Concept Note

As the world faces shrinking supplies of resources and severe ecological consequences it is becoming increasingly clear that economic activity needs to be constrained within planetary boundaries (Whiteman et al., 2013). A growing interest in the long-term possibilities and risks of corporate strategy by investors and boards is supported by a public that increasingly expects businesses to contribute to solving diverse societal needs and problems (Gleeson-White, 2014; Sorkin, 2015; Strine 2010, 2014). Moreover, there are indications that communicating an integrated view to the corporation’s shareholders and other stakeholders builds trust and may ultimately lead to economic success (Mayer, 2013), while corporations with a good environmental, social and governance (ESG) performance and reporting generally also perform better than other corporations on the stock market and enjoy lower cost of capital (Eccles, Ioannou & Serafeim, 2014; Cheng, Lin and Wong, 2016). A broad set of interests, including most stakeholders’ self-interest, thus arguably aligns with an approach to reporting that takes into account long-term value creation falling on all key stakeholders, including shareholders, employees, creditors, suppliers, customers, communities, civil society organisations and the environment. At the same time, there is a missing link between what corporate boards perceive as their duty and what business is asked to report on, which together with lack of enforcement of the reporting requirements and of verification of the information that is reported on, undermines the possibility of reporting that will be ‘vital to managing change towards a sustainable global economy’ (preamble of the EU’s Non-Financial Reporting Directive) (Sjåfjell, 2017).

As high quality ESG information is crucial for the capital markets to facilitate responsible investment decisions in relation to a focus on stability and long-termism, a regulatory framework is required that facilitates monitoring and integration of  information about systemic risks, long-term corporate risks, as well as intangible resources and non-financial capitals. Reporting models that include ESG factors such as the <IR> Framework developed by the International Integrated Reporting Council (IIRC) and the G4 Sustainability Reporting Guidelines provided by the Global Reporting Initiative (GRI) provide detailed metrics against which to report.

The EU Accounting Directive 2013/34/EU, as amended by Directive 2014/95/EU on non-financial and diversity information, sets out basic rules on ESG or in the EU terminology, non-financial reporting. The 2013 Directive sets out new rules concerning extractive industries to improve the transparency of payments made to governments and to promote the adoption of transparency in reporting through the Extractive Industries Transparency Initiative (EITI). The 2014 Directive expands the scope of the non-financial reporting to include the requirement for large listed and financial companies to report on their business model, encouraging due diligence processes across global value chains, with the aim of identifying and dealing with risks concerning the performance, position and impact of the business activity. Further the requirements cover disclosure of relevant and useful information on the policies, main risks and outcomes on environmental matters, social and employee aspects, respect for human rights, anti-corruption and bribery issues, and diversity in their boards.

In spring 2016, the European Commission organized a public consultation on non-binding guidelines on methodology for reporting non-financial information. The consultation is part of the Commission’s work to prepare such non-binding guidelines on methodology for reporting non-financial information, originally intended to be ready by December 2016 but not yet published (April 2017).

The implementation of this directive will be assessed by 2018.

The success of the Non-Financial Reporting Directive depends on how well it is aligned with the full spectrum of public economic, social, and environmental policies, and how well it is internalised in corporate governance. The conference will address the most significant challenges in these two areas and suggest ways how to resolve them.

Policy coherence is a general principle of EU law. It has been especially emphasised concerning Policy Coherence for Development (PCD). PCD aims at minimising contradictions and building synergies between different EU policies in order to increase the effectiveness of development cooperation. As expressed in the Commission Action Plan for the Circular Economy (COM(2015) 614), policy coherence in internal and external EU actions for the circular economy is essential for the implementation of the UN 2030 Agenda for Sustainable Development and the G7 Alliance on Resource Efficiency.

The Conference will examine policy coherence, or lack thereof, between the Directive, the Capital Markets Union plan, the EU's commitments under the Paris Agreement, and the Circular Economy Package, in light of the broader societal goal of achieving sustainability within the limits of the planet. It will do so through discussions of the development of reporting theory to achieve policy coherence, and through identification of best practice.

Although reporting models that include ESG factors such as the <IR> Framework developed by the International Integrated Reporting Council (IIRC) and the G4 Sustainability Reporting Guidelines provided by the Global Reporting Initiative (GRI) provide detailed metrics against which to report. However, reporting is ordinarily left to voluntary and discretionary measures and there is a wide variety of international, European or national guidelines (e.g. the UN Global Compact, the OECD Guidelines for Multinational Enterprises, ISO 26000). The resulting lack of comparability and consistency of guidelines provides significant flexibility for companies to disclose relevant information and uncertainty in benchmarking. This situation makes the adoption of expanded reporting problematic (Villiers and Mähönen, 2015a; Villiers and Mähönen, 2015b). As a result, global principles for financial reporting, including US GAAP and IFRS, still consider ESG information as an add-on to financial accounting (Bracci and Maran, 2013; Saravanamuthu, 2004). The conference will identify how theory development in the area of reporting can be improved, and specifically in relation to policy coherence and best practice identification.

To improve accounting and reporting knowledge and practice, to provide greater policy coherence, and to foster the shift towards a sustainable global economy, the conference will seek to identify:

• Legislative best practice, both in the form of implementation of the EU Directives and independent of the directive
• Best practice with regard to due diligence and the role of the board.  Specifically with regard to the board, the internalization of the economic, social and environmental issues of the business into their corporate governance presents another important challenge.
• Best practices across fields

To realise the potential of the EU Non-Financial Reporting Directive, debate on these issues, and to identify best practices on the legislative, business and investor levels that can be used across Europe for companies thereby contributing to identifying the most important issues for the Commission’s 2018 review of the Directive and mid-term review of the Capital Markets Union plan and strengthening business and investor initiatives for sustainable, responsible and accountable business.