European Commission and European Parliament told good risk management also needed to create conditions for transparency and sustainability

Jorge Luzzi

Ferma has warned the European Commission and European Parliament that public disclosure of a company’s social issues is important but more needs to be done to show that risks are under control.

“For numerous large companies, transparency has become a fundamental part of their business strategy,” president Jorge Luzzi said.

“The disclosure of environmental and social information can therefore be viewed in a positive way. But it is disclosure together with good risk management that creates the conditions for transparency and sustainability. By itself, disclosure is not enough.”

Luzzi also had another message for lawmakers.

He said: “If the regulations do not take sensitive industry-specific issues into account, they could actually damage competitiveness and also the sustainable performance they are aiming to promote.”

The comments form part of Ferma’s response to a draft directive (an amendment to existing accounting legislation) that the commission adopted on 16 April 2013 that are in front of the European Parliament under the leadership of the Legal Affairs Committee.

The directive aims to increase the transparency of larger companies through more non-financial reporting.

It requires companies with more than 500 employees to disclose information on their policies, risks and results on environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues, and board room diversity.

Ferma’s recommendations to the commission also include:

  • Disclosure requirements should be flexible enough to take into account industry-specific sensitive areas, market strategy on a global level and competition.
  • Increased non-financial reporting will remain a benefit for businesses only if does not turn into a heavy cost and administrative burden.
  • Sustainability of performance requires a thorough risk management process that involves knowledge and understanding of the risks.
  • Risk management should, therefore, be part of the parliamentary discussion of the draft directive.
  • Board diversity and social issues should be treated separately.