Trust amongst investors and stakeholders will be strengthened by transparency, consistency and comparability in the social and environmental information accompanying company financial statements, says ACCA. The existing provisions entailed in the 4th Accounting Directive left a too broad discretion to companies when deciding whether or not and how to include sustainability information - and its scope - in their reports. As a result, less than 10% of the largest EU companies are currently disclosing such information regularly - and properly, which led to a lack of consistency of reporting practices across the EU and made benchmarking between companies difficult.
The global accountancy body therefore supports the newly published EU executive’s proposals requiring certain large companies to disclose in their annual report a description of their policies, results and risk-related aspects in the areas of environmental, social, and employee-related matters, respect of human rights, anti-corruption and bribery aspects. Given ACCA’s longstanding commitment toward the promotion of equality, we also strongly welcome the requirement for those enterprises to disclose in their corporate governance statement information relating to boards diversity, and fully endorse that companies should rely on internationally-accepted frameworks to do so.
Rachel Jackson, Head of Sustainability at ACCA says: “It is hoped that the latest EU proposals will significantly improve the level of transparency and comparability of corporate non-financial disclosures, as well as encourage companies to operate and plan to a longer time horizon. In addition to having to describe their policies, results and risk-related aspects in specific areas - as required by the EU proposals - , companies should take the opportunity to measure and disclose a comprehensive data set of all material non-financial issues. These should be supported by robust internal systems and the highest levels of governance. This approach will build trust with stakeholders, attract investors and help with the transition to operating in a green economy.”
John Davies, Head of Technical at ACCA adds: “The new EU proposals are consistent with several other current developments which are changing the way that companies report on their activities. These other developments include the new framework being developed by the International Integrated Reporting Council, the revised guidelines being issued by the Global Reporting Initiative, and national initiatives such as the UK’s new Strategy Report. Many companies are already applying sustainability reporting principles in practice and it is important that, to maximise the potential impact of the proposed new EU reporting requirements, they take account of all these developments and practices”.
ACCA welcomes the “report or explain principle” approach entailed in the new proposal but warns against the implementation of such principle.
Rachel Jackson explains, “Further guidance is necessary to reduce any misinterpretation of the new requirements. The Non-Financial Reporting proposal is an opportunity to raise the standard of non-financial disclosure and it would be disappointing if the resulting disclosures were minimal and failed to change corporate behaviour. Simply disclosing a policy is quite straightforward so ensuring fundamental corporate change from these proposals is imperative. The EU now needs to provide information as to how such measures will be enforced, and what would be the consequences of non-compliance.”
In addition, ACCA shares the European Commission’s view that SMEs should not be subject to the new disclosure requirements. Nevertheless, the latter should have the possibility to do so on a voluntary basis should they wish to.
It is now time for public debate. In order to raise awareness and discuss the new measures, Aviva, ACCA and Eurosif - all members of the Corporate Sustainability Reporting Coalition (CSRC)- are organising a high level multistakeholder roundtable entitled ”Non-financial information disclosure: towards a more sustainable and comparable corporate reporting regime?” which will be co-hosted by MEPs Raffaele Baldassarre and Richard Howitt, on the 4th June 2013 at the European Parliament in Brussels.