New EU reporting regulations for multinationals

New EU legislation requires large corporates to disclose non-financial information to regulators, owing to the adoption of a new directive by the European Council and Parliament.

The directive requires firms with more than 500 employees to disclose information on policies, risks and outcomes with regard to environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues and diversity on boards of directors.

The European Parliament adopted the directive on 15 April 2014 and, following today’s adoption by the Council, the directive will be published in the EU Official Journal and will enter into force 20 days later.

Member states have two years to transpose the directive into national legislation. This will give affected companies significant time to adapt to the new requirements and will start reporting as of their financial year 2017.

The directive provides further work by the Commission in developing non-binding guidelines to facilitate the disclosure of non-financial information by companies, taking into account current best practice, international developments and related EU initiatives.

European Commission vice-president in charge of internal market and services Michel Barnier said: “I am pleased the Council has adopted this directive, which will drive the long-term performance of the EU’s largest companies by significantly improving their transparency and, concretely, the disclosure of material non-financial information.

“Companies, investors and society at large will benefit from this increased transparency. This is important for Europe’s competitiveness and the creation of more jobs.”

Companies in the scope of the directive will disclose relevant, useful information necessary for an understanding of their development, performance, position and impact of their activity, rather than detailed reports.

Furthermore, the directive provides companies with significant flexibility to disclose relevant information in the way that they consider most useful, or in a separate report. Companies may use international, European or national guidelines that they consider appropriate.

With regard to diversity on company boards, large listed businesses will be required to provide information on their diversity policy, such as age, gender, educational and professional background.

This directive is also a first step towards the implementation of the European Council conclusions of 22 May 2013 on the need for further transparency on tax matters and for ensuring country-by-country reporting by large companies and groups.