Rules of Procurement EU

EUROPEAN
COMMISSION
Brussels, XXX
SWD(2013) 127
COMMISSION STAFF WORKING DOCUMENT
IMPACT ASSESSMENT
Accompanying the document
Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE

COUNCIL
amending Council Directives 78/660/EEC and 83/349/EEC as regards disclosure of non-

financial and diversity information by certain large companies and groups
{COM(2013) 207}
{SWD(2013) 128}
EN EN
TABLE OF CONTENT
1 Procedural Issues and Consultation of Interested Parties........................................................... 2
1.1. Procedural issues ........................................................................................................ 2
1.2. Recommendation of the Impact Assessment Board ................................................... 3
2 Policy context ............................................................................................................................. 4
2.1 CSR, Corporate Governance and Non-Financial Information ................................... 4
2.2 Existing legislation and international frameworks ..................................................... 5
2.3 On-going EU Initiatives ............................................................................................. 7
3 Problem definition and Subsidiarity........................................................................................... 7
3.1 Problem 1: Inadequate Transparency of Non-Financial Information ...................... 10
3.2 Problem 2: Insufficient board diversity.................................................................... 12
3.3 Which stakeholders are affected and how? .............................................................. 17
3.4 Baseline Scenario: How will the problem evolve without action? .......................... 21
3.5 The EU's right to act ................................................................................................. 22
4 Objectives ................................................................................................................................. 23
5 Policy Options - description and analysis ................................................................................ 24
5.1 Options relating to Increasing Transparency of Non-Financial Information ........... 24
5.2 Options relating to Enhancing boards diversity ....................................................... 31
5.3 Choice of instrument ................................................................................................ 34
5.4 Scope of Application ................................................................................................ 35
6 Cumulative Impacts of the preferred options ........................................................................... 36
6.1 Expected Primary Impacts ....................................................................................... 37
6.2 Other impacts ........................................................................................................... 40
7 Monitoring and Evaluation....................................................................................................... 42
7.1 Monitoring................................................................................................................ 43
7.2 Evaluation................................................................................................................. 43
Annex I - Summary of Public Consultations ....................................................................... 44
Annex II- Relevant Provisions of the Accounting Directives .............................................. 46
Annex III- Recent developments in some EU Member States ............................................. 49
Annex IV - International frameworks .................................................................................. 55
Annex V - Other EU Initiatives on Diversity ....................................................................... 58
Annex VI - Non-Financial Transparency: Detailed Analysis of Policy Options ................. 60
Annex VII - Increasing Board Diversity: Detailed Analysis of Broad Policy Options ....... 73
Annex VIII - Estimation of Administrative burden of broad policy options ....................... 82
Annex IX - Definitions ......................................................................................................... 87
Annex X - Bilateral meetings with stakeholders .................................................................. 88
1
Introduction
This Impact Assessment considers the case of improving the disclosure of non-financial
information by EU companies as part of a broader set of EU initiatives on corporate
governance and Corporate Social Responsibility (CSR) aimed at creating a highly competitive
social market economy.
Non-financial information is generally seen as environmental, social and governance
(ESG) information. This can be disclosed in the form of a statement in the annual report, or a
separate corporate governance statement, a separate report, or published on company
websites, etc. The Accounting Directives 1 already address the formal disclosure of employee-
related and environmental information by EU companies. However, the need to improve
transparency in this field has been highlighted by the Commission in the Single Market Act
(hereinafter SMA) 2. The SMA aims at, inter alia, enhancing new, greener and more inclusive
growth. In this context, companies' non-financial transparency has attracted attention as a
"smart lever" to strengthen citizen and consumer trust and confidence in the Single Market
and to encourage sustainable economic growth.
Governance information concerns specifically information on how companies are governed.
With the publication of a Green Paper in 2011 3, the Commission has initiated a review of the
current EU corporate governance framework. Taking action to improve companies'
transparency on their board diversity policy and risk management is one of the first steps of
this review. Other initiatives in the field of corporate governance were announced in a
Communication presenting an Action Plan on Company Law and Corporate Governance
adopted in December 2012 4. In general terms, information concerning board's diversity and
risk management can be considered as part of the broad set of non-financial information that a
company may disclose. Increasing transparency in this field has thus the potential to enhance
boards' diversity and improve risk management arrangements. It has therefore been deemed
appropriate to deal with problems concerning both (i) the lack of transparency of non-
financial information and (ii) insufficient diversity in the boards into one Impact Assessment.
Nevertheless, as diversity-related issues may go beyond transparency considerations as such,
in some sections they are analysed separately. The results of this Impact Assessment show
that it is preferable to address the identified problems through one legislative proposal
modifying the existing Accounting Directives.
1 PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES

1.1. Procedural issues
The initiative on non-financial reporting was included in the Commission's 2012 Work
Programme. This Impact Assessment, led by DG Internal Market and Services, was guided
and monitored by an Inter-Services Steering Group (IASG). The Group has held six meetings
on 27 May, 19 July and 26 October 2011, and on 20 January, 10 February and 26 April 2012.
The following Directorates General were invited to participate: Secretariat-General, Legal
Service, Health and Consumers Protection, Enterprise and Industry, Eurostat, Employment
1
Directive 78/660/EEC on the annual accounts of certain types of companies ("Fourth Company Law
Directive") and Directive 83/349/EEC on consolidated accounts("Seventh Company Law Directive")
2
"Single Market Act-Twelve levers to boost growth and strengthen confidence", COM (2011) 206, http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0206:FIN:EN:PDF, p 15
3
http://ec.europa.eu/internal_market/company/modern/corporate-governance-framework_en.htm
4
See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0740:FIN:EN:PDF.
2
and Social Affairs, Trade, Environment, Development Cooperation, Energy, Research,
Justice, Home Affairs., External Action Service. The Minutes of the last meeting of the IASG
were provided to the Impact Assessment Board.
1.2. Recommendation of the Impact Assessment Board

The Impact Assessment Board meeting took place on 20 June 2012. The present document
takes account of the comments received by the Board on the draft impact assessment. The
report needed to establish more clearly the scope and the scale of the identified problems, and
better demonstrate the evidence between the problems and their consequences. Secondly, it
needed to better present the content of the options, the differences between them, and provide
additional information on the added value of the preferred option vis-à-vis the baseline
scenario. Thirdly, the report needed to better consider the impacts of the policy options, by
better comparing the advantages and disadvantages of each option.
1.3. External expertise and consultation of interested parties

1.3.1. Public Consultations
Stakeholders have been consulted through various means in order to obtain their views on
how to improve non-financial disclosure requirements and practices. A public consultation on
disclosure of non-financial information by companies was conducted between November
2010 and January 2011 5. A summary of the consultation's results is attached to this Impact
Assessment (see Annex 1).
Between September 2009 and March 2010 the Commission hosted a series of
multistakeholder roundtables on this issue 6. Consultations with stakeholders also took place
through a number of other instruments and fora, including the Member States High-Level
Group on CSR, the Multi-stakeholders forum coordination committee 7, or the Accounting
Regulatory Committee. The Commission services have also contributed to the work of the
Laboratory on Valuing Non-Financial Performance 8. Moreover, since 2010 the Commission
services had a series of bilateral meetings with stakeholders.
As regards board's diversity and risk management, a general consultation on the EU corporate
governance framework, was held between April and August 2011 9. The summary of the
consultation results is attached to this Impact Assessment (see Annex 1) 10.
1.3.2. Expert Group

An ad-hoc Expert Group was established with a mandate to provide expert advice to the
European Commission on the Impact Assessment. The group included individuals with
relevant knowledge and proven experience representing companies, investors, consumer
5
Public Consultation on Disclosure of Non-Financial Information by companies. The summary report and the
260 responses received are available at http://ec.europa.eu/internal_market/consultations/2010/non-
financial_reporting_en.htm
6
http://ec.europa.eu/enterprise/policies/sustainable-business/corporate-social-responsibility/reporting-
disclosure/swedish-presidency/index_en.htm
7
http://forum.europa.eu.int/irc/empl/csr_eu_multi_stakeholder_forum/info/data/en/csr%20ems%20forum.htm
8
http://ec.europa.eu/enterprise/newsroom/cf/_getdocument.cfm?doc_id=5310
9
Green Paper on the EU Corporate Governance Framework,
10
The full text of the feedback statement is available at:
http://ec.europa.eu/internal_market/company/docs/modern/20111115-feedback-statement_en.pdf and the 409
responses received at http://ec.europa.eu/internal_market/consultations/2011/corporate-governance-
framework/index_en.htm.
3
organisations, trade unions, auditors, international guidelines-setting organisations and
academia. The experts met four times between July 2011 and January 2012 and discussed
questions concerning specific policy proposals, the scope and nature of a potential legislative
requirement, the role that non-financial information could play in promoting companies'
performance, accountability and efficiency of capital markets. The summaries of these
meetings, together with all relevant documents, are available at:
http://ec.europa.eu/internal_market/accounting/committees/disclosure_en.htm
1.3.3. External Study

The Centre for Strategy and Evaluation Services (CSES) was contracted to produce a study on
"Disclosure of Non-Financial Information by Companies". This research paper includes a
qualitative analysis of current non-financial reporting practices as well as a cost/benefit
assessment based on a survey. The sample covered 71 EU companies of all sizes established
in eight different Member States 11, covering sectors such as food, consumer products, banking
and financial services, manufacturing, utilities and mining. The final report is available at
http://ec.europa.eu/internal_market/accounting/non-financial_reporting/index_en.htm
2 POLICY CONTEXT
2.1 CSR, Corporate Governance and Non-Financial Information
In the follow up to the SMA, and building on the "EU 2020 Agenda", the Commission has put
forward a package of measures (the "Responsible Business Package") to support
entrepreneurship and responsible business. The package includes legislative proposals to
revise the Accounting Directives and the Transparency Directive, with the aim of improving
transparency and promoting sustainable business, and simplifying accounting rules for SMEs,
along with two Communications on the "Social Business Initiative" and "A renewed strategy
2011 – 2014 for Corporate Social Responsibility" (hereinafter CSR Communication)
CSR is thereby defined as "the responsibility of enterprises for their impacts on society" 12. A
strategic approach to CSR is increasingly important for competitiveness, as it can bring
benefits in terms of risk management, cost savings, access to capital, customer relationships,
human resource management and innovation capacity. In order to fully meet their social
responsibility, enterprises should therefore have in place a process to integrate social,
environmental, ethical, human rights and consumer concerns into their business operations
and core strategy in collaboration with their stakeholders. The aim of such a process is
twofold: first, to maximise the creation of shared value, able to generate returns on investment
for the company's owners/shareholders at the same time as ensuring benefits for other
stakeholders. Second, to identify, prevent and mitigate possible adverse impacts which
companies may have on society.
Corporate governance is traditionally defined as the system by which companies are

directed and controlled 13 and as a set of relationships between a company’s management, its
11
The sample covered the following Member States: Denmark, Germany, Spain, France, Italy, Netherlands,
Poland and United Kingdom.
12
This definition, introduced by the CSR Communication, is consistent with internationally recognised CSR
principles and guidelines, such as the OECD Guidelines, the ISO 26000 Standard and the UN Principles on
Business and Human Rights.
13
Report of the Committee on the Financial Aspects of Corporate Governance (The Cadbury Report), 1992, p.
15, http://www.ecgi.org/codes/documents/cadbury.pdf.
4
board, its shareholders and its other stakeholders 14. A boards' composition, and in particular
the diversity of members' profiles, is an integral element in the overall corporate governance
of a company. A greater diversity gives the board a wider range of values, views and sets of
competences, while reflecting the diversity of the population in Europe. It helps to tackle the
phenomenon of "group think", thus enabling the board to perform better in their role of
oversight of management decisions.
Corporate governance and CSR can therefore be seen as two distinct yet complementary
concepts, as the way a company is directed and controlled is intrinsically linked with its
impact on society. A strategic approach to both CSR and corporate governance is increasingly
important for competitiveness 15, as it involves crucial aspects for long-term performance. By
supporting and promoting these policies, the Commission aims therefore at creating
conditions favourable to a full exploitation of the Single Market potential for sustainable
growth and employment, based on responsible business behaviour and lasting job creation for
the medium and long-term. In order to achieve this broad objective, the CSR Communication
proposes a number of actions for the period 2011–2014 including, in particular, a reiteration
of the proposal to improve transparency in the field of non-financial information. Non-
financial transparency represents a key element of a CSR policy as it is linked to the capacity
of companies to measure their non-financial performance, and thus their impact on society.
Since 2006 the European Parliament has called on the Commission to put forward initiatives
in order to strengthen the EU legal framework on social and environmental reporting.
2.2 Existing legislation and international frameworks

The disclosure of non-financial information is currently addressed in EU legislation via the
Accounting Directives 16, requiring companies and groups to include where appropriate and to
the extent necessary for an understanding of the company's development, performance or
position, environmental and employee-related information in their annual or consolidated
annual report. Member States, may exempt small and medium-sized companies from this
obligation (See Annex 2). Some Member States (including the UK, Sweden, Spain, Denmark
and France) have recently introduced national disclosure requirements going beyond this
obligation. More details on key developments in EU Member States are given in Annex 3.
Overall, this development is part of an international trend away from purely voluntary
disclosure 17. The US, China, India and South Africa, among others, have recently been
strengthening regulation in this field 18.
14
OECD Principles of Corporate Governance, 2004, p. 11,
http://www.oecd.org/dataoecd/32/18/31557724.pdf.
15
Such approach emphasises the importance of the interconnections between CSR and the core business
strategy of companies, as already underlined in the Commission's 2008 Competitiveness Report.
16
As amended by the "Modernisation Directive, Directive 2003/51/EC , http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32003L0051:EN:NOT
17
"Carrots and Sticks: Promoting Transparency and Sustainability: An update on trends in Voluntary and
Mandatory Approaches to Sustainability Reporting", UNEP/KPMG/GRI, 2010,
http://www.unep.fr/shared/publications/pdf/WEBx0161xPA-Carrots%20&%20Sticks%20II.pdf
18
In the US SEC issued the "Guidance Regarding Disclosure related to Climate Change" in 2010, requiring
listed companies to disclose material climate change-related risks. In China, since 2008 all Chinese State–
owned enterprises should establish a CSR information reporting system, on the basis of the Guidelines on
Fulfilling Corporate Social Responsibilities issued by SASAC. In India, since 2011 the Security Exchange
Board (SEBI) requires listed entities to submit a Business Responsibility Report as part of their Annual
Report, http://www.sebi.gov.in/sebiweb/home/list/4/23/0/0/Press-Releases. In South Africa, since 2010, the
Johannesburg Stock Exchange (JSE) requires that all listed companies produce an integrated report, on a
"report or explain" basis https://www.saica.co.za/tabid/695/itemid/2344/language/en-ZA/An-integrated-
report-is-a-new-requirement-for-list.aspx
5
At the global level, several initiatives provide generally accepted, non-legally binding
guidance for companies on CSR and sustainability aspects. These include the Ten Principles
of the UN Global Compact, the OECD Guidelines for Multinational Enterprises, the ILO Tri-
partite declaration of Principles on Multinational Enterprises and Social Policy, the ISO
26000 standard on social responsibility and the UN Guiding Principles on Business and
Human Rights. As far as reporting frameworks are concerned, the Global Reporting Initiative
(GRI) appears at the moment to be the most widely adopted initiative 19. Finally, the recently
established International Integrated Reporting Council (IIRC) 20 aims at defining a global
framework for Integrated Reporting that would bring together financial, environmental, social
and governance information in one report. More details on such initiatives are provided in
Annex 4.
While the issue of social and environmental disclosure has been on the EU agenda for a
decade, a regulatory debate on boards' diversity has only recently been established. In this
regard it is important to note that there are no rules at EU level relating specifically to
diversity of companies' boards 21. Current provisions in the field of company law and
corporate governance only require the disclosure of some general information relating to
boards. In particular, the Accounting Directive requires listed companies and groups to
provide a corporate governance statement, which will include, inter alia, information on the
composition and operation of the administrative, management and supervisory bodies and
their committees 22 (see also Annex 2). At Member State level, the approach towards diversity
in the boardroom varies considerably, in particular with regard to gender aspects, which is
often regarded as a key aspect of diversity23. In order to correct the imbalances, several
Member States have taken measures to ensure a stronger proportion of women on boards (e.g.
binding or indicative quotas for listed or state owned companies have been introduced in
Spain, France, Belgium, Italy and the Netherlands). In certain countries quotas apply only to
state owned companies (e.g. in Austria, Finland or Greece). Other countries prefer more
flexible measures implemented in the national Corporate Governance Codes or similar acts,
such as voluntary targets (Denmark, Austria) or reinforced disclosure on the diversity policy
(Finland, Sweden and UK). For more information on the situation in Member States, see
Annex 3.
At international level, the GRI Guidelines recommend reporting on the composition of the
highest governance body in terms of its diversity, including gender, age group and minority
aspects 24. It also recommends reporting about the process for determining the composition of
this body, including considerations of gender and other aspects of diversity 25. In the US the
Securities Exchange Commission rules on Proxy Disclosure Enhancement 26 require
19
Other initiatives provide specific guidance or indicators covering a range of ESG aspects. See
"Environmental, Social and Governance Indicators", FEE, 2011. Voluntary frameworks are also developed at
national level, such as the German Sustainability Code, http://www.nachhaltigkeitsrat.de/en/home/
20
http://www.theiirc.org/
21
Current primary and secondary provisions focus more on non-discrimination as a fundamental principle, and
in particular on promoting equality between women and men, rather than on diversity in the boardroom as
such. See http://ec.europa.eu/justice/discrimination/law/index_en.htm and http://ec.europa.eu/justice/gender-
equality/law/index_en.htm.
22
Article 2 paragraph d(ii) of the Directive 2009/101/EC requires Member States to take measures to ensure
compulsory disclosure by companies of information about the appointment, termination of office and
particulars of the persons who either as a body constituted pursuant to law or as members of any such body
which take part in the administration, supervision or control of the company.
23
"The Gender Balance in Business Leadership", European Commission SWD, 2011,
http://ec.europa.eu/justice/gender-equality/gender-decision-making/index_en.htm
24
GRI G3.1 guidelines, point 4.1
25
GRI G3.1 guidelines, point 4.7
26
http://www.sec.gov/rules/final/2009/33-9089.pdf. The requirement entered into force in 2010.
6
companies to provide information regarding "the consideration of diversity in the process by
which candidates for director are considered for nomination".
2.3 On-going and recent EU Initiatives

Besides the above-mentioned initiatives, other EU frameworks address specific topical issues,
in particular concerning the environmental area. This includes, for instance, the EMAS
scheme 27, where sectorial reference documents and KPIs are developed and suggested. On 10
April 2013 the Commission has adopted the Single Market for Green Products package 28 . As
part of this package, the use of the Organization Environmental Footprint (OEF) methodology
for reporting, improving and incentivizing environmental performance is also envisaged 29.
Such initiative refers in particular to the quantification and reporting of environmental
information, while this Impact Assessment deals with a broader set of aspects related to
disclosure of non-financial information. In addition the ICT industry has developed a standard
to measure the energy and carbon footprint of its organisations following Key Action 12 in
the European Commission's Digital Agenda for Europe 30. This methodology could be used as
a basis for company reporting and is currently being piloted by the industry under the
auspices of the European Commission31. The work on these initiatives is running in parallel,
and they are considered complementary.
Further, the Commission has proposed legislation with the aim of attaining a 40 % objective
of the under-represented sex in non-executive board-member positions in publicly listed
companies 32 . However, while the proposed gender balance Directive would only contribute
to enhancing gender diversity, the present initiative would be more general, aiming at
increasing overall diversity. The scope of the two initiatives would therefore be
complementary. Indeed, setting objectives does not, for the time being, seem to be the right
policy to address broader diversity aspects, such as educational and professional background,
age or nationality. Enhanced disclosure of the diversity policy of corporate boards, and a more
efficient monitoring of the implementation of the policy, may be likely to contribute to the
implementation of the quantitative targets set by companies themselves.
Finally, a political agreement has been reached recently on measures aimed at enhancing
diversity on boards of banks and investment firms in the framework of the Capital
Requirements Directive IV 33. Indeed, diversity in board composition should contribute to
effective risk oversight by boards of banks, providing for a broader range of views and
opinion and therefore avoiding the phenomenon of group think. CRD IV therefore introduces
a number of requirements, in particular as regards gender balance. More information on these
and on other parallel initiatives can be found in Annex 5.
27
EMAS Regulation 1221/2009, in Annex IV defines core environmental KPIs. Flexibility is guaranteed by
allowing companies to exclude some of the core KPIs in case they can explain why these are not material for
their activity.
28
http://ec.europa.eu/environment/eussd/smgp/index.htm
29
http://ec.europa.eu/environment/eussd/corporate_footprint.htm.
30
COM(2010) 245
31
http://www.ict-footprint.eu/
32
Proposal for a Directive of the European Parliament and of the Council on improving the gender balance
among non-executive directories of companies listed on stock exchanges and related measures, 14 November
2012, COM(2012) 614 final. See http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0614:FIN:en:PDF
33
On 20 July 2011, the Commission adopted a legislative package to strengthen the regulation of the banking
sector (CRD IV Package). The proposal replaces the current Capital Requirements Directives (2006/48 and
2006/49) with a Directive and a Regulation. The Directive governs the access to deposit-taking activities
while the Regulation establishes the prudential requirements institutions need to respect.
http://ec.europa.eu/internal_market/bank/regcapital/new_proposals_en.htm
7
3 PROBLEM DEFINITION AND SUBSIDIARITY
This section outlines the problems associated with the current non-financial disclosure
practices by EU companies and with the lack of diversity in boards, which have led to calls
for initiatives in these fields. It also explores their drivers and consequences, which will
inform the policy objectives discussion following later in this Impact Assessment.
The Commission services have identified two main issues concerning the inadequate
transparency of non-financial information (Problem 1) as well as the insufficient
diversity in the boards (Problem 2). Such problems are analysed separately in sections 3.1
and 3.2 below, as they respond to different drivers: the lack of diversity in boards is in
particular a matter of corporate governance processes, and the analysis of this problem may
go beyond the issues strictly related to transparency. Section 3.3 further analyses the prejudice
that such problems pose to specific stakeholders groups, concerning in particular preparers
(companies) and users (investors, NGOs, civil society organisations) of information. The
drivers and consequences of the above-mentioned problems are depicted in the following
problem tree:
8
Market Failure: Insufficient/uneven incentives for Regulatory Failure:
companies to disclose non-financial information AD requirement Insufficient incentives for companies to have
despite an increasing demand from stakeholders ineffective. Legal diversified Boards
framework
fragmented, with
significant differences
amongst Member
Drivers
Insufficient diversity
of views within the
Board (group think)
Transparency: insufficient quantity
of non-financial information. Transparency: insufficient
quality of non-financial
~ 94% of EU large companies do not information
disclose any non-financial information
Disclosed information is not
(including diversity)
sufficiently material, accurate,
timely, clear, comparable, and Insufficient challenge of senior
reliable management decisions by the
Board
Problems
Companies perceived as not Less efficient markets: investors Lower companies' performance
sufficiently accountable and may fail to build relevant non- Potential ineffective oversight by the
unmet information demands financial information into their Board. Management and Boards may not
from civil society decision-making process/take fully integrate non-financial issues into
informed decisions business and strategy
Impacts on trust in Suboptimal allocation of Insufficient identification of

business and the market capital risks and opportunities in
general
Consequences
Single Market potential for sustainable growth and employment not fully exploited
9
3.1 Problem 1: Inadequate Transparency of Non-Financial Information
The environmental and social impacts of business have been the subject of public debates for
at least three decades, as some serious incidents, allegedly caused by the business' failure to
properly manage their environmental and social risks received significant public attention and
media coverage. Market and social pressures on business have grown over the last few years
and sustainability has moved up the corporate agenda. In parallel, non-financial performance
appears to be considered increasingly important for investment strategies, particularly in the
long term, as demand for non-financial information by both Socially Responsible Investors
(SRIs) and mainstream investors shows a growing trend 34. The proliferation of sustainability
ratings and indexes could also be brought as additional evidence in this respect 35.
An increasing number of companies has been responding to this pressure by disclosing non-
financial information in the Annual Reports, or stand-alone reports. According to recent
statistics, the global number of reports per year increased from almost zero in 1992 to ~ 4000
in 2010 36, almost 80% of the world's 250 largest companies report on their sustainability37,
and the number of EU companies publishing sustainability reports using the GRI guidelines
increased from 270 in 2006 to over 850 in 2011 38. However, the analysis and the public
consultations conducted by the Commission's services highlighted that, despite such uptake,
the pace of progress towards more transparent disclosure practices remains slow, and a
majority of users (including in particular investors, NGOs and other civil society
organisations) consider the current level of transparency in this field as unable to meet their
needs 39. Specific issues have been highlighted with regard to both quantity and quality of
information available.
In terms of quantity, it is estimated that the total number of EU large companies disclosing
non-financial information through the Annual Report or a stand-alone report on a yearly basis
amounts to ~2500 40. It follows that 94% of the total ~ 42000 EU large companies currently do
not disclose non-financial information. More than 50% of the reports are published by
companies established in four Member States only (UK, DE, ES and FR) 41. A recent study42
confirmed that only 36% of companies surveyed have issued at least one sustainability report
in the last 3 years, and while 19% are planning to do so in the short term, 38% still have no
plans to set up any reporting mechanism.
34
SRIs have been growing significantly in the last decade: signatories to the UN principles on Responsible
Investment (UNPRI) rose by 30 % from August 2010 to 2011, and include now over 900 asset owners and
investment managers overseeing $30 trillion in assets. According to Eurosif, the total market reached a total
of 5 trillion euros in 2009. See http://www.unpri.org/publications/2011_report_on_progress.pdf, or
"Challenges in ESG disclosure and consistency", Goldman Sachs Group, 2009,
http://www.sseinitiative.org/files/GS_SUSTAIN__Challenges_in_ESG_disclosure_and_consistency.pdf
35
Including the Dow Jones Sustainability Indexes, the FTSE4Good Index or the Tomorrow's Value Rating
36
http://www.globalreporting.org/Home.
37
"The State of Play in Sustainability Reporting in the European Union", CREM/Adelphi, 2011 p.24,
http://ec.europa.eu/social/main.jsp?langId=en&catId=89&newsId=1013&furtherNews=yes
38
http://www.globalreporting.org/NR/rdonlyres/EDEB16A0-34EC-422F-8C17-
57BA6E635812/0/GRIReportingStats.pdf
39
Public Consultation Summary report, p. 6
40
www.corporateregister.org. As there is no universally accepted definition of non-financial information,
different figures co-exist as regards the total number of companies disclosing non-financial information
world-wide and within the EU. For an overview, see CREM/Adelphi, 2011
41
"Global Winners& Reporting Trends", CorporateRegister.com, 2012
http://www.corporateregister.com/crra/help/CRRA-2012-Exec-Summary.pdf
42
"Corporate Sustainability. A Progress Report." KMPG and Economist Intelligence Unit, 2010,
http://www.kpmg.com/global/en/issuesandinsights/articlespublications/pages/corporate-sustainability.aspx
10
Specific issues were also underlined as regards the quality of the information currently
disclosed. Overall, a majority of users considered that information is often not sufficiently
material, balanced, accurate, timely and comparable. 43 The following specific information
gaps were highlighted in this respect:
− Companies tend to focus only on their positive performances; reports are often
inconsistent over time, or information is not disclosed on a yearly basis; performance-
related information is not reported; material negative externalities are often not disclosed.
− Disclosures do not cover aspects of significant relevance for both internal and external
stakeholders, particularly as regards risk-management aspects, human rights, and
corruption matters.
− The use of Key Performance Indicators (KPIs) is considered "poor" by most users, 44,
− Reports are often not subject to independent verification, with prejudice for the reliability
of the information 45.
Existing research supports the claim that the level of quality of information does not meet the
users' needs. A report published by UNCTAD in 2010 46 underlines, for example, significant
inconsistencies amongst reports, with prejudice for the comparability of the information
disclosed. 47. Significant reporting weaknesses include the provision of irrelevant or missing
data, unsubstantiated claims and inaccurate figures. 48. According to another research 49, for
instance, out of 20,000 publicly listed companies recently reviewed through Bloomberg’s
database, less than 25% publicly reported on a single piece of quantitative data concerning
environmental, social or governance issues. As regards human rights in particular, a study
conducted by the University of Edinburgh found that information is in most cases isolated and
anecdotal 50.
Drivers of the Problem
The inadequate level of transparency determined by the insufficient quantity and quality of
non-financial information appears to be caused by both a market and a regulatory failure:
A) Market Failure. Despite the progress mentioned above, there is evidence that companies
have not been able to provide an appropriate response to users' and societal demand for non-
financial transparency. The reason for such failure is to be found in the insufficient and
uneven incentives provided by the market: on the one hand, the cost of transparency is certain,
measurable and short term, particularly as regards externalities. On the other hand, the
43
44
Ibid, p. 10
45
Public Consultation Summary report, p.15, and CREM/Adelphi, 2011
46
"Investment and Enterprise Responsibility Review: Analysis of investor and enterprise policies on corporate
social responsibility", UNCTAD, 2010. Based on a sample of 100 amongst the largest MNCs wordwide,
http://www.unctad.org/en/docs/diaeed20101_en.pdf
47
Ibid, p. xiv
48
For instance, out of 443 EU companies featuring in the FTSE All World Index between 2005 and 2009,
fewer than one in six reported greenhouse gas emissions that covered all corporate activities, while others did
not say which activities their data referred to. Survey conducted by Leeds University/Euromed on a sample
of 4,000 CSR reports, http://www.see.leeds.ac.uk/news/news-
inner/?tx_ttnews%5Btt_news%5D=116&cHash=737fcc26246e7815d368df8eacf08ff5. Reference not
available yet.
49
Bloomberg analysis, data provided by email to European Commission services on 9 September 2011
50
"Study of the Legal Framework on Human Rights and the Environment Applicable to European Enterprises
Operating Outside the European Union", study prepared by the University of Edinburgh for the European
Commission, 2010, http://ec.europa.eu/enterprise/policies/sustainable-business/files/business-human-
rights/101025_ec_study_final_report_en.pdf
11
benefits related to increased non-financial transparency are often perceived as uncertain, long-
term, or external to the company. Such asymmetry determines that companies don’t have
sufficient incentives to disclose non-financial information. One could assume that if their non-
financial impacts are not known to stakeholders, companies will have little incentive to adjust
their behaviour and to take due account of non-financial externalities into their decision-
making. As a consequence, investors' and societal demand remains unmet.
B) Regulatory Failure: as explained in section 2.2 above, regulators have already tried to
address this failure both at EU and at Member States' level.
− At EU level, an overall majority of stakeholders consulted considers the obligation

