must release statements disclosing human rights due diligence measures and their implementation. The UK Modern Slavery Act requires companies to publish an annual statement, available from their website’s homepage, while the French Duty of Vigilance Law obliges companies to report on implementation of due diligence procedures in their annual management report.

  • Greenhouse gas (GHG) reporting: Some member states have more detailed requirements concerning disclosure of GHG emissions. France, for instance, requires certain companies to publish a GHG inventory every 3-4 years, while in the UK companies of a certain size are expected to report carbon dioxide emissions in their annual director’s report.

Into the future

There’s broad consistency in the types of information EU member states (or former member states as in the UK’s case) seek companies to disclose, with the most regulatory detail currently focused on social issues including human rights and gender equality. It’s clear we’re likely to see stronger requirements – and that these requirements will probably focus in on broader issues such as climate change, all through the lens of making information more accessible to investors.

Companies should examine the recommendations of the Task Force for Climate-related Financial Disclosures and be ready to link reporting on environmental and social risks more clearly to financial accounting. This might sound daunting, but leading businesses are already making the connections.

Now’s the time to future proof by ensuring a sound sustainability strategy, supported by information and data that complies with the law and underlines the authenticity of your commitments.

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Author:
Francesca Ward

CLIENT DIRECTOR

CLIENT: A LEADING GLOBAL FOOD COMPANY, H&M




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