COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the document 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
Date: 2013-04-16
Institutions: European Commission
Subjects: auditing, closing of accounts, dissemination of information, firm governed by commercial law, large business, publication of accounts

EUROPEAN 
COMMISSION 

Brussels, 16.4.2013  
SWD(2013) 127 final 

COMMISSION STAFF WORKING DOCUMENT 

IMPACT ASSESSMENT 

Accompanying the document 

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} 
{SWD(2013) 128 final} 

EN 

   EN 

 
 
 
 
  
 
TABLE OF CONTENT 

1  Procedural Issues and Consultation of Interested Parties........................................................... 2 
Procedural issues ........................................................................................................ 2 

1.1. 

1.2.  Recommendation of the Impact Assessment Board................................................... 3 

2  Policy context............................................................................................................................. 4 
CSR, Corporate Governance and Non-Financial Information ................................... 4 

2.1 

2.2 

2.3 

Existing legislation and international frameworks..................................................... 5 

On-going EU Initiatives ............................................................................................. 7 

3  Problem definition and Subsidiarity........................................................................................... 7 
Problem 1: Inadequate Transparency of Non-Financial Information ...................... 10 

3.1 

3.2 

Problem 2: Insufficient board diversity.................................................................... 12 

3.3  Which stakeholders are affected and how? .............................................................. 17 

3.4 

3.5 

Baseline Scenario: How will the problem evolve without action? .......................... 21 

The EU's right to act................................................................................................. 22 

4  Objectives................................................................................................................................. 23 
5  Policy Options - description and analysis ................................................................................ 24 
Options relating to Increasing Transparency of Non-Financial Information ........... 24 

5.1 

5.2 

5.3 

5.4 

Options relating to Enhancing boards diversity ....................................................... 31 

Choice of instrument ................................................................................................ 34 

Scope of Application................................................................................................ 35 

6  Cumulative Impacts of the preferred options........................................................................... 37 
Expected Primary Impacts ....................................................................................... 37 

6.1 

6.2 

Other impacts ........................................................................................................... 40 

7  Monitoring and Evaluation....................................................................................................... 42 
7.1  Monitoring................................................................................................................ 43 

7.2 

Evaluation................................................................................................................. 43 

Annex I - Summary of Public Consultations ....................................................................... 44 

Annex II- Relevant Provisions of the Accounting Directives.............................................. 46 

Annex III- Recent developments in some EU Member States............................................. 49 

Annex IV - International frameworks .................................................................................. 55 

Annex V - Other EU Initiatives on Diversity....................................................................... 58 

Annex VI - Non-Financial Transparency: Detailed Analysis of Policy Options ................. 60 

Annex VII - Increasing Board Diversity: Detailed Analysis of Broad Policy Options ....... 73 

Annex VIII - Estimation of Administrative burden of broad policy options ....................... 82 

Annex IX - Definitions......................................................................................................... 87 

Annex X - Bilateral meetings with stakeholders.................................................................. 88 

1 

 
Introduction 

This  Impact  Assessment  considers  the  case  of  improving  the  disclosure  of  non-financial 
information  by  EU  companies  as  part  of  a  broader  set  of  EU  initiatives  on  corporate 
governance and Corporate Social Responsibility (CSR) aimed at creating a highly competitive 
social market economy.  

Non-financial  information  is  generally  seen  as  environmental,  social  and  governance 
(ESG) information. This can be disclosed in the form of a statement in the annual report, or a 
separate  corporate  governance  statement,  a  separate  report,  or  published  on  company 
websites, etc. The Accounting Directives1 already address the formal disclosure of employee-
related  and  environmental  information  by  EU  companies.  However,  the  need  to  improve 
transparency in this field has been highlighted by the Commission in the Single Market Act 
(hereinafter SMA)2. The SMA aims at, inter alia, enhancing new, greener and more inclusive 
growth.  In  this  context,  companies'  non-financial  transparency  has  attracted  attention  as  a 
"smart  lever"  to  strengthen  citizen  and  consumer  trust  and  confidence  in  the  Single  Market 
and to encourage sustainable economic growth.  

Governance information concerns specifically information on how companies are governed. 
With the publication of a Green Paper in 20113, the Commission has initiated a review of the 
current  EU  corporate  governance  framework.  Taking  action  to  improve  companies' 
transparency on their board diversity policy and risk management is one of the first steps of 
this  review.  Other  initiatives  in  the  field  of  corporate  governance  were  announced  in  a 
Communication  presenting  an  Action  Plan  on  Company  Law  and  Corporate  Governance 
adopted  in  December  20124.  In  general  terms,  information  concerning  board's  diversity  and 
risk management can be considered as part of the broad set of non-financial information that a 
company may disclose. Increasing transparency in this field has thus the potential to enhance 
boards'  diversity  and  improve  risk  management  arrangements.  It  has  therefore  been  deemed 
appropriate  to  deal  with  problems  concerning  both  (i)  the  lack  of  transparency  of  non-
financial information and (ii) insufficient diversity in the boards into one Impact Assessment. 
Nevertheless, as diversity-related issues may go beyond transparency considerations as such, 
in  some  sections  they  are  analysed  separately.  The  results  of  this  Impact  Assessment  show 
that  it  is  preferable  to  address  the  identified  problems  through  one  legislative  proposal 
modifying the existing Accounting Directives. 

1 

PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES  

1.1. 

Procedural issues  

The  initiative  on  non-financial  reporting  was  included  in  the  Commission's  2012  Work 
Programme.  This  Impact  Assessment,  led  by  DG  Internal  Market  and  Services,  was  guided 
and monitored by an Inter-Services Steering Group (IASG). The Group has held six meetings 
on 27 May, 19 July and 26 October 2011, and on 20 January, 10 February and 26 April 2012. 
The  following  Directorates  General  were  invited  to  participate:  Secretariat-General,  Legal 

1   Directive  78/660/EEC  on  the  annual  accounts  of  certain  types  of  companies  ("Fourth  Company  Law 

2 

Directive") and Directive 83/349/EEC on consolidated accounts("Seventh Company Law Directive") 
"Single Market Act-Twelve levers to boost growth and strengthen confidence", COM (2011) 206, http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0206:FIN:EN:PDF, p 15 

3  http://ec.europa.eu/internal_market/company/modern/corporate-governance-framework_en.htm 
4 See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0740:FIN:EN:PDF. 

2 

 
  
                                                 
Service,  Health  and  Consumers  Protection,  Enterprise  and  Industry,  Eurostat,  Employment 
and  Social  Affairs,  Trade,  Environment,  Development  Cooperation,  Energy,  Research, 
Justice, Home Affairs., External Action Service. The Minutes of the last meeting of the IASG 
were provided to the Impact Assessment Board.  

1.2. 

Recommendation of the Impact Assessment Board  

The  Impact  Assessment  Board  meeting  took  place  on  20  June  2012.  The  present  document 
takes  account  of  the  comments  received  by  the  Board  on  the  draft  impact  assessment.  The 
report needed to establish more clearly the scope and the scale of the identified problems, and 
better  demonstrate  the  evidence  between  the  problems  and  their  consequences.  Secondly,  it 
needed to better present the content of the options, the differences between them, and provide 
additional  information  on  the  added  value  of  the  preferred  option  vis-à-vis  the  baseline 
scenario.  Thirdly,  the  report  needed  to  better  consider  the  impacts  of  the  policy  options,  by 
better comparing the advantages and disadvantages of each option.  

1.3. 

External expertise and consultation of interested parties 

1.3.1.  Public Consultations  

Stakeholders  have  been  consulted  through  various  means  in  order  to  obtain  their  views  on 
how to improve non-financial disclosure requirements and practices. A public consultation on 
disclosure  of  non-financial  information  by  companies  was  conducted  between  November 
2010  and  January  20115.  A  summary  of  the  consultation's  results  is  attached  to  this  Impact 
Assessment (see Annex 1).  

Between  September  2009  and  March  2010 
the  Commission  hosted  a  series  of 
multistakeholder  roundtables  on  this  issue6.  Consultations  with  stakeholders  also  took  place 
through  a  number  of  other  instruments  and  fora,  including  the  Member  States  High-Level 
Group  on  CSR,  the  Multi-stakeholders  forum  coordination  committee7,  or  the  Accounting 
Regulatory  Committee.  The  Commission  services  have  also  contributed  to  the  work  of  the 
Laboratory on Valuing Non-Financial Performance8.  Moreover, since 2010 the Commission 
services had a series of bilateral meetings with stakeholders.  

As regards board's diversity and risk management, a general consultation on the EU corporate 
governance  framework,  was  held  between  April  and  August  20119.  The  summary  of  the 
consultation results is attached to this Impact Assessment (see Annex 1)10. 

5   Public Consultation on Disclosure of Non-Financial Information by companies. The summary report and the 
received  are  available  at  http://ec.europa.eu/internal_market/consultations/2010/non-

responses 

260 
financial_reporting_en.htm  

6   http://ec.europa.eu/enterprise/policies/sustainable-business/corporate-social-responsibility/reporting-

disclosure/swedish-presidency/index_en.htm  

7   http://forum.europa.eu.int/irc/empl/csr_eu_multi_stakeholder_forum/info/data/en/csr%20ems%20forum.htm  
8  http://ec.europa.eu/enterprise/newsroom/cf/_getdocument.cfm?doc_id=5310  
9   Green Paper on the EU Corporate Governance Framework, 

http://ec.europa.eu/internal_market/company/modern/corporate-governance-framework_en.htm 

10   The full text of the feedback statement is available at: 

http://ec.europa.eu/internal_market/company/docs/modern/20111115-feedback-statement_en.pdf and the 409 
responses received at http://ec.europa.eu/internal_market/consultations/2011/corporate-governance-
framework/index_en.htm. 

3 

 
                                                 
1.3.2.  Expert Group 

An  ad-hoc  Expert  Group  was  established  with  a  mandate  to  provide  expert  advice  to  the 
European  Commission  on  the  Impact  Assessment.  The  group  included  individuals  with 
relevant  knowledge  and  proven  experience  representing  companies,  investors,  consumer 
organisations,  trade  unions,  auditors,  international  guidelines-setting  organisations  and 
academia.  The  experts  met  four  times  between  July  2011  and  January  2012  and  discussed 
questions concerning specific policy proposals, the scope and nature of a potential legislative 
requirement,  the  role  that  non-financial  information  could  play  in  promoting  companies' 
performance,  accountability  and  efficiency  of  capital  markets.  The  summaries  of  these 
meetings, 
at: 
relevant 
http://ec.europa.eu/internal_market/accounting/committees/disclosure_en.htm 

documents, 

available 

together 

with 

are 

all 

1.3.3.  External Study 

The Centre for Strategy and Evaluation Services (CSES) was contracted to produce a study on 
"Disclosure  of  Non-Financial  Information  by  Companies".  This  research  paper  includes  a 
qualitative  analysis  of  current  non-financial  reporting  practices  as  well  as  a  cost/benefit 
assessment based on a survey.  The sample covered 71 EU companies of all sizes established 
in eight different Member States11, covering sectors such as food, consumer products, banking 
and  financial  services,  manufacturing,  utilities  and  mining.  The  final  report  is  available  at 
http://ec.europa.eu/internal_market/accounting/non-financial_reporting/index_en.htm  

2 

POLICY CONTEXT  

2.1 

CSR, Corporate Governance and Non-Financial Information  

In the follow up to the SMA, and building on the "EU 2020 Agenda", the Commission has put 
forward  a  package  of  measures  (the  "Responsible  Business  Package") 
to  support 
entrepreneurship  and  responsible  business.  The  package  includes  legislative  proposals  to 
revise the Accounting Directives and the Transparency Directive, with the aim of improving 
transparency and promoting sustainable business, and simplifying accounting rules for SMEs, 
along with two Communications on the "Social Business Initiative" and "A renewed strategy 
2011 – 2014 for Corporate Social Responsibility" (hereinafter CSR Communication) 

CSR is thereby defined as "the responsibility of enterprises for their impacts on society"12. A 
strategic  approach  to  CSR  is  increasingly  important  for  competitiveness,  as  it  can  bring 
benefits in terms of risk management, cost savings, access to capital, customer relationships, 
human  resource  management  and  innovation  capacity.  In  order  to  fully  meet  their  social 
responsibility,  enterprises  should  therefore  have  in  place  a  process  to  integrate  social, 
environmental,  ethical,  human  rights  and  consumer  concerns  into  their  business  operations 
and  core  strategy  in  collaboration  with  their  stakeholders.  The  aim  of  such  a  process  is 
twofold: first, to maximise the creation of shared value, able to generate returns on investment 
for  the  company's  owners/shareholders  at  the  same  time  as  ensuring  benefits  for  other 
stakeholders.  Second,  to  identify,  prevent  and  mitigate  possible  adverse  impacts  which 
companies may have on society. 

11   The  sample  covered  the  following  Member  States:  Denmark,  Germany,  Spain,  France,  Italy,  Netherlands, 

Poland and United Kingdom.  

12   This definition, introduced by the CSR Communication,  is consistent with internationally recognised CSR 
principles and guidelines, such as the OECD Guidelines, the ISO 26000 Standard and the UN Principles on 
Business and Human Rights. 

4 

 
                                                 
Corporate  governance  is  traditionally  defined  as  the  system  by  which  companies  are 
directed and controlled13 and as a set of relationships between a company’s management, its 
board, its shareholders and its other stakeholders14. A boards' composition, and in particular 
the diversity of members' profiles, is an integral element in the overall corporate governance 
of a company. A greater diversity gives the board a wider range of values, views and sets of 
competences, while reflecting the diversity of the population in Europe. It helps to tackle the 
phenomenon  of  "group  think",  thus  enabling  the  board  to  perform  better  in  their  role  of 
oversight of management decisions.  

Corporate  governance  and  CSR  can  therefore  be  seen  as  two  distinct  yet  complementary 
concepts,  as  the  way  a  company  is  directed  and  controlled  is  intrinsically  linked  with  its 
impact on society. A strategic approach to both CSR and corporate governance is increasingly 
important for competitiveness15, as it involves crucial aspects for long-term performance. By 
supporting  and  promoting  these  policies,  the  Commission  aims  therefore  at  creating 
conditions  favourable  to  a  full  exploitation  of  the  Single  Market  potential  for  sustainable 
growth and employment, based on responsible business behaviour and lasting job creation for 
the medium and long-term. In order to achieve this broad objective, the CSR Communication 
proposes a number of actions for the period 2011–2014 including, in particular, a reiteration 
of  the  proposal  to  improve  transparency  in  the  field  of  non-financial  information.  Non-
financial transparency represents a key element of a CSR policy as it is linked to the capacity 
of  companies  to  measure  their  non-financial  performance,  and  thus  their  impact  on  society. 
Since 2006 the European Parliament has called on the Commission to put forward initiatives 
in order to strengthen the EU legal framework on social and environmental reporting.  

2.2 

Existing legislation and international frameworks 

The  disclosure  of  non-financial  information  is  currently  addressed  in  EU  legislation  via  the 
Accounting Directives16, requiring companies and groups to include where appropriate and to 
the  extent  necessary  for  an  understanding  of  the  company's  development,  performance  or 
position,  environmental  and  employee-related  information  in  their  annual  or  consolidated 
annual  report.  Member  States,  may  exempt  small  and  medium-sized  companies  from  this 
obligation (See Annex 2). Some Member States (including the UK, Sweden, Spain, Denmark 
and  France)  have  recently  introduced  national  disclosure  requirements  going  beyond  this 
obligation.  More  details  on  key  developments  in  EU  Member  States  are  given  in  Annex  3. 
Overall,  this  development  is  part  of  an  international  trend  away  from  purely  voluntary 
disclosure17.  The  US,  China,  India  and  South  Africa,  among  others,  have  recently  been 
strengthening regulation in this field18.  

13  Report of the Committee on the Financial Aspects of Corporate Governance (The Cadbury Report), 1992, p. 

15, http://www.ecgi.org/codes/documents/cadbury.pdf. 

14  OECD 

Principles 

of 

Corporate 

Governance, 

2004, 

p. 

11,  

http://www.oecd.org/dataoecd/32/18/31557724.pdf. 

15   Such  approach  emphasises  the  importance  of  the  interconnections  between  CSR  and  the  core  business 

strategy of companies, as already underlined in the Commission's 2008 Competitiveness Report. 

16   As amended by the "Modernisation Directive, Directive 2003/51/EC , http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32003L0051:EN:NOT 

to 

17    "Carrots  and  Sticks:  Promoting  Transparency  and  Sustainability:  An  update  on  trends  in  Voluntary  and 
2010, 

Mandatory 
Sustainability 
http://www.unep.fr/shared/publications/pdf/WEBx0161xPA-Carrots%20&%20Sticks%20II.pdf 

UNEP/KPMG/GRI, 

Approaches 

Reporting", 

18   In  the  US  SEC  issued  the  "Guidance  Regarding  Disclosure  related  to  Climate  Change"  in  2010,  requiring 
listed  companies  to  disclose  material  climate  change-related  risks.  In  China,  since  2008  all  Chinese  State–
owned  enterprises  should  establish  a  CSR  information  reporting  system,  on  the  basis  of  the  Guidelines  on 
Fulfilling  Corporate  Social  Responsibilities  issued by  SASAC.  In  India, since  2011  the  Security  Exchange 
Board  (SEBI)  requires  listed  entities  to  submit  a  Business  Responsibility  Report  as  part  of  their  Annual 

5 

 
                                                 
At  the  global  level,  several  initiatives  provide  generally  accepted,  non-legally  binding 
guidance for companies on CSR and sustainability aspects. These include the Ten Principles 
of the UN Global Compact, the OECD Guidelines for Multinational Enterprises, the ILO Tri-
partite  declaration  of  Principles  on  Multinational  Enterprises  and  Social  Policy,  the  ISO 
26000  standard  on  social  responsibility  and  the  UN  Guiding  Principles  on  Business  and 
Human Rights. As far as reporting frameworks are concerned, the Global Reporting Initiative 
(GRI) appears at the moment to be the most widely adopted initiative19. Finally, the recently 
established  International  Integrated  Reporting  Council  (IIRC)20  aims  at  defining  a  global 
framework for Integrated Reporting that would bring together financial, environmental, social 
and  governance  information  in  one  report.  More  details  on  such  initiatives  are  provided  in 
Annex 4. 

While  the  issue  of  social  and  environmental  disclosure  has  been  on  the  EU  agenda  for  a 
decade,  a  regulatory  debate  on  boards'  diversity  has  only  recently  been  established.  In  this 
regard  it  is  important  to  note  that  there  are  no  rules  at  EU  level  relating  specifically  to 
diversity  of  companies'  boards21.  Current  provisions  in  the  field  of  company  law  and 
corporate  governance  only  require  the  disclosure  of  some  general  information  relating  to 
boards.  In  particular,  the  Accounting  Directive  requires  listed  companies  and  groups  to 
provide a corporate governance statement, which will include, inter alia, information on the 
composition  and  operation  of  the  administrative,  management  and  supervisory  bodies  and 
their committees22 (see also Annex 2). At Member State level, the approach towards diversity 
in  the  boardroom  varies  considerably,  in  particular  with  regard  to  gender  aspects,  which  is 
often  regarded  as  a  key  aspect  of  diversity23.  In  order  to  correct  the  imbalances,  several 
Member States have taken measures to ensure a stronger proportion of women on boards (e.g. 
binding  or  indicative  quotas  for  listed  or  state  owned  companies  have  been  introduced  in 
Spain, France, Belgium, Italy and the Netherlands). In certain countries quotas apply only to 
state  owned  companies  (e.g.  in  Austria,  Finland  or  Greece).  Other  countries  prefer  more 
flexible measures implemented in the national Corporate Governance Codes or similar acts, 
such as voluntary targets (Denmark, Austria) or reinforced disclosure on the diversity policy 
(Finland,  Sweden  and  UK).  For  more  information  on  the  situation  in  Member  States,  see 
Annex 3. 

At  international  level,  the  GRI  Guidelines  recommend  reporting  on  the  composition  of  the 
highest governance body in terms of its diversity, including gender, age group and minority 
aspects24. It also recommends reporting about the process for determining the composition of 

Report,  http://www.sebi.gov.in/sebiweb/home/list/4/23/0/0/Press-Releases.  In  South  Africa,  since  2010,  the 
Johannesburg  Stock  Exchange  (JSE)  requires  that  all  listed  companies  produce  an  integrated  report,  on  a 
"report  or  explain"  basis  https://www.saica.co.za/tabid/695/itemid/2344/language/en-ZA/An-integrated-
report-is-a-new-requirement-for-list.aspx 

19   Other initiatives provide specific guidance or indicators covering a range of ESG aspects. See 

"Environmental, Social and Governance Indicators", FEE, 2011. Voluntary frameworks are also developed at 
national level, such as the German Sustainability Code, http://www.nachhaltigkeitsrat.de/en/home/  

20   http://www.theiirc.org/ 
21   Current primary and secondary provisions focus more on non-discrimination as a fundamental principle, and 
in particular on promoting equality between women and men, rather than on diversity in the boardroom as 
such. See http://ec.europa.eu/justice/discrimination/law/index_en.htm and  http://ec.europa.eu/justice/gender-
equality/law/index_en.htm.  

22   Article  2  paragraph d(ii) of the  Directive 2009/101/EC requires  Member  States  to  take  measures  to  ensure 
compulsory  disclosure  by  companies  of  information  about  the  appointment,  termination  of  office  and 
particulars of the persons who either as a body constituted pursuant to law or as members of any such body 
which take part in the administration, supervision or control of the company. 

23   "The  Gender  Balance 

in  Business  Leadership",  European  Commission 

SWD, 

2011, 

http://ec.europa.eu/justice/gender-equality/gender-decision-making/index_en.htm  

24   GRI G3.1 guidelines, point 4.1 

6 

 
                                                                                                                                                         
this body, including considerations of gender and other aspects of diversity25. In the US the 
Securities  Exchange  Commission  rules  on  Proxy  Disclosure  Enhancement26  require 
companies to provide information regarding "the consideration of diversity in the process by 
which candidates for director are considered for nomination".   

2.3 

On-going and recent EU Initiatives  

Besides the above-mentioned initiatives, other EU frameworks address specific topical issues, 
in  particular  concerning  the  environmental  area.  This  includes,  for  instance,  the  EMAS 
scheme27, where sectorial reference documents and KPIs are developed and suggested. On 10 
April 2013 the Commission has adopted the Single Market for Green Products package28 . As 
part of this package, the use of the Organization Environmental Footprint (OEF) methodology 
for  reporting,  improving  and  incentivizing  environmental  performance  is    also  envisaged29. 
Such  initiative  refers  in  particular  to  the  quantification  and  reporting  of  environmental 
information,  while  this  Impact  Assessment  deals  with  a  broader  set  of  aspects  related  to 
disclosure of non-financial information. In addition the ICT industry has developed a standard 
to measure the energy and carbon footprint of  its organisations  following  Key Action 12 in 
the European Commission's Digital Agenda for Europe30. This methodology could be used as 
a  basis  for  company  reporting  and  is  currently  being  piloted  by  the  industry  under  the 
auspices of the European Commission31. The work on these initiatives is running in parallel, 
and they are considered complementary.  

Further, the Commission has proposed legislation with the aim of attaining a 40 % objective 
of  the  under-represented  sex  in  non-executive  board-member  positions  in  publicly  listed 
companies32 . However, while the proposed gender balance Directive would only contribute 
to  enhancing  gender  diversity,  the  present  initiative  would  be  more  general,  aiming  at 
increasing  overall  diversity.  The  scope  of  the  two  initiatives  would  therefore  be 
complementary. Indeed, setting objectives does not, for the time being, seem to be the right 
policy to address broader diversity aspects, such as educational and professional background, 
age or nationality. Enhanced disclosure of the diversity policy of corporate boards, and a more 
efficient  monitoring  of  the  implementation  of  the  policy,  may  be  likely  to  contribute  to  the 
implementation of the quantitative targets set by companies themselves. 

Finally,  a  political  agreement  has  been  reached  recently  on  measures  aimed  at  enhancing 
diversity  on  boards  of  banks  and  investment  firms  in  the  framework  of  the  Capital 
Requirements  Directive  IV33.  Indeed,  diversity  in  board  composition  should  contribute  to 
effective  risk  oversight  by  boards  of  banks,  providing  for  a  broader  range  of  views  and 

25   GRI G3.1 guidelines, point 4.7 
26   http://www.sec.gov/rules/final/2009/33-9089.pdf. The requirement entered into force in 2010. 
27   EMAS  Regulation  1221/2009,  in  Annex  IV  defines  core  environmental  KPIs.  Flexibility  is  guaranteed  by 
allowing companies to exclude some of the core KPIs in case they can explain why these are not material for 
their activity.  

28 http://ec.europa.eu/environment/eussd/smgp/index.htm 
29   http://ec.europa.eu/environment/eussd/corporate_footprint.htm.  
30 COM(2010) 245 
31 http://www.ict-footprint.eu/ 
32   Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  on  improving  the  gender  balance 
among non-executive directories of companies listed on stock exchanges and related measures, 14 November 
2012, 
http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0614:FIN:en:PDF  

COM(2012) 

final. 

614 

See 

33   On 20 July 2011, the Commission adopted a legislative package to strengthen the regulation of the banking 
sector (CRD IV Package). The proposal replaces the current Capital Requirements Directives (2006/48 and 
2006/49)  with  a  Directive  and  a  Regulation.  The  Directive  governs  the  access  to  deposit-taking  activities 
while 
respect. 
http://ec.europa.eu/internal_market/bank/regcapital/new_proposals_en.htm  

the  Regulation  establishes 

institutions  need 

the  prudential 

requirements 

to 

7 

 
                                                 
opinion and therefore avoiding the phenomenon of group think. CRD IV therefore introduces 
a number of requirements, in particular as regards gender balance. More information on these 
and on other parallel initiatives can be found in Annex 5. 

3 

PROBLEM DEFINITION AND SUBSIDIARITY  

This  section  outlines  the  problems  associated  with  the  current  non-financial  disclosure 
practices by EU companies and with the lack of diversity in boards, which have led to calls 
for  initiatives  in  these  fields.  It  also  explores  their  drivers  and  consequences,  which  will 
inform the policy objectives discussion following later in this Impact Assessment.  

The  Commission  services  have  identified  two  main  issues  concerning  the  inadequate 
transparency  of  non-financial  information  (Problem  1)  as  well  as  the  insufficient 
diversity in the boards (Problem 2). Such problems are analysed separately in sections 3.1 
and  3.2  below,  as  they  respond  to  different  drivers:  the  lack  of  diversity  in  boards  is  in 
particular a matter of corporate governance processes, and the analysis of this problem may 
go beyond the issues strictly related to transparency. Section 3.3 further analyses the prejudice 
that  such  problems  pose  to  specific  stakeholders  groups,  concerning  in  particular  preparers 
(companies)  and  users  (investors,  NGOs,  civil  society  organisations)  of  information.  The 
drivers  and  consequences  of  the  above-mentioned  problems  are  depicted  in  the  following 
problem tree: 

8 

 
Market Failure: Insufficient/uneven incentives for 
companies to disclose non-financial information 
despite an increasing demand from stakeholders 

Regulatory Failure: 
AD requirement 
ineffective. Legal 
framework 
fragmented, with 
significant differences 
amongst Member 

Insufficient incentives for companies to have 
diversified Boards 

 Transparency: insufficient quantity 
of non-financial information.  

~ 94% of EU large companies do not 
disclose any non-financial information 
(including diversity) 

Transparency: insufficient 
quality of non-financial 
information  

Disclosed information is not 
sufficiently material, accurate, 
timely, clear, comparable, and 
reliable

Insufficient diversity 
of views within the 
Board (group think) 

Drivers 

Insufficient challenge of senior 
management decisions by the 
Board

Companies perceived as not 
sufficiently accountable and 
unmet information demands 
from civil society 

Less efficient markets: investors 
may fail to build relevant non-
financial information into their 
decision-making process/take 
informed decisions

Lower companies' performance 
Potential ineffective oversight by the 
Board. Management and Boards may not 
fully integrate non-financial issues into 
business and strategy

Impacts on trust in 
business and the market  

Suboptimal allocation of 
capital  

Insufficient identification of 
risks and opportunities in 
general  

Single Market potential for sustainable growth and employment not fully exploited  

Problems 

Consequences 

9 

 
 
 
 
 
 
 
 
 
3.1 

Problem 1: Inadequate Transparency of Non-Financial Information                                             

The environmental and social impacts of business have been the subject of public debates for 
at least three decades, as some serious incidents, allegedly caused by the business' failure to 
properly manage their environmental and social risks received significant public attention and 
media coverage. Market and social pressures on business have grown over the last few years 
and sustainability has moved up the corporate agenda. In parallel, non-financial performance 
appears to be considered increasingly important for investment strategies, particularly in the 
long  term,  as  demand  for  non-financial  information  by  both  Socially  Responsible  Investors 
(SRIs) and mainstream investors shows a growing trend34. The proliferation of sustainability 
ratings and indexes could also be brought as additional evidence in this respect35.  

An increasing number of companies has been responding to this pressure by disclosing non-
financial  information  in  the  Annual  Reports,  or  stand-alone  reports.  According  to  recent 
statistics, the global number of reports per year increased from almost zero in 1992 to ~ 4000 
in  201036,  almost  80%  of  the  world's  250  largest  companies  report  on  their  sustainability37, 
and the number of EU companies publishing sustainability reports using the GRI guidelines 
increased  from  270  in  2006  to  over  850  in  201138.  However,  the  analysis  and  the  public 
consultations conducted by the Commission's services highlighted that, despite such uptake, 
the  pace  of  progress  towards  more  transparent  disclosure  practices  remains  slow,  and  a 
majority  of  users  (including  in  particular  investors,  NGOs  and  other  civil  society 
organisations) consider the current level of transparency in this field as unable to meet their 
needs39.  Specific  issues  have  been  highlighted  with  regard  to  both  quantity  and  quality  of 
information available.  

In terms  of  quantity, it is estimated  that the  total number  of  EU  large  companies  disclosing 
non-financial information through the Annual Report or a stand-alone report on a yearly basis 
amounts to ~250040. It follows that 94% of the total ~ 42000 EU large companies currently do 
not  disclose  non-financial  information.  More  than  50%  of  the  reports  are  published  by 
companies established in four Member States only (UK, DE, ES and FR)41. A recent study42 
confirmed that only 36% of companies surveyed have issued at least one sustainability report 
in the last 3 years, and while 19% are planning to do so in the short term, 38% still have no 
plans to set up any reporting mechanism.  

34   SRIs  have  been  growing  significantly  in  the  last  decade:  signatories  to  the  UN  principles  on  Responsible 
Investment (UNPRI) rose by 30 % from August 2010 to 2011, and include now over 900 asset owners and 
investment managers overseeing $30 trillion in assets. According to Eurosif, the total market reached a total 
of  5  trillion  euros  in  2009.  See  http://www.unpri.org/publications/2011_report_on_progress.pdf,  or 
"Challenges 
2009, 
http://www.sseinitiative.org/files/GS_SUSTAIN__Challenges_in_ESG_disclosure_and_consistency.pdf  
35  Including the Dow Jones Sustainability Indexes, the FTSE4Good Index or the Tomorrow's Value Rating 
36   http://www.globalreporting.org/Home. 
37   "The  State  of  Play  in  Sustainability  Reporting  in  the  European  Union",  CREM/Adelphi,  2011    p.24, 

consistency",  Goldman 

Sachs  Group, 

disclosure 

ESG 

and 

in 

http://ec.europa.eu/social/main.jsp?langId=en&catId=89&newsId=1013&furtherNews=yes 

38  http://www.globalreporting.org/NR/rdonlyres/EDEB16A0-34EC-422F-8C17-

57BA6E635812/0/GRIReportingStats.pdf  
39   Public Consultation Summary report, p. 6 
40   www.corporateregister.org.  As  there  is  no  universally  accepted  definition  of  non-financial  information, 
different  figures  co-exist  as  regards  the  total  number  of  companies  disclosing  non-financial  information 
world-wide and within the EU. For an overview, see CREM/Adelphi, 2011 

41    "Global Winners& Reporting Trends", CorporateRegister.com, 2012 

http://www.corporateregister.com/crra/help/CRRA-2012-Exec-Summary.pdf  

42   "Corporate  Sustainability.  A  Progress  Report."  KMPG  and  Economist  Intelligence  Unit,  2010, 
http://www.kpmg.com/global/en/issuesandinsights/articlespublications/pages/corporate-sustainability.aspx 

10 

 
 
                                                 
Specific  issues  were  also  underlined  as  regards  the  quality  of  the  information  currently 
disclosed.  Overall,  a  majority  of  users  considered  that  information  is  often  not  sufficiently 
material,  balanced,  accurate,  timely  and  comparable.43  The  following  specific  information 
gaps were highlighted in this respect:  
−  Companies  tend  to  focus  only  on  their  positive  performances;  reports  are  often 
inconsistent  over  time,  or  information  is  not  disclosed  on  a  yearly  basis;  performance-
related information is not reported; material negative externalities are often not disclosed.  
−  Disclosures  do  not  cover  aspects  of  significant  relevance  for  both  internal  and  external 
stakeholders,  particularly  as  regards  risk-management  aspects,  human  rights,  and 
corruption matters. 

−  The use of Key Performance Indicators (KPIs) is considered "poor" by most users,44,  
−  Reports are often not subject to independent verification, with prejudice for the reliability 

of the information45.  