introduced by the Modernisation Directive as ineffective, mainly due to design
weaknesses. In particular, it appears that the filters provided in the current wording
(information to be disclosed only "where appropriate" and "to the extent necessary for an
understanding of the company's development, performance or position ") fail to provide a
clear legal obligation. This has led the majority of companies to consider the current
reporting regime as purely "voluntary".
− Some Member States have implemented legislation going beyond this obligation.
However, such requirements vary to a great extent in terms of content and scope. In
Denmark, for instance, companies are asked to state whether or not they have a CSR
policy, and if they do, to describe its implementation and results. In France, on the other
hand, legislation defines a detailed set of indicators that listed and non-listed companies
must report on, and requires third-party verification. A majority of the users consulted
indicated that the current situation translates into a fragmentation of legal frameworks
leading to considerable difficulties, in particular for analysts and investors who are not
able to compare or benchmark companies across the Internal Market, or even within the
same Member State.
The lack of non-financial transparency may affect specific stakeholders groups, in particular
preparers (companies) and users of information (investors, NGOs, public authorities). This
relates in particular to the impact it may have in terms of companies performance (as
companies may not fully integrate non-financial risks and opportunities into their business
operations and strategies), accountability (as companies do not meet information demands
from civil society, and thus are not always perceived as sufficiently accountable), and
efficiency of capital markets (as investors may fail to build relevant non-financial
information into their decision-making processes). Such problems are further analysed in
section 3.3 below.
3.2 Problem 2: Insufficient board diversity leading to the lack of challenge of the
management decisions by the board
Nature and scale of the problem
Boards of directors 51 play a key role in the company, as their composition, dynamics and
decisions are in general fundamental for a company's viability and success. The role of the
board is in fact to lead the company on behalf of the shareholders by setting the strategic aims
51
The term ‘board of directors’ refers to both one tier and two tier systems (non-executive directors,
supervisory boards, respectively), according to the corporate governance structure in the concerned Member
State.
12
and direction, by overseeing the management, by taking account of the risks of the company,
etc. An effective oversight of the management leads to a successful governance of the
company. In this respect, sufficient diversity of competences and views of the board's
members, which facilitates a good understanding of the business organisation and affairs,
enables the board to exercise an objective and constructive challenge of the management's
decisions. Diverse boards "provide a better reflection of a firm's customer base and promote a
positive corporate image and greater credibility in the eyes of the public" 52.
Although the fragmentation of data makes it difficult to precisely assess the scale of the
problem, it appears that the diversity of European company boards is rather limited. A Report
from 2011 53 maintains that, considering a board of 12 members, the current profile of the
average European company board would be composed of only 1.5 women, 2 European non-
nationals and 1 non-European with an average of 5 CEOs or former CEOs. The average age
would be 58.4 years.
Yet, boards with members that have a similar educational and professional background,
nationality, age or gender may be dominated by a narrow group-think. This can have a
negative impact on the proper checks by the board on the plausibility of information presented
to it and can lead to more risk taking, as well as to a suboptimal allocation of capital. Group-
think contributed, in many cases, to the failure of an effective challenge of management
decisions 54. Lack of diverse views, values and competences may lead to less debate, ideas and
challenge in the boardroom. In this regard, a recent survey among directors 55 calls for more
constructive board discussions: along with more time for board work, a better mix of skills
and backgrounds of the members leading to tougher and more constructive discussions could
contribute to improving corporate governance. Diversity of views can bring to the board
innovative and creative thinking, openness and flexibility to respond to the current economic
and social challenges, conferring on the company a forward-looking approach. It creates
better stakeholder representation and encourages sustainable performance 56. Research
illustrates that more diverse boards have positive impact on corporate governance and
explains why more diverse board perform better in their role of management monitors and
advisors 57. Literature points out that more diverse boards are more creative and include
different perspectives: people from different backgrounds and with different life experiences
are likely to approach similar problems in different ways. More diverse groups are also more
52
See reply of Business Europe to the Green Paper,
53
"Corporate Governance Report 2011 - Challenging board performance", Heidrick & Struggles, 2011, p. 35.
The selection concerns 400 top companies in 15 countries based on the reference stock exchange.
54
For instance, the British Treasury Select Committee report Women in the City, July 2010, said that: "We
believe the lack of diversity on the Boards of many, if not most, of our major financial institutions may have
heightened the problems of ’group think’ and made effective challenge and scrutiny of executive decisions
less effective".
55
"Governance since the economic crisis" McKinsey Global Survey results,
https://www.mckinseyquarterly.com/Governance_since_the_economic_crisis_McKinsey_Global_Survey_res
ults_2814
56
"Corporate Governance Report 2009 - Boards in turbulent times", Heidrick & Struggles, 2009, p. 12
57
"Board Diversity", Daniel Ferreira, in "Corporate Governance: A Synthesis of Theory, Research, and
Practice", Anderson, R. and H.K. Baker, 2010, pp. 225‐242; see also "Board Diversification Strategy:
Realizing Competitive Advantage and Shareowner Value", 2009,
http://www.calpers.ca.gov/index.jsp?bc=/about/press/pr-2009/feb/diverse-boards-higher-performance.xml
Also see ABI, 2011 p. 13. The Report contains a reference to the 2003 'Tyson Report on the Recruitment and
Development of Non-Executive Directors', commissioned by the UK Department of Trade & Industry.
13
creative and produce a greater range of perspectives and solutions to problems 58. Board
diversity can also increase board independence because people with different gender,
ethnicity or cultural background might ask questions that would not come from directors with
more traditional backgrounds 59. Boards with diverse members have also access to different
resources and connections (e.g. directors with financial industry experience can help firms
gain access to specific investors). Firms in which institutional investors comprise a larger
fraction of their shareholder bases may surrender to investors’ demands for board diversity 60.
Some studies also mention potential negative impacts of diversity, such as in particular
possibility of conflicts, lack of cooperation, and insufficient communication between different
groups of directors or danger of choosing directors with little experience, inadequate
qualifications, or who are present in too many boards because of their diversity characteristics
(e.g. they are women) 61. A recent study also shows, with respect to top management teams'
decision-making outcomes, that in stable environments homogeneous groups make better
decisions. In contrast, in turbulent situations like the financial crisis, heterogeneous groups
perform better 62. More details on the impact of diversity on companies are provided in section
3.3 below.
A well-functioning board is in general composed on the basis of a broad set of criteria, such
as professional diversity, international diversity or gender diversity. A variety of professional
backgrounds helps the board to understand the complexities of the global markets, the
company's financial objectives and the impact of business on different stakeholders. In this
regard, it is becoming more and more crucial for boards to have directors with specific
industry or functional knowledge. This can facilitate their understanding of complex
situations (or of the needs of expert advice) and make them be more effective board members.
However, it appears for example that 48% of the European boards have no director with a
sales or marketing profile, 28% no director with legal expertise and 28% of audit committees
(of which boards are increasingly making use of) do not include a chief financial officer
(current or former). 63
In addition, international experience has become a necessity of the business operations

worldwide, reflecting the diversity of the customers, suppliers, investors and the overall
context. Presence of non-national board members with an international or regional
experience brings a different culture and mind set to the board, enhancing the understanding
of local markets and improving the decision-making process 64. Geographical experience is
particularly important for companies that want to expand their activities at the international
level. At the European level, research 65 indicates that the European average of non-national
directors on the board is 24%, with great disparities across the EU. While in some Member
States non-nationals are better represented in the board, for instance in the Netherlands, UK,
where non-nationals account for at least 40% of board members, in other (e.g. Poland,
58
"Corporate governance, board diversity, and firm value", Carter Simkins and Simpson, 2003
59
"The Ultimate Glass Ceiling Revisited: the presence of women on corporate boards." Arfken, Bellar and
Helms, 2004
60
Ferreira, 2010
61
Ibid
62
"Opening the Black Box of Upper Echelons: Drivers of Poor Information Processing During the Financial
Crisis", Rost and Osterloh, 2010
63
Heidrick & Struggles, 2011, p. 33
64
Egon Zehnder, 2010, p. 32
65
14
Austria, Germany, Spain and Italy) non-national directors account only for 10-15% of the
board members 66.
Lack of gender diversity appears to be particularly problematic. The proportion of women
members of the board is of 13,7% across the EU, while that of women chairing a board is of
3% 67. This is still the case despite an increasing number of reports that indicate a positive
correlation between gender diversity and companies’ performance 68. Research 69 suggests that
the more gender diverse boards are, the more likely to hold CEOs accountable. Women attend
more meetings, they improve the attendance behaviour of male directors and are more likely
to be assigned to monitoring-related committees than men. This has a positive impact on the
monitoring intensity of the board 70. For instance, research conducted on over 500 European
companies with a market cap over 150 million euro illustrated a greater profitability of
companies with a higher proportion of women executives and board directors 71. Another
recent report found that gender-balanced companies had a 17% higher stock price growth
between 2005 and 2007 compared to the industry average and that their average operating
profit was almost double than the industry average between 2003 and 2005 72. Looking at 290
publicly listed companies, a study73 found that the earnings of those with at least one woman
on board were significantly higher than in those with no female board members. Other
research 74 indicated that a company led by a female CEO is on average slightly more
profitable than a corresponding company led by a male CEO. The share of female board
members also has a similar positive impact. It appears that in general having more women
may strengthen the boards in terms of internal and external relations (women would know
better customers' needs and represent them better), leading to a better decision making. The
existing studies may not prove causality, but the positive correlation between gender diversity
and company's performance make a good case for the need of gender balance in the boards.
As far as age is concerned, most boards need to have some spread in age – while the older
group can provide experience, wisdom, and usually the economic resources, the middle group
carries the major positions of active responsibilities in corporations and in society, whereas
66
In terms of proportion of boards with no foreign directors, there is an average of 28% at the European level
with Poland, Italy, Spain and Denmark accounting for between 42%-68% of such boards, whereas France
and UK are leading the way with only 3%-4 % of boards with no foreign directors. See Heidrick & Struggles,
2011, p. 39.
67
European Commission Database on women in the decision making, http://ec.europa.eu/justice/gender-
equality/gender-decision-making/database/business-finance/quoted-companies/index_en.htm and "Women in
economic decision-making in the EU: Progress report", DG JUST, 2012,
http://ec.europa.eu/justice/newsroom/gender-
equality/opinion/files/120528/women_on_board_progress_report_en.pdf
68
"Women Matter 1: Gender diversity, a corporate performance driver", McKinsey & Company, 2007; "The
Bottom Line: Connecting Corporate Performance and Gender Diversity", Catalyst, 2004; "Women to the
Top!", EVA, 2007
69
"Women in the boardroom and their impact on governance and performance", Adams and Ferreira, 2009, pp.
291-309
70
"The Contribution of Women on Boards of Directors: Going beyond the Surface" Nielsen and Huse, 2010.
71
McKinsey and Company, 2007.
72
"Women at the top of corporations: making it happen", McKinsey & Company, 2010
http://www.mckinsey.com/locations/swiss/news_publications/pdf/women_matter_2010_4.pdf
73
"Groundbreakers: Using the strength of women to rebuild the World Economy", Ernst&Young, Deutche Bank
Research 2010. See also "The Bottom Line: corporate performance and women's representation on boards",
Catalyst 2007, http://www.catalyst.org/publication/200/the-bottom-line-corporate-performance-and-womens-
representation-on-boards
74
The Finnish Business and Policy Forum EVA published in 2007 a study (Female Leadership and Firm
Profitability), covering 14 020 Finnish companies. See www.eva.fi
15
the younger group has the energy and drive to succeed and plan ahead for the future 75.
However, traditionally boards are made up of very senior people. The average director in
Europe is currently 58.4 years old 76. The national averages range from 55.2 in Sweden to 60
or more in France and Netherlands. Some larger companies encourage senior executives to
take up directorships somewhat earlier in their careers, but there is no rapid trend towards
reduction in average age.
While the above mentioned criteria of diversity seem of particular importance for the board
members' understanding of business, the list is not exhaustive and other aspects of diversity
can be regarded as relevant and useful, depending on the situation of the company 77.
Drivers of the problem
A) Market Failure: The insufficient board diversity is linked above all with insufficient
market incentives for companies to change the situation. In this respect, inadequate
recruitment practices for board members contribute to perpetuating the selection of members
with similar profiles. The selection often draws on a too narrow pool of people, non-executive
directors are still often recruited through an “old boys' network” from among business and
personal contacts of current board members 78 and often the chair or a board member may
influence the board invitation. Companies may not always be willing to change these
practices. Yet, the lack of transparency around the selection process, as the company does not
necessarily advertise the positions available, nor uses a recruitment agency, can represent an
important barrier to more diverse board members. Doubts arise therefore as to the incentives
to use the wide pool of available talent and expertise for board appointments.
The particular impact that the pipeline for recruiting has for example on gender diversity has
been illustrated by different reports 79. It has been underlined that it is difficult for women to
have access to these informal networks of recruitment. Moreover, executive search firms also
play a relevant role in providing boards with suitable, but also diverse candidates. A recent
report claimed 80, on a more general level, that executive search firms may have a certain
image of the company, which will determine their opinion about the person having most
chances to be successfully recruited by the company. This means that it is very likely that they
will propose candidates similar to the current personnel of the company, not necessarily
responding to the diversity needs and challenges of the company, unless diversity
requirements are clearly specified.
Furthermore, there is also a lack of tradition of reporting on such issues, given to for instance
how the selection usually takes place, i.e. through the "old boys' network". A review 81 of 298
UK FTSE 350 companies points out that disclosure of the nomination committee 82 work
75
"Composition: diversity and independence of Australian boards", Kang, Cheng and Gray, 2007.
76
77
In this perspective, one can point to the existing EU equality legislation which covers, next to gender and
age, aspects such as: race or ethnic origin, religion or belief, sexual orientation and disability, see:
http://ec.europa.eu/justice/discrimination/law/index_en.htm
78
ABI, 2011, p. 17; see also Review of the role and effectiveness of non-executive directors ("Higgs review"),
2003, p. 39
79
See for instance Lord Davies's report "Women on boards", 2011, page 17
80
"Rapport annuel diversités, Mesurer, partager, progresser", 2011, Equity Lab, French Association of Diversity
and A. Palt, http://www.afmd.fr/documents/rapport_annuel_diversites_web.pdf, p. 19
81
"Corporate governance review 2011: A changing climate Fresh challenges ahead" Grant Thornton, 2011. The
review took place between May 2010 and April 2011
82
The nomination committee, where it exists, is responsible for appointing board members and ensuring the
appropriate balance of skills, experience, background and independence.
16
remains poor, compared for instance to audit and remuneration committees. According to this
review only 37% (2010: 31%) provide enough information to properly explain nomination
committee activity, with eight companies providing no insight at all.
In addition, the problem is also reinforced by an inadequate transparency on diversity, As

mentioned in section 2.2 above, listed companies are already required to disclose information
about the composition and operation of the administrative, management and supervisory
bodies and their committees. However, the level of information and the extent to which this
information is available to public at large depends very much on a case by case basis.
Diversity is a relatively new issue obliging companies to learn as they go and they may not
always see the need to communicate on it. In any case, such information does not reveal the
board's approach in the selection process, the objectives envisaged or how they have been
reached. Research shows that companies across the EU do not provide sufficient information
on the composition of their boards 83. Only in 9 out of 33 countries 84 covered, all companies
openly reported on their websites about the composition of the board; numerous companies
provided the information in the majority of countries, but with different level of disclosure,
i.e. many companies provide only the list of board members, without additional details. For
instance less than 40% of companies in Czech Republic, Germany, Cyprus, Latvia, Lithuania,
Malta, Romania, Slovenia, Slovakia give additional details (e.g. CV), while 100% of them do
so in Sweden.
As far as diversity policy as such is concerned, available data 85 for the UK for instance
suggests that more than half of the FTSE 100 companies and 35% of the FTSE 250
companies reported having a diversity policy. Only 38% made specific reference to gender
diversity. The report underlines the widespread lack of transparency regarding the policies put
in place by FTSE 350 companies in order to address diversity on their boards. However,
another study86 maintains that only 19.1% of FTSE 100 and 6.6% of FTSE 250 companies
provide a material statement on board diversity. It found also that some companies in the UK
limit themselves to stating that the benefits of diversity on the board, including gender, have
been taken into account when making appointments. According to it, such simple statements
do not provide any insight into the board approach, the steps taken to achieve diversity in the
boardroom or the challenges and opportunities the company faces.
B) Regulatory Failure: The market failures highlighted above have not been sufficiently
corrected by appropriate regulation. As illustrated in previous sections, there are currently no
rules regarding specifically board diversity at EU level. Although some Member States have
adopted certain provisions, in particular to increase gender diversity, there are considerable
differences between their approaches, while other aspects of diversity are in general not
covered.
3.3 Which stakeholders are affected and how?

The impact that insufficient non-financial transparency and board diversity may have on
different stakeholders groups is further analysed below:
(i) Preparers: Non-financial and Financial Performance
83
Expert report on women and men in decision-making, 2011, not yet published.
84
Member States, as well as other European and non-European countries.
85
"Women on Boards", Cranfield University, 2011, p. 34
86
ABI, 2011,p. 18
17
"Only what gets measured gets managed" is an expression commonly used in respect to
financial information. Extending such reasoning to non-financial information, evidence
suggests that the lack of transparency has a direct impact on non-financial performance: if
non-financial aspects are not measured, they cannot be properly managed. 87 The lack of
transparency on risk-management aspects appears particularly important in this respect, since
if material information is not communicated to boards or to the annual assembly of
shareholders, boards may not effectively perform their oversight duty on risk management 88.
However, this information is often not disclosed, or when it is disclosed, significant
differences are found in risk assessments made by companies, even within the same sector 89.
The CSES study shows, for instance, that only a small minority of companies includes any
reference to their sustainability performance in the context of their Annual General Meeting
(AGM), and that some companies do not have any feedback mechanisms to boards or senior
management on non-financial issues 90.
Moreover, a growing body of academic research indicates a positive correlation between

better non-financial and financial performance, indicating that front-running companies on
sustainability issues tend to outperform their competitors in financial terms, particularly over
the medium (3-5 years) to long term (5-10 years). Such findings indicate, for instance, that
companies with high ratings for CSR and ESG factors have a lower cost of capital in terms of
debt (loans and bonds) and equity, and are generally considered as lower risk than
competitors; higher sustainability performance offers a competitive advantage in attracting,
motivating and retaining talented employees; positive CSR performance fosters consumer
loyalty; failure to adequately manage relationships with stakeholders can result in operational
delays, higher costs of insurance and security, problematic relations with governments and
local communities, and reputational damage. Overall, evidence suggests therefore that limited
non-financial transparency may contribute to negatively affect the performance of
companies 91.
With regard to insufficient diversity in the boardroom, as already described in the previous
sections, there is growing consensus that a board made up of individuals with a limited variety
of skills and experiences may have a negative effect on corporate performance. Insufficient
diversity limits the range of perspectives and can decrease board's capacity to mitigate risks
and overseeing company strategy.
Some studies show a correlation between the diversity on board and financial performance –
companies with more diverse board have better financial results. A recent study examined the
relationship between board diversity and firm value for Fortune 1000 firms and found
"significant positive relationships between the fraction of women or minorities on the board
87
"What Board Members Should Know About Communicating CSR", Tonello, 2011,
http://blogs.law.harvard.edu/corpgov/2011/04/26/what-board-members-should-know-about communicating-
corporate-social-responsibility/; "The Impact of Corporate Social Responsibility on Investment
Recommendations", Ioannou and Serafeim, 2010; "Strategy and Society: The Link Between Competitive
Advantage and Corporate Social Responsibility" Porter and Kramer, 2006
88
"Exploring Emerging Risks", Samuel DiPiazza Jr, CEO PricewaterhouseCoopers, 2009. See also minutes of
the first meeting of the ad-hoc Expert group,
http://ec.europa.eu/internal_market/accounting/docs/news/24012012-expert-group-minutes_en.pdf
89
See UNCTAD survey, p. 23
90
See CSES, 'Disclosure of non-financial information by Companies', 2011, p.12
91
Tonello, 2011; Ioannou and Serafeim, 2010. See also "Corporate Environmental Management and Credit
Risk", Bauer and Hann, 2010. For a review of existing research see "Sustainable Investing: Establishing
Long-Term Value and Performance", Deutsche Bank 2012, http://www.dbcca.com/dbcca/EN/investment-
research/investment_research_2413.jsp
18
and firm value" 92. Another study examined the relationship between demographic diversity on
boards of directors with firm financial performance, using 1993 and 1998 financial
performance data (return on asset and investment) and the percentage of women and
minorities on boards of directors for 127 large US companies. Correlation and regression
analyses indicated that board diversity is positively associated with these financial indicators
of firm performance 93. A report commissioned by the California Public Employees'
Retirement System (CalPERS) for example, found that companies that have diverse boards
perform better than boards without diversity94. The report stated that companies without
ethnic minorities and women on their boards eventually may be at a competitive disadvantage
and have an under-performing share value. On the other hand, other studies show more
nuanced results 95.
(ii) Users (NGOs, Public Authorities): Accountability

