Disclosure decisions

15 November 2011

For weary Brussels watchers, it feels like déjà vu all over again. Campaigners and interest groups on one side, and business federations on the other, are gearing up for a fight over a possible European Union law, even though the legislative proposals will not be published before the middle of next year, writes Stephen Gardner. At issue is tighter regulation of non-financial disclosure, or reporting by corporations of their environmental and social impacts. EU law currently prescribes a voluntary regime, saying that non-financial key performance indicators should be included in company reports "where appropriate". Different countries have approached this differently. In France, large corporations are obliged to include social and environmental issues in their annual reports. In Denmark, filing of "green accounts" has been required of some firms since 1995. British companies must produce business reviews covering non-financial information, but the stipulation is rather vague. For Brussels, which would prefer comparable company accounts, this is a concern. There is also pressure to regulate because of perceived corporate excess in recent years. Rebekah Smith of the BusinessEurope federation says "there is some distrust in business – unjustified in most cases – that is fuelling discussion on the role of companies". Foundations in place The European Commission, the EU's executive arm, has done the groundwork for legislation by conducting a consultation and convening an expert group. The main options are mandatory non-financial disclosure, or a "comply-or-explain" regime, under which companies can choose not to publish environmental and social information, but must justify their decision. One expert-group participant, Filip Gregor, chair of the European Coalition for Corporate Justice, says that in the group's discussions "there was so much emphasis put on the perspective of investors, which is the correct perspective," and that investor groups tended to line up with campaigners and organisations such as the Global Reporting Initiative (GRI) in calling for mandatory non-financial disclosure. However, BusinessEurope – also part of the expert group – is against new rules. Non-financial disclosure "is becoming a more intrinsic part of business strategy," says Rebekah Smith. Imposing mandatory requirements might simply encourage box-ticking. "The current legislative requirements are sufficient," she adds. The Commission's view is that a "clear" regime would be preferable, with comply-or-explain possibly being too "loose". The Commission is concerned that it should not impose unnecessary burdens on companies, but says many firms are already reporting on their non-financial performance. "Sometimes business associations are a bit behind the curve," according to one Commission source. Gregor says the Commission does not want to give companies scope "to ignore the provisions of the legislation," but "knowing the political compromise that dictates the work of the Commission, I fear they will go along that road". Beyond the issue of mandatory disclosure or not, or something in between, the Commission must also decide on how legislation might overlap with GRI and other schemes, which companies, such as smaller firms, to exempt, and how far the legislation should go in laying down the content of non-financial disclosures. Once the proposals are published, they must also survive the scrutiny of the European Parliament and EU governments represented in the EU Council, before being implemented by EU member states. As Filip Gregor says, "it is very difficult to predict how long this will last". A version of this article was published in Ethical Corporation magazine.

 

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