We have only just begun to explore these connections,
but they matter both for healthy companies and our long
term economic future. It is important, however, to see
them in the context of value-creation. Understanding
and managing non-financial risks is done is critical to the
generation of value. This is not about having standards
imposed from outside. It is something that comes
from within.
The European Commission has produced a set of proposals requiring larger companies to report in greater detail on
environmental aspects, social and employee related matters, respect for human rights, anti-corruption and bribery
issues, and diversity on the boards of companies. The proposals are still in draft form and must be agreed by both the
European Parliament and Member States before they become law.
Though the Commission says there is flexibility in the way the rules will operate, they are in fact quite prescriptive and
differ in two ways from the approach of the IIRC. First, the Commission has specified the areas on which companies
should report. This is regardless of their particular relevance. Thus it may not be necessary for a software company to
report on its environment impact, but it will still have to explain why it does not do so in its annual report.
Second, the Commission has dropped its previous emphasis on materiality except with regard to any key performance
indicators the companies may use to measure what they do.
The European approach is thus divorced from a description of value creation. It reflects a political view that companies
have a social responsibility to report on matters of general public interest. This is a perfectly legitimate point of view, but
the resulting reports are less likely to be of value from a governance perspective.
Narrative Reporting
Article by Peter Montagnon
Hawkamah issue02 56pages.indd 45
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9/19/13 10:08 AM