According to most NGOs and other civil society organisations consulted, insufficient
transparency translates into many large companies not being perceived as sufficiently
accountable to society at large, or to local communities which may be affected by their
operations. If information is not available, companies cannot be held fully accountable for
their impact on society. This case is made in particular with regard to some EU companies
having operations in developing countries, where national legal frameworks may include
weak or no legal obligations to disclose information. Although some evidence suggests, for
instance, that the largest European companies are more likely to have a human rights policy
than their competitors in other developed countries 96, some NGOs have referred to cases 97 of
alleged negative impacts EU companies may have on human rights and the environment in
their operations in developing countries. In this framework, insufficient transparency is
considered as an important factor inhibiting corporate accountability and responsible
behaviour, and it is alleged that non-financial reports often neglect negative environmental
and human rights impacts, while choosing to focus on less controversial issues 98. The CSES
study99 also shows, for instance, that in the great majority of cases no contact information
details or feedback mechanisms are disclosed to stakeholders.
This may also have an impact on the level of consumers' trust, as consumers may question, for
instance, whether suppliers of products and services respect applicable rules and regulations,
and whether consumer protection considerations are effectively taken into account in a
company's strategy. According to a recent report on consumer markets in the EU, for instance,
"trust" gets the lowest rating of all key components analysed 100.
92
Carter et al., 2003
93
"Board of Director Diversity and Firm Financial Performance", Erhardt,Werbel and Shrader, 2003
94
"Diversity on Corporate Boards. Stanford Centre on the Legal Profession." Rhode and Packel, 2009
95
See "The Gender and Ethnic Diversity of US Boards and Board Committees and Firm Financial
Performance." Carter, D’Souza, Simkins, and Simpson. See also Adams and Ferreira, 2009.
96
"Human Rights Policies and Management Practices of Fortune Global 500 Firms: results of a survey",
Ruggie, 2006
97
University of Edinburgh, 2010
98
"Principles & Pathways: Legal opportunities to improve Europe' Corporate Accountability Framework",
ECCJ, 2010, http://www.corporatejustice.org/IMG/pdf/eccj_principles_pathways_webuseblack.pdf
99
CSES, 2011, p.17
100
The Consumer Market Monitoring Dashboard gives access to the findings of a survey based on over 600 000
market assessments in the 27 EU countries, Norway and 50 European consumer markets.
http://ec.europa.eu/consumers/strategy/docs/EC_Market_Monitoring_2011_en.pdf
19
(iii) Users (investors): less efficient capital markets
Most of the investors consulted suggest that the current situation constitutes a significant
constraint to their capacity to build relevant non-financial information into their valuation
models. Such remark is made with regard both to the quantity and the quality of the
information available.
The current disclosure practices render thus difficult for investors to benchmark and assess
non-financial performance across industries and Member States. Insufficient transparency in
this field may consequently affect the most efficient allocation of capital across the Internal
Market. Pointing to the need to increase transparency, some stakeholders have also underlined
the importance of gaining new momentum in the aftermath of the financial crisis, arguing that
the incentive structure of the pre-crisis markets has led to a significant number of market
participants to focus excessively on short-term profits, and not sufficiently consider long-term
value creation 101. It has also been argued that the failure of many investors to take adequately
account of material non-financial issues when calculating future earnings of investee
companies contributes to market volatility and systemic market risk. 102
Information relating to how diversity is dealt with at the board level is also important as it
reflects how differences are considered, valued and managed. It provides information on
corporate culture and governance practices that enable investors to take more informed voting
and investment decisions 103. It ensures investors and stakeholders in general that the board
members have the right mix of skills and knowledge to best govern the company. In this
regard one should consider that investors have different investment strategies and objectives
that make them need and require different types of information, i.e. not only relating for
example to the long term financial performance of the company, but also to the expertise and
competences of the board members. For instance lenders appreciate and recognise the
competitive advantage of a credible and respected board, while other stakeholders are more
confident when there is evidence of a governance structure relying on the expertise of a well-
qualified board. The more diverse the board is, the more likely it is that more competencies
and skills are brought in for the benefit of the company. Therefore, by leaving out relevant
information relating to the diversity policy and to the objectives and how they are evaluated,
companies fail to provide investors with useful information. In this regard, respondents to the
2011 consultation on the EU Corporate Governance Framework 104 indicated that disclosure
of diversity policy would enhance transparency and would enable investors to take informed
decisions as to the governance practices of the company. It would in addition reduce group
think. Investors in particular indicated that, if companies are transparent on their diversity
policy, they can judge better the level of ambition of the company and monitor progress. Lack
of disclosure means insufficient communication about the needs in terms of qualifications
necessary for their particular type of business.
101
"The consequences of Mandatory Corporate Sustainability Reporting", Ioannou and Serafeim, 2011
102
“Valuing non-financial performance”, European CSR Alliance Laboratory on Valuing Non-financial
Performance, http://www.csreurope.org/data/files/toolbox/Market_valuation_final_report_beta.pdf. See also
the summary of the investor workshop on non-financial disclosure hosted by the European Commission in
October 2010, p. 2-3, http://ec.europa.eu/enterprise/policies/sustainable-business/corporate-social-
responsibility/reporting-disclosure/swedish-presidency/files/summaries/2-investors_en.pdf
103
See the new SEC rule on Proxy Disclosure Enhancement, Background and overview of the
amendments, p. 38, summary of responses to the consultation, http://www.sec.gov/rules/final/2009/33-
9089.pdf
104
20
Moreover, according to the 2011 Board of Directors survey 105 there was a strong call for
increased transparency essential to regaining confidence and trust in corporate boards and
directors. Other reports 106 underline the need for companies to engage in the reporting on
diversity matters in order to have an effective prevention of discrimination and a promotion of
diversity.
3.4 Baseline Scenario: How will the problem evolve without action?
3.4.1 Transparency of non-financial information
The weaknesses of the current legislation, both at EU and at Member States level, do not
provide stakeholders and companies with sufficient clarity on what disclosures should be
expected and legal certainty on what information is legally required. It is therefore unlikely
that significant improvements on quantity or quality of non-financial information would
materialise in the absence of action clarifying this. Potential evolution of international
frameworks and voluntary initiatives could possibly contribute to an overall positive
evolution. However, the following should be considered in a scenario without action:
– In contrast to financial information, currently there is no generally accepted standard-

setter for non-financial information. GRI appears, to date, the only institution providing
specific guidance for reporting, but this remains a set of guidelines (rather than a
standard) proposed by a private institution and applied only by a limited number of
companies on a voluntary basis. Moreover, the pace of the uptake remains very slow and
there is no clear indication that a significantly higher number of companies plans to sign
up to GRI in the short term.
– Guidance is also provided by other normative frameworks. However, these are also
voluntary frameworks and they define principles and guidelines, rather than reporting
standards. Their potential impact on the quality and quantity of information is therefore
limited. The multiplicity of such frameworks is also brought up by some stakeholders as
one of the reasons contributing to poor consistency and comparability.
– The IIRC is also working towards the creation of a generally accepted integrated
reporting framework. Although a first discussion paper was published in November
2011 107, such platform is still at a very early stage of development and significant results
can only be expected in the medium/long term.
No existing scheme or voluntary disclosure mechanism is therefore expected to yield
significant solutions to the identified problems. Non-financial information can also be
disclosed in a number of different forms other than formal reporting (i.e. internal
communication to employees, informal communication with stakeholders, product or
environmental labels). However, informal channels are considered complementary, and no
substitute for formal disclosures, and they are not deemed appropriate to respond to the
stakeholders' demand for increased transparency, in particular as regards the users' needs.
105
Heidrick & Struggles, 2011
106
See "Rapport annuel diversités, Mesurer, partager, progresser", 2011,
http://www.afmd.fr/documents/rapport_annuel_diversites_web.pdf, page 19
107
http://www.theiirc.org/the-integrated-reporting-discussion-paper/
21
3.4.2 Boards' diversity
It is difficult to assess to which extent the diversity of boards would improve without any
action at EU level, in particular as most of the available data focuses on gender diversity only.
In this regard it is important to underline that over the last 8 years the number of women on
boards has increased with an average of 0,5% per year 108. At this rate, it will take another 50
years to reach a more balanced situation, i.e. at least 40% of each sex. The positive correlation
between diversity of boards and the performance of companies, as indicated by some studies,
has not led to a significant improvement of the composition of boards across the EU.
Some large companies with highly visible public profiles may feel the pressure of scrutiny
and react better to public demands for enhanced diversity109. However, this is difficult to
predict. More companies are becoming aware that greater participation by women in
management, including at the highest levels, has a positive impact on the business and have
taken measures to foster women’s leadership potential. This includes in particular improving
work-life balance or coaching programmes 110. Nevertheless, most companies do little to
facilitate the crucial final stage, i.e. recruitment to board positions.
Social pressure and a culture that supports women may also improve the situation, as it seems
to be the case in some Nordic countries (e.g. Sweden, where the board seats held by women
increased from 20% in 2004 to 28.7% in 2010 111, despite the fact that there is no quota
legislation). Discussions over the value of diversity may lead boards to reflect more on their
needs and reflect them better in their recruitment strategies. Yet, the extent and the pace of
change cannot be predicted with any degree of certainty. Other aspects of diversity, such as
age, nationality or educational and professional background, appear to raise less interest than
gender diversity. However, it is left to companies to decide how to take into account the need
of a right balance in terms of geographical origin or educational and professional background
of board members. A gender diversity initiative at the EU level would obviously have positive
impact by increasing the number of women in the boardroom, but the beneficial effects of
other aspects of diversity would not be taken into account. In conclusion, without any action
at EU level regarding diversity (at large) of the board members, the legal framework risks to
remain fragmented.
3.5 The EU's right to act

According to the subsidiarity principle, the EU should act where it can provide better results
than intervention at Member State level. In addition, EU action should be limited to what is
necessary in order to attain the objectives, and comply with the principle of proportionality.
Several policy options are considered in section 5 below. The proportionality of each option
has been analysed with regard to its effectiveness and cost-efficiency. In all cases, in order to
ensure that companies are subject to the same requirements across the EU, it appears
preferable to legislate through EU law rather than at Member State level.
108
European Commission database on women and men in decision-making, which covers 33 countries (EU-27,
HR, MK, TR, RS, IS and NO). The data on companies cover the largest (by market capitalisation) nationally
registered (according to ISIN code) constituents of the blue-chip index maintained by the stock exchange in
each country. The total sample covers 598 companies with a minimum of 10 and a maximum of 50 from each
country, http://ec.europa.eu/justice/gender-equality/gender-decision-making/database/business-
finance/quoted-companies/index_en.htm
109
110
See examples of measures in European Commission SWD, p. 59, http://ec.europa.eu/justice/gender-
equality/gender-decision-making/index_en.htm
111
22
The disclosure of non-financial information is already regulated at EU level by the
Accounting Directives. Nevertheless, investors and other users demand a greater level of
harmonisation in this field. Moreover, the diverging approaches taken at Member State level
could determine even greater differences within the EU Internal Market, as they may lead to
further differences in terms of scope, detail or content of the requirements. Different reporting
requirements at Member States level could also potentially undermine the level playing-field
across the Internal Market. Sustainability-related information also appears, by its own nature,
as a cross-national matter.
As regards diversity issues, current initiatives are much fragmented, some Member States
being more advanced in their reflections, others only at the beginning. In the absence of an
action at EU level, in many Member States there will be no progress or very slow progress in
the coming years. Furthermore, current rules of the Accounting Directives already oblige
companies to disclose their corporate governance arrangements, in particular regarding the
composition and functioning of their boards. EU instruments appear to be more suitable in
assuring higher transparency, consistency and comparability of the information disclosed, as
well as in bringing about changes relating to diversity in the boardroom. Coordinated action at
the EU level is therefore necessary, and this initiative complies with the subsidiarity principle.
Finally, the Treaty on the Functioning of the European Union (art.11) has also reinforced the
role of sustainable development as one of the main objectives for the EU, based in particular
on a high level of protection and improvement of the quality of the environment. Sustainable
development is also affirmed as one of the fundamental objectives of the Union in its relations
with third countries. Furthermore, the Treaty (Article 8 and 10) provides that in all its
activities the Union shall aim to eliminate inequalities, and to promote equality, between men
and women, and to aim to combat discrimination based on sex, racial or ethnic origin, religion
or belief, disability, age or sexual orientation.
4 OBJECTIVES
The overall policy objective of the proposal is to contribute to the Single Market's potential to
create sustainable growth and employment, in line with the objective set out in the EU 2020
agenda of a "smart, sustainable and inclusive growth". As explained above, more transparency
for internal and external stakeholders is considered to be of key importance for companies to
improve management of risks and deliver better results. Increased transparency (including on
diversity in the boardroom) is expected to enhance the trust citizens have in business and in
markets and enable a more efficient allocation of capital, as well as provide for a better-
informed decision making (e.g. of investors). Enhancing boards' diversity would contribute to
make them more effective in their role of management oversight. The specific objectives of
the proposal can be summarised as follows:
I. Enhance companies' overall performance through (i) better assessment and greater
integration of non-financial risks and opportunities into their business strategies and
(ii) improved and more diversified oversight by the board;
II. Enhance companies' accountability and meet broadly-shared demands for more
transparency;
III. Enhance efficiency of capital markets by helping investors to integrate material non-
financial information into their investment decisions.
In operational terms, the objectives of the proposal can be summarised as follows:
23
1. Increase the number of companies disclosing non-financial information (quantity of
information)
2. Increase the quality, relevance and comparability of the information disclosed.
3. Enhance diversity in the boardroom
In achieving these objectives, avoiding undue administrative burden on companies, especially
on the smallest ones, is very important. The objectives are depicted visually in the following
objective tree:
Enhance the single market potential for sustainable growth and

employment
(via better business performance, higher trust in companies and General
markets, and better-informed allocation of capital) objectives
Enhance companies' Enhance companies' Enhance efficiency of Specific

accountability and meet performance capital markets objectives
demands for more
transparency
Increase the number of

companies disclosing Increase the overall quality, Enhance diversity in the Operational
information (quantity) relevance and comparability of the boards objectives
information disclosed
5 POLICY OPTIONS - DESCRIPTION AND ANALYSIS
5.1 Options relating to Increasing Transparency of Non-Financial Information

(Objectives 1 and 2)
A wide range of possible policy options can be considered relevant when contemplating
initiatives to improve transparency of non-financial information. The analysis carried out by
the Commission services took into account the different characteristics that each policy option
may entail, including in particular the following issues:
Form of the disclosure: disclosure could take different forms. For instance, information could
be disclosed in the form of a statement, to be included in the Annual Report (as currently
required by the Accounting Directives). It could also be disclosed in the form of a detailed,
stand-alone non-financial report, which could be published as a separate document or
annexed to the Annual Report.
Narrative or KPI-based disclosure (Reference): different options could be considered when

setting the methodology and detail of the disclosure. Disclosures can be narrative or based on
Key Performance Indicators. KPIs may be defined by the company itself, or refer to
international frameworks, or be defined at EU level. The latter option would in effect imply
the creation of an EU standard for non-financial reporting.
24
Nature of the requirement: legislation could take the form of a mandatory requirement, or
could provide a more flexible framework, such as a "report or explain" requirement. In this
case, companies may have to comply with an obligation to report, or provide a reasoned
explanation as to why they do not report. The proposed requirement may also include other
incentives for companies to disclose information on a voluntary basis.
Content of the disclosure: there is no universally accepted definition of non-financial

information. The current text of the Accounting Directives refers to ("..including..")
environment and employees-related matters. In general terms, topics considered as most
important by stakeholders and covered by existing international frameworks include, inter
alia, social, environmental, human rights, and anti-corruption aspects. Such list is not
exhaustive, and other areas may be covered, such as aspects relating to product safety,
consumer protection, competition, etc. Moreover, non-financial disclosures can also include
information on governance, including diversity. Within the above mentioned areas, the
disclosure may include, inter alia: a description of a company's policy; its results and
performance; risk management aspects, methodology and analysis used to assess
performance, etc.
Third-party verification: currently, the Accounting Directives require that the information
included in the Annual Report is verified for consistency with the financial statements 112.
This applies to environmental and social information too. Other forms of verification could
be considered, such as verification of processes, audit of activities, etc.
Scope and Legal instruments: more details are given in section 5.3 below.
On this basis, several combinations of options have been examined. Those options or
combinations of options being prima facie or least effective were discarded, while the
packages of options (broad policy options) that were considered most relevant are described
and analysed below. The options concerning respectively Objectives 1 and 2 (Increasing
quantity and quality of non-financial information) and Objective 3 (enhancing boards'
diversity) are described and compared in sections 5.1 and 5.2 below. A more detailed analysis
is provided in Annexes 6 and 7.
5.1.1 Description of Broad Policy Options
The Commission services have analysed three main policy options (one of them with three
sub-options), plus the "no policy change" scenario, which would leave unchanged the relevant
provisions of the Accounting directives (Policy Option 0). The options presented below vary
in regard to the form of the disclosure, the reference and the nature of the requirement. As a
consequence, they are not all mutually exclusive.
1. Require a statement in the Annual Report (Option 1)
Option 1 considers the possibility of strengthening the existing requirement to disclose a

statement on non-financial information in the Annual Report. In order to address the specific
information gaps and improve the quantity and quality of information, such option would
modify the baseline scenario by requiring that
112
Art 51a (e) of the Fourth Directive states that the statutory audits shall also contain an opinion concerning the
consistency or otherwise of the annual report with the annual accounts for the same financial year
25
- material information relating to at least social human rights, anti-corruption and bribery
matters is disclosed, in addition to environmental and employees-related matters
- within these areas, the disclosure should include a description of (i) the companies'
policies, (ii) performance and (iii) risk-management aspects, relying on existing
international frameworks.
As further explained in Annex 6, such elements have been identified by a broad majority of
stakeholders as key aspects in order to obtain an overview of the non-financial performance of
companies. Most international frameworks require disclosure of information on these topical
areas. However, the list provided is not intended to be exhaustive, and other information
should be disclosed provided it is material. Those companies that do not have a specific
policy in one or more of these topical areas would be at least required to explain why this is
the case.
2. Require a Detailed Report (Option 2)
This option considers the possibility of introducing a new requirement to disclose non-
financial information in the form of a detailed, stand-alone non-financial report. Such
report would have to be drafted in accordance with existing international frameworks. It
would consequently be significantly more detailed than a disclosure in the form of a
statement, although it should cover at least the same topical areas identified in Option 1, as
well as any other issues that the company may consider relevant. Based on the nature of the
requirement, three sub-options are considered:
• Option 2.a considers the possibility of requiring companies to provide such a detailed
report on a mandatory basis.
• Option 2.b considers the possibility of requiring detailed reporting on a "report or

explain basis". This would allow companies to provide a report, or explain why they fail
to do so.
• Option 2.c considers the case for voluntary reporting. Companies choosing to disclose
a detailed report on a voluntary basis would be exempted from the obligation to disclose
non-financial information in other forms, provided that: (i) the report covers the same
topics and content identified above, (ii) it makes reference to international frameworks,
and (iii) it is annexed to the Annual Report. There would be no mandatory obligation to
provide a detailed report, nor to give an explanation if a report is not provided.
3. Set up a mandatory EU Standard (Option 3)
Option 3 deals with the possibility of setting up a mandatory EU Standard, which would
constitute a framework for disclosing non-financial information. Rather than relying on
existing frameworks, companies would be required to disclose information complying with a
set of EU-based KPIs. Such standard would cover at least the same topical areas and elements
mentioned in Option 1 above - as such elements have been identified by a broad majority of
stakeholders as key aspects in order to obtain an overview of the non-financial performance of
companies. This option would consequently require a disclosure in compliance with a detailed
set of indicators, with a level of detail at least comparable to Option 2. An overview of the
proposed policy options is given in Table 1 below.
26
Table 1 – Summary of Policy Options
Option Nature of Form Reference Topics Estimated Cost

Requirement of compliance*
0. No change Only where Statement Business- [including] information 0

appropriate relevant KPIs relating to
environmental and
employee matters
1. Require a Mandatory Statement Business- Policies, performance €600 to 4300

disclosure in the relevant KPIs, and risk-management
Annual Report relying on aspects concerning at
International least Environmental,
Frameworks Social, Employee,
Human rights,
Corruption
2.Detailed Reporting a) Mandatory Report to be Same topics as Option a) €33000 to

drafted in 1, but more detailed €604000
accordance with information
International b) €33000 to
b) Report or Explain Report Frameworks €604000
(compliance) or
€600/1000
(explanation)
c) Voluntary
c) 0
3. EU Standard Mandatory Report Detailed list of Same topics as Option €33000 to

KPIs (Standard) 1, but more detailed €604000
to be defined information
*The cost of compliance is estimated in terms of administrative burden compared to the current situation. The cost of Option 0
is consequently nil
Verification: The current verification requirements under the Accounting Directives would remain
unchanged under all the described options. This means that, as any other aspect of the annual report, non-
financial information would have to be checked for consistency with the financial statements. Stakeholders
referred to verification costs as significant, a consideration confirmed by the results of the CSES study.
Notwithstanding the potential benefits related to verification, the Commission services consider that, by not
requiring additional verification of non-financial information, transparency can be improved while keeping
the administrative burden low.
In Annex 6, each option is assessed in detail in regards to its effectiveness in meeting the
objective of increased transparency (higher quantity and quality of information), as well as on
some limiting factors. These include its efficiency (compliance cost), acceptability to
stakeholders, effects on competitiveness and coherence with other relevant EU legislation.
The administrative burden related to each option is also assessed in Annex 8. A comparative
summary of the analysis of the broad policy options is provided below.
5.1.2 Comparative Analysis of broad Policy Options
Enhanced transparency is seen as a desirable objective, since it could bring benefits for
preparers (companies) as well as for users (mainly investors, NGOs and other external
stakeholders). However, it has to be recognised that providing additional information to
stakeholders, in the form of a statement or a detailed report, also has a cost. The main costs
27
include, inter alia, the resources that companies would have to devote to collecting data,
drafting the statement or reports, potentially publishing and auditing them, training staff, etc.
Broad social and environmental impacts are difficult to quantify and also depend on specific
companies' behaviour. It is assumed that such impacts proportionally increase with the effect
that the policy option has on the quality and quantity of social and environmental information
available.
Option 0 (No change) does not appear to be an effective approach for dealing with the
problems. The current reporting requirements and voluntary initiatives by companies have
proved to be ineffective in achieving the policy objectives. Despite recent improvements, only
approximately 6% of EU large companies are reporting and the quality of the information
disclosed is mixed. This failure has a negative economic impact due to the fact that relevant
risks and externalities are not fully captured in the accounting practice and investors cannot
adequately assess companies' non-financial performance.
Option 1 (Disclosure in the Annual Report) would improve the quantity of information, as
it would require concerned companies to disclose material information in the Annual Report.
Moreover, the current requirement would be expanded to new topical areas, as information
should include social, human rights, anti-corruption and bribery matters in addition to
environment and employees-related aspects 113. Minimum harmonisation would be introduced
as regards the content of the disclosure: it is expected that the requirement to include
information on policies, performance, and risk-management would benefit the quality and
comparability of the disclosure, and improve companies' sustainability awareness.
Companies would incur higher compliance costs expected to be in a range between 600 and
4300 euros per year per company (see Annex 9). Overall, economic benefits are expected
from better management of risks and allocation of capital, enhanced trust in business and
better resources management. However, it is difficult to quantify such long-term benefits and
they would depend on how non-financial aspects are integrated in managers and investors'
strategies and practices. As regards environmental and social impacts, the option is expected
to positively affect businesses' conduct raising reputational costs for misbehaviour and
increasing peer pressure.
Option 2 (Detailed Reporting) could have an overall greater impact on transparency than
Option 1. The increase in the number of companies reporting would be the same for Option 2a
(Mandatory), whereas it would be uncertain for Options 2b and 2c. Quality could benefit from
a requirement to provide a detailed report drafted in accordance with international
frameworks, as information would be more comprehensive and granular, and the use of KPIs
could have a positive impact on comparability. On the other hand, it has been pointed out that
imposing detailed disclosure requirement may result in a 'tick-the-box' exercise, with only
limited impact on real companies' behaviour 114. The difference in terms of economic, social
and environmental benefits compared to Option 1 cannot therefore be precisely assessed,
although it is expected that greater transparency would determine higher benefits. However,
the administrative burden resulting from a mandatory reporting obligation, at the current level
of development of tools, would be significantly higher, particularly in the short term. The
annual cost of producing a report is estimated to be between 33000 and 604000 euros per year
per company. 115
113
A vast majority of the stakeholders consulted agreed that information concerning human rights and
corruption-related matters should be part of the non-financial information disclosed by companies. See Public
Consultation Summary report, pp.10 to 12
114
UNEP/KPMG/GRI, 2010
115
More details provided in annex 9
28
Option 2a (mandatory), is not considered cost-effective on the basis of the high
administrative burden. In Option 2b (report or explain) the administrative burden would be
equal for companies opting to provide the report (and thus bear the same compliance cost as
in Option 2a). Companies opting to provide an explanation would at least bear the related
costs, estimated to be comparable to the lowest range of the cost estimate given for Option 1
(600/1000 euros) 116. Overall, the Commission services estimate that it be less effective than
Option 2a, although it has the potential to generate peer pressure and provide an effective
incentive for companies.
Option 2c (voluntary) intends to recognise and promote best practices of companies reporting
on a voluntary basis. Its effectiveness in terms of quantity of information would be uncertain.
At the same time, for companies deciding to report, it would guarantee the same
improvements in quality as Option 2a and similar economic benefits. Lastly, while the overall
impact on society and environment would be weaker than Option 2a, proactive engagement in
detailed reporting should not result in a 'tick-the-box' exercise. Such option would carry no
additional administrative burden, as the disclosure of a detailed report would remain
voluntary.
Option 3 (Mandatory EU Standard) could increase significantly the quantity and quality of
disclosed information.. An EU standard designed in a way that is able to meet the needs of
preparers and users could also maximise the comparability of the information. Moreover, this
option would generate economic benefits resulting from better management and allocation of
capital and an overall positive environmental and social impact. However, those positive
effects would be subjected to the completion of a long and uncertain process of development
and implementation of such standards, including thorough consultation with stakeholders.
Moreover, the majority of business associations, experts and most stakeholders underlined the
need for sufficient flexibility (also internationally) and the dangers of a 'one-size-fits-all'
approach. As regards compliance costs, at the current level of development of tools, option 3
would be comparable to Option 2a in terms of administrative burden, or even higher. Option 3
is therefore not considered cost-effective at this stage.
The table below summarises how each policy option is assessed against the criteria of
effectiveness in meeting the objectives; efficiency (compliance costs); competitiveness; and
coherence with other EU legislation.
Table 2 – Assessment of the Policy Options
Effectiveness Efficiency Competitiveness Coherence
(compliance with EU
Quantity Quality cost) legislation
0. No change 0 0 0 0 0
1. Require a disclosure in + + + + +
the Annual Report
+
2.Detailed a) ++ + -- +/?
reporting Mandatory
116
According to an assessment made by the Danish government, a comparable disclosure would cost around 870
euros per company http://www.dcca.dk/graphics/publikationer/CSR/CSR_and_Reporting_in_Denmark.pdf,
p. 12. More details are provided in Annex 9
29
+
b) Report +/? + - +/?
or Explain
c) ? + + + +
Voluntary
+
3. Set up a mandatory ++ + -- ?
EU standard
Magnitude of impact as compared with the baseline scenario (baseline is indicated as 0): ++ strongly positive;
+ positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable
(Commission Services Analysis).
The table below summarises how each category of stakeholders would view the policy
options:
Table 3 – Assessment of the Policy Options by Stakeholders Group
Users/ Users/
Preparers
investors NGOs
0. No change 0 0 0
1. Require a disclosure in the Annual Report ≈ + +
2. Detailed reporting a) Mandatory -- + ++
b) Report or Explain - + +
c) Voluntary ++ - --
3. Set up a mandatory EU standard -- + +
Commission Services Analysis, based on the results of the consultations
5.1.3 Preferred option
Having compared the different options, the preferred policy option appears to be a a smart
mix of mandatory (statement) and voluntary (detailed reporting) disclosure requirements
(option 1 and option 2c). Companies would be required to disclose material non-financial
information in the form of a statement in their Annual Report. Those companies that do not
have a specific policy in one or more topical areas would be at least required to explain why
this is the case. For companies willing to prepare a detailed report on a voluntary basis, the
proposed policy mix would provide an exemption from the disclosure obligation described
under Option 1, provided that: (i) the report covers the same topics and content, (ii) it makes
reference to international frameworks, and (iii) it is included in the Annual Report. This
provision builds on existing practices and provides a limited but useful incentive to improve
the quality of those reports. Information would be disclosed in reference to high quality,
generally accepted international frameworks, and verified for consistency due to the inclusion
in the Annual Report.
More details on the choice of instrument and scope of application are given in sections 5.3
and 5.4 below.
30
5.2 Options Relating to Enhancing boards diversity (Objective 3)
Different types of measures aiming at enhancing board diversity and based also on techniques
other than disclosure can be envisaged, ranging from an improvement of the existing
recruitment policies to a more or less binding obligation for companies to enhance their board
diversity. A summary and analysis of these different options is outlined below. A more
detailed presentation and analysis is provided in Annex 7.
5.2.1 Description of the broad policy options
In the "no policy change "scenario (option 0), any possible action to increase board
diversity would have to be taken by individual Member States and/or companies on a
voluntary basis. According to the option 1, companies would be required to disclose their
board diversity policy with regard to various aspects, including in particular age, gender,
nationality or educational and professional background 117. The disclosure requirement would
be part of the corporate governance statement and would be included in the annual report (see
section 5.2.3. below). The statement would present the objectives of this policy, its
implementation and the results obtained. Companies who do not have a diversity policy
would not be obliged to put one in place, but only to explain why this is the case. Option 2
would mandate companies to take into account diversity as one of the criteria for the
selection of a board candidate. Companies would be obliged to consider not only the
expertise of a given candidate, but also to which extend he/she would make the board as a
whole more diverse. Option 3 would put on companies a binding obligation to establish a
policy concerning diversity for boards. Companies would have to determine the content of
this policy, establish targets and assess their achievement. It should also be noted that the
option of introducing quotas has been discarded, as it is the subject of a separate Commission
initiative.
5.2.2 Comparative analysis of the broad policy options
Each option has been assessed taking into account its effectiveness in reaching the objective,
efficiency (compliance costs), acceptability to stakeholders, effects on competitiveness,
coherence with other EU initiatives and impact on fundamental rights. This assessment can be
found in Annex 7. On the basis of this appraisal, a comparative analysis of the preliminary
policy options has been conducted and it is summarised below.
The preliminary analysis points to enhanced disclosure as the best approach in order to
improve the overall diversity of boards. The 'no policy change' scenario/option 0 has been
discarded as it does not seem to allow for sufficient improvement of the current situation. The
progress would be slow or limited, unless Member States take action, as well as fragmented at
the EU level. It would depend very much on the practices of companies and national debates
on the issue. In addition, it could be seen as a missed opportunity to propose a complementary
measure to the one on gender, in order to enhance diversity in the boardroom.
Option 1 (disclosure of diversity policy) would contribute to enhancing transparency and
informing the market of corporate governance practices. Thus it would put indirect pressure
on companies to adopt more ambitious diversity policies, while offering a great deal of
flexibility. Measures based on disclosure have proved their effectiveness in Member States
such as Finland or Sweden.
117
Companies may also include in their reporting other aspects of diversity which they consider relevant; see
also Section 3.2 in fine
31
This measure could also have potential positive social impacts, as a more diversified board
would be better placed to take into account concerns of different groups of employees and
stakeholders. In addition, it may bring more equality of treatment and opportunities for
different groups of people or individuals and this from the top to the bottom.
This approach, unlike in the case of financial institutions, has been considered, at this stage,
more appropriate to achieve the pursued objective of diversity in the boardroom. Differences
between financial institutions and listed companies in general (e.g. banks generate systemic
risks, consequences were borne by governments and population at large, etc.), require stricter
rules on the corporate governance of financial institutions, whereas listed companies need
more flexibility. The enhanced disclosure requirement would be coherent with other
initiatives (e.g. in financial institutions, on gender diversity) and it would be in particular
likely to contribute to the implementation of the quantitive targets by companies.
Option 2 (diversity as recruitment criterion) could have a positive impact on diversity,
while being consistent with the initiative on gender balance in the boardroom. Similarly, it
could also have a positive social impact as described above. However, companies are not
always transparent about their recruitment practices and processes. In the absence of a
sufficient degree of transparency, the effectiveness of an option addressing recruitment alone
would be limited as it would rely mainly on the appreciation by the company.
Option 3 (establish a diversity policy), although also effective, could be perceived as too
prescriptive as it would simply oblige companies to put in place a policy, without giving
them the choice to justify the absence of such policy on a "comply or explain" basis. It may
thus be less accepted by stakeholders and may be less consistent with the on-going initiative
on gender diversity that may require quantitative targets. It would have positive social impacts
in terms of equality and opportunities for different categories of people (gender, age, etc.). It
could indirectly have an impact on the reconciliation between private/family and professional
life, as the promotion of more women in key positions for example (who have in general more
family related responsibilities) would potentially bring about more flexible policies in this
regard.
In the light of the assessment of the abovementioned policy options, it appears that the most
appropriate option at this stage would be option 1 (disclosure of diversity policy). It is also
better accepted by most stakeholders compared with a compulsory diversity policy or to an
action focusing only on recruitment policy. Moreover, it is complementary to the separate
Commission initiative relating to the possible introduction of quantitative targets for gender
balance on boards, as the enhanced disclosure would probably contribute to a better
implementation of these quantitative objectives. A detailed comparison of options is to be
found in Annex 7.
Table 4 – Assessment of the Policy Options
Estimated costs
Effectivenes Efficiency Competitiveness Coherence with EU
per company
initiatives
(Compliance Cost)
0. No policy 0 0 0 0 0
change
1. Disclosure of + + + ++ €600/1000
internal policy on
diversity in the
32
annual report
2 Diversity must +/? -/? +/? +/? ? possible costs

