As a prime mover behind the European Union's Non-Financial Reporting Directive, I've been asked to comment on how this will impact upon corporate uptake of the UN Guiding Principles on Business and Human Rights.

In my contribution this morning I would also like to complement the work of the Global Reporting Initiative, who've organised this session, and highlight how their Government Advisory Group plays an important role in advancing the corporate sustainability agenda through public policy, and to say it is a pleasure to be part of it.

Now, the EU Directive. 

It explicitly puts human rights in to the 'G' of 'ESG'.

Recital 9 states that certain existing international frameworks can be used to comply, and specifically names the UN Guiding Principles.

By getting companies to analyse 'risk' and asking them to take action to 'prevent human rights abuses' [Recital 7] and by specifically including the key concept of 'due diligence' from the Guiding Principles [Art. 19a (1)(b)], there is no doubt that it will get companies to take human rights seriously.

To Europe's partners in other regions of the world represented here in the United Nations, who sometimes question Europe's good faith in relation to all this, passing a law and specifically including the Guiding Principles and the prevention of abuses, is a pretty good demonstration of Europe's good faith.

By the way, Recital 9 also includes the GRI, of course, and I know the GRI has produced its 'Making Headway in Europe' document showing how it can be a means to implementing the Directive's requirements. 

In truth, this approach does make the Directive a mixture of hard and soft law, but many of us argue that this will be good for uptake too - using the deliberate lack of prescription in the Directive to encourage companies to report in a more ambitious spirit, rather than in one of minimum legal compliance.

This is not the first time Europe has asked for non-financial data to be included in financial reporting, but it is the first time human rights have been specifically named.

It means that many companies who thought human rights were not 'material' to their business will now be prompted to rethink.

It will promote the Guiding Principles because - without legislating for it - it supports the principle of 'integration'.

So the Directive allows an exception for separate if synchronised reporting, but the main expectation is that the information will be in the management report of the company's annual financial accounts.

This means uptake of the Guiding Principles will be seen by business, not as an additional burden, but as a 'core' part of good corporate governance.

It is a pity that in relation to the very interesting corporate reporting requirement in the UK's Modern Slavery Act, the official guidance suggests that this will be separate from and additional to the requirements of the EU Directive.  I think that's a pity and that those of us from the Government sector must be careful to avoid duplicate requirements and to help business by maintaining the principle of integration.

I think we can say that slavery is clearly an issue of human rights.

Here in Geneva, we know that human rights are indivisible, so it is not unreasonable from a company point of view, to make corporate reporting of human rights indivisible too.

Next, the EU Directive will have an impact of uptake of the Guiding Principles not just in Europe but in the whole world, because many non-EU headquartered companies with subsidiaries in EU member states are expected to comply by including the information in the form of their group consolidated financial statement; and because the Directive asks EU businesses to apply the reporting requirement in relation to their global supply and sub-contracting chains, of course with a proportionality condition.

Will this be actually implemented?

Yes, it is happening now: European countries are currently transposing the Directive in to their national legislation. That has to be completed by next year, for the reporting to start with the business year 2017.

Denmark has been the first to do it and by doing so in their Financial Statements Act. They have gone beyond the minimum threshold in the Directive, applying it to all large companies, not just listed and public interest companies. That suggests the final figure EU-wide of companies undertaking this reporting may well go above the 6,000 projected. 

The Danish experience suggests that, despite or perhaps because of the 'comply or explain' element which is built in to the EU Directive too, there is and actually will be a high rate of compliance.

By the way, there will be guidance, but it is non-binding and my message to companies is: please don't wait.

So the final question I was asked to address is: do we need to incentivise it?

My answer is maybe not.  Clearly this is now part of company law and most companies already fully appreciate the importance of good corporate governance.

But perhaps what we as governments have to incentivise is collaborative exercises like the one we are involved in here, to understand the implications of the reporting, to make it more effective and to drive up standards.

We have to make sure this is not about 'a good report' but about 'good human rights'.

Then we really will have done something to implement the Guiding Principles.

ENDS.

Richard Howitt MEP is European Parliament Rapporteur on Corporate Social Responsibility 

E-mail: richard.howitt@europarl.europa.eu

Website: www.richardhowittmep.com

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