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Environmental, Social and Governance Disclosures in Europe

Submitted by: Dr. Mark Camilleri

Posted: May 12, 2015 – 06:00 AM EST

Tags: esg, reporting, accountability, transparency

 
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Excerpt from: Camilleri, M. (2015). Environmental, social and governance disclosures in Europe. Sustainability Accounting, Management and Policy Journal, 6(2)

Last year, the European Union (EU) announced its new guidelines on non-financial reporting that will only apply to some large entities with more than 500 employees. This includes listed companies as well as some unlisted companies; such as banks, insurance companies and other companies that are so designated by member states; because of their activities, size or number of employees. There are approximately 6,000 large companies and groups within the EU bloc (EU, 2014). These big organisations are increasingly using a wide array of instruments, tools and channels to communicate their Environmental, Social and Governance (ESG) reports to stakeholders.

The most prevalent reporting schemes in the EU were drawn from; the G3 Guidelines of the Global Reporting Initiative (GRI) and the United Nations Global Compact (UNGC). In addition, several platforms and organisations that promote corporate sustainability reporting have developed partnerships with AccountAbility, OECD, United Nations Environment Programme (UNEP), Carbon Disclosure Project and with many governments and sector organisations.

When one explores the key topics that companies had reported on, it transpired that carbon emission disclosures have become quite a common practice. Moreover, recently there was an increased awareness on the subject of human rights and the conditions of employment. Curiously, online reporting has offered an opportunity for accountability and transparency as information is easily disseminated to different stakeholders. This has inevitably led to increased stakeholder engagement, integrated reporting and enhanced external verification systems. At this point in time, stakeholders are considering reporting schemes as a valuable tool that can improve the quality of their reporting, particularly as it enables them to benchmark themselves with other companies. The GRI is often regarded as ‘a good starting point’ for this purpose. Moreover, the provision of a UNGC communication on progress is a new global trend that has become quite popular among business and non-profit organisations.

Some of the European organisations are gradually disclosing environmental information or certain other key performance indicators that are of a non-financial nature in their reporting. Generally, public policies are often viewed as part of the regular framework for social and employment practices. Therefore, a considerable commitment is made by local governments who act as drivers for stakeholder engagement. One way to establish a CSR-supporting policy framework is to adopt relevant strategies and actions in this regard. Such frameworks may be relevant for those countries that may not have a long CSR tradition or whose institutions lack accountability and transparency credentials. It may appear that EU countries are opting for a mix of voluntary and mandatory measures to improve their ESG disclosure.

While all member states have implemented the EU Modernisation Directive, they have done so in different ways. While the Modernisation Directive ensured a minimum level of disclosure, it was in many cases accompanied by intelligent substantive legislation. National governments ought to give guidance or other instruments that support improvements in sustainability reporting. Lately, there was a trend towards the development of regulations that integrate existing international reporting frameworks such as the GRI or the UNGC Communication on Progress. These frameworks require the engagement of relevant stakeholders in order to foster a constructive environment that brings continuous improvements in ESG disclosures.

Regular stakeholder engagement as well as strategic communications can bring more responsible organisational behaviours. Many corporate businesses use non-governmental organisations’ regulatory tools, processes and performance-oriented standards with a focus on issues such as labour standards, human rights, environmental protection, corporate governance and the like. Nowadays, stakeholders, particularly customers expect greater disclosures, accountability and transparency in corporate reports.

At the moment, we are witnessing regulatory pressures for mandatory changes in CSR reporting. Of course, firms may respond differently to reporting regulations as there are diverse contexts and realities. In a sense, this paper reiterates Adams et al.’s (2014) arguments as it indicated that ESG disclosures are a function of the level of congruence between the government departments’ regulatory environment and the use of voluntary performance measures. Somehow, EU regulatory pressures are responding to energy crises, human rights matters and are addressing the contentious issues such as resource deficiencies including water shortages. Notwithstanding, big entities are also tackling social and economic issues (e.g. anti-corruption and bribery) as they are implementing certain environmental initiatives (e.g. waste reduction, alternative energy generation, energy and water conservation, environmental protection, sustainable transport et cetera).

In this light, there are implications for practitioners and assurance providers of integrated reports, standard setters and regulators. Future engagement research can possibly consider how report content and reporting formats, might impact on organisations’ decision making. This paper indicated that practice and policy issues would benefit from additional empirical evidence which analyse how the European disclosure regulations may positively or adversely affect the corporations’ stakeholders.

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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