Crossing the Atlantic: the E.U. Directive
The global economy is still struggling to recover from the crisis of 2008, and this has raised interest in the regulation of financial and corporate activity—particularly regarding governance, accountability, and transparency. As a result, more countries are introducing sustainability reporting policies and regulations. Join us for a blog series on these developments to find out how you and your company may be affected by decisions made in the European Union (E.U.), France, and South Africa.
The E.U. Directive
With the changing landscape of global reporting comes the new Directive from the E.U.. The Directive requires the E.U.'s 6,000 largest, publicly traded companies to report on policies, risks, and outcomes in the areas of human rights, employee relations, corruption and bribery, board diversity, and environmental impact.
The Directive was adopted on Sept. 29, 2014, and companies must start reporting no later than 2017. Now, corporate social responsibility (CSR) reporting is mandated for listed companies with 500 or more employees and whose balance sheet exceeds 20 million euros (21 million USD) or turnover is greater than 40 million euros (42 million USD).
What impact does this have on U.S companies?
Large U.S. corporations that are listed on European stock exchanges are also covered by the new E.U. Directive. According to the GA Institute, the 118 S&P 500 companies that are currently not publishing CSR reports and are listed in Europe are directly impacted. This estimate includes consumer-facing companies (26/118), information technology firms (20/118), and industrials (18/118).
The impact downstream
Although companies may not be directly required to report, suppliers and downstream partners of reporting companies will undoubtedly be bombarded with requests for information as companies look to gauge the impact of their activities along the entire value chain.
Questioning guidelines and frameworks
With the numerous ways of reporting CSR information, it's hard to know which framework or guideline to use. The Directive gives flexibility in this aspect, offering the UN Global Compact, ISO 26000, the German Sustainability Code, or the Global Reporting Initiative’s G4 framework as accepted, among others.
However, with no definitive framework, intercompany comparability could be compromised. A company can even use its own framework for reporting, as long as the decision to do so is explained. Nonetheless, the information disclosed should be business-relevant and useful for decision-making purposes by stakeholders. In other words, it must be material.
Best practices from your peers
Today, it's hard to say what will constitute an acceptable report under the E.U. Directive. For this purpose, we can look to other countries with comparable existing mandates.
In our upcoming blogs, we will explore the Grenelle II Act, a similar mandate to the Directive in France, and the Johannesburg Stock Exchange Socially Responsible Investing Index, an initiative by the exchange that parallels South African corporate governance standards.