Existing research supports the claim that the level of quality of information does not meet the 
users' needs. A report published by UNCTAD in 201046 underlines, for example, significant 
inconsistencies  amongst  reports,  with  prejudice  for  the  comparability  of  the  information 
disclosed.47.  Significant  reporting  weaknesses  include  the  provision  of  irrelevant  or  missing 
data,  unsubstantiated  claims  and  inaccurate  figures.48.  According  to  another  research49,  for 
instance,  out  of  20,000  publicly  listed  companies  recently  reviewed  through  Bloomberg’s 
database,  less  than  25%  publicly  reported  on  a  single  piece  of  quantitative  data  concerning 
environmental,  social  or  governance  issues.  As  regards  human  rights  in  particular,  a  study 
conducted by the University of Edinburgh found that information is in most cases isolated and 
anecdotal50.  

Drivers of the Problem 

The  inadequate  level  of  transparency  determined  by  the  insufficient  quantity  and  quality  of 
non-financial information appears to be caused by both a market and a regulatory failure:  

A) Market Failure. Despite the progress mentioned above, there is evidence that companies 
have not been able to provide an appropriate response to users' and societal demand for non-
financial  transparency.  The  reason  for  such  failure  is  to  be  found  in  the  insufficient  and 
uneven incentives provided by the market: on the one hand, the cost of transparency is certain, 
measurable  and  short  term,  particularly  as  regards  externalities.  On  the  other  hand,  the 

43   Public Consultation Summary report, p. 5 
44   Ibid, p. 10 
45    Public Consultation Summary report, p.15, and CREM/Adelphi, 2011 
46   "Investment and Enterprise Responsibility Review: Analysis of investor and enterprise policies on corporate 
social  responsibility",  UNCTAD,  2010.  Based  on  a  sample  of  100  amongst  the  largest  MNCs  wordwide, 
http://www.unctad.org/en/docs/diaeed20101_en.pdf 

47   Ibid, p. xiv  
48   For  instance,  out  of  443  EU  companies  featuring  in  the  FTSE  All  World  Index  between  2005  and  2009, 
fewer than one in six reported greenhouse gas emissions that covered all corporate activities, while others did 
not say which activities their data referred to. Survey conducted by Leeds University/Euromed on a sample 
http://www.see.leeds.ac.uk/news/news-
reports, 
of 
inner/?tx_ttnews%5Btt_news%5D=116&cHash=737fcc26246e7815d368df8eacf08ff5. 
not 
available yet.  

Reference 

4,000 

CSR 

49   Bloomberg analysis, data provided by email to European Commission services on 9 September 2011 
50   "Study of the Legal Framework on Human Rights and the Environment Applicable to European Enterprises 
Operating Outside the European Union", study prepared by the University of Edinburgh for the European 
Commission, 2010, http://ec.europa.eu/enterprise/policies/sustainable-business/files/business-human-
rights/101025_ec_study_final_report_en.pdf  

11 

 
 
                                                 
benefits related to increased non-financial transparency are often perceived as uncertain, long-
term,  or  external  to  the  company.  Such  asymmetry  determines  that  companies  don’t  have 
sufficient incentives to disclose non-financial information. One could assume that if their non-
financial impacts are not known to stakeholders, companies will have little incentive to adjust 
their  behaviour  and  to  take  due  account  of  non-financial  externalities  into  their  decision-
making. As a consequence, investors' and societal demand remains unmet.  

B)  Regulatory  Failure:  as  explained  in  section  2.2  above,  regulators  have  already  tried  to 
address this failure both at EU and at Member States' level.  

−  At  EU  level,  an  overall  majority  of  stakeholders  consulted  considers  the  obligation 
introduced  by  the  Modernisation  Directive  as  ineffective,  mainly  due  to  design 
weaknesses.  In  particular,  it  appears  that  the  filters  provided  in  the  current  wording 
(information to be disclosed only "where appropriate" and "to the extent necessary for an 
understanding of the company's development, performance or position ") fail to provide a 
clear  legal  obligation.  This  has  led  the  majority  of  companies  to  consider  the  current 
reporting regime as purely "voluntary".  

−  Some  Member  States  have  implemented  legislation  going  beyond  this  obligation. 
However,  such  requirements  vary  to  a  great  extent  in  terms  of  content  and  scope.  In 
Denmark,  for  instance,  companies  are  asked  to  state  whether  or  not  they  have  a  CSR 
policy, and if they do, to describe its implementation and results. In France, on the other 
hand, legislation  defines  a detailed set of indicators that listed and non-listed companies 
must  report  on,  and  requires  third-party  verification.  A  majority  of  the  users  consulted 
indicated  that  the  current  situation  translates  into  a  fragmentation  of  legal  frameworks 
leading  to  considerable  difficulties,  in  particular  for  analysts  and  investors  who  are  not 
able to compare or benchmark companies across the Internal Market, or even within the 
same Member State.  

The lack of non-financial transparency may affect specific stakeholders groups, in particular 
preparers  (companies)  and  users  of  information  (investors,  NGOs,  public  authorities).  This 
relates  in  particular  to  the  impact  it  may  have  in  terms  of  companies  performance  (as 
companies  may  not  fully  integrate  non-financial  risks  and  opportunities  into  their  business 
operations  and  strategies),  accountability  (as  companies  do  not  meet  information  demands 
from  civil  society,  and  thus  are  not  always  perceived  as  sufficiently  accountable),  and 
efficiency  of  capital  markets  (as  investors  may  fail  to  build  relevant  non-financial 
information  into  their  decision-making  processes).  Such  problems  are  further  analysed  in 
section 3.3 below. 

3.2 

Problem  2:  Insufficient  board  diversity  leading  to  the  lack  of  challenge  of  the 
management decisions by the board 

Nature and scale of the problem 

Boards  of  directors51  play  a  key  role  in  the  company,  as  their  composition,  dynamics  and 
decisions  are  in  general  fundamental  for  a  company's  viability  and  success.  The  role  of  the 
board is in fact to lead the company on behalf of the shareholders by setting the strategic aims 
and direction, by overseeing the management, by taking account of the risks of the company, 

51   The  term  ‘board  of  directors’  refers  to  both  one  tier  and  two  tier  systems  (non-executive  directors, 
supervisory boards, respectively), according to the corporate governance structure in the concerned Member 
State.    

12 

 
                                                 
etc.  An  effective  oversight  of  the  management  leads  to  a  successful  governance  of  the 
company.  In  this  respect,  sufficient  diversity  of  competences  and  views  of  the  board's 
members,  which  facilitates  a  good  understanding  of  the  business  organisation  and  affairs, 
enables  the  board  to  exercise  an  objective  and  constructive  challenge  of  the  management's 
decisions. Diverse boards "provide a better reflection of a firm's customer base and promote a 
positive corporate image and greater credibility in the eyes of the public"52.  

Although  the  fragmentation  of  data  makes  it  difficult  to  precisely  assess  the  scale  of  the 
problem, it appears that the diversity of European company boards is rather limited. A Report 
from  201153  maintains  that,  considering  a  board  of  12  members,  the  current  profile  of  the 
average European company board would be composed of only 1.5 women, 2 European non-
nationals and 1 non-European with an average of 5 CEOs or former CEOs. The average age 
would be 58.4 years.  

Yet,  boards  with  members  that  have  a  similar  educational  and  professional  background, 
nationality,  age  or  gender  may  be  dominated  by  a  narrow  group-think.  This  can  have  a 
negative impact on the proper checks by the board on the plausibility of information presented 
to it and can lead to more risk taking, as well as to a suboptimal allocation of capital. Group-
think  contributed,  in  many  cases,  to  the  failure  of  an  effective  challenge  of  management 
decisions54. Lack of diverse views, values and competences may lead to less debate, ideas and 
challenge in the boardroom. In this regard, a recent survey among directors55 calls for more 
constructive  board  discussions:  along  with  more  time  for  board  work,  a  better  mix  of  skills 
and backgrounds of the members leading to tougher and more constructive discussions could 
contribute  to  improving  corporate  governance.  Diversity  of  views  can  bring  to  the  board 
innovative and creative thinking, openness and flexibility to respond to the current economic 
and  social  challenges,  conferring  on  the  company  a  forward-looking  approach.  It  creates 
better  stakeholder  representation  and  encourages  sustainable  performance56.  Research 
illustrates  that  more  diverse  boards  have  positive  impact  on  corporate  governance  and 
explains  why  more  diverse  board  perform  better  in  their  role  of  management  monitors  and 
advisors57.  Literature  points  out  that  more  diverse  boards  are  more  creative  and  include 

52   See reply of Business Europe to the Green Paper, 

http://ec.europa.eu/internal_market/company/modern/corporate-governance-framework_en.htm  

53   "Corporate Governance Report 2011 - Challenging board performance", Heidrick & Struggles, 2011, p. 35. 

The selection concerns 400 top companies in 15 countries based on the reference stock exchange. 

54    For  instance,  the  British  Treasury  Select  Committee  report  Women  in  the  City,  July  2010,  said  that:  "We 
believe the lack of diversity on the Boards of many, if not most, of our major financial institutions may have 
heightened the problems of ’group think’ and made effective challenge and scrutiny of executive decisions 
less effective". 

55  "Governance 

crisis" 
results, 
https://www.mckinseyquarterly.com/Governance_since_the_economic_crisis_McKinsey_Global_Survey_res
ults_2814  

McKinsey 

economic 

Survey 

Global 

since 

the 

56  "Corporate Governance Report 2009 - Boards in turbulent times", Heidrick & Struggles, 2009, p. 12 
57  "Board  Diversity",  Daniel  Ferreira,  in  "Corporate  Governance:  A  Synthesis  of  Theory,  Research,  and 

Practice",  Anderson,  R.  and  H.K.  Baker,  2010,  pp.  225‐242;  see  also  "Board  Diversification  Strategy: 

Competitive 

Realizing 
http://www.calpers.ca.gov/index.jsp?bc=/about/press/pr-2009/feb/diverse-boards-higher-performance.xml 
Also see ABI, 2011 p. 13. The Report contains a reference to the 2003 'Tyson Report on the Recruitment and 
Development of Non-Executive Directors', commissioned by the UK Department of Trade & Industry. 

Shareowner 

Advantage 

Value", 

2009, 

and 

13 

 
                                                 
 
different perspectives: people from different backgrounds and with different life experiences 
are likely to approach similar problems in different ways. More diverse groups are also more 
creative  and  produce  a  greater  range  of  perspectives  and  solutions  to  problems58.  Board 
diversity  can  also  increase  board  independence  because  people  with  different  gender, 
ethnicity or cultural background might ask questions that would not come from directors with 
more  traditional  backgrounds59.  Boards  with  diverse  members  have  also  access  to  different 
resources  and  connections  (e.g.  directors  with  financial  industry  experience  can  help  firms 
gain  access  to  specific  investors).  Firms  in  which  institutional  investors  comprise  a  larger 
fraction of their shareholder bases may surrender to investors’ demands for board diversity60. 

Some  studies  also  mention  potential  negative  impacts  of  diversity,  such  as  in  particular 
possibility of conflicts, lack of cooperation, and insufficient communication between different 
groups  of  directors  or  danger  of  choosing  directors  with  little  experience,  inadequate 
qualifications, or who are present in too many boards because of their diversity characteristics 
(e.g. they are  women)61. A recent study also shows, with respect to top management teams' 
decision-making  outcomes,  that  in  stable  environments  homogeneous  groups  make  better 
decisions.  In  contrast,  in  turbulent  situations  like  the  financial  crisis,  heterogeneous  groups 
perform better62. More details on the impact of diversity on companies are provided in section 
3.3 below. 

A well-functioning board is in general composed on the basis of a broad set of criteria, such 
as professional diversity, international diversity or gender diversity. A variety of professional 
backgrounds  helps  the  board  to  understand  the  complexities  of  the  global  markets,  the 
company's  financial  objectives  and  the  impact  of  business  on  different  stakeholders.  In  this 
regard,  it  is  becoming  more  and  more  crucial  for  boards  to  have  directors  with  specific 
industry  or  functional  knowledge.  This  can  facilitate  their  understanding  of  complex 
situations (or of the needs of expert advice) and make them be more effective board members. 
However,  it  appears  for  example  that  48%  of  the  European  boards  have  no  director  with  a 
sales or marketing profile, 28% no director with legal expertise and 28% of audit committees 
(of  which  boards  are  increasingly  making  use  of)  do  not  include  a  chief  financial  officer 
(current or former).63  

In  addition,  international  experience  has  become  a  necessity  of  the  business  operations 
worldwide,  reflecting  the  diversity  of  the  customers,  suppliers,  investors  and  the  overall 
context.  Presence  of  non-national  board  members  with  an  international  or  regional 
experience brings a different culture and mind set to the board, enhancing the understanding 
of  local  markets  and  improving  the  decision-making  process64.  Geographical  experience  is 
particularly  important  for  companies  that  want  to  expand  their  activities  at  the  international 
level.  At  the  European  level,  research65  indicates  that  the  European  average  of  non-national 
directors on the board is 24%, with great disparities across the EU. While in some Member 
States non-nationals are better represented in the board, for instance in the Netherlands, UK, 

58 "Corporate governance, board diversity, and firm value", Carter Simkins and Simpson, 2003 
59  "The  Ultimate  Glass  Ceiling  Revisited:  the  presence  of  women  on  corporate  boards."  Arfken,  Bellar  and 

Helms, 2004 
60  Ferreira, 2010 
61  Ibid 
62    "Opening  the  Black  Box  of  Upper  Echelons:  Drivers  of  Poor  Information  Processing  During  the  Financial 

Crisis", Rost and Osterloh, 2010 
63   Heidrick & Struggles, 2011, p. 33 
64 Egon Zehnder, 2010, p. 32 
65  Heidrick & Struggles, 2011, p. 39 

14 

 
                                                 
where  non-nationals  account  for  at  least  40%  of  board  members,  in  other  (e.g.  Poland, 
Austria,  Germany,  Spain  and  Italy)  non-national  directors  account  only  for  10-15%  of  the 
board members66.  

Lack  of  gender  diversity  appears  to  be  particularly  problematic.  The  proportion  of  women 
members of the board is of 13,7% across the EU, while that of women chairing a board is of 
3%67.  This  is  still  the  case  despite  an  increasing  number  of  reports  that  indicate  a  positive 
correlation between gender diversity and companies’ performance68. Research69 suggests that 
the more gender diverse boards are, the more likely to hold CEOs accountable. Women attend 
more meetings, they improve the attendance behaviour of male directors and are more likely 
to be assigned to monitoring-related committees than men. This has a positive impact on the 
monitoring intensity of the board70. For instance, research conducted on over 500 European 
companies  with  a  market  cap  over  150  million  euro  illustrated  a  greater  profitability  of 
companies  with  a  higher  proportion  of  women  executives  and  board  directors71.  Another 
recent  report  found  that  gender-balanced  companies  had  a  17%  higher  stock  price  growth 
between  2005  and  2007  compared  to  the  industry  average  and  that  their  average  operating 
profit was almost double than the industry average between 2003 and 200572. Looking at 290 
publicly listed companies, a study73 found that the earnings of those with at least one woman 
on  board  were  significantly  higher  than  in  those  with  no  female  board  members.  Other 
research74  indicated  that  a  company  led  by  a  female  CEO  is  on  average  slightly  more 
profitable  than  a  corresponding  company  led  by  a  male  CEO.  The  share  of  female  board 
members  also  has  a  similar  positive  impact.  It  appears  that  in  general  having  more  women 
may  strengthen  the  boards  in  terms  of  internal  and  external  relations  (women  would  know 
better customers' needs and represent them better), leading to a better decision making. The 
existing studies may not prove causality, but the positive correlation between gender diversity 
and company's performance make a good case for the need of gender balance in the boards.  

As far as age is concerned, most boards need to have some spread in age – while the older 
group can provide experience, wisdom, and usually the economic resources, the middle group 
carries  the  major  positions  of  active  responsibilities  in  corporations  and  in  society,  whereas 

66   In terms of proportion of boards with no foreign directors, there is an average of 28% at the European level 
with  Poland,  Italy,  Spain  and  Denmark  accounting  for  between  42%-68%  of  such  boards,  whereas  France 
and UK are leading the way with only 3%-4 % of boards with no foreign directors. See Heidrick & Struggles, 
2011, p. 39. 

67   European Commission Database on women in the decision making, http://ec.europa.eu/justice/gender-

equality/gender-decision-making/database/business-finance/quoted-companies/index_en.htm and "Women in 
economic decision-making in the EU: Progress report", DG JUST, 2012, 
http://ec.europa.eu/justice/newsroom/gender-
equality/opinion/files/120528/women_on_board_progress_report_en.pdf 

68   "Women  Matter  1: Gender diversity,  a  corporate  performance driver", McKinsey  & Company,  2007;  "The 
Bottom  Line:  Connecting  Corporate  Performance  and  Gender  Diversity",  Catalyst,  2004;  "Women  to  the 
Top!", EVA, 2007 

69   "Women in the boardroom and their impact on governance and performance", Adams and Ferreira, 2009, pp. 

291-309 

70   "The Contribution of Women on Boards of Directors: Going beyond the Surface" Nielsen and Huse, 2010. 
71  McKinsey and Company, 2007. 
72  "Women  at 

it  happen",  McKinsey  &  Company,  2010 

top  of  corporations:  making 

the 

http://www.mckinsey.com/locations/swiss/news_publications/pdf/women_matter_2010_4.pdf  

73  "Groundbreakers: Using the strength of women to rebuild the World Economy", Ernst&Young, Deutche Bank 
Research 2010. See also "The Bottom Line: corporate performance and women's representation on boards", 
Catalyst 2007, http://www.catalyst.org/publication/200/the-bottom-line-corporate-performance-and-womens-
representation-on-boards  

74   The Finnish Business and Policy Forum EVA published in 2007 a study (Female Leadership and Firm 

Profitability), covering 14 020 Finnish companies. See www.eva.fi  

15 

 
                                                 
the  younger  group  has  the  energy  and  drive  to  succeed  and  plan  ahead  for  the  future75. 
However,  traditionally  boards  are  made  up  of  very  senior  people.  The  average  director  in 
Europe is currently 58.4 years old76. The national averages range from 55.2 in Sweden to 60 
or more in France and Netherlands.  Some larger companies encourage senior executives to 
take  up  directorships  somewhat  earlier  in  their  careers,  but  there  is  no  rapid  trend  towards 
reduction in average age. 

While the above mentioned criteria of diversity seem of particular importance for the board 
members' understanding of business, the list is not exhaustive and other aspects of diversity 
can be regarded as relevant and useful, depending on the situation of the company77. 

Drivers of the problem 

A)  Market  Failure:  The  insufficient  board  diversity  is  linked  above  all  with  insufficient 
market  incentives  for  companies  to  change  the  situation.  In  this  respect,  inadequate 
recruitment practices for board members contribute to perpetuating the selection of members 
with similar profiles. The selection often draws on a too narrow pool of people, non-executive 
directors  are  still  often  recruited  through  an  “old  boys'  network”  from  among  business  and 
personal  contacts  of  current  board  members78  and  often  the  chair  or  a  board  member  may 
influence  the  board  invitation.  Companies  may  not  always  be  willing  to  change  these 
practices. Yet, the lack of transparency around the selection process, as the company does not 
necessarily advertise the positions available, nor uses a recruitment agency, can represent an 
important barrier to more diverse board members. Doubts arise therefore as to the incentives 
to use the wide pool of available talent and expertise for board appointments.  

The particular impact that the pipeline for recruiting has for example on gender diversity has 
been illustrated by different reports79. It has been underlined that it is difficult for women to 
have access to these informal networks of recruitment. Moreover, executive search firms also 
play  a  relevant  role  in  providing  boards  with  suitable,  but  also  diverse  candidates.  A  recent 
report  claimed80,  on  a  more  general  level,  that  executive  search  firms  may  have  a  certain 
image  of  the  company,  which  will  determine  their  opinion  about  the  person  having  most 
chances to be successfully recruited by the company. This means that it is very likely that they 
will  propose  candidates  similar  to  the  current  personnel  of  the  company,  not  necessarily 
responding  to  the  diversity  needs  and  challenges  of  the  company,  unless  diversity 
requirements are clearly specified. 

Furthermore, there is also a lack of tradition of reporting on such issues, given to for instance 
how the selection usually takes place, i.e. through the "old boys' network".  A review81 of 298 
UK  FTSE  350  companies  points  out  that  disclosure  of  the  nomination  committee82  work 

75  "Composition: diversity and independence of Australian boards", Kang, Cheng and Gray, 2007. 
76   Heidrick & Struggles, 2011, p. 36 
77   In  this  perspective,  one  can  point  to  the  existing  EU  equality  legislation  which  covers,  next  to  gender  and 
age,  aspects  such  as:  race  or  ethnic  origin,  religion  or  belief,  sexual  orientation  and  disability,  see: 
http://ec.europa.eu/justice/discrimination/law/index_en.htm  

78  ABI, 2011, p. 17; see also Review of the role and effectiveness of non-executive directors ("Higgs review"), 

2003, p. 39 

79 See for instance Lord Davies's report "Women on boards", 2011, page 17 
80 "Rapport annuel diversités, Mesurer, partager, progresser", 2011, Equity Lab, French Association of Diversity 

and A. Palt, http://www.afmd.fr/documents/rapport_annuel_diversites_web.pdf, p. 19 

81  "Corporate governance review 2011: A changing climate Fresh challenges ahead" Grant Thornton, 2011. The 

review took place between May 2010 and April 2011 

82    The  nomination  committee,  where  it  exists,  is  responsible  for  appointing  board  members  and  ensuring  the 

appropriate balance of skills, experience, background and independence. 

16 

 
                                                 
remains poor, compared for instance to audit and remuneration committees. According to this 
review  only  37%  (2010:  31%)  provide  enough  information  to  properly  explain  nomination 
committee activity, with eight companies providing no insight at all. 

In  addition,  the  problem  is  also  reinforced  by  an  inadequate  transparency  on  diversity,    As 
mentioned in section 2.2 above, listed companies are already required to disclose information 
about  the  composition  and  operation  of  the  administrative,  management  and  supervisory 
bodies and their committees. However, the level of information and the extent to which this 
information  is  available  to  public  at  large  depends  very  much  on  a  case  by  case  basis. 
Diversity is a relatively new issue obliging companies to learn as they go and they may not 
always see the need to communicate on it. In any case, such information does not reveal the 
board's  approach  in  the  selection  process,  the  objectives  envisaged  or  how  they  have  been 
reached. Research shows that companies across the EU do not provide sufficient information 
on the composition of their boards83. Only in 9 out of 33 countries84 covered, all companies 
openly  reported  on  their  websites  about  the  composition  of  the  board;  numerous  companies 
provided  the  information  in  the  majority  of  countries,  but  with  different  level  of  disclosure, 
i.e. many companies provide only the list of board members, without additional details. For 
instance less than 40% of companies in Czech Republic, Germany, Cyprus, Latvia, Lithuania, 
Malta, Romania, Slovenia, Slovakia give additional details (e.g. CV), while 100% of them do 
so in Sweden.  

As  far  as  diversity  policy  as  such  is  concerned,  available  data85  for  the  UK  for  instance 
suggests  that  more  than  half  of  the  FTSE  100  companies  and  35%  of  the  FTSE  250 
companies  reported  having  a  diversity  policy.  Only  38%  made  specific  reference  to  gender 
diversity. The report underlines the widespread lack of transparency regarding the policies put 
in  place  by  FTSE  350  companies  in  order  to  address  diversity  on  their  boards.  However, 
another  study86  maintains  that  only  19.1%  of  FTSE  100  and  6.6%  of  FTSE  250  companies 
provide a material statement on board diversity. It found also that some companies in the UK 
limit themselves to stating that the benefits of diversity on the board, including gender, have 
been taken into account when making appointments. According to it, such simple statements 
do not provide any insight into the board approach, the steps taken to achieve diversity in the 
boardroom or the challenges and opportunities the company faces. 

B)  Regulatory  Failure:  The  market  failures  highlighted  above  have  not  been  sufficiently 
corrected by appropriate regulation. As illustrated in previous sections, there are currently no 
rules regarding specifically board diversity at EU level. Although some Member States have 
adopted  certain  provisions,  in  particular  to  increase  gender  diversity,  there  are  considerable 
differences  between  their  approaches,  while  other  aspects  of  diversity  are  in  general  not 
covered. 

3.3 

Which stakeholders are affected and how?  

The  impact  that  insufficient  non-financial  transparency  and  board  diversity  may  have  on 
different stakeholders groups is further analysed below: 

 (i) Preparers: Non-financial and Financial Performance 

83  Expert report on women and men in decision-making, 2011, not yet published. 
84  Member States, as well as other European and non-European countries. 
85  "Women on Boards", Cranfield University, 2011, p. 34 
86 ABI, 2011,p. 18 

17 

 
                                                 
"Only  what  gets  measured  gets  managed"  is  an  expression  commonly  used  in  respect  to 
financial  information.  Extending  such  reasoning  to  non-financial  information,  evidence 
suggests  that  the  lack  of  transparency  has  a  direct  impact  on  non-financial  performance:  if 
non-financial  aspects  are  not  measured,  they  cannot  be  properly  managed.87  The  lack  of 
transparency on risk-management aspects appears particularly important in this respect, since 
if  material  information  is  not  communicated  to  boards  or  to  the  annual  assembly  of 
shareholders, boards may not effectively perform their oversight duty on risk management88. 
However,  this  information  is  often  not  disclosed,  or  when  it  is  disclosed,  significant 
differences are found in risk assessments made by companies, even within the same sector89. 
The  CSES  study  shows,  for  instance,  that  only  a  small  minority  of  companies  includes  any 
reference to their sustainability performance in the context of their Annual General Meeting 
(AGM), and that some companies do not have any feedback mechanisms to boards or senior 
management on non-financial issues90.  

Moreover,  a  growing  body  of  academic  research  indicates  a  positive  correlation  between 
better  non-financial  and  financial  performance,  indicating  that  front-running  companies  on 
sustainability issues tend to outperform their competitors in financial terms, particularly over 
the  medium (3-5 years) to long term (5-10 years). Such findings indicate, for instance, that 
companies with high ratings for CSR and ESG factors have a lower cost of capital in terms of 
debt  (loans  and  bonds)  and  equity,  and  are  generally  considered  as  lower  risk  than 
competitors;  higher  sustainability  performance  offers  a  competitive  advantage  in  attracting, 
motivating  and  retaining  talented  employees;  positive  CSR  performance  fosters  consumer 
loyalty; failure to adequately manage relationships with stakeholders can result in operational 
delays,  higher  costs  of  insurance  and  security,  problematic  relations  with  governments  and 
local communities, and reputational damage. Overall, evidence suggests therefore that limited 
non-financial 
transparency  may  contribute  to  negatively  affect  the  performance  of 
companies91. 

With  regard  to  insufficient  diversity  in  the  boardroom,  as  already  described  in  the  previous 
sections, there is growing consensus that a board made up of individuals with a limited variety 
of  skills  and  experiences  may  have  a  negative  effect  on  corporate  performance.  Insufficient 
diversity limits the range of perspectives and can decrease board's capacity to mitigate risks 
and overseeing company strategy.  

Some studies show a correlation between the diversity on board and financial performance – 
companies with more diverse board have better financial results. A recent study examined the 
relationship  between  board  diversity  and  firm  value  for  Fortune  1000  firms  and  found 
"significant positive relationships between the fraction of women or minorities on the board 

87   "What  Board  Members 

Should  Know  About  Communicating  CSR",  Tonello, 

2011, 
http://blogs.law.harvard.edu/corpgov/2011/04/26/what-board-members-should-know-about  communicating-
corporate-social-responsibility/;  "The 
Investment 
Recommendations",  Ioannou  and  Serafeim,  2010;  "Strategy  and  Society:  The  Link  Between  Competitive 
Advantage and Corporate Social Responsibility" Porter and Kramer, 2006 

Impact  of  Corporate  Social  Responsibility  on 

88   "Exploring Emerging Risks", Samuel DiPiazza Jr, CEO PricewaterhouseCoopers, 2009. See also minutes of 

the first meeting of the ad-hoc Expert group, 
http://ec.europa.eu/internal_market/accounting/docs/news/24012012-expert-group-minutes_en.pdf  

89   See UNCTAD survey, p. 23 
90   See CSES, 'Disclosure of non-financial information by Companies', 2011, p.12 
91   Tonello,  2011;  Ioannou  and  Serafeim,  2010.  See  also  "Corporate  Environmental  Management  and  Credit 
Risk",  Bauer  and  Hann,  2010.  For  a  review  of  existing  research  see  "Sustainable  Investing:  Establishing 
Long-Term  Value  and  Performance",  Deutsche  Bank  2012,  http://www.dbcca.com/dbcca/EN/investment-
research/investment_research_2413.jsp  

18 

 
                                                 
and firm value"92. Another study examined the relationship between demographic diversity on 
boards  of  directors  with  firm  financial  performance,  using  1993  and  1998  financial 
performance  data  (return  on  asset  and  investment)  and  the  percentage  of  women  and 
minorities  on  boards  of  directors  for  127  large  US  companies.  Correlation  and  regression 
analyses indicated that board diversity is positively associated with these financial indicators 
of  firm  performance93.  A  report  commissioned  by  the  California  Public  Employees' 
Retirement  System  (CalPERS)  for  example,  found  that  companies  that  have  diverse  boards 
perform  better  than  boards  without  diversity94.  The  report  stated  that  companies  without 
ethnic minorities and women on their boards eventually may be at a competitive disadvantage 
and  have  an  under-performing  share  value.  On  the  other  hand,  other  studies  show  more 
nuanced results95.  

(ii) Users (NGOs, Public Authorities): Accountability  

According  to  most  NGOs  and  other  civil  society  organisations  consulted,  insufficient 
transparency  translates  into  many  large  companies  not  being  perceived  as  sufficiently 
accountable  to  society  at  large,  or  to  local  communities  which  may  be  affected  by  their 
operations.  If  information  is  not  available,  companies  cannot  be  held  fully  accountable  for 
their  impact  on  society.  This  case  is  made  in  particular  with  regard  to  some  EU  companies 
having  operations  in  developing  countries,  where  national  legal  frameworks  may  include 
weak  or  no  legal  obligations  to  disclose  information.  Although  some  evidence  suggests,  for 
instance, that the largest European companies are more likely to have a human rights policy 
than their competitors in other developed countries96, some NGOs have referred to cases97 of 
alleged  negative  impacts  EU  companies  may  have  on  human  rights  and  the  environment  in 
their  operations  in  developing  countries.  In  this  framework,  insufficient  transparency  is 
considered  as  an  important  factor  inhibiting  corporate  accountability  and  responsible 
behaviour,  and  it  is  alleged  that  non-financial  reports  often  neglect  negative  environmental 
and human rights impacts, while choosing to focus on less controversial issues98. The CSES 
study99  also  shows,  for  instance,  that  in  the  great  majority  of  cases  no  contact  information 
details or feedback mechanisms are disclosed to stakeholders.  

This may also have an impact on the level of consumers' trust, as consumers may question, for 
instance, whether suppliers of products and services respect applicable rules and regulations, 
and  whether  consumer  protection  considerations  are  effectively  taken  into  account  in  a 
company's strategy. According to a recent report on consumer markets in the EU, for instance, 
"trust" gets the lowest rating of all key components analysed100.  

92   Carter et al., 2003 
93   "Board of Director Diversity and Firm Financial Performance", Erhardt,Werbel and Shrader, 2003 
94   "Diversity on Corporate Boards. Stanford Centre on the Legal Profession." Rhode and Packel, 2009 
95   See  "The  Gender  and  Ethnic  Diversity  of  US  Boards  and  Board  Committees  and  Firm  Financial 

Performance." Carter, D’Souza, Simkins, and Simpson. See also Adams and Ferreira, 2009. 

96   "Human  Rights  Policies  and  Management  Practices  of  Fortune  Global  500  Firms:  results  of  a  survey", 

Ruggie, 2006 

97   University of Edinburgh, 2010 
98   "Principles & Pathways: Legal opportunities to improve Europe' Corporate Accountability Framework", 
  ECCJ, 2010, http://www.corporatejustice.org/IMG/pdf/eccj_principles_pathways_webuseblack.pdf   
99   CSES, 2011, p.17  
100  The Consumer Market Monitoring Dashboard gives access to the findings of a survey based on over 600 000 
the  27  EU  countries,  Norway  and  50  European  consumer  markets. 

market  assessments 
http://ec.europa.eu/consumers/strategy/docs/EC_Market_Monitoring_2011_en.pdf 

in 

19 

 
 
                                                 
(iii) Users (investors): less efficient capital markets  

Most  of  the  investors  consulted  suggest  that  the  current  situation  constitutes  a  significant 
constraint  to  their  capacity  to  build  relevant  non-financial  information  into  their  valuation 
models.  Such  remark  is  made  with  regard  both  to  the  quantity  and  the  quality  of  the 
information available.  

