This month, the European Parliament (EP) is expected to vote on a legislative proposal that, if passed into law, will make environmental and social reporting mandatory for many large companies on the continent. The terms of the proposal were agreed upon in the EP and European Council in late February making it almost certain to be successfully enshrined in European law sometime in the coming weeks.
The new law will affect approximately 6,000 large companies (large defined as a company with over 500 employees). Most of those subject to the new legislation will be publicly held companies, however, a number of banks and insurance companies will also be covered.
Affected companies will be legally required to produce annual reports disclosing environmental and social information. This will include disclosing information regarding the impacts of their operations as well as any changes they are making to mitigate negative externalities. They will also be required to report environmental and social information concerning their supply chains.
If passed, this proposal will markedly increase the number of companies reporting environmental and social information in the EU. However, for many players on the European political stage, it does not go far enough. The original version of the proposal would have seen the new requirements apply to a much larger number of companies, but opposition from the UK, Germany, and others led to it being substantially watered down. Only about one in seven large companies will be required to report under the new legislation. Furthermore, companies will be able to choose the indicators and standards they use for reporting, making comparing the performance of different organization extremely difficult.
While this law does affect a substantial number of companies in its current form, the European private sector will continue to watch cautiously for further laws and amendments that could expand the reach of current reporting legislation.