| Corporate Transparency |
 Eurosif's Position on Corporate Transparency It is Eurosifâs stance that European institutions should mandate disclosure of environmental, social, and governance (ESG) data by publicly traded, large corporations. Such reporting would be principles-based and use a limited number of standardised Key Performance Indicators (KPIs), some of them being sector-specific. Principles of ESG Reporting Eurosif welcomes the work done by several organisations on improving corporate reporting and disclosure. Eurosif supports the work done in 2009 by the International Corporate Governance Network (ICGN) which details principles under which ESG reporting should:
Eurosif recommends that those reporting principles should be integrated into the existing Fourth Council Directive on accounts modernization so that it appears in the annual reports. Eurosif also supports the corporate reporting framework developed by the Global Reporting Initiative (GRI). The Guidelines contain principles and guidance as well as standard disclosures (including indicators) to outline a framework that companies can adopt voluntarily and flexibly. More information about the GRI Guidelines can be found on the GRI website. Key Performance Indicators With regards to standardised key performance indicators (KPIs), Eurosif believes that most KPIs would need to be sector-specific. A number of existing initiatives have produced interesting results in terms of KPIs (see the Greenhouse Gas Protocol, the European Federation of Financial Analysts Societies - EFFAS, the non-financial performance lab by the European Alliance for CSR and the sector additions of the GRI). In particular, EFFAS developed sector-specific KPIs for a limited number of industries, as well as a methodology for defining industry-specific KPIs that any third party can use. More information about the EFFAS methodology can be found at the following link. Making the Case Currently, the EU Modernisation Directive states: "To the extent necessary for an understanding of the company's development, performance or position, the analysis shall include both financial and, where appropriate, non-financial key performance indicators relevant to the particular business, including information relating to environmental and employee matters;" Nevertheless, at the current time, this requirement has not been readily enforced nor have companies disclosed substantive ESG information that could help investors. Eurosif believes that European institutions should make reporting on ESG data no longer an option subject to interpretation but a requirement. It is increasingly understood that financial statements capture less than 20% of corporate risks and value creation potential, with the balance deriving from intangible factors such as human capital and resource efficiency. ESG data are relevant, material information that investors should have and increasingly want as a means to better gauge longer term risks and opportunities. It is therefore important that companies provide an overview of all major risks and detail the most important ones. Currently, regulators and stock exchanges in numerous jurisdictions around the world â including France (loi NRE, article 116 and the 2010 Grenelle Law review, articles 224-226), Brazil, Malaysia, South Africa, Sweden and very recently Denmark â have mandated or encouraged the disclosure of such data. In the United States, mandatory disclosure is currently being promoted by investors to the Obama administration and the US Environmental Protection Agency has now proposed a draft mandatory greenhouse gas reporting rule for US corporate facilities. Therefore, the EU would retain its leadership on sustainability issues by mandating disclosure of ESG data by publicly traded large corporations. Eurosif's Initiative To push these ideas forward, Eurosif co-organised in April 2009 with member affiliate FEE (Federation of European Accountants) a Roundtable discussion on âSustainability Disclosureâ with a keynote speech provided by MEP Richard Howitt, European Parliament Rapporteur on Corporate Social Responsibility, and a Roundtable panel with high level experts. An immediate outcome of the roundtable was the European Commissionâs announcement by Pedro OrtĂșn (Director of DG Entreprise), that it would organise a series of workshops on the subject of âsustainability disclosureâ in 2009 and 2010. By March 2010, a series of 6 workshops were organised and more information can be found on the EC Website. As an Official Member of the Coordination Committee for the European Multistakeholder Forum on CSR, Eurosif participated in the workshops and represented the investorsâ point of view. The outcomes of these workshops contribute to shaping a regulatory decision about how to better include ESG disclosures into company annual reports. Consultation on EU Corporate Governance Framework (in listed companies) (2011) Between April and July 2011, the European Commission held a public consultation to address key issues on corporate governance in listed companies. The consultation was held by European Commission's DG Internal Market and Services following the publication of a Green Paper on Corporate Governance and addressed a series of topics on board of directors, shareholders and the 'comply-or-explain' approach. The objective of the Green Paper was to have a broad debate on the issues raised. It allowed all interested parties to see which areas the Commission has identified as relevant in the field of corporate governance. It was also an opportunity for interested parties to express their views on the questions raised, and to provide any relevant material. Finally, the Green Paper allowed to flag items the Commission has not considered so far. Eurosif has submitted a response to this consultation process, reinforcing some of its lobbying positions:
Download Eurosif's Response to the consultation on Corporate Governance in Listed Companies. More information on the Green Paper on Corporate Governance in Listed Companies can be found on the EC website. Â Â Consultation on Non-Financial Reporting by Companies (2011) Between November 2010 and January 2011, the European Commission launched a public consultation in order to gather stakeholdersâ views on ways to improve the disclosure by enterprises of non-financial information. The current EU legislation addresses the issue of disclosure of non-financial information. The Fourth Company Law Directive (CLD) on annual accounts was amended in 2003 to require companies since 1 January 2005 to include, where appropriate, information (key performance indicators - KPIs) relating to environmental and employee matters in their annual report to the extent necessary for an understanding of the company's development, performance or position. Member States, however, may exempt small and medium-sized companies from this disclosure obligation. Some Member States, including Denmark and France, have introduced social and environmental disclosure requirements that are more far-reaching than the amended Fourth Company Law Directive. Â The EC acknowledges that the disclosure of non-financial information is important in the context of the current crisis and the challenge of sustainable development. Better disclosure of non-financial information can be a tool to further increase the number of European enterprises fully integrating sustainability and responsibility into their core strategies and operations in a more transparent way. Â The Consultation addressed a series of issues such as: possible ways to improve the current reporting framework (principles and key performance indicators), risk management reporting and ESG disclosure by institutional investors. Â Eurosif responded to this Consultation process, reinforcing some of its ongoing lobbying positions:
Download Eurosif's Response to non-financial reporting consultation (EN, PDF). More information about the consultation on non-financial reporting can be found on the EC website.
