By Vikas Vij — Non-Financial Reporting (NFR) is an effective way for businesses to integrate sustainability into their decision-making processes. NFR can help companies identify critical ESG issues, risks and opportunities. It also enables companies to engage with various stakeholders and encourage constructive dialogue on the impact their business is making.
The European Commission recently issued an NFR Directive,
under which up to 8,000 large EU companies will report annually – starting with 2017 – on their major ESG risks, respect for human rights, anti-corruption issues, and board diversity. Companies will publish their first reports in 2018, providing information about their global impacts as well as their policies and due diligence procedures for addressing those impacts.
The EU Commission has now released a set of guidelines
to help companies comply with both the spirit and letter of this EU Directive on Non-Financial Reporting. The guidelines have been welcomed by the European Coalition for Corporate Justice (ECCJ), the WWF European Policy Office and Amnesty International.
The guidelines provide useful clarifications for the application of the Directive. These clarifications will help businesses ensure that reporting does not end up as simple boilerplate disclosure. The guidelines place a particularly strong emphasis on the need to report on supply chains and other business relationships.
According to Nele Meyer, Senior Executive Officer at Amnesty International, the guidelines deliver a clear and direct message to businesses that they must be transparent about risks of human rights abuse in their supply chains. They must also allow people who are potential victims to understand if their rights are at risk.
The guidelines refer to the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises as the key standards for reporting on human rights. These principles and guidelines have codified the globally recognized standards on the corporate responsibility to respect human rights.
The NFR Directive has introduced a shift in the purpose of reporting from placing the focus on the risk to the company alone, to likewise taking risks to people into account. The guidelines also call for disclosure of forward-looking information based on climate scenario analysis.
Jerome Chaplier, ECCJ Coordinator, said that these new corporate disclosure rules are part of a fundamental shift in assessing corporate performance and mark a significant step forward for improved corporate transparency.