EU wants views on scope, quality of narrative reports

The European Commission is looking, again, at whether to require companies to adopt a higher standard of reporting about environmental, social and other non-financial aspects of corporate affair. "The disclosure of non-financial information is important in the context of the current crisis and the challenge of sustainable development," it says in a consultation document. "Better disclosure of non-financial information may be a tool to further increase the number of European enterprises fully integrating sustainability and responsibility into their core strategies and operations in a more transparent way." So far for ordinary.

Benefits: The difficulties involve the lack of any consistent and broadly accepted standards, owing in part to the lack of a clear understanding of the interaction of these elements with corporate performance or social well-being. Proponents of enhanced reporting believe – as the European Union's document suggests – that the mere fact of having to report focuses the minds of managers on issues of the sustainability of the business. Seeking to measure performance on these matters gives managers a lever for changing policy and direction. Such information could also give investors insights into how well management is looking after the longer term issues of the business.

Drawbacks: Reporting is a burden, and disproportionately so for smaller companies. Adding detail will also serve to lengthen corporate annual report, making them harder to digest and understand. Ensuring the accuracy of their assertions – through external assurance statements or audits – isn't straightforward, raising questions about how managers might manipulate the reports.

So what to do? "The current EU programme is in favour of better regulation that aims at cutting red tape rather than adding to administrative burdens," the commission writes. But a variety of international activities are pointing increasingly towards common standards. The Global Reporting Initiative, the United Nations Global Compact and the Organisation for Economic Co-operation and Development's guidelines for multinational enterprises all get specific mention. So, the EU wants to know:

• How good is your country's current regime?
  
• What could be done to improve it?
  
• What items should such reports include: policy statements, risks, details of engagement and activities?
  
• To achieve "materiality and comparability" should any EU rules focus on principles, performance indicators, or something else?

And more. There is no formal consultation paper this time, just an online questionnaire, with boxes to be ticked and fields for free text entry. There's not even a discussion paper to explore the issues. Perhaps the issues are well enough understood not to need elaboration. Perhaps elaborating would tend to skew responses. Perhaps it's just an economy drive, or a way of forcing responses into standardised format that makes them easier to collate and less easy to challenge. Response, nonetheless, by January 14, please.

Source document: The consultation response form must be completed online in one go.