The European Parliament has passed a historic law that makes it mandatory for the largest companies in Europe to include sustainability factors as an integral part of their annual financial reporting. The law, which was passed with a thumping majority vote of 599-55, will apply to publicly traded companies employing more than 500 workers.
This momentous law will require these companies to report on policies, risks and results with regard to social, environmental and human rights impact, diversity and anti-corruption policies in their annual reports. The law was first proposed in 1999 by Richard Howitt, European Parliament Rapporteur on Corporate Social Responsibility. Howitt has welcomed the vote as a major step towards “integrated reporting” by businesses across the world.
Howitt said that all the evidence points towards the fact that transparency is the best way to change business behavior. This European law will help the global economy make a leap in the transition towards a sustainable, low-carbon economy for the future. The law will encourage businesses to use recognized reporting frameworks such as the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines and the U.N. Guiding Principles on Business and Human Rights.
Teresa Fogelberg, GRI’s deputy chief executive, said that this new law is the vital catalyst needed to usher in a new era of transparency in the largest economic region in the world. The companies that fall under the ambit of this law must not only report on issues concerning sustainability, but must also describe their business model, outcomes and risks of their policies with regard to these issues, as well as their diversity policy for management and supervisors.
Small businesses are currently exempt from this law, but because of the fact that the large companies will be required to report information on their supply chains, the ramifications of this law will reach far enough to impact businesses across the supply chains. Addressing the supply chains in the area of sustainability is the next big challenge for large companies, and this law brings EU one step closer to achieving this goal.