The European Union recently adopted a directive that will mandate sustainability reporting starting in 2017. Under the new law, a company must report on environmental impacts, social matters, human rights, anti-corruption, and diversity if it:
- has over 500 employees
- has either €20 million on its balance sheet or €40 million in turnover
- is deemed a public-interest entity, which includes:
- companies listed on European exchanges, even those in non-EU countries
- credit institutions
- insurance companies
- any company designated as such by member states
Companies that report within the GRI G4 framework typically already comply with the new requirements. Others will need to implement a reporting process, which for G4 compliance requires defining the most vital issues facing a company and its stakeholders through a materiality analysis.
Companies should start preparing for the law’s enforcement in 2017, as gathering appropriate data, organizing teams, and creating report content is a lengthy task. Additionally, such preparation can help a company meet a growing number of requirements around the world.
For example, India recently became the first country to require corporate action beyond reporting. Companies in India now are required to spend two percent of their net profit on social development projects, and cannot make one-time donations to comply. Other policy championed by stock exchanges varies across the different markets:
- Johannesburg Stock Exchange adopted a provision requiring companies to adhere to the King Code of Governance for South Africa, which includes issuing an integrated report or explaining why a company will not issue one.
- Brazil’s major exchange, BM&FBOVESPA recommends that companies publish a sustainability report and offer resources and training on reporting under GRI standards.
- The Hong Kong Stock Exchange also recommends that listed companies issue sustainability reports.
- Australia’s ASX now requires companies to disclose how they manage economic, environmental, and social sustainability risks.
The United Nation’s Sustainable Stock Exchanges Initiative, supported by the Investor Network on Climate Risk and Ceres, helped advocate for these proposals. There are currently 16 partner exchanges of the initiative, including NASDAQ and NYSE, as members continue to cultivate support and reform policy in global markets.
By establishing reporting processes now, companies can meet current regulations and be prepared for future policy.
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KT Michaelson is Director of Analytics at Framework LLC, a specialty management consultancy that helps leading global companies maximize performance by developing strategies and practices for managing financial, social and natural capital sustainably. Her work and writing focus on transparency, risk and opportunity assessment, and climate. This article first appeared in Corporate Compliance Insights.