post Tuesday April 22, 2014
The lack of information companies provide about human rights or bribery has always been an obstacle for investors. Trillions of dollars have been used to screen companies that are likely to be profitable in the future. Until now. The European Union has accepted a new legislation that will compel 6,000 companies of the European Union to provide detailed information about their performances as corporate citizens.
The legislation still needs to be approved by the EU member states and it still needs to be figured out what it will look like in practice. However, because of this new legislation, investors can now easily see how these companies are performing in the environmental and social area. Before the new ruling, revealing information has always been patchy.
In total, the EU was accountable for 49% of the global ESG (environmental, social and governance) assets under management , according to The Global Sustainable Investment Alliance (GSIA), a group of membership-based investing organizations. Normally, the control of companies’ ESG assets are maintained by pressure groups, academics, investors and politicians. This legislation also helps to improve their work and furthermore builds on it.
Some countries in the world already require non-financial information from companies. This ruling is much bigger and versatile. The new rule had some adjustments since the original draft was proposed though. At first, the draft of the legislation proposed applying the new rules to 17,000 companies. This number has declined to 6,000 due to complaints from several businesses. The requirements were softened as well. Companies only have to ‘comply or explain’ their policy, this means that it is possible for companies to refuse or delay giving information if they have a good excuse.
Passant, executive director at advocacy and sustainability think-tank Eurosif, agrees that there are weaknesses and he sees the legislation more as a compromise, but it is definitely a huge breakthrough in non-financial reporting. However, the BDI trade association for German businesses said that such legislation is not necessary even after the compromises. According to them, the voluntary reports on corporate social responsibility are already rising.
Even if the statements of the German businesses are true, the amount of companies who are voluntarily revealing information about their ESG assets is still not sufficient enough. The new EU legislation will force more companies to provide information and by doing so making the market for investors more transparent.
Source: reuters
Image courtesy of Renjith Krishnan / FreeDigitalPhotos.net
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