On 29 September 2014, the Council formally adopted the new Directive on disclosure for mandatory CSR reporting by large public interest entities on human rights and other non-financial information. This marks a further step towards the hardening of human rights obligations in the business field.


The Directive introduces amendments to the Accounting Directive (2013/34/EU) requiring relevant undertakings to include narrative reporting in their management reports in relation to environmental, social and employee matters, respect for human rights and anti-corruption and bribery matters (“CSR matters”). These reports will include:

  • a brief description of the undertaking’s business model;
  • a description of the policies adopted by the undertaking in relation to CSR matters, including the due diligence processes implemented to identify risks / ensure compliance ;
  • the outcomes of those policies;
  • the principal risks relating to CSR matters linked to the undertaking's operations and how the undertaking manages those risks; and
  • relevant non-financial key performance indicators. 

The Directive recitals give more details on the scope of what companies will have to report. As regards environmental matters, companies will have to report on the current and foreseeable impact of their operation on the environment and on health and safety, on the use of (non) renewable energy, on greenhouse gas emissions and on water and air pollution. Concerning social and employee related matters, the recitals provide for a very broad list of topics: gender equality, implementation of ILO conventions, working conditions, social dialogue, information and consultation rights, trade union rights, health and safety and dialogue with local communities. With respect to human rights and anti-corruption and bribery, the recitals refer to information on steps taken to prevent human rights abuses and/or fight corruption and bribery. 

The EU Commission is tasked with proposing non-binding guidelines on the details of what non-financial information will have to be disclosed and ultimately it will be a matter of national implementation by EU Member States.

The Directive deals separately and specifically with diversity at board level. It asks companies in scope to report on existing policies which are encouraging diversity at the top by reference to a number of criteria, eg. age, gender, educational and professional background. The emphasis on transparency is designed to encourage businesses to foster wider diversity. The EU Commission has said that this transparency requirement complements the draft directive on women on boards, which looks at reaching specific gender percentages.

Only large “public interest entities” affected

The new Directive will apply only to large “public interest entities” with more than 500 employees, i.e. approx. 6,000 large undertakings and groups across the EU. Public interest entities include undertakings listed on an EU stock exchange, as well as some unlisted undertakings, such as credit institutions, insurance undertakings and other undertakings so designated by Member States essentially because of their economic importance (by reference to their activities, size or number of employees).

The reporting obligations

The reporting obligations appear far-reaching on their face: undertakings affected need to identify the principal risks of their operations in connection with issues such as human rights, as well as the due diligence they have undertaken to identify those risks. This obligation extends to risks arising from relationships with business partners and suppliers. 

The Commission estimates an additional direct cost for large undertakings of less than €5,000 per year, ie. less than €30 million on an EU-wide basis. However, the basis for this impact assessment is unclear. In particular, it is not apparent that associated risks of reporting such as the litigation risk of reports being used by NGOs and the plaintiff bar to drive claims have been factored in. 

The new Directive does allow undertakings some flexibility in the performance of their obligations:

  • “Comply or explain”. It does not require undertakings to have policies covering all CSR matters, but asks that where the undertaking does not pursue policies in relation to a particular CSR matter, it provides a clear and reasoned explanation for not doing so. Clearly, however, the reputational impacts of a failure to have a policy on certain CSR matters will need to be carefully considered.
  • Content of the statement. It does not require comprehensive reporting on CSR matters (although this is encouraged by the Commission), but only the disclosure of information on policies, outcomes and risks. Much of the devil will be in the detail – the Directive requires that implementation Guidelines are issued by the Commission. These Guidelines will potentially become the baseline standard for reporting, although national implementing measures (and so approaches) may vary. We note, for instance, that the UK has already introduced narrative reporting for human rights issues under the 2013 Companies Act Regulations. Other Member States already have reporting in place for social and employee matters.
  • Separate CSR report. It does not require undertakings to integrate financial, environmental, social and other information in any prescribed way. Member States may permit undertakings to publish a separate CSR report rather than including the information in their management reports. 
  • International, EU and national frameworks. The Directive gives undertakings the option to rely on international, European or national frameworks in light of the undertaking’s characteristics and business environment (eg. the UN Global Compact, ISO 26000).
  • Consolidated reporting. There are options to provide consolidated reporting. How this will work in practice will depend on the business that the relevant undertakings are engaged in and the extent to which the relevant parent undertaking can be said to produce a management report or separate report in accordance with the Directive.
  • Exemptions. Member States may allow information regarding upcoming developments or matters under negotiation to be omitted where the disclosure of the information would be seriously prejudicial to the commercial position of the undertaking and the omission does not prevent a fair and balanced understanding of the undertaking’s development and performance. 
  • Limited auditing. Member States need to ensure that the undertaking's statutory auditor or audit firm checks whether the non-financial statement or separate report has been provided, however verification of the information is optional. Member States may require, in their national implementing measures, that the accuracy of the information is independently verified.

The flexibility afforded by the Directive means that close attention will need to be paid to national implementation (including how the EU-mandated regime will interact with reporting requirements that have already been introduced in certain EU Member States, for example the UK pursuant to the Companies Act). The Directive proposes that, within 24 months of its entry into force, official Guidelines on the methodology for reporting non-financial information must be produced. These Guidelines are expressed to be non-binding although will clearly carry substantial weight. Businesses affected by the new reporting requirements should participate in discussions on the development of the Guidelines.

General trend: corporate respect for human rights

The new Directive reflects the current trend in the EU towards corporate responsibility for respecting human rights as set out in the UN Guiding Principles on Business and Human Rights (the “Ruggie Principles”) becoming hard law. The Ruggie Principles create a global framework for the implementation of corporate responsibility in relation to business and human rights and include recommendations on, for instance, how undertakings can carry out due diligence in this area. Although the Ruggie Principles are non-binding – and this Directive does not yet go so far as to legislate for them – undertakings need to be aware of their importance and impact. Undertakings need to critically assess the risks associated with their operations in light of the Ruggie Principles and consider the impact of the Ruggie Principles on the design of appropriate compliance systems. The EU is fully committed to the Ruggie Principles: EU Member States are required to prepare national action plans on the implementation of the Principles, and the EU has produced specific guidance for the oil and gas, ICT and employment and recruitment sectors on business-level implementation. The Directive may also be seen as another step towards labour rights being generally recognised as human rights. Global trade unions and other stakeholders are supportive of this idea (contrary to others who claim that only a few and well defined labour rights are human rights) and much of their recent activity focuses around human rights.=

Next steps

The EU Commission is required to publish the implementation guidelines no later than 24 months after the entry into force of the Directive and Member States will have to implement it in the same time frame – two years after it enters into force.

The first CSR reports will have to be published in relation to the first financial year after the transposition deadline (ie. financial year 2017).