The  current  disclosure  practices  render  thus  difficult  for  investors  to  benchmark  and  assess 
non-financial performance across industries and Member States. Insufficient transparency in 
this field may consequently affect the most efficient allocation of capital across the Internal 
Market. Pointing to the need to increase transparency, some stakeholders have also underlined 
the importance of gaining new momentum in the aftermath of the financial crisis, arguing that 
the  incentive  structure  of  the  pre-crisis  markets  has  led  to  a  significant  number  of  market 
participants to focus excessively on short-term profits, and not sufficiently consider long-term 
value creation101. It has also been argued that the failure of many investors to take adequately 
account  of  material  non-financial  issues  when  calculating  future  earnings  of  investee 
companies contributes to market volatility and systemic market risk.102  

Information  relating  to  how  diversity  is  dealt  with  at  the  board  level  is  also  important  as  it 
reflects  how  differences  are  considered,  valued  and  managed.  It  provides  information  on 
corporate culture and governance practices that enable investors to take more informed voting 
and  investment  decisions103.  It  ensures  investors  and  stakeholders  in  general  that  the  board 
members  have  the  right  mix  of  skills  and  knowledge  to  best  govern  the  company.  In  this 
regard one should consider that investors have different investment strategies and objectives 
that  make  them  need  and  require  different  types  of  information,  i.e.  not  only  relating  for 
example to the long term financial performance of the company, but also to the expertise and 
competences  of  the  board  members.  For  instance  lenders  appreciate  and  recognise  the 
competitive  advantage  of  a  credible  and  respected  board,  while  other  stakeholders  are  more 
confident when there is evidence of a governance structure relying on the expertise of a well-
qualified board. The more diverse the board is, the more likely it is that more competencies 
and  skills  are  brought  in  for  the  benefit  of  the  company.  Therefore,  by  leaving  out  relevant 
information relating to the diversity policy and to the objectives and how they are evaluated, 
companies fail to provide investors with useful information. In this regard, respondents to the 
2011 consultation on the EU Corporate Governance Framework  104 indicated that disclosure 
of diversity policy would enhance transparency and would enable investors to take informed 
decisions  as  to  the  governance  practices  of  the  company.  It  would  in  addition  reduce  group 
think.  Investors  in  particular  indicated  that,  if  companies  are  transparent  on  their  diversity 
policy, they can judge better the level of ambition of the company and monitor progress. Lack 
of  disclosure  means  insufficient  communication  about  the  needs  in  terms  of  qualifications 
necessary for their particular type of business. 

101  "The consequences of Mandatory Corporate Sustainability Reporting", Ioannou and  Serafeim, 2011   
102  “Valuing  non-financial  performance”,  European  CSR  Alliance  Laboratory  on  Valuing  Non-financial 
Performance,  http://www.csreurope.org/data/files/toolbox/Market_valuation_final_report_beta.pdf.  See  also 
the summary  of the investor workshop on non-financial disclosure hosted by the European Commission in 
October 
http://ec.europa.eu/enterprise/policies/sustainable-business/corporate-social-
responsibility/reporting-disclosure/swedish-presidency/files/summaries/2-investors_en.pdf  

2010, 

2-3, 

p. 

103   

See  the  new  SEC  rule  on  Proxy  Disclosure  Enhancement,  Background  and  overview  of  the 
amendments,  p.  38,  summary  of  responses  to  the  consultation,  http://www.sec.gov/rules/final/2009/33-
9089.pdf  

104  Green Paper on the EU Corporate Governance Framework,   

http://ec.europa.eu/internal_market/company/modern/corporate-governance-framework_en.htm 

20 

 
                                                 
Moreover,  according  to  the  2011  Board  of  Directors  survey105  there  was  a  strong  call  for 
increased  transparency  essential  to  regaining  confidence  and  trust  in  corporate  boards  and 
directors.  Other  reports106  underline  the  need  for  companies  to  engage  in  the  reporting  on 
diversity matters in order to have an effective prevention of discrimination and a promotion of 
diversity. 

3.4 

Baseline Scenario: How will the problem evolve without action?  

3.4.1 

Transparency of non-financial information  

The  weaknesses  of  the  current  legislation,  both  at  EU  and  at  Member  States  level,  do  not 
provide  stakeholders  and  companies  with  sufficient  clarity  on  what  disclosures  should  be 
expected and  legal certainty  on what information is legally required. It is therefore unlikely 
that  significant  improvements  on  quantity  or  quality  of  non-financial  information  would 
materialise  in  the  absence  of  action  clarifying  this.  Potential  evolution  of  international 
frameworks  and  voluntary  initiatives  could  possibly  contribute  to  an  overall  positive 
evolution. However, the following should be considered in a scenario without action:  

– 

– 

– 

In  contrast  to  financial  information,  currently  there  is  no  generally  accepted  standard-
setter for non-financial information. GRI appears, to date, the only institution providing 
specific  guidance  for  reporting,  but  this  remains  a  set  of  guidelines  (rather  than  a 
standard)  proposed  by  a  private  institution  and  applied  only  by  a  limited  number  of 
companies on a voluntary basis. Moreover, the pace of the uptake remains very slow and 
there is no clear indication that a significantly higher number of companies plans to sign 
up to GRI in the short term.  

Guidance  is  also  provided  by  other  normative  frameworks.  However,  these  are  also 
voluntary  frameworks  and  they  define  principles  and  guidelines,  rather  than  reporting 
standards. Their potential impact on the quality and quantity of information is therefore 
limited. The multiplicity of such frameworks is also brought up by some stakeholders as 
one of the reasons contributing to poor consistency and comparability.  

The  IIRC  is  also  working  towards  the  creation  of  a  generally  accepted  integrated 
reporting  framework.  Although  a  first  discussion  paper  was  published  in  November 
2011107, such platform is still at a very early stage of development and significant results 
can only be expected in the medium/long term.  

No  existing  scheme  or  voluntary  disclosure  mechanism  is  therefore  expected  to  yield 
significant  solutions  to  the  identified  problems.  Non-financial  information  can  also  be 
disclosed  in  a  number  of  different  forms  other  than  formal  reporting  (i.e.  internal 
communication  to  employees,  informal  communication  with  stakeholders,  product  or 
environmental  labels).  However,  informal  channels  are  considered  complementary,  and  no 
substitute  for  formal  disclosures,  and  they  are  not  deemed  appropriate  to  respond  to  the 
stakeholders' demand for increased transparency, in particular as regards the users' needs.  

105 Heidrick & Struggles, 2011 
106  See 

"Rapport 

annuel 

diversités, 

Mesurer, 

partager, 

progresser", 

2011, 

http://www.afmd.fr/documents/rapport_annuel_diversites_web.pdf, page 19 

107  http://www.theiirc.org/the-integrated-reporting-discussion-paper/ 

21 

 
                                                 
3.4.2 

Boards' diversity 

It  is  difficult  to  assess  to  which  extent  the  diversity  of  boards  would  improve  without  any 
action at EU level, in particular as most of the available data focuses on gender diversity only. 
In this regard it is important to underline that over the last 8 years the number of women on 
boards has increased with an average of 0,5% per year108. At this rate, it will take another 50 
years to reach a more balanced situation, i.e. at least 40% of each sex. The positive correlation 
between diversity of boards and the performance of companies, as indicated by some studies, 
has not led to a significant improvement of the composition of boards across the EU.  

Some  large  companies  with  highly  visible  public  profiles  may  feel  the  pressure  of  scrutiny 
and  react  better  to  public  demands  for  enhanced  diversity109.  However,  this  is  difficult  to 
predict.  More  companies  are  becoming  aware  that  greater  participation  by  women  in 
management, including at the highest levels, has a positive impact on the business and have 
taken measures to foster women’s leadership potential. This includes in particular improving 
work-life  balance  or  coaching  programmes110.  Nevertheless,  most  companies  do  little  to 
facilitate the crucial final stage, i.e. recruitment to board positions. 

Social pressure and a culture that supports women may also improve the situation, as it seems 
to be the case in some Nordic countries (e.g. Sweden, where the board seats held by women 
increased  from  20%  in  2004  to  28.7%  in  2010111,  despite  the  fact  that  there  is  no  quota 
legislation). Discussions over the value of diversity may lead boards to reflect more on their 
needs  and  reflect  them  better  in  their  recruitment  strategies.  Yet,  the  extent  and  the  pace  of 
change cannot be predicted with any degree of certainty. Other aspects of diversity, such as 
age, nationality or educational and professional background, appear to raise less interest than 
gender diversity. However, it is left to companies to decide how to take into account the need 
of a right balance in terms of geographical origin or educational and professional background 
of board members. A gender diversity initiative at the EU level would obviously have positive 
impact  by  increasing  the  number  of  women  in  the  boardroom,  but  the  beneficial  effects  of 
other aspects of diversity would not be taken into account. In conclusion, without any action 
at EU level regarding diversity (at large) of the board members, the legal framework risks to 
remain fragmented.   

3.5 

The EU's right to act  

According to the subsidiarity principle, the EU should act where it can provide better results 
than intervention at Member State level. In addition, EU action should be limited to what is 
necessary in order to attain the objectives, and comply with the principle of proportionality. 
Several policy options are considered in section 5 below. The proportionality of each option 
has been analysed with regard to its effectiveness and cost-efficiency. In all cases, in order to 
ensure  that  companies  are  subject  to  the  same  requirements  across  the  EU,  it  appears 
preferable to legislate through EU law rather than at Member State level. 

108  European Commission database on women and men in decision-making, which covers 33 countries (EU-27, 
HR, MK, TR, RS, IS and NO). The data on companies cover the largest (by market capitalisation) nationally 
registered (according to ISIN code) constituents of the blue-chip index maintained by the stock exchange in 
each country. The total sample covers 598 companies with a minimum of 10 and a maximum of 50 from each 
country, 
http://ec.europa.eu/justice/gender-equality/gender-decision-making/database/business-
finance/quoted-companies/index_en.htm 

109  Egon Zehnder, 2010, p. 14 
110  See  examples  of  measures  in  European  Commission  SWD,  p.  59,  http://ec.europa.eu/justice/gender-

equality/gender-decision-making/index_en.htm 

111  Egon Zehnder, 2010, p. 20 

22 

 
                                                 
The  disclosure  of  non-financial  information  is  already  regulated  at  EU  level  by  the 
Accounting  Directives.  Nevertheless,  investors  and  other  users  demand  a  greater  level  of 
harmonisation in this field. Moreover, the diverging approaches taken at Member State level 
could determine even greater differences within the EU Internal Market, as they may lead to 
further differences in terms of scope, detail or content of the requirements. Different reporting 
requirements at Member States level could also potentially undermine the level playing-field 
across the Internal Market. Sustainability-related information also appears, by its own nature, 
as a cross-national matter.  

As  regards  diversity  issues,  current  initiatives  are  much  fragmented,  some  Member  States 
being more advanced in their reflections, others only at the beginning. In the absence of an 
action at EU level, in many Member States there will be no progress or very slow progress in 
the  coming  years.  Furthermore,  current  rules  of  the  Accounting  Directives  already  oblige 
companies  to  disclose  their  corporate  governance  arrangements,  in  particular  regarding  the 
composition  and  functioning  of  their  boards.  EU  instruments  appear  to  be  more  suitable  in 
assuring higher transparency, consistency and comparability of the information disclosed, as 
well as in bringing about changes relating to diversity in the boardroom. Coordinated action at 
the EU level is therefore necessary, and this initiative complies with the subsidiarity principle. 

Finally, the Treaty on the Functioning of the European Union (art.11) has also reinforced the 
role of sustainable development as one of the main objectives for the EU, based in particular 
on a high level of protection and improvement of the quality of the environment. Sustainable 
development is also affirmed as one of the fundamental objectives of the Union in its relations 
with  third  countries.  Furthermore,  the  Treaty  (Article  8  and  10)  provides  that  in  all  its 
activities the Union shall aim to eliminate inequalities, and to promote equality, between men 
and women, and to aim to combat discrimination based on sex, racial or ethnic origin, religion 
or belief, disability, age or sexual orientation.  

4 

OBJECTIVES  

The overall policy objective of the proposal is to contribute to the Single Market's potential to 
create sustainable growth and employment, in line with the objective set out in the EU 2020 
agenda of a "smart, sustainable and inclusive growth". As explained above, more transparency 
for internal and external stakeholders is considered to be of key importance for companies to 
improve management of risks and deliver better results. Increased transparency (including on 
diversity in the boardroom) is expected to enhance the trust citizens have in business and in 
markets  and  enable  a  more  efficient  allocation  of  capital,  as  well  as  provide  for  a  better-
informed decision making (e.g. of investors). Enhancing boards' diversity would contribute to 
make them more effective in their role of management oversight. The specific objectives of 
the proposal can be summarised as follows:  

I. 

II. 

III. 

Enhance  companies'  overall  performance  through  (i)  better  assessment  and  greater 
integration  of  non-financial  risks  and  opportunities  into  their  business  strategies  and 
(ii) improved and more diversified oversight by the board;  

Enhance  companies'  accountability  and  meet  broadly-shared  demands  for  more 
transparency;  

Enhance efficiency of capital markets by helping investors to integrate material non-
financial information into their investment decisions.  

23 

 
In operational terms, the objectives of the proposal can be summarised as follows:   

1.  Increase  the  number  of  companies  disclosing  non-financial  information  (quantity  of 

information) 

2.  Increase the quality, relevance and comparability of the information disclosed. 

3.  Enhance diversity in the boardroom 

In achieving these objectives, avoiding undue administrative burden on companies, especially 
on the smallest ones, is very important. The objectives are depicted visually in the following 
objective tree:  

Enhance the single market potential for sustainable growth and 
employment 
(via better business performance, higher trust in companies and 
markets, and better-informed allocation of capital) 

General 
objectives 

Enhance companies' 
accountability and meet 
demands for more 
transparency 

Enhance companies' 
performance 

Enhance efficiency of 
capital markets 

Specific 
objectives 

Increase the number of 
companies disclosing 
information (quantity) 

Increase the overall quality, 
relevance and comparability of the 
information disclosed 

Enhance diversity in the 
boards 

Operational 
objectives 

5 

5.1 

POLICY OPTIONS - DESCRIPTION AND ANALYSIS  

Options  relating  to  Increasing  Transparency  of  Non-Financial  Information 
(Objectives 1 and 2) 

A  wide  range  of  possible  policy  options  can  be  considered  relevant  when  contemplating 
initiatives to improve transparency of non-financial information. The analysis carried out by 
the Commission services took into account the different characteristics that each policy option 
may entail, including in particular the following issues:  

Form of the disclosure: disclosure could take different forms. For instance, information could 
be  disclosed  in  the  form  of  a  statement,  to  be  included  in  the  Annual  Report  (as  currently 
required by the Accounting Directives). It could also be disclosed in the form of a detailed, 
stand-alone  non-financial  report,  which  could  be  published  as  a  separate  document  or 
annexed to the Annual Report.  

Narrative or KPI-based disclosure (Reference): different options could be considered when 
setting the methodology and detail of the disclosure. Disclosures can be narrative or based on 
Key  Performance  Indicators.  KPIs  may  be  defined  by  the  company  itself,  or  refer  to 

24 

 
international frameworks, or be defined at EU level. The latter option would in effect imply 
the creation of an EU standard for non-financial reporting.  

Nature of the requirement: legislation could take the form of a mandatory requirement, or 
could provide a more flexible framework, such as a "report or explain" requirement. In this 
case,  companies  may  have  to  comply  with  an  obligation  to  report,  or  provide  a  reasoned 
explanation as to why they do not report. The proposed requirement may also include other 
incentives for companies to disclose information on a voluntary basis.  

Content  of  the  disclosure:  there  is  no  universally  accepted  definition  of  non-financial   
information.  The  current  text  of  the  Accounting  Directives  refers  to  ("..including..") 
environment  and  employees-related  matters.  In  general  terms,  topics  considered  as  most 
important  by  stakeholders  and  covered  by  existing  international  frameworks  include,  inter 
alia,  social,  environmental,  human  rights,  and  anti-corruption  aspects.  Such  list  is  not 
exhaustive,  and  other  areas  may  be  covered,  such  as  aspects  relating  to  product  safety, 
consumer  protection,  competition,  etc.  Moreover,  non-financial  disclosures  can  also  include 
information  on  governance,  including  diversity.  Within  the  above  mentioned  areas,  the 
disclosure  may  include,  inter  alia:  a  description  of  a  company's  policy;  its  results  and 
to  assess 
performance;  risk  management  aspects,  methodology  and  analysis  used 
performance, etc.  

Third-party  verification:  currently,  the  Accounting  Directives  require  that  the  information 
included  in  the  Annual  Report  is  verified  for  consistency  with  the  financial  statements112.  
This applies to environmental and social information too.  Other forms of verification could 
be considered, such as verification of processes, audit of activities, etc. 

Scope and Legal instruments: more details are given in section 5.3 below.  

On  this  basis,  several  combinations  of  options  have  been  examined.  Those  options  or 
combinations  of  options  being  prima  facie  or  least  effective  were  discarded,  while  the 
packages of options (broad policy options) that were considered most relevant are described 
and  analysed  below.  The  options  concerning  respectively  Objectives  1  and  2  (Increasing 
quantity  and  quality  of  non-financial  information)  and  Objective  3  (enhancing  boards' 
diversity) are described and compared in sections 5.1 and 5.2 below. A more detailed analysis 
is provided in Annexes 6 and 7. 

5.1.1  Description of Broad Policy Options  

The  Commission  services  have  analysed  three  main  policy  options  (one  of  them  with  three 
sub-options), plus the "no policy change" scenario, which would leave unchanged the relevant 
provisions of the Accounting directives (Policy Option 0). The options presented below vary 
in regard to the form of the disclosure, the reference and the nature of the requirement. As a 
consequence, they are not all mutually exclusive. 

1.  Require a statement in the Annual Report (Option 1) 

Option  1  considers  the  possibility  of  strengthening  the  existing  requirement  to  disclose  a 
statement on non-financial information in the Annual Report. In order to address the specific 

112  Art 51a (e) of the Fourth Directive states that the statutory audits shall also contain an opinion concerning the 

consistency or otherwise of the annual report with the annual accounts for the same financial year 

25 

 
                                                 
information  gaps  and  improve  the  quantity  and  quality  of  information,  such  option  would 
modify the baseline scenario by requiring that  

-  material  information  relating  to  at  least  social  human  rights,  anti-corruption  and  bribery 

matters is disclosed, in addition to environmental and employees-related matters 

-  within  these  areas,  the  disclosure  should  include  a  description  of  (i)  the  companies' 
policies,  (ii)  performance  and  (iii)  risk-management  aspects,  relying  on  existing 
international frameworks.  

As further explained in Annex 6, such elements have been identified by  a broad majority of 
stakeholders as key aspects in order to obtain an overview of the non-financial performance of 
companies. Most international frameworks require disclosure of information on these topical 
areas.  However,  the  list  provided  is  not  intended  to  be  exhaustive,  and  other  information 
should  be  disclosed  provided  it  is  material.  Those  companies  that  do  not  have  a  specific 
policy in one or more of these topical areas would be at least required to explain why this is 
the case.  

2.  Require a Detailed Report (Option 2) 

This  option  considers  the  possibility  of  introducing  a  new  requirement  to  disclose  non-
financial  information  in  the  form  of  a  detailed,  stand-alone  non-financial  report.  Such 
report  would  have  to  be  drafted  in  accordance  with  existing  international  frameworks.  It 
would  consequently  be  significantly  more  detailed  than  a  disclosure  in  the  form  of  a 
statement, although it should cover at least the same topical areas identified in Option 1, as 
well as any other issues that the company may consider relevant. Based on the nature of the 
requirement, three sub-options are considered:  

•  Option  2.a  considers  the  possibility  of  requiring  companies  to  provide  such  a  detailed 

report on a mandatory basis.   

•  Option  2.b  considers  the  possibility  of  requiring  detailed  reporting  on  a  "report  or 
explain basis". This would allow companies to provide a report, or explain why they fail 
to do so.  

•  Option 2.c considers the case for voluntary reporting. Companies choosing to  disclose 
a detailed report on a voluntary basis would be exempted from the obligation to disclose 
non-financial  information  in  other  forms,  provided  that:  (i)  the  report  covers  the  same 
topics  and  content  identified  above,  (ii)  it  makes  reference  to  international  frameworks, 
and (iii) it is annexed to the Annual Report. There would be no mandatory obligation to 
provide a detailed report, nor to give an explanation if a report is not provided.  

3.  Set up a mandatory EU Standard (Option 3) 

Option 3 deals with the possibility of setting up a mandatory EU Standard, which would 
constitute  a  framework  for  disclosing  non-financial  information.  Rather  than  relying  on 
existing frameworks, companies would be required to disclose information complying with a 
set of EU-based KPIs. Such standard would cover at least the same topical areas and elements 
mentioned in Option 1 above - as such elements have been identified by a broad majority of 
stakeholders as key aspects in order to obtain an overview of the non-financial performance of 
companies. This option would consequently require a disclosure in compliance with a detailed 
set of indicators, with a level of detail at least comparable to Option 2. An overview of the 
proposed policy options is given in Table 1 below.  

26 

 
Table 1 – Summary of Policy Options 

Option  

Nature of 
Requirement  

Form 

Reference 

Topics 

Estimated Cost 
of compliance* 

0. No change 

Only where 
appropriate 

Statement   Business-

relevant KPIs  

[including] information 
relating to 
environmental and 
employee matters 

0  

Require 
1. 
in 
disclosure 
Annual Report 

a 
the 

Mandatory  

Statement 

€600 to 4300 

Business-
relevant KPIs, 
relying on 
International 
Frameworks 

Policies, performance 
and risk-management 
aspects concerning at 
least Environmental, 
Social, Employee, 
Human rights, 
Corruption  

2.Detailed Reporting  

a) Mandatory  

b) Report or Explain  

Report 

c) Voluntary  

Report to be 
drafted in 
accordance with 
International 
Frameworks  

Same topics as Option 
1, but more detailed 
information 

a) €33000 to 
€604000  

3. EU Standard  

Mandatory  

Report 

Detailed list of 
KPIs (Standard) 
to be defined  

Same topics as Option 
1, but more detailed 
information 

*The cost of compliance is estimated in terms of administrative burden compared to the current situation. The cost of Option 0 
is consequently nil 

Verification:  The  current  verification  requirements  under  the  Accounting  Directives  would  remain 
unchanged  under  all  the  described  options.  This  means  that,  as  any  other  aspect  of  the  annual  report,  non-
financial  information  would have  to be  checked  for consistency with  the  financial  statements.  Stakeholders 
referred  to  verification  costs  as  significant,  a  consideration  confirmed  by  the  results  of  the  CSES  study. 
Notwithstanding the potential benefits related to verification, the Commission services consider that, by not 
requiring  additional  verification  of  non-financial  information,  transparency  can  be  improved  while  keeping 
the administrative burden low.  

In  Annex  6,  each  option  is  assessed  in  detail  in  regards  to  its  effectiveness  in  meeting  the 
objective of increased transparency (higher quantity and quality of information), as well as on 
some  limiting  factors.  These  include  its  efficiency  (compliance  cost),  acceptability  to 
stakeholders,  effects  on  competitiveness  and  coherence  with  other  relevant  EU  legislation. 
The administrative burden related to each option is also assessed in Annex 8. A comparative 
summary of the analysis of the broad policy options is provided below.  

5.1.2  Comparative Analysis of broad Policy Options  

Enhanced  transparency  is  seen  as  a  desirable  objective,  since  it  could  bring  benefits  for 
preparers  (companies)  as  well  as  for  users  (mainly  investors,  NGOs  and  other  external 

27 

b) €33000 to 
€604000 
(compliance) or 
€600/1000 
(explanation)  

c) 0   

€33000 to 
€604000 

 
 
  
 
 
 
 
 
 
 
 
 
stakeholders).  However,  it  has  to  be  recognised  that  providing  additional  information  to 
stakeholders, in the form of a statement or a detailed report, also has a cost. The main costs 
include,  inter  alia,  the  resources  that  companies  would  have  to  devote  to  collecting  data, 
drafting the statement or reports, potentially publishing and auditing them, training staff, etc. 
Broad social and environmental impacts are difficult to quantify and also depend on specific 
companies' behaviour. It is assumed that such impacts proportionally increase with the effect 
that the policy option has on the quality and quantity of social and environmental information 
available. 

Option  0  (No  change)  does  not  appear  to  be  an  effective  approach  for  dealing  with  the 
problems.  The  current  reporting  requirements  and  voluntary  initiatives  by  companies  have 
proved to be ineffective in achieving the policy objectives. Despite recent improvements, only 
approximately  6%  of  EU  large  companies  are  reporting  and  the  quality  of  the  information 
disclosed is mixed. This failure has a negative economic impact due to the fact that relevant 
risks and externalities are not fully captured in the accounting practice and investors cannot 
adequately assess companies' non-financial performance.  

Option 1 (Disclosure in the Annual Report) would improve the quantity of information, as 
it would require concerned companies to disclose material information in the Annual Report. 
Moreover,  the  current  requirement  would  be  expanded  to  new  topical  areas,  as  information 
should  include  social,  human  rights,  anti-corruption  and  bribery  matters  in  addition  to 
environment and employees-related aspects113. Minimum harmonisation would be introduced 
as  regards  the  content  of  the  disclosure:  it  is  expected  that  the  requirement  to  include 
information  on  policies,  performance,  and  risk-management  would  benefit  the  quality  and 
comparability  of 
improve  companies'  sustainability  awareness.  
Companies would incur higher compliance costs expected to be in a range between 600 and 
4300  euros  per  year  per  company  (see  Annex  9).  Overall,  economic  benefits  are  expected 
from  better  management  of  risks  and  allocation  of  capital,  enhanced  trust  in  business  and 
better resources management. However, it is difficult to quantify such long-term benefits and 
they  would  depend  on  how  non-financial  aspects  are  integrated  in  managers  and  investors' 
strategies and practices. As regards environmental and social impacts, the option is expected 
to  positively  affect  businesses'  conduct  raising  reputational  costs  for  misbehaviour  and 
increasing peer pressure.  

the  disclosure,  and 

Option  2  (Detailed  Reporting)  could  have  an  overall  greater  impact  on  transparency  than 
Option 1. The increase in the number of companies reporting would be the same for Option 2a 
(Mandatory), whereas it would be uncertain for Options 2b and 2c. Quality could benefit from 
a  requirement  to  provide  a  detailed  report  drafted  in  accordance  with  international 
frameworks, as information would be more comprehensive and granular, and the use of KPIs 
could have a positive impact on comparability. On the other hand, it has been pointed out that 
imposing  detailed  disclosure  requirement  may  result  in  a  'tick-the-box'  exercise,  with  only 
limited impact on real companies' behaviour114. The difference in terms of economic, social 
and  environmental  benefits  compared  to  Option  1  cannot  therefore  be  precisely  assessed, 
although it is expected that greater transparency would determine higher benefits. However, 
the administrative burden resulting from a mandatory reporting obligation, at the current level 
of  development  of  tools,  would  be  significantly  higher,  particularly  in  the  short  term.  The 

113    A  vast  majority  of  the  stakeholders  consulted  agreed  that  information  concerning  human  rights  and 
corruption-related matters should be part of the non-financial information disclosed by companies. See Public 
Consultation Summary report, pp.10 to 12 

114  UNEP/KPMG/GRI, 2010 

28 

 
 
                                                 
annual cost of producing a report is estimated to be between 33000 and 604000 euros per year 
per company.115  

Option  2a  (mandatory),  is  not  considered  cost-effective  on  the  basis  of  the  high 
administrative burden. In Option 2b (report or explain) the administrative burden would be 
equal for companies opting to provide the report (and thus bear the same compliance cost as 
in  Option  2a).  Companies  opting  to  provide  an  explanation  would  at  least  bear  the  related 
costs, estimated to be comparable to the lowest range of the cost estimate given for Option 1 
(600/1000 euros)116. Overall, the Commission services estimate that it be less effective than 
Option  2a,  although  it  has  the  potential  to  generate  peer  pressure  and  provide  an  effective 
incentive for companies.  

Option 2c (voluntary) intends to recognise and promote best practices of companies reporting 
on a voluntary basis. Its effectiveness in terms of quantity of information would be uncertain. 
At  the  same  time,  for  companies  deciding  to  report,  it  would  guarantee  the  same 
improvements in quality as Option 2a and similar economic benefits. Lastly, while the overall 
impact on society and environment would be weaker than Option 2a, proactive engagement in 
detailed  reporting  should  not  result  in  a  'tick-the-box'  exercise.  Such  option  would  carry  no 
additional  administrative  burden,  as  the  disclosure  of  a  detailed  report  would  remain 
voluntary.  

Option 3 (Mandatory EU Standard) could increase significantly the quantity and quality of 
disclosed information.. An EU standard designed in a way that is able to meet the needs of 
preparers and users could also maximise the comparability of the information. Moreover, this 
option would generate economic benefits resulting from better management and allocation of 
capital  and  an  overall  positive  environmental  and  social  impact.  However,  those  positive 
effects would be subjected to the completion of a long and uncertain process of development 
and  implementation  of  such  standards,  including  thorough  consultation  with  stakeholders.  
Moreover, the majority of business associations, experts and most stakeholders underlined the 
need  for  sufficient  flexibility  (also  internationally)  and  the  dangers  of  a  'one-size-fits-all' 
approach. As regards compliance costs, at the current level of development of tools, option 3 
would be comparable to Option 2a in terms of administrative burden, or even higher. Option 3 
is therefore not considered cost-effective at this stage. 

The  table  below  summarises  how  each  policy  option  is  assessed  against  the  criteria  of 
effectiveness  in  meeting  the  objectives;  efficiency  (compliance  costs);  competitiveness;  and 
coherence with other EU legislation.  

Table 2 – Assessment of the Policy Options 

Effectiveness 

Quantity 

Quality 

Efficiency 
(compliance 
cost) 

Competitiveness 

0. No change 

1. Require a disclosure in 
the Annual Report 

0 

+ 

0 

+ 

0 

+ 

0 

+ 

Coherence 
with EU 
legislation 

0 

 +  

115  More details provided in annex 9 
116  According to an assessment made by the Danish government, a comparable disclosure would cost around 870 
euros per company http://www.dcca.dk/graphics/publikationer/CSR/CSR_and_Reporting_in_Denmark.pdf, 
p. 12. More details are provided in Annex 9 

29 

 
 
 
 
 
                                                 
2.Detailed 
reporting  

a) 
Mandatory  

b) Report 
or Explain 

c) 
Voluntary  

3. Set up a mandatory 
EU standard  

++ 

+/? 

? 

++ 

+ 

+ 

+ 

+ 

-- 

- 

+ 

-- 

+/? 

+/?  

+ 

? 

+ 

+ 

+  

+ 

Magnitude of impact as compared with the baseline scenario (baseline is indicated as 0): ++ strongly positive; 
+ positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable  
(Commission Services Analysis). 

The  table  below  summarises  how  each  category  of  stakeholders  would  view  the  policy 
options:  

Table 3 – Assessment of the Policy Options by Stakeholders Group 

0. No change 

1. Require a disclosure in the Annual Report 

2. Detailed reporting  

a) Mandatory 

b) Report or Explain 

c) Voluntary  

3. Set up a mandatory EU standard 

Preparers 

Users/ 
investors 

Users/ 
NGOs 

0 

≈ 

- - 

- 

++ 

-- 

0 

+ 

+ 

+ 

- 

+ 

0 

+ 

++ 

+ 

- - 

+ 

Commission Services Analysis, based on the results of the consultations 

5.1.3 

Preferred option  

Having compared the different options, the preferred policy option appears to be a a smart 
mix  of  mandatory  (statement)  and  voluntary  (detailed  reporting)  disclosure  requirements 
(option  1  and  option  2c).  Companies  would  be  required  to  disclose  material  non-financial 
information in the form of a statement in their Annual Report. Those companies that do not 
have a specific policy in one or more topical areas would be at least required to explain why 
this is the case. For companies willing to prepare a detailed report on a voluntary basis, the 
proposed  policy  mix  would  provide  an  exemption  from  the  disclosure  obligation  described 
under Option 1, provided that: (i) the report covers the same topics and content, (ii) it makes 
reference  to  international  frameworks,  and  (iii)  it  is  included  in  the  Annual  Report.  This 
provision builds on existing practices and provides a limited but useful incentive to improve 
the  quality  of  those  reports.  Information  would  be  disclosed  in  reference  to  high  quality, 
generally accepted international frameworks, and verified for consistency due to the inclusion 
in the Annual Report.  

30 

 
 
 
 
More  details  on  the  choice  of  instrument  and  scope  of  application  are  given  in  sections  5.3 
and 5.4 below.  

5.2 

Options Relating to Enhancing boards diversity (Objective 3) 

Different types of measures aiming at enhancing board diversity and based also on techniques 
other  than  disclosure  can  be  envisaged,  ranging  from  an  improvement  of  the  existing 
recruitment policies to a more or less binding obligation for companies to enhance their board 
diversity.  A  summary  and  analysis  of  these  different  options  is  outlined  below.  A  more 
detailed presentation and analysis is provided in Annex 7.  

5.2.1  Description of the broad policy options  

In  the  "no  policy  change  "scenario  (option  0),  any  possible  action  to  increase  board 
diversity  would  have  to  be  taken  by  individual  Member  States  and/or  companies  on  a 
voluntary  basis.  According  to  the  option  1,  companies  would  be  required  to  disclose  their 
board  diversity  policy  with  regard  to  various  aspects,  including  in  particular  age,  gender, 
nationality or educational and professional background117. The disclosure requirement would 
be part of the corporate governance statement and would be included in the annual report (see 
section  5.2.3.  below).  The  statement  would  present  the  objectives  of  this  policy,  its 
implementation  and  the  results  obtained.  Companies  who  do  not  have  a  diversity  policy 
would not be obliged to put one in place, but only to explain why this is the case. Option 2 
would  mandate  companies  to  take  into  account  diversity  as  one  of  the  criteria  for  the 
selection  of  a  board  candidate.  Companies  would  be  obliged  to  consider  not  only  the 
expertise  of  a  given  candidate,  but  also  to  which  extend  he/she  would  make  the  board  as  a 
whole more diverse. Option 3 would put on companies a binding obligation to establish a 
policy  concerning  diversity  for  boards.  Companies  would  have  to  determine  the  content  of 
this  policy,  establish  targets  and  assess  their  achievement.  It  should  also  be  noted  that  the 
option of introducing quotas has been discarded, as it is the subject of a separate Commission 
initiative.  

