COMMISSION STAFF WORKING DOCUMENT EXECUTIVE SUMMARY OF THE 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 

Strasbourg, 16.4.2013  
SWD(2013) 128 final 

COMMISSION STAFF WORKING DOCUMENT 

EXECUTIVE SUMMARY OF THE 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) 127 final} 

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COMMISSION STAFF WORKING DOCUMENT 

EXECUTIVE SUMMARY OF THE 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 

1. 

INTRODUCTION 

Non-financial  information  is  generally  considered  as  environmental,  social  and  governance 
(ESG) information. This includes information concerning diversity, as a board's composition 
is  an  integral  element  in  the  corporate  governance  of  a  company.  Such  information  can  be 
disclosed  in  the  form  of  a  statement  in  the  annual  reports,  a  separate  corporate  governance 
statement, a separate report, a website, etc.  

The  formal  disclosure  of  ESG  information  is  currently  addressed  in  EU  legislation  by  the 
Accounting Directives1 (hereinafter AD). However, the need to improve transparency in this 
field  has  been  highlighted  in  the  Single  Market  Act2,  and  recently  reiterated  by  the  CSR 
Communication3. This Impact Assessment considers the case for improving the disclosure of 
non-financial information by EU companies as part of a broader set of initiatives on corporate 
governance and CSR aimed at creating a highly competitive social market economy.  

2. 

PROBLEM DEFINITION  

The  Commission  services  have  identified  two  main  issues  concerning  (1)  the  inadequate 
transparency of non-financial information and (2) the lack of diversity in the boards.  

2.1. 

Inadequate Transparency of Non-Financial Information  

Although  a  positive  trend  can  be  observed,  the  majority  of  large  EU  companies  fail  to 
adequately  meet  growing  demand  from  stakeholders  (including  investors,  shareholders, 
employees  and  civil  society  organisations)  for  non-financial  transparency.  Specific  issues 
have been highlighted with regard to both quantity and quality of information available.  

– 

– 

Quantity:  it  is  estimated  that  only  ~  2500  out  of  the  total  ~  42000  EU  large 
companies formally disclose non-financial information on a yearly basis  

Quality: the information disclosed is often lacking in materiality, or not sufficiently 
balanced,  accurate  and  timely.  Specific  information  gaps  are  found  with  regard  to 
material  aspects  concerning  policies  and  risk-management,  as  well  as  on  specific 
topical areas (human rights, corruption). 

The main drivers of this problem are identified in both a market and a regulatory failure:  

Market  failure:  Market  incentives  appear  insufficient  or  uneven.  Although  companies  are 
increasingly under pressure to become more transparent, the benefits related to non-financial 
disclosure are often perceived as long-term and uncertain, while short-term costs are relatively 

1 
2 
3 

Directives 78/660 and 83/349 
"Twelve levers to boost growth and strengthen confidence", COM(2011) 206 
"A renewed EU strategy 2011-14 for Corporate Social Responsibility", COM(2011) 681 

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high  and  easily  measurable.  As  a  consequence,  externalities  of  potential  relevance  remain 
external to businesses’ reporting 

Regulatory failure: The majority of stakeholders consulted considered that the obligation set 
by the AD lacks of clarity, with prejudice for legal certainty. Some Member States' legislation 
already  go  beyond  such  obligation4,  however,  national  requirements  appear  significantly 
diverse, leading to difficulties to benchmark companies across the Internal Market.  

2.2. 

Problem 2: Insufficient board diversity  

Boards  with  members  that  have  a  similar  educational  and  professional  background, 
nationality, age or gender may be dominated by a narrow 'group-think'. Lack of diverse views, 
values and competences may lead to less debate, ideas and challenge in the boardroom. This 
may have a negative impact on the challenge and oversight of the management decisions by 
the board. 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.  

Market  Failure:  Inadequate  levels  of  board  diversity  are  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.  Inadequate  level  of  transparency  on  board  diversity  reinforces  the 
problem.  Information  provided  by  companies  does  not  reveal  the  board's  approach  on 
diversity in the selection process, the objectives envisaged or how they have been reached.  

Regulatory Failure: The market failures have not been sufficiently corrected by appropriate 
regulation.  At  the  EU  level  there  are  no  rules  regarding  specifically  board  diversity  and 
although  some  Member  States  have  adopted  certain  provisions  (i.e.  to  increase  gender 
diversity), there are considerable differences between their approaches.  

