Changes from plenary report to adopted text

The European Parliament,

– having regard to the 2011 UN Guiding Principles on Business and Human Rights (UNGPs),

– having regard to the UN Sustainable Development Goals,

– having regard to the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises,

– having regard to the OECD Due Diligence Guidance for Responsible Business Conduct and for Responsible Business Conduct for Institutional Investors,

– having regard to the International Labour Organization (ILO) Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy,

– having regard to the Paris Agreement, adopted on 12 December 2015,

– having regard to the Intergovernmental Panel on Climate Change (IPCC) 2018 Special Report on Global Warming of 1.5ºC,

– having regard to the Commission proposal for a regulation of the European Parliament and of the Council of 4 March 2020 establishing the framework for achieving climate neutrality and amending Regulation (EU) 2018/1999 (European Climate Law) (COM(2020)0080),

– having regard to Regulation (EU) No 517/2014 of the European Parliament and of the Council of 16 April 2014 on fluorinated greenhouse gases and repealing Regulation (EC) No 842/2006,

– having regard to the EU Action Plan: Financing Sustainable Growth (COM(2018)0097),

– having regard to the European Green Deal (COM(2019)0640),

– having regard to the adjusted Commission Work Programme for 2020 (COM(2020)0440),

– having regard to Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC (‘the Accounting Directive’),

– having regard to Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups (‘the Non-Financial Reporting Directive’ – NFRD),

– having regard to Directive (EU) 2016/943 of the European Parliament and of the Council of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure,

– having regard to Directive (EU) 2017/828 of the European Parliament and of the Council of 17 May 2017 amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement (‘the Shareholders’ Rights Directive’),

– having regard to Directive (EU) 2019/1937 of the European Parliament and of the Council of 23 October 2019 on the protection of persons who report breaches of Union law,

– having regard to Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector (‘the Disclosure Regulation’),

– having regard to Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (‘the Taxonomy Regulation’),

– having regard to the Commission Guidelines on non-financial reporting (methodology for reporting non-financial information) and to the Commission Guidelines on non-financial reporting: Supplement on reporting climate-related information,

– having regard to the Final Report of the High Level Forum on the Capital Markets Union entitled ‘A new vision for Europe’s capital markets’,

– having regard to the study drawn up for the Commission in July 2020 on directors’ duties and sustainable corporate governance,

– having regard to the UN’s Protect, Respect and Remedy Framework for Business and Human Rights of 2008,

– having regard to the study drawn up for the Commission in May 2020 entitled ‘Improving financial security in the context of the Environmental Liability Directive’,

– having regard to the Oslo Principles on Global Obligations to Reduce Climate Change,

– having regard to the recommendations of the Task Force on Climate-related Financial Disclosures of June 2017,

– having regard to Rule 54 of its Rules of Procedure,

– having regard to the opinions of the Committee on International Trade and the Committee on the Environment, Public Health and Food Safety,

– having regard to the report of the Committee on Legal Affairs (A9-0240/2020),

B. whereas in a corporate context, a sustainability approach implies that companies take due consideration of general societal and environmental concerns, such as the rights of their employees and respect for planetary boundaries, in order to address the most pressing risks posed to these by their activities;

C. whereas the multiple international initiatives promoting sustainable corporate governance are voluntary, instruments of soft law only and have largely proven to be ineffective in changing corporate behaviour towards sustainability; whereas the study drawn up for the Commission on directors’ duties and sustainable corporate governance pursuant to the Sustainable Finance Action Plan underlines the benefits of clarifying directors’ obligations vis-à-vis sustainability and long-term considerations; highlights the problems associated with short-termism and recalls the need for companies to incorporate long-term interests to keep the EU on track to meeting its own sustainability commitments; whereas the study clearly points to the need for the adoption of EU legislation in this regard;

D. whereas during the last legislative term, the EU undertook a number of initiatives in an effort to foster transparency and long-termism in financial and economic activities, such as the Shareholders’ Rights Directive, the Action Plan for Financing Sustainable Growth, the Disclosure Regulation and the Taxonomy Regulation; whereas this trend had started, inter alia, with the adoption of the Non-Financial Reporting Directive (NFRD); whereas the disclosure of non-financial information is necessary to measure, monitor and manage undertakings’ performances and their long-term impact on society and the environment;

E. whereas the NFRD is intertwined with sustainable corporate governance and has been a significant step forward in promoting non-financial reporting in the EU; whereas it nonetheless presents serious shortcomings that need to be addressed in order to make it more useful to investors and stakeholders;

F. whereas according to the European Green Deal, companies and financial institutions need to step up their disclosure of climate and environmental data so that investors are fully informed about the sustainability of their investments; whereas the Commission has committed to reviewing the NFRD to this end; whereas according to its adjusted Work Programme for 2020, the Commission intends to put forward a proposal reviewing the NFRD in the first trimester of 2021;

