15 April 2014

EP adopts rules on corporate governance

The European Commission welcomed the adoption by the European Parliament of the Directive on disclosure of non-financial and diversity information by large companies and groups. Companies concerned will need to disclose information on policies, risks and results as regards environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues, and diversity on boards of directors.

The new rules will only apply to large companies with more than 500 employees, as the costs for requiring small and medium-sized enterprises (SMEs) to apply them could outweigh the benefits. In particular, large public-interest entities with more than 500 employees will be required to disclose certain non-financial information in their management reports. The scope includes approx. 6 000 large companies and groups across the EU.

The approach taken ensures that administrative burden is kept to a minimum. Companies will be required to disclose concise, useful information necessary for an understanding of their development, performance, position and impact of their activity, rather than a fully-fledged and detailed report. Furthermore, disclosures may be provided at group level, rather than by each individual affiliate within a group.

Internal Market and Services Commissioner Michel Barnier said: "I am pleased that the European Parliament has adopted this Directive modernising the disclosure of relevant and useful non-financial information by large companies and groups. Companies, investors and society at large will benefit from this increased transparency. Companies that already publish information on their financial and non-financial performances take a longer term perspective in their decision-making. They often have lower financing costs, attract and retain talented employees, and ultimately are more successful. This is important for Europe’s competitiveness and the creation of more jobs. Best practices should become the norm."

Next steps

In order to become law, the Commission's proposal needs to be adopted jointly by the European Parliament and by the EU Member States in the Council (which votes by qualified majority). Following today's adoption by the European Parliament, the Council is expected to formally adopt the proposal in the coming weeks.

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Frequently asked questions

A CCA welcomes endorsement of non-financial reporting and diversity rules by E P

The new rules will apply to public interest entities with more than 500 employees and will require them to report on their social and environmental performance, respect for human rights, anti-corruption and bribery matters.

Richard Martin, head of corporate reporting at ACCA, says: "The Directive is mandating disclosures by these companies on specific issues that are important to the society in which they operate. However it will create a legal environment that is consistent and will provide no obstacle to the more extensive reporting under national initiatives such as the Strategic Report in the UK or Integrated Reporting internationally. ACCA research Understanding Investors, based on a survey of 300 investors, showed strong belief in the importance of non-financial reporting and the value of companies combining financial and non-financial information into an integrated reporting model."

"About 6,000 large undertakings will join companies across the European Union that have already voluntarily chosen to publish their businesses’ impact on society. ACCA strongly welcomes the legislation on non-financial information reporting that underlines the focus on greater corporate transparency and contributes to inclusive and sustainable recovery", concludes Richard Martin.

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© European Commission