5.2.2  Comparative analysis of the broad policy options  

Each option has been assessed taking into account its effectiveness in reaching the objective, 
efficiency  (compliance  costs),  acceptability  to  stakeholders,  effects  on  competitiveness, 
coherence with other EU initiatives and impact on fundamental rights. This assessment can be 
found  in  Annex  7.  On  the  basis  of  this  appraisal,  a  comparative  analysis  of  the  preliminary 
policy options has been conducted and it is summarised below. 

The  preliminary  analysis  points  to  enhanced  disclosure  as  the  best  approach  in  order  to 
improve the overall diversity of boards. The 'no policy change' scenario/option 0 has been 
discarded as it does not seem to allow for sufficient improvement of the current situation. The 
progress would be slow or limited, unless Member States take action, as well as fragmented at 
the EU level. It would depend very much on the practices of companies and national debates 
on the issue. In addition, it could be seen as a missed opportunity to propose a complementary 
measure to the one on gender, in order to enhance diversity in the boardroom. 

Option  1  (disclosure  of  diversity  policy)  would  contribute  to  enhancing  transparency  and 
informing the market of corporate governance practices. Thus it would put indirect pressure 

117  Companies  may  also  include in  their reporting  other  aspects  of  diversity which  they  consider  relevant;  see 

also Section 3.2 in fine 

31 

 
                                                 
on  companies  to  adopt  more  ambitious  diversity  policies,  while  offering  a  great  deal  of 
flexibility.  Measures  based  on  disclosure  have  proved  their  effectiveness  in  Member  States 
such as Finland or Sweden.  

This  measure  could  also  have  potential  positive  social  impacts,  as  a  more  diversified  board 
would  be  better  placed  to  take  into  account  concerns  of  different  groups  of  employees  and 
stakeholders.  In  addition,  it  may  bring  more  equality  of  treatment  and  opportunities  for 
different groups of people or individuals and this from the top to the bottom.  

This approach, unlike in the case of financial institutions, has been considered, at this stage, 
more appropriate to achieve the pursued objective of diversity in the boardroom. Differences 
between  financial  institutions  and  listed  companies  in  general  (e.g.  banks  generate  systemic 
risks, consequences were borne by governments and population at large, etc.), require stricter 
rules  on  the  corporate  governance  of  financial  institutions,  whereas  listed  companies  need 
more  flexibility.  The  enhanced  disclosure  requirement  would  be  coherent  with  other 
initiatives  (e.g.  in  financial  institutions,  on  gender  diversity)  and  it  would  be  in  particular  
likely to contribute to the implementation of the quantitive targets by companies. 

Option  2  (diversity  as  recruitment  criterion)  could  have  a  positive  impact  on  diversity, 
while  being  consistent  with  the  initiative  on  gender  balance  in  the  boardroom.  Similarly,  it 
could  also  have  a  positive  social  impact  as  described  above.  However,  companies  are  not 
always  transparent  about  their  recruitment  practices  and  processes.  In  the  absence  of  a 
sufficient degree of transparency, the effectiveness of an option addressing recruitment alone 
would be limited as it would rely mainly on the appreciation by the company.  

Option  3  (establish  a  diversity  policy),  although  also  effective,  could  be  perceived  as  too 
prescriptive  as  it  would  simply  oblige    companies  to  put  in  place  a  policy,  without  giving 
them  the choice to justify the absence of such policy on a "comply or explain" basis. It may 
thus be less accepted by stakeholders and may be less consistent with the on-going initiative 
on gender diversity that may require quantitative targets. It would have positive social impacts 
in terms of equality and opportunities for different categories of people (gender, age, etc.). It 
could indirectly have an impact on the reconciliation between private/family and professional 
life, as the promotion of more women in key positions for example (who have in general more 
family  related  responsibilities)  would  potentially  bring  about  more  flexible  policies  in  this 
regard. 

In the light of the assessment of the abovementioned policy options, it appears that the most 
appropriate option at this stage would be option 1 (disclosure of diversity policy). It is also 
better  accepted  by  most  stakeholders  compared  with  a  compulsory  diversity  policy  or  to  an 
action  focusing  only  on  recruitment  policy.  Moreover,  it  is  complementary  to  the  separate 
Commission  initiative relating to the possible  introduction of quantitative targets for gender 
balance  on  boards,  as  the  enhanced  disclosure  would  probably  contribute  to  a  better 
implementation  of  these  quantitative  objectives.  A  detailed  comparison  of  options  is  to  be 
found in Annex 7. 

Table 4 – Assessment of the Policy Options 

Effectivenes

Efficiency 

Competitiveness 

Coherence with EU 
initiatives 

Estimated costs 
per company  

(Compliance Cost) 

No 

0. 
change 

policy 

0 

0 

0 

0 

0 

32 

 
 
 
1.  Disclosure  of 
internal  policy  on 
diversity 
the 
in 
annual report 

2  Diversity  must 
be  one  of 
the 
criteria  of  Board 
composition 

3.  Requirement  to 
establish  a  policy 
with 
to 
diversity 

regard 

+ 

+ 

+ 

++ 

€600/1000 

+/? 

-/? 

+/? 

+/? 

+ 

- 

- 

-/? 

? possible costs 
linked to 
remuneration of 
HR specialists  

? linked to   
remuneration of 
HR specialists 
and possible 
increase of 
board members 

Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly 
positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable 

Table 5 – Assessment of the Policy Options by Stakeholders Group 

0. No change 

1. Disclosure of internal policy on diversity in the annual 
report 

Companies 

Investors 

0 

+ 

0 

++ 

Other 
(NGOs, civil 
society, etc.) 

0 

++ 

2 Diversity must be one of the criteria of Board 
composition 

+/? 

+/? 

+ 

3.  Requirement  to  establish  a  policy  with  regard  to 
diversity 

- 

+/? 

+ 

5.2.3 

Preferred option (enhanced disclosure of the board diversity policy) 

The present section refines the preferred option which aims at enhancing board diversity, by 
taking into account the disclosure criteria mentioned at the beginning of the present chapter: 
the form and content of the disclosure and the nature of the requirement. 

As  regards  the  form  of  the  disclosure,  it  appears  that  a  statement  in  the  annual  report 
describing the company's diversity policy for the board is the most appropriate approach. In 
this regard it is important to recall that, as already mentioned in section 2.2., according to the 
current  provisions  of  the  Fourth  Directive,  all  listed  companies  are  required  to  provide  a 
corporate  governance  statement,  which  shall  include,  inter  alia,  information  on  the 
composition  and  operation  of  the  administrative,  management  and  supervisory  bodies  and 
their  committees.  Thus,  information  on  board  diversity  policy  should  be  a  part  of  the 
corporate  governance  statement,  which  appears  to  be  a  sufficient  instrument  for  ensuring 
transparency. A separate report does not seem necessary, especially given that, the disclosure 
of board diversity policy covers only a limited group of people (European boards consist on 
average  of  12  members118).  The  proposed  provisions  regarding  board  diversity  would 

118   Heidrick & Struggles, 2011, p. 37 

33 

 
 
 
 
 
 
 
                                                 
therefore  complement  the  current  provisions  laid  down  in  Article  46a  of  the  Fourth 
Accounting Directive, by adding a new requirement for diversity disclosure 

As  regards  the  topics  and  the  content  of  the  disclosure,  companies  should  be  required  to 
describe  their  diversity  policy  with  regard  to  various  aspects,  including  age,  gender, 
nationality  and  educational  and  professional  background.  These  aspects  are  particularly 
important,  as  shown  in  the  description  of  this  problem.  However,  companies  would  also  be 
able  to  include  other  aspects  of  diversity  which  they  consider  relevant  and  material.  In 
addition to the description of the diversity policy,  its objectives, implementation and  results 
should  be  also  included.  As  the  main  objective  of  increasing  diversity  is  to  enhance  the 
supervision of the management, the information specified should be provided in the first place 
regarding  supervisory  boards  and  the  non-executive  directors.  However  as  the  preferred 
option would not place on companies any concrete obligation going beyond disclosure and as 
enhanced  transparency  regarding  both  management/executive  directors  and  supervisory/non 
executives  would  be  beneficial  for  the  company,  the  new  requirement  should  therefore 
concern  the  same  bodies  as  currently  foreseen  by  the  Accounting  Directives  for  the 
information  on  "the  composition  and  operation  of  the  administrative,  management  and 
supervisory bodies". 

Regarding the basis for disclosure on board diversity, although initiatives such as GRI include 
diversity  indicators  in  their  reporting  framework,  it  is  preferable  to  leave  companies  free  to 
choose the most appropriate reference for the disclosure. 

As regards the nature of the requirement, the preferred option aims at bringing about positive 
change in the boardroom by creating more visibility around the issue. Yet, it would not put a 
binding obligation on the company to have a diversity policy. A 'comply or explain' approach 
seems thus the most appropriate solution. Companies would therefore be required to report on 
their board diversity policy or, if they don't have one, explain why this is the case. 

To conclude,  the preferred  option would require companies to disclose their board diversity 
policy,  in  particular  as  regards  age,  gender,  nationality,  professional  and  educational 
background.  Companies  would  have  to  describe  the  objectives  of  this  policy,  its 
implementation  and  its  results.  The  disclosure  would  be  part  of  the  corporate  governance 
statement,  which  is  contained  in  the  annual  report.  Companies  that  do  not  have  a  diversity 
policy would be required to provide reasons for that. 

5.3 

Choice of instrument 

In principle, a number of instruments could be used to approach the problem, including, self- 
and  co-regulation,  new  legislation  (directive  or  regulation)  or  modification  of  existing 
legislation.  The  following  points  are  relevant  when  considering  the  case  for  amending  the 
existing Accounting Directives (AD): 

• 

The general scope of the AD is EU registered companies both listed and non-listed. As 
far  as  non-financial  information  is  concerned,  several  arguments  support  having 
transparency  requirements  for  both  listed  and  non-listed  companies:  first,  non-listed 
companies are subject to the same demands of transparency and accountability as listed 
companies; second, having the same regime on listed and non-listed companies would 
maintain a level playing field.  

34 

 
• 

On the other hand, specific provisions of the Accounting Directives relating to corporate 
governance disclosure only apply to listed companies. The disclosure of board diversity 
policy could be added as a new topic to the existing corporate governance statement. 

•  Moreover,  the  relevant  requirements  of  the  Accounting  Directives  would  also  be 
applicable to the Transparency Directive, by means of a cross-reference119. The scope of 
the  TD  covers  all  companies  listed  on  EU  regulated  markets  (including  companies 
incorporated outside the EEA but listed on EU regulated markets). Should new articles 
be  added  to  the  Accounting  Directives,  an  amendment  of  the  Transparency  Directive 
may therefore also be necessary.  

• 

A  proposal  to  revise  the  TD  and  of  the  AD  was  adopted  by  the  Commission  on  25 
October 2011, and negotiations are currently on-going120.  

An  alternative  instrument  would  be  a  new  Regulation,  which  would  have  the  advantage  of 
being directly applicable and would not need to be transposed into national law. However the 
creation  of  a  separate  Regulation  to  deal  with  this  single  policy  objective  alone  does  not 
appear proportionate, when the policy could be legislated for within separate sections of the 
AD. Moreover, a Regulation would not seem an appropriate instrument in light of the existing 
non-financial  disclosure  practice,  which  is  based  on  principles  and  objectives  rather  than 
detailed standards. 

It could also be argued that a specific, measurable, achievable and timely commitment by the 
industry  itself  (i.e.  Self-  or  co-regulation),  appropriately  supported  by  EU  policies,  could 
possibly  deliver  significant  results.  However,  self-  or  co-regulation  are  not  considered  as 
effective  options  because,  despite  the  growing  demand  from  stakeholders  (mainly  users  of 
information, such as investors and NGOs) throughout the years, still only a minority of large 
companies  are  disclosing  non-financial  information  on  a  voluntary  basis.  Moreover,  this 
instrument  would  not  address  the  problems  of  lack  of  minimum  harmonisation  stemming 
from the diverse approaches taken by some Member States.  

In  the  light  of  the  above  considerations  the  inclusion  of  a  series  of  provisions  within  the 
Accounting Directives is the preferred choice.  

5.4 

Scope of Application 

As far as non-financial information is concerned, the Commission services conclude that only 
large companies and groups, whether listed or not, should fall within the scope of application 
of the new rules. Requiring only large companies to provide disclosures would be in line with 
the  Commission's  policy  of  making  administrative  burden  proportionate.  Smaller  business 
would  spend  proportionally  more  time  and  resources  dealing  with  administrative  tasks  than 
their larger counterparts121. Having in mind the objective of avoiding undue burden and taking 
into  account  the  input  from  stakeholders  and  national  authorities,  only  companies  having 
more  than  500  employees  would  be  subject  to  new  requirements.  It  is  estimated  that  this 
would  cover  approximately  18,000  large  companies  operating  in  the  EU.  This  threshold  is 

119  See 

article 

4 

(5) 

of  Directive 

2004/109 

("Transparency  Directive"), 

http://eur-

lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2004:390:0038:0038:EN:PDF  

120  Proposal  for  a  Directive  on  the  annual  financial  statements,  consolidated  financial  statements  and  related 
http://eur-

reports 
lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52011PC0684:EN:NOT  

COM/2011/0684 

undertakings, 

certain 

types 

final, 

of 

of 

121  CSES 2011, p. 27 

35 

 
                                                 
higher than the one currently applied within the Accounting Directives for certain obligations 
(i.e.: 250 employees), which limits the burden of the proposed measure.  

Companies  that  are  subsidiaries  within  a  group  could  also  be  exempted  from  the  disclosure 
requirement  to  the  extent  that  their  relevant  information  is  integrated  in  the  consolidated 
report of the parent company. 

As regards board diversity, it is important to maintain coherence with existing requirements in 
the field of corporate governance disclosure. The existing EU corporate governance rules only 
cover listed companies122. According to the current provisions  of the Accounting Directives 
listed  companies  are  required  to  provide  a  corporate  governance  statement  in  their  annual 
report and to disclose  certain  topics (see Annex 2). The scope of  disclosure  of the diversity 
topic should therefore be the same as the scope of disclosure of other corporate governance 
topics.  Respondents  to  the  Green  Paper  on  the EU  corporate  governance  framework  clearly 
pronounced themselves against the extension of the EU corporate governance rules to unlisted 
companies. Furthermore, whereas the need to ensure the same level of transparency on non-
financial  disclosure  for  both  listed  and  non-listed  companies  was  highlighted  above,  the 
situation  is  different  for  disclosure  of  diversity  policy.  Corporate  governance  arrangements 
regulate the internal functioning of a company and as a consequence disclosure is crucial in 
case of listed companies with external shareholders who are directly concerned by it and less 
important in case of non-listed companies123. The scope of the disclosure on board diversity 
and on other non-financial matters will thus not be identical. As explained in 5.3 above, such 
difference  already  exists  in  the  current  provisions  of  the  Accounting  Directives.  Thus,  only 
listed companies should be covered. However, best corporate governance practices of unlisted 
companies can be encouraged on voluntary basis. 

Finally, as to the size of companies concerned, it should be pointed out that including board 
diversity  policy  disclosure  as  a  new  topic  in  the  corporate  governance  statement  should  not 
create any considerable administrative burden. As far as SMEs are concerned, listed ones are 
already  required  to  produce  a  corporate  governance  statement,  including  information  on  the 
composition  and  functioning  of  their  boards.  However,  given  that  it  may  be  sometimes 
difficult to assess or foresee precisely the impact of such disclosure on very small companies 
and  that  the  reduction  of  the  administrative  and  regulatory  burden  is  a  top-priority  for  the 
European  Commission,  SMEs  as  defined  by  the  Accounting  Directives  would  be  exempted 
from  the  diversity  disclosure  requirement.  Nonetheless,  as  in  the  case  of  non-listed 
companies,  best  corporate  governance  practices  of  SMEs  can  be  encouraged  on  voluntary 
basis. 

122  It should be noted that in the proposal for a review of the Accounting Directives (art. 21) the Commission 
proposed that a corporate governance statement should be disclosed by public interest entities. Public interest 
entities are defined by Article 2 (13) of Directive 2006/43/EC, which covers certain non-listed entities too, 
such  as  certain  credit  institutions  or  insurance  undertakings  or  other  entities  defined  by  Member  States 
because of the nature of their business, their size or the number of their employees. A proposal to amend the 
Audit  Directive  has  also  been  adopted  in  November  2011,  where  the  Commission  has  proposed  to  further 
expand this definition to other types of financial sector entities. However, this possible extension of rules on 
corporate  governance  statement  to  the  specific  category  of  public  interest  entities,  and  in  particular  certain 
financial institutions, is justified by their potentially high impact on economy. It should not be understood as 
a general extension on rules on corporate governance statement to unlisted companies. 

123  EU rules on corporate governance apply only to listed companies. It is considered that companies that do not 
raise capital on financial markets should in general not be subject to same requirements as listed companies, 
as  there  is  no  need  to  ensure  protection  of  external  investors.  Good  governance  practices  for  unlisted 
companies could of course be encouraged on a voluntary basis. 

36 

 
                                                 
6 

CUMULATIVE IMPACTS OF THE PREFERRED OPTIONS  

The  proposed  policy  is  a  combination  of  a  mandatory  requirement  to  disclose  non-financial 
information  (including  information  on  the  diversity  policy  applicable  to  the  board)  in  the 
annual  report,  and  voluntary  detailed  reporting.  As  explained  above,  it  is  expected  that  the 
preferred  options  may  achieve  the  identified  operational  objectives,  while  keeping  the 
administrative burden low. The expected cumulative impacts are presented below. 

6.1 

Expected Primary Impacts 

6.1.1 

Increased transparency 

The  preferred  option  is  expected  to  increase  the  quantity  of  information  available  to 
stakeholders  compared  to  the  baseline  scenario  by  increasing  the  number  of  companies 
disclosing information by about 7 times (from ~2500 to ~18000). Moreover, the requirement 
is designed in a way to meet the key needs identified by the users as regards both the content 
of  the  disclosure  (i.e.  material  information  concerning  policies,  performance  and  risk 
management aspects on social, environmental, human rights and anti-corruption aspects). This 
lead  to  a  further  improvement  in  the  quality  of  the  information  disclosed,  compared  to  the 
baseline scenario. The reference to internationally accepted frameworks is meant to raise the 
level of materiality, accuracy and comparability across companies as well as of one company 
over time. The requirement for companies to give a reasoned explanation in case they do not 
have a specific policy in place may also increase peer pressure and encourage best practices, 
while  retaining  flexibility124.  Finally,  should  companies  also  decide  to  voluntarily  provide  a 
non-financial report, the level of detail of information disclosed would necessarily increase.  

6.1.2 

Better performance of companies (and better risk management)  

The Commission services estimate that the proposed policy, by enhancing transparency at a 
limited  cost,  would  have  an  overall  positive  impact  on  companies'  performance.  The 
economic benefits related to non-financial transparency tend to become more apparent on the 
long-term,  and  they  appear  to  be  larger  in  those  countries  with  mandatory  disclosure 
requirements125. As explained in chapter 3, academic evidence confirms a positive correlation 
between transparency and performance. However, such benefits are in most cases difficult to 
quantify and precise estimates as to what extent the preferred option would contribute to their 
achievement cannot be provided126.  

Overall, the preferred option is expected to bring benefits both at internal (i.e. better employee 
relations, improved management systems and internal processes, etc.) and external level (i.e. 
enhanced  reputation,  better  perception  by  and  dialogue  with  stakeholders,  easier  access  to 
capital). In particular, the requirement is designed in a way that would encourage companies 

124  The Danish case shows that two years after the approval of the relevant legislation, 97% of companies have 

chosen to report on their CSR policies. 
http://www.dcca.dk/graphics/publikationer/CSR/CSR_and_Reporting_in_Denmark.pdf . For an overview of 
the different arguments in favour or against the comply or explain approach, see "Development of Norms 
Through Compliance Disclosure", Bjorn Fasterling, 2012 

125 Ioannou and Serafeim, 2011 
126  In the CSES study, for instance, only 3 respondents to the survey indicated they had tried to quantify the benefits 
of non-financial reporting in figures. Of those 3, only one had arrived at a financial estimate. This company 
had  a  non-financial  reporting  cost  in  the  mid-range  of  larger  companies  (€300000)  and  reported  they  had 
identified  efficiency  savings  of  €80  million.  However, 
it  was  not  clear  that  what  amount  of  these  benefits 
could be attributed to the preparation of non-financial reports. 

37 

 
                                                 
to better integrate non-financial and financial considerations, as the disclosure would be part 
of the annual report. Material information on risk-management aspects would consequently be 
reviewed by the boards, allowing them to have a more thorough and integrated view of both 
financial  and  non-financial  risks.  This  may  have  positive  effects  on  overall  management, 
through a better consideration of non-financial parameters in designing business strategies127. 

The  proposed  requirement  may  also  lead  companies  to  set  up  (for  first  time  reporters)  or 
optimise processes and systems related to the collection and analysis of information. This may 
increase management's awareness of non-financial performance128, and generate tangible cost-
saving  data  leading,  for  instance,  to  energy  saving  interventions  or  waste  minimisation.129. 
Other positive impact may include the reduction of some running costs (such as the reduction 
of  insurance  costs  due  to  better  management  of  risks)  or  easier  benchmarking  with 
competitors or market leaders.  

Furthermore,  the  requirement  to  disclose  the  diversity  policy  applicable  to  their  boards,  by 
enhancing  the  visibility  of  companies'  actions  in  that  field,  would  encourage  companies  to 
take further into account the need to have more diverse views in the boardroom. A right mix 
of  background,  origins  and  views  allows  for  more  robust  discussion  and  leads  to  better 
oversight of the management by the board and to overall better decision-making processes.  

6.1.3 

Increased accountability 

As a result of the implementation of the preferred option, material non-financial information 
would be made publicly available on a regular basis. This information could be used by civil 
society  organisations  and  local  communities  to  assess  the  impact  and  risks  related  to  the 
operations  of  a  company.  It  is  therefore  anticipated  that,  by  increasing  the  quantity  of  and 
quality of information available, a disclosure requirement would also positively affect the way 
companies  are  perceived  in  terms  of  their  accountability  towards  society.  More  and  better 
reporting  could  increase  consumers'  trust  and  have  a  positive  effect  on  the  demand  side, 
creating  new  entrepreneurial  opportunities  and  better  management  of  externalities.  It  would 
also  act  as  a  catalyst  for  companies  to  increase  or  improve  their  CSR  practices,  as  well  as 
improve their diversity in the boardroom. 

6.1.4 

Enhanced efficiency of capital markets 

As  ESG  data  provides  an  important  qualitative  window  into  the  management  practices  of 
companies,  the  proposed  policy  would  contribute  to  improve  investors'  decision-making 
capacity130. Financial markets increasingly recognise that risks related with investing in these 

127  "What  Really  Counts:  The  materiality  of  extra-financial 

factors"  Garz,  and  Volk,  2007, 
http://www.sristudies.org/Garz+and+Volk+(2007), studied sustainability reporting by 540 EU companies and 
found that the process of drafting such a report was among the most important catalysts for organizational 
change, contributing to the accumulation of knowledge, questioning of processes, and the establishment of 
suitable structures and practices. 

128  According to the CSES study, benefits relating to credibility and overall transparency are ranked amongst the 
most important ones by the companies surveyed. Risk-management and improvement of the internal culture 
were also considered important or very important by all companies surveyed. CSES 2011, p. 28  

129  Reporting  might  provide  companies  with  tangible  cost-saving  data,  e.g.  on  recycling,  energy  saving 
interventions  or  waste  minimisation.  In  KPMG’s  2008  survey,  cost  saving  was  the  fourth  biggest 
sustainability  motivator,  with  27%  of  respondents  admitting  to  implement  reporting  processes  for  cost 
reduction purposes. As an example, paper manufacturer Mondi publically states that it achieves significant 
See 
by 
bottom-line 
http://www.mondigroup.com/desktopdefault.aspx/tabid-2032/   

environmental 

reporting 

savings 

impact. 

on 

its 

130  Increased  transparency  may  also  reinforce  the  credibility  of  specific  sustainability  indexes  and  rating 
systems.  The  risk  that  their  recent  proliferation  could  undermine  their  own  quality  and  credibility,  as  they 

38 

 
                                                 
companies are lower than in other companies and rewards them accordingly. A vast majority 
of academic studies agree that companies with high ratings for CSR and ESG factors have a 
lower  cost  of  capital  in  terms  of  debt  (loans  and  bonds)  and  equity131.  In  the  public 
consultation investors confirmed the relevance of ESG data stating that the insufficient level 
of  transparency  constitutes  a  constraint  to  their  capacity  to  build  relevant  non-financial 
information  into  their  valuation  models132.  In  the  short  term,  introducing  more  and  better 
disclosure  would  respond  to  growing  market-driven  demand  for  more  comparable  and 
accurate  non-financial  information.  In  the  long  term  it  could  also  drive  more  mainstream 
investors  to  take  into  better  account  all  the  risks  and  externalities  of  firms  and  thus  its  true 
performance,  leading  to  the  development  of  more  comprehensive  valuation  models.133  In 
particular, by providing additional guidance as regards the minimum requirements on topics 
and  content  covered  by  the  disclosure,  this  policy  would  contribute  to  mainstreaming  the 
information  available  and  could  provide  clearer  expectations  concerning  its  materiality  and 
completeness.  It  follows  that  the  proposed  policy  could  have  a  limited  positive  impact  on 
problems related to financial markets' short-termism which appeared evident in the aftermath 
of  the  financial  crisis.  In  relation  to  diversity  in  the  boardroom,  as  already  illustrated  in 
section  3.2,  having  the  right  mix  of  skills  and  knowledge  is  essential  for  good  corporate 
governance. Therefore, the proposed policy would enable investors to take informed decisions 
as to the governance practices of the company.  

On the basis of this reasoning, and of growing evidence of a link between financial and non-
financial long term performances, the Commission services estimate that the proposed policy 
could contribute to a more efficient allocation of capital across the Internal Market.  

6.1.5 

Increased administrative burden  

The preferred policy options will determine a limited increase in administrative burden on the 
concerned  companies  as  it  will  add  to  the  length  of  the  annual  reports,  as  the  quantity  of 
information disclosed is expected to be broader than the current practice.134 

As regards non-financial disclosure, the additional cost is estimated to be between €600 and 
€4,300 per year per company (for a detailed expl anation see Annex 8), thus generating a total 
cost  estimated  between  € 10,5  and  75,25  million.  Additional  costs  relate  in  particular  to 
drafting,  publication,  or  specific  staff  training.  Some  additional  data  may  also  need  to  be 
collected,  although  one  should  bear  in  mind  that  the  policy  would  merely  strengthen  an 
already  existing  legislative  requirement,  and  the  necessary  systems  and  procedures  should 
already be in place in many companies. The proposed policy would not determine additional 

could rely on incomplete and unsubstantiated information, was raised by some stakeholders. See "Rate the 
raters", 
http://www.sustainability.com/library/rate-the-raters-phase-
four#.TyGX8qVbdiM 

AccountAbility, 

2011, 

131  DB Group, 2012  
132  Public Consultation Summary Report, p. 10. See also the Minutes of the ad-hoc Expert Group, 11 July 2011 
meeting, http://ec.europa.eu/internal_market/accounting/docs/11072011_minutes_en.pdf. For an overview of 
investors' needs, see CREM/Adelphi, 2011, p. 91 

133  "Reporting 

Change: 

2010, 
http://www.sustainability.com/library/reporting-change#.TyGj3aVbdiM.  The  study  shows  that  reporting  is 
considered a trusted form of information channel by a large majority of users (90%).   

SustainAbility, 

Reporters 

Readers 

Survey 

2010", 

& 

134  The scope of companies' recurring costs closely depends on the content of the requirement. Therefore, and 
due  to  the  qualitative  and  flexible  nature  of  the  proposed  measures,  all  the  figures  provided  should  be 
considered as estimates and a fair amount of uncertainty needs to be included. The cost estimates are based 
on  the  available  public  data,  as  well  as  on  evidence  gathered  by  the  Commission  services  in  the  various 
consultations  (online  public  consultation,  ad  hoc  expert  group,  bilateral  contacts  with  stakeholders).  See 
Annex 8 for more details.  

39 

 
 
                                                                                                                                                         
administrative burden on those companies voluntarily choosing to produce a detailed report in 
compliance  with  the  requirement,  as  they  would  be  exempted  from  additional  disclosure 
obligations.  The cost incurred by these companies on a voluntary basis, however, would be 
significantly higher, although it varies to a great extent depending on the size and complexity 
of the company and its operations, as well as on the type of reporting chosen. They would also 
be likely to be higher for first time reporters, while decreasing over the years. As estimated in 
Annex  8,  the  total  cost  of  producing  a  non-financial  report  is  estimated  in  the  range  of 
ude all costs relating to the drafting of the report, its 
€33,000 to €604,000. Such estimates incl
publication,  additional  ad-hoc  data  collection  costs,  annual  costs  such  as  training  as  well  as 
potential external assurance.  

With regard to board diversity, the cost of disclosure of the diversity policy is estimated to be 
between  €600  and  €1000  per  year
  per  company,  thus  generating  an  estimated  total  cost 
between €  3.6 and 6 million. Given the fact that the preferred option would not apply to listed 
SMEs, its impact should be limited. As illustrated in section 5.4 listed companies are already 
required  to  produce  a  corporate  governance  statement  and  the  new  requirement  would  only 
add a new topic to this disclosure. As the preferred option only requires disclosure and does 
not impose any obligation to have a board diversity policy, it offers companies an important 
flexibility  and  does  not  impose  disproportionate  burden.  The  administrative  burden  is 
examined in more detail in Annex 9. 

6.2 

Other impacts  

6.2.1 

Social Impacts 

The  preferred  options  would  introduce  in  the  Accounting  Directives  the  requirement  to 
disclose  material,  timely  and  clear  information  relating  to  social,  human  rights  and  anti-
corruption  aspects  as  well  as  boards'  diversity.  This  would  also  strengthen  the  existing 
requirement  on  disclosure  of  employees-related  matters.  The  proposal  does  not  affect  the 
applicable  law  concerning  issues  such  as  the  director's  duties,  the  liability  of  parent 
companies, or access to remedies. However, as stated in the CSR Communication, improved 
transparency  would  not  only  meet  increased  demand  for  such  information  but  would  also 
create  'shared  value'  that  benefits  both  business  and  society  at  large.  The  effects  of  the 
preferred  option  could  have  been  stronger  if  companies  had  to  disclose  a  full  and  detailed 
report. Nevertheless, compared to the baseline scenario, the proposed policy would require a 
significant number of large firms to develop, often for the first time, policies and strategies to 
manage or mitigate negative social impacts. At the same time, firms would be encouraged to 
better  identify  potential  risks  relating  to  human  rights135,  board  diversity  or  anti-corruption. 
As  showed  by  a  series  of  recent  studies136,  better  assessing  and  improving  their  social 
performance  companies  are  expected  to  better  identify  entrepreneurial  opportunities  and 
improve  their  overall  performance.  In  particular,  increased  transparency  on  employees-  and 
human capital matters could contribute to support better employment relations and contribute 
to  reducing  risks  and  costs  associated  with  labour  conflicts.  Furthermore,  a  diverse  board 
reflects and represents better the society at large. In particular, a board with a better balance in 
terms  of  gender,  age,  nationality  and  background  could  take  better  account  of  concerns  of 
different groups of employees and other stakeholders. A stronger transparency of diversity at 
the  highest  decision-making  level  of  the  company  could  also  be  a  vehicle  to  promote 
openness to diversity at all organisational levels. Lastly, it can be expected that the proposal 

135  Particularly in the case of those companies operating in third countries where legal requirements regulating 

social impacts are weak or weakly enforced. See University of Edinburgh, 2010 

136  DB Group, 2012, p. 58. 

40 

 
                                                 
could contribute in a limited extent to the creation of jobs in the field of CSR and in the SRI 
sector,  as  increased  availability  of  non-financial  information  may  lead  to  increased  activity. 
The negative impacts on employment, which could result from the higher costs of reporting, 
should  be  negligible  due  to  the  limited  administrative  burden  of  the  proposal.  Bilateral 
contacts  with  stakeholders  and  responses  to  the  public  consultation  did  not  identify  any 
concrete risks that EU companies would seek to move their operations or headquarters outside 
the EU as a reaction to new regulation in this field.  

6.2.2 

Environmental Impacts  

Although 
to  report 
the  existing  Accounting  Directive  already  requires  companies 
environmental  information,  the  new  provision  would  improve  current  practices  both  in 
quantitative  and  in  qualitative  terms.  The  direct  impact  of  the  proposal  cannot  be  estimated 
with precision, however the result of the public consultations as well as consolidated research 
suggest that more transparency and better quality of information on companies' environmental 
performance  could  increase  the  level  of  environmental  awareness  and,  as  a  consequence, 
contribute  to  better  environmental  performance. The  requirement  to  disclose  material  issues 
related  to  environmental  policies  and  risk-management  aspects  would  also  introduce  a 
forward  looking  element  in  the  non-financial  statements  and  is  likely  to  trigger  further 
assessment  within  boards  and  senior  management  as  regards  the  related  financial 
implications.  