G. whereas stakeholders have often expressed the view that the non-financial information provided by companies pursuant to the NFRD is insufficient, unreliable and not comparable; whereas those tasked with preparing this information have expressed confusion at the plethora of voluntary reporting frameworks and have called for legal clarification and standardisation; whereas the disclosure of more complete and reliable information is necessary in order to reduce any potential adverse impacts on the climate, environment and society; whereas improvements in non-financial reporting could increase companies’ accountability and enhance trust in them; whereas these improvements should not create unfair competitive imbalances; whereas disclosure obligations should therefore take into account administrative costs and should be proportionate to the size of the company and consistent with other legislation applicable to business activities, such as the respect for trade secrets and the protection of whistleblowers;

H. whereas the study drawn up for the Commission on directors’ duties and sustainable corporate governance demonstrates the increasing tendency of publicly listed companies in the EU to focus on the short-term interests of their shareholders; whereas the study proposes several legislative options at EU level that would significantly improve corporate sustainability; whereas there is a need to adopt a legislative framework for European companies, while fully respecting the principle of proportionality and avoiding an excessive administrative burden for European companies; whereas this framework must ensure compliance with and improve legal certainty in the internal market and should not create competitive disadvantages;

I. whereas a sustainability approach to corporate governance comprises both human rights and environmental protection; whereas a legal requirement to disclose information related to environmental, social and employee issues and human rights, bribery and corruption should be considered an aspect of the ‘corporate responsibility to respect’ as defined in the UN Guiding Principles on Business and Human Rights;

K. whereas the growing global competition for access to natural resources often results in unsustainable corporate exploitation of the natural and human environment;

L. whereas corporate governance has a key role to play in delivering the EU’s commitments to implement the UN Sustainable Development Goals and the Paris Agreement;

M. whereas climate change poses serious risks to food security, namely to the availability, accessibility and utilisation of food and the stability of food systems; whereas women farmers currently account for 45-80 % of all food production in developing countries, which are disproportionately affected by climate change and environmental degradation;

N. whereas the Aarhus Convention establishes a number of environmental rights for the public and for associations, including the right to access environmental information, the right to participate in environmental decision-making and access to justice;

O. whereas in 2017 the UN Aarhus Convention Compliance Committee found the EU in violation of the Aarhus Convention for not allowing members of the public to challenge decisions of the EU institutions before the EU courts;

P. whereas the Commission has raised ambitions for the 2019-2024 period by setting out an agenda for the European Green Deal, affirming that ‘Europe must lead the transition to a healthy planet’;

Q. whereas company directors have the legal and statutory duty to act in the interest of their company; whereas this duty has been the subject of different interpretations in different jurisdictions and the interest of the company has often been equated with the financial interests of the shareholder; whereas what is considered to be the interest of the company should also incorporate the interests of relevant stakeholders, including employees, and wider societal interests; whereas a narrow interpretation of this duty with an excessive focus on short-term profit maximisation is detrimental to the company’s long-term performance and sustainability, and hence the long-term interests of its shareholders;

R. whereas the consistency of EU legislation on sustainable corporate governance should be achieved through the establishment of concrete obligations and incentives to act and not only to report information; whereas an additional framework defining company boards’ duties in terms of sustainability is therefore necessary;

S. whereas in order to make corporate governance in the EU more sustainable, transparent and accountable, the Commission should, in addition to the proposals to review the NFRD, introduce new legislation on due diligence and directors’ duties; whereas if due diligence obligations and directors’ duties are to be covered by a single legislative instrument, they should be clearly separated in two different parts; whereas those obligations and duties are complementary but not interchangeable, nor is one subordinate to the other;

Non-financial reporting obligations

1. Calls on the Commission, when proposing new action in the field of company law and corporate governance, to strike the proper balance between, on the one hand, the need to ease short-term pressure on corporate directors and promoting the integration of sustainability concerns into corporate decision-making, and, on the other hand, the need for sufficient flexibility, while ensuring harmonisation; stresses the importance of strengthening the role of directors in pursuing the long-term interests of companies in future action at EU level and of engendering a culture within companies’ governing bodies that takes into account and implements sustainable corporate governance;

2. Welcomes the Commission’s commitment to reviewing the NFRD; highlights that such revision should be fully consistent with the requirements imposed by the Disclosure Regulation and the Taxonomy Regulation; calls on the Commission to take into account the recommendations included in this resolution;

3. Reiterates its call for an enlargement of the scope of the NFRD to cover all listed and non-listed large undertakings established in EU territory, as defined in Article 3(4) of the Accounting Directive; stresses that in order to provide a level playing field, non-financial reporting obligations should also apply to non-EU companies operating in the EU market; invites the Commission to identify high-risk sectors of economic activity with a significant impact on sustainability matters that could justify the inclusion of small and medium-sized enterprises (SMEs) in those sectors within the scope of the NFRD; considers, to this end, that the Commission should draw on external independent expertise to provide an indicative, non-exhaustive and regularly updated list of conflict-affected and high-risk areas as well as specific guidance for SMEs; considers, in particular, that investments and sectors often linked to illegal business activities, such as environmental crimes, illegal wildlife trade, corruption or financial crime, should be specifically targeted; stresses that a review of the NFRD is also needed to give financial market participants access to the relevant data in order to carry out the obligations of the Disclosure Regulation;