A proposal to introduce new sustainability reporting requirements across the European Union (EU) could open the door for a quantum leap in transparency and accountability among European companies, the Global Reporting Initiative (GRI) said recently.

GRI Deputy Chief Executive Teresa Fogelberg said the proposal could be the catalyst needed to usher in “a new era of transparency” in Europe, the largest economic region in the world.

Companies would have to disclose...

The proposal adopted by the European Commission would require large companies to disclose information on the major economic, environmental, and social impacts of their business as part of their annual reporting cycle.

The proposal contains a ‘report or explain’ approach, requiring companies to provide information on their strategy, results and risks in six key areas - environmental, social and employee-related matters, human rights, anti-corruption and bribery. Should a company decide not to disclose information on any of these topics, they would be required to explain why this is the case. Companies that are already producing a standalone sustainability report using recognized frameworks will be considered to have met the requirements.

The ‘report or explain’ approach is designed to allow companies the flexibility to focus on those impacts that are most relevant to their business, as determined in dialogue with their stakeholders, from civil society to investors.

The proposal - presented by European Commissioner for Internal Market and Services Michel Barnier - refers to the GRI’s Sustainability Reporting Guidelines as one of the internationally accepted frameworks companies should use when preparing their sustainability reports, alongside the UN Global Compact and the UN Guiding Principles on Business and Human Rights, among others.

EU joins China, Brazil, US

Fogelberg added: “In recent years countries like India, China, Brazil, South Africa and the US have pioneered a number of innovative policies on sustainability disclosure. This proposal is an opportunity for the EU to position itself at the forefront of best practice and regain its global leadership.”

The proposal is consistent with the principle of materiality as contained within the GRI Guidelines, which encourages companies to include only information that is material to their business. According to the European Commission, at present, fewer than 10 per cent of the largest EU companies regularly produce sustainability reports. Since a ‘report or explain’ policy was implemented in Denmark in 2009, disclosure among large Danish companies has risen to 97 percent.                   

The proposal affects only large companies. Small to medium-sized businesses would be exempt.

In addition to their key sustainability impacts, companies would be required to disclose information on the age, gender, geographical diversity and educational background of Board members, in a bid to improve diversity and combat “group think” among senior executives.