6.2.3 

Impact on Fundamental Rights  

It is estimated that the preferred options would have a beneficial impact on fundamental rights 
as  they  would  encourage  EU  companies  to  regularly  review  their  policies  and  internal 
procedures in various aspects, mainly due to a larger public scrutiny. In particular, the non-
financial disclosure requirement is expected to have a positive impact on the workers' right to 
information (Article 27 of the Charter of Fundamental Rights of the EU137), and contribute to 
a high level of environmental protection in the Union policies (Article 37). Furthermore, by 
specifically  requiring  companies  to  disclose  material  risks  in  the  field  of  human  rights,  the 
proposal is likely to have a positive effect on human rights awareness within companies and 
contribute to the implementation of the corporate responsibility to respect human rights. It is 
therefore  likely  to  reduce  instances  of  EU  company  involvement  in  human  rights 
infringements. The required disclosure of the diversity policy is likely to promote the right to 
non-discrimination  (Article  21  of  the  EU  Charter)  and  equality  between  women  and  men 
(Article 23). It could also have a positive impact on the freedom to choose an occupation and 
right  to  engage  in  work  (Article  15).  It  can  be  expected  as  well  that  in  the  long  term  more 
transparent disclosure practices would have a positive effect on the freedom of expression and 
information  (Article  11).  The  preferred  policy  options  would  not  as  such  require  the 
publication  and  other  processing  of  personal  data  and  thus  would  not  impact  on  rights  to 
privacy and data protection (Articles 7 and 8 of the EU Charter). In any case companies need 
to ensure that any processing is carried out in accordance with national data protection laws 
implementing EU data protection legislation138. More details are provided in Annexes 6 and 7.  

137 http://www.europarl.europa.eu/charter/pdf/text_en.pdf 
138  Directive 95/46/EC on the protection of individuals with regard to the processing of personal data and on the 
http://eur-

free 
lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31995L0046:en:HTML  

movement 

data, 

such 

of 

41 

 
                                                 
6.2.4  Other Economic Impacts 

As  a  result  of  the  anticipated  primary  impacts,  the  Commission  services  estimate  that  such 
initiative may limitedly contribute to meeting the objectives of the Europe 2020 strategy for 
smart, sustainable and inclusive growth.139 It is therefore estimated that the impact on overall 
long-term  competitiveness  of  companies  would  be  positive.  The  measure  will  not  have 
meaningful budgetary consequences for public authorities, nor have implications for the EU 
budget.  

6.2.5 

Third countries and international aspects 

taken 

As highlighted in section 2.3, a global trend towards increased government intervention in this 
area in the last few years can be identified140. Important developments can also be observed in 
emerging  markets,  where  stock  exchanges  have 
initiatives  requiring  more 
transparency141. Stakeholders-led initiatives advocating the launch of a global convention for 
sustainability  reporting  have  also  been  identified  in  the  framework  of  the  RIO+20 
conference142, where the importance of sustainability reporting for large and listed companies 
has been acknowledged in the final declaration.143  
The proposed policy would nevertheless put the EU in a leading position at global level, and 
given the general direction of public policy in this field in different countries and regions, this 
would  be  to  the  advantage  of  EU  companies.  The  proposed  combination  of  mandatory  and 
voluntary  requirements  would  be  consistent  with  other  third-countries  initiatives,  and 
potentially trigger their further development. None of the stakeholders consulted signalled any 
potential conflict between the law applicable in third countries, and the proposed policy. The 
proposed  policy  could  also  positively  support  the  further  development  of  the  existing 
international  initiatives,  frameworks  and  guidelines,  thus  contributing  to  achieving  the 
objective  of  better  aligning  European  and  global  approaches  to  CSR  identified  in  the  CSR 
Communication.  

No significant effects on trade flows with third countries were identified nor signalled in any 
of the consultations carried out. As far as investments are concerned, a limited positive impact 
could  be  anticipated,  as  both  responsible  investors  and  mainstream  investors  based  in  third 
countries may be attracted by the expected gains in terms of transparency and sustainability of 
EU companies. 

7 

MONITORING AND EVALUATION 

In light of the policy objectives set out in Section 4, the following arrangements are proposed 
in order to set up an appropriate monitoring and evaluation framework.  

139  http://ec.europa.eu/europe2020/targets/eu-targets/index_en.htm  
140  According  to  UNEP/KPMG/GRI,  a  total  of  142  country  standards  and/or  laws  with  some  form  of 
sustainability-related reporting requirement or guidance currently exist, and approximately two thirds (65%) 
of these standards can be classified as mandatory and one third (35%) as voluntary.  

141  Such as the Shenzen and Shanghai Stock Exchanges (China), the Bovespa Stock Exchange (Brazil) and the 

Johannesburg Stock Exchange (South Africa). 

142  A Convention for Corporate Sustainability and Accountability was advocated by Stakeholder Forum, the GRI 

and Aviva Investors, 
http://www.csradialogue2012.org/index.php?option=com_content&view=article&id=120&Itemid=120  

143  Rio+20, UN Conference on sustainable development, paragraph 47 of the Final Declaration 

42 

 
                                                 
7.1 

Monitoring 

The  Commission  will  monitor  the  implementation  of  the  revised  Directives  in  cooperation 
with  the  Member  States  throughout  the  implementation  period  which  is  expected  to  last 
possibly until the end of 2014. In compliance with the principle of subsidiarity, the relevant 
information  should  be  gathered  primarily  by  Member  States  through  relevant  agencies  or 
Securities  Markets'  Regulators.  The  Accounting  Regulatory  Committee  (ARC)  could  also 
serve as forum for information sharing. It is expected that the costs of such activity would be 
met  from  existing  operational  budgets,  and  would  not  be  significant.  Monitoring  activity 
should  involve  sample  reviews  of  non-financial  statements  or  reports,  to  ensure  compliance 
with  the  requirement  of  the  revised  Accounting  Directives  and  a  comparison  between 
preparers with similar operations to ensure they are reporting in a consistent manner. During 
this time, implementation workshops can be organised by the Commission and/or ESMA to 
deal with questions/issues that might arise in the course of the implementation period. Where 
questions are common and specific to one industry sector, guidance on how to deal with the 
issue may be issued by the Commission/ESMA.  

7.2 

Evaluation 

The evaluation of effects of the preferred policy shall be carried out to see to what extent the 
anticipated impacts materialise. Improved disclosures by companies, in terms of quantity (i.e. 
increased number of statements or reports) and quality of the information disclosed, would be 
indicators of better transparency. Similarly, the number of EU companies making reference to 
international frameworks should be monitored to assess progress. On diversity, the increase of 
the  number  of  board  members  with  different  professional  and  educational  background,  age, 
gender, nationality would be assessed, in accordance of course with the established diversity 
policy reflecting the needs and particularities of the company. In terms of possible downsides 
it will be necessary to assess whether any non-EU registered companies have chosen to de-list 
from EU regulated stock exchanges as a consequence of the policy. Such an evaluation will 
be  carried  out  by  the  Commission  services  and/or  ESMA  in  cooperation  with  the  Member 
States,  on  the  basis  of  all  the  relevant  information  collected  in  the  framework  of  the 
monitoring activities described above. Consultations with European companies, investors and 
other  stakeholders  could  be  carried  out  via  other  platforms,  including  through  the  existing 
multi-stakeholders' forum on CSR.  

All  the  above  listed  options  could  allow  data  collection  at  limited  cost  at  EU  level,  as  they 
would  make  broad  use  of  existing  structures  and  would  not  require  the  setting  up  of  new 
instruments.  The  possibility  of  contracting  an  external  study  on  the  implementation  and 
effects  of  the  non-financial  reporting  obligation  will  be  considered.  Such  a  study  could  be 
carried out upon the expiration of the implementation deadline and its results would be made 
public.  On  the  basis  of  the  data  collected,  and  three  years  after  the  expiration  of  the 
implementation  deadline,  the  Commission  would  consider  the  need  to  produce  an  ex-post 
evaluation  report.  The  results  and  feedback  from  monitoring  and  evaluation  will  also  be 
considered with a view to propose further amendments where appropriate. 

43 

 
Annex I 

Summary of Public Consultations 

1.  Disclosure of Non-Financial Information by Companies  

Stakeholders have been consulted on various ways in order to obtain their views on how to 
improve  non-financial  disclosure  requirements  and  practices.  A  public  consultation  on 
disclosure  of  non-financial  information  by  companies  was  conducted  between  November 
2010  and  January  2011.  A  full  summary  of  the  results  and  the  260  responses  received  are 
available 
http://ec.europa.eu/internal_market/consultations/2010/non-
financial_reporting_en.htm.  

at: 

On  the  existing  regime  of  non-financial  information  disclosure,  the  majority  of  respondents 
affirmed  that  legal  regimes  differ  significantly  across  the  EU  Member  States.  Several 
respondents  also  considered  that  this  fragmentation  leads  to  difficulties  in  benchmarking 
between companies. Half of the respondents described the current regime applicable in their 
respective  jurisdiction  as  poor  or  very  poor.  According  to  several  respondents,  poor 
transparency  translates  into  a  lack  of  balance  and  cohesion  of  reporting  by  companies.  In 
particular,  it  emerged  that  insufficient  disclosure  of  non-financial  information  makes  it 
difficult  for  shareholders  and  investors  to  make  a  reasonable  assessment  of  the  extent  to 
which  companies  take  account  of  CSR  in  their  activities.  In  general,  stakeholders  were  not 
able  to  quantify  costs  and  benefits  and  it  appeared  clear  that  there  is  no broadly  recognised 
methodology in place for the assessment of costs arising from reporting activities. However, a 
distinction  between  start-up  costs  in  upgrading  capabilities  and  the  less  considerable  longer 
term  costs  once  the  practice  emerged.  With  respect  to  improving  the  current  regime,  a 
majority of respondents suggested the EU should draw on existing international frameworks 
rather than elaborate new standards and principles. According to some, a 'comply-or-explain' 
approach  would  guarantee  a  certain  room  for  flexibility.  While  a  large  majority  of 
contributors  showed  support  for  the  concept  of  integrated  reporting,  for  many  stakeholders, 
developments  on  this  area  need  further  reflections,  especially  on  how  avoiding  excessive 
increase  of  companies'  administrative  burden.  As  regards  future  regulatory  initiatives,  a 
majority of respondents found relevant to disclose better information on: whether or not the 
company  has  a  policies;  business  risks  and  opportunities  arising  from  social  and 
environmental  issues;  as  well  as  key  information  on  other  specific  issues.  Respondents 
generally  considered  that  there  could  be  value  in  principles-based  reporting  drawing  on  i.e. 
GRI,  UN  Global  Compact,  the  OECD  Guidelines,  ISO  26000  etc.  A  vast  majority  of  users 
considered  that  human  rights  and  corruption  issues  should  be  included  in  non-financial 
reporting  practices  by  companies.  On  the  issue  of  which  companies  should  be  covered  by 
mandatory requirements, the majority argued in favour of excluding small businesses. Finally 
the fact whether a company is listed on financial markets was not considered being of great 
relevance.  

Consultations  with  stakeholders  also  took  place  through  a  number  of  other  instruments  and 
fora, including the Member States High-Level Group on CSR, the Multi-stakeholders forum 
coordination committee, or the Accounting Regulatory Committee. The Commission services 
have also contributed to the work of the Laboratory on Valuing Non-Financial Performance, 
part of the European Alliance on Corporate Social Responsibility (CSR).  Moreover, during 
2010 and 2011 the Commission services had a series of bilateral meetings with stakeholders.  

44 

 
 
 
Overall, the result of the consultations shows a diverse pattern of opinions depending on the 
category  of  respondents  (i.e.  preparers  of  non-financial  information  -  companies,  users  - 
mainly investors, NGOs, auditors and accountants, public authorities, academics).  

Users of non-financial information, in particular investors and NGOs, underlined their support 
for an EU initiative in this field, arguing that the market is failing to provide with sufficient 
information  concerning  the  environmental,  social  and  human  rights  performances  of 
companies. They suggested that the costs of reporting would be outweighed by the benefits to 
civil  society,  investors,  in  terms  of  increased  transparency  and  possibility  to  take  better 
account of companies' performance in the long term when taking investment decision. Several 
NGOs  argued  that,  in  order  to  give  a  thorough  picture  of  a  company  policy  in  the 
environmental,  social  and  human  rights  domains,  disclosure  obligations  should  also  be 
extended  to  information  related  to  the  supply-chain.  On  the  other  hand,  a  majority  of  the 
preparers  consulted  (including  in  particular  large  companies  and  business  associations) 
expressed their concerns that stricter mandatory disclosure requirements could be excessively 
burdensome, in particular for  Small and Medium sized companies (SMEs) and undermine the 
efforts  that  the  industry  is  already  taking  on  a  voluntary  basis  and  negatively  affect 
competitiveness.  It  should  be  noted  though  that  a  minority  of  companies,  including  in 
particular  those  that  already  disclose  non-financial  information,  underlined  the  benefits 
brought by non-financial reporting in terms of better integration of non-financial performance 
into  their  business  operations  and  strategy.  Others  called  on  the  EU  to  provide  for  a  level-
playing field in this area, in order to pre-empt different legal requirement in different Member 
States. 

2.  Boards Diversity  

A  general  consultation  on  the  EU  corporate  governance  framework,  including  inter  alia 
diversity  in  the  board,  was  held  by  the  European  Commission  between  April  and  August 
2011144. The summary of the consultation results145 is attached to this Impact Assessment (see 
Annex 
at: 
409 
http://ec.europa.eu/internal_market/consultations/2011/corporate-governance-
framework/index_en.htm 

responses 

available 

received 

while 

the 

are 

1), 

The  questions  on  diversity,  raised  in  the  consultation,  inquired,  among  other  issues,  about 
potential  requirements  for  more  specific  recruitment  policy,  obligatory  disclosure  of  the 
diversity  policy  and  about  other  binding  diversity  actions.  Whereas  the  majority  of 
respondents  rejected  the  idea  of  more  binding  diversity  actions  and  were  almost  equally 
divided as to the support for more specific recruitment policies, there was a clear support for 
the  disclosure  of  a  diversity  policy.  The  support  has  been  expressed  in  particular  by  civil 
society,  directors'  associations,  employees,  investors,  public  authorities,  whereas  business 
federations  were  against  and  companies  slightly  against.  Those  in  favour  of  obligatory 
disclosure  underlined  that  enhanced  transparency  would  enable  investors  to  make  more 
informed decisions and would help reducing group think. The respondents that were against 
argued that it should be up to the companies to decide on the recruitment profiles and on the 
diversity policy. 

144 

145  

Green Paper on the EU Corporate Governance Framework, 
http://ec.europa.eu/internal_market/company/modern/corporate-governance-framework_en.htm 
See http://ec.europa.eu/internal_market/company/docs/modern/20111115-feedback-statement_en.pdf 

45 

 
                                                 
Annex II 

Relevant Provisions of the Accounting Directives  

Directive  78/660/EEC  on  the  annual  accounts  of  certain  types  of  companies  (Fourth 
Accounting Directive)  
Article 46 

1.(b)  To  the  extent  necessary  for  an  understanding  of  the  company's  development, 
performance or position, the analysis shall include both financial and, where appropriate, non-
financial key performance indicators relevant to the particular business, including information 
relating to environmental and employee matters; 

Article 46a 

1.  A  company  whose  securities  are  admitted  to  trading  on  a  regulated  market  within  the 
meaning of Article 4(1), point (14) of Directive 2004/39/EC of the European Parliament and 
of the Council of 21 April 2004 on markets in financial instruments shall include a corporate 
governance  statement  in  its  annual  report.  That  statement  shall  be  included  as  a  specific 
section of the annual report and shall contain at least the following information: 

(a) a reference to: 

(i) the corporate governance code to which the company is subject, and/or 

(ii) the corporate governance code which the company may have voluntarily decided to apply, 
and/or 

(iii)  all  relevant  information  about  the  corporate  governance  practices  applied  beyond  the 
requirements under national law. 

Where points (i) and (ii) apply, the company shall also indicate where the relevant texts are 
publicly available; where point (iii) applies, the company shall make its corporate governance 
practices publicly available; 

(b)  to  the  extent  to  which  a  company,  in  accordance  with  national  law,  departs  from  a 
corporate  governance  code  referred  to  under  points  (a)(i)  or  (ii),  an  explanation  by  the 
company as to which parts of the corporate governance code it departs from and the reasons 
for  doing  so.  Where  the  company  has  decided  not  to  apply  any  provisions  of  a  corporate 
governance code referred to under points (a)(i) or (ii), it shall explain its reasons for doing so; 

(c) a description of the main features of the company's internal control and risk management 
systems in relation to the financial reporting process; 

(d)  the  information  required  by  Article  10(1),  points  (c),  (d),  (f),  (h)  and  (i)  of  Directive 
2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids, 
where the company is subject to that Directive; 

(e)  unless  the  information  is  already  fully  provided  for  in  national  laws  or  regulations,  the 
operation of the  shareholder  meeting  and its key powers, and a description of shareholders’ 
rights and how they can be exercised; 

(f) the composition and operation of the administrative, management and supervisory bodies 
and their committees. 

2.  Member  States  may  permit  the  information  required  by  this  Article  to  be  set  out  in  a 
separate report published together with the annual report in the manner set out in Article 47 or 

46 

 
 
 
 
by means of a reference in the annual report where such document is publicly available on the 
company's website. In the event of a separate report, the corporate governance statement may 
contain a reference to the annual report where the information required in paragraph 1, point 
(d)  is  made  available.  Article  51(1),  second  subparagraph  shall  apply  to  the  provisions  of 
paragraph  1,  points  (c)  and  (d)  of  this  Article.  For  the  remaining  information,  the  statutory 
auditor shall check that the corporate governance statement has been produced. 

3. Member States may exempt companies which have only issued securities other than shares 
admitted to trading on a regulated market, within the meaning of Article 4(1), point (14) of 
Directive 2004/39/EC, from the application of the provisions of paragraph 1, points (a), (b), 
(e)  and  (f),  unless  such  companies  have  issued  shares  which  are  traded  in  a  multilateral 
trading facility, within the meaning of Article 4(1), point (15) of Directive 2004/39/EC. 

Directive  2009/101/EC  on  coordination  of  safeguards  which,  for  the  protection  of  the 
interests  of  members  and  third  parties,  are  required  by  Member  States  of  companies 
within the meaning of the second paragraph of Article 48 of the Treaty, with a view to 
making  such  safeguards  equivalent  (Before  21  October  2009:  First  Council  Directive 
68/151/EEC) 

Article 2  

Member  States  shall  take  the  measures  required  to  ensure  compulsory  disclosure  by 
companies as referred to in Article 1 of at least the following documents and particulars: 

(a)  the  instrument  of  constitution,  and  the  statutes  if  they  are  contained  in  a  separate 
instrument;  

(b) any amendments to the instruments mentioned in point (a), including any extension of the 
duration of the company;  

(c)  after  every  amendment  of  the  instrument  of  constitution  or  of  the  statutes,  the  complete 
text of the instrument or statutes as amended to date;  

(d) the appointment, termination of office and particulars of the persons who either as a body 
constituted pursuant to law or as members of any such body:  

(i)  are  authorised  to  represent  the  company  in  dealings  with  third  parties  and  in  legal 
proceedings;  it  must  be  apparent  from  the  disclosure  whether  the  persons  authorised  to 
represent the company may do so alone or must act jointly; (ii) take part in the administration, 
supervision or control of the company;  

Directive 83/349/EEC on consolidated accounts (Seventh Directive) 

Article 36 
1. The consolidated annual report shall include at least a fair review of the development and 
performance  of  the  business  and  of  the  position  of  the  undertakings  included  in  the 
consolidation  taken  as  a  whole,  together  with  a  description  of  the  principal  risks  and 
uncertainties that they face. 

The  review  shall  be  a  balanced  and  comprehensive  analysis  of  the  development  and 
performance  of  the  business  and  of  the  position  of  the  undertakings  included  in  the 
consolidation taken as a whole, consistent with the size and complexity of the business. To the 
extent  necessary  for  an  understanding  of  such  development,  performance  or  position,  the 
analysis  shall  include  both  financial  and,  where  appropriate,  non-financial  key  performance 

47 

 
 
 
 
 
indicators relevant to the particular business, including information relating to environmental 
and employee matters. 
In  providing  its  analysis,  the  consolidated  annual  report  shall,  where  appropriate,  provide 
references to and additional explanations of amounts reported in the consolidated accounts. 

2. In respect of those undertakings, the report shall also give an indication of: 

(a) any important events that have occurred since the end of the financial year; 

(b) the likely future development of those undertakings taken as a whole; 

(c)  the  activities  of  those  undertakings  taken  as  whole  in  the  field  of  research  and 
development; 

(d) the number and nominal value or, in the absence of a nominal value, the accounting par 
value  of  all  of  the  parent  undertaking's  shares  held  by  that  undertaking  itself,  by  subsidiary 
undertakings of that undertaking or by a person acting in his own name but on behalf of those 
undertakings. A Member State may require or permit the disclosure of these particulars in the 
notes on the accounts; 

 (e) in relation to the use by the undertakings of financial instruments and, where material for 
the assessment of assets, liabilities, financial position and profit or loss, — the financial risk 
management objectives and policies of the undertakings, including their policies for hedging 
each  major  type  of  forecasted  transaction  for  which  hedge  accounting  is  used,  and  —  the 
exposure to price risk, credit risk, liquidity risk and cash flow risk; 

 (f)  a  description  of  the  main  features  of  the  group's  internal  control  and  risk  management 
systems in relation to the process for preparing consolidated accounts, where an undertaking 
has its securities admitted to trading on a regulated market within the meaning of Article 4(1), 
point (14) of Directive 2004/39/EC of the European Parliament and of the Council of 21 April 
2004 on markets in financial instruments (1). In the event that the consolidated annual report 
and the annual report are presented as a single report, this information must be included in the 
section of the report containing the corporate governance statement as provided for by Article 
46a of Directive 78/660/EEC.  

If a Member State permits the information required by paragraph 1 of Article 46a of Directive 
78/660/EEC to be set out in a separate report published together with the annual report in the 
manner  prescribed  by  Article  47  of  that  Directive,  the  information  provided  under  the  first 
subparagraph shall also form part of that separate report. Article 37(1), second subparagraph 
of this Directive shall apply. 

3.  Where  a  consolidated  annual  report  is  required  in  addition  to  an  annual  report,  the  two 
reports  may  be  presented  as  a  single  report.  In  preparing  such  a  single  report,  it  may  be 
appropriate to give greater emphasis to those matters which are significant to the undertakings 
included in the consolidation taken as a whole. 

48 

 
 
 
 
 
 
 
 
 
 
Annex III 

Recent developments in some EU Member States 

1.  Denmark 

•  On  December  2008,  the  Danish  Parliament  adopted  the  new  article  99A,  amending  the 
Danish Financial Statements Act (Accounting for CSR in large businesses). The new legal 
requirement  became  effective  since  the  financial  year  starting  1  January  2009146. 
According to the Act, approx. 1,100 large businesses in Denmark must include reports on 
the following three dimensions in their annual report: 1) Corporate Social Responsibility 
(CSR) policies, 2) how these policies are translated into actions, and 3) what the business 
has achieved as a result of working with CSR and expectations for the future (if any). If 
the business has not formulated any social responsibility policies, this must be reported.  

•  The  Act  covers  large  businesses  in  accounting  class  C,  and  listed  companies  and  state-
owned  companies  in  accounting  class  D.  Large  businesses  in  accounting  class  C  are 
businesses that exceed at least two of the following three size limits: total assets/liabilities 
of  DKK  143  million;  net  revenue  of  DKK  286  million;  an  average  of  250  full-time 
employees.  Subsidiaries  are  exempt  from  having  to  report  on  social  responsibility  if  the 
parent company does so for the entire group. 

•  The report on social responsibility must be included in the management review section of 
the annual report. Alternatively, businesses may include the report on social responsibility 
in  a  supplement  to  the  annual  report,  or  on  the  business's  website.  However,  the 
management review must indicate where the report has been published. If a business has 
acceded to the UN Global Compact or Principles for Responsible Investment (PRI), it is 
sufficient to refer to the progress report that members are required to prepare. Businesses 
which  prepare  a  sustainability  report  or  similar  report  on  their  social  responsibility 
initiatives may refer to this in their management review – however, this report must fulfill 
the reporting requirements (see above).  

•  The  same  reporting  requirement  has  also  been  introduced  for  institutional  investors, 
mutual  funds  and  other  listed  financial  businesses  (financial  institutions  and  insurance 
companies,  etc.),  not  covered  by  the  Danish  Financial  Statements  Act.  For  these 
businesses, the requirement has been introduced in Executive Orders issued by the Danish 
Financial Supervisory Authority.  

•  As  regards  boards'  diversity,  the  Danish  corporate  governance  code  recommends 
companies  to  strive  for  gender  equality  in  their  boardrooms,  without  setting  specific 
targets. When assessing  its composition and nominating new  candidates, the nominating 
committee must take into consideration the need for integration of new talent and the need 
for diversity in relation to international experience, gender, age and other criteria.  

2.  Finland 

•  As  regards  boards'  diversity,  the  2008  Corporate  Governance  Code  recommends,  on  a 
'comply  or  explain'  basis,  that  every  board  has  at  least  one  member  of  either  sex.  A 

146   http://www.csrgov.dk/sw51190.asp 

49 

 
 
 
                                                 
company may depart from this recommendation, but in that case, it must disclose such a 
departure and provide an explanation for doing so. 

3.  France 

•  Law No. 2001-420 related to New Economic Regulations (NRE) is in force since 2003. 
Art.  116:  makes  environmental  and  social  reporting  is  mandatory  for  listed  companies. 
The requirements are based on a list of forty indicators, many of them inspired by the GRI 
performance indicators. Some indicators were also taken from the “French social report”, 
a  list  of  social  data  required  from  all  companies  to  show  compliance  with  labour 
regulation. The indicators include those related to human resources, community issues and 
engagement,  labour  standards  and  key  health  and  safety  and  environmental  issues.  The 
law  expects  companies  to  report  on  all  their  operations,  in  France  as  well  as 
internationally.   

•  The NER has recently been amended by article 225 of the Grenelle II147, through which 
the obligation to present a social and environmental report will be extended, as of 2014, to 
non-listed  companies  having  more  than  500  employees  and  exceeding  a  balance  sheet 
threshold of 100 million euros148 (gradually phasing in companies having 5000 employees 
or less as of fiscal year 2012). All listed companies are also covered as of fiscal year 2012, 
and  will  have  to  comply  with  a  list  of  supplementary  indicators.  Furthermore,  extra-
financial information will have to be subjected to third-party verification149. 

•  As regards boards' diversity, France has introduced binding gender quotas by the Law of 
27 January 2011. The law requires companies to ensure that members of each sex occupy 
at  least  20  %  of  boardroom  seats  within  three  years  (i.e.  by  2014)  and  40%  within  six 
years  from  the  entry  into  force  of  the  law  (i.e.  by  2017).  It  is  applicable  to  companies 
listed on the stock exchange and non-listed companies with at least 500 workers and with 
revenues  of  over  EUR  50  million  over  the  previous  three  consecutive  years.  Non-
compliant companies face nullification of their board elections, but the decisions adopted 
by the board remain valid. The law envisages also the suspension of benefits of directors 
of infringing companies.  

4.  Netherlands 

•  Since  2009,  the  revised  Dutch  Corporate  Governance  Code  (the  Frijns  Code) 
acknowledges  that  CSR  belongs  to  the  core  corporate  strategy  of  companies.  The  code 
stipulates that the management board is expected to formulate a CSR policy and to submit 
it  to  the  supervisory  board  for  approval.  The  code  also  explicitly  records  that  the 
supervisory  board’s  responsibilities  include  the  supervision  and  approval  of  the 

147      Loi  n°  2010-788  du  12  juillet  2010  Portant  Engagement  National  pour  l'Environnement,  art  225 

http://www.legifrance.gouv.fr/ 

148        The  enforcement  degree  N.  2012-557  indicates  that  the  new  requirement  will  be  gradually  enforced. 
Starting  from  the  fiscal  year  2012,  all  listed  companies  and  all  the  companies  exceeding  a  balance  sheet 
threshold of 1 billion euros and having more than 5000 employees have to comply with the new regulation. 
The  obligation  applies  from  the  fiscal  year  2013  for  companies  exceeding  a  balance  sheet  of  400  million 
euros  and  2000  employees.  Finally,  from  the  fiscal  year  2014  the  requirement  will  be  extended  to  all 
companies exceeding a balance sheet threshold of 100 million euros and having more than 500 employees. 
149       According to the enforcement degree N. 2012-557, from the fiscal year 2012 extra-financial information 
disclosed  by  listed  companies  will  be  subjected  to  third-party  verification.  Starting from  the  year  2017  the 
requirement will be extended to all companies exceeding a balance sheet threshold of 100 million euros and 
having more than 500 employees. 

50 

 
                                                 
management board’s CSR policy. The main elements of the company’s CSR strategy are 
to be included in its annual report. The Frijns Code applies to listed companies. 

•  The Dutch Civil Code (1838 Section 2, Part 9 for annual reports. Article 2:391 subsection 
1)  implemented  Directive  2003/51/EC  into  Dutch  law.  It  requires  that  organisations 
should  give  some  information  (financial  and  non-financial)  about  the  environment, 
employees and risks in their annual reports, to the extent necessary for an understanding 
of  the  company’s  development,  performance  or  position  as  far  as  relevant.  This 
requirement is compulsory for all listed companies no matter what their size and all large 
non-listed companies. 

•  Moreover, since 2004, the Ministry of Economic Affairs, Agriculture and Innovation has 
initiated and constructed a process called "Transparency Benchmark"150, which is aimed 
at stimulating transparency of Netherlands' largest companies and organisations in terms 
of Corporate Social Responsibility (CSR) by producing quality reports without requiring 
regulation.  This  process  was  established  through  collaboration  with  the  business 
organisations  to  establish  a  ranking  system.  The  criteria  are  steadily  increasing,  with 
recent  focus  on  supply  chain  responsibility,  diversity  and  integrated  reporting.  The 
Transparency Benchmark is based on 50 criteria, including content oriented151 as well as 
quality-oriented criteria152. The criteria are based on ISO 26 000, GRI and the new RJ 400 
guideline from the Council for Annual Reporting. Participants for the self-assessment are 
also  asked  additional  voluntary  questions  about  diversity  and  integrated  reporting.  The 
2010 version is the seventh edition of this report and it marks a broadening of the review. 
Almost 500 companies and organisations have been included, compared to 183 in 2009. 
Furthermore, the criteria have also been broadened. 

•  As  regards  boards'  diversity,  by  the  Law  of  6  June  2011  the  Netherlands  introduced 
gender quotas  combined with  a 'comply or explain'  mechanism.  Both  public  and private 
limited companies are obliged to establish a share of at least 30% of members of each sex 
on the company’s executive board of directors and in the supervisory board. The quotas 
apply to companies with assets worth more than € 17 500 000, an annual turnover of more 
than € 35 000 000 and more than 250 employees . Company below these thresholds should 
take  into  account,  as  far  as  possible,  a  balanced  representation  of  both  sexes  in  its 
procedures  to  select  new  members  of  the  board  of  executive  directors  or  the  board  of 
supervisors, and in the drafting of the specification of any vacancy. 

•  Companies which do not reach the quota must provide an explanation in the annual report, 
and propose new measures, which will be applied by the company in order to reach the 
quota.  There  are  no  sanctions  for  not  meeting  the  quotas.  The  measure  has  a  temporary 
character and expires on 1 January 2016.  

5.  Spain  

150            http://www.rijksoverheid.nl/onderwerpen/maatschappelijk-verantwoord-ondernemen/nederlandse-beleid-

voor-mvo/transparantiebenchmark-mvo 

151      

Such as organisation profile; strategy and policy; governance structure and management approach; CSR 
reporting  policy,  and  results  (i.e.  the  extents  to  which  organisations  are  transparent  about  their  policy, 
performance and targets in the field of economy, environment and society). 

152       Such as: relevance; clarity; reliability; involvement of stakeholders; and contextual history. 

51 

 
                                                 
•  The  Sustainable  Economy  Act153  adopted  in  2011  states  that  from  2012,  state-owned 
companies are required to produce annual corporate governance and sustainability reports. 
Such  reports  shall  be  prepared  in  accordance  with  generally  accepted  standards,  with  a 
special focus on gender equality and people with disabilities. If the corporation has more 
than  1000  employees,  this  report  must  also  be  notified  to  the  Spanish  Corporate  Social 
Responsibility  Council  (Consejo  Estatal  de  Responsabilidad  Social  Empresarial  or 
"CERSE"). 

•  The  Law  partially  includes  an  amendment  specifying  that  Spanish  SA  corporations 
(sociedades anónimas) may publish their policies and outcomes in CSR matters each year 
in  a  specific  report,  which  must  mention  whether  or  not  this  information  has  been 
examined  by  an  independent  third  party.  It  is  suggested  that  the  Government  will  make 
available a set of characteristics and indicators for self-evaluation in social responsibility, 
in accordance with international standards. 

•  As regards boards' diversity, Article 75 of the Spanish Organic Law on gender equality of 
2007 encourages large companies to adjust the composition of their boards gradually until 
each sex makes up at least 40 % by 2015. The rule is a recommendation and no sanction is 
foreseen in case of non-compliance.  

