transparency on corporate social responsibility
4.3 Implementation in national legislation 1 Implementation date
The Modernisation Directive dictates that annual reports over the book year 2005 should follow the new instructions and that the implementation date is 1 January 2005 at the latest.13 In accordance with article 249 of the EC Treaty (since 1 December 2009, pursuant to the Lissabon Treaty, this article has become article 288 EC Treaty), Member States can incorporate a directive by creating new legislation or by amending existing legislation.
4.3.2 Implementation by Member States
It has been examined to what extent the Member States have implemented article 1.14 and in which national legislation this new annual reporting requirement has been incorporated. The closing date of this research project was 29 February 2008.14
It was found that most Member States have implemented article 1.14 either literally or in other words but with the same meaning (see the overview with results in Annex 4.1 in fine). Consequently, large companies registered in the EU, have to comply with the new requirement to furnish information on non- financial matters, such as environmental and employee matters. This counts when these matters are important for the company’s development, performance and position, which will in many situations be the case.
12. Companies not exceeding two of the following criteria: a balance sheet total of 17,5 million euro, a net turnover of 35 million euro and an average of 250 personnel during the book year (figures as amendedperDirective 2006/46/EC of 14 June 2006).
13. Article 5, Modernisation Directive.
14. The Commission does not possess complete information on the question which Member States have implemented the Modernisation Directive and in which way they have done so. Moreover, Member States may provide this information in their national language. This made research on this topic quite complex. Thanks to a number of EU lawyers most of the information available was unravelled.
This legal achievement of the EU symbolises the importance placed upon CSR. The new legal transparency requirement will be even more effective since the environmental and employee matters regard the company’s worldwide operations. Providing information on such non-financial aspects will create consciousness within the company and with its employees. Moreover, research shows that annual CSR reporting stimulates a company to improve its environmental programme. Since all relevant facts are quantified and visible in a report, they imply an invitation to the company to do (even) better next year so that the company can present an improvement. For instance: ‘this year we produced less waste than last year, we used less water and less energy for the same production outcome, we have made our production processes run in a more efficient way.’ As regards reporting on employee matters, this seems to work in the same way: when a company reports this year that a certain number of accidents occurred, it will certainly strive for a lower number in next year’s report. Another aspect is that when a company, for example, reports that it has attracted a medical doctor on the premises for its employees, this will create goodwill. That means that it will be easier to find new employees, customers will like the company better and it will also reduce illness of employees and thus increase productivity.
Among all twenty-seven EU countries, only Bulgaria and Romania have indicated that they are delayed in the implementation of the Modernisation Directive. As regards Cyprus, Ireland and Sweden, it was not possible to determine with a reliable degree of certainty whether and, if so, in which way article 1.14 had been integrated in national law. In respect of the countries that did incorporate article 1.14, we note three deviations:15
Latvia: the Latvian Law on annual accounts of undertakings, chapter 7, section 55, only mentions the obligation to provide information on environ- mental issues and does not mention fair review;
Malta: article 177 of the Companies Act of Malta requires a ‘directors’ report’ providing information on the subjects listed therein as well as on the subjects mentioned in the “Sixth Schedule”. However, we could not find an obligation to report on non-financial information; and
Poland: article 49 of the Polish Accounting Act requires the inclusion of non-financial performances in the annual report, but the Act does not explicitly mention an obligation to give a fair review.
15. Besides the Dutch texts, the legislative history of the national legislation by which the Modernisation Directive was implemented was not examined. It can, therefore, not be explained what the reasons for deviating from the text of the Directive were.
4.3.3 Non-implementation
A Member State that fails to timely incorporate the provisions of a directive, can face legal actions of the Commission. One of the important tasks of the Commission is to supervise compliance with European legislation by Member States.16 In the event of non-compliance, the Commission can start a so-called ‘infringement procedure’.17 The ECJ will judge whether there has been an infraction.18 The Member State is obligated to take appropriate measures to stop the infraction. If it does not do so, the Commission can commence another proceeding before the ECJ. Eventually, the Member State can be ordered to pay a lump sum or penalty payment.19