be one of the linked to
criteria of Board remuneration of
composition HR specialists
? linked to
3. Requirement to + - - -/?
remuneration of
establish a policy
HR specialists
with regard to
and possible
diversity
increase of
board members
Magnitude of impact as compared with the baseline scenario (the baseline is indicated as 0): ++ strongly
positive; + positive; – – strongly negative; – negative; ≈ marginal/neutral; ? uncertain; n.a. not applicable
Table 5 – Assessment of the Policy Options by Stakeholders Group

Investors Other
Companies
(NGOs, civil
society, etc.)
0. No change 0 0 0
1. Disclosure of internal policy on diversity in the annual + ++ ++

report
2 Diversity must be one of the criteria of Board +/? +/? +

composition
3. Requirement to establish a policy with regard to - +/? +

diversity
5.2.3 Preferred option (enhanced disclosure of the board diversity policy)
The present section refines the preferred option which aims at enhancing board diversity, by
taking into account the disclosure criteria mentioned at the beginning of the present chapter:
the form and content of the disclosure and the nature of the requirement.
As regards the form of the disclosure, it appears that a statement in the annual report
describing the company's diversity policy for the board is the most appropriate approach. In
this regard it is important to recall that, as already mentioned in section 2.2., according to the
current provisions of the Fourth Directive, all listed companies are required to provide a
corporate governance statement, which shall include, inter alia, information on the
composition and operation of the administrative, management and supervisory bodies and
their committees. Thus, information on board diversity policy should be a part of the
corporate governance statement, which appears to be a sufficient instrument for ensuring
transparency. A separate report does not seem necessary, especially given that, the disclosure
of board diversity policy covers only a limited group of people (European boards consist on
average of 12 members 118). The proposed provisions regarding board diversity would
therefore complement the current provisions laid down in Article 46a of the Fourth
Accounting Directive, by adding a new requirement for diversity disclosure
118
33
As regards the topics and the content of the disclosure, companies should be required to
describe their diversity policy with regard to various aspects, including age, gender,
nationality and educational and professional background. These aspects are particularly
important, as shown in the description of this problem. However, companies would also be
able to include other aspects of diversity which they consider relevant and material. In
addition to the description of the diversity policy, its objectives, implementation and results
should be also included. As the main objective of increasing diversity is to enhance the
supervision of the management, the information specified should be provided in the first place
regarding supervisory boards and the non-executive directors. However as the preferred
option would not place on companies any concrete obligation going beyond disclosure and as
enhanced transparency regarding both management/executive directors and supervisory/non
executives would be beneficial for the company, the new requirement should therefore
concern the same bodies as currently foreseen by the Accounting Directives for the
information on "the composition and operation of the administrative, management and
supervisory bodies".
Regarding the basis for disclosure on board diversity, although initiatives such as GRI include
diversity indicators in their reporting framework, it is preferable to leave companies free to
choose the most appropriate reference for the disclosure.
As regards the nature of the requirement, the preferred option aims at bringing about positive
change in the boardroom by creating more visibility around the issue. Yet, it would not put a
binding obligation on the company to have a diversity policy. A 'comply or explain' approach
seems thus the most appropriate solution. Companies would therefore be required to report on
their board diversity policy or, if they don't have one, explain why this is the case.
To conclude, the preferred option would require companies to disclose their board diversity
policy, in particular as regards age, gender, nationality, professional and educational
background. Companies would have to describe the objectives of this policy, its
implementation and its results. The disclosure would be part of the corporate governance
statement, which is contained in the annual report. Companies that do not have a diversity
policy would be required to provide reasons for that.
5.3 Choice of instrument

In principle, a number of instruments could be used to approach the problem, including, self-
and co-regulation, new legislation (directive or regulation) or modification of existing
legislation. The following points are relevant when considering the case for amending the
existing Accounting Directives (AD):
• The general scope of the AD is EU registered companies both listed and non-listed. As
far as non-financial information is concerned, several arguments support having
transparency requirements for both listed and non-listed companies: first, non-listed
companies are subject to the same demands of transparency and accountability as listed
companies; second, having the same regime on listed and non-listed companies would
maintain a level playing field.
• On the other hand, specific provisions of the Accounting Directives relating to corporate
governance disclosure only apply to listed companies. The disclosure of board diversity
policy could be added as a new topic to the existing corporate governance statement.
34
• Moreover, the relevant requirements of the Accounting Directives would also be
applicable to the Transparency Directive, by means of a cross-reference 119. The scope of
the TD covers all companies listed on EU regulated markets (including companies
incorporated outside the EEA but listed on EU regulated markets). Should new articles
be added to the Accounting Directives, an amendment of the Transparency Directive
may therefore also be necessary.
• A proposal to revise the TD and of the AD was adopted by the Commission on 25

October 2011, and negotiations are currently on-going 120.
An alternative instrument would be a new Regulation, which would have the advantage of
being directly applicable and would not need to be transposed into national law. However the
creation of a separate Regulation to deal with this single policy objective alone does not
appear proportionate, when the policy could be legislated for within separate sections of the
AD. Moreover, a Regulation would not seem an appropriate instrument in light of the existing
non-financial disclosure practice, which is based on principles and objectives rather than
detailed standards.
It could also be argued that a specific, measurable, achievable and timely commitment by the
industry itself (i.e. Self- or co-regulation), appropriately supported by EU policies, could
possibly deliver significant results. However, self- or co-regulation are not considered as
effective options because, despite the growing demand from stakeholders (mainly users of
information, such as investors and NGOs) throughout the years, still only a minority of large
companies are disclosing non-financial information on a voluntary basis. Moreover, this
instrument would not address the problems of lack of minimum harmonisation stemming
from the diverse approaches taken by some Member States.
In the light of the above considerations the inclusion of a series of provisions within the
Accounting Directives is the preferred choice.
5.4 Scope of Application

As far as non-financial information is concerned, the Commission services conclude that only
large companies and groups, whether listed or not, should fall within the scope of application
of the new rules. Requiring only large companies to provide disclosures would be in line with
the Commission's policy of making administrative burden proportionate. Smaller business
would spend proportionally more time and resources dealing with administrative tasks than
their larger counterparts 121. Having in mind the objective of avoiding undue burden and
taking into account the input from stakeholders and national authorities, only companies
having more than 500 employees would be subject to new requirements. It is estimated that
this would cover approximately 18,000 large companies operating in the EU. This threshold is
higher than the one currently applied within the Accounting Directives for certain obligations
(i.e.: 250 employees), which limits the burden of the proposed measure.
119
See article 4 (5) of Directive 2004/109 ("Transparency Directive"), http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2004:390:0038:0038:EN:PDF
120
Proposal for a Directive on the annual financial statements, consolidated financial statements and related
reports of certain types of undertakings, COM/2011/0684 final, http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52011PC0684:EN:NOT
121
CSES 2011, p. 27
35
Companies that are subsidiaries within a group could also be exempted from the disclosure
requirement to the extent that their relevant information is integrated in the consolidated
report of the parent company.
As regards board diversity, it is important to maintain coherence with existing requirements in
the field of corporate governance disclosure. The existing EU corporate governance rules only
cover listed companies 122. According to the current provisions of the Accounting Directives
listed companies are required to provide a corporate governance statement in their annual
report and to disclose certain topics (see Annex 2). The scope of disclosure of the diversity
topic should therefore be the same as the scope of disclosure of other corporate governance
topics. Respondents to the Green Paper on the EU corporate governance framework clearly
pronounced themselves against the extension of the EU corporate governance rules to unlisted
companies. Furthermore, whereas the need to ensure the same level of transparency on non-
financial disclosure for both listed and non-listed companies was highlighted above, the
situation is different for disclosure of diversity policy. Corporate governance arrangements
regulate the internal functioning of a company and as a consequence disclosure is crucial in
case of listed companies with external shareholders who are directly concerned by it and less
important in case of non-listed companies 123. The scope of the disclosure on board diversity
and on other non-financial matters will thus not be identical. As explained in 5.3 above, such
difference already exists in the current provisions of the Accounting Directives. Thus, only
listed companies should be covered. However, best corporate governance practices of unlisted
companies can be encouraged on voluntary basis.
Finally, as to the size of companies concerned, it should be pointed out that including board
diversity policy disclosure as a new topic in the corporate governance statement should not
create any considerable administrative burden. As far as SMEs are concerned, listed ones are
already required to produce a corporate governance statement, including information on the
composition and functioning of their boards. However, given that it may be sometimes
difficult to assess or foresee precisely the impact of such disclosure on very small companies
and that the reduction of the administrative and regulatory burden is a top-priority for the
European Commission, SMEs as defined by the Accounting Directives would be exempted
from the diversity disclosure requirement. Nonetheless, as in the case of non-listed
companies, best corporate governance practices of SMEs can be encouraged on voluntary
basis.
6 CUMULATIVE IMPACTS OF THE PREFERRED OPTIONS
The proposed policy is a combination of a mandatory requirement to disclose non-financial

information (including information on the diversity policy applicable to the board) in the
122
It should be noted that in the proposal for a review of the Accounting Directives (art. 21) the Commission
proposed that a corporate governance statement should be disclosed by public interest entities. Public interest
entities are defined by Article 2 (13) of Directive 2006/43/EC, which covers certain non-listed entities too,
such as certain credit institutions or insurance undertakings or other entities defined by Member States
because of the nature of their business, their size or the number of their employees. A proposal to amend the
Audit Directive has also been adopted in November 2011, where the Commission has proposed to further
expand this definition to other types of financial sector entities. However, this possible extension of rules on
corporate governance statement to the specific category of public interest entities, and in particular certain
financial institutions, is justified by their potentially high impact on economy. It should not be understood as
a general extension on rules on corporate governance statement to unlisted companies.
123
EU rules on corporate governance apply only to listed companies. It is considered that companies that do not
raise capital on financial markets should in general not be subject to same requirements as listed companies,
as there is no need to ensure protection of external investors. Good governance practices for unlisted
companies could of course be encouraged on a voluntary basis.
36
annual report, and voluntary detailed reporting. As explained above, it is expected that the
preferred options may achieve the identified operational objectives, while keeping the
administrative burden low. The expected cumulative impacts are presented below.
6.1 Expected Primary Impacts
6.1.1 Increased transparency
The preferred option is expected to increase the quantity of information available to

stakeholders compared to the baseline scenario by increasing the number of companies
disclosing information by about 7 times (from ~2500 to ~18000). Moreover, the requirement
is designed in a way to meet the key needs identified by the users as regards both the content
of the disclosure (i.e. material information concerning policies, performance and risk
management aspects on social, environmental, human rights and anti-corruption aspects). This
lead to a further improvement in the quality of the information disclosed, compared to the
baseline scenario. The reference to internationally accepted frameworks is meant to raise the
level of materiality, accuracy and comparability across companies as well as of one company
over time. The requirement for companies to give a reasoned explanation in case they do not
have a specific policy in place may also increase peer pressure and encourage best practices,
while retaining flexibility 124. Finally, should companies also decide to voluntarily provide a
non-financial report, the level of detail of information disclosed would necessarily increase.
6.1.2 Better performance of companies (and better risk management)
The Commission services estimate that the proposed policy, by enhancing transparency at a
limited cost, would have an overall positive impact on companies' performance. The
economic benefits related to non-financial transparency tend to become more apparent on the
long-term, and they appear to be larger in those countries with mandatory disclosure
requirements 125. As explained in chapter 3, academic evidence confirms a positive correlation
between transparency and performance. However, such benefits are in most cases difficult to
quantify and precise estimates as to what extent the preferred option would contribute to their
achievement cannot be provided 126.
Overall, the preferred option is expected to bring benefits both at internal (i.e. better employee
relations, improved management systems and internal processes, etc.) and external level (i.e.
enhanced reputation, better perception by and dialogue with stakeholders, easier access to
capital). In particular, the requirement is designed in a way that would encourage companies
to better integrate non-financial and financial considerations, as the disclosure would be part
of the annual report. Material information on risk-management aspects would consequently be
reviewed by the boards, allowing them to have a more thorough and integrated view of both
124
The Danish case shows that two years after the approval of the relevant legislation, 97% of companies have
chosen to report on their CSR policies.
http://www.dcca.dk/graphics/publikationer/CSR/CSR_and_Reporting_in_Denmark.pdf . For an overview of
the different arguments in favour or against the comply or explain approach, see "Development of Norms
Through Compliance Disclosure", Bjorn Fasterling, 2012
125
Ioannou and Serafeim, 2011
126
In the CSES study, for instance, only 3 respondents to the survey indicated they had tried to quantify the benefits
of non-financial reporting in figures. Of those 3, only one had arrived at a financial estimate. This company
had a non-financial reporting cost in the mid-range of larger companies (€300000) and reported they had
identified efficiency savings of €80 million. However, it was not clear that what amount of these benefits
could be attributed to the preparation of non-financial reports.
37
financial and non-financial risks. This may have positive effects on overall management,
through a better consideration of non-financial parameters in designing business strategies 127.
The proposed requirement may also lead companies to set up (for first time reporters) or
optimise processes and systems related to the collection and analysis of information. This may
increase management's awareness of non-financial performance 128, and generate tangible
cost-saving data leading, for instance, to energy saving interventions or waste
minimisation. 129. Other positive impact may include the reduction of some running costs
(such as the reduction of insurance costs due to better management of risks) or easier
benchmarking with competitors or market leaders.
Furthermore, the requirement to disclose the diversity policy applicable to their boards, by
enhancing the visibility of companies' actions in that field, would encourage companies to
take further into account the need to have more diverse views in the boardroom. A right mix
of background, origins and views allows for more robust discussion and leads to better
oversight of the management by the board and to overall better decision-making processes.
6.1.3 Increased accountability
As a result of the implementation of the preferred option, material non-financial information

would be made publicly available on a regular basis. This information could be used by civil
society organisations and local communities to assess the impact and risks related to the
operations of a company. It is therefore anticipated that, by increasing the quantity of and
quality of information available, a disclosure requirement would also positively affect the way
companies are perceived in terms of their accountability towards society. More and better
reporting could increase consumers' trust and have a positive effect on the demand side,
creating new entrepreneurial opportunities and better management of externalities. It would
also act as a catalyst for companies to increase or improve their CSR practices, as well as
improve their diversity in the boardroom.
6.1.4 Enhanced efficiency of capital markets
As ESG data provides an important qualitative window into the management practices of
companies, the proposed policy would contribute to improve investors' decision-making
capacity130. Financial markets increasingly recognise that risks related with investing in these
127
"What Really Counts: The materiality of extra-financial factors" Garz, and Volk, 2007,
http://www.sristudies.org/Garz+and+Volk+(2007), studied sustainability reporting by 540 EU companies and
found that the process of drafting such a report was among the most important catalysts for organizational
change, contributing to the accumulation of knowledge, questioning of processes, and the establishment of
suitable structures and practices.
128
According to the CSES study, benefits relating to credibility and overall transparency are ranked amongst the
most important ones by the companies surveyed. Risk-management and improvement of the internal culture
were also considered important or very important by all companies surveyed. CSES 2011, p. 28
129
Reporting might provide companies with tangible cost-saving data, e.g. on recycling, energy saving
interventions or waste minimisation. In KPMG’s 2008 survey, cost saving was the fourth biggest
sustainability motivator, with 27% of respondents admitting to implement reporting processes for cost
reduction purposes. As an example, paper manufacturer Mondi publically states that it achieves significant
bottom-line savings by reporting on its environmental impact. See
http://www.mondigroup.com/desktopdefault.aspx/tabid-2032/
130
Increased transparency may also reinforce the credibility of specific sustainability indexes and rating
systems. The risk that their recent proliferation could undermine their own quality and credibility, as they
could rely on incomplete and unsubstantiated information, was raised by some stakeholders. See "Rate the
raters", AccountAbility, 2011, http://www.sustainability.com/library/rate-the-raters-phase-
four#.TyGX8qVbdiM
38
companies are lower than in other companies and rewards them accordingly. A vast majority
of academic studies agree that companies with high ratings for CSR and ESG factors have a
lower cost of capital in terms of debt (loans and bonds) and equity 131. In the public
consultation investors confirmed the relevance of ESG data stating that the insufficient level
of transparency constitutes a constraint to their capacity to build relevant non-financial
information into their valuation models 132. In the short term, introducing more and better
disclosure would respond to growing market-driven demand for more comparable and
accurate non-financial information. In the long term it could also drive more mainstream
investors to take into better account all the risks and externalities of firms and thus its true
performance, leading to the development of more comprehensive valuation models. 133 In
particular, by providing additional guidance as regards the minimum requirements on topics
and content covered by the disclosure, this policy would contribute to mainstreaming the
information available and could provide clearer expectations concerning its materiality and
completeness. It follows that the proposed policy could have a limited positive impact on
problems related to financial markets' short-termism which appeared evident in the aftermath
of the financial crisis. In relation to diversity in the boardroom, as already illustrated in
section 3.2, having the right mix of skills and knowledge is essential for good corporate
governance. Therefore, the proposed policy would enable investors to take informed decisions
as to the governance practices of the company.
On the basis of this reasoning, and of growing evidence of a link between financial and non-
financial long term performances, the Commission services estimate that the proposed policy
could contribute to a more efficient allocation of capital across the Internal Market.
6.1.5 Increased administrative burden

The preferred policy options will determine a limited increase in administrative burden on the
concerned companies as it will add to the length of the annual reports, as the quantity of
information disclosed is expected to be broader than the current practice. 134
As regards non-financial disclosure, the additional cost is estimated to be between €600 and
€4,300 per year per company (for a detailed explanation see Annex 8), thus generating a total
cost estimated between €10,5 and 75,25 million. Additional costs relate in particular to
drafting, publication, or specific staff training. Some additional data may also need to be
collected, although one should bear in mind that the policy would merely strengthen an
already existing legislative requirement, and the necessary systems and procedures should
already be in place in many companies. The proposed policy would not determine additional
administrative burden on those companies voluntarily choosing to produce a detailed report in
compliance with the requirement, as they would be exempted from additional disclosure
131
DB Group, 2012
132
Public Consultation Summary Report, p. 10. See also the Minutes of the ad-hoc Expert Group, 11 July 2011
meeting, http://ec.europa.eu/internal_market/accounting/docs/11072011_minutes_en.pdf. For an overview of
investors' needs, see CREM/Adelphi, 2011, p. 91
133
"Reporting Change: Readers & Reporters Survey 2010", SustainAbility, 2010,
http://www.sustainability.com/library/reporting-change#.TyGj3aVbdiM. The study shows that reporting is
considered a trusted form of information channel by a large majority of users (90%).
134
The scope of companies' recurring costs closely depends on the content of the requirement. Therefore, and
due to the qualitative and flexible nature of the proposed measures, all the figures provided should be
considered as estimates and a fair amount of uncertainty needs to be included. The cost estimates are based
on the available public data, as well as on evidence gathered by the Commission services in the various
consultations (online public consultation, ad hoc expert group, bilateral contacts with stakeholders). See
Annex 8 for more details.
39
obligations. The cost incurred by these companies on a voluntary basis, however, would be
significantly higher, although it varies to a great extent depending on the size and complexity
of the company and its operations, as well as on the type of reporting chosen. They would also
be likely to be higher for first time reporters, while decreasing over the years. As estimated in
Annex 8, the total cost of producing a non-financial report is estimated in the range of
€33,000 to €604,000. Such estimates include all costs relating to the drafting of the report, its
publication, additional ad-hoc data collection costs, annual costs such as training as well as
potential external assurance.
With regard to board diversity, the cost of disclosure of the diversity policy is estimated to be
between €600 and €1000 per year per company, thus generating an estimated total cost
between € 3.6 and 6 million. Given the fact that the preferred option would not apply to listed
SMEs, its impact should be limited. As illustrated in section 5.4 listed companies are already
required to produce a corporate governance statement and the new requirement would only
add a new topic to this disclosure. As the preferred option only requires disclosure and does
not impose any obligation to have a board diversity policy, it offers companies an important
flexibility and does not impose disproportionate burden. The administrative burden is
examined in more detail in Annex 9.
6.2 Other impacts
6.2.1 Social Impacts
The preferred options would introduce in the Accounting Directives the requirement to
disclose material, timely and clear information relating to social, human rights and anti-
corruption aspects as well as boards' diversity. This would also strengthen the existing
requirement on disclosure of employees-related matters. The proposal does not affect the
applicable law concerning issues such as the director's duties, the liability of parent
companies, or access to remedies. However, as stated in the CSR Communication, improved
transparency would not only meet increased demand for such information but would also
create 'shared value' that benefits both business and society at large. The effects of the
preferred option could have been stronger if companies had to disclose a full and detailed
report. Nevertheless, compared to the baseline scenario, the proposed policy would require a
significant number of large firms to develop, often for the first time, policies and strategies to
manage or mitigate negative social impacts. At the same time, firms would be encouraged to
better identify potential risks relating to human rights 135, board diversity or anti-corruption.
As showed by a series of recent studies 136, better assessing and improving their social
performance companies are expected to better identify entrepreneurial opportunities and
improve their overall performance. In particular, increased transparency on employees- and
human capital matters could contribute to support better employment relations and contribute
to reducing risks and costs associated with labour conflicts. Furthermore, a diverse board
reflects and represents better the society at large. In particular, a board with a better balance in
terms of gender, age, nationality and background could take better account of concerns of
different groups of employees and other stakeholders. A stronger transparency of diversity at
the highest decision-making level of the company could also be a vehicle to promote
openness to diversity at all organisational levels. Lastly, it can be expected that the proposal
could contribute in a limited extent to the creation of jobs in the field of CSR and in the SRI
sector, as increased availability of non-financial information may lead to increased activity.
135
Particularly in the case of those companies operating in third countries where legal requirements regulating
social impacts are weak or weakly enforced. See University of Edinburgh, 2010
136
DB Group, 2012, p. 58.
40
The negative impacts on employment, which could result from the higher costs of reporting,
should be negligible due to the limited administrative burden of the proposal. Bilateral
contacts with stakeholders and responses to the public consultation did not identify any
concrete risks that EU companies would seek to move their operations or headquarters outside
the EU as a reaction to new regulation in this field.
6.2.2 Environmental Impacts
Although the existing Accounting Directive already requires companies to report

