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REPORT (2020/2137(INI))

On sustainable corporate governance

A-9-2020-0240

Committee on Legal Affairs · Rapporteur: Pascal Durand

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Parliament's resolution on sustainable corporate governance calls on the Commission to review the Non-Financial Reporting Directive (NFRD) and to propose new EU legislation on due diligence and directors' duties. It asks to widen the NFRD's scope to all large listed and non-listed EU undertakings and to non-EU companies operating in the EU market, with mandatory general and sector-specific reporting standards and mandatory audit of non-financial statements. It wants directors' duties redefined to include long-term interests, wider societal interests and a duty to define, disclose and monitor a corporate sustainability strategy with measurable, time-bound and science-based targets. It calls for employee involvement, stakeholder consultation through advisory committees, country-by-country tax reporting, gender balance on boards, and alignment of trade and investment agreements with EU environmental and climate objectives.

Committee position. The Committee on Legal Affairs proposes that Parliament call on the Commission to review the NFRD, introduce new legislation on due diligence and directors' duties, and take account of the recommendations in the resolution.

Key points

  1. Calls on the Commission to balance easing short-term pressure on directors with integrating sustainability into corporate decision-making, while ensuring harmonisation and flexibility.
  2. Welcomes the Commission's commitment to review the NFRD and says the revision must be consistent with the Disclosure Regulation and the Taxonomy Regulation.
  3. Reiterates the call to extend the NFRD to all large listed and non-listed EU undertakings and to non-EU companies operating in the EU market, and to consider including SMEs in high-risk sectors.
  4. Says the concept of environmental matters in the NFRD should follow the Taxonomy Regulation and cover all forms of pollution, and that social, employee, human rights and anti-corruption concepts should be defined precisely.
  5. Calls for a comprehensive EU framework with mandatory general and sector-specific standards, clear, comparable and verifiable disclosures, and time-bound sustainability targets.
  6. Considers non-financial statements should be in the annual management report and subject to mandatory audit depending on company size and activity, and calls for review of the Statutory Audit Directive.
  7. Highlights that workers' representatives should be involved in defining and verifying non-financial reporting, and calls for annual country-by-country tax reporting by certain EU companies.
  8. Calls on the Council to adopt its general approach on the Women on Boards Proposal and on the directive on disclosure of income tax information, and invites the Commission to revise the European Works Council Directive.
  9. Calls on the Commission to propose legislation ensuring directors' duties include the long-term interest of the company, wider societal interests and a duty to define, disclose and monitor a corporate sustainability strategy.
  10. Says sustainability strategies should include measurable, specific, time-bound and science-based targets and transition plans aligned with the Paris Agreement and other international commitments, and that executive directors' variable pay should be linked to those targets.
  11. Considers the Shareholders' Rights Directive should be amended to reward long-term shareholding, and urges alignment of trade and investment agreements with EU environmental and climate objectives.
  12. Says companies should inform and consult stakeholders, including through advisory committees with employees and independent experts, and that companies receiving public money or carrying out redundancies should retain jobs and refrain from dividends or share buy-backs.

Who is affected

  • Large listed and non-listed EU companies, and non-EU companies operating in the EU market, would face wider reporting and due diligence duties.
  • Small and medium-sized enterprises in high-risk sectors could be brought within the scope of the NFRD and future legislation.
  • Company directors would have duties to integrate long-term interests and sustainability into strategy, with variable pay linked to targets.
  • Employees and their representatives would gain involvement in reporting, decision-making and advisory committees.
  • Companies receiving State aid, EU funding or other public money, or carrying out redundancy plans, would be expected to retain jobs and refrain from dividends or share buy-backs.

Figures and deadlines

  • 45-80 %: share of all food production in developing countries accounted for by women farmers.
  • 1.5°C: temperature limit the Paris Agreement pursues efforts to meet.
  • 2°C: level above pre-industrial levels below which the Paris Agreement aims to contain the rise in average temperature.
  • 2050: climate neutrality target year referred to in the resolution.
  • first trimester of 2021: period in which the Commission intends to propose the NFRD review.
  • third quarter of 2021: deadline for a Commission legislative proposal for an EU-wide digital platform.

Legal basis: Article 2 of the Treaty on European Union and Article 191(2) of the Treaty on the Functioning of the European Union.