European Parliament approves mandatory corporate social responsibility rules

On April 15th, the European Parliament adopted provisions requiring companies to disclose information on their environmental, labor, and human rights impacts, in addition to the financial reports they already deliver.

The legislation on non-financial reporting is part of the EU reform on corporate transparency introduced last year by the European Commission. This legislative proposal would amend existing accounting legislation adopted in June 2013 and require large companies to disclose information on policies and results linked to social and environmental matters as well as anti-corruption issues. The planned rules would apply to companies whose average number of employees exceeds 500. 

Access welcomes this vote as a first step towards greater corporate accountability and more responsible business practice. The legislation will apply across industries, including in the information and communication technology (ICT) sector. With more data on the companies that process their data, users will be empowered to make more informed decisions on which businesses best respect their human rights online.

Negotiations in the EU institutions

The legal affairs (JURI) committee of the European Parliament was in charge of preparing the provisions adopted today by the Parliament as a whole. After nine months of debate, the text adopted in committee last December succeeded in preserving the purpose of the reform and includes mandatory requirement for large companies to disclose a non-financial statement. This committee text is the same one adopted today by the Parliament.

At the same time, the Council of the European Union is also reviewing the proposal. The representatives of the member states have already found an agreement on some important parts of the text, which unfortunately weaken the requirements. While the Council agreed that listed companies must have the obligation to explicitly report on their impact on environment, human rights, corruption, and diversity, significant loopholes remain in the text.

Indeed, a group of member states led by the UK introduced a loophole through which thousands of large private firms won’t have to reveal how their operations affect people and the environment. Instead, only publicly listed companies will be required to provide this information. Moreover, while social reporting rules are now mandatory, companies may avoid reporting on risks if they provide a “clear and reasoned” explanation for non-disclosure.

Next steps

Access is encouraged by the amendment on non-financial reporting to the Directive on Accountancy Directive adopted by the European Parliament. These measures will make significant changes to the legislative framework in the European Union. Corporate social reporting will no longer be simply voluntary as it is now the case in most of the European countries.

This reform could improve citizens’ trust in business and give business greater social legitimacy. Many businesses are adopting stricter and more robust standards on reporting under their “sustainability” or “corporate social responsibility (CSR)” commitments, and voluntarily go much further than the EU guidelines. Thus, the “floor” for what corporations are expected to report is rising, and legislation should reflect the new reality while leaving companies free to innovate toward higher standards.

We urge Council of Minister’s representatives to stop watering down the proposal in order to seize this unique opportunity to make large companies accountable for their actions. Once the Council adopts its final position on the proposal, the three European institutions — The Commission, Parliament and European Council — will come together in a “trialogue” to agree on a final text.

Access will follow closely and report on these final negotiations.