Towards a Single Market Act (2011) The European Commission adopted the Single Market Act on October 27, 2010. It consists of 50 policy proposals to be submitted to public debate over a 4-month period running up to February 28, 2011. Following the results of this consultation, the Commission will propose to seal the commitment of the other European Institutions on a final version of the Single Market Act and will publish a definitive list of policy proposals for 2011-2012. Eurosif responded to this consultation in order to ensure that the integration of environmental, social and governance (ESG) aspects in investment and business practices will be a priority in the 2011-2012 EU policy proposals. In its Response, Eurosif makes a series of recommendations on corporate governance, pensions, retail investment, SME access to finance and energy efficiency. Download Eurosif's response to the Single Market Act Consultation (PDF). To read more about the Single Market Act, click here.   Transparency Directive (2004-2010) The Transparency Directive was adopted in 2004 with the aim of improving the information available to investors on companiesâ performance and financial position as well as on changes in major shareholdings. Under the Directive, all securities issuers are to provide annual financial reports within four months after the end of the financial year. Investors in shares are to receive more complete half-yearly financial reports. Issuers who do not publish quarterly reports will need to provide quarterly management statements, while bond issuers will also be required to publish halfyearly reports. Eurosif saw the Transparency Directive as an opportunity, albeit challenging, to address ESG considerations in a harmonised fashion across Europe. Eurosif proposed an amendment to the Directive which asked for companies to report in their annual reports on the non-financial risks that their businesses face. The Directive itself passed in the first reading of the European Parliament in April 2004. However, in a close vote, the Economic and Monetary Affairs Committee (EMAC) voted against the proposed amendment to include ESG criteria as part of what companies have to report. This is in part due to the notion that âmaterial non-financial riskâ and greater ESG transparency were relatively new concepts to many of the ministers at the European level, and therefore, there was concern in how ESG criteria would be defined. In 2010, the European Commission launched a Consultation on the Modernisation of the Transparency Directive, in order to address a series of issues among which the disclosure of ESG information by companies. On August 23, 2010, Eurosif submitted a Response to the Consultation process, currently available in the Positions section. To read more about the Transparency Directive, go to: http://ec.europa.eu/internal_market/securities/transparency/index_en.htm  Corporate Governance Statement (2005-2006) (Draft Directive on the âAmendment concerning the directive on annual accounts of certain types of companies and consolidated accountsâ) In 2005-2006, Eurosif closely followed the development of the European Commissionâs âCorporate Governance Annual Statementâ for companies. Meant to be the equivalent of the US Sarbanes Oxley legislation, the âAnnual Statementâ was hotly contested by MEPs as there was concern that this would add on another layer of costly legislation for companies in the EU. Nevertheless, the Directive was adopted. Eurosif proposed an amendment to ask that companies, when preparing their âAnnual Statementâ, be required to address ESG issues that were material risks to the business. This proposal was viewed as a helpful means to tie Corporate Governance to Sustainability issues by placing social and environmental risks in the context of corporate governance issues faced by companies. The proposal was debated at length, and eventually made into a recommendation (ârecitalâ) rather than an enforced requirement. As it stands now, the legislation suggests that where relevant, companies may also provide an analysis of environmental and social aspects necessary for an understanding of the company's development, performance and position.  Related Information on Corporate Transparency Read Eurosif's response to IOSCO consultation (August 2009); Access the Commission website on the "CSR Review meeting"; Access the Commission website regarding the European workshops on ESG disclosure;   (Last updated: January 2011) |
