Research also shows that when company boards approve non-financial reporting, it influences the way boards think about risk and opportunity and how they incorporate it into company strategies. When reporting becomes mandatory Boards do get involved and organisations access new information leading to better decision making. However, companies tend to ignore mandatory requirements if these are not enforced.
A more substantial EU NFR Directive (or Regulation) will help companies put a higher priority on social and environmental risks and opportunities that influence their ability to create value.
The NFR Directive must also take the opportunity to increase incorporation of the best of the most used frameworks and standards. These are the Global Reporting Initiative (GRI) Standards, the integrated reporting framework and the Taskforce on Climate-related Financial Disclosure Recommendations.
Why enforceable requirements are needed to make sure companies focus on environmental and social impacts
Last week there has been an insightful contribution to the debate about sustainability disclosure in the EU by Carol Adams, Professor of Accounting at Durham University Business School.
Writing for EURACTIV on 13 May (Europe needs mandatory non-financial reporting to underpin COVID recovery), Professor Adams sets out why, as part of the review of the EU’s Non-Financial Reporting (NFR) Directive, enforceable requirements are needed to ensure companies prioritise environmental and social impacts Tweet This!.
As an academic in this field and a former chair of GRI’s Stakeholder Council, Carol Adams is well informed about corporate transparency and sustainability reporting. The key points she raises in her article:
- Transparent disclosure will not occur unless EU reporting requirements are mandatory and enforced by a pro-active regulatory body with powers to require changes.
- Endorsing the GRI Standards, developed through rigorous and independent processes mirroring those of accounting standards, in an updated NFR Directive would mean it stays up to date – so no need to keep revising legislation.
- The NFR Directive must incorporate the best of the most used frameworks and standards – which are the GRI Standards, the Integrated Reporting framework and TCFD. The alternatives ‘don’t ask the right questions’, have little traction with EU companies and are insufficient to alert corporate stakeholders on the impacts that matter.
- If companies do not disclose their material negative impacts it can lead to unsustainable activities – that’s bad for the European economy and bad for the environment and society.
- A more substantial NFR Directive can help companies help themselves – by making them put a higher priority on social and environmental risks and opportunities.
Mandating for comprehensive disclosure that is built on robust and multi-stakeholder standards, such as these provided by GRI, can be a catalyst for meaningful change, for a fairer and more sustainable post-COVID Europe.
80% of the world’s 250 largest companies report in accordance with the GRI Standards
SustainCase was primarily created to demonstrate, through case studies, the importance of dealing with a company’s most important impacts in a structured way, with use of the GRI Standards. To show how today’s best-run companies are achieving economic, social and environmental success – and how you can too.
Research by well-recognised institutions is clearly proving that responsible companies can look to the future with optimism.
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This article is based on published information by EURACTIV and GRI. For the sake of readability, we did not use brackets or ellipses. However, we made sure that the extra or missing words did not change the publication’s meaning. If you would like to quote these written sources from the original please revert to the following links: