It’s High Time for Companies to Implement CSR Reporting
Starting in the financial year 2017, all capital market-oriented companies, major banks and insurers will be obligated to report non-financial aspects of their business activities for the first time. CSR stands for corporate social responsibility.
The EU Directive that includes CSR (2014/95/EU of October 22, 2014) will now take effect, requiring public-interest entities with an average number of employees over 500 to include detailed information on sustainability in their reports.
Objectives of CSR Reporting
The new EU Directive aims to gather comprehensive information on a company with a view to strengthening confidence among investors and consumers.
The directive allows for a comparison of different practices in all EU countries, thereby making business activities more transparent.
Topics that are to be included in the reports are
- environmental issues (level of greenhouse gas emissions, water consumption, use of renewable energies, or air pollution)
- working conditions
- gender equality
- human rights
- anti-corruption and bribery matters
- diversity in management and supervisory bodies
An Organizational Challenge for Many Companies
The EU seeks to support companies in fulfilling their reporting obligations by publishing non-binding guidelines; however, these will probably not be available before May 2017. This may be too late for some companies bound by this requirement to start collecting the necessary data.
The new reports must be made available at the beginning of 2018, depending on the respective deadlines for their annual reports.
Of particular complexity is setting up standardized reporting structures for companies that have several foreign subsidiaries.
If subsidiaries are included in the parent company’s report, these are, however, not required to draw up an individual CSR report.
CSR Reporting: Integrated Report or Separate Publication?
Companies should draw up their sustainability concept at an early stage, include the relevant groups of employees within the organization, and define the relevant variables and precise data collection methods and data controls before they can even set out to write their reports.
There are several possibilities for publishing the report:
CSR Reporting can be issued as a separate publication. This form provides the greatest freedom in presenting the sustainability concept and specific key figures. In addition, by choosing this option companies may be able to buy some time, since the reports need only be published up to 6 months after the deadline for their annual reports.
If a company issues a separate publication, the report should follow the standards of the GRI guidelines. The Global Reporting Initiative (GRI) is recognized internationally and foresees including the essential information in the report.
Another option is to base the report on UN Global Compact, a voluntary initiative for an inclusive and global economy centered on ten social and ecological principles. For German small or medium-sized companies, it is also possible to align their reports with the German Sustainability Code (DNK). This standard fulfills the EU reporting obligation and can be adapted to international reporting.
Of course, CSR Reporting can also be integrated into the financial report, which would lend CSR a higher priority within the company. Auditors must only formally verify the sustainability report and not the actual content.
Given the complex issues of CSR Reporting, companies should not underestimate the time and effort required for this and start implementing the guidelines as soon as possible. If the figures on water consumption of individual production processes or greenhouse gas emissions are made transparent, this offers opportunities for sustainable business practices that could provide a company with a financial benefit.