Such problems pose further prejudice to specific stakeholders groups (ie companies, investors, 
NGOs,  public  authorities).  They  have  a  negative  impact  on  performance  (companies'  non-
financial risks and externalities are not adequately taken into account); on accountability (as 
companies  cannot  be  held  fully  accountable  for  their  impact  on  society;  efficiency  of 
financial markets (as investors fail to build relevant information into their decision-making 
processes). 

2.3. 

How will the problems evolve without action?  

At  the  global  level,  several  initiatives  provide  non-binding  guidance  for  companies5. 
However,  in  contrast  with  financial  information,  currently  there  is  no  generally  accepted 
standard-setter for non-financial information. Initiatives on diversity are also fragmented and 
improvements  over  time  have  been  limited.  Action  is  needed  as  none  of  the  existing 
initiatives  is  expected  to  yield  in  the  short  term  significant  solutions  to  the  problems 
identified.  

2.4. 

Subsidiarity  

Non-financial  information  is  already  partly  regulated  at  EU  level.  However,  the  diverging 
approaches  taken  by  Member  States  could  determine  even  greater  differences  within  the 
Internal Market, and sustainability-related information appears, by its own nature, as a cross-
national matter. As regards diversity, current initiatives are much fragmented. In the absence 

4 
5 

Including the UK, Sweden, Spain, Denmark and France 
Such as the UN Global Compact, the OECD Guidelines for MNEs, the ILO Tri-partite declaration of 
Principles  on MNEs,  the  ISO  26000,  the UN Guiding  Principles  on  Business  and  Human  Rights,  the 
Global Reporting Initiative 

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of an action at EU level, in many Member States there will be no or very slow progress in the 
coming  years.  Coordinated  action  at  the  EU  level  is  therefore  necessary.  The  Treaty  of  the 
Functioning  of  the  European  Union  allows  action  to  be  taken  to  address  the  identified 
problems6.  

3. 

OBJECTIVES  

The overall policy objective of the proposal is to contribute to the Single Market's potential to 
create  sustainable  growth  and  employment.  More  transparency  is  considered  key  for 
companies  to  deliver  better  results  and  is  expected  to  enhance  the  trust  citizens  have  in 
business and in markets and enable a more efficient allocation of capital. In operational terms, 
the objectives of the proposal would be to  

(1) 

(2) 

(3) 

increase the quantity of information (i.e. number of companies reporting) 

increase the quality of the information disclosed, and  

enhance diversity in the boardroom. 

4. 

POLICY OPTIONS  

4.1. 

Transparency of Non-Financial Information 

In  order  to  meet  the  objectives  set  out  above  the  Commission  Services  have  considered  a 
number  of  policy  options,  based  in  particular  on  the  form,  content  and  reference  of  the 
disclosure and on the nature of the requirement, including: 

(0) 

(1) 

(2) 

No policy change 

Require a non-financial statement in the Annual Report: this option would strengthen 
the existing provision by introducing minimum requirements on the content7 of the 
disclosure. 

Detailed reporting: this option would require companies to provide information in the 
form of a stand-alone report in accordance with International Frameworks. Given the 
potential administrative burden, different kind of requirements have been considered:  

(a)  mandatory  

(b) 

report or explain 

(c)  voluntary. This option would exempt companies choosing to provide a detailed 
report  from  other  disclosure  obligations,  provided  that  such  report  complies 
with specific conditions8.  

(3) 

Set up a mandatory EU reporting standard.  

The table below provides an overview of the analysis of the policy options  

Table 1 – Assessment of the Policy Options 

Effectiveness 

Efficiency 

Competitiveness 

Coherence 

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7 

8 

See Articles 8, 10 and 11 TFEU  
Social, human rights and anti-corruption matters would be added to current reference (environment and 
employees). Within these areas, the disclosure would cover (i) policies, (ii) performance, and (iii) risk-
management,  and  should  rely  on  existing  international  frameworks.  Companies  that  do  not  have  a 
specific policy would be at least required to explain why this is the case 
(i) It covers required content (ii) makes reference to international frameworks and (iii) is annexed to the 
Annual Report. 