environmental information, the new provision would improve current practices both in
quantitative and in qualitative terms. The direct impact of the proposal cannot be estimated
with precision, however the result of the public consultations as well as consolidated research
suggest that more transparency and better quality of information on companies' environmental
performance could increase the level of environmental awareness and, as a consequence,
contribute to better environmental performance. The requirement to disclose material issues
related to environmental policies and risk-management aspects would also introduce a
forward looking element in the non-financial statements and is likely to trigger further
assessment within boards and senior management as regards the related financial
implications.
6.2.3 Impact on Fundamental Rights
It is estimated that the preferred options would have a beneficial impact on fundamental rights
as they would encourage EU companies to regularly review their policies and internal
procedures in various aspects, mainly due to a larger public scrutiny. In particular, the non-
financial disclosure requirement is expected to have a positive impact on the workers' right to
information (Article 27 of the Charter of Fundamental Rights of the EU 137), and contribute to
a high level of environmental protection in the Union policies (Article 37). Furthermore, by
specifically requiring companies to disclose material risks in the field of human rights, the
proposal is likely to have a positive effect on human rights awareness within companies and
contribute to the implementation of the corporate responsibility to respect human rights. It is
therefore likely to reduce instances of EU company involvement in human rights
infringements. The required disclosure of the diversity policy is likely to promote the right to
non-discrimination (Article 21 of the EU Charter) and equality between women and men
(Article 23). It could also have a positive impact on the freedom to choose an occupation and
right to engage in work (Article 15). It can be expected as well that in the long term more
transparent disclosure practices would have a positive effect on the freedom of expression and
information (Article 11). The preferred policy options would not as such require the
publication and other processing of personal data and thus would not impact on rights to
privacy and data protection (Articles 7 and 8 of the EU Charter). In any case companies need
to ensure that any processing is carried out in accordance with national data protection laws
implementing EU data protection legislation 138. More details are provided in Annexes 6 and
7.
137
http://www.europarl.europa.eu/charter/pdf/text_en.pdf
138
Directive 95/46/EC on the protection of individuals with regard to the processing of personal data and on the
free movement of such data, http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31995L0046:en:HTML
41
6.2.4 Other Economic Impacts
As a result of the anticipated primary impacts, the Commission services estimate that such
initiative may limitedly contribute to meeting the objectives of the Europe 2020 strategy for
smart, sustainable and inclusive growth. 139 It is therefore estimated that the impact on overall
long-term competitiveness of companies would be positive. The measure will not have
meaningful budgetary consequences for public authorities, nor have implications for the EU
budget.
6.2.5 Third countries and international aspects
As highlighted in section 2.3, a global trend towards increased government intervention in this
area in the last few years can be identified 140. Important developments can also be observed in
emerging markets, where stock exchanges have taken initiatives requiring more
transparency141. Stakeholders-led initiatives advocating the launch of a global convention for
sustainability reporting have also been identified in the framework of the RIO+20
conference 142, where the importance of sustainability reporting for large and listed companies
has been acknowledged in the final declaration. 143
The proposed policy would nevertheless put the EU in a leading position at global level, and
given the general direction of public policy in this field in different countries and regions, this
would be to the advantage of EU companies. The proposed combination of mandatory and
voluntary requirements would be consistent with other third-countries initiatives, and
potentially trigger their further development. None of the stakeholders consulted signalled any
potential conflict between the law applicable in third countries, and the proposed policy. The
proposed policy could also positively support the further development of the existing
international initiatives, frameworks and guidelines, thus contributing to achieving the
objective of better aligning European and global approaches to CSR identified in the CSR
Communication.
No significant effects on trade flows with third countries were identified nor signalled in any
of the consultations carried out. As far as investments are concerned, a limited positive impact
could be anticipated, as both responsible investors and mainstream investors based in third
countries may be attracted by the expected gains in terms of transparency and sustainability of
EU companies.
7 MONITORING AND EVALUATION
In light of the policy objectives set out in Section 4, the following arrangements are proposed
in order to set up an appropriate monitoring and evaluation framework.
139
http://ec.europa.eu/europe2020/targets/eu-targets/index_en.htm
140
According to UNEP/KPMG/GRI, a total of 142 country standards and/or laws with some form of
sustainability-related reporting requirement or guidance currently exist, and approximately two thirds (65%)
of these standards can be classified as mandatory and one third (35%) as voluntary.
141
Such as the Shenzen and Shanghai Stock Exchanges (China), the Bovespa Stock Exchange (Brazil) and the
Johannesburg Stock Exchange (South Africa).
142
A Convention for Corporate Sustainability and Accountability was advocated by Stakeholder Forum, the GRI
and Aviva Investors,
http://www.csradialogue2012.org/index.php?option=com_content&view=article&id=120&Itemid=120
143
Rio+20, UN Conference on sustainable development, paragraph 47 of the Final Declaration
42
7.1 Monitoring
The Commission will monitor the implementation of the revised Directives in cooperation
with the Member States throughout the implementation period which is expected to last
possibly until the end of 2014. In compliance with the principle of subsidiarity, the relevant
information should be gathered primarily by Member States through relevant agencies or
Securities Markets' Regulators. The Accounting Regulatory Committee (ARC) could also
serve as forum for information sharing. It is expected that the costs of such activity would be
met from existing operational budgets, and would not be significant. Monitoring activity
should involve sample reviews of non-financial statements or reports, to ensure compliance
with the requirement of the revised Accounting Directives and a comparison between
preparers with similar operations to ensure they are reporting in a consistent manner. During
this time, implementation workshops can be organised by the Commission and/or ESMA to
deal with questions/issues that might arise in the course of the implementation period. Where
questions are common and specific to one industry sector, guidance on how to deal with the
issue may be issued by the Commission/ESMA.
7.2 Evaluation
The evaluation of effects of the preferred policy shall be carried out to see to what extent the
anticipated impacts materialise. Improved disclosures by companies, in terms of quantity (i.e.
increased number of statements or reports) and quality of the information disclosed, would be
indicators of better transparency. Similarly, the number of EU companies making reference to
international frameworks should be monitored to assess progress. On diversity, the increase of
the number of board members with different professional and educational background, age,
gender, nationality would be assessed, in accordance of course with the established diversity
policy reflecting the needs and particularities of the company. In terms of possible downsides
it will be necessary to assess whether any non-EU registered companies have chosen to de-list
from EU regulated stock exchanges as a consequence of the policy. Such an evaluation will
be carried out by the Commission services and/or ESMA in cooperation with the Member
States, on the basis of all the relevant information collected in the framework of the
monitoring activities described above. Consultations with European companies, investors and
other stakeholders could be carried out via other platforms, including through the existing
multi-stakeholders' forum on CSR.
All the above listed options could allow data collection at limited cost at EU level, as they
would make broad use of existing structures and would not require the setting up of new
instruments. The possibility of contracting an external study on the implementation and
effects of the non-financial reporting obligation will be considered. Such a study could be
carried out upon the expiration of the implementation deadline and its results would be made
public. On the basis of the data collected, and three years after the expiration of the
implementation deadline, the Commission would consider the need to produce an ex-post
evaluation report. The results and feedback from monitoring and evaluation will also be
considered with a view to propose further amendments where appropriate.
43
Annex I
Summary of Public Consultations
1. Disclosure of Non-Financial Information by Companies
Stakeholders have been consulted on various ways in order to obtain their views on how to
improve non-financial disclosure requirements and practices. A public consultation on
disclosure of non-financial information by companies was conducted between November
2010 and January 2011. A full summary of the results and the 260 responses received are
available at: http://ec.europa.eu/internal_market/consultations/2010/non-
financial_reporting_en.htm.
On the existing regime of non-financial information disclosure, the majority of respondents
affirmed that legal regimes differ significantly across the EU Member States. Several
respondents also considered that this fragmentation leads to difficulties in benchmarking
between companies. Half of the respondents described the current regime applicable in their
respective jurisdiction as poor or very poor. According to several respondents, poor
transparency translates into a lack of balance and cohesion of reporting by companies. In
particular, it emerged that insufficient disclosure of non-financial information makes it
difficult for shareholders and investors to make a reasonable assessment of the extent to
which companies take account of CSR in their activities. In general, stakeholders were not
able to quantify costs and benefits and it appeared clear that there is no broadly recognised
methodology in place for the assessment of costs arising from reporting activities. However, a
distinction between start-up costs in upgrading capabilities and the less considerable longer
term costs once the practice emerged. With respect to improving the current regime, a
majority of respondents suggested the EU should draw on existing international frameworks
rather than elaborate new standards and principles. According to some, a 'comply-or-explain'
approach would guarantee a certain room for flexibility. While a large majority of
contributors showed support for the concept of integrated reporting, for many stakeholders,
developments on this area need further reflections, especially on how avoiding excessive
increase of companies' administrative burden. As regards future regulatory initiatives, a
majority of respondents found relevant to disclose better information on: whether or not the
company has a policies; business risks and opportunities arising from social and
environmental issues; as well as key information on other specific issues. Respondents
generally considered that there could be value in principles-based reporting drawing on i.e.
GRI, UN Global Compact, the OECD Guidelines, ISO 26000 etc. A vast majority of users
considered that human rights and corruption issues should be included in non-financial
reporting practices by companies. On the issue of which companies should be covered by
mandatory requirements, the majority argued in favour of excluding small businesses. Finally
the fact whether a company is listed on financial markets was not considered being of great
relevance.
Consultations with stakeholders also took place through a number of other instruments and
fora, including the Member States High-Level Group on CSR, the Multi-stakeholders forum
coordination committee, or the Accounting Regulatory Committee. The Commission services
have also contributed to the work of the Laboratory on Valuing Non-Financial Performance,
part of the European Alliance on Corporate Social Responsibility (CSR). Moreover, during
2010 and 2011 the Commission services had a series of bilateral meetings with stakeholders.
44
Overall, the result of the consultations shows a diverse pattern of opinions depending on the
category of respondents (i.e. preparers of non-financial information - companies, users -
mainly investors, NGOs, auditors and accountants, public authorities, academics).
Users of non-financial information, in particular investors and NGOs, underlined their support
for an EU initiative in this field, arguing that the market is failing to provide with sufficient
information concerning the environmental, social and human rights performances of
companies. They suggested that the costs of reporting would be outweighed by the benefits to
civil society, investors, in terms of increased transparency and possibility to take better
account of companies' performance in the long term when taking investment decision. Several
NGOs argued that, in order to give a thorough picture of a company policy in the
environmental, social and human rights domains, disclosure obligations should also be
extended to information related to the supply-chain. On the other hand, a majority of the
preparers consulted (including in particular large companies and business associations)
expressed their concerns that stricter mandatory disclosure requirements could be excessively
burdensome, in particular for Small and Medium sized companies (SMEs) and undermine the
efforts that the industry is already taking on a voluntary basis and negatively affect
competitiveness. It should be noted though that a minority of companies, including in
particular those that already disclose non-financial information, underlined the benefits
brought by non-financial reporting in terms of better integration of non-financial performance
into their business operations and strategy. Others called on the EU to provide for a level-
playing field in this area, in order to pre-empt different legal requirement in different Member
States.
2. Boards Diversity
A general consultation on the EU corporate governance framework, including inter alia
diversity in the board, was held by the European Commission between April and August
2011 144. The summary of the consultation results 145 is attached to this Impact Assessment (see
Annex 1), while the 409 responses received are available at:
http://ec.europa.eu/internal_market/consultations/2011/corporate-governance-
framework/index_en.htm
The questions on diversity, raised in the consultation, inquired, among other issues, about
potential requirements for more specific recruitment policy, obligatory disclosure of the
diversity policy and about other binding diversity actions. Whereas the majority of
respondents rejected the idea of more binding diversity actions and were almost equally
divided as to the support for more specific recruitment policies, there was a clear support for
the disclosure of a diversity policy. The support has been expressed in particular by civil
society, directors' associations, employees, investors, public authorities, whereas business
federations were against and companies slightly against. Those in favour of obligatory
disclosure underlined that enhanced transparency would enable investors to make more
informed decisions and would help reducing group think. The respondents that were against
argued that it should be up to the companies to decide on the recruitment profiles and on the
diversity policy.
144
145
See http://ec.europa.eu/internal_market/company/docs/modern/20111115-feedback-statement_en.pdf
45
Annex II
Relevant Provisions of the Accounting Directives
Directive 78/660/EEC on the annual accounts of certain types of companies (Fourth

Accounting Directive)
Article 46
1.(b) To the extent necessary for an understanding of the company's development,
performance or position, the analysis shall include both financial and, where appropriate, non-
financial key performance indicators relevant to the particular business, including information
relating to environmental and employee matters;
Article 46a
1. A company whose securities are admitted to trading on a regulated market within the
meaning of Article 4(1), point (14) of Directive 2004/39/EC of the European Parliament and
of the Council of 21 April 2004 on markets in financial instruments shall include a corporate
governance statement in its annual report. That statement shall be included as a specific
section of the annual report and shall contain at least the following information:
(a) a reference to:
(i) the corporate governance code to which the company is subject, and/or
(ii) the corporate governance code which the company may have voluntarily decided to apply,
and/or
(iii) all relevant information about the corporate governance practices applied beyond the
requirements under national law.
Where points (i) and (ii) apply, the company shall also indicate where the relevant texts are
publicly available; where point (iii) applies, the company shall make its corporate governance
practices publicly available;
(b) to the extent to which a company, in accordance with national law, departs from a
corporate governance code referred to under points (a)(i) or (ii), an explanation by the
company as to which parts of the corporate governance code it departs from and the reasons
for doing so. Where the company has decided not to apply any provisions of a corporate
governance code referred to under points (a)(i) or (ii), it shall explain its reasons for doing so;
(c) a description of the main features of the company's internal control and risk management
systems in relation to the financial reporting process;
(d) the information required by Article 10(1), points (c), (d), (f), (h) and (i) of Directive
2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids,
where the company is subject to that Directive;
(e) unless the information is already fully provided for in national laws or regulations, the
operation of the shareholder meeting and its key powers, and a description of shareholders’
rights and how they can be exercised;
(f) the composition and operation of the administrative, management and supervisory bodies
and their committees.
2. Member States may permit the information required by this Article to be set out in a
separate report published together with the annual report in the manner set out in Article 47 or
46
by means of a reference in the annual report where such document is publicly available on the
company's website. In the event of a separate report, the corporate governance statement may
contain a reference to the annual report where the information required in paragraph 1, point
(d) is made available. Article 51(1), second subparagraph shall apply to the provisions of
paragraph 1, points (c) and (d) of this Article. For the remaining information, the statutory
auditor shall check that the corporate governance statement has been produced.
3. Member States may exempt companies which have only issued securities other than shares
admitted to trading on a regulated market, within the meaning of Article 4(1), point (14) of
Directive 2004/39/EC, from the application of the provisions of paragraph 1, points (a), (b),
(e) and (f), unless such companies have issued shares which are traded in a multilateral
trading facility, within the meaning of Article 4(1), point (15) of Directive 2004/39/EC.
Directive 2009/101/EC on coordination of safeguards which, for the protection of the

interests of members and third parties, are required by Member States of companies
within the meaning of the second paragraph of Article 48 of the Treaty, with a view to
making such safeguards equivalent (Before 21 October 2009: First Council Directive
68/151/EEC)
Article 2
Member States shall take the measures required to ensure compulsory disclosure by
companies as referred to in Article 1 of at least the following documents and particulars:
(a) the instrument of constitution, and the statutes if they are contained in a separate
instrument;
(b) any amendments to the instruments mentioned in point (a), including any extension of the
duration of the company;
(c) after every amendment of the instrument of constitution or of the statutes, the complete
text of the instrument or statutes as amended to date;
(d) the appointment, termination of office and particulars of the persons who either as a body
constituted pursuant to law or as members of any such body:
(i) are authorised to represent the company in dealings with third parties and in legal
proceedings; it must be apparent from the disclosure whether the persons authorised to
represent the company may do so alone or must act jointly; (ii) take part in the administration,
supervision or control of the company;
Directive 83/349/EEC on consolidated accounts (Seventh Directive)
Article 36
1. The consolidated annual report shall include at least a fair review of the development and
performance of the business and of the position of the undertakings included in the
consolidation taken as a whole, together with a description of the principal risks and
uncertainties that they face.
The review shall be a balanced and comprehensive analysis of the development and
performance of the business and of the position of the undertakings included in the
consolidation taken as a whole, consistent with the size and complexity of the business. To the
extent necessary for an understanding of such development, performance or position, the
analysis shall include both financial and, where appropriate, non-financial key performance
47
indicators relevant to the particular business, including information relating to environmental
and employee matters.
In providing its analysis, the consolidated annual report shall, where appropriate, provide
references to and additional explanations of amounts reported in the consolidated accounts.
2. In respect of those undertakings, the report shall also give an indication of:
(a) any important events that have occurred since the end of the financial year;
(b) the likely future development of those undertakings taken as a whole;
(c) the activities of those undertakings taken as whole in the field of research and
development;
(d) the number and nominal value or, in the absence of a nominal value, the accounting par
value of all of the parent undertaking's shares held by that undertaking itself, by subsidiary
undertakings of that undertaking or by a person acting in his own name but on behalf of those
undertakings. A Member State may require or permit the disclosure of these particulars in the
notes on the accounts;
(e) in relation to the use by the undertakings of financial instruments and, where material for
the assessment of assets, liabilities, financial position and profit or loss, — the financial risk
management objectives and policies of the undertakings, including their policies for hedging
each major type of forecasted transaction for which hedge accounting is used, and — the
exposure to price risk, credit risk, liquidity risk and cash flow risk;
(f) a description of the main features of the group's internal control and risk management
systems in relation to the process for preparing consolidated accounts, where an undertaking
has its securities admitted to trading on a regulated market within the meaning of Article 4(1),
point (14) of Directive 2004/39/EC of the European Parliament and of the Council of 21 April
2004 on markets in financial instruments (1). In the event that the consolidated annual report
and the annual report are presented as a single report, this information must be included in the
section of the report containing the corporate governance statement as provided for by Article
46a of Directive 78/660/EEC.
If a Member State permits the information required by paragraph 1 of Article 46a of Directive
78/660/EEC to be set out in a separate report published together with the annual report in the
manner prescribed by Article 47 of that Directive, the information provided under the first
subparagraph shall also form part of that separate report. Article 37(1), second subparagraph
of this Directive shall apply.
3. Where a consolidated annual report is required in addition to an annual report, the two
reports may be presented as a single report. In preparing such a single report, it may be
appropriate to give greater emphasis to those matters which are significant to the undertakings
included in the consolidation taken as a whole.
48
Annex III
Recent developments in some EU Member States
1. Denmark
• On December 2008, the Danish Parliament adopted the new article 99A, amending the
Danish Financial Statements Act (Accounting for CSR in large businesses). The new legal
requirement became effective since the financial year starting 1 January 2009146.
According to the Act, approx. 1,100 large businesses in Denmark must include reports on
the following three dimensions in their annual report: 1) Corporate Social Responsibility
(CSR) policies, 2) how these policies are translated into actions, and 3) what the business
has achieved as a result of working with CSR and expectations for the future (if any). If
the business has not formulated any social responsibility policies, this must be reported.
• The Act covers large businesses in accounting class C, and listed companies and state-
owned companies in accounting class D. Large businesses in accounting class C are
businesses that exceed at least two of the following three size limits: total assets/liabilities
of DKK 143 million; net revenue of DKK 286 million; an average of 250 full-time
employees. Subsidiaries are exempt from having to report on social responsibility if the
parent company does so for the entire group.
• The report on social responsibility must be included in the management review section of
the annual report. Alternatively, businesses may include the report on social responsibility
in a supplement to the annual report, or on the business's website. However, the
management review must indicate where the report has been published. If a business has
acceded to the UN Global Compact or Principles for Responsible Investment (PRI), it is
sufficient to refer to the progress report that members are required to prepare. Businesses
which prepare a sustainability report or similar report on their social responsibility
initiatives may refer to this in their management review – however, this report must fulfill
the reporting requirements (see above).
• The same reporting requirement has also been introduced for institutional investors,
mutual funds and other listed financial businesses (financial institutions and insurance
companies, etc.), not covered by the Danish Financial Statements Act. For these
businesses, the requirement has been introduced in Executive Orders issued by the Danish
Financial Supervisory Authority.
• As regards boards' diversity, the Danish corporate governance code recommends

companies to strive for gender equality in their boardrooms, without setting specific
targets. When assessing its composition and nominating new candidates, the nominating
committee must take into consideration the need for integration of new talent and the need
for diversity in relation to international experience, gender, age and other criteria.
2. Finland
• As regards boards' diversity, the 2008 Corporate Governance Code recommends, on a

'comply or explain' basis, that every board has at least one member of either sex. A
146
http://www.csrgov.dk/sw51190.asp
49
company may depart from this recommendation, but in that case, it must disclose such a
departure and provide an explanation for doing so.
3. France
• Law No. 2001-420 related to New Economic Regulations (NRE) is in force since 2003.
Art. 116: makes environmental and social reporting is mandatory for listed companies.
The requirements are based on a list of forty indicators, many of them inspired by the GRI
performance indicators. Some indicators were also taken from the “French social report”,
a list of social data required from all companies to show compliance with labour
regulation. The indicators include those related to human resources, community issues and
engagement, labour standards and key health and safety and environmental issues. The
law expects companies to report on all their operations, in France as well as
internationally.
• The NER has recently been amended by article 225 of the Grenelle II 147, through which
the obligation to present a social and environmental report will be extended, as of 2014, to
non-listed companies having more than 500 employees and exceeding a balance sheet
threshold of 100 million euros 148 (gradually phasing in companies having 5000 employees
or less as of fiscal year 2012). All listed companies are also covered as of fiscal year 2012,
and will have to comply with a list of supplementary indicators. Furthermore, extra-
financial information will have to be subjected to third-party verification 149.
• As regards boards' diversity, France has introduced binding gender quotas by the Law of
27 January 2011. The law requires companies to ensure that members of each sex occupy
at least 20 % of boardroom seats within three years (i.e. by 2014) and 40% within six
years from the entry into force of the law (i.e. by 2017). It is applicable to companies
listed on the stock exchange and non-listed companies with at least 500 workers and with
revenues of over EUR 50 million over the previous three consecutive years. Non-
compliant companies face nullification of their board elections, but the decisions adopted
by the board remain valid. The law envisages also the suspension of benefits of directors
of infringing companies.
4. Netherlands
• Since 2009, the revised Dutch Corporate Governance Code (the Frijns Code)
acknowledges that CSR belongs to the core corporate strategy of companies. The code
stipulates that the management board is expected to formulate a CSR policy and to submit
it to the supervisory board for approval. The code also explicitly records that the
supervisory board’s responsibilities include the supervision and approval of the
147
Loi n° 2010-788 du 12 juillet 2010 Portant Engagement National pour l'Environnement, art 225
http://www.legifrance.gouv.fr/
148
The enforcement degree N. 2012-557 indicates that the new requirement will be gradually enforced.
Starting from the fiscal year 2012, all listed companies and all the companies exceeding a balance sheet
threshold of 1 billion euros and having more than 5000 employees have to comply with the new regulation.
The obligation applies from the fiscal year 2013 for companies exceeding a balance sheet of 400 million
euros and 2000 employees. Finally, from the fiscal year 2014 the requirement will be extended to all
companies exceeding a balance sheet threshold of 100 million euros and having more than 500 employees.
149
According to the enforcement degree N. 2012-557, from the fiscal year 2012 extra-financial information
disclosed by listed companies will be subjected to third-party verification. Starting from the year 2017 the
requirement will be extended to all companies exceeding a balance sheet threshold of 100 million euros and
having more than 500 employees.
50
management board’s CSR policy. The main elements of the company’s CSR strategy are
to be included in its annual report. The Frijns Code applies to listed companies.
• The Dutch Civil Code (1838 Section 2, Part 9 for annual reports. Article 2:391 subsection
1) implemented Directive 2003/51/EC into Dutch law. It requires that organisations
should give some information (financial and non-financial) about the environment,
employees and risks in their annual reports, to the extent necessary for an understanding
of the company’s development, performance or position as far as relevant. This
requirement is compulsory for all listed companies no matter what their size and all large
non-listed companies.
• Moreover, since 2004, the Ministry of Economic Affairs, Agriculture and Innovation has
initiated and constructed a process called "Transparency Benchmark" 150, which is aimed
at stimulating transparency of Netherlands' largest companies and organisations in terms
of Corporate Social Responsibility (CSR) by producing quality reports without requiring
regulation. This process was established through collaboration with the business
organisations to establish a ranking system. The criteria are steadily increasing, with
recent focus on supply chain responsibility, diversity and integrated reporting. The
Transparency Benchmark is based on 50 criteria, including content oriented 151 as well as
quality-oriented criteria 152. The criteria are based on ISO 26 000, GRI and the new RJ 400
guideline from the Council for Annual Reporting. Participants for the self-assessment are
also asked additional voluntary questions about diversity and integrated reporting. The
2010 version is the seventh edition of this report and it marks a broadening of the review.
Almost 500 companies and organisations have been included, compared to 183 in 2009.
Furthermore, the criteria have also been broadened.
• As regards boards' diversity, by the Law of 6 June 2011 the Netherlands introduced
gender quotas combined with a 'comply or explain' mechanism. Both public and private
limited companies are obliged to establish a share of at least 30% of members of each sex
on the company’s executive board of directors and in the supervisory board. The quotas
apply to companies with assets worth more than € 17 500 000, an annual turnover of more
than € 35 000 000 and more than 250 employees. Company below these thresholds should
take into account, as far as possible, a balanced representation of both sexes in its
procedures to select new members of the board of executive directors or the board of
supervisors, and in the drafting of the specification of any vacancy.
• Companies which do not reach the quota must provide an explanation in the annual report,
and propose new measures, which will be applied by the company in order to reach the
quota. There are no sanctions for not meeting the quotas. The measure has a temporary
character and expires on 1 January 2016.
5. Spain
150
http://www.rijksoverheid.nl/onderwerpen/maatschappelijk-verantwoord-ondernemen/nederlandse-beleid-
voor-mvo/transparantiebenchmark-mvo
151
Such as organisation profile; strategy and policy; governance structure and management approach; CSR
reporting policy, and results (i.e. the extents to which organisations are transparent about their policy,
performance and targets in the field of economy, environment and society).
152
Such as: relevance; clarity; reliability; involvement of stakeholders; and contextual history.
51
• The Sustainable Economy Act 153 adopted in 2011 states that from 2012, state-owned
companies are required to produce annual corporate governance and sustainability reports.
Such reports shall be prepared in accordance with generally accepted standards, with a
special focus on gender equality and people with disabilities. If the corporation has more
than 1000 employees, this report must also be notified to the Spanish Corporate Social
Responsibility Council (Consejo Estatal de Responsabilidad Social Empresarial or
"CERSE").
• The Law partially includes an amendment specifying that Spanish SA corporations

