EN Official Journal of the European Union C 327/47

Opinion of the European Economic and Social Committee on the ‘Proposal for a Directive of the European Parliament and of the Council amending Council Directives 78/660/EEC and 83/349/EEC as regards disclosure of non-financial and diversity information by certain large companies and groups’

COM(2013) 207 final — 2013/0110 (COD)

2013/C 327/10

Rapporteur: Ms PICHENOT

On 2 May 2013, the Council, and, on 21 May 2013, the Parliament decided to consult the European Economic and Social Committee, under Article 50(1) of the Treaty on the Functioning of the European Union, on the

Proposal for a Directive of the European Parliament and of the Council amending Council Directives 78/660/EEC and 83/349/EEC as regards disclosure of non-financial and diversity information by certain large companies and groups

COM(2013) 207 final — 2013/0110 (COD).

The Section for the Single Market, Production and Consumption, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 27 June 2013.

At its 491st plenary session, held on 10 and 11 July 2013 (meeting of 11 July 2013), the European Economic and Social Committee adopted the following opinion by 95 votes to 31 with four abstentions.

1. Conclusions

1.1 The Committee welcomes the Commission's proposed amendments to the accounting directives concerning both disclosure of non-financial information and diversity on governing bodies. These limited amendments will help to improve the EU's corporate governance framework (1).

1.2 The Committee recommends that the European Parliament and the Council take account of the balance achieved with these amendments, which increase transparency regarding environmental, social and corporate governance (ESG). The Commission's proposal constitutes a flexible and appropriate mechanism for improving communication with shareholders, investors, workers and other stakeholders. This proposal is targeted only at large companies, in order to avoid imposing additional burdens on smaller businesses.

2. Recommendations

2.1 The Committee recognises that a balanced combination of the following elements will make it possible to provide shareholders at annual general meetings with non-financial information and to inform stakeholders in large companies. This set of requirements meets the stated objectives of transparency and consistency: — substantive non-financial information is incorporated in the annual report; — this information relates inter alia to environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters; — the information covers the company's policies in these areas, the results of those policies, the risks and uncertainties involved and how the company manages them; — the mechanism covers all limited liability companies within the scope of the current accounting directives; — subject to a threshold such that it applies only to companies with more than 500 employees and either a balance sheet total of over EUR 20 million or a net turnover of over EUR 40 million, which exempts SMEs from the requirement; — businesses can follow national, EU or international frameworks setting out principles and/or indicators as well as reporting guidelines; — each business prioritises the information relevant to it; — using the "comply or explain" method makes reporting mandatory but allows businesses some latitude where in their view the lack of information is justifiable; — the flexibility of the instrument means that the administrative burden need not rise, particularly as it provides the option of continuing to produce a separate report that meets the same requirements and is an integral part of the annual report.

2.2 Given this degree of balance, the Committee feels that this would be a good time to adopt the proposal for a directive amending the accounting directives: — at a time when civil societies are paying ever greater attention to businesses' impact on the community, when States and business communities are being expected to show greater transparency and when socially responsible investment is on the rise (2); — in a context where the Member States' national legislation and recommendations on non-financial reporting are still varied but are converging, where within the last ten years the international benchmarks by, for example, the OECD and the ILO were revised, and ISO 26000 was established, and where there has been ongoing refinement of tools for non-financial reporting such as those developed by the Global Reporting Initiative (GRI), the European Federation of Financial Analysts Societies (EFFAS), ratings agencies and corporate analysis bodies, as well as of sectoral benchmarks; — at a time when, at both European and international scale, the lessons learned from the financial, economic, social and environmental crises are increasing the need for transparency (3) concerning investment, taxation and anti-corruption measures, particularly in the extractive industries; — now that tools have been developed to quantify the environmental impact of productive activities, such as product life-cycle analysis, environmental footprint and calculating the cost of negative externalities; — and now that some businesses are responding to the concerns of responsible consumers by providing more sustainable goods and services, for example by avoiding planned obsolescence and encouraging fair trade.

2.3 The Committee welcomes the fact that these amendments to the accounting directives open up new prospects, as they: — move towards incorporating ESG issues into businesses' strategies and communications; — give shareholders' AGMs and responsible investment principles a more prominent role; — provide guarantees and degrees of flexibility that allow all businesses that see CSR as the microeconomic incarnation of sustainable development to commit to this progressive approach; — initiate a new approach to presentation and decision-making in business strategies, which focuses on the long term and strengthens the relationships between branches and the head of the group.