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Quantity 

Quality 

(compliance 
cost) 

with EU 
legislation 

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  

0 

+ 

+ 

+/? 

? 

++ 

0 

+ 

++ 

+ 

+ 

+ 

0 

+ 

-- 

- 

+ 

-- 

0 

+ 

+/? 

+/?  

+ 

? 

0 

 +  

+ 

+ 

+  

+ 

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). 

4.2. 

Enhancing boards diversity 

The Commission's services considered a number of policy options, including: 

(0) 

(1) 

(2) 

(3) 

No policy change  

Require  companies  to  disclose  their  board  diversity  policy  with  regard  to  various 
aspects,  including  age,  gender,  nationality  and  educational  and  professional 
background  in  the  corporate  governance  statement  to  be  included  in  the  annual 
report.  

Mandate  companies  to  take  into  account  diversity  as  one  of  the  criteria  for  the 
selection of a board candidate. 

Put on companies a binding obligation to establish a policy concerning diversity for 
boards9. 

It  should  also  be  noted  that  the  option  of  introducing  quotas  has  been  discarded,  as  it  is 
subject of a separate Commission initiative.  

Table 4 – Assessment of the Policy Options 

Effectiveness 

Efficiency 

(Compliance 
Cost) 

Competitiveness 

Coherence with 
EU legislation 

Estimated costs 
per company 

0. No policy change 

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

0 

+ 

0 

+ 

0 

+ 

0 

++ 

0 

€600/1000 

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Companies  would  have  to  determine  the  content  of  this  policy,  establish  targets  and  assess  their 
achievement. 

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2 Diversity must be 
one of the criteria 
of Board 
composition 

3. Requirement to 
establish a policy 
with regard to 
diversity 

+/? 

-/? 

+/? 

+/? 

+ 

- 

- 

-/? 

? 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 

4.3. 

Preferred Policy options  

As  regards  transparency  of  non-financial  information,  having  compared  the  broad  policy 
options, the best alternative appears as a combination of Options 1 and 2c. Companies would 
be required to disclose material information in the form of a statement in their Annual Report. 
Companies  willing  to  prepare  a  detailed  non-financial  report  on  a  voluntary  basis  would  be 
exempted from such obligation, provided that the report meets specific conditions. 

Only large listed and non-listed companies having more than 500 employees would be subject 
to  new  requirement.  It  is  estimated  that  this  would  cover  ~18000  companies.  Subsidiaries 
within a group would be exempted to the extent that their relevant information is integrated in 
the  consolidated  report  of  the  parent  company.  Such  policy  is  expected  to  determine  a 
satisfactory increase in transparency, while keeping the administrative burden low.  

As regards diversity, Option 1 is the preferred option. Companies would have to provide in 
their corporate governance statement information on their diversity policy, including aspects 
concerning  age,  gender,  nationality  and  educational  and  professional  background.  The 
statement  would  present  the  objectives  of  this  policy,  its  implementation  and  the  results 
obtained. Companies not having a diversity policy would only be obliged to explain why this 
is  the  case.  By  enhancing  transparency,  this  option  would  encourage  companies  to  reflect 
more  on  the  issue  and  take  better  account  of  the  need  for  greater  diversity  in  their  boards 
while offering a great deal of flexibility.  

In order to maintain coherence with existing requirements regarding the corporate governance 
statement,  while  avoiding  to  put  additional  burden  on  SMEs,  only  large  listed  companies 
would be required to provide information on board diversity policy. 

5. 

ANALYSIS OF MAIN IMPACTS OF THE PREFERRED POLICY OPTIONS 

5.1. 

Increased transparency  

In  general  terms,  the  preferred  options  would  lead  to  an  increase  in  the  quantity  of 
information available compared to the baseline scenario. As regards non-financial disclosure, 
the  reliance  on  international  frameworks,  should  determine  a  limited  improvement  in  the 
quality  and  comparability  of  the  information  disclosed.  Should  companies  also  decide  to 
voluntarily provide a non-financial report, the level of detail of information disclosed would 
necessarily increase. As regards diversity, the provision would make available, often for the 
first time, information about a comprehensive set of diversity indicators. 

5.2. 

