The European Union has come in for criticism over two sets of corporate reporting reforms, with close observers warning they not be further watered down.
The response comes to the latest stages in developing the Corporate Sustainability Reporting Directive (CSRD)—new legislation for non-financial reporting—and the Corporate Sustainability Due Diligence Directive (CSDDD), which together could transform the corporate reporting landscape.
This week Frank Bold, a campaigning law firm, warned that the CSRD was welcome, but had been softened and should not be chipped away at any further in key areas. The firm is referring to a new draft set of reporting rules written for the EU by the European Financial Reporting Advisory Group (EFRAG) which the firm describes as “limited in several areas”.
“We warn against further cuts into the proposed standards which would severely undermine its functionality and hinder EU efforts to create a more sustainable and just economy,” Frank Bold says.
The firm highlights several areas it says need protecting from “political pressure”. It worries that the reporting standards, which European companies can expect to be using in 2024, demand too few datapoints, with these having been reduced during consultation. It says the standards fall short on data required to assess performance in value chains and fail to include reporting on ethnic diversity inside organisations. The firm also states that a three-year transition period would remove any need for watering down the requirements further.
Professor Kerstin Lopatta of EFRAG acknowledges compromises had to be made. “Our goal has been to strike the right balance between a game-changing step forward and a pragmatic implementation, and to foster global sustainability reporting progress while taking full account of the feedback received through our public consultation process.”
Omission statement
Meanwhile, international campaign group Human Rights Watch has written to members of the Council of Europe to reject a proposal from Germany that asks to reduce civil liabilities for companies who fail to comply with the soon-to-be-launched sustainability due diligence directive.
Germany wants companies to be liable for “intentional or negligent” failure to comply with the directive. Human Rights Watch (HRW) wants the wording for liability to apply to “a failure to comply with the directive through its actions or its omissions”.
The NGO also demands to urgently see any new draft of the directive, which is expected to be finalised next week on 1 December.
HRW reminds the EU of two events in Dhaka, Bangladesh: the 2012 Tazreen factory fire that killed more than 100 workers, and the 2013 Rana Plaza factory collapse, which killed a thousand.
The NGO writes: “Watering down these proposals and allowing corporations to merely continue their operations without any fear of serious repercussion would be a devastating blow to the families of those who died producing branded products sold in Europe and other global markets.”
The two directives have been a long time coming and touch on highly sensitive issues. While both will be welcomed by many, campaigners will likely fight to the last minute for the most stringent versions possible.