Can the R-Factor help lead to a market-based solution for ESG reporting standards?

In June 2017 the European Union passed the EU Accounting Directive for Non-financial Information. It was implemented Member States in 2018. This law “requires large companies to disclose certain information on the way they operate and manage social and environmental challenges” on an annual basis. The law only applies to “large public interest companies with more than 500 companies.” All total it affects around 6,000 companies. The purpose of the law is to help “investors, consumers, policy makers and other stakeholders to evaluate the non-financial performance of large companies and encourages these companies to develop a responsible approach to business.” It is quite flexible in its application in that it does not prescribe where the reporting should be done (e.g., the annual report or a sustainability report) or which frameworks and standards to use, of which there are many. The investment community has been supportive of this law, if anything feeling that it doesn’t go far enough in providing comparable information across companies in the same way they get information on financial performance based on accounting standards.

By Robert Eccles

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