According to a new EU directive on non-financial information, companies are accountable for how they deal with societal interests. The directive requires that companies publicly report on their impacts on society. This requires comparable, accessible, relevant and complete information. The PBL report Reflections on Transparency concludes that the recently adapted Dutch interpretation of the EU non-financial reporting obligation for large companies on sustainability issues needs to be improved.
The Dutch interpretation of the directive is mostly based on minimum EU requirements
The EU directive on non-financial and diversity information (2014/95/EU), which came into operation on 1 January 2017, stipulates that companies with more than 500 employees and a net turnover of € 40 million have to be transparent about a number of non-financial aspects. This obligation applies to about 120 organisations in the Netherlands, which are mostly listed companies, all of which already report on corporate social responsibility (CSR).
The Dutch Government has chosen to stay close to the minimum requirements of the EU directive and to give companies a great deal of freedom in reporting methods. For example, it would suffice for companies to enter a statement in the management report; a separate, more detailed sustainability report is not mandatory.
On a number of points, other EU Member States, such as France, Germany, the United Kingdom and Denmark, have opted for stricter regulations, compared to those of the Netherlands. For example, they have introduced stricter controls and sanctions. In Denmark, all companies with more than 250 employees are required to report, which involves over 1,000 companies.
In the Dutch implementation, little attention is paid to the right conditions for effects
The Dutch implementation of the EU directive pays little attention to the preconditions that would be likely to result in effects from such company reporting obligations on sustainability. It therefore seems necessary to improve Dutch policy, despite the fact that the regulations have only just been put in place.
Comparing sustainability performances is essential for investors
Corporate performance on sustainability is increasingly included in risk analyses and investment decisions by investors, banks and pension fund managers. For them, long-term profitability and managing risks are important, and non-financial risks increasingly play a role, as well. Examples include the risks of climate change and water pollution, and reputational risks related to poor working conditions.Reliable, mutually comparable corporate information on these subjects is essential for investors. This is not addressed in the Dutch implementation of the new directive. Instead, companies are given a large amount of freedom in their reporting, through mostly non-binding guidelines.
Evaluation of the directive has been announced
The European Commission has announced that it will start evaluating the directive in 2019. The current obligation’s effects on transparency, therefore, need to be monitored. The Dutch Government regularly publishes a comparative analysis on corporate transparency (the Transparency Benchmark), but that does not yet provide a view on the intended effects of transparency, such as more stakeholder dialogue about company performance on societal issues and improvement of the CSR commitment on various sustainability issues.
CSR Consultancy firm Sustainalize conducted background research on behalf of PBL for this publication.