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A key demand of the ETUC is that companies should provide complete and accurate reports on their impacts on the environment and society. In the EU, corporate reporting requirements on environmental and social issues are currently defined by the 2014 Non-financial Reporting Directive (NFRD). The NFRD requires certain types of large companies (500+ employees) to publish information on:
- environmental matters
- social matters and treatment of employees
- respect for human rights
- anti-corruption and bribery
- diversity on company boards (in terms of age, gender, educational and professional background)
While the 2014 NFRD represented a step forward in terms of reporting on corporate impacts on ‘people and planet’, it did not implement a number of specific demands made by the ETUC and many NGOs. Information on important topics is incomplete or lacking, as companies are allowed to ‘pick and choose’ which reporting framework they follow, and many have chosen those with weak rules. Trade unions and works councils are often not consulted on their views on these issues, and most sustainability reports are not audited, which increases the risk of ‘greenwashing’.
In response to the widespread acknowledgement of the inadequacies of the 2014 NFRD, the European Commission published a proposal for a Corporate Sustainability Reporting Directive (CSRD) on 21 April of this year. While trade unions and NGOs criticized the Directive from the start, a growing number of investors have now joined in. Due to new EU rules on what is considered a ‘sustainable’ product, investors need better information from the companies they provide capital so they may in turn report if they have sustainable investment strategies. Since the NFRD was passed, the Paris Agreement and the European Green Deal have also increased pressure for corporate transparency.
On the positive side, the draft CSRD mandates a single set of EU standards, which should improve the completeness and comparability of information that companies provide. It also applies to a broader range of companies – all EU companies with 250+ employees as well as all companies listed on EU exchanges. It requires that companies report not only on their past impacts but also on their targets and strategies for the future. Finally, it clearly mandates that companies report not only on issues that are relevant for investors – so-called ‘financially material issues’ – but also on their risks and negative impacts on ‘people and planet’ – so-called ‘impact materiality’.
While the European trade unions sees the draft CSRD as a step ahead, at the same time there are a number of shortcomings that should be addressed through amendments through the European Parliament and/or Council. First, management should be required to include trade unions and works councils in the reporting process – currently there are no information or consultation rights defined for them in the draft Directive. Second, trade unions and NGOs should have a strong role in the development of sustainability reporting standards – right now the European Financial Reporting Advisory Group (EFRAG), which is dominated by the auditing firms and industry, is foreseen as the organization responsible for this development. Third, the CSRD should also apply to a broader number of companies, including to non-EU companies with significant business in the EU and to SMEs in sectors with high environmental and social risks. These changes are needed to ensure that the CSRD will be an effective tool helping the realization of Social Europe and the European New Deal.
- EU Commission Press Corner: Questions and Answers: Corporate Sustainability Reporting Directive proposal (April 2021)
- Alliance for corporate transparency: On the Corporate Sustainability Reporting Directive (NFRD reform) proposal: most promising changes and caveats (April 2021)