Better companies' performance  

Due  to  the  nature  of  the  proposal,  benefits  are  in  most  cases  difficult  to  quantify. 
Nevertheless,  enhancing  transparency  at  a  limited  cost,  the  proposal  would  have  an  overall 

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positive impact on companies' performance, as non-financial risks and opportunities would be 
better  measured  and  managed.  Better  non-financial  performance  is  then  related  with  lower 
cost of capital; better resources (including human capital) management; consumer loyalty and 
better management.  

Furthermore, transparency would foster more diversity in the boardroom which is expected to 
lead to better oversight of the management by the board and to overall better decision-making 
processes.  

5.3. 

Increased accountability 

Material non-financial information would be made publicly available on a regular basis and 
could be used by civil society organisations and local communities to assess the impact and 
risks related to the operations of a company. More transparent reporting practices could also 
act as a catalyst for companies to increase and improve their CSR performance, or give them 
incentives  to  set  up  CSR  policies  for  the  first  time,  thus  positively  affecting  the  way 
companies are perceived by society. The potential increase in consumers' trust may also have 
a positive effect on the demand side.  

5.4. 

Enhanced efficiency of capital markets 

In  the  short  term  the  proposed  policy  would  respond  to  growing  market-driven  demand  for 
more  comparable  and  accurate 
to  develop  more 
comprehensive  valuation  models.  In  the  long  term,  it  could  consequently  drive  investors  to 
take  better  account  of  sustainability  considerations  and  overall  performance.  In  relation  to 
diversity, the proposed policy would enable investors to take better-informed decisions as to 
the governance practices of the company. 

information,  allowing 

investors 

5.5. 

Increased administrative burden  

The  new  disclosure  requirement  would  be  more  costly  than  the  business  as  usual  scenario. 
Additional costs may relate to drafting, publication, specific staff training or data collection. 
The cost of the proposed disclosure is estimated to be between €600 and €4300 per year per 
company,  thus  generating  a  total  cost  between  10.5  and  75.25  million  euros.  Companies 
choosing to provide a detailed report on a voluntary basis might have to sustain higher costs 
but they would be exempted from the disclosure obligation10.  

The  cost  of  disclosure  of  the  diversity  policy  is  estimated  to  be  between  €600  and  1000, 
generating  a  total  cost  between  3.6  and  6  million  euros.  As  the  preferred  option  would  not 
apply to listed SMEs, its impact should be limited. 

The proposed policy would not introduce new verification requirements. The increase in audit 
costs due to the proposal is expected to be a negligible. 

5.6. 

Other impacts  

5.6.1. 

Social Impacts 

The measure could encourage boards to take higher account of social matters in their business 
strategies.  Increased  transparency  could  also  support  better  employment  relations,  and 
contribute to reducing risks and costs associated with labour conflicts. More transparency on 
diversity at the highest decision-making level of the company could promote more diversity at 
all organisational levels. A more diverse board could better reflect stakeholders' diversity.  

10 

Such  cost  is  estimated  in  a  range  between  €33000  and  604000,  mainly  depending  on  the  size  and 
complexity of the company and its operations 

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5.6.2.  Environmental Impacts 

The  requirement  to  disclose  material  issues  related  to  environmental  policies  and  risk-
management  aspects  is  likely  to  trigger  better  resources'  management  and  internal 
sustainability awareness.  

5.6.3. 

Impact on Fundamental Rights  

It is estimated that the preferred options would have beneficial impact on fundamental rights 
as  they  would  encourage  EU  companies  to  review  regularly  their  policies  and  internal 
procedures in various aspects, due in particular to a larger public scrutiny.  

5.6.4.  Other Economic Impacts 

The  measure  will  not  have  meaningful  budgetary  consequences  for  public  authorities,  nor 
implications for the EU budget.  

5.6.5.  Third countries and international aspects 

The  proposed  policy  would  put  the  EU  in  a  leading  position  at  global  level.  It  would  be 
consistent  with  other  third-countries  initiatives,  and  potentially  trigger  their  further 
development.  No  significant  effects  on  trade  flows  with  third  countries  were  identified  nor 
signalled.  

6. 

MONITORING AND EVALUATION 

The  Commission  will  monitor  the  implementation  of  the  revised  Directives  in  cooperation 
with  the  Member  States  throughout  the  implementation  period.  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 evaluation of effects 
of  the  preferred  policy  shall  be  carried  out  to  see  to  what  extent  the  anticipated  impacts 
materialise. 

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