On 26 June, the European Commission released guidelines designed to help companies disclose relevant non-financial information in a more comparable and consistent way. The aim is to improve corporate performance and boost the transparency of companies' environmental and social information. In this way, the guidelines should encourage businesses to embrace a more sustainable approach.
The new guidelines will help companies fulfil existing EU non-financial reporting requirements. Under these rules, as of 2018 large companies (listed companies, banks, insurance companies and other companies designated by national authorities) with more than 500 employees will have to disclose information on policies, risks and results with regards to environmental, social and employee-related matters. The reporting requirement also cover issues related to respect for human rights, anti-corruption and bribery, as well as diversity on the boards of directors.
The guidelines encourage companies to disclose relevant material information on the actual and potential impacts of their operations, and on how current and foreseeable social and environmental matters may affect the business. The information disclosed is meant to be strategic and forward looking, stakeholder oriented and consistent with other elements in the management report. The guidelines also encourage companies to be fair, balanced and concise in their reporting.
The Commission guidelines provide examples and best practices and build on recent developments including lessons from the UN Sustainable Development Goals, the Paris Climate Agreement and the industry-led Task Force on climate-related financial disclosures set up by the Financial Stability Board. They are voluntary, do not extend the scope of current rules in any way, and do not add any unnecessary administrative burden.
Studies show that transparent companies perform better over time, enjoy lower financing costs, attract and retain talented employees and are ultimately more successful. Well-informed decision processes benefit businesses, which have a much higher chance of success, as well as investors, lenders and other stakeholders. And everybody stands to benefit from companies managing environmental and social challenges in a more effective and accountable way.
Non-financial disclosure is also an essential element in the move towards sustainable finance. It builds on the Commission's goal to develop an overarching and comprehensive EU strategy on sustainable finance as part of the Capital Markets Union project and fits into the on-going work of the Commission's High-Level Group on Sustainable Finance. In the long term, greater and more relevant corporate transparency is expected to lead to more sustainable growth and jobs.