(sociedades anónimas) may publish their policies and outcomes in CSR matters each year
in a specific report, which must mention whether or not this information has been
examined by an independent third party. It is suggested that the Government will make
available a set of characteristics and indicators for self-evaluation in social responsibility,
in accordance with international standards.
• As regards boards' diversity, Article 75 of the Spanish Organic Law on gender equality of
2007 encourages large companies to adjust the composition of their boards gradually until
each sex makes up at least 40 % by 2015. The rule is a recommendation and no sanction is
foreseen in case of non-compliance.
6. Sweden
• Since 2009 (fiscal year starting 1 January 2008), fully or partly state-owned companies
have been required to prepare a sustainability report based on the GRI Guidelines 154. To
this end, a guide was adopted on 29 November 2007 called "Guidelines for External
Reporting by State-Owned Companies"
• Amongst others, the report should include ethical issues, the environment, human rights,
gender equality and diversity. Following the GRI guidelines, a sustainability report shall
include a brief analysis of, inter alia: sustainability issues; non-financial risks and
opportunities needed to understand the company’s development and position; stakeholder
analysis and dialogue; strategies and adaptation to requirements for sustainable
development.
• Although state-owned companies must report, the guidelines are based on the principle of
‘comply or explain’ (enabling the guidelines to be applicable and relevant to all
companies, regardless of size or industry). Sustainability reports will be quality assured by
independent scrutiny and assurance and have to be published in compliance with the
reporting cycle for the annual report. Compliance with these guidelines will be assessed
and reported on in the Government’s annual report on state-owned companies.
• As regards board diversity, as of 2004 the Swedish corporate code recommends that
companies should strive for more gender equality on their board. Middle sized and large
companies are also obliged to disclose data on the number of women in their top level
positions. The nominating committee is required to publish a statement on the company’s
website outlining the selection process and explaining the motivations behind each
selection, also with respect to gender equality.
153
For information on the Sustainable Economy Act: http://www.boe.es/boe/dias/2011/03/05/pdfs/BOE-A-
2011-4117.pdf
154
See http://www.sweden.gov.se/sb/d/2025/a/94125
52
7. United Kingdom
• Following a public consultation organised in 2010, the Department for Business and
Innovation skills launched a follow up consultation on the "Future of Narrative Reporting"
that was closed in November 2011. The consultation sought views on Government plans
to make narrative reporting simpler, clearer and more focused. The UK Government
received 116 responses 155 that showed a great deal of support for perspective regulatory
initiatives on changing the current format of narrative reports; simplifying disclosure
requirements; and introducing more disclosure and shareholders' control on executives'
remunerations.
• In particular, in order to provide a clearer structure for companies and investors, the
consultation papers propose to replace the current Business Review and Director’s Report
with a Strategic Report and an Annual Directors’ Statement. The Strategic Report will be
where the board sets out and signs off the strategy, direction and challenges facing the
company, evidenced by high-level financial and remuneration information. This report
will provide a clear line of sight from the strategy, business model and risks of the
company to the financial results and the resulting rewards for the company’s directors.
• The Strategic Report will be supported by detailed information in an Annual Directors’

Statement presented in a consistent and coherent format aimed at online publication. This
will be much clearer for users to follow and will provide a platform from which future
developments (i.e., tagging narrative information to make it more searchable) can be
implemented. A prescribed structure with a set layout and standard headings will increase
comparability for users and provide a helpful check-list of required disclosures for
companies. Companies will also be able to include voluntary disclosures (for example on
social and environmental issues) in the Annual Directors’ Statement, increasing the
visibility of this information and making the Annual Directors Statement the key source of
detailed information on specific aspects of company performance.
• On this basis, draft regulations were published for public comments in October 2012.
Once the necessary decision-making procedures are completed, the regulations are
expected to come into force in October 2013. This means that companies with reporting
years ending after October next year will be expected to prepare their annual report in line
with the new regulations.
• The Companies Act 2006 requires all companies, other than those defined as small, to
produce a Business Review as part of the annual Directors' Report. To the extent
necessary for an understanding of the business, companies have to report on
environmental, employee, social and community matters or essential contractual or other
arrangements. If the Business Review does not contain information on any of these issues,
this must be stated.
• As regards boards' diversity, an Independent Review into Women in Board, led by Lord
Davies and concluded in February 2011, recommends that UK listed companies in the
FTSE 100 should be aiming for a minimum of 25% female board member representation
by 2015. It considered that a business-led approach to increase the number of women on
company boards should be preferred to binding quotas. Following the Davies Review, the
UK Corporate Governance has been modified in October 2011. A new rule, applicable as
155
See http://www.bis.gov.uk/assets/biscore/business-law/docs/f/12-588-future-of-narrative-reporting-
government-response
53
of October 2012 will require listed companies to report annually on their boardroom
diversity policy, including gender, and on any measurable objectives that the board has set
for implementing the policy and the progress it had made in achieving the objectives. The
diversity of the board, including gender, will also have to be considered as one of the
factors when evaluating its effectiveness.
54
Annex IV
International frameworks
1. OECD guidelines for Multinational Enterprises

The Guidelines are recommendations addressed by governments to multinational enterprises
operating in or from adhering countries. The latest edition 156 of the guidelines extends to
some 80 pages. They provide voluntary principles and frameworks for responsible business
conduct in areas such as employment and industrial relations, human rights, environment,
information disclosure, combating bribery, consumer interests, science and technology,
competition, and taxation. The guidelines also provide advice on implementation. A
comparison of a slightly earlier version of OECD guidelines 157 and GRI guidelines, shown
below, is also published by OECD. There is now a partnership between OECD and GRI.
http://dx.doi.org/10.1787/9789264115415-en
2. Global Reporting Initiative (GRI)

The Sustainability Reporting Framework provides guidance on how organisations can
disclose their sustainability performance. It consists of the Sustainability Reporting
Guidelines, Sector Supplements and the Technical Protocol. There are in addition sector
supplements dealing with electrical utilities, financial services, food processing, mining and
metals and NGOs. Other sector supplements are being prepared or piloted. It is understood
that 1600 companies worldwide report using GRI standards
The key parts of the Sustainability Reporting Framework are as follows. The text is based on
GRI’s description of the framework
• The Sustainability Reporting Guidelines feature Performance Indicators and Management

Disclosures that organisations can adopt voluntarily. The G3.1 Guidelines 158 are the latest
and most complete version of GRI's G3 Sustainability Reporting Guidelines. These
Guidelines are based on G3 but contain expanded guidance on local community impacts,
human rights and gender.
• Sector Supplements - Sector Supplements are tailored versions of the Sustainability

Reporting Guidelines that cover sector specific issues.
• The Technical Protocol - The Technical Protocol provides process guidance on how to
define the content of a sustainability report.
The G3 version of the guidelines is currently being amended, and the G4 is expected to be
adopted in May 2013.
https://www.globalreporting.org/Pages/default.aspx
156
OECD Guidelines for Multinational Enterprises, http://www.oecd.org/dataoecd/43/29/48004323.pdf
157
Synergies between the OECD Guidelines for Multinational Enterprises and the GRI 2002 Sustainability
Reporting Guidelines retrieved at: http://www.oecd.org/dataoecd/25/26/35150230.pdf
158
See http://www.globalreporting.org/ReportingFramework/G31Guidelines/
55
3. UN Global Compact
UNGC is a strategic policy initiative for businesses that are committed to aligning their
operations and strategies with ten universally accepted principles in the areas of human rights,
labour, environment and anti-corruption. The UN Global Compact is based on ten principles
derived from other material including:
• The Universal Declaration of Human Rights
• The International Labour Organisation's Declaration on Fundamental Principles and

Rights at Work
• The Rio Declaration on Environment and Development
• The United Nations Convention Against Corruption
http://www.unglobalcompact.org/
4. UN "Protect, Respect and Remedy" Framework

In June 2008, after three years of extensive research and consultations, the Human Rights
Council unanimously approved a framework on business and human rights proposed by UN
Special Representative Prof. John Ruggie. The framework rests on three pillars:
• the state duty to protect against human rights abuses by third parties, including
business;
• the corporate responsibility to respect human rights; and
• greater access by victims to effective remedy, both judicial and non-judicial.

As explained in 2011 Guiding Principles on Business and Human Rights 159, appropriate levels
of transparency and disclosure are seen as key corporate-level mechanisms to provide a
measure of accountability to groups or individuals who may be impacted and to other relevant
stakeholders, including investors.
http://www.business-humanrights.org/SpecialRepPortal/Home/Protect-Respect-Remedy-
Framework
5. ISO 26000
The International Standard ISO 26000:2010, Guidance on social responsibility, provides
guidance on reporting social responsibility. It is a non-mandatory standard aimed at all types
of organization to encourage the implementation of best practice in social responsibility
worldwide. ISO 26000:2010 provides guidance to all types of organisations, regardless of
their size or location, on:
• concepts, terms and definitions related to social responsibility;
• the background, trends and characteristics of social responsibility;
• principles and practices relating to social responsibility;

159
See in particular Guiding Principle 21:
http://www.business-humanrights.org/media/documents/ruggie/ruggie-guiding-principles-21-mar-2011.pdf
56
• the core subjects and issues of social responsibility;
• integrating, implementing and promoting socially responsible behaviour throughout

the organisation and, through its policies and practices, within its sphere of influence;
• identifying and engaging with stakeholders; and
• communicating commitments, performance and other information related to social

responsibility.
ISO also publish other standards including, notably, ISO 14001 first published in 1996. ISO
14001 specifies the requirements for an environmental management system. It applies to those
environmental aspects which the organisation has control and over which it can be expected
to have an influence. Organizations can obtain external ISO 14001 certification.
http://www.iso.org/iso/social_responsibility
6. ILO Tri-partite Declaration of Principles concerning Multinational Enterprises and
Social Policies
The principles outlined in this universal instrument offer guidelines to multinational
enterprises (MNEs), governments, and employers' and workers' organisations in such areas as
employment, decent conditions of work and life, and impact of the industrial activities. They
have been first adopted by the Governing Body of the International Labour Office in 1977 and
afterward amended in November 2000 and March 2006. Its provisions are reinforced by
certain international labour Conventions and Recommendations which the social partners are
urged to bear in mind and apply, to the greatest extent possible.
There are a large number of other initiatives including those by the World Bank Group and
accountancy bodies and standard setters. For example, IFAC (the International Federation of
Accountants) has published a sustainability framework. There are also efforts to integrate the
various guidelines.
http://www.ilo.org/empent/Publications/WCMS_094386/lang--en/index.htm
7. Carbon Disclosure Project (CDP)
The Carbon Disclosure Project provides a global disclosure system for companies to report to
investors covering carbon, energy and climate issues as well as water and forests. It also
provides a framework for assessing the climate performance of companies and drive
improvements through shareholder engagement.
• Over 4,100 organizations, including 81% of the world’s largest public companies, use
CDP to disclose their impacts on the environment and natural resources to stakeholders;
• 722 investors representing US$87 trillion request corporate climate data through CDP;
https://www.cdproject.net
57
Annex V
Other EU Initiatives on Diversity
On 20 July 2011, the Commission proposed measures aiming at enhancing diversity on board
of credit institutions and investment firms in the framework of the proposal reviewing the
Capital Requirements Directive. The Commission's proposal 160, consisting of a package of
two instruments, strengthens inter alia the requirements with regard to corporate governance
arrangements and processes and introduces new rules aimed at increasing the effectiveness of
risk oversight by boards. On 20 March 2013, a political agreement was reached in trilogue.
Institutions will be required to put in place a policy promoting diversity on the management
body. More specifically, nomination committees will also be required to decide on a target for
the representation of the underrepresented gender in the management body and prepare a
policy on how to increase the number of the underrepresented gender in order to meet that
target. The target, the policy and its implementation shall be made public.
On 12 December 2012, the Commission adopted its “Action Plan: European company law
and corporate governance – a modern legal framework for more engaged shareholders and
sustainable companies” 161. The Commission, encouraged by the results of the 2011 Green
Paper consultation 162, considers that increased transparency as regards board diversity policy
could make companies reflect more on the issue and take better account of the need for
greater diversity on their boards.. The Action Plan moreover recognises the importance of
diversity of competences and views among the board’s members. Diversity facilitates
understanding of the business organisation and affairs and thus enables the board to challenge
the management’s decisions objectively and constructively. In contrast, insufficient diversity
could lead to a so-called group-think process, translating into less debate, fewer ideas and
challenges in the boardroom and potentially less effective oversight of the management board
or executive directors. The current initiative on board diversity is the first step in the follow-
up of the Green Paper.
These initiatives are complementary to the specific Commission proposal on improving the
gender balance among non-executive directors of listed companies, adopted on 14 November
2012 163. The proposed Directive sets an objective of a 40% presence of the under-represented
sex among non-executive directors of companies listed on stock exchanges. Companies which
have a lower share (less than 40%) of the under-represented sex among the non-executive
directors will be required to make appointments to those positions on the basis of a
comparative analysis of the qualifications of each candidate, by applying clear, gender-neutral
and unambiguous criteria. Given equal qualification, priority shall be given to the under-
represented sex. The objective of attaining at least 40% membership of the under-represented
sex for the non-executive positions should thus be met by 2020 while public undertakings –
over which public authorities exercise a dominant influence – will have two years less, until
2018. The proposal is expected to apply to around 5 000 listed companies in the European
Union. It does not apply to small and medium-sized enterprises (companies with less than 250
160
See http://ec.europa.eu/internal_market/bank/regcapital/index_en.htm
161
See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0740:FIN:EN:PDF.
162
163
Proposal for a Directive of the European Parliament and of the Council on improving the gender balance
among non-executive directories of companies listed on stock exchanges and related measures, 14 November
2012, COM(2012) 614 final. See http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0614:FIN:en:PDF
58
employees and an annual worldwide turnover not exceeding 50 million EUR) or non-listed
companies.
Other initiatives undertaken by the Commission focus more on gender diversity. The EU
Strategy for Equality between Women and Men (2010-2015) 164 reaffirms the European
Commission's commitment to working to increase the percentage of women in positions of
responsibility. Furthermore, the 2011 "Women on the Board Pledge for Europe" has been a
call to publicly listed companies to sign a voluntary agreement to get more women into top
jobs. The objective is to reach the target of 30% of women on boardrooms of listed companies
by 2015 and 40% by 2020 165.
The European Parliament underlines in its resolution of 29 March 2012 on corporate
governance framework 166 the importance of having a broad and diverse set of skills and
competences represented in the boards. In its Resolution on women and business leadership
of June 2011 167 it called for an increase on women's representation in corporate management
bodies, while in its Resolution on equality between women and men in the European Union
of March 2012 168 reiterated its call from 2011 for legislation in order to ensure a balanced
presence of women in business.
The European Economic and Social Committee acknowledges in its Opinion on the Green
Paper "The EU corporate governance framework" the importance of an appropriate balance
between experience, expertise, competence and diversity of board members, "particularly to
avoid the follow behaviour and encourage the emergence of new ideas", as well as the
importance of reporting on the diversity policy169.
164
See http://ec.europa.eu/justice/gender-equality/index_en.htm
165
See http://ec.europa.eu/commission_2010-2014/reding/multimedia/news/2011/03/20110301_en.htm
166
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-%2f%2fEP%2f%2fTEXT%2bTA%2bP7-TA-
2012-0118%2b0%2bDOC%2bXML%2bV0%2f%2fEN&language=EN
167
The resolution states that the recruitment to positions in corporate management bodies should be based on the
competence in the form of skills, qualifications and experience and that the principles of transparency,
objectiveness, inclusiveness, effectiveness, non-discrimination and gender equality must be observed. To this
end it calls on the Commission to propose legislation, including quotas, by 2012 to increase female
representation in corporate management bodies. For more details see
http://www.europarl.europa.eu/sides/getDoc.do?type=REPORT&reference=A7-2011-
0210&language=EN#title1
168
http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-%2f%2fEP%2f%2fTEXT%2bTA%2bP7-TA-
2012-0069%2b0%2bDOC%2bXML%2bV0%2f%2fEN&language=EN
169
Opinion of the European Economic and Social Committee on the ‘Green Paper - The EU corporate
governance framework', COM(2011) 164 final, (2012/C 24/21), http://www.eesc.europa.eu/?i=portal.en.int-
opinions.18562
59
Annex VI
Disclosure of Non-Financial Information:
Detailed Analysis of Policy Options
Option 0 - No policy change
This policy option constitutes the "business as usual" scenario. Under this option, no
initiative is taken at EU level to change the current situation. The current text of art 46(b) of
the Fourth Directive would remain in force.
Effectiveness A detailed explanation on "how the problem will evolve without action" is
given in section 3.4.1 of the impact assessment. On the basis of that
(quantity, reasoning, the Commission services consider that this policy option is
quality of unlikely to trigger any significant improvement in the level of transparency.
information) The non-financial performances of EU companies have been the subject of
considerable and growing interest from users and civil society for many
years, and it has always been possible for them to disclose information in
compliance with the Accounting Directives, or beyond what is required by
law on a voluntary basis. However, disclosing non-financial information
remains a practice for only a small minority of EU companies and most EU
large companies do not formally disclose any non-financial information.
Efficiency Companies would not be forced to incur additional administrative burden or
(compliance costs
costs)
Acceptability The public consultation revealed mixed views on this aspect. A majority of
to preparers considered that the current reporting framework provides them
stakeholders with a sufficient degree of flexibility and should not be modified. On the
contrary, a strong majority of users, including in particular investors, NGOs
and other civil society organizations 170, consider that the lack of information
in the public domain poses a serious problem in terms of overall
transparency, as the current reporting figures still fail to meet their demand
for non-financial information and to provide the market with a sufficient
degree of transparency. The information disclosed is generally considered by
the users as lacking in materiality, balance and accuracy, and thus not
sufficiently timely, clear, comparable and/or reliable
Competitivene No further obligation would be imposed. However, EU companies would at
ss the same time fail to exploit the benefits that increased and better disclosure
of non-financial information could bring.
Coherence The Commission has recently proposed to review the Accounting and
with other EU Transparency Directives with the aim to simplify and reduce the
legislation administrative burden, especially for the smallest companies. In this respect,
a no-policy change scenario, whereby no additional requirements are
introduced, could be coherent with the simplification objective. However, it
should also be taken into account that greater transparency in the non-
170
See public consultation report, p. 6
60
financial domain remains a policy objective endorsed by several
Commission initiatives, including the CSR Communication, the SMA, and
the Green paper on Corporate Governance.
Impact on The impact of such option on fundamental rights would be very limited.
Fundamental While the current provision already demands to disclose information on
Rights environmental and employees-related matters, this requirement has been
widely interpreted as 'voluntary' (see section 3.1). Therefore its actual
impact on fundamental rights – such as freedom of expression and
information; environmental protection and workers' right to information –
has been modest.
Option 1 – Requiring a non-financial disclosure in the Annual Report.

This option would require companies to disclose information in the form of a statement in
their Annual Report. Compared to the baseline scenario, this option would expand the
required topical areas: companies would be required to disclose material information
concerning at least social (including employees), environmental, human rights, anti-
corruption and bribery matters.
Moreover, the statement would have to include a description of the following elements:
policies pursued by the company on the above-referred matters; their results; and risk-
management related aspects. In order to ensure appropriate flexibility to those companies
that do not have a specific policy in place in one or more of the above-mentioned areas, the
possibility to explain why this is the case would also be offered. Finally, companies should
rely on existing international frameworks when providing such analysis.
Effectiveness Quantity of information: an amendment to the current disclosure
requirements would determine a higher quantity of information compared to
(quantity, the current situation. As explained above, the high level of discretion
quality of currently enjoyed by companies (information has to be disclosed only
information) where appropriate and if relevant to the companies' business) has led most
companies to consider such requirement as entirely voluntary. Option 1
would, however, significantly reduce the current level of legal uncertainty,
as companies would be required to disclose material information on a
mandatory basis. The number of EU companies disclosing non-financial
information would, as a consequence, significantly increase.
Quality of information: The quality of the information could also limitedly
benefit by a strengthened legislative requirement. Firstly, the notion of non-
financial information would be expanded as to cover at least all material
issues related to social, (including employees) environmental, human-
rights, anti-corruption and bribery aspects, whereas the current
provisions makes specific reference to environment and employees-related
matters only. Although such list is not intended to be exhaustive, in the
analysis of the Commission services its inclusion would represent a
concrete improvement as regards the content of the disclosure. Several
considerations should be mentioned in this respect: firstly, the above
mentioned topics represent the issues commonly covered by most of the
61
existing international frameworks 171; secondly, they represent the topics for
which there is the highest demand by stakeholders, and thirdly, disclosing
information on at least these topics would give a sufficient, if not
exhaustive, overview of the non-financial situation of a company.
Nevertheless, information would most likely be disclosed in a concise form,
therefore such statement would only partly respond to the stakeholders'
demands in terms of accuracy and comprehensiveness of the information.
On the other hand, unlike the baseline scenario, the disclosure would have
to include material information on policies, results and risk-management
issues of a company, aspects which are often overlooked in current
disclosures. The minimum level of harmonisation introduced by the new
requirements would also contribute to increase comparability amongst
companies, as users would have access to this information in a consistent
manner. It would also improve the possibility to compare performances of
the same company over time, as information would be disclosed on a yearly
basis. Finally, the same verification requirements currently in force for art.
46 (b) would apply to Option 1. The information disclosed in the statement
would consequently be checked for consistency with the financial
statements 172.
Efficiency There would be increased administrative burden in line with the scope of
the policy, as the disclosure of all material information in all the above
(compliance mentioned areas is likely to be more costly than the current reporting
costs) requirement. Firstly, a mandatory disclosure provided in compliance with
the criteria set out by Option 1 may add to the length of annual reports, as
companies would enjoy a reduced level of discretion and the quantity of
information disclosed would most likely be broader than the current
practice. Companies may therefore incur additional costs relating in
particular to drafting, publication, or specific staff training. In this respect,
some additional data may also need to be collected.
However, one should bear in mind that such Option would merely
strengthen a legislative requirement already existing under the Accounting
Directives. It can therefore be assumed that the necessary systems and
procedures should already be in place in many companies. Furthermore,
Option 1 provides also companies with the possibility to give a reasoned
explanation, in case information is not available or cannot be disclosed for
any reasons.
As far as verification is concerned, Option 1 would not add any additional
requirement compared to the baseline scenario. The increase in the quantity
of information disclosed may nevertheless slightly increase the cost of such
verification. This would depend on the actual disclosure, and is estimated to
be a negligible increase of the overall verification costs.
On the basis of the analysis carried out by the Commission Services, the
171
In particular, the Ten Principles of the United Nations Global Compact are shaped around these four broad
areas. Information disclosed under the GRI framework would also have to contain at least this information.
172
Art 51a (e) of the Fourth Directive states the statutory audits shall also contain an opinion concerning the
consistency or otherwise of the annual report with the annual accounts for the same financial year.
62
cost of such disclosure can be estimated to be between 600 and 4300 euros
per year per company. Its impact is therefore expected to be relatively low.
More details on the estimates of administrative burden are given in Annex
IX.
Acceptability to The results of the various consultations have highlighted that information
stakeholders disclosed under Option 1 would meet the users' minimum needs in terms of
transparency, as regards both the quantity and quality of the information
provided. A strong majority of users identified social, environmental,
human rights and anti-corruption aspects, along with the description of the
policy pursued by the company in these areas, its results of and the risk-
management aspects, as the core elements of a meaningful disclosure. They
are therefore considered as a minimum requirement in order to obtain a
transparency improvement compared to the current situation. However,
some users also argue that information disclosed in the form of a statement
would not be sufficiently detailed and accurate. Some preparers would
consider such option less favourably, as it would reduce the level of
discretion they can currently enjoy when complying with art 46 (b).
Competitiveness In terms of competitiveness, Option 1 would, on the one hand, introduce a
level playing field, as EU large listed and non-listed companies would have
to disclose a similar set of non-financial information. It follows that all
concerned companies could benefit from a better management of their non-
financial policies and performances. By introducing a minimum level of
harmonisation in this field, Option 1 could also contribute to solving the
problems highlighted in section 3 concerning the fragmentation of the
different legal frameworks within the Internal Market. Importantly, amongst
the preparers consulted, none of those established in MS where more
stringent mandatory disclosure requirements are already enforced reported
any competitiveness problems compared to those established in MS with
less stringent legislation.
In terms of global competitiveness, EU companies would indeed have to
bear slightly higher costs than companies established or headquartered in
third jurisdictions where non-financial disclosure is not regulated.
However, evidenced gathered by the Commission services demonstrates
that the additional administrative burden would be fairly limited, and
moreover, the potential benefits are likely to outweigh the cost, thus
rendering EU companies more competitive on a global level. Moreover,
Option 1 is designed in a way to be consistent with the different existing
international frameworks, as the disclosure requirements are built upon the
broad areas already covered by the various initiatives. This would imply
that there would be no competitiveness losses vis-à-vis those companies
voluntarily applying such frameworks on a global level. On the contrary,
the voluntary uptake of different international frameworks demonstrates
that an increasing number of companies realises the benefits of increased
transparency with regard to competitiveness.
Coherence with Such requirement would be in line with the transparency needs which the
other EU Commission has already endorsed in the Single Market Act as well as in the
CSR Communication. As the scope of application is limited to large listed
63
legislation and non-listed companies only, it would not be in conflict with the
simplification exercise currently undergoing as regards the revision of the
Accounting and Transparency Directives.
Impact on It can be expected that, in the long term, more transparent and efficient
Fundamental disclosure practices will also have a positive effect on fundamental rights,
Rights in particular on the freedom of expression and information (as defined by
Article 11 of the Charter of Fundamental Rights of the EU), Workers' right
to information (Article 27) and Environmental (Article 37) 173. Such
disclosure requirements and practices are likely to encourage companies to
develop or improve their activities relating or having an impact on
fundamental rights, due in particular to a larger public scrutiny. There
would not be any restricting effects on the fundamental rights in general. By
specifically requiring companies to disclose material risks in the field of
human rights, this option is likely to have a remarkable positive effect on
human rights awareness and encourage companies to consider their
responsibility to respect human rights. It is therefore likely to reduce
instances of EU company involvement in human rights harm.
Option 2 – Detailed reporting
This option examines the idea of requiring companies to publish a detailed report, rather
than disclosing information in the form of a statement. Such reports would have to cover the
same topical areas mentioned under Option 1 above, as well as any other issue that the
company may consider material. The report should be drafted in accordance with high
quality reporting principles, guidelines or standards that are internationally accepted. To
the extent necessary for its understanding, the report should also include, if appropriate,
relevant non-financial key performance indicators (KPIs).
Option 2 is split into three sub-options, based on the nature of the requirement:
• Under Option 2a all large and listed companies would provide a non-financial report
on a mandatory basis.
• Option 2b would instead introduce a "report or explain" obligation: companies who

do not provide a report would have to give a clear and reasoned explanation as to
why this is the case.
• Finally, under Option 2c there would be no legal obligation to provide a detailed

