European Parliament backs law on non-financial reporting

The European Parliament has adopted a resolution to require EU businesses to introduce non-financial disclosure as part of a wider emphasis on using CSR as a driver of economic recovery.

MEPs accepted a European Commission (EC) proposal that, if followed by legislation, will require companies to comply with the UN Guiding Principles on Business & Human Rights and the UN Global Compact, and report on their performance in line with International Integrated Reporting Council (IIRC) standards.

In its submission, the EC stressed that the term ‘non financial’ “should not disguise the very real financial consequences for business of [ESG] and human rights issues”.

The EC also expects companies to help combat the social consequences of the financial crisis. This would include action on youth job creation, occupational health, the sustainability of pensions, and exploitative labour practices in company supply chains, as well as the promotion of socially useful and environmental products and services.

Though the report recognises CSR as by nature voluntary, it seeks to re-engage civil society and depolarise the debate. Both voluntary and mandatory initiatives are to be embraced, depending on what works best in a given situation.

The parliament’s rapporteur (lead legislator) on CSR, MEP Richard Howitt, said the EU must become more active in promoting business responsibility by requiring companies to publicly report on their sustainability, by championing a new mechanism for corporate accountability in the UN, and by formally signing up to the OECD Guidelines on Multinational Enterprise.

He said: “If the proposed EU law is based on reporting integrated in financial accounting and not additional to it, I am confident that it will prompt the ‘scaling up’ of responsible business that business itself says it wants.”

The proposal, which the EC says must be flexibly and cost effectively applied, will now be subject to wide-ranging public consultation in a process expected to last a year.