In late September 2014, a directive of the Council of the European Union regarding the disclosure of non-financial data was passed. Many questions had been raised right from the start of the works on this act and it had proven impossible to find simple answers to many of them.
With the start of the new year it could be said that the situation has not changed thus far and the doubts that were key before remain valid. What is more, it appears that there are even more of them now and companies concerned with corporate social responsibility wonder what the practical consequences of the directive will be.
The main concern was that the guidelines would be restrictive and thus force companies to put a lot more effort into preparing annual reports. In the course of negotiations Poland was one of the countries which were determined in its engagement in restricting the scope of the directive and giving entrepreneurs more freedom and flexibility in reporting. Thanks to these efforts, although the states are still obliged to implement the directive, there is now relatively significant flexibility in adapting it to domestic legislation.
So, which entities will be obliged to report non-financial data? Two groups are specified: public interest entities (PIE) with an average employment of over 500 employees and a total balance of over 20 ml euro or income of over 40 mln euro net and large stock exchange companies with over 250 employees, a total balance of over 20 mln euro and income of over 40 mln euro.
The requirements of the directive oblige PIEs to present information related to environmental, labour and social issues in their annual reports. They will also be obliged to present its policy in this regard, its results, risks resulting from non-financial issues and manners in which said risks are managed. Stock exchange companies will have to include information on diversity policies (pertaining to age, gender, ethnicity, education and experiences), their goals, manners of their implementation and execution and their effects in corporate governance declarations. If they do not have any policies with regards to matters mentioned above will be obliged to adhere to the “implement or explain rule’ – that is to inform of the fact and justify it.
The directive was passed on September 29th 2014 and EU member states have two years to apply it to the requirements of domestic law and implement it. In Poland, the institution responsible for this process is the Ministry of Finance and has to be done with it by December 6th 2016. The directive should come into force on January 1st 2017.
Imposing further formal requirements on companies may appear to be a negative phenomenon. However, on the one hand, it will only pertain to some of them (the total number of both PIEs and stock exchange companies should not exceed 2000) , on the other hand its scope will be restricted. Initially, the implementation will surely cause some inconveniences and require engaging more assets than before. Companies will be faced with a new challenge and will have to learn new competences, just as they had to learn how to conduct their corporate activities in a socially responsible manner a few years ago. Long-term it will result in an increase in transparency and create opportunities for more in-depth analysis of processes within the organization.
It is worth pointing out that it is increasingly common for companies to voluntarily undertake the preparation of complex reports presenting non-financial data and activities in corporate social responsibility reports. The “Social Reports” competition, organized by Forum Odpowiedzialnego Biznesu (Responsible Business Forum), PwC and SGS, the jury of which includes representatives of Employers of Poland, is a good indication of their increased popularity. In the first edition, 11 reports were nominated, now over 30 are nominated each year.
The preparation of a thorough social report is an ambitious undertaking in itself – it is surely a testament to a company’s maturity and often its market position as well. Social reporting, particularly when it comes to big companies, is a continuing trend. This comes as no surprise, as the pioneers of implementing and communicating CSR were also operating on a big scale. However, more and more SMEs are now active in corporate social responsibility. Thus, one can assume that social reports will soon be elaborated by a more varied group of entities.
Marcelina Cieślak, expert of Employers of Poland