LARGE BUSINESSES will have to divulge more than financial data each year under proposed changes to European accounting laws.
This year the UK’s largest companies will have to get to grips with manda- tory carbon reporting. But soon they could be asked to disclose a range of other environmental and social data.
The idea comes from the European Commission, which has been looking at changes to accounting legislation for a couple of years. The story began in October 2011, with new measures to develop a “more responsible” approach to business. Within this were proposals to “improve transparency and promote sustainability among multinationals”, which would help improve the economy. The commissioner for employment, social affairs and inclusion, László Andor, said at the time: “Socially responsible business stems from a realisation that the crisis is not just economic and financial but also about ethics. Values
like solidarity, sustainability, inclusiveness and integrity are not always upheld by business and I believe our economies have suffered as a result.”
Since then, a number of developments have allowed the commission to push the agenda. For instance, a US think-tank, the Governance and Accountability Institute, found that companies reporting their performance on environmental, social and governance (ESG) factors “perform better over the long term in the capital markets”. The lesson for corporate management and boards was clear, said the institute’s senior VP Louis Coppola: “If you are not reporting, your competitors and peers almost surely are [and] the task of ‘catching up’ will only grow larger.”
However, few are reporting extensively on ESG. Current EU law on annual accounts says that companies may choose to publish certain information on environmental, social and other aspects of their activities. The requirements of the existing legislation have proved to be “unclear and ineffective and applied in different ways in different member states”, said the commission. Fewer than 10% of the largest EU companies disclose such information regularly.
The commission’s plan is to increase ESG re- porting but not the burden. Concise information, necessary for understanding a company’s development, performance or position, would be made available rather than a fully fledged and detailed sustainability report, explained the internal market and services commis- sioner, Michel Barnier.
The proposed changes to accounting legisla- tion will require companies with more than 500 employees to disclose information on policies, risks and results regarding environ- mental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery, and diversity on boards of directors. Companies will have to report or explain their reasons for not doing so.
Olivier Boutellis-Taft, the chief executive of FEE, the Federation of European Accountants, said the proposals would move companies towards “the need for better and not more re- porting”. He added: “In today’s world, historical financial information alone is insufficient to inform stakeholders on a business’s capacity and prospects to create sustainable value.”