report. However, in order to recognise best practices and avoid duplication of
disclosure requirements, companies providing a detailed report on a voluntary basis
would be exempted from other disclosure obligations, provided that such report
complies with the same content requirements set by option 1, makes reference to
international frameworks and is annexed to the Annual Report.
2.a - Mandatory
Effectiveness Quantity of information: Disclosure in the form of a full report, rather than a
statement, would maximise the level of quantity of information available to
173
Charter of Fundament Rights of the European Union,
http://www.europarl.europa.eu/charter/pdf/text_en.pdf
64
(quantity, quality the public, as this policy option would have the effect of increasing the
of information) number of reports produced by EU companies. A non-financial report
covering at least all the content areas described under Option 1 would
therefore have the potential to give a full and comprehensive overview of
the non-financial situation of a given company. Such option would therefore
achieve a greater level of transparency than Option 1.
Quality of information: the information disclosed in the form of a full report
would by definition be more detailed, accurate and comprehensive than
information disclosed in the form of a statement. Moreover, Option 2 would
introduce a mandatory reference to high quality reporting principles,
guidelines or standards that are internationally accepted. The use of
internationally accepted frameworks would also improve the reliability and
accuracy of the information disclosed, as criteria concerning the scope,
content and level of detail of the information would be determined by using
an external reference. However, the effectiveness of such provision is
sometimes questioned. First of all, requiring detailed disclosure might result
in companies perceiving reporting just as an additional administrative
burden to comply with. This attitude would result in a 'tick the box'
exercise, which would fail to change companies' strategic, long term
approach to non-financial risk management. Furthermore, given that the
content, nature and scope of existing frameworks can be rather different, the
impact of this proposal on comparability would be limited.
Efficiency The administrative burden carried by this option would be undoubtedly
higher than under Option 1. According to a study conducted by CSES, the
(compliance costs) total cost of disclosing non-financial information in the form of a full report
can be estimated to be in the range of €155000 to €604000 174 per year per
company, with a cost per employee varying between €3 and €13. Such
estimate include all costs relating to the drafting of the report, its
publication, additional ad-hoc data collection costs, annual costs such as
training as well as potential external assurance. The cost of drafting the
report can in itself amount to between €91000 and €331000. The
publication costs are also not negligible, depending on the company's
approach. 175 As far as verification is concerned, Option 2 would not change
the baseline scenario, as companies would be left free to decide whether to
provide a form of assurance or not. External voluntary assurance may also
represent an important part of this cost, varying between €22000 and
€114000 176.
According to other estimates 177, the cost of producing a comparable detailed
report could vary between €33000 and €357 000, depending on the size of
the company. Moreover, the cost of verification of such reports could
amount to an additional €7200 to €100000, depending on the size of the
organization as well as the type of certification required, the amount and
174
CSES, 2011, p. 26 and 32.
175
Ibid.
176
Companies surveyed were asked to provide an estimate, to the nearest thousand, on assurance costs related to
the drafting of the non-financial report.
177
Data provided to the Commission Services by the French government, based on assessment made on
relevant requirements in French legislation
65
complexity of data analysed, the nature of a company's activities and their
technical complexity.
On the basis of the figures collected, the cost of a full mandatory reporting
obligation could therefore be roughly estimated in a range varying between
€33000 and €604000 per year per company. In general terms, the above-
mentioned figures may depend on the complexity of a company and its
operations and would also be likely to be at the higher range in the first
period of implementation of a potential legislation, or for first time
reporters, while decreasing over the years. Some of the experts consulted 178
agreed that set-up costs could be substantial. However, they also argued that
costs would decrease over time and progressive benefits of long-term
investment and better management should also be considered.
Acceptability to The public consultations have shown that a majority of preparers would be
stakeholders opposed to mandatory reporting in the form of a full report, namely because
of the excessive administrative burden this option would carry 179. On the
contrary, most users would consider this option more favourably than
Option 1, as it would bring greater transparency benefits, particularly as
regards the quantity of information. At the same time, mixed views are
expressed as regards the potential benefits this option could bring in terms
of overall quality and comparability. On the one hand, some stakeholders
would consider the use of internationally accepted frameworks as an
important achievement. On the other hand, others raise the argument that
such frameworks are still very diverse, and such a reference would not
allow for proper benchmarking. Finally, most civil society organisations
and NGOs call for stricter requirements concerning verification, as this is
seen as a key tool to increase accuracy and reliability of the information.
Competitiveness The various consultations carried out by the Commission services,
including the advice of the ad-hoc Expert group, have highlighted that more
transparent non-financial reporting practices could produce significant
economic benefits through better risk and cost management and better
overall definition of corporate strategies. A consistent body of academic
literature also suggests that increased transparency in this field would lead
to better financial and non-financial performances, and contribute to a more
efficient allocation of capital within the internal market, potentially
resulting in a higher degree of competitiveness across the EU. 180 Moreover,
Option 2a is designed in such a way as to be consistent with the existing
international frameworks in this field. It follows that the competitive
situation of EU companies would not be undermined vis-à-vis those
companies already applying such frameworks at global level on a voluntary
basis.
However, in order to properly assess the benefits that Option 2a could bring
in terms of overall competitiveness, due account of the related compliance
costs also needs to be taken. It appears that, especially in the first period of
178
Minutes of the ad-hoc expert group Meeting of 11 July 2011,
http://ec.europa.eu/internal_market/accounting/docs/11072011_minutes_en.pdf
179
180
Porter and Kramer, 2006; Ioannou and Serafeim, 2011.
66
implementation, the costs of the increased administrative burden could be
significant, and a mandatory obligation to produce a full report could
potentially affect the competitive position of EU companies vis-à-vis
companies established in third jurisdictions where such mandatory reporting
obligation is not enforced.
Coherence with As for Option 1, a mandatory reporting obligation would be in line with the
other EU policy objectives that the Commission has already endorsed in the SMA as
legislation well as in the CSR Communication. As the scope of application is limited to
large and listed companies only, it would not be in conflict with the
simplification exercise on the revision of the Accounting and Transparency
Directives currently undergoing. However, as this option is likely to
determine a significantly increased administrative burden, there may be
conflict with the overall policy objective of reducing the administrative
burden, as set out in the Action Programme for Reducing Administrative
Burdens in the European Union, presented by the European Commission in
January 2007 181.
Impact on The same considerations made for option 1 above would apply. By
Fundamental maximising the quantity of information, such option would probably bring
Rights greater benefits than Option 1. However, due to the consequent increase in
the administrative burden, the possibility of a prejudice to the freedom to
conduct a business (Article 16 of the Chart) should be considered 182.
2.b – Report or Explain

Effectiveness Quantity of information: Companies could opt to produce a report or explain
why they choose not to do so. As a consequence, Option 2b would, by
(quantity, definition, be less effective than Option 2a and Option 1 as regards the
quality of quantity of information. Besides the obligation set forth by the Accounting
information) Directives, various mechanisms for voluntary reporting already exist and,
despite their global uptake, the number of EU companies producing non-
financial reports on a voluntary basis remains still extremely low.
Nevertheless, an obligation to "explain" the reasons for not reporting may still
represent an incentive for EU companies to assess the financial and non-
financial opportunities provided by higher transparency, and thus engage in
more transparent reporting practices. The Danish experience, where a sort of
comply or explain obligation has been in place since 2009 183, shows that 97%
of companies have chosen to report on a voluntary basis following this
approach. Academic evidence also suggests that such a system could represent
an incentive for companies to engage in more transparent reporting, namely
due to peer pressure or reputational considerations.
Quality of information: In general terms, mixed views are expressed by
stakeholders as regards the potential of a "report or explain" obligation to
increase the quality of information, as this very much depends on the content
181
http://ec.europa.eu/enterprise/policies/smart-regulation/administrative-burdens/index_en.htm
182
Charter of Fundament Rights of the European Union, http://www.europarl.europa.eu/charter/pdf/text_en.pdf
183
"Corporate Social Responsibility and Reporting in Denmark – Impact of the legal requirement for reporting
on CSR in the Danish Financial Statements Act", Danish Commerce and Companies Agency, 2010,
www.CSRgov.dk.
67
of the requirement itself 184. In this specific case, Option 2b would require the
same content as Option 2a. The information disclosed in the form of a full
report could be more detailed, accurate and comprehensive than a statement
(Option 1), resulting in a major improvement of the baseline scenario The use
of internationally accepted frameworks would also improve the reliability and
accuracy of such information, although the improvements in terms of
comparability would be limited. On the other hand, a preliminary assessment
of the Danish approach 185 shows that reports quality is improving less rapidly
than their quantity. Companies struggle to fully comply with the requirements
and disclose balanced and comprehensive information on more contentious
issues such as human rights and corruption.
Efficiency In terms of overall compliance costs, the same considerations made under
Option 2a above apply. However, under Option 2b such costs would only be
(compliance incurred by those companies choosing to comply with the requirement,
costs) therefore they are even more difficult to be assessed ex ante. Therefore,
companies opting for the reasoned explanation would have to bear only the
costs related to this specific disclosure, which can be estimated to be
comparable to the cost of an additional statement in the Annual Report as
explained in Option 1. On the other hand, the additional costs for companies
opting for a full compliance would be much higher. They would be
comparable to Option 2a. More details are given in Annex IX.
Acceptability to The results of the public consultations show that preparers would prefer
stakeholders Option 2b to Option 2a. A majority of the companies surveyed pointed out that
voluntary comply or explain requirement would be perceived as more
meaningful and well-founded than a full mandatory obligation. Users could
benefit from a certain increase in the quality of information disclosed by
companies willing to do so, although the gain in terms of quantity of
information disclosed could not be comparable to Option 2a. For this reason in
particular, civil society organizations would consider this option as less
preferable than Options 1 or 2a.
Competitiveness A comply or explain requirement would not change the current situation in
terms of legal fragmentation within the EU internal market. The problems
related to the current fragmentation of such frameworks would persist.
However, the obligation to give a reasoned explanation in case a report is not
published could at the same time constitute an incentive for companies to set
up appropriate systems and procedures to assess the potential benefits
associated with non-financial disclosure, and thus engage in reporting
practices. In this respect, there would be potential competitive gains for
companies choosing to produce reports.
Option 2b would also maintain a level playing field amongst companies

established or listed in EU Member States or third countries with no
mandatory reporting requirements in place, thus avoiding potential
competitive distortions in this respect. It is also noteworthy to underline that
different forms of comply or explain obligations have already been chosen not
184
See the study above as well as "The Impact of the Danish Law on CSR Reporting" DanWatch, 2011. Content
may vary as regards the "comply" as well as the "explain" part of the requirement.
185
Ibid
68
only by several EU Member States 186, but also by third countries including, for
instance, China and South Africa 187.
Coherence with A comply or explain obligation would be in line with overall objectives of
other EU increasing transparency in the non-financial field already endorsed by the
legislation Commission in the SMA and the CSR Communication. As the scope of
application is limited to large and listed companies only, it would not be in
conflict with the simplification exercise on the revision of the Accounting and
Transparency Directives currently underway.
Impact on The same considerations made for options 1 and 2a above would apply.
Fundamental
Rights
Option 2c – Voluntary
Effectiveness Quantity of information: according to this option there would be no
mandatory obligation to provide a detailed report. As a consequence, this
(quantity, option would be less effective than Option , 2a or 2b as regards the quantity
quality of of information. Nevertheless, it would recognise best practices and, by
information) giving a conditional exemption from other relevant disclosure requirements,
may constitute an incentive for companies to engage in reporting practices
on a voluntary basis.
Quality of information: In order for the conditional exemption from other
disclosure obligations to be applicable, information disclosed under option
2c would be subject to the same content requirements as in Option 2a. The
information disclosed in the form of a report could be more detailed,
accurate and comprehensive than a statement. The use of internationally
accepted frameworks would also improve the accuracy of such information,
although the improvements in terms of comparability would be limited.
Moreover, the conditional requirement to annex the voluntary report to the
Annual Report would imply an obligation to check the whole content of the
report for consistency with financial statements, thus contributing to
improve the reliability of the information disclosed.
Efficiency This option would, by definition, carry no additional administrative burden,
as the disclosure of a full report would remain voluntary. For companies
(compliance willing to provide a detailed report on a voluntary basis, the same
costs) considerations made under Option 2a above apply. Moreover, companies
deciding to provide such report would be exempted from other relevant
disclosure requirements (such as those described under Option 1) provided
that certain specific conditions are met. Consequently, they would not have
to bear other costs relating to disclosure of such information.
Acceptability to The results of the public consultations show that preparers would prefer
stakeholders Option 2c to other Options, as it would give them maximum flexibility. On
the contrary, users, and NGOs in particular, question the potential benefits
of voluntary reporting, mostly based on the claim that the results achieved
186
Besides Denmark, also Spain, Sweden and the UK have already adopted different forms of comply or explain
regulations. Norway has also adopted similar legislation. See Annex 2 for more details.
187
https://www.globalreporting.org/network/report-or-explain/Pages/default.aspx
69
so far are not satisfactory.
Competitiveness A voluntary requirement would not change the current situation in terms of
competitiveness. This Option would maintain a level playing field amongst
companies established or listed in EU Member States or third countries with
no mandatory reporting requirements in place, thus avoiding any
competitive distortions. However, the potential exemption from other
disclosure obligations built in this option could at the same time constitute a
limited incentive for companies to recognise best practices, and thus engage
in better reporting practices 188. In this respect, there could be potential
competitive gains for companies choosing to produce reports on a voluntary
basis.
Coherence with A fully voluntary obligation would not be entirely in line with the overall
other EU objectives of increasing transparency in the non-financial field already
legislation endorsed by the Commission in the SMA and the CSR Communication.
However, on the positive side, it would be consistent with the overall policy
objective of reducing the administrative burden, as set out in the Action
Programme for Reducing Administrative Burdens in the European Union,
presented by the European Commission in January 2007.
Impact on The impact of such option on fundamental rights would be quite limited.
Fundamental When information is disclosed on a voluntary basis, the same considerations
Rights made for option 1 above would apply
Option 3 - Set up a mandatory EU-based Standard

This option would require companies to produce a non-financial report on the basis of an EU
mandatory framework (Standard). Such framework would be based on a harmonised set of
pre-defined Key Performance Indicators (KPIs)
Effectiveness Quantity of information: Option 3 would by definition be most effective
in terms of quantity of information disclosed, as all concerned
(quantity, quality companies would have to produce a report on a mandatory basis. Such
of information) requirement would therefore necessarily lead to higher quantity of
information compared to the current situation, maximising the number
of EU companies disclosing non-financial information.
Quality of information: As opposed to Option 2, Option 3 would not
rely on existing international frameworks to define the content of the
report. It would, on the contrary, set up a specific EU standard,
including a set of EU KPIs, which all concerned companies would have
to comply with. This would, on the one hand, optimise the
comparability of information disclosed, as all reports would by
definition follow the same structure and be based on a comparable
content. However, disclosing information on the basis on a set of pre-
defined KPIs would also minimise the degree of flexibility left to
companies, with potential detriment for the materiality of the
information disclosed and thus its usefulness for users. The results of
the public consultation have shown that tailoring an EU standard able to
188
For an overview of the positive effect and limitations of voluntary reporting see "Making a Difference.
Sustainability Reporting, Accountability and Organisational Change", Adams and McNicholas, 2007
70
satisfactorily meet the needs and demands by both preparers and users
would constitute a very demanding exercise, which would require
significant time and resources to be developed 189.
Efficiency Option 3 would have high compliance costs. A precise estimate cannot
be given, as it would depend on the content of a potential standard
(compliance costs) (harmonised set of rules and KPIs). However, according to the majority
of the preparers surveyed, the additional costs that companies would
have to bear in order to comply with Option 3 would be significant and
would include integrating specific systems and practices, training of
staff, collection and consolidation of additional information specifically
related to the standard. It is therefore estimated that the costs of
producing a report under Option 3 would at least be comparable to the
costs highlighted for Option 2a above. With regard to the costs related
to verification, the same considerations made for Options 1 and 2 above
would apply.
Acceptability to The majority of the stakeholders consulted, across all groups, agreed
stakeholders that a one-size-fits-all approach would not be the most effective nor
efficient solution to deal with the identified problems, and on the need
to avoid the creation of a new standard that would duplicate, or overlap
only partly, other existing international frameworks 190. The results of
the public consultation have shown that a strong majority of the
preparers consider Option 3 as the least effective, based on the argument
that it would maximise the compliance costs and potentially undermine
the materiality and thus quality of the information disclosed. Users have
expressed mixed views on this point: amongst the investors' community,
some consider that the benefits in terms of increased comparability
would be significant, whilst others believe that a specific EU approach
to KPIs should be avoided, as it may bring prejudice to the materiality
of the information. Some of the NGOs and other civil society
organizations would on the contrary favour Option 3, as it would have
the maximum potential to increase companies' accountability towards
society.
Competitiveness Within the EU, a system which is somewhat comparable to Option 3 is
so far implemented in only one Member State (France). When replying
to the public consultation, companies established in this MS have not
reported any loss in terms of competitiveness specifically linked to this
approach. However, the analysis carried out by the Commission services
underlined that it is unsure whether the potential competitive gains that
could result from Option 3 would be able to outweigh the additional
costs that companies would have to bear. Moreover, a common set of
KPIs could potentially take years to be developed and agreed upon.
Such framework would also run the risk of being not fully consistent
with existing national legislations, or with internationally accepted
frameworks that companies are already applying on a voluntary basis.
Coherence with Developing an EU standard for non-financial reporting would, in theory,
189
190
Ibid.
71
other EU have the potential to bring EU legislation in this field to a level of detail
legislation and accuracy comparable to what is already required by the Accounting
and Transparency Directives as far as financial reporting is concerned. It
would also be consistent with the objective of increasing transparency of
non-financial information endorsed by the SMA and the CSR
Communication. However, as this option is likely to determine a
significant administrative burden, it may be in conflict with the overall
policy objective of reducing the administrative burden, as set out in the
Action Programme for Reducing Administrative Burdens in the
European Union, presented by the European Commission in January
2007.
Impact on The same considerations made for option 1 above would apply.
Fundamental However, a more precise assessment would depend on the actual
Rights content of the standard.
72
Annex VII
Increasing Board Diversity:
Detailed Analysis of Broad Policy Options
1 DESCRIPTION
Several policy options aiming at increasing boards' diversity have been assessed, including
"no policy change" scenario (Policy Option 0). One option (binding gender quotas) has been
discarded from the outset as it is subject of a separate initiative of the Commission (see
below).
Option 1 would require companies to disclose the diversity policy they have in place. This
would translate into a requirement to include information on their diversity policy in their
annual report, more precisely in their corporate governance statement. Companies would
describe in this statement their diversity policy with regard to various aspects, including in
particular age, gender, nationality and educational and professional background. They would
have to specify the objectives of this policy, how it has been implemented and the results
achieved. However, companies not having a diversity policy would not be obliged to put one
in place. They would only be required to provide a clear and reasoned explanation why this is
the case ("comply or explain" approach).
According to option 2 companies would be required to take into account the diversity as one
of the criteria for the selection of a board candidate. This means that companies would be
obliged to consider not only the expertise of a given candidate, but also to which extend
he/she would make the board as a whole more diversified. In practical terms, the board would
have to assess its needs in terms of diversity and set specific recruitment guidelines that the
nomination committee would have to consider when assessing the profile of the candidates.
Option 3 envisages the possibility of obliging companies to establish a policy concerning

diversity for boards. The content of this policy would be determined by the companies
themselves: the board would be required to establish measurable objectives (targets) for
achieving diversity on the board and to assess annually both the objectives and the progress in
achieving them.
The current impact assessment does not consider the option of introducing quotas. While
setting quantitative measures seems to be an efficient tool to promote in particular gender
balance on boards, they do not seem to be an appropriate instrument for diversity aspects at
large. Besides, the Commission services are currently working on a separate initiative on
improving gender balance on boards of listed companies, which will consider the introduction
of quantitative gender objectives and increased transparency of selection procedures for board
members. Thus, the current assessment will not further develop the analysis of this
instrument, but will concentrate on options enhancing the boards' diversity at large. The
retained policy options can be summarised as follows:
Option 0 No policy change

Option 1 Require companies to disclose their diversity policy
73
Option 2 Require companies to include diversity as one of the criteria for the selection
of board members
Option 3 Require companies to establish a diversity policy
2 DETAILED ANALYSIS OF OPTIONS AGAINST IDENTIFIED CRITERIA
Option 0 – No policy change

This option implies not taking any action at EU level as regards boards' diversity in terms of
educational and professional background, nationality, gender or age. Any possible action
would be taken at national level only and companies may take steps to increase board
diversity on a voluntary basis.
Effectiveness A detailed explanation on "how the problem will evolve without action" is
provided in section 3.4. above. On the basis of that analysis, the
(increase of Commission services are of the view that this policy option is unlikely to
diversity) achieve the underlying objective of enhancing boards' diversity and thus
reduce the phenomenon of group-think and improve the oversight of the
management by the boards. If no action is taken at EU level, progress will
remain very slow, unless measures are taken at national level. As the
approaches of Member States as regards the boards' diversity are very
different, the important disparities between national frameworks would
remain.
Efficiency Companies would not be forced to incur additional administrative burden or
(compliance costs) costs.
Acceptability to The results of the consultation launched by the Green Paper on the EU
stakeholders corporate governance framework 191 show a general support for more
diversity in the boards, in terms of expertise, skills, background, gender, etc.
Although most respondents rejected the idea of quotas, most of them were
in favour of softer measures in favour of greater diversity. Whereas
companies and business federations often considered that the current
situation is satisfactory, most respondents from the civil society and the
investor community supported measures in favour of more diversity.
Competitiveness As no further obligation would be imposed, there would be no changes in
this regard. However, EU companies would fail to exploit the benefits that
increased disclosure of diversity in the boardroom would bring.
Coherence with The Commission services are working simultaneously on a separate
other EU proposal in order to enhance gender balance in corporate boards by way of
initiatives quantitative measures at EU level. Thus, a no-policy change scenario could
be regarded as a missed opportunity to propose mutually reinforcing
measures creating a strong synergy in favour of better boards' diversity.
Impact on There should be no impact on fundamental rights. No negative effects but
fundamental rights also no beneficial impact.
191
See 2011 Green Paper on Corporate Governance Framework and the feedback statement accessible at
http://ec.europa.eu/internal_market/company/docs/modern/20111115-feedback-statement_en.pdf.
74
Option 1 – Disclosure of internal policy on diversity in the annual report
This option would seek to enhance companies' transparency as regards their boards' diversity
policy. Companies would be required to disclose in the annual report their diversity policy, in
particular the objectives of this policy and to which extent these objectives have been
achieved. The information disclosed should cover in particular aspects such as age, gender,
nationality, educational and professional background of board members.
Effectiveness The benefit of transparency with regard to diversity policy is that it allows
for public insight, while increasing the perceived legitimacy of the actions
(increase of of the company adopting a diversity policy. It creates incentives to address
diversity) diversity challenges. Companies which do not have a diversity policy or do
not make the necessary efforts to achieve the objectives of such policy
might be subject to public criticism. The option to improve transparency is a
useful tool to inform the market of corporate governance practices and thus
incentivise companies to put in place diversity policies.
Efficiency The compliance costs associated with this option are relatively low. The
(compliance costs) primary costs of increased disclosure are the cost of preparing and
disseminating the information. As companies, especially listed ones
(irrespective of the size) do already have to publish periodic information for
public use 192, the additional cost of preparation and dissemination of
information on their diversity policy will not be very high. Given that the
average European board consists of 12 members 193, the processing of the
information required for the disclosure should not give rise to considerable
burden. In line with previous estimations made by the Commission's
services for comparable disclosures 194, the preparation of an additional
statement in the annual report would range between 600 and 1000 euros per
year per company. As this option would merely extend the content of the
corporate governance statement, costs could even be lower, especially given
the limited size of a board and the fact that the description of the policy at
board level would be relatively concise.
Moreover, it could be argued that the present option could have a negative
impact on the pool of people available for board membership, and possibly
on the objective of board expertise, because there are not enough
experienced women or men from sufficiently different background to
populate the board rooms of companies. However, at least with regard to
gender balance, it appears that there are enough qualified women which
cannot not for the time being reach leading positions in companies 195. In
addition, the disclosure requirements would not put any obligation or
burden on them to reach the targets they may have voluntarily established
nor impose any given means to achieve the diversity policy.
Acceptability to This option was favoured by many respondents to the public consultation,
which considered that such a soft requirement would encourage diversity
192
See section 2.2.
193
194
See to this effect CRD IV Impact Assessment, Administrative burden for credit institutions and supervisors,
http://ec.europa.eu/internal_market/bank/docs/regcapital/CRD4_reform/IA_directive_en.pdf
195
See for example
http://www.mckinsey.com/Client_Service/Organization/Latest_thinking/Unlocking_the_full_potential
75
stakeholders but in the same time would not impose specific choices to the company196.
Most of the respondents to the consultation were overall positive about the
disclosure of a diversity policy, in particular civil society, directors'
associations, employees, investors, public authorities. Respondents
indicated that disclosure would enable investors to take informed decisions
as to the governance practices of the specific company. Although business
federations and companies were more reserved regarding disclosure of
diversity policy, investors in particular indicated that, if companies are
transparent on their diversity policy, they can judge better the level of
ambition of the company and monitor progress.
Competitiveness As already illustrated in previous sections, enhanced transparency on how
diversity is dealt with at the board level is relevant for investors, as it
enables a more informed voting and investment decision-making. The more
diverse the board is, the more likely it is that more competencies and skills
are brought in for the benefit of the company. Therefore, the proposed
provisions not only would not hinder the capacity of EU companies to
compete with counterparts in other parts of the world, but on the contrary it
is assumed that they would have a positive impact on them. In terms of
negative impacts as the requirement at hand would not impose specific
means or targets to achieve diversity, but only to disclose what it is in place,
there should not be any or they should be very limited.
Coherence with This option would be consistent with a separate initiative of the
other EU Commission on better gender balance in the boards of companies listed on
initiatives stock exchanges, which is considering introducing quantitative measures.
The scope of the current proposal is larger than gender diversity initiative,
aiming at achieving more diversity in general, in terms of educational and
professional background, nationality, age, etc. The nature of the
requirement imposed is different, as the current initiative would only
impose disclosure. Thus, in addition to contributing to increasing board
diversity, the current initiative would also offer better information on board
diversity policy to investors and civil society. It appears thus that the two
initiatives would be mutually reinforcing. In particular, the enhanced
disclosure requirement will be likely to contribute to the implementation of
the quantitive targets by companies. Given that it would exempt listed
SMEs, it would also be coherent with the general policy of the European
Commission to reduce the administrative and regulatory burden in order to
facilitate the start-up and development of the SMEs.
This option is also consistant with the measures aiming at enhancing boards'
diversity in financial institutions in the framework of the proposal
reviewing the current Capital Requirements Directive. As regards corporate
governance, one should make the difference between financial institutions
and listed companies in general. Financial institutions generate systemic
risks, there is thus a need for stricter rules on their corporate governance.
Banks were bailed out by governments and consequences borne by
governments and population at large. In the case of listed companies, there
is no need for such strict rules as shareholders, not society, would pay for
196
See replies to the Green Paper on the EU Corporate Governance Framework accessible at
http://ec.europa.eu/internal_market/consultations/2011/corporate-governance-framework_en.htm
76
possible failures. Moreover, listed companies are a very heterogenous
group, encompassing entities of all sides and active in all economic sector,
with an important role in the Internal Market for growth and job creation. It
is thus of utmost importance to put forward flexible rules, which can be
adapted to all listed companies. The Commission considers therefore that at
this stage a measure of enhanced transparency would be more appropriate,
given also the initiative on gender quotas. Imposing a diversity policy
would go beyond what it is necessary to achieve the pursued objective.
Impact on This option would also have a positive impact on fundamental rights as
fundamental rights enshrined in the Charter of Fundamental Rights of the European Union, in
particular, on the freedom to choose an occupation and right to engage in
work (Article 15), the freedom to conduct a business (Article 16), on non-
discrimination (Article 21), on equality between women and men (Article
23). It would also allow for more public scrutiny and thus indirectly
facilitate the access of more diverse directors to companies' boards, while
removing potential discriminatory practices. It would take place without
any negative effects on other fundamental rights. Article 7 (Respect for
private and family life) and 8 (Protection of personal data) of the Charter
should, in principle, not be affected by these provisions. This policy option
would not as such require the publication or processing of personal data by
companies. However, if companies do so, they would need to ensure that
such processing is carried out in accordance with national data protection
laws implementing EU data protection legislation, namely Directive
95/46/EC.
Option 2 – Diversity must be one of the criteria of Board composition