6.  Sweden 

•  Since  2009  (fiscal  year  starting  1  January  2008),  fully  or  partly  state-owned  companies 
have been required to prepare a sustainability report based on the GRI Guidelines154. To 
this  end,  a  guide  was  adopted  on  29  November  2007  called  "Guidelines  for  External 
Reporting by State-Owned Companies" 

•  Amongst others, the report should include ethical issues, the environment, human rights, 
gender equality and diversity. Following the GRI guidelines, a sustainability report shall 
include  a  brief  analysis  of,  inter  alia:  sustainability  issues;  non-financial  risks  and 
opportunities needed to understand the company’s development and position; stakeholder 
analysis  and  dialogue;  strategies  and  adaptation  to  requirements  for  sustainable 
development. 

•  Although state-owned companies must report, the guidelines are based on the principle of 
‘comply  or  explain’  (enabling  the  guidelines  to  be  applicable  and  relevant  to  all 
companies, regardless of size or industry). Sustainability reports will be quality assured by 
independent  scrutiny  and  assurance  and  have  to  be  published  in  compliance  with  the 
reporting cycle for the annual report. Compliance  with these guidelines will be assessed 
and reported on in the Government’s annual report on state-owned companies. 

•  As  regards  board  diversity,  as  of  2004  the  Swedish  corporate  code  recommends  that 
companies should strive for more gender equality on their board. Middle sized and large 
companies  are  also  obliged  to  disclose  data  on  the  number  of  women  in  their  top  level 
positions. The nominating committee is required to publish a statement on the company’s 
website  outlining  the  selection  process  and  explaining  the  motivations  behind  each 
selection, also with respect to gender equality.  

153      For information on the Sustainable Economy Act:  http://www.boe.es/boe/dias/2011/03/05/pdfs/BOE-A-

2011-4117.pdf 

154       See http://www.sweden.gov.se/sb/d/2025/a/94125 

52 

 
                                                 
7.  United Kingdom  

•  Following  a  public  consultation  organised  in  2010,  the  Department  for  Business  and 
Innovation skills launched a follow up consultation on the "Future of Narrative Reporting" 
that was closed in November 2011. The consultation sought views on Government plans 
to  make  narrative  reporting  simpler,  clearer  and  more  focused.  The  UK  Government 
received  116  responses155 that showed a  great deal  of support for perspective  regulatory 
initiatives  on  changing  the  current  format  of  narrative  reports;  simplifying  disclosure 
requirements;  and  introducing  more  disclosure  and  shareholders'  control  on  executives' 
remunerations. 

• 

In  particular,  in  order  to  provide  a  clearer  structure  for  companies  and  investors,  the 
consultation papers propose to replace the current Business Review and Director’s Report 
with a Strategic Report and an Annual Directors’ Statement. The Strategic Report will be 
where  the  board  sets  out  and  signs  off  the  strategy,  direction  and  challenges  facing  the 
company,  evidenced  by  high-level  financial  and  remuneration  information.  This  report 
will  provide  a  clear  line  of  sight  from  the  strategy,  business  model  and  risks  of  the 
company to the financial results and the resulting rewards for the company’s directors.  

•  The  Strategic  Report  will  be  supported  by  detailed  information  in  an  Annual  Directors’ 
Statement presented in a consistent and coherent format aimed at online publication. This 
will  be  much  clearer  for  users  to  follow  and  will  provide  a  platform  from  which  future 
developments  (i.e.,  tagging  narrative  information  to  make  it  more  searchable)  can  be 
implemented. A prescribed structure with a set layout and standard headings will increase 
comparability  for  users  and  provide  a  helpful  check-list  of  required  disclosures  for 
companies. Companies will also be able to include voluntary disclosures (for example on 
social  and  environmental  issues)  in  the  Annual  Directors’  Statement,  increasing  the 
visibility of this information and making the Annual Directors Statement the key source of 
detailed information on specific aspects of company performance.  

•  On  this  basis,  draft  regulations  were  published  for  public  comments  in  October  2012. 
Once  the  necessary  decision-making  procedures  are  completed,  the  regulations  are 
expected to come into force in October 2013. This means that companies with reporting 
years ending after October next year will be expected to prepare their annual report in line 
with the new regulations. 

•  The  Companies  Act  2006  requires  all  companies,  other  than  those  defined  as  small,  to 
produce  a  Business  Review  as  part  of  the  annual  Directors'  Report.  To  the  extent 
necessary  for  an  understanding  of  the  business,  companies  have  to  report  on 
environmental, employee, social and community matters or essential contractual or other 
arrangements. If the Business Review does not contain information on any of these issues, 
this must be stated. 

•  As regards boards' diversity, an Independent Review into Women in Board, led by Lord 
Davies  and  concluded  in  February  2011,  recommends  that  UK  listed  companies  in  the 
FTSE 100 should be aiming for a minimum of 25% female board member representation 
by 2015. It considered that a business-led approach to increase the number of women on 
company boards should be preferred to binding quotas. Following the Davies Review, the 
UK Corporate Governance has been modified in October 2011. A new rule, applicable as 

155 

See 

http://www.bis.gov.uk/assets/biscore/business-law/docs/f/12-588-future-of-narrative-reporting-

government-response 

53 

 
                                                 
of  October  2012  will  require  listed  companies  to  report  annually  on  their  boardroom 
diversity policy, including gender, and on any measurable objectives that the board has set 
for implementing the policy and the progress it had made in achieving the objectives. The 
diversity  of  the  board,  including  gender,  will  also  have  to  be  considered  as  one  of  the 
factors when evaluating its effectiveness. 

54 

 
Annex IV 

International frameworks 

1.  OECD guidelines for Multinational Enterprises  

The Guidelines are  recommendations  addressed  by  governments  to  multinational  enterprises 
operating in or from adhering countries. The latest edition156 of the guidelines extends to some 
80 pages. They provide voluntary principles and frameworks for responsible business conduct 
in areas such as employment and industrial relations, human rights, environment, information 
disclosure, combating bribery, consumer interests, science and technology, competition, and 
taxation.  The guidelines also provide advice on implementation. A comparison of a slightly 
earlier version of OECD guidelines157 and GRI guidelines, shown below, is also published by 
OECD. There is now a partnership between OECD and GRI.  

http://dx.doi.org/10.1787/9789264115415-en   

2.  Global Reporting Initiative (GRI)  

The  Sustainability  Reporting  Framework provides  guidance  on  how  organisations  can 
disclose  their  sustainability  performance.  It  consists  of  the  Sustainability  Reporting 
Guidelines,  Sector  Supplements  and  the  Technical  Protocol.  There  are  in  addition  sector 
supplements  dealing  with  electrical  utilities,  financial  services,  food  processing,  mining  and 
metals  and  NGOs.  Other  sector  supplements  are  being  prepared  or  piloted.  It  is  understood 
that 1600 companies worldwide report using GRI standards 

The key parts of the Sustainability Reporting Framework are as follows. The text is based on 
GRI’s description of the framework 

•  The Sustainability Reporting Guidelines feature Performance Indicators and Management 
Disclosures that organisations can adopt voluntarily. The G3.1 Guidelines158 are the latest 
and  most  complete  version  of  GRI's  G3  Sustainability  Reporting  Guidelines.  These 
Guidelines are based on G3 but contain expanded guidance on local community impacts, 
human rights and gender.  

•  Sector  Supplements  -  Sector  Supplements  are  tailored  versions  of  the  Sustainability 

Reporting Guidelines that cover sector specific issues.  

•  The  Technical  Protocol  -  The  Technical  Protocol  provides  process  guidance  on  how  to 

define the content of a sustainability report. 

The G3 version of the guidelines is currently being amended, and the G4 is expected to be 
adopted in May 2013.  

https://www.globalreporting.org/Pages/default.aspx  

3.  UN Global Compact 

156  OECD Guidelines for Multinational Enterprises,  http://www.oecd.org/dataoecd/43/29/48004323.pdf 
157  

Synergies between the OECD Guidelines for Multinational Enterprises and the GRI 2002 Sustainability 

Reporting Guidelines retrieved at:  http://www.oecd.org/dataoecd/25/26/35150230.pdf 

158  See http://www.globalreporting.org/ReportingFramework/G31Guidelines/ 

55 

 
 
 
 
                                                 
UNGC  is  a  strategic  policy  initiative  for  businesses  that  are  committed  to  aligning  their 
operations and strategies with ten universally accepted principles in the areas of human rights, 
labour, environment and anti-corruption. The UN Global Compact is based on ten principles 
derived from other material including:  

•  The Universal Declaration of Human Rights 

•  The  International  Labour  Organisation's  Declaration  on  Fundamental  Principles  and 

Rights at Work 

•  The Rio Declaration on Environment and Development 

•  The United Nations Convention Against Corruption 

http://www.unglobalcompact.org/  

4.  UN "Protect, Respect and Remedy" Framework  

In  June  2008,  after  three  years  of  extensive  research  and  consultations,  the  Human  Rights 
Council unanimously approved a framework on business and human rights proposed by UN 
Special Representative Prof. John Ruggie. The framework rests on three pillars:  

• 

the  state  duty  to  protect  against  human  rights  abuses  by  third  parties,  including 
business; 

• 

the corporate responsibility to respect human rights; and 

•  greater access by victims to effective remedy, both judicial and non-judicial. 

As explained in 2011 Guiding Principles on Business and Human Rights159, appropriate levels 
of  transparency  and  disclosure  are  seen  as  key  corporate-level  mechanisms  to  provide  a 
measure of accountability to groups or individuals who may be impacted and to other relevant 
stakeholders, including investors. 

http://www.business-humanrights.org/SpecialRepPortal/Home/Protect-Respect-Remedy-
Framework 

5.  ISO 26000  

The  International  Standard  ISO  26000:2010,  Guidance  on  social  responsibility,  provides 
guidance on reporting social responsibility. It is a non-mandatory standard aimed at all types 
of  organization  to  encourage  the  implementation  of  best  practice  in  social  responsibility 
worldwide.  ISO  26000:2010  provides  guidance  to  all  types  of  organisations,  regardless  of 
their size or location, on: 

•  concepts, terms and definitions related to social responsibility; 

• 

the background, trends and characteristics of social responsibility; 

•  principles and practices relating to social responsibility; 

• 

the core subjects and issues of social responsibility; 

159  See in particular Guiding Principle 21: 
http://www.business-humanrights.org/media/documents/ruggie/ruggie-guiding-principles-21-mar-2011.pdf 

56 

 
                                                 
• 

integrating,  implementing  and  promoting  socially  responsible  behaviour  throughout 
the organisation and, through its policies and practices, within its sphere of influence; 

• 

identifying and engaging with stakeholders; and 

•  communicating  commitments,  performance  and  other  information  related  to  social 

responsibility. 

ISO also publish other standards including, notably, ISO 14001 first published in 1996. ISO 
14001 specifies the requirements for an environmental management system. It applies to those 
environmental aspects which the organisation has control and over which it can be expected 
to have an influence. Organizations can obtain external ISO 14001 certification. 

http://www.iso.org/iso/social_responsibility 

6.  ILO Tri-partite Declaration of Principles concerning Multinational Enterprises and 

Social Policies 

The  principles  outlined  in  this  universal  instrument  offer  guidelines  to  multinational 
enterprises (MNEs), governments, and employers' and workers' organisations in such areas as 
employment, decent conditions of work and life, and impact of the industrial activities. They 
have been first adopted by the Governing Body of the International Labour Office in 1977 and 
afterward  amended  in  November  2000  and  March  2006.  Its  provisions  are  reinforced  by 
certain international labour Conventions and Recommendations which the social partners are 
urged to bear in mind and apply, to the greatest extent possible.  

There are a large number of other initiatives including those by the World Bank Group and 
accountancy bodies and standard setters. For example, IFAC (the International Federation of 
Accountants) has published a sustainability framework. There are also efforts to integrate the 
various guidelines. 

http://www.ilo.org/empent/Publications/WCMS_094386/lang--en/index.htm 

7.  Carbon Disclosure Project (CDP) 

The Carbon Disclosure Project provides a global disclosure system for companies to report to 
investors  covering  carbon,  energy  and  climate  issues  as  well  as  water  and  forests.   It  also 
provides  a  framework  for  assessing  the  climate  performance  of  companies  and  drive 
improvements through shareholder engagement. 

•  Over  4,100  organizations,  including  81%  of  the  world’s  largest  public  companies,  use 
CDP to disclose their impacts on the environment and natural resources to stakeholders; 

•  722 investors representing US$87 trillion request corporate climate data through CDP; 

https://www.cdproject.net 

57 

 
 
Annex V 

Other EU Initiatives on Diversity  

On 20 July 2011, the Commission proposed measures aiming at enhancing diversity on board 
of  credit  institutions  and  investment  firms  in  the  framework  of  the  proposal  reviewing  the 
Capital  Requirements  Directive.  The  Commission's  proposal160,  consisting  of  a  package  of 
two instruments, strengthens inter alia the requirements with regard to corporate governance 
arrangements and processes and introduces new rules aimed at increasing the effectiveness of 
risk oversight  by  boards. On 20 March 2013,  a  political agreement  was reached in trilogue. 
Institutions will be required to put in place a policy promoting diversity on the management 
body. More specifically, nomination committees will also be required to decide on a target for 
the  representation  of  the  underrepresented  gender  in  the  management  body  and  prepare  a 
policy  on  how  to  increase  the  number  of  the  underrepresented  gender  in  order  to  meet  that 
target. The target, the policy and its implementation shall be made public.  

On  12  December  2012,  the  Commission  adopted  its  “Action  Plan:  European  company  law 
and  corporate  governance  –  a  modern  legal  framework  for  more  engaged  shareholders  and 
sustainable  companies”161.  The  Commission,  encouraged  by  the  results  of  the  2011  Green 
Paper consultation162, considers that increased transparency as regards board diversity policy 
could  make  companies  reflect  more  on  the  issue  and  take  better  account  of  the  need  for 
greater  diversity  on  their  boards..  The  Action  Plan  moreover  recognises  the  importance  of 
diversity  of  competences  and  views  among  the  board’s  members.  Diversity  facilitates 
understanding of the business organisation and affairs and thus enables the board to challenge 
the management’s decisions objectively and constructively. In contrast, insufficient diversity 
could  lead  to  a  so-called  group-think  process,  translating  into  less  debate,  fewer  ideas  and 
challenges in the boardroom and potentially less effective oversight of the management board 
or executive directors. The current initiative on board diversity is the first step in the follow-
up of the Green Paper.  

These  initiatives  are  complementary  to  the  specific  Commission  proposal  on  improving  the 
gender balance among non-executive directors of listed companies, adopted on 14 November 
2012163. The proposed Directive sets an objective of a 40% presence of the under-represented 
sex among non-executive directors of companies listed on stock exchanges. Companies which 
have  a  lower  share  (less  than  40%)  of  the  under-represented  sex  among  the  non-executive 
directors  will  be  required  to  make  appointments  to  those  positions  on  the  basis  of  a 
comparative analysis of the qualifications of each candidate, by applying clear, gender-neutral 
and  unambiguous  criteria.  Given  equal  qualification,  priority  shall  be  given  to  the  under-
represented sex. The objective of attaining at least 40% membership of the under-represented 
sex for the non-executive positions should thus be met by 2020 while public undertakings – 
over which public authorities exercise a dominant influence – will have two years less, until 
2018.  The  proposal  is  expected  to  apply  to  around  5  000  listed  companies  in  the  European 
Union. It does not apply to small and medium-sized enterprises (companies with less than 250 

160  See http://ec.europa.eu/internal_market/bank/regcapital/index_en.htm  
161  See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0740:FIN:EN:PDF. 
162  Green 

Governance 

Corporate 

Paper 

EU 

the 

on 

Framework, 

http://ec.europa.eu/internal_market/company/modern/corporate-governance-framework_en.htm 

163  Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  on  improving  the  gender  balance 
among non-executive directories of companies listed on stock exchanges and related measures, 14 November 
2012, 
http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0614:FIN:en:PDF  

COM(2012) 

final. 

614 

See 

58 

 
 
 
                                                 
employees  and  an  annual  worldwide  turnover  not  exceeding  50  million  EUR)  or  non-listed 
companies. 

Other  initiatives  undertaken  by  the  Commission  focus  more  on  gender  diversity.  The  EU 
Strategy  for  Equality  between  Women  and  Men  (2010-2015)164  reaffirms  the  European 
Commission's  commitment  to  working  to  increase  the  percentage  of  women  in  positions  of 
responsibility. Furthermore,  the  2011  "Women  on  the  Board  Pledge  for  Europe"  has  been  a 
call to publicly listed companies to sign a voluntary agreement to get more women into top 
jobs. The objective is to reach the target of 30% of women on boardrooms of listed companies 
by 2015 and 40% by 2020165.  

The  European  Parliament  underlines  in  its  resolution  of  29  March  2012  on  corporate 
governance  framework166  the  importance  of  having  a  broad  and  diverse  set  of  skills  and 
competences represented in the boards. In its Resolution on women and business leadership  
of June 2011167 it called for an increase on women's representation in corporate management 
bodies, while in its Resolution on equality between women and men in the European Union  
of  March  2012168  reiterated  its  call  from  2011  for  legislation  in  order  to  ensure  a  balanced 
presence of women in business.  

The  European  Economic  and  Social  Committee  acknowledges  in  its  Opinion  on  the  Green 
Paper  "The  EU  corporate  governance  framework"  the  importance  of  an  appropriate  balance 
between experience, expertise,  competence and diversity of board members, "particularly to 
avoid  the  follow  behaviour  and  encourage  the  emergence  of  new  ideas",  as  well  as  the 
importance of reporting on the diversity policy169. 

164  See http://ec.europa.eu/justice/gender-equality/index_en.htm  
165  See http://ec.europa.eu/commission_2010-2014/reding/multimedia/news/2011/03/20110301_en.htm  
166  http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-%2f%2fEP%2f%2fTEXT%2bTA%2bP7-TA-

2012-0118%2b0%2bDOC%2bXML%2bV0%2f%2fEN&language=EN  

167  The resolution states that the recruitment to positions in corporate management bodies should be based on the 
competence  in  the  form  of  skills,  qualifications  and  experience  and  that  the  principles  of  transparency, 
objectiveness, inclusiveness, effectiveness, non-discrimination and gender equality must be observed. To this 
end  it  calls  on  the  Commission  to  propose  legislation,  including  quotas,  by  2012  to  increase  female 
see 
representation 
http://www.europarl.europa.eu/sides/getDoc.do?type=REPORT&reference=A7-2011-
0210&language=EN#title1  

management 

corporate 

bodies. 

details 

more 

For 

in 

168  http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-%2f%2fEP%2f%2fTEXT%2bTA%2bP7-TA-

2012-0069%2b0%2bDOC%2bXML%2bV0%2f%2fEN&language=EN  

169  Opinion  of  the  European  Economic  and  Social  Committee  on  the  ‘Green  Paper    -  The  EU  corporate 
governance framework', COM(2011) 164 final, (2012/C 24/21), http://www.eesc.europa.eu/?i=portal.en.int-
opinions.18562  

59 

 
                                                 
 
 
 Annex VI 

Disclosure of Non-Financial Information: 

Detailed Analysis of Policy Options  

Option 0 - No policy change 

This  policy  option  constitutes  the  "business  as  usual"  scenario.  Under  this  option,  no 
initiative is taken at EU level to change the current situation. The current text of art 46(b) of 
the Fourth Directive would remain in force.  

Effectiveness  

(quantity, 
quality of 
information) 

Efficiency 
(compliance 
costs) 

Acceptability 
to 
stakeholders 

A  detailed  explanation  on  "how  the  problem  will  evolve  without  action"  is 
given  in  section  3.4.1  of  the  impact  assessment.  On  the  basis  of  that 
reasoning,  the  Commission  services  consider  that  this  policy  option  is 
unlikely to trigger any significant improvement in the level of transparency. 
The  non-financial  performances  of  EU  companies  have  been  the  subject  of 
considerable  and  growing  interest  from  users  and  civil  society  for  many 
years,  and  it  has  always  been  possible  for  them  to  disclose  information  in 
compliance  with  the  Accounting  Directives,  or  beyond  what  is  required  by 
law  on  a  voluntary  basis.  However,  disclosing  non-financial  information 
remains a practice for only a small minority of EU companies and most EU 
large companies do not formally disclose any non-financial information.  

Companies would not  be forced to incur additional  administrative burden or 
costs 

The public consultation revealed mixed views on this aspect. A majority of 
preparers  considered  that  the  current  reporting  framework  provides  them 
with  a  sufficient  degree  of  flexibility  and  should  not  be  modified.  On  the 
contrary, a strong majority of users, including in particular investors, NGOs 
and other civil society organizations170, consider that the lack of information 
in  the  public  domain  poses  a  serious  problem  in  terms  of  overall 
transparency, as the current reporting figures still fail to meet their demand 
for  non-financial  information  and  to  provide  the  market  with  a  sufficient 
degree of transparency. The information disclosed is generally considered by 
the  users  as  lacking  in  materiality,  balance  and  accuracy,  and  thus  not 
sufficiently timely, clear, comparable and/or reliable 

Competitivene
ss 

No further obligation would be imposed. However, EU companies would at 
the same time fail to exploit the benefits that increased and better disclosure 
of non-financial information could bring.  

Coherence 
with  other  EU 
legislation 

The  Commission  has  recently  proposed  to  review  the  Accounting  and 
the 
the  aim 
Transparency  Directives  with 
administrative burden, especially for the smallest companies. In this respect, 
a  no-policy  change  scenario,  whereby  no  additional  requirements  are 
introduced, could be coherent with the simplification objective. However, it 
should  also  be  taken  into  account  that  greater  transparency  in  the  non-

to  simplify  and  reduce 

170  See public consultation report, p. 6 

60 

 
 
 
 
                                                 
on 

Impact 
Fundamental 
Rights  

financial  domain  remains  a  policy  objective  endorsed  by  several 
Commission  initiatives,  including  the  CSR  Communication,  the  SMA,  and 
the Green paper on Corporate Governance.  

The  impact  of  such  option  on  fundamental  rights  would  be  very  limited. 
While  the  current  provision  already  demands  to  disclose  information  on 
environmental  and  employees-related  matters,  this  requirement  has  been 
widely  interpreted  as  'voluntary'  (see  section  3.1).  Therefore  its  actual 
impact  on  fundamental  rights  –  such  as  freedom  of  expression  and 
information;  environmental  protection  and  workers'  right  to  information  – 
has been modest.  

Option 1 – Requiring a non-financial disclosure in the Annual Report.  

This  option  would  require  companies  to  disclose  information  in  the  form  of  a  statement  in 
their  Annual  Report.  Compared  to  the  baseline  scenario,  this  option  would  expand  the 
required  topical  areas:  companies  would  be  required  to  disclose  material  information 
concerning  at  least  social  (including  employees),  environmental,  human  rights,  anti-
corruption and bribery matters. 

Moreover,  the  statement  would  have  to  include  a  description  of  the  following  elements: 
policies  pursued  by  the  company  on  the  above-referred  matters;  their  results;  and  risk-
management  related  aspects.  In  order  to  ensure  appropriate  flexibility  to  those  companies 
that do not have a specific policy in place in one or more of the above-mentioned areas, the 
possibility  to  explain  why  this  is  the  case  would  also  be  offered.  Finally,  companies  should 
rely on existing international frameworks when providing such analysis. 

Effectiveness  

(quantity, 
quality of 
information) 

to 

information:  an  amendment 

Quantity  of 
the  current  disclosure 
requirements would determine a higher quantity of information compared to 
the  current  situation.  As  explained  above,  the  high  level  of  discretion 
currently  enjoyed  by  companies  (information  has  to  be  disclosed  only 
where appropriate and if relevant to the companies' business) has led most 
companies  to  consider  such  requirement  as  entirely  voluntary.  Option  1 
would, however, significantly reduce the current level of legal uncertainty, 
as  companies  would  be  required  to  disclose  material  information  on  a 
mandatory  basis.  The  number  of  EU  companies  disclosing  non-financial 
information would, as a consequence, significantly increase.  

Quality of information: The quality of the information could also limitedly 
benefit by a strengthened legislative requirement. Firstly, the notion of non-
financial  information  would  be  expanded  as  to  cover  at  least  all  material 
issues  related  to  social,    (including  employees)  environmental,  human-
the  current 
rights,  anti-corruption  and  bribery  aspects,  whereas 
provisions makes specific reference to environment and employees-related 
matters  only.  Although  such  list  is  not  intended  to  be  exhaustive,  in  the 
analysis  of  the  Commission  services  its  inclusion  would  represent  a 
concrete  improvement  as  regards  the  content  of  the  disclosure.  Several 
considerations  should  be  mentioned  in  this  respect:  firstly,  the  above 
mentioned  topics  represent  the  issues  commonly  covered  by  most  of  the 

61 

 
Efficiency  

(compliance 
costs) 

existing international frameworks171; secondly, they represent the topics for 
which  there  is  the  highest  demand  by  stakeholders,  and  thirdly,  disclosing 
information  on  at  least  these  topics  would  give  a  sufficient,  if  not 
exhaustive,  overview  of  the  non-financial  situation  of  a  company. 
Nevertheless, information would most likely be disclosed in a concise form, 
therefore  such  statement  would  only  partly  respond  to  the  stakeholders' 
demands in terms of accuracy and comprehensiveness of the information. 

On the other hand, unlike the baseline scenario, the disclosure would have 
to  include  material  information  on  policies,  results  and  risk-management 
issues  of  a  company,  aspects  which  are  often  overlooked  in  current 
disclosures.  The  minimum  level  of  harmonisation  introduced  by  the  new 
requirements  would  also  contribute  to  increase  comparability  amongst 
companies,  as  users  would  have  access  to  this  information  in  a  consistent 
manner. It would also improve the possibility to compare performances of 
the same company over time, as information would be disclosed on a yearly 
basis. Finally, the same verification requirements currently in force for art. 
46 (b) would apply to Option 1. The information disclosed in the statement 
would  consequently  be  checked  for  consistency  with  the  financial 
statements172.  

There  would  be  increased  administrative  burden  in  line  with  the  scope  of 
the  policy,  as  the  disclosure  of  all  material  information  in  all  the  above 
mentioned  areas  is  likely  to  be  more  costly  than  the  current  reporting 
requirement.  Firstly,  a  mandatory  disclosure  provided  in  compliance  with 
the criteria set out by Option 1 may add to the length of annual reports, as 
companies  would  enjoy  a  reduced  level  of  discretion  and  the  quantity  of 
information  disclosed  would  most  likely  be  broader  than  the  current 
practice.  Companies  may  therefore  incur  additional  costs  relating  in 
particular to drafting, publication, or specific staff training. In this respect, 
some additional data may also need to be collected.  

However,  one  should  bear  in  mind  that  such  Option  would  merely 
strengthen a legislative requirement already existing under the Accounting 
Directives.  It  can  therefore  be  assumed  that  the  necessary  systems  and 
procedures  should  already  be  in  place  in  many  companies.  Furthermore, 
Option  1  provides  also  companies  with  the  possibility  to  give  a  reasoned 
explanation, in case information is not available or cannot be disclosed for 
any reasons. 

As far as verification is concerned, Option 1 would not add any additional 
requirement compared to the baseline scenario. The increase in the quantity 
of information disclosed may nevertheless slightly increase the cost of such 
verification. This would depend on the actual disclosure, and is estimated to 
be a negligible increase of the overall verification costs.   

On  the  basis  of  the  analysis  carried  out  by  the  Commission  Services,  the 

171  In particular, the Ten Principles of the United Nations Global Compact are shaped around these four broad 
areas. Information disclosed under the GRI framework would also have to contain at least this information.  
172  Art  51a  (e)  of  the  Fourth  Directive  states  the  statutory  audits  shall  also  contain  an  opinion  concerning  the 

consistency or otherwise of the annual report with the annual accounts for the same financial year. 

62 

 
 
                                                 
Acceptability to 
stakeholders 

Competitiveness 

cost of such disclosure can be estimated to be between 600 and 4300 euros 
per year per company. Its impact is therefore expected to be relatively low. 
More details on the estimates of administrative burden are given in Annex 
IX.  

The  results  of  the  various  consultations  have  highlighted  that  information 
disclosed under Option 1 would meet the users' minimum needs in terms of 
transparency,  as  regards  both  the  quantity  and  quality  of  the  information 
provided.  A  strong  majority  of  users  identified  social,  environmental, 
human rights and anti-corruption aspects, along with the description of the 
policy  pursued  by  the  company  in  these  areas,  its  results  of  and  the  risk-
management aspects, as the core elements of a meaningful disclosure. They 
are  therefore  considered  as  a  minimum  requirement  in  order  to  obtain  a 
transparency  improvement  compared  to  the  current  situation.  However, 
some users also argue that information disclosed in the form of a statement 
would  not  be  sufficiently  detailed  and  accurate.  Some  preparers  would 
consider  such  option  less  favourably,  as  it  would  reduce  the  level  of 
discretion they can currently enjoy when complying with art 46 (b).  

In terms of competitiveness, Option 1 would, on the one hand, introduce a 
level playing field, as EU large listed and non-listed companies would have 
to  disclose  a  similar  set  of  non-financial  information.  It  follows  that  all 
concerned companies could benefit from a better management of their non-
financial  policies  and  performances.  By  introducing  a  minimum  level  of 
harmonisation  in  this  field,  Option  1  could  also  contribute  to  solving  the 
problems  highlighted  in  section  3  concerning  the  fragmentation  of  the 
different legal frameworks within the Internal Market. Importantly, amongst 
the  preparers  consulted,  none  of  those  established  in  MS  where  more 
stringent  mandatory  disclosure  requirements  are  already  enforced  reported 
any  competitiveness  problems  compared  to  those  established  in  MS  with 
less stringent legislation.   

jurisdictions  where  non-financial  disclosure 

In  terms  of  global  competitiveness,  EU  companies  would  indeed  have  to 
bear  slightly  higher  costs  than  companies  established  or  headquartered  in 
third 
is  not  regulated.  
However,  evidenced  gathered  by  the  Commission  services  demonstrates 
that  the  additional  administrative  burden  would  be  fairly  limited,  and 
moreover,  the  potential  benefits  are  likely  to  outweigh  the  cost,  thus 
rendering  EU  companies  more  competitive  on  a  global  level.  Moreover, 
Option  1  is  designed  in  a  way  to  be  consistent  with  the  different  existing 
international frameworks, as the disclosure requirements are built upon the 
broad  areas  already  covered  by  the  various  initiatives.  This  would  imply 
that  there  would  be  no  competitiveness  losses  vis-à-vis  those  companies 
voluntarily  applying  such  frameworks  on  a  global  level.  On  the  contrary, 
the  voluntary  uptake  of  different  international  frameworks  demonstrates 
that  an  increasing  number  of  companies  realises  the  benefits  of  increased 
transparency with regard to competitiveness.  

Coherence  with 
EU 
other 

Such  requirement  would  be  in  line  with  the  transparency  needs  which  the 
Commission has already endorsed in the Single Market Act as well as in the 
CSR Communication. As the scope of application is limited to large listed 

63 

 
 
legislation 

and  non-listed  companies  only,  it  would  not  be  in  conflict  with  the 
simplification  exercise  currently  undergoing  as  regards  the  revision  of  the 
Accounting and Transparency Directives.  

on 

Impact 
Fundamental 
Rights  

It  can  be  expected  that,  in  the  long  term,  more  transparent  and  efficient 
disclosure  practices  will  also  have  a  positive  effect  on  fundamental  rights, 
in  particular  on  the  freedom  of  expression  and  information  (as  defined  by 
Article 11 of the Charter of Fundamental Rights of the EU), Workers' right 
to  information  (Article  27)  and  Environmental  (Article  37)173.  Such 
disclosure requirements and practices are likely to encourage companies to 
develop  or  improve  their  activities  relating  or  having  an  impact  on 
fundamental  rights,  due  in  particular  to  a  larger  public  scrutiny.  There 
would not be any restricting effects on the fundamental rights in general. By 
specifically  requiring  companies  to  disclose  material  risks  in  the  field  of 
human  rights,  this  option  is  likely  to  have  a  remarkable  positive  effect  on 
human  rights  awareness  and  encourage  companies  to  consider  their 
responsibility  to  respect  human  rights.  It  is  therefore  likely  to  reduce 
instances of EU company involvement in human rights harm.  

Option 2 – Detailed reporting 

This  option  examines  the  idea  of  requiring  companies  to  publish  a  detailed  report,  rather 
than disclosing information in the form of a statement. Such reports would have to cover the 
same  topical  areas  mentioned  under  Option  1  above,  as  well  as  any  other  issue  that  the 
company  may  consider  material.  The  report  should  be  drafted  in  accordance  with  high 
quality  reporting  principles,  guidelines  or  standards  that  are  internationally  accepted.  To 
the  extent  necessary  for  its  understanding,  the  report  should  also  include,  if  appropriate, 
relevant non-financial key performance indicators (KPIs). 

Option 2 is split into three sub-options, based on the nature of the requirement:  

•  Under Option 2a all large and listed companies would provide a non-financial report 

on a mandatory basis.  

•  Option 2b would instead introduce a "report or explain" obligation: companies who 
do not provide a report would have to give a clear and reasoned explanation as to 
why this is the case.  

•  Finally,  under  Option  2c  there  would  be  no  legal  obligation  to  provide  a  detailed 
report.  However,  in  order  to  recognise  best  practices  and  avoid  duplication  of 
disclosure requirements, companies providing a detailed report on a voluntary basis 
would  be  exempted  from  other  disclosure  obligations,  provided  that  such  report 
complies  with  the  same  content  requirements  set  by  option  1,  makes  reference  to 
international frameworks and is annexed to the Annual Report.  

