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MEPs back tough company transparency law

news release

MEPs have today voted to toughen up proposed new company transparency rules  to make large companies report annually on risks their operations pose to communities and the natural world, such as accidents, pollution and human rights.

Friends of the Earth is now urging MEPs to resist pressure from the UK and other national governments seeking to water down the proposed law to exclude firms not listed on stock exchanges, as they begin negotiations with the European Commission and Council.

According to the proposals backed by the Legal Affairs Committee (JURI), all large European companies with more than 500 employees will be required to disclose information in their annual report regarding their impacts on the environment and on human rights throughout their supply chains.

However the UK government and some other member states are pushing for wide-ranging exemption clauses to allow companies greater flexibility, such as:

  • excluding non-listed firms that are privately owned by hedge funds and billionaires – such as Virgin and the Arcadia Group.
  • limiting the scope and depth of reporting to exclude indirect environmental and social impacts through supplier relationships
  • resisting a requirement for companies to rely on recognised international frameworks when drafting reports, like the UN Guiding Principles (which the UK has already committed to implement). Omitting this requirement would make it harder to meaningfully compare company performance.

Friends of the Earth’s Head of Campaigns Andrew Pendleton said:

“MEPs have sent a clear and very welcome signal – companies must be transparent about the huge impacts of their operations on people and the environment.

“Many progressive businesses want help to better understand and tackle problems in their supply chains. Strong new transparency rules would help them do this and are a crucial first step towards ensuring products are responsibly made.

“MEPs must resist pressure from member state governments to dilute this important law, and ensure all large companies are required to report on activities that impact on communities and ecosystems throughout their supply chains, and not just their profits.”

Full reporting would oblige companies to disclose risks to people throughout their supply chains, which would help identify and prevent problems like unsafe factories that led to the deaths of hundreds of garment workers in the Rana Plaza collapse in Bangladesh this year.

It would also make companies more accountable for the impacts of extracting raw materials needed to make their products, which could drive greater efficiency and reduce the pressure on the world’s limited natural resources.

Notes to Editors

[1] MEPs in Brussels today voted to strengthen an amendment to the EU Accounting Directives that could mean more than 18,000 large European companies disclose important information about their social and environmental impacts.

[2] Lobbying to undermine the legislation. The UK inserted changes into the Lithuanian Presidency text that mean the legislation would only apply to ‘listed’ shareholder-owned companies. Liberal Democrat Business Secretary Vince Cable represents Britain at the European debating table. His party backed robust corporate reporting in its 2010 manifesto.

Companies like M&S and Kingfisher have been associated with lobbying to scrap this kind of corporate regulation, while progressive businesses like Ikea are supporting improved transparency legislation.

[3] Friends of the Earth, and a coalition of groups including CORE coalition for greater corporate responsibility and the European Coalition for Corporate Justice, is calling for the law to be strengthened so that:

  1. All large companies – including those unlisted on stock exchanges – report on significant harm and risks to people and the environment caused by their operations, not just risks that could affect their profits.
  2. Reporting also includes natural resource consumption, and extends beyond the company’s immediate operations to include the first phases of the supply chain where the greatest impacts usually occur. (Such as factories where goods are manufactured, mines and plantations where the raw materials for components come from.)
  3. There are effective monitoring and enforcement mechanisms, as well as guidance for companies on methodology for reporting based on international standards.

[4] Improved supply chain analysis helps businesses plan for more resource-efficient products and business models, be better corporate neighbours to live and work with, and improve financial performance too. A 2013 study of international stock exchanges found that effective legislation on sustainability disclosure was the biggest factor in determining company performance between countries.

[5] According to a European Commission estimate, only 2,500 out of 42,000 large European companies formally disclose non-financial information on an annual basis, and the quality often lacks balance, accuracy and coverage of key areas such as human rights and corruption. (Executive Summary of impact assessment.

[6] The law would see companies reporting on the impacts of extracting raw materials needed to make their products, such as tin mining for smartphones that is destroying forests and wrecking livelihoods in Indonesia, a Friends of the Earth investigation has revealed.

[7] Thousands of people have joined Friends of the Earth’s Make It Better campaign, launched in November 2012, calling on Vince Cable to stand up to business-as-usual lobbyists and ensure the UK backs strong corporate transparency legislation.

Friends of the Earth, working in a coalition with European Coalition for Corporate Justice – welcomes a requirement for greater company transparency but believes plans must be strengthened to apply to full supply chains and include reporting on resource use.

For press information please contact the Friends of the Earth media team on 020 7566 1649.

Published by Friends of the Earth Trust

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