Following this option, companies would be required to regard diversity as one of the criteria
which should be taken into account when selecting a board candidate. It would suppose a
more rigorous and professionalised selection procedure, where precise profiles of board
members should be identified before launching the recruitment process.
Effectiveness This option could contribute to enhancing boards' diversity by obliging
companies to put diversity criteria at the same level as expertise for the
(increase of purpose of recruitment to board position. Companies would have to
diversity) consider not only the expertise of a candidate, but also to which extent he or
she enhances the diversity of the board. Such requirement could also
contribute to the professionalization of the recruitment procedure and help
reduce the current practice of recruitment through co-optation. In addition,
it has the advantage of being highly flexible, leaving the method to achieve
the underlying objective of more diverse boards to companies.
However, it can also be argued that such general principle might not
achieve its objective in practice, as it relies in the first place on the
appreciation by a company of what is the appropriate diversity and on the
trade-off between diversity and expertise. Most companies do not provide
details on their recruitment practices. A measure focusing on recruitment
alone without sufficient consideration for transparency aspects might not be
enough to bring more diversity to the board.
Efficiency There should be no direct additional costs for companies. There could be
77
(compliance costs) indirect costs linked to internal processes and to remuneration of HR
specialists or head hunters involved in the recruitment procedures.
However, these costs are difficult to estimate and may vary from one
company to another.
As for the previous option, it could be argued that this option could have a
negative impact on the pool of people available for Board membership as
there may not be enough experienced women or men sufficiently diverse for
the boardrooms of companies. However, as already mentioned, many
qualified women cannot for the time being reach leading positions in
companies. In addition, defining diversity as one of selection criteria leaves
great flexibility to companies.
Acceptability to As regards measures on recruitment the opinion seems almost equally
stakeholders divided between those favouring specific recruitment measures to ensure
that boards are suitably diverse and those opposing to them.
Although most respondents to the public consultation recognised the
importance of having diversity in the boards, in terms of expertise, skills,
background, gender, etc., some were against regulation at EU level,
considering either national level as more appropriate or even that the
company should have the freedom to decide alone on such issues, for
instance through its nomination committee. Many respondents who were
against specific recruitment policies considered that "one size fits all"
principle should not be applied in the present case.
Competitiveness This option could also have a positive impact on the competitiveness of the
companies, as enhanced transparency and therefore enhanced diversity
would be beneficial to them. However, in terms of the pursued objective it
would rely on the appreciation by a company of what is the appropriate
diversity, while there may be potential indirect costs with an impact on
companies 'competitiveness.
Coherence with This option seems also consistent with the separate initiative aiming at
other EU introducing quantitative measures for gender balance. The obligation to
initiatives consider diversity as one of the selection criteria could be complementary to
quantitative measures.
Impact on This option would also have a positive direct impact on certain fundamental
fundamental rights rights, i.e. on the freedom to choose an occupation and right to engage in
work, on non-discrimination, on equality between women and men;
however as already mentioned above it will rely only on the appreciation of
the company, as the transparency rules will not necessarily change in order
to allow for more public scrutiny. In addition, as companies would have to
put the diversity criteria at the same level as expertise for the recruitment
for board position, this option would have an impact on the freedom to
conduct a business. In particular it may have a limiting effect on the
entrepreneurs and shareholders' right to exercise their freedom to conduct
their activities and nominate the board members.
Option 3 – Requirement to establish a policy with regard to diversity

According to this option companies would be required to establish a policy concerning
boards' diversity. This means that the board would have to establish measurable objectives
78
for achieving diversity (targets) and to assess annually both the objectives and the progress in
achieving them. Companies might also be required to introduce appropriate procedures to
ensure that the policy is implemented properly and an internal review mechanism to assess
the effectiveness of the policy.
Effectiveness This option could be a useful tool to promote diversity on boards, as it
obliges companies to set up a diversity policy, while leaving a sufficient
(increase of degree of flexibility to adjust the policy to different characteristics of the
diversity) company.
However, the effective implementation of this principle relies mainly on the
companies itself and on the external scrutiny by shareholders. If the
company's diversity policy does not benefit from enough transparency or it
is not given sufficient visibility, the monitoring of its implementation can be
difficult. Companies would not have appropriate incentives to really address
and implement it properly. It appears therefore that this approach could not
be a stand-alone option but would have to be combined with a disclosure
requirement.
Efficiency There are no significant direct costs linked to this option. There could be
(compliance costs) indirect costs linked to internal processes and the recruitment and
remuneration of HR specialists or head hunters that will search for required
diversity, as specified in the policy. Yet, these costs are hard to estimate and
will vary from one company to another. Also, to achieve the objective of
diversity, some companies may have to increase the number of board
members. This could lead to additional costs for the remuneration of
additional directors needed. The European average remuneration of
directors was 83, 500 euro in 2009, ranging from 110, 000 in Germany until
25 000 in Austria 197. However, it is difficult to estimate the exact amount of
this cost, as companies may also choose to replace existing board members
to achieve the diversity objective.
Acceptability to The results of the public consultation show that while majority of
stakeholders respondents are in favour of more diversity on boards, they favour in
general a flexible and principle based approach. In particular companies and
business federations seem against any measures of a more binding nature.
Exchanges that the Commission had with companies suggest that a
requirement to adopt an obligatory diversity policy, although leaving a great
degree of flexibility, could be perceived by companies as a form of
interference in their internal processes. It could therefore potentially
generate a negative reaction of companies subject to this requirement.
Companies could then tend to limit their action in this field to a mere box
ticking.
Competitiveness This option, despite its effectiveness in achieving a diverse board, it is less
flexible than other options. It could be perceived as an interference in the
internal processes of companies and more burdensome as it could generate
some additional costs. From this perspective, the proposed requirement
could potentially have an impact on their capacity to compete on a global
scale.
197
See Heidrick & Struggle 2009, p. 16
79
Coherence with This option, which obliges companies to set their own diversity targets,
other EU could be less coherent with the separate initiative setting concrete
initiatives quantitative objectives for gender balance. Companies would be able to set
their own targets only for the other aspects of diversity.
Impact on This option would have a positive direct impact on some fundamental rights
fundamental rights (freedom to choose an occupation and right to engage in work; non-
discrimination; equality between women and men), whereas on other (the
freedom to conduct a business) it may have a restrictive effect, namely on
the entrepreneurs and shareholders' right to exercise their freedom to
conduct a business and nominate the board members.
3 COMPARATIVE ANALYSIS OF OPTIONS
Option 0 (no policy change) does not seem to be the most appropriate approach to reach our
objective and tackle the problem of insufficient diversity of boards. In the absence of action at
EU level progress will remain slow, while divergences between legal frameworks in Member
States will most likely increase. The voluntary measures taken individually by companies so
far have and will continue having a positive impact, but their added-value is marginal
compared to other options. Moreover, not all the aspects of diversity may benefit of the same
progress as gender diversity, which has been increasingly under public focus and debate.
Option 1 (disclosure of the diversity policy) appears to be, at this stage, the best approach
over all to encourage companies to have more diverse boards. This option, compared to the
baseline scenario, would enhance companies' transparency as regards their diversity practices,
while improving the board diversity as such.
Disclosure of the diversity policy exercises indirect pressure on companies to adopt more
ambitious policies and, compared to option 3, offers in addition a great deal of flexibility to
companies. It would also enable investors to make more informed decisions. This option is
better accepted by most stakeholders compared with a compulsory diversity policy or to an
action focusing only on recruitment policy198. However, it should also be considered that
companies may choose not to commit to increase board diversity and to put in place any
diversity policy and rather give an explanation why this was the case. On the other hand,
examples of measures in favour of gender balance taken in Finland and Sweden can illustrate
the effectiveness of enhanced transparency. In Finland, the Corporate Governance Code
recommends that both genders should be represented on the board. Companies which do not
follow this recommendation, must report the deviation and give detailed reasons for it in their
corporate governance statement. The general experience is that most companies are reluctant
to depart from the Code due to the publicity of the departure. The disclosure duty has proved
to be an efficient way to increase the number of women directors, especially because the
Finnish media has actively followed the development and supported change. Indeed, whereas
in 2008, when the Code was issued, only 51 per cent of Finnish listed companies had a female
board member, in spring 2011 the number of companies with at least one woman board
member rose to 78 per cent. This can be seen as a success as the change from 51 to 78 per
cent happened in three years and without much controversy 199.
198
See to this effect the feedback statement to the Green Paper on Corporate Governance Framework above
mentioned.
199
See Finland Chamber of Commerce, 'Men lead business operations of listed companies – Women end up in
support functions', 2011, p. 15.
80
In Sweden the accounting act has imposed in 2004 on companies a duty to provide
information on gender distribution on their top level positions. That information is required
concerning board members, the managing director and other members of a company’s
management. Since the introduction of this requirement the proportion of female board
members in listed companies has notably increased, from 18% in 2003 to 26% in 2010.
In addition, it seems particularly coherent with the separate Commission initiative introducing
quantitative targets for gender balance on boards, as the enhanced disclosure would probably
contribute to a better implementation of the quantitative objectives. It would also have a
positive impact on fundamental rights. It would in addition tackle the "group think" problem
described above from a more general perspective, as it would bring more diversity in terms
not only of gender, but also of educational and professional background, age, nationality, etc.,
while allowing companies to adapt their boards to the needs they have, the sector of activity,
as well as the markets they are active on.
Option 2 (diversity as one of the criteria for the selection of board members) would
therefore encourage companies to improve their current recruitment practices, by obliging
them to take better account of the need for sufficient complementarity and diversity of
profiles of board members. Compared to the baseline scenario it would have a positive impact
on diversity as such, but to a lesser extent on the transparency of the selection of the
candidates. In this respect, it relies mainly on the appreciation that the company will make of
the appropriate balance between expertise and diversity. It would entail very limited
administrative burden, however, as shown by the results of the consultation, it is also an
option less accepted by shareholders. It seems coherent with the separate initiative on
quantities measures for better gender balance.
A culture of diversity could be reflected in a diversity policy. By obliging companies to set up
such a policy, option 3 (requirement to establish a policy with regard to diversity) could
contribute to improving the overall diversity of the boards of companies. However, if on the
one hand, this policy would leave flexibility to companies in designing the diversity policy
adapted to their needs and their characteristics, on the other it is more prescriptive than the
other options. Although it would not put excessive burden on them, this option could generate
some additional costs linked to a possible increase of the size of the boards. Moreover, an
obligatory diversity policy seems at that stage less accepted by stakeholders.
Taking into account the above comparison of options, the preferred policy option appears
to be option 1 (disclosure of the diversity policy).
81
Annex VIII
Estimation of Administrative burden of broad policy options
1. Transparency of Non-Financial Information
The cost estimates described below are based on the available public data, as well as on
evidence gathered by the Commission services in the various consultations (online public
consultation, ad hoc expert group, bilateral contacts with stakeholders). Moreover, the Centre
for Strategy and Evaluation Services (CSES) was contracted to produce a study on
"Disclosure of Non-Financial Information by Companies". This research paper includes a
survey-based cost assessment. The sample covered 71 EU companies of all sizes established
in eight different Member States 200, covering sectors such as food, consumer products,
banking and financial services, manufacturing, utilities and mining. The full version of the
study is available at http://ec.europa.eu/internal_market/accounting/non-
financial_reporting/index_en.htm
The scope of companies' recurring costs closely depends on the content of the requirement, as
well as on how they choose to disclose relevant information. Therefore, and due to the
qualitative nature of the measures potentially to be implemented, all the figures provided
should be considered as estimates and a fair amount of uncertainty needs to be included in the
numbers provided. Moreover, this annex does not take account of the benefits potentially
stemming from the proposed measures.
Option 0: No change
Companies would not be forced to incur additional administrative burden or costs.
Option 1: Strengthen the existing disclosure requirement

There would be increased administrative burden in line with the scope of the policy, as the
disclosure of the material information required by Option 1 is likely to be more costly than the
current reporting requirement. Firstly, a mandatory disclosure provided in compliance with
the criteria set out by Option 1 may add to the length of annual reports, as the quantity of
information disclosed would most likely be broader than the current practice. However, one
should bear in mind that Option 1 is merely strengthening an already existing legislative
requirement. Therefore, one should assume that, despite only a minority of companies
currently disclose non-financial information, most companies should already have process and
systems in place to assess whether non-financial information is relevant and disclosure is
appropriate.
The costs that companies may incur in relation to the business as usual scenario would
consequently be limited to the additional disclosure. This may concern in particular drafting,
publication, or specific staff training in some cases.
In line with previous estimations made by the Commission services for comparable
disclosures (i.e. disclosure of existing policies within the Annual Report) the cost of such
200
The sample covered the following Member States: Denmark, Germany, Spain, France, Italy, Netherlands,
Poland and United Kingdom.
82
disclosure can be estimated to be between ~ € 600 and 1000 euros per year per company201.
According to other sources, the administrative burden for companies choosing to disclose
their non-financial policies in the Annual report or in an appendix to it could amount to up to
~ € 4,300 (typically spend about two working weeks-time) 202. This figure would also factor in
the collection of additional data necessary to disclose specific information concerning a given
non-financial policy. On the contrary, according to the same source, companies opting to
provide a statement explaining that they do not have a specific policy in a certain area would
instead normally spend two working days preparing this statement, corresponding to about €
871 per company.
On this basis, the Commission services estimate that the cost of a disclosure comparable to
that described under option 1 could vary in a range between € 600 per year per company and
~ €4,300 per year per company. Moreover, such estimates should be considered valid in
particular for first time-reporters. There is evidence that such costs could decrease from the
second year onwards 203, although no precise estimates can be provided in this respect. All
figures above are estimated in accordance with the EU Standard Cost Model.
As far as verification is concerned, Option 1 would not add any additional requirement
compared to the baseline scenario. The increase in the quantity of information disclosed may
nevertheless slightly increase the cost of such verification. This would depend on the actual
disclosure, and is estimated to be a negligible increase of the overall verification costs.
Option 2a: Require detailed reporting on a mandatory basis

The administrative burden carried by this option would undoubtedly be higher than under
Option 1, and carry significant costs compared to the business as usual scenario, where
detailed reporting is voluntary. According to the CSES study, the total cost of disclosing non-
financial information in the form of a detailed report for large companies can be estimated to
be in the range of €155000 to €604000 204 per year per company, with a cost per employee
varying between €3 and €13.
Such estimate include costs relating to the drafting of the report, its publication, additional ad-
hoc data collection costs, annual costs such as training as well as potential external assurance.
.The cost of drafting the report could in itself amount to between €91000 and €331000. As far
as verification is concerned, Option 2 would not change the baseline scenario, as companies
would be left free to decide whether to provide a form of assurance or not. External voluntary
assurance may also represent an important part of this cost, varying between €22000 and
€114000 205. The costs estimates provided by the CSES study can be summarised as follows:
201
See Impact Assessment on the Commission proposal on the access to the activity of credit institutions and the
prudential supervision of credit institutions and investment firms and amending Directive 2002/87/EC of the
European Parliament and of the Council on the supplementary supervision of credit institutions, insurance
undertakings and investment firms in a financial conglomerate (CRD IV), Administrative burden for credit
institutions and supervisors, p. 185
202
http://www.csrgov.dk/graphics/publikationer/CSR/CSR_and_Reporting_in_Denmark_2nd_year_2011.pdf
203
Ibid.
204
CSES, 2011, p. 26 and 32
205
Companies surveyed were asked to provide an estimate, to the nearest thousand, on assurance costs related to
the drafting of the non-financial report.
83
Cost heading Notes
Large companies
Low High
Report drafting €91000 €331000 Depends on the complexity of the company.

Smaller companies tend to be closer to the lowest
range.
Publication €34000 €131,000 Depends on the publication strategy used ( high

number of printed reports, dedicated website)
External €22,000 €114,000 Typically larger companies only

assurance
Additional data €8000 €23000 Typically larger companies only
Training etc €0 €5000 Typically larger companies only
All estimations are made in accordance with the EU Standard Cost Model
In general terms, the above-mentioned figures may depend on the complexity of a company
and its operations and would also be likely to be at the higher range in the first period of
implementation of a potential legislation, or for first time reporters, while decreasing over the
years. Some of the experts consulted 206 agreed that set-up costs could be substantial but also
considered the importance of long-term investment in view of better management, control and
information tools, arguing that such costs would decrease over time.
According to other estimates 207, the cost of producing a comparable detailed report could vary
between €33000 and €357 000, depending on the size of the company. Moreover, the cost of
verification of such reports could amount to an additional €7200 to €100000, depending on
the size of the organisation as well as the type of certification required, the amount and
complexity of data analysed, the nature of a company's activities and their technical
complexity.
On the basis of the figures collected, the cost of a full mandatory reporting obligation could
therefore be roughly estimated in a range varying between €33000 and €604000 per year per
company, including verification costs.
Option 2b: Require detailed reporting on a "comply or explain" basis
Such option would require companies to comply with the same content requirement as
defined in Option 2a. However, it would also leave companies the flexibility to choose not to
provide a report, provided that a reasoned explanation is given in the form of a disclosure in
the Annual Report.
On this basis, the same considerations made under Option 2a above would be applicable to
companies opting for full compliance. Companies opting instead for a reasoned explanation
would have to bear only the costs related to this specific disclosure. This can be estimated to
be comparable to the cost of an additional statement in the Annual Report, i.e. between ~ €
206
See minutes of the ad-hoc expert group Meeting of 11 July 2011,
http://ec.europa.eu/internal_market/accounting/docs/11072011_minutes_en.pdf
207
Data provided to the Commission Services by the French government, based on assessment made on relevant
requirements in French legislation
84
600 and €1000 per year per company. According to an assessment made by the Danish
government, a comparable disclosure would cost around € 871 per company 208.
Option 2c: Detailed report on a voluntary basis
Under such option, detailed reporting would remain completely voluntary. As a consequence,
this option would, by definition, carry no additional administrative burden. Moreover,
companies deciding to provide such report on a voluntary basis would be exempted from
other relevant disclosure requirements (such as those described under Option 1) provided that
certain specific conditions are met. As for the costs incurred by companies to provide a
voluntary report, the same considerations made under Option 2a above would be applicable.
Option 3: Set up a mandatory EU Reporting Standard
Option 3 would maximise the compliance costs, as companies would not only have to carry
the burden of producing reports on a mandatory basis, but would also have to do so in
compliance with an harmonised set of rules and KPIs. A precise estimate cannot be given, as
it would depend on the content of a potential standard. However, according to the majority of
the preparers surveyed, the additional costs that companies would have to bear in order to
comply with Option 3 would be significant and would include integrating specific systems
and practices, training of staff, collection and consolidation of additional information
specifically related to the standard. It is therefore estimated that the costs of producing a
report under Option 3 would at least be comparable to the costs highlighted for Option 2a
above. With regard to the costs related to verification, the same considerations made for
Options 1 and 2 above would apply.
Impact on SMEs
All options analysed above are intended to cover only companies having more than 500
employees. As a consequence, no administrative burden would be directly imposed on SMEs.
Nevertheless, some of the experts consulted by the Commission Services indicated that a
detailed reporting requirement could generate indirect costs for SMEs, as these companies
may require them to provide specific data (particularly as regards issues related to the supply-
chain management) in order to complete their non-financial report. Although none of the
proposed broad options would require a specific disclosure on supply-management aspects,
potential side-effects should be taken into account when assessing the overall cost of each
option.
Policy Option Large Companies SMEs
0. No change 0 0
1. Require a disclosure in the €600 to €4300 0

Annual Report
208
http://www.dcca.dk/graphics/publikationer/CSR/CSR_and_Reporting_in_Denmark.pdf p 18. The businesses'
recurring costs depend on the type of reporting chosen and vary between EUR 871 and 4,383 per business.
85
2.a Detailed reporting €33000 to €604000 Side effects to be estimated
(mandatory)
€33000 to €604000 for full Side effects to be estimated
2.b Detailed reporting (report or
compliance
explain)
€600 to €1000 for reasoned
explanation
2.c Detailed reporting 0 0

(voluntary)
3. Set up a mandatory EU Depending on the complexity of Side effects to be estimated

Standard the standard, €33000 to €604000
or higher
2. Boards' diversity
As regards the disclosure of the board diversity policy (the preferred option), it is estimated
that the new requirement would only have limited impact in terms of adding new
administrative burden. Current EU legislation already imposes to all listed companies to
provide a corporate governance statement, which includes information on the composition
and operation of management, administrative and supervisory boards. The new requirement
would only extend the content of the existing statement by including information on the board
diversity policy. As the size of an average board is limited, the amount of information to be
collected and prepared would be limited. The main costs would be linked to the drafting of
this additional content of the corporate governance statement. Previous estimations made by
the Commission's services 209 for the preparation of a similar disclosure requirement would
range between 600 and 1000 euros per year per company.
The global costs are more difficult to be quantified. They depend naturally on the scope
covered by the measure. As explained below in section 5.4, only large listed companies will
be covered. The Commission does not have an exact number of large listed companies in the
EU. However, it has been previously estimated by the Commission that the number of large
companies using IFRS is around 6100. However, whereas all publicly traded companies are
required to adopt IFRS for their consolidated account, unlisted companies can also opt for
their use. In addition, not all listed companies produce consolidated accounts. With these
reserves, we can however estimate that the number of companies covered would approach
6000. Thus, on the basis of this estimation, the total cost for option 1 could be between
3600000 and 6000000.
Current rules on the corporate governance statement apply to all listed companies, including
listed SMEs. However, in order to better respond to the needs of small businesses and to
avoid imposing additional administrative and regulatory burden on them, the new requirement
would exempt listed SMEs.
209
See to this effect CRD IV Impact Assessment, Administrative burden for credit institutions and supervisors,
86
Annex IX
Definitions
Non-Financial Reporting
Although no universally accepted definition exists, disclosure of non-financial information is

commonly referred to as non-financial reporting, ESG (Environmental, Social and
Governance) Reporting, or sustainability reporting. Sustainability reporting is a broad term
used to describe a company's reporting practices of its economic, environmental and social
performance, although there is no single, universally accepted definition for it. The so called
GRI (Global Reporting Initiative) Guidelines define sustainability reporting as "the practice of
measuring, disclosing and being accountable to internal and external stakeholders for
organisational performance towards the goal of sustainable development".
For the purpose of this Impact Assessment, both expressions "disclosure of non-financial
information" and "non-financial reporting" are used. However, different companies may use
different terminology depending on their history, geographic location, or specific form and
format of their reports.
Integrated reporting
No universally accepted framework for integrated reporting exists today. According to the
definition given by the International Integrated Reporting Council (IIRC), "Integrated
Reporting brings together material information about an organization’s strategy, governance,
performance and prospects in a way that reflects the commercial, social and environmental
context within which it operates. It provides a clear and concise representation of how an
organization demonstrates stewardship and how it creates and sustains value. An Integrated
Report should be an organization’s primary reporting vehicle." See http://theiirc.org/wp-
content/uploads/2011/09/IR-Discussion-Paper-2011_spreads.pdf
87
Annex X
Bilateral meetings with stakeholders
1. AFEP - Association Française des Entreprises Privées
2. BASF
3. BDA - Bundesvereinigung der Deutschen Arbeitgeberverbände
4. BusinessEurope
5. CDP – Carbon Disclosure Project
6. Confindustria
7. Confrontations Europe
8. CSR Europe
9. Daimler
10. EABIS – Academy of Business in Society
11. ECCJ – European Coalition for Corporate Justice
12. Enel
13. EACB - European Association of Cooperative Banks
14. ESBG - European Savings Bank Group
15. FEE – Federation of European Accountants
16. GRI – Global Reporting Initiative
17. Hitachi
18. IIRC – International Integrated Reporting Council
19. Institut RSE
20. JBCE – Japanese Business Council in Europe
21. Microsoft
22. Renault
23. Telefonica
24. TI – Transparency International
25. UNPRI – United Nations Principles for Responsible Investment
26. ZDH - Zentralverband des Deutschen Handwerks
88

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EUROPEAN

COMMISSION STAFF WORKING DOCUMENT

Accompanying the document

Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE

amending Council Directives 78/660/EEC and 83/349/EEC as regards disclosure of non-

1 PROCEDURAL ISSUES AND CONSULTATION OF INTERESTED PARTIES

1.2. Recommendation of the Impact Assessment Board

1.3. External expertise and consultation of interested parties

1.3.2. Expert Group

1.3.3. External Study

Corporate governance is traditionally defined as the system by which companies are

2.2 Existing legislation and international frameworks

2.3 On-going and recent EU Initiatives

Impacts on trust in Suboptimal allocation of Insufficient identification of

− At EU level, an overall majority of stakeholders consulted considers the obligation

Nature and scale of the problem

In addition, international experience has become a necessity of the business operations

Drivers of the problem

In addition, the problem is also reinforced by an inadequate transparency on diversity, As

3.3 Which stakeholders are affected and how?

Moreover, a growing body of academic research indicates a positive correlation between

(ii) Users (NGOs, Public Authorities): Accountability

3.4.1 Transparency of non-financial information

– In contrast to financial information, currently there is no generally accepted standard-

3.5 The EU's right to act

Enhance the single market potential for sustainable growth and

Enhance companies' Enhance companies' Enhance efficiency of Specific

Increase the number of

5 POLICY OPTIONS - DESCRIPTION AND ANALYSIS

5.1 Options relating to Increasing Transparency of Non-Financial Information

Narrative or KPI-based disclosure (Reference): different options could be considered when

Content of the disclosure: there is no universally accepted definition of non-financial

5.1.1 Description of Broad Policy Options

1. Require a statement in the Annual Report (Option 1)

Option 1 considers the possibility of strengthening the existing requirement to disclose a

2. Require a Detailed Report (Option 2)

• Option 2.b considers the possibility of requiring detailed reporting on a "report or

3. Set up a mandatory EU Standard (Option 3)

Option Nature of Form Reference Topics Estimated Cost

0. No change Only where Statement Business- [including] information 0

1. Require a Mandatory Statement Business- Policies, performance €600 to 4300

2.Detailed Reporting a) Mandatory Report to be Same topics as Option a) €33000 to

3. EU Standard Mandatory Report Detailed list of Same topics as Option €33000 to

5.1.2 Comparative Analysis of broad Policy Options

1. Require a disclosure in the Annual Report ≈ + +

2. Detailed reporting a) Mandatory -- + ++

3. Set up a mandatory EU standard -- + +

Commission Services Analysis, based on the results of the consultations

5.1.3 Preferred option

5.2.1 Description of the broad policy options

5.2.2 Comparative analysis of the broad policy options

2 Diversity must +/? -/? +/? +/? ? possible costs

Table 5 – Assessment of the Policy Options by Stakeholders Group

1. Disclosure of internal policy on diversity in the annual + ++ ++

2 Diversity must be one of the criteria of Board +/? +/? +

3. Requirement to establish a policy with regard to - +/? +

5.2.3 Preferred option (enhanced disclosure of the board diversity policy)

5.3 Choice of instrument