2.a -  Mandatory  

Effectiveness  

Quantity of information: Disclosure in the form of a full report, rather than a 
statement, would maximise the level of quantity of information available to 

173        Charter 

of 

Fundament 

Rights 

of 

the 

European 

Union, 

http://www.europarl.europa.eu/charter/pdf/text_en.pdf 

64 

 
                                                 
(quantity, quality 
of information) 

Efficiency  

(compliance costs) 

the  public,  as  this  policy  option  would  have  the  effect  of  increasing  the 
number  of  reports  produced  by  EU  companies.  A  non-financial  report 
covering  at  least  all  the  content  areas  described  under  Option  1  would 
therefore  have  the  potential  to  give  a  full  and  comprehensive  overview  of 
the non-financial situation of a given company. Such option would therefore 
achieve a greater level of transparency than Option 1. 

Quality of information: the information disclosed in the form of a full report 
would  by  definition  be  more  detailed,  accurate  and  comprehensive  than 
information disclosed in the form of a statement. Moreover, Option 2 would 
introduce  a  mandatory  reference  to  high  quality  reporting  principles, 
guidelines  or  standards  that  are  internationally  accepted.  The  use  of 
internationally accepted frameworks would also improve the reliability and 
accuracy  of  the  information  disclosed,  as  criteria  concerning  the  scope, 
content and level of detail of the information would be determined by using 
an  external  reference.  However,  the  effectiveness  of  such  provision  is 
sometimes questioned. First of all, requiring detailed disclosure might result 
in  companies  perceiving  reporting  just  as  an  additional  administrative 
burden  to  comply  with.  This  attitude  would  result  in  a  'tick  the  box' 
exercise,  which  would  fail  to  change  companies'  strategic,  long  term 
approach  to  non-financial  risk  management.  Furthermore,  given  that  the 
content, nature and scope of existing frameworks can be rather different, the 
impact of this proposal on comparability would be limited. 

The  administrative  burden  carried  by  this  option  would  be  undoubtedly 
higher than under Option 1. According to a study conducted by CSES, the 
total cost of disclosing non-financial information in the form of a full report 
can be estimated to be in the range of €155000 to €604000 174 per year per 
company,  with  a  cost  per  employee  varying  between  €3  and  €13.  Such 
estimate  include  all  costs  relating  to  the  drafting  of  the  report,  its 
publication,  additional  ad-hoc  data  collection  costs,  annual  costs  such  as 
training  as  well  as  potential  external  assurance.  The  cost  of  drafting  the 
report  can  in  itself  amount  to  between  €91000  and  €331000.  The 
publication  costs  are  also  not  negligible,  depending  on  the  company's 
approach.175 As far as verification is concerned, Option 2 would not change 
the baseline scenario, as companies would be left free to decide whether to 
provide a form of assurance or not. External voluntary assurance may also 
represent  an  important  part  of  this  cost,  varying  between  €22000  and 
€114000 176.  

According to other estimates177, the cost of producing a comparable detailed 
report could vary between €33000 and €357 000, depending on the size of 
the  company.  Moreover,  the  cost  of  verification  of  such  reports  could 
amount  to  an  additional  €7200  to  €100000,  depending  on  the  size  of  the 
organization  as  well  as  the  type  of  certification  required,  the  amount  and 

174  CSES, 2011, p. 26 and 32. 
175  Ibid. 
176  Companies surveyed were asked to provide an estimate, to the nearest thousand, on assurance costs related to 

the drafting of the non-financial report.  

177   

Data  provided  to  the  Commission Services  by  the  French  government,  based  on  assessment  made  on 

relevant requirements in French legislation 

65 

 
                                                 
Acceptability to 
stakeholders 

Competitiveness 

complexity of data analysed, the nature of a company's activities and their 
technical complexity.  

On the basis of the figures collected, the cost of a full mandatory reporting 
obligation could therefore be roughly estimated in a range varying between 
€33000  and  €604000  per  year  per  company.  In  general  terms,  the  above-
mentioned  figures  may  depend  on  the  complexity  of  a  company  and  its 
operations  and  would  also  be  likely  to  be  at  the  higher  range  in  the  first 
period  of  implementation  of  a  potential  legislation,  or  for  first  time 
reporters, while decreasing over the years. Some of the experts consulted178 
agreed that set-up costs could be substantial. However, they also argued that 
costs  would  decrease  over  time  and  progressive  benefits  of  long-term 
investment and better management should also be considered. 

The public consultations have shown that a majority of preparers would be 
opposed to mandatory reporting in the form of a full report, namely because 
of  the  excessive  administrative  burden  this  option  would  carry179.  On  the 
contrary,  most  users  would  consider  this  option  more  favourably  than 
Option  1,  as  it  would  bring  greater  transparency  benefits,  particularly  as 
regards  the  quantity  of  information.  At  the  same  time,  mixed  views  are 
expressed as regards the potential benefits this option could bring in terms 
of  overall  quality  and  comparability.  On  the  one  hand,  some  stakeholders 
would  consider  the  use  of  internationally  accepted  frameworks  as  an 
important  achievement.  On  the  other  hand,  others  raise  the  argument  that 
such  frameworks  are  still  very  diverse,  and  such  a  reference  would  not 
allow  for  proper  benchmarking.  Finally,  most  civil  society  organisations 
and  NGOs  call  for  stricter  requirements  concerning  verification,  as  this  is 
seen as a key tool to increase accuracy and reliability of the information.  

The  various  consultations  carried  out  by  the  Commission  services, 
including the advice of the ad-hoc Expert group, have highlighted that more 
transparent  non-financial  reporting  practices  could  produce  significant 
economic  benefits  through  better  risk  and  cost  management  and  better 
overall  definition  of  corporate  strategies.  A  consistent  body  of  academic 
literature also suggests that increased transparency in this field would lead 
to better financial and non-financial performances, and contribute to a more 
efficient  allocation  of  capital  within  the  internal  market,  potentially 
resulting in a higher degree of competitiveness across the EU.180 Moreover, 
Option  2a  is  designed  in  such  a  way  as  to  be  consistent  with  the  existing 
international  frameworks  in  this  field.  It  follows  that  the  competitive 
situation  of  EU  companies  would  not  be  undermined  vis-à-vis  those 
companies already applying such frameworks at global level on a voluntary 
basis.  

However, in order to properly assess the benefits that Option 2a could bring 
in terms of overall competitiveness, due account of the related compliance 
costs also needs to be taken. It appears that, especially in the first period of 

178  Minutes 

of 
http://ec.europa.eu/internal_market/accounting/docs/11072011_minutes_en.pdf  

Meeting 

ad-hoc 

expert 

group 

the 

of 

179  Public Consultation Summary report, p. 8 
180  Porter and Kramer, 2006; Ioannou and Serafeim, 2011. 

11 

July 

2011, 

66 

 
  
                                                                                                                                                         
Coherence 
other 
legislation 

with 
EU 

implementation,  the  costs  of  the  increased  administrative  burden  could  be 
significant,  and  a  mandatory  obligation  to  produce  a  full  report  could 
potentially  affect  the  competitive  position  of  EU  companies  vis-à-vis 
companies established in third jurisdictions where such mandatory reporting 
obligation is not enforced.  

As for Option 1, a mandatory reporting obligation would be in line with the 
policy objectives that the Commission has already endorsed in the SMA as 
well as in the CSR Communication. As the scope of application is limited to 
large  and  listed  companies  only,  it  would  not  be  in  conflict  with  the 
simplification exercise on the revision of the Accounting and Transparency 
Directives  currently  undergoing.  However,  as  this  option  is  likely  to 
determine  a  significantly  increased  administrative  burden,  there  may  be 
conflict  with  the  overall  policy  objective  of  reducing  the  administrative 
burden,  as  set  out  in  the  Action  Programme  for  Reducing  Administrative 
Burdens in the European Union, presented by the European Commission in 
January 2007181.  

on 

Impact 
Fundamental 
Rights  

The  same  considerations  made  for  option  1  above  would  apply.  By 
maximising the quantity of information, such option would probably bring 
greater benefits than Option 1. However, due to the consequent increase in 
the  administrative  burden,  the  possibility  of  a  prejudice  to  the  freedom  to 
conduct a business (Article 16 of the Chart) should be considered182. 

2.b – Report or Explain  

Effectiveness  

(quantity, 
quality of 
information) 

Quantity of information: Companies could opt to produce a report or explain 
why  they  choose  not  to  do  so.  As  a  consequence,  Option  2b  would,  by 
definition,  be  less  effective  than  Option  2a  and  Option  1  as  regards  the 
quantity  of  information.  Besides  the  obligation  set  forth  by  the  Accounting 
Directives,  various  mechanisms  for  voluntary  reporting  already  exist  and, 
despite  their  global  uptake,  the  number  of  EU  companies  producing  non-
financial  reports  on  a  voluntary  basis  remains  still  extremely 
low. 
Nevertheless, an obligation to "explain" the reasons for not reporting may still 
represent  an  incentive  for  EU  companies  to  assess  the  financial  and  non-
financial  opportunities  provided  by  higher  transparency,  and  thus  engage  in 
more  transparent reporting  practices.  The Danish experience, where a sort of 
comply or explain obligation has been in place since 2009183, shows that 97% 
of  companies  have  chosen  to  report  on  a  voluntary  basis  following  this 
approach. Academic evidence also suggests that such a system could represent 
an  incentive  for  companies  to  engage  in  more  transparent  reporting,  namely 
due to peer pressure or reputational considerations.  

Quality  of  information:  In  general  terms,  mixed  views  are  expressed  by 
stakeholders  as  regards  the  potential  of  a  "report  or  explain"  obligation  to 
increase the quality of information, as this very much depends on the content 

181  http://ec.europa.eu/enterprise/policies/smart-regulation/administrative-burdens/index_en.htm  
182  Charter of Fundament Rights of the European Union, http://www.europarl.europa.eu/charter/pdf/text_en.pdf  
183  "Corporate Social Responsibility and Reporting in Denmark – Impact of the legal requirement for reporting 
on  CSR  in  the  Danish  Financial  Statements  Act",  Danish  Commerce  and  Companies  Agency,  2010, 
www.CSRgov.dk. 

67 

 
                                                 
of the requirement itself184. In this specific case, Option 2b would require the 
same  content  as  Option  2a.  The  information  disclosed  in  the  form  of  a  full 
report  could  be  more  detailed,  accurate  and  comprehensive  than  a  statement 
(Option 1), resulting in a major improvement of the baseline scenario The use 
of internationally accepted frameworks would also improve the reliability and 
accuracy  of  such  information,  although  the  improvements  in  terms  of 
comparability would be limited. On the other hand, a preliminary assessment 
of the Danish approach185 shows that reports quality is improving less rapidly 
than their quantity. Companies struggle to fully comply with the requirements 
and  disclose  balanced  and  comprehensive  information  on  more  contentious 
issues such as human rights and corruption. 

In  terms  of  overall  compliance  costs,  the  same  considerations  made  under 
Option 2a above apply. However, under Option 2b such costs would only be 
incurred  by  those  companies  choosing  to  comply  with  the  requirement, 
therefore  they  are  even  more  difficult  to  be  assessed  ex  ante.  Therefore, 
companies  opting  for  the  reasoned  explanation  would  have  to  bear  only  the 
costs  related  to  this  specific  disclosure,  which  can  be  estimated  to  be 
comparable  to  the  cost  of  an  additional  statement  in  the  Annual  Report  as 
explained in Option 1. On the other hand, the additional costs for companies 
opting  for  a  full  compliance  would  be  much  higher.  They  would  be 
comparable to Option 2a. More details are given in Annex IX. 

The  results  of  the  public  consultations  show  that  preparers  would  prefer 
Option 2b to Option 2a. A majority of the companies surveyed pointed out that 
voluntary  comply  or  explain  requirement  would  be  perceived  as  more 
meaningful  and  well-founded  than  a  full  mandatory  obligation.  Users  could 
benefit  from  a  certain  increase  in  the  quality  of  information  disclosed  by 
companies  willing  to  do  so,  although  the  gain  in  terms  of  quantity  of 
information disclosed could not be comparable to Option 2a. For this reason in 
particular,  civil  society  organizations  would  consider  this  option  as  less 
preferable than Options 1 or 2a.  

Efficiency  

(compliance 
costs) 

Acceptability to 
stakeholders 

Competitiveness  A  comply  or  explain  requirement  would  not  change  the  current  situation  in 
terms  of  legal  fragmentation  within  the  EU  internal  market.  The  problems 
related  to  the  current  fragmentation  of  such  frameworks  would  persist. 
However, the obligation to give a reasoned explanation in case a report is not 
published could at the same time constitute an incentive for companies to set 
up  appropriate  systems  and  procedures  to  assess  the  potential  benefits 
associated  with  non-financial  disclosure,  and  thus  engage  in  reporting 
practices.  In  this  respect,  there  would  be  potential  competitive  gains  for 
companies choosing to produce reports.  

Option  2b  would  also  maintain  a  level  playing  field  amongst  companies 
established  or  listed  in  EU  Member  States  or  third  countries  with  no 
thus  avoiding  potential 
mandatory 
competitive  distortions  in  this  respect.  It  is  also  noteworthy  to  underline  that 
different forms of comply or explain obligations have already been chosen not 

requirements 

in  place, 

reporting 

184  See the study above as well as "The Impact of the Danish Law on CSR Reporting" DanWatch, 2011. Content 

may vary as regards the "comply" as well as the "explain" part of the requirement.  

185  Ibid  

68 

 
 
                                                                                                                                                         
only by several EU Member States186, but also by third countries including, for 
instance, China and South Africa187.  

Coherence  with 
other 
EU 
legislation 

A  comply  or  explain  obligation  would  be  in  line  with  overall  objectives  of 
increasing  transparency  in  the  non-financial  field  already  endorsed  by  the 
Commission  in  the  SMA  and  the  CSR  Communication.  As  the  scope  of 
application  is  limited  to  large  and  listed  companies  only,  it  would  not  be  in 
conflict with the simplification exercise on the revision of the Accounting and 
Transparency Directives currently underway.  

on 

Impact 
Fundamental 
Rights  

The same considerations made for options 1 and 2a above would apply.  

Option 2c – Voluntary  

Effectiveness  

(quantity, 
quality of 
information) 

Quantity  of  information:  according  to  this  option  there  would  be  no 
mandatory  obligation  to  provide  a  detailed  report.  As  a  consequence,  this 
option would be less effective than Option , 2a or 2b as regards the quantity 
of  information.  Nevertheless,  it  would  recognise  best  practices  and,  by 
giving a conditional exemption from other relevant disclosure requirements, 
may constitute an incentive for companies to engage in reporting practices 
on a voluntary basis. 

Quality  of  information:  In  order  for  the  conditional  exemption  from  other 
disclosure  obligations  to  be  applicable,  information  disclosed  under  option 
2c would be subject to the same content requirements as in Option 2a. The 
information  disclosed  in  the  form  of  a  report  could  be  more  detailed, 
accurate  and  comprehensive  than  a  statement.  The  use  of  internationally 
accepted frameworks would also improve the accuracy of such information, 
although  the  improvements  in  terms  of  comparability  would  be  limited. 
Moreover, the conditional requirement to annex the voluntary report to the 
Annual Report would imply an obligation to check the whole content of the 
report  for  consistency  with  financial  statements,  thus  contributing  to 
improve the reliability of the information disclosed.  

This option would, by definition, carry no additional administrative burden, 
as  the  disclosure  of  a  full  report  would  remain  voluntary.  For  companies 
willing  to  provide  a  detailed  report  on  a  voluntary  basis,  the  same 
considerations  made  under  Option  2a  above  apply.  Moreover,  companies 
deciding  to  provide  such  report  would  be  exempted  from  other  relevant 
disclosure requirements (such as those described under Option 1) provided 
that certain specific conditions are met. Consequently, they would not have 
to bear other costs relating to disclosure of such information.  

The  results  of  the  public  consultations  show  that  preparers  would  prefer 
Option 2c to other Options, as it would give them maximum flexibility. On 
the contrary, users, and NGOs in particular, question the potential benefits 
of voluntary reporting, mostly based on the claim that the results achieved 

Efficiency  

(compliance 
costs) 

Acceptability to 
stakeholders 

186  Besides Denmark, also Spain, Sweden and the UK have already adopted different forms of comply or explain 

regulations. Norway has also adopted similar legislation. See Annex 2 for more details.  

187  https://www.globalreporting.org/network/report-or-explain/Pages/default.aspx  

69 

 
 
                                                                                                                                                         
so far are not satisfactory. 

Competitiveness  A voluntary requirement would not change the current situation in terms of 
competitiveness. This Option would maintain a level playing field amongst 
companies established or listed in EU Member States or third countries with 
no  mandatory  reporting  requirements 
thus  avoiding  any 
competitive  distortions.  However,  the  potential  exemption  from  other 
disclosure obligations built in this option could at the same time constitute a 
limited incentive for companies to recognise best practices, and thus engage 
in  better  reporting  practices188.  In  this  respect,  there  could  be  potential 
competitive gains for companies choosing to produce reports on a voluntary 
basis.  

in  place, 

Coherence  with 
other 
EU 
legislation 

A  fully  voluntary  obligation  would  not  be  entirely  in  line  with  the  overall 
objectives  of  increasing  transparency  in  the  non-financial  field  already 
endorsed  by  the  Commission  in  the  SMA  and  the  CSR  Communication. 
However, on the positive side, it would be consistent with the overall policy 
objective  of  reducing  the  administrative  burden,  as  set  out  in  the  Action 
Programme  for  Reducing  Administrative  Burdens  in  the  European  Union, 
presented by the European Commission in January 2007.  

on 

Impact 
Fundamental 
Rights  

The  impact  of  such  option  on  fundamental  rights  would  be  quite  limited. 
When information is disclosed on a voluntary basis, the same considerations 
made for option 1 above would apply 

Option 3 - Set up a mandatory EU-based Standard  

This option would require companies to produce a non-financial report on the basis of an EU 
mandatory  framework  (Standard).  Such  framework  would  be  based  on  a  harmonised  set  of 
pre-defined Key Performance Indicators (KPIs) 

Effectiveness  

(quantity, quality 
of information) 

Quantity of information: Option 3 would by definition be most effective 
in  terms  of  quantity  of  information  disclosed,  as  all  concerned 
companies would have to produce a report on a mandatory basis. Such 
requirement  would  therefore  necessarily  lead  to  higher  quantity  of 
information  compared  to  the  current  situation,  maximising  the  number 
of EU companies disclosing non-financial information.  

Quality  of  information:  As  opposed  to  Option  2,  Option  3  would  not 
rely  on  existing  international  frameworks  to  define  the  content  of  the 
report.  It  would,  on  the  contrary,  set  up  a  specific  EU  standard, 
including a set of EU KPIs, which all concerned companies would have 
to  comply  with.  This  would,  on 
the 
comparability  of  information  disclosed,  as  all  reports  would  by 
definition  follow  the  same  structure  and  be  based  on  a  comparable 
content.  However,  disclosing  information  on  the  basis  on  a  set  of  pre-
defined  KPIs  would  also  minimise  the  degree  of  flexibility  left  to 
companies,  with  potential  detriment  for 
the 
information  disclosed  and  thus  its  usefulness  for  users.  The  results  of 

the  one  hand,  optimise 

the  materiality  of 

188  For  an  overview  of  the  positive  effect  and  limitations  of  voluntary  reporting  see  "Making  a  Difference. 

Sustainability Reporting, Accountability and Organisational Change", Adams and McNicholas, 2007 

189  Public Consultation Summary report, p. 8 

70 

 
                                                 
Efficiency  

(compliance costs) 

Acceptability to 
stakeholders 

Competitiveness 

the public consultation have shown that tailoring an EU standard able to 
satisfactorily meet  the  needs and demands  by  both  preparers  and  users 
would  constitute  a  very  demanding  exercise,  which  would  require 
significant time and resources to be developed189.  

Option 3 would have high compliance costs. A precise estimate cannot 
be  given,  as  it  would  depend  on  the  content  of  a  potential  standard 
(harmonised set of rules and KPIs). However, according to the majority 
of  the  preparers  surveyed,  the  additional  costs  that  companies  would 
have to bear in order to comply with Option 3 would be significant and 
would  include  integrating  specific  systems  and  practices,  training  of 
staff, collection and consolidation of additional information specifically 
related  to  the  standard.  It  is  therefore  estimated  that  the  costs  of 
producing a report under Option 3 would at least be comparable to the 
costs highlighted for Option 2a above. With regard to the costs related 
to verification, the same considerations made for Options 1 and 2 above 
would apply.  

The  majority  of  the  stakeholders  consulted,  across  all  groups,  agreed 
that  a  one-size-fits-all  approach  would  not  be  the  most  effective  nor 
efficient solution to deal with the identified problems, and on the need 
to avoid the creation of a new standard that would duplicate, or overlap 
only  partly,  other  existing  international  frameworks190.  The  results  of 
the  public  consultation  have  shown  that  a  strong  majority  of  the 
preparers consider Option 3 as the least effective, based on the argument 
that it would maximise the compliance costs and potentially undermine 
the materiality and thus quality of the information disclosed. Users have 
expressed mixed views on this point: amongst the investors' community, 
some  consider  that  the  benefits  in  terms  of  increased  comparability 
would be significant, whilst others believe that a specific EU approach 
to KPIs should be avoided, as it may bring prejudice to the materiality 
of  the  information.  Some  of  the  NGOs  and  other  civil  society 
organizations would on the contrary favour Option 3, as it would have 
the  maximum  potential  to  increase  companies'  accountability  towards 
society.  

Within the EU, a system which is somewhat comparable to Option 3 is 
so far implemented in only one Member State (France). When replying 
to  the  public  consultation,  companies  established  in  this  MS  have  not 
reported any loss in terms of competitiveness specifically linked to this 
approach. However, the analysis carried out by the Commission services 
underlined that it is unsure whether the potential competitive gains that 
could  result  from  Option  3  would  be  able  to  outweigh  the  additional 
costs  that  companies  would  have  to  bear.  Moreover,  a  common  set  of 
KPIs  could  potentially  take  years  to  be  developed  and  agreed  upon. 
Such  framework  would  also  run  the  risk  of  being  not  fully  consistent 
with  existing  national  legislations,  or  with  internationally  accepted 
frameworks that companies are already applying on a voluntary basis. 

Coherence 

with  Developing an EU standard for non-financial reporting would, in theory, 

190  Ibid.  

71 

 
                                                 
other 
legislation 

EU 

information  endorsed  by 

have the potential to bring EU legislation in this field to a level of detail 
and accuracy comparable to what is already required by the Accounting 
and Transparency Directives as far as financial reporting is concerned. It 
would also be consistent with the objective of increasing transparency of 
the  CSR 
non-financial 
Communication.  However,  as  this  option  is  likely  to  determine  a 
significant  administrative burden, it may be in conflict with the overall 
policy objective of reducing the administrative burden, as set out in the 
Action  Programme  for  Reducing  Administrative  Burdens  in  the 
European  Union,  presented  by  the  European  Commission  in  January 
2007.  

the  SMA  and 

Impact 
Fundamental 
Rights  

on 

The  same  considerations  made  for  option  1  above  would  apply. 
However,  a  more  precise  assessment  would  depend  on  the  actual 
content of the standard.  

72 

 
Annex VII 

Increasing Board Diversity:  

 Detailed Analysis of Broad Policy Options  

1  DESCRIPTION  

Several  policy  options  aiming  at  increasing  boards'  diversity  have  been  assessed,  including 
"no policy change" scenario (Policy Option 0). One option (binding gender quotas) has been 
discarded  from  the  outset  as  it  is  subject  of  a  separate  initiative  of  the  Commission  (see 
below). 

Option 1 would require companies to disclose the diversity policy they have in place. This 
would  translate  into  a  requirement  to  include  information  on  their  diversity  policy  in  their 
annual  report,  more  precisely  in  their  corporate  governance  statement.  Companies  would 
describe  in  this  statement  their  diversity  policy  with  regard  to  various  aspects,  including  in 
particular age, gender, nationality and educational and professional background. They would 
have  to  specify  the  objectives  of  this  policy,  how  it  has  been  implemented  and  the  results 
achieved. However, companies not having a diversity policy would not be obliged to put one 
in place. They would only be required to provide a clear and reasoned explanation why this is 
the case ("comply or explain" approach).  

According to option 2 companies would be required to take into account the diversity as one 
of the criteria for the selection of a board candidate. This means that companies would be 
obliged  to  consider  not  only  the  expertise  of  a  given  candidate,  but  also  to  which  extend 
he/she would make the board as a whole more diversified. In practical terms, the board would 
have to assess its needs in terms of diversity and set specific recruitment guidelines that the 
nomination committee would have to consider when assessing the profile of the candidates.  

Option  3  envisages  the  possibility  of  obliging  companies  to  establish  a  policy  concerning 
diversity  for  boards.  The  content  of  this  policy  would  be  determined  by  the  companies 
themselves:  the  board  would  be  required  to  establish  measurable  objectives  (targets)  for 
achieving diversity on the board and to assess annually both the objectives and the progress in 
achieving them. 

The  current  impact  assessment  does  not  consider  the  option  of  introducing  quotas.  While 
setting  quantitative  measures  seems  to  be  an  efficient  tool  to  promote  in  particular  gender 
balance on boards, they do not seem to be an appropriate instrument for diversity aspects at 
large.  Besides,  the  Commission  services  are  currently  working  on  a  separate  initiative  on 
improving gender balance on boards of listed companies, which will consider the introduction 
of quantitative gender objectives and increased transparency of selection procedures for board 
members.  Thus,  the  current  assessment  will  not  further  develop  the  analysis  of  this 
instrument,  but  will  concentrate  on  options  enhancing  the  boards'  diversity  at  large.  The 
retained policy options can be summarised as follows: 

Option 0  No policy change 

Option 1  Require companies to disclose their diversity policy  

73 

 
 
 
 
Option 2  Require companies to include diversity as one of the criteria for the selection 

of board members 

Option 3  Require companies to establish a diversity policy 

2  DETAILED ANALYSIS OF OPTIONS AGAINST IDENTIFIED CRITERIA 

Option 0 – No policy change 

This option implies not taking any action at EU level as regards boards' diversity in terms of 
educational  and  professional  background,  nationality,  gender  or  age.  Any  possible  action 
would  be  taken  at  national  level  only  and  companies  may  take  steps  to  increase  board 
diversity on a voluntary basis.  

Effectiveness  

(increase of 
diversity) 

A detailed explanation on "how the problem will evolve without action" is 
provided  in  section  3.4.  above.  On  the  basis  of  that  analysis,  the 
Commission  services  are  of  the  view  that  this  policy  option  is  unlikely  to 
achieve  the  underlying  objective  of  enhancing  boards'  diversity  and  thus 
reduce  the  phenomenon  of  group-think  and  improve  the  oversight  of  the 
management by the boards. If no action is taken at EU level, progress will 
remain  very  slow,  unless  measures  are  taken  at  national  level.  As  the 
approaches  of  Member  States  as  regards  the  boards'  diversity  are  very 
different,  the  important  disparities  between  national  frameworks  would 
remain. 

Efficiency 
(compliance costs) 

Companies would not be forced to incur additional administrative burden or 
costs. 

Acceptability to 
stakeholders 

The  results  of  the  consultation  launched  by  the  Green  Paper  on  the  EU 
corporate  governance  framework191  show  a  general  support  for  more 
diversity in the boards, in terms of expertise, skills, background, gender, etc. 
Although most respondents rejected the idea of quotas, most of them were 
in  favour  of  softer  measures  in  favour  of  greater  diversity.  Whereas 
companies  and  business  federations  often  considered  that  the  current 
situation  is  satisfactory,  most  respondents  from  the  civil  society  and  the 
investor community supported measures in favour of more diversity. 

Competitiveness 

As no further obligation would be imposed,  there would  be no  changes in 
this regard. However, EU companies would fail to exploit the benefits that 
increased disclosure of diversity in the boardroom would bring. 

Coherence 
other 
initiatives 

with 
EU 

The  Commission  services  are  working  simultaneously  on  a  separate 
proposal in order to enhance gender balance in corporate boards by way of 
quantitative measures at EU level. Thus, a no-policy change scenario could 
be  regarded  as  a  missed  opportunity  to  propose  mutually  reinforcing 
measures creating a strong synergy in favour of better boards' diversity. 

Impact 
on 
fundamental rights 

There should  be no  impact  on  fundamental  rights.  No  negative effects but 
also no beneficial impact. 

191  See  2011  Green  Paper  on  Corporate  Governance  Framework  and  the  feedback  statement  accessible  at 

http://ec.europa.eu/internal_market/company/docs/modern/20111115-feedback-statement_en.pdf. 

74 

 
                                                 
Option 1 – Disclosure of internal policy on diversity in the annual report 

This option would seek to enhance companies' transparency as regards their boards' diversity 
policy. Companies would be required to disclose in the annual report their diversity policy, in 
particular  the  objectives  of  this  policy  and  to  which  extent  these  objectives  have  been 
achieved. The information disclosed should cover in particular aspects such as age, gender, 
nationality, educational and professional background of board members.  

Effectiveness  

(increase of 
diversity) 

Efficiency 
(compliance costs) 

The benefit of transparency with regard to diversity policy is that it allows 
for public insight, while increasing the perceived legitimacy of the actions 
of the company adopting a diversity policy. It creates incentives to address 
diversity challenges. Companies which do not have a diversity policy or do 
not  make  the  necessary  efforts  to  achieve  the  objectives  of  such  policy 
might be subject to public criticism. The option to improve transparency is a 
useful tool to inform the market of corporate governance practices and thus 
incentivise companies to put in place diversity policies. 

The  compliance  costs  associated  with  this  option  are  relatively  low.  The 
primary  costs  of  increased  disclosure  are  the  cost  of  preparing  and 
disseminating  the  information.  As  companies,  especially  listed  ones 
(irrespective of the size) do already have to publish periodic information for 
public  use192,  the  additional  cost  of  preparation  and  dissemination  of 
information  on  their  diversity  policy  will  not  be  very  high.  Given  that  the 
average  European  board  consists  of  12  members193,  the  processing  of  the 
information required for the disclosure should not give rise to considerable 
burden.  In  line  with  previous  estimations  made  by  the  Commission's 
services  for  comparable  disclosures194,  the  preparation  of  an  additional 
statement in the annual report would range between 600 and 1000 euros per 
year  per  company.  As  this  option  would  merely  extend  the  content  of  the 
corporate governance statement, costs could even be lower, especially given 
the limited size of a board and the fact that the description of the policy at 
board level would be relatively concise. 

Moreover, it could be argued that the present option could have a negative 
impact on the pool of people available for board membership, and possibly 
on  the  objective  of  board  expertise,  because  there  are  not  enough 
experienced  women  or  men  from  sufficiently  different  background  to 
populate  the  board  rooms  of  companies.  However,  at  least  with  regard  to 
gender  balance,  it  appears  that  there  are  enough  qualified  women  which 
cannot  not  for  the  time  being  reach  leading  positions  in  companies195.  In 
addition,  the  disclosure  requirements  would  not  put  any  obligation  or 
burden on them to reach the targets they may  have voluntarily established 
nor impose any given means to achieve the diversity policy. 

Acceptability to 

This  option  was  favoured  by  many  respondents to  the public consultation, 
which  considered  that  such  a  soft  requirement  would  encourage  diversity 

192  See section 2.2. 
193  Heidrick & Struggles, 2011, p. 37 
194  See to this effect CRD IV Impact Assessment, Administrative burden for credit institutions and supervisors,  

http://ec.europa.eu/internal_market/bank/docs/regcapital/CRD4_reform/IA_directive_en.pdf   

195  See for example 

http://www.mckinsey.com/Client_Service/Organization/Latest_thinking/Unlocking_the_full_potential 

75 

 
                                                 
stakeholders 

Competitiveness 

Coherence 
other 
initiatives 

with 
EU 

but in the same time would not impose specific choices to the company196. 
Most of the respondents to the consultation were overall positive about the 
disclosure  of  a  diversity  policy,  in  particular  civil  society,  directors' 
associations,  employees, 
investors,  public  authorities.  Respondents 
indicated that disclosure would enable investors to take informed decisions 
as to the governance practices of the specific company. Although business 
federations  and  companies  were  more  reserved  regarding  disclosure  of 
diversity  policy,  investors  in  particular  indicated  that,  if  companies  are 
transparent  on  their  diversity  policy,  they  can  judge  better  the  level  of 
ambition of the company and monitor progress. 

As  already  illustrated  in  previous  sections,  enhanced  transparency  on  how 
diversity  is  dealt  with  at  the  board  level  is  relevant  for  investors,  as  it 
enables a more informed voting and investment decision-making. The more 
diverse the board is, the more likely it is that more competencies and skills 
are  brought  in  for  the  benefit  of  the  company.  Therefore,  the  proposed 
provisions  not  only  would  not  hinder  the  capacity  of  EU  companies  to 
compete with counterparts in other parts of the world, but on the contrary it 
is  assumed  that  they  would  have  a  positive  impact  on  them.  In  terms  of 
negative  impacts  as  the  requirement  at  hand  would  not  impose  specific 
means or targets to achieve diversity, but only to disclose what it is in place, 
there should not be any or they should be very limited.  

This  option  would  be  consistent  with  a  separate  initiative  of  the 
Commission on better gender balance in the boards of companies listed on 
stock  exchanges,  which  is  considering  introducing  quantitative  measures. 
The scope of the current proposal is larger than gender diversity initiative, 
aiming at achieving more diversity in general, in terms of educational and 
professional  background,  nationality,  age,  etc.  The  nature  of 
the 
requirement  imposed  is  different,  as  the  current  initiative  would  only 
impose  disclosure.  Thus,  in  addition  to  contributing  to  increasing  board 
diversity, the current initiative would also offer better information on board 
diversity  policy  to  investors  and  civil  society.  It  appears  thus  that  the  two 
initiatives  would  be  mutually  reinforcing.  In  particular,  the  enhanced 
disclosure requirement will be likely to contribute to the implementation of 
the  quantitive  targets  by  companies.  Given  that  it  would  exempt  listed 
SMEs,  it  would  also  be  coherent  with  the  general  policy  of  the  European 
Commission to reduce the administrative and regulatory burden in order to 
facilitate the start-up and development of the SMEs. 

