Sustainability Reporting EU Directive
The EU Directive on Sustainability Reporting
The European Union has adopted the Directive 2014/95/EU (hereafter “the Directive”) amending the Directive 2013/34/EU on 22nd of October 2014 regarding disclosure of non-financial information by specified large undertakings and groups. This directive aims at introducing non-financial reporting, i.e. sustainability reporting, among large companies within the EU countries. Such report is expected to include company information on the environmental impact, social issues, employees, human rights, anti-corruption and bribery, to the minimum. According to the agenda of the Directive, first reports are expected to be published in 2018.
Undertakings which are required to issue sustainability reports under the Directive are large public-interest companies with more than 500 employees. This adds up to around 6000 companies within the EU. According to the EU Directive 2013/34/EU, namely the “Accounting Directive”, large companies are those which satisfy at least two of the following three criteria: a balance sheet total of EUR 20,000,000; net turnover of EUR 40,000,000; and/or average 250 employees during the financial year. Public-interest entities on the other hand, are governed in the Accounting Directive as bearing one of the following characteristics: an undertaking governed by the law of a Member State which trades transferable securities on a regulated market of any Member State; credit institutions; insurance undertakings; and entities designated by Member States as public-interest entities. Companies which satisfy both of these conditions, and in addition, have more than 500 employees are subject to the sustainability reporting requirements of the Directive.
Despite the fact that the Accounting Directive provides definitions as to which undertakings constitute “large undertakings” and/or “public-interest entities”, Member States may still adopt their own definitions to the extent allowed by the Accounting Directive. However, Member States are encouraged to expand their definitions and thus, ensure widespread applicability of the Directive. It should be noted that the list stipulated in the Directive is non-exhaustive and Member States have the discretion to expand the requirement of sustainability reporting to companies of different sizes and characteristics.
The main content of the reporting requirement is specified in the Directive as a company’s “development, performance, position and impact of its activity, relating to, as a minimum, environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters”. Furthermore, companies are required to provide additional information on their business models, description of the policies pursued (including due diligence) concerning such matters, as well as their outcomes, risk assessments, and performance indicators.
The sanctions to be imposed on companies which fail to perform their reporting obligations is another matter that is within the regulatory power of the Member States. In fact, the Directive abstains from requiring Member States to issue penalties for non-compliance with the Directive by the required companies and leaves it within the discretion power of the Member States to whether or not regulate penalties in their national legislations, and if affirmative, the extent of such penalties.