EU to mandate CSR reporting

28th February 2014

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Jessica Cranthorne

Around 6,000 large companies will soon be required to disclose data on their environmental and social impacts, after new EU reporting rules move forward

The European parliament and council have agreed the text of a new Directive that will force some big businesses to include information on their environmental performance and impacts, as well as data on diversity, in their annual financial reports.

The new rules, which are expected to be formally adopted by the European parliament and member states in April, apply only to "public interest entities" employing more than 500 people. The EU defines "public interest entities" as "mainly listed companies and financial institutions... companies that are so designated by member states because of their activities, size or number of employees."

The agreed text represents a significant compromise on the proposals set out by the European commission last April, which would have required all large companies in the EU to report such non-financial data. However, member states, including the UK, were against such a far-reaching approach.

As a part of the compromise, the EU is to produce a report within four years of the Directive coming into force, on its implementation, which could result in a broadening of the scope to include smaller firms.

As it stands, the draft text requires only that firms disclose "concise, useful information" to help stakeholders understand the "development, performance, position and impact" of the organisation's activities. It does not require a detailed report.

EU policymakers have also rejected setting a definitive reporting framework for environmental data, allowing companies to report it "in the way they consider most useful". Such an approach will allow firms to continue using existing guidelines, such as ISO 26000, although the commission has been tasked with developing its own guidelines for firms on disclosing non-financial data.

"Europe needs modern and useful rules on transparency of non-financial information by certain large companies," commented Michel Barnier, European commissioner for internal markets and services. "Companies, investors and society at large will benefit from increased transparency. This is important for Europe's competitiveness."

The agreement was criticised by environmental groups, however. Friends of the Earth claimed the Directive had been "watered down".

"While requiring listed companies to report on their social and environmental impacts is a step in the right direction, glaring loopholes remain that mean tens of thousands of private firms in Europe won't have to reveal how their operations affect people and the environment," commented campaigner Julian Kirby.

"Transparency is vital to help identify and then tackle the many problems linked to making our everyday products, from dangerous working conditions to the destruction of natural habitats."

The agreement comes almost six months after the UK introduced mandatory disclosure of greenhouse gas emissions for firms listed on the London Stock Exchange.

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