This option is also consistant with the measures aiming at enhancing boards' 
diversity  in  financial  institutions  in  the  framework  of  the  proposal 
reviewing the current Capital Requirements Directive. As regards corporate 
governance,  one  should  make  the  difference  between  financial  institutions 
and  listed  companies  in  general.  Financial  institutions  generate  systemic 
risks,  there  is  thus  a  need  for  stricter  rules  on  their  corporate  governance. 
Banks  were  bailed  out  by  governments  and  consequences  borne  by 
governments and population at large. In the case of listed companies, there 
is no need for such strict rules as shareholders, not society, would pay for 

196  See  replies 

to 

the  Green  Paper  on 

the  EU  Corporate  Governance  Framework 

  accessible  at 

http://ec.europa.eu/internal_market/consultations/2011/corporate-governance-framework_en.htm 

76 

 
                                                                                                                                                         
Impact 
on 
fundamental rights 

possible  failures.  Moreover,  listed  companies  are  a  very  heterogenous 
group, encompassing entities of all sides and active in all economic sector, 
with an important role in the Internal Market for growth and job creation. It 
is  thus  of  utmost  importance  to  put  forward  flexible  rules,  which  can  be 
adapted to all listed companies. The Commission considers therefore that at 
this stage a measure of enhanced transparency would be more appropriate, 
given  also  the  initiative  on  gender  quotas.  Imposing  a  diversity  policy 
would go beyond what it is necessary to achieve the pursued objective. 

This  option  would  also  have  a  positive  impact  on  fundamental  rights  as 
enshrined in the Charter of Fundamental Rights of the European Union, in 
particular, on the freedom to choose an occupation and right to engage in 
work (Article 15), the freedom to conduct a business (Article 16), on non-
discrimination  (Article  21),  on  equality  between  women  and  men  (Article 
23).  It  would  also  allow  for  more  public  scrutiny  and  thus  indirectly 
facilitate  the  access  of  more  diverse  directors  to  companies'  boards,  while 
removing  potential  discriminatory  practices.  It  would  take  place  without 
any  negative  effects  on  other  fundamental  rights.  Article  7  (Respect  for 
private and  family life) and 8 (Protection  of personal data) of the  Charter 
should, in principle, not be affected by these provisions. This policy option 
would not as such require the publication or processing of personal data by 
companies.  However,  if  companies  do  so,  they  would  need  to  ensure  that 
such  processing  is  carried  out  in  accordance  with  national  data  protection 
laws  implementing  EU  data  protection  legislation,  namely  Directive 
95/46/EC. 

Option 2 – Diversity must be one of the criteria of Board composition 

Following this option, companies would be required to regard diversity as one of the criteria 
which  should  be  taken  into  account  when  selecting  a  board  candidate.  It  would  suppose  a 
more  rigorous  and  professionalised  selection  procedure,  where  precise  profiles  of  board 
members should be identified before launching the recruitment process.  

Effectiveness  

(increase of 
diversity) 

Efficiency 

This  option  could  contribute  to  enhancing  boards'  diversity  by  obliging 
companies  to  put  diversity  criteria  at  the  same  level  as  expertise  for  the 
purpose  of  recruitment  to  board  position.  Companies  would  have  to 
consider not only the expertise of a candidate, but also to which extent he or 
she  enhances  the  diversity  of  the  board.  Such  requirement  could  also 
contribute to the professionalization of the recruitment procedure and help 
reduce the current practice of recruitment through co-optation. In addition, 
it has the advantage of being highly flexible, leaving the method to achieve 
the underlying objective of more diverse boards to companies. 

However,  it  can  also  be  argued  that  such  general  principle  might  not 
achieve  its  objective  in  practice,  as  it  relies  in  the  first  place  on  the 
appreciation by a company of what is the appropriate diversity and on the 
trade-off  between  diversity  and  expertise.  Most  companies  do  not  provide 
details  on  their  recruitment  practices.  A  measure  focusing  on  recruitment 
alone without sufficient consideration for transparency aspects might not be 
enough to bring more diversity to the board.  

There  should  be  no  direct  additional  costs  for  companies.  There  could  be 

77 

 
(compliance costs) 

indirect  costs  linked  to  internal  processes  and  to  remuneration  of  HR 
specialists  or  head  hunters  involved  in  the  recruitment  procedures. 
However,  these  costs  are  difficult  to  estimate  and  may  vary  from  one 
company to another. 
As for the previous option, it could be argued that this option could have a 
negative  impact  on  the  pool  of  people  available  for  Board  membership  as 
there may not be enough experienced women or men sufficiently diverse for 
the  boardrooms  of  companies.  However,  as  already  mentioned,  many 
qualified  women  cannot  for  the  time  being  reach  leading  positions  in 
companies. In addition, defining diversity as one of selection criteria leaves 
great flexibility to companies.  

Acceptability to 
stakeholders 

As  regards  measures  on  recruitment  the  opinion  seems  almost  equally 
divided  between  those  favouring  specific  recruitment  measures  to  ensure 
that boards are suitably diverse and those opposing to them. 

Although  most  respondents  to  the  public  consultation  recognised  the 
importance  of  having  diversity  in  the  boards,  in  terms  of  expertise,  skills, 
background,  gender,  etc.,  some  were  against  regulation  at  EU  level, 
considering  either  national  level  as  more  appropriate  or  even  that  the 
company  should  have  the  freedom  to  decide  alone  on  such  issues,  for 
instance  through  its  nomination  committee.  Many  respondents  who  were 
against  specific  recruitment  policies  considered  that  "one  size  fits  all" 
principle should not be applied in the present case. 

This option could also have a positive impact on the competitiveness of the 
companies,  as  enhanced  transparency  and  therefore  enhanced  diversity 
would be beneficial to them. However, in terms of the pursued objective it 
would  rely  on  the  appreciation  by  a  company  of  what  is  the  appropriate 
diversity,  while  there  may  be  potential  indirect  costs  with  an  impact  on 
companies 'competitiveness. 

Competitiveness 

Coherence 
other 
initiatives 

with 
EU 

This  option  seems  also  consistent  with  the  separate  initiative  aiming  at 
introducing  quantitative  measures  for  gender  balance.  The  obligation  to 
consider diversity as one of the selection criteria could be complementary to 
quantitative measures. 

Impact 
on 
fundamental rights 

This option would also have a positive direct impact on certain fundamental 
rights, i.e. on the freedom to choose an occupation and right to engage in 
work,  on  non-discrimination,  on  equality  between  women  and  men; 
however as already mentioned above it will rely only on the appreciation of 
the company, as the transparency rules will not necessarily change in order 
to allow for more public scrutiny. In addition, as companies would have to 
put  the  diversity  criteria  at  the  same  level  as  expertise  for  the  recruitment 
for  board  position,  this  option  would  have  an  impact  on  the  freedom  to 
conduct  a  business.  In  particular  it  may  have  a  limiting  effect  on  the 
entrepreneurs  and  shareholders'  right  to  exercise  their  freedom  to  conduct 
their activities and nominate the board members. 

Option 3 – Requirement to establish a policy with regard to diversity 

According  to  this  option  companies  would  be  required  to  establish  a  policy  concerning 
boards'  diversity.  This  means  that  the  board  would  have  to  establish  measurable  objectives 

78 

 
for achieving diversity (targets) and to assess annually both the objectives and the progress in 
achieving  them.  Companies  might  also  be  required  to  introduce  appropriate  procedures  to 
ensure  that  the  policy  is  implemented  properly  and  an  internal  review  mechanism  to  assess 
the effectiveness of the policy.  

Effectiveness  

(increase of 
diversity) 

This  option  could  be  a  useful  tool  to  promote  diversity  on  boards,  as  it 
obliges  companies  to  set  up  a  diversity  policy,  while  leaving  a  sufficient 
degree  of  flexibility  to  adjust  the  policy  to  different  characteristics  of  the 
company.  

However, the effective implementation of this principle relies mainly on the 
companies  itself  and  on  the  external  scrutiny  by  shareholders.  If  the 
company's diversity policy does not benefit from enough transparency or it 
is not given sufficient visibility, the monitoring of its implementation can be 
difficult. Companies would not have appropriate incentives to really address 
and implement it properly. It appears therefore that this approach could not 
be  a  stand-alone  option  but  would  have  to  be  combined  with  a  disclosure 
requirement. 

There  are  no  significant  direct  costs  linked  to  this  option.  There  could  be 
indirect  costs  linked  to  internal  processes  and  the  recruitment  and 
remuneration of HR specialists or head hunters that will search for required 
diversity, as specified in the policy. Yet, these costs are hard to estimate and 
will  vary  from  one  company  to  another.  Also,  to  achieve  the  objective  of 
diversity,  some  companies  may  have  to  increase  the  number  of  board 
members.  This  could  lead  to  additional  costs  for  the  remuneration  of 
additional  directors  needed.  The  European  average  remuneration  of 
directors was 83, 500 euro in 2009, ranging from 110, 000 in Germany until 
25 000 in Austria197. However, it is difficult to estimate the exact amount of 
this cost, as companies may also choose to replace existing board members 
to achieve the diversity objective.  

The  results  of  the  public  consultation  show  that  while  majority  of 
respondents  are  in  favour  of  more  diversity  on  boards,  they  favour  in 
general a flexible and principle based approach. In particular companies and 
business  federations  seem  against  any  measures  of  a  more  binding  nature. 
Exchanges  that  the  Commission  had  with  companies  suggest  that  a 
requirement to adopt an obligatory diversity policy, although leaving a great 
degree  of  flexibility,  could  be  perceived  by  companies  as  a  form  of 
interference  in  their  internal  processes.  It  could  therefore  potentially 
generate  a  negative  reaction  of  companies  subject  to  this  requirement. 
Companies could then tend to limit their action in this field to a mere box 
ticking. 

This option, despite its effectiveness in achieving a diverse board, it is less 
flexible  than  other  options.  It  could  be  perceived  as  an  interference  in  the 
internal processes of companies and more burdensome as it could generate 
some  additional  costs.  From  this  perspective,  the  proposed  requirement 
could  potentially  have  an  impact  on their  capacity  to  compete  on  a  global 
scale. 

Efficiency 
(compliance costs) 

Acceptability to 
stakeholders 

Competitiveness 

197  See Heidrick & Struggle 2009, p. 16 

79 

 
                                                 
Coherence 
other 
initiatives 

with 
EU 

This  option,  which  obliges  companies  to  set  their  own  diversity  targets, 
could  be  less  coherent  with  the  separate  initiative  setting  concrete 
quantitative objectives for gender balance. Companies would be able to set 
their own targets only for the other aspects of diversity. 

Impact 
on 
fundamental rights 

This option would have a positive direct impact on some fundamental rights 
(freedom  to  choose  an  occupation  and  right  to  engage  in  work;  non-
discrimination;  equality  between  women  and  men),  whereas  on  other  (the 
freedom to conduct a business) it may have a restrictive effect, namely on 
the  entrepreneurs  and  shareholders'  right  to  exercise  their  freedom  to 
conduct a business and nominate the board members. 

3   COMPARATIVE ANALYSIS OF OPTIONS 

Option 0 (no policy change) does not seem to be the most appropriate approach to reach our 
objective and tackle the problem of insufficient diversity of boards. In the absence of action at 
EU level progress will remain slow, while divergences between legal frameworks in Member 
States will most likely increase. The voluntary measures taken individually by companies so 
far  have  and  will  continue  having  a  positive  impact,  but  their  added-value  is  marginal 
compared to other options. Moreover, not all the aspects of diversity may benefit of the same 
progress as gender diversity, which has been increasingly under public focus and debate.  

Option 1 (disclosure of the diversity policy) appears to be, at this stage, the best approach 
over all to encourage companies to have more diverse boards. This option, compared to the 
baseline scenario, would enhance companies' transparency as regards their diversity practices, 
while improving the board diversity as such.  

Disclosure  of  the  diversity  policy  exercises  indirect  pressure  on  companies  to  adopt  more 
ambitious policies and, compared to option 3, offers in addition a great deal of flexibility to 
companies.  It  would  also  enable  investors  to  make  more  informed  decisions.  This  option  is 
better  accepted  by  most  stakeholders  compared  with  a  compulsory  diversity  policy  or  to  an 
action  focusing  only  on  recruitment  policy198.  However,  it  should  also  be  considered  that 
companies  may  choose  not  to  commit  to  increase  board  diversity  and  to  put  in  place  any 
diversity  policy  and  rather  give  an  explanation  why  this  was  the  case.  On  the  other  hand, 
examples of measures in favour of gender balance taken in Finland and Sweden can illustrate 
the  effectiveness  of  enhanced  transparency.  In  Finland,  the  Corporate  Governance  Code 
recommends that both genders should be represented on the board. Companies which do not 
follow this recommendation, must report the deviation and give detailed reasons for it in their 
corporate governance statement. The general experience is that most companies are reluctant 
to depart from the Code due to the publicity of the departure. The disclosure duty has proved 
to  be  an  efficient  way  to  increase  the  number  of  women  directors,  especially  because  the 
Finnish media has actively followed the development and supported change. Indeed, whereas 
in 2008, when the Code was issued, only 51 per cent of Finnish listed companies had a female 
board  member,  in  spring  2011  the  number  of  companies  with  at  least  one  woman  board 
member rose to 78 per cent. This can be seen as a success as the change from 51 to 78 per 
cent happened in three years and without much controversy199. 

198  See  to  this  effect  the  feedback  statement  to  the  Green  Paper  on  Corporate  Governance  Framework  above 

mentioned. 

199  See Finland Chamber of Commerce, 'Men lead business operations of listed companies  – Women end up in 

support functions', 2011, p. 15. 

80 

 
                                                 
In  Sweden  the  accounting  act  has  imposed  in  2004  on  companies  a  duty  to  provide 
information  on  gender  distribution  on  their  top  level  positions.  That  information  is  required 
concerning  board  members,  the  managing  director  and  other  members  of  a  company’s 
management.  Since  the  introduction  of  this  requirement  the  proportion  of  female  board 
members in listed companies has notably increased, from 18% in 2003 to 26% in 2010.  

In addition, it seems particularly coherent with the separate Commission initiative introducing 
quantitative targets for gender balance on boards, as the enhanced disclosure would probably 
contribute  to  a  better  implementation  of  the  quantitative  objectives.  It  would  also  have  a 
positive impact on fundamental rights. It would in addition tackle the "group think" problem 
described above from a more general perspective, as it would bring more diversity in terms 
not only of gender, but also of educational and professional background, age, nationality, etc., 
while allowing companies to adapt their boards to the needs they have, the sector of activity, 
as well as the markets they are active on. 

 Option  2  (diversity  as  one  of  the  criteria  for  the  selection  of  board  members)  would 
therefore  encourage  companies  to  improve  their  current  recruitment  practices,  by  obliging 
them  to  take  better  account  of  the  need  for  sufficient  complementarity  and  diversity  of 
profiles of board members. Compared to the baseline scenario it would have a positive impact 
on  diversity  as  such,  but  to  a  lesser  extent  on  the  transparency  of  the  selection  of  the 
candidates. In this respect, it relies mainly on the appreciation that the company will make of 
the  appropriate  balance  between  expertise  and  diversity.  It  would  entail  very  limited 
administrative  burden,  however,  as  shown  by  the  results  of  the  consultation,  it  is  also  an 
option  less  accepted  by  shareholders.  It  seems  coherent  with  the  separate  initiative  on 
quantities measures for better gender balance. 

A culture of diversity could be reflected in a diversity policy. By obliging companies to set up 
such a policy, option 3 (requirement to establish a policy with regard to diversity) could 
contribute to improving the overall diversity of the boards of companies. However, if on the 
one  hand,  this  policy  would  leave  flexibility  to  companies  in  designing  the  diversity  policy 
adapted  to  their  needs  and  their  characteristics, on  the  other  it  is  more  prescriptive  than  the 
other options. Although it would not put excessive burden on them, this option could generate 
some  additional  costs  linked  to  a  possible  increase  of  the  size  of  the  boards.  Moreover,  an 
obligatory diversity policy seems at that stage less accepted by stakeholders. 

Taking into account the above comparison of options, the preferred policy option appears 
to be option 1 (disclosure of the diversity policy).  

81 

 
 
Annex VIII 

Estimation of Administrative burden of broad policy options 

1.  Transparency of Non-Financial Information 

The  cost  estimates  described  below  are  based  on  the  available  public  data,  as  well  as  on 
evidence  gathered  by  the  Commission  services  in  the  various  consultations  (online  public 
consultation, ad hoc expert group, bilateral contacts with stakeholders). Moreover, the Centre 
for  Strategy  and  Evaluation  Services  (CSES)  was  contracted  to  produce  a  study  on 
"Disclosure  of  Non-Financial  Information  by  Companies".  This  research  paper  includes  a 
survey-based cost assessment.  The sample covered 71 EU companies of all sizes established 
in  eight  different  Member  States200,  covering  sectors  such  as  food,  consumer  products, 
banking  and  financial  services,  manufacturing,  utilities  and  mining.  The  full  version  of  the 
study is available at [TO BE COMPLETED]  

The scope of companies' recurring costs closely depends on the content of the requirement, as 
well  as  on  how  they  choose  to  disclose  relevant  information.  Therefore,  and  due  to  the 
qualitative  nature  of  the  measures  potentially  to  be  implemented,  all  the  figures  provided 
should be considered as estimates and a fair amount of uncertainty needs to be included in the 
numbers  provided.  Moreover,  this  annex  does  not  take  account  of  the  benefits  potentially 
stemming from the proposed measures.  

Option 0: No change 

Companies would not be forced to incur additional administrative burden or costs.  

Option 1: Strengthen the existing disclosure requirement  

There  would  be  increased  administrative  burden  in  line  with  the  scope  of  the  policy,  as  the 
disclosure of the material information required by Option 1 is likely to be more costly than the 
current  reporting  requirement.  Firstly,  a  mandatory  disclosure  provided  in  compliance  with 
the  criteria  set  out  by  Option  1  may  add  to  the  length  of  annual  reports,  as  the  quantity  of 
information disclosed would most likely be broader than the current practice. However, one 
should  bear  in  mind  that  Option  1  is  merely  strengthening  an  already  existing  legislative 
requirement.  Therefore,  one  should  assume  that,  despite  only  a  minority  of  companies 
currently disclose non-financial information, most companies should already have process and 
systems  in  place  to  assess  whether  non-financial  information  is  relevant  and  disclosure  is 
appropriate.  

The  costs  that  companies  may  incur  in  relation  to  the  business  as  usual  scenario  would 
consequently be limited to the additional disclosure. This may concern in particular drafting, 
publication, or specific staff training in some cases.  

In  line  with  previous  estimations  made  by  the  Commission  services  for  comparable 
disclosures  (i.e.  disclosure  of  existing  policies  within  the  Annual  Report)  the  cost  of  such 
disclosure can be estimated to be between ~ € 600 and 1000 euros  per year per company201. 

200  The  sample  covered  the  following  Member  States:  Denmark,  Germany,  Spain,  France,  Italy,  Netherlands, 

Poland and United Kingdom. 

201  See Impact Assessment on the Commission proposal on the access to the activity of credit institutions and the 
prudential supervision of credit institutions and investment firms and amending Directive 2002/87/EC of the 

82 

 
 
 
 
 
 
 
 
 
                                                 
According  to  other  sources,  the  administrative  burden  for  companies  choosing  to  disclose 
their non-financial policies in the Annual report or in an appendix to it could amount to up to 
~ € 4,300 (typically spend about two working weeks-time) 202. This figure would also factor in 
the collection of additional data necessary to disclose specific information concerning a given 
non-financial  policy.  On  the  contrary,  according  to  the  same  source,  companies  opting  to 
provide a statement explaining that they do not have a specific policy in a certain area would 
instead normally spend two working days preparing this statement, corresponding to about € 
871 per company.  

On  this  basis,  the  Commission  services  estimate  that  the  cost  of  a  disclosure  comparable  to 
that described under option 1 could vary in a range between € 600 per year per company and 
~  €4,300  per  year  per  company.  Moreover,  such  estimates  should  be  considered  valid  in 
particular for first time-reporters. There is evidence that such costs could decrease  from the 
second  year  onwards203,  although  no  precise  estimates  can  be  provided  in  this  respect.  All 
figures above are estimated in accordance with the EU Standard Cost Model.  

As  far  as  verification  is  concerned,  Option  1  would  not  add  any  additional  requirement 
compared to the baseline scenario. The increase in the quantity of information disclosed may 
nevertheless slightly increase the cost of such verification. This would depend on the actual 
disclosure, and is estimated to be a negligible increase of the overall verification costs.   

Option 2a: Require detailed reporting on a mandatory basis 

The  administrative  burden  carried  by  this  option  would  undoubtedly  be  higher  than  under 
Option  1,  and  carry  significant  costs  compared  to  the  business  as  usual  scenario,  where 
detailed reporting is voluntary. According to the CSES study, the total cost of disclosing non-
financial information in the form of a detailed report for large companies can be estimated to 
be  in  the  range  of  €155000  to  €604000 204  per  year  per  company,  with  a  cost  per  employee 
varying between €3 and €13.  

Such estimate include costs relating to the drafting of the report, its publication, additional ad-
hoc data collection costs, annual costs such as training as well as potential external assurance.  
.The cost of drafting the report could in itself amount to between €91000 and €331000. As far 
as verification is concerned, Option 2 would not change the baseline scenario, as companies 
would be left free to decide whether to provide a form of assurance or not. External voluntary 
assurance  may  also  represent  an  important  part  of  this  cost,  varying  between  €22000  and 
€114000 205. The costs estimates provided by the CSES study can be summarised as follows: 

Cost heading 

Large companies 

Low 

High 

Notes 

European  Parliament  and  of  the  Council  on  the  supplementary  supervision  of  credit  institutions,  insurance 
undertakings and investment firms in a financial conglomerate (CRD IV), Administrative burden for credit 
institutions 
185 
http://ec.europa.eu/internal_market/bank/docs/regcapital/CRD4_reform/IA_directive_en.pdf  

supervisors, 

and 

p. 

202       http://www.csrgov.dk/graphics/publikationer/CSR/CSR_and_Reporting_in_Denmark_2nd_year_2011.pdf 
203       Ibid. 
204  CSES, 2011, p. 26 and 32 
205  Companies surveyed were asked to provide an estimate, to the nearest thousand, on assurance costs related to 

the drafting of the non-financial report.  

83 

 
 
 
 
 
                                                                                                                                                         
Report drafting 

€91000 

€331000 

Depends  on  the  complexity  of  the  company. 

Smaller  companies  tend  to  be  closer  to  the  lowest 
range.  

Publication 

€34000 

€131,000 

Depends  on  the  publication  strategy  used  (  high 
number of printed reports, dedicated website) 

External 
assurance 

€22,000 

€114,000 

Typically larger companies only 

Additional data 

€8000 

€23000 

Typically larger companies only 

Training etc 

€0 

€5000 

Typically larger  companies only 

All estimations are made in accordance with the EU Standard Cost Model 

In general terms, the above-mentioned figures may depend on the complexity of a company 
and  its  operations  and  would  also  be  likely  to  be  at  the  higher  range  in  the  first  period  of 
implementation of a potential legislation, or for first time reporters, while decreasing over the 
years. Some of the experts consulted206 agreed that set-up costs could be substantial but also 
considered the importance of long-term investment in view of better management, control and 
information tools, arguing that such costs would decrease over time. 

According to other estimates207, the cost of producing a comparable detailed report could vary 
 the company. Moreover, the cost of 
between €33000 and €357 000, depending on the size of
verification  of  such  reports  could  amount  to  an  additional  €7200  to  €100000,  depending  on 
the  size  of  the  organisation  as  well  as  the  type  of  certification  required,  the  amount  and 
complexity  of  data  analysed,  the  nature  of  a  company's  activities  and  their  technical 
complexity.  

On the basis of the figures collected, the cost of a full mandatory reporting obligation could 
therefore be roughly estimated in a range varying between €33000 a nd €604000 per year per 
company, including verification costs.  

Option 2b: Require detailed reporting on a "comply or explain" basis 

Such  option  would  require  companies  to  comply  with  the  same  content  requirement  as 
defined in Option 2a. However, it would also leave companies the flexibility to choose not to 
provide a report, provided that a reasoned explanation is given in the form of a disclosure in 
the Annual Report.  

On  this  basis,  the  same  considerations  made  under  Option  2a  above  would  be  applicable  to 
companies opting  for  full compliance. Companies opting instead for a reasoned explanation 
would have to bear only the costs related to this specific disclosure. This can be estimated to 
be comparable to the cost of an additional statement in the Annual Report, i.e. between ~ € 
600  and  €1000  per  year  per  company.  Accordi ng  to  an  assessment  made  by  the  Danish 
government, a comparable disclosure would cost around € 871 per company 208. 
Option 2c: Detailed report on a voluntary basis 

206  See 

minutes 

ad-hoc 
http://ec.europa.eu/internal_market/accounting/docs/11072011_minutes_en.pdf 

group  Meeting 

expert 

the 

of 

of 

11 

July 

2011, 

207  Data provided to the Commission Services by the French government, based on assessment made on relevant 

requirements in French legislation  

208  http://www.dcca.dk/graphics/publikationer/CSR/CSR_and_Reporting_in_Denmark.pdf p 18. The businesses' 
recurring costs depend on the type of reporting chosen and vary between EUR 871 and 4,383 per business. 

84 

 
                                                 
Under such option, detailed reporting would remain completely voluntary. As a consequence, 
this  option  would,  by  definition,  carry  no  additional  administrative  burden.  Moreover, 
companies  deciding  to  provide  such  report  on  a  voluntary  basis  would  be  exempted  from 
other relevant disclosure requirements (such as those described under Option 1) provided that 
certain  specific  conditions  are  met.  As  for  the  costs  incurred  by  companies  to  provide  a 
voluntary report, the same considerations made under Option 2a above would be applicable.  

Option 3: Set up a mandatory EU Reporting Standard  

Option 3 would maximise the compliance costs, as companies would not only have to carry 
the  burden  of  producing  reports  on  a  mandatory  basis,  but  would  also  have  to  do  so  in 
compliance with an harmonised set of rules and KPIs. A precise estimate cannot be given, as 
it would depend on the content of a potential standard. However, according to the majority of 
the  preparers  surveyed,  the  additional  costs  that  companies  would  have  to  bear  in  order  to 
comply  with  Option  3  would  be  significant  and  would  include  integrating  specific  systems 
and  practices,  training  of  staff,  collection  and  consolidation  of  additional  information 
specifically  related  to  the  standard.  It  is  therefore  estimated  that  the  costs  of  producing  a 
report  under  Option  3  would  at  least  be  comparable  to  the  costs  highlighted  for  Option  2a 
above.  With  regard  to  the  costs  related  to  verification,  the  same  considerations  made  for 
Options 1 and 2 above would apply. 

Impact on SMEs  

All  options  analysed  above  are  intended  to  cover  only  companies  having  more  than  500 
employees. As a consequence, no administrative burden would be directly imposed on SMEs. 
Nevertheless,  some  of  the  experts  consulted  by  the  Commission  Services  indicated  that  a 
detailed  reporting  requirement  could  generate  indirect  costs  for  SMEs,  as  these  companies 
may require them to provide specific data (particularly as regards issues related to the supply-
chain  management)  in  order  to  complete  their  non-financial  report.  Although  none  of  the 
proposed  broad  options  would  require  a  specific  disclosure  on  supply-management  aspects, 
potential  side-effects  should  be  taken  into  account  when  assessing  the  overall  cost  of  each 
option.  

Policy Option 

Large Companies 

SMEs 

0. No change 

0 

1. Require a disclosure in the 
Annual Report 

€600 to €4300 

0 

0 

2.a Detailed reporting 
(mandatory) 

€33000 to €604000 

Side effects to be estimated 

2.b Detailed reporting (report or 
explain) 

€33000 
to 
compliance 

€604000 

for 

full 

Side effects to be estimated 

to 

€600 
explanation 

€1000 

for 

reasoned 

85 

 
 
 
 
 
 
 
 
 
 
 
2.c Detailed reporting 
(voluntary) 

0 

0  

3. Set up a mandatory EU 
Standard 

Depending  on  the  complexity  of 
the  standard,  €33000  to  €604000 
or higher 

Side effects to be estimated 

2.  Boards' diversity  
As regards the disclosure of the board diversity policy (the preferred option), it is estimated 
that  the  new  requirement  would  only  have  limited  impact  in  terms  of  adding  new 
administrative  burden.  Current  EU  legislation  already  imposes  to  all  listed  companies  to 
provide  a  corporate  governance  statement,  which  includes  information  on  the  composition 
and  operation  of  management,  administrative  and  supervisory  boards.  The  new  requirement 
would only extend the content of the existing statement by including information on the board 
diversity policy. As the size of an average board is limited, the amount of information to be 
collected and prepared would be limited. The main costs would be linked to the drafting of 
this additional content of the corporate governance statement. Previous estimations made by 
the  Commission's  services209  for  the  preparation  of  a  similar  disclosure  requirement  would 
range between 600 and 1000 euros per year per company.  

The  global  costs  are  more  difficult  to  be  quantified.  They  depend  naturally  on  the  scope 
covered by the measure. As explained below in section 5.4, only large listed companies will 
be covered. The Commission does not have an exact number of large listed companies in the 
EU. However, it has been previously estimated by the Commission that the number of large 
companies using IFRS is around 6100. However, whereas all publicly traded companies are 
required  to  adopt  IFRS  for  their  consolidated  account,  unlisted  companies  can  also  opt  for 
their  use.  In  addition,  not  all  listed  companies  produce  consolidated  accounts.  With  these 
reserves,  we  can  however  estimate  that  the  number  of  companies  covered  would  approach 
6000.  Thus,  on  the  basis  of  this  estimation,  the  total  cost  for  option  1  could  be  between 
3600000 and 6000000.  

Current rules on the corporate governance statement apply to all listed companies, including 
listed  SMEs.  However,  in  order  to  better  respond  to  the  needs  of  small  businesses  and  to 
avoid imposing additional administrative and regulatory burden on them, the new requirement 
would exempt listed SMEs. 

209  See to this effect CRD IV Impact Assessment, Administrative burden for credit institutions and supervisors, 

http://ec.europa.eu/internal_market/bank/docs/regcapital/CRD4_reform/IA_directive_en.pdf 

86 

 
 
 
 
 
 
 
                                                 
Annex IX 

Definitions 

Non-Financial Reporting 

Although no universally accepted definition exists, disclosure of non-financial information is 
commonly  referred  to  as  non-financial  reporting,  ESG  (Environmental,  Social  and 
Governance)  Reporting,  or  sustainability  reporting.  Sustainability  reporting  is  a  broad  term 
used  to  describe  a  company's  reporting  practices  of  its  economic,  environmental  and  social 
performance, although there is no single, universally accepted definition for it. The so called 
GRI (Global Reporting Initiative) Guidelines define sustainability reporting as "the practice of 
measuring,  disclosing  and  being  accountable  to  internal  and  external  stakeholders  for 
organisational performance towards the goal of sustainable development".  

For  the  purpose  of  this  Impact  Assessment,  both  expressions  "disclosure  of  non-financial 
information" and "non-financial reporting" are used. However, different companies may use 
different  terminology  depending  on  their  history,  geographic  location,  or  specific  form  and 
format of their reports.  

Integrated reporting 

No  universally  accepted  framework  for  integrated  reporting  exists  today.  According  to  the 
definition  given  by  the  International  Integrated  Reporting  Council  (IIRC),  "Integrated 
Reporting brings together material information about an organization’s strategy, governance, 
performance and prospects in a  way that reflects the commercial, social and environmental 
context  within  which  it  operates.  It  provides  a  clear  and  concise  representation  of  how  an 
organization demonstrates stewardship and how it creates and sustains value. An Integrated 
Report  should  be  an  organization’s  primary  reporting  vehicle."  See  http://theiirc.org/wp-
content/uploads/2011/09/IR-Discussion-Paper-2011_spreads.pdf 

87 

 
 
 
 
 
 
Annex X 

Bilateral meetings with stakeholders 

1.  AFEP - Association Française des Entreprises Privées 

2.  BASF 

3.  BDA - Bundesvereinigung der Deutschen Arbeitgeberverbände  

4.  BusinessEurope 

5.  CDP – Carbon Disclosure Project  

6.  Confindustria 

7.  Confrontations Europe 

8.  CSR Europe 

9.  Daimler 

10. EABIS – Academy of Business in Society  

11. ECCJ – European Coalition for Corporate Justice  

12. Enel  

13. EACB - European Association of Cooperative Banks 

14. ESBG - European Savings Bank Group 

15. FEE – Federation of European Accountants  

16. GRI – Global Reporting Initiative  

17. Hitachi 

18. IIRC – International Integrated Reporting Council  

19. Institut RSE 

20. JBCE – Japanese Business Council in Europe 

21. Microsoft 

22. Renault 

23. Telefonica 

24. TI – Transparency International  

25. UNPRI – United Nations Principles for Responsible Investment  

26. ZDH - Zentralverband des Deutschen Handwerks                                               

88