2.4 The Committee would draw the attention of the European Parliament and the Council to the following recommendations: — companies should outline the positive or negative effects of their actions on society; — companies should mention in their reports if there are workers' representatives on their boards; — bodies representing the workforce should be informed and consulted during the process of preparing the annual report; — the details in the ESG part of the report should be provided by specialists in the relevant fields, particularly with regard to the social and environmental aspects; — contractors should provide information on their relationship with their supply chain or value chain, inter alia with regard to labour rights and human rights; — businesses not subject to the directive could use this transparency-based approach on a voluntary basis to improve the way they operate; — Member States should incorporate the quality of non-financial reporting into their national CSR strategies; — when transposing the directive, Member States could, if they see fit, lower the stated thresholds to ensure that a significant number of the country's companies are included; — the Commission should be invited to launch or facilitate a process involving "multiple stakeholders" (4) with a view to more effectively establishing guidelines and reference standards to facilitate comparability and, in the longer term, harmonisation; — in its own promotional and awareness raising CSR policies, as laid down in the October 2011 Communication, the Commission should recommend relevant companies to use those international benchmarks for guidance on disclosure of non-financial information which demonstrate most affinity with its new definition of CSR.

2.5 The Committee endorses the proposed amendment to the fourth directive regarding the requirement to provide information on the diversity policy pursued by the company for its governing bodies.

2.6 It would stress that this does not only involve administrative and supervisory boards, and that it may be worth extending the diversity policy to cover board committees such as the audit committee.

2.7 It points out that the ambitions regarding numbers of women on boards have not been achieved in most Member States (5).

2.8 It believes that the diversity criteria should include the involvement of employee board members from the workplace, for example from the European Works Council, appointed by the trade unions.

2.9 The Committee finally recommends that the Commission make this revision subject to a non-regression clause in respect of existing national legislation, and carry out an assessment of the impact of these amendments to the accounting directives on corporate practice as regards disclosing non-financial information, within five years of the entry into force of the directive.

3. Contextual elements

3.1 The proposed amendments to the accounting directives follow on from the work done since the 2001 Green Paper on CSR (6), as supplemented by the communication in 2006 (7), and meet the commitments undertaken in the work plan in the communication from 2011 (8). These amendments are necessitated by the results of the impact assessment, showing the limited effectiveness of the non-financial information disclosed by businesses and largely fed by contributions from public consultation. The quality of the information is patchy, and not enough businesses are involved.

3.2 The Commission stated its intention to improve companies' transparency concerning social and environmental issues in April 2011, in its communication on the Single Market Act.

3.3 In its opinion on information and measurement instruments for CSR (2005) (9), the Committee referred to the fourth directive on annual accounts, which includes a provision on non-financial information giving businesses the option of disclosing certain information on the social and environmental aspects of their activities. In 2012, the Committee supported the Commission's objective of increasing diversity on administrative and supervisory boards. In its 2012 opinion (10) on the communication on CSR, the Committee reiterated its support for mandatory reporting of non-financial information.

3.4 The United Kingdom was the first Member State, in 1992, to introduce a corporate governance code (known as the Cadbury Code) (11) following the "comply or explain" principle. This approach was adopted, with variations in provisions, by other countries including Germany and Denmark. The flexibility of the method means that companies have a right to hold back information on certain sensitive issues, such as anti-corruption actions, that require a degree of discretion or even confidentiality in order to be effective.

3.5 Over the past decade, a number of Member States, including France, the Netherlands, the United Kingdom, Sweden and Spain, have adopted legislation aiming to create a national reporting framework with a view to harmonising European standards.

3.6 A European agreement on transparency in the extractive industries was concluded under the Irish Presidency, which revises the Accounting Directive. The directive now requires country-by-country and project-by-project transparency regarding all payments made by European extractive and logging companies to the States where they operate.

3.7 In its resolution of February 2013 (12), the European Parliament acknowledged the importance of businesses divulging information on sustainability such as social and environmental factors, with a view to identifying sustainability risks and increasing investor and consumer trust. The EP called on the Commission to present a proposal on the disclosure of non-financial information by companies.

3.8 In a context of crisis in which European public opinion is calling on businesses to act more ethically, CSR practices are acknowledged to be contributing factors in the European Union's trade and development policies and the implementation of the Europe 2020 strategy. They promote social and civil dialogue (societal dialogue), and should also improve understanding of the realities throughout the subcontracting chain. Disasters such as the collapse of the Rana Plaza building in Bangladesh are a reminder of the need to pay attention to the responsibility held by the client.

Brussels, 11 July 2013. The President of the European Economic and Social Committee Henri MALOSSE

(1) The EU corporate governance framework, OJ C 24, 28.1.2012, p. 91.

(2) Socially responsible financial products, OJ C 21, 21.1.2011, p. 33.

(3) European company law and corporate governance, CES982/2013 - INT/678.

(4) Employee involvement and participation, CESE 2096/2012 - SOC/470.

(5) Gender balance on company boards, OJ C 133, 9.5.2013, p. 68-76.

(6) COM(2001) 366 final.

(7) COM(2006) 136 final and OJ C 286, 17.11.2005, p. 12.

(8) COM(2011) 681 final and OJ C 229, 31.7.2012, p. 77.

(9) OJ C 286, 17.11.2005, p. 12.

(10) OJ C 229, 31.7.2012, p. 77.

(11) "The financial aspects of corporate governance", 1 December 1992.

(12) Resolution 2012/2098 (INI), rapporteur: Raffaele Baldassarre.