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European agreement improves company transparency

by Steve Beasant on 15 April, 2014

The UK government has today (15 April 2014) welcomed measures from the European Parliament which look to improve the transparency of companies’ non-financial reporting.

As a result, businesses’ annual reports will need to include information on environmental, social and employee matters and any issues relating to human rights and bribery. These disclosures are crucial for investors and of interest to customers as they help explain a company’s developments in the past financial year and its strategy for the future.

The new framework, which amends the new Accounting Directive, will affect all large public companies, of which there are about 500 in the UK.

Business Minister Jenny Willott said:

“The UK already has a world-class corporate governance structure. However, I welcome any efforts to improve transparency in the way companies are managed and controlled.

“It’s really important that these measures cover the whole EU and I believe that they strike the right balance between ensuring companies report useful information whilst avoiding imposing unnecessary burdens on businesses. This is a real step forward.”

The proposals will amend the recently agreed Accounting Directive that already requires all companies (private and listed) to include some environmental and employee related non-financial information in annual reports.

They will now need to be formally adopted by the Council of Ministers. Following this the UK will aim to bring these into force by 2016.

Steve Waygood, Chief Responsible Investment Officer at Aviva Investors, said:

“This new legislation could be the start of a brave new world for corporate transparency. This legislation should hugely increase the amount of information available to investors and the general public on how sustainable a company’s operations are. Well run companies will want to avoid the embarrassment of having to explain why they have failed to deliver the data. This information is absolutely crucial for long term investors as many of the new factors to be reported upon are key to whether a company is successful in the long run.”

Teresa Fogelberg, Deputy Chief Executive, Global Reporting Initiative, said:

“This directive is the vital catalyst needed to usher in a new era of transparency in the largest economic region in the world. This is a truly historic moment and I am confident that this is just the beginning of a new era for transparency and sustainable and inclusive growth in the EU. The Global Reporting Initiative is committed to continue supporting the European institutions, the Member States and companies in this endeavour.”

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