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Compromise between the European Parliament and EU Member States on Nonfinancial Reporting

A reported compromise between the European Parliament and EU Member States is the latest twist in the battle for an EU directive on nonfinancial (i.e. social and environmental) reporting. The compromise, which was reached at the end of February, represents a further watering down of requirements on companies relative to the Commission’s draft directive from last year.

The original Commission proposal, made in April 2013, followed a long debate at European level about the desirability of requirements for greater transparency by companies on social and environmental matters. The proposal originally disappointed trade unions and many NGOs, as it applied only to companies with more than 500 employees, allowed companies to pick and choose between different reporting standards, and was based on the “comply or explain” principle. The ETUC for example has spoken out for mandatory reporting for companies on the basis of common standards, and emphasized the need for external auditing and trade union involvement in monitoring compliance, in order to improve credibility in company reporting.

 

However, even the Commission proposal was too much for the business community and some Member States, and reportedly close to dying on a number of occasions. A last-minute compromise however has allowed a watered-down proposal to go through and increased the likelihood of a directive being passed. This compromise reportedly reduces the number of companies covered by two thirds, as only companies with “public interest” (listed companies, banks, insurance companies, etc.) are affected. Secondly, the comply or explain principle has been replaced with a stronger voluntarist approach. Finally, the requirement for integrated reporting, which would include social and environmental information in the company’s annual report, is also reportedly gone. This compromise has left many supporters of mandatory nonfinancial reporting questioning how large a “step forward” will be really taking place on this issue.

 

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