NGOs call on the EU Commission to clarify the legal framework for corporate sustainability reporting

WHAT: The statement asks the Commission to take action and develop the corporate sustainability reporting framework through the ongoing review of the EU Non-Financial Reporting Directive, for which NGOs are providing specific recommendations. These requests are supported by research studies that evidence the need to specify a mandatory baseline of disclosure requirements and metrics as well as increasingly frequent calls made by the European Parliament, civil society and the investor community for a standardised reporting framework.  

WHY: Currently, there is wide divergence in corporate reporting practices, which leads to a significant gap in the quality and usefulness of the information disclosed by companies. This hinders investor decisions and engagement on sustainability issues (crucial in the Commission’s Action Plan on Sustainable Finance and related legislative files), as well as the role of civil society and public authorities with regard to corporate accountability.

WHO: The list of 27 signatories includes Frank Bold, Amnesty International, WWF, Oxfam, Transparency International, ClientEarth, Global Witness, ShareAction, SOMO, ActionAid, Clean Clothes Campaign, Fair Trade Advocacy Office, among others.

See below a summary of the recommendations put forward by NGOs to clarify and develop the EU legal framework for corporate sustainability reporting.

General framework:

• Require the integration of the non-financial statement into the annual report and provide a clear structure for disclosure of mandatory non-financial information.
• Specify the reporting requirement as regards risks and impacts in the supply chain.
• Strengthen the requirements and guidance on monitoring and enforcement, as well as the requirement for independent verification.
• Expand the application of the reporting requirements to all large undertakings as well as to small and medium enterprises which operate in high risk sectors.
• Integrate into the definition of directors’ duties the obligation of the board to develop both a sustainability strategy and targets.
• Facilitate the centralisation of data in an open data format.
• Specify a strategic and limited set of precise mandatory sector-specific KPIs for companies to report on their major ESG impacts in a standardised and comparable way.

Specific sustainability areas:

• Environment: integrate precise requirements corresponding to TCFD recommendations and, for strategic sectors, define sector-specific mandatory reporting obligations on other environmental factors corresponding with planetary boundaries.
• Human rights: specify clear mandatory requirements for reporting on human rights risks, impacts and their management based on the UNGPs*; allow the establishment of further reporting criteria to particular risks of specific sectors and introduce a requirement for full supply chain disclosure for those companies facing systematic supply chain related human rights risks.
• Anti-Corruption: specify mandatory elements of disclosure on companies’ anti-corruption programmes, implementation and monitoring, as well as require companies to provide real data regarding their structures, lists (and ownership) of subsidiaries, affiliates, joint ventures and other controlled entities.

Note for editors:

* The EU Non-Financial Reporting Directive came into effect this year and requires large listed companies to disclose information on environmental, social, human rights and anti-corruption issues. In particular, the reports should include information on the company’s business model, policies and their outcomes, as well as any risks of severe impacts linked to the company and its supply chains and how these risks are managed. The Directive does not, however, specify which precise information and risks must be disclosed, which undermines the legislation’s objective to increase the relevance, consistency and comparability of information.

* The Sustainable Finance Action Plan was published by the European Commission in March with the aim to reorient capital flows towards sustainable investments and manage risks stemming from climate change, environmental degradation and social issues. The Action Plan has led to the establishment of a Technical Expert Group on Sustainable Finance, several analytical and consultative work by European institutions, related agencies and advisory bodies, as well as three specific legislative proposals on investors’ duties, the development of an EU taxonomy and low-carbon benchmarks.

*UNGPs refers to the United Nations Guiding Principles on Business and Human Rights, a framework endorsed by the United Nations Human Rights Council in 2011, that provide the first global standard for preventing and addressing the risk of adverse impacts on human rights linked to business activity, and continue to provide the internationally accepted framework for enhancing standards and practice regarding business and human rights.

*The statement has been coordinated by Frank Bold, a purpose-driven law organisation coordinating the Alliance for Corporate Transparency Project. For any queries, please contact susanna.arus@frankbold.org.

*The full list of signatories: ActionAid, Amnesty International, Business and Human Rights Resource Centre, Clean Clothes Campaign, ClientEarth, CORE Coalition, E3G, European Coalition for Corporate Justice, Ecologistas en Acción, Ethical Consumer, Fair Trade Advocacy Office, Forest Peoples Programme, Frank Bold, Future-Fit Foundation, Germanwatch, Global Witness, India Committee of the Netherlands, London Mining Network, NeSoVe, Oxfam, Rights and Accountability in Development, ShareAction, SOMO, The Equality Trust, Themis Research, Transparency International, WWF.

You can see the response letter from Mr Valdis Dombrovskis, Vice President of the European Commission here.