Pending concrete proposals from the European Commission (see EUROPE 12552/15), the members of the European Parliament’s Committee on Legal Affairs (JURI) set out their expectations in terms of sustainable corporate governance on Monday 16 November by adopting, by 13 votes to 5, the report (see EUROPE 12554/20) drawn up by Pascal Durand (Renew Europe, France).
“The obligation to disclose information should go hand in hand with an obligation to act”, Durand said in a statement. The final text, as amended by the vote, does call on the Commission to introduce a new approach through obligations and incentives and not only through the disclosure of information.
Non-financial information
The text makes a series of recommendations for the revision of the Non-Financial Reporting Directive (see EUROPE 12430/22), including that the scope of the Directive should be extended to cover all large listed and unlisted companies established in the EU, as defined by the ‘Accounting Directive’ - a request already made by the European Parliament in 2018 (see EUROPE 12029/6).
In order to ensure a level playing field, these non-financial reporting requirements should also apply to non-European companies operating in the EU market, in their view.
MEPs also agreed to ask the Commission to identify high-risk sectors of economic activity with a significant impact on sustainability issues that could justify the inclusion of SMEs in the scope of the directive.
All in all, the text calls for a legislative framework, including mandatory standards and ensuring that the information published is “clear, balanced, understandable, comparable among companies within a sector, verifiable, objective and includes time-bound sustainability targets”.
Still on the subject of transparency, the text stresses the importance of introducing a country by country reporting obligation for certain company accounting data on an annual basis and for each tax jurisdiction in which they operate. It therefore calls on the EU Council to adopt its position on the Commission’s proposal, which dates from 2016 (see EUROPE 12384/3), as soon as possible.
In particular, the amendment by the Identity and Democracy Group was adopted, according to which the EU should, when negotiating free trade agreements, insert clauses requiring partner states to create comparable obligations for their companies in order to avoid introducing a new source of distortion of competition.
Duties of Directors
The text also invites the Commission to present a legislative proposal to ensure that the duties of directors include the long-term interests of the company as well as those of employees and other relevant stakeholders.
This proposal, which covers all large listed and unlisted companies established in the EU, should furthermore ensure that members of the executive, management and supervisory bodies are obliged to define, disclose and monitor a sustainability strategy for the company.
According to MEPs, the strategy should address, inter alia, the significant impacts that companies could have on the environment, climate, social issues and issues relating to employees, human rights and corruption.
The strategy should include measurable, specific, time-bound and science-based targets, as well as transition plans aligned with the EU’s international environmental and climate change commitments, say MEPs.
They further consider that linking the variable part of executive directors’ remuneration to the achievement of the measurable objectives set out in the company’s sustainability strategy would help to align the interests of directors with the long-term interests of the companies.
More broadly, MEPs believe that companies receiving state aid, EU or other public funds should strive to pay their fair share of taxes or refrain from paying dividends and propose share buy-back programmes to remunerate shareholders.
“Missed Opportunity”
Manon Aubry (GUE/NGL, France) said that the text proposes only “timid progress”.
“While it is difficult to oppose it, we bitterly regret the missed opportunity to loosen the grip of the market and shareholders on our companies, to give rights to workers by opening up corporate governance, and to share more of the wealth created within companies”, she said. (Original version in French by Marion Fontana)