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EU Public Companies Required by Law to Report on Sustainability

The European Parliament has passed a law requiring publicly traded companies with more than 500 employees to report on sustainability.  The law was passed easily with a 599-55 vote and will go into effect in 2017.  Once in effect, nearly 7,000 companies will include information on sustainability in their annual financial reports — 4,500 more than are doing so today. The new law requires affected companies to report on social, environmental, and human rights impacts, diversity, and anti-corruption policies. Companies will be expected to describe their business model and the outcomes and risks of their policies.  This aspect is quite significant because it will be insufficient for companies to simply report that they have a policy covering a particular issue. They must be prepared to report on how effective that policy has been. Companies will also be required to include their supply chain in reporting. This will likely have a trickle down impact, forcing smaller and medium sized private companies upstream in the value chain to report even though the law does not apply them. The result could be a significant game changer for many more European and US companies who technically do not have to report, but end up doing so because they sell to reporting European companies.

Companies are also being encouraged to report in accordance with globally accepted reporting standards, such as the Global Reporting Initiative’s (GRI) Sustainability Reporting Guidelines.  If a larger number of companies begin to utilize the GRI framework, this could have positive implications for increasing and deepening strategic thinking and planning behind corporate sustainability initiatives in the next five years.