While the US Securities & Exchange Commission considers finalization of its proposed rule to require human capital disclosures from public companies in the US, European Union Directive 2014/95/EU is now taking effect in 28 member states. The directive recommends the use of respected international standards for reporting purposes, which can include the new ISO 30414 Human Capital Internal and External Reporting standards, according to Dr. Ron McKinley, Co-Founder, International Center for Enterprise Engagement at TheICEE.org, as well as Ernst & Young, in a recent report on human capital disclosures.
Any organization in the European Union with 500 or more employees; public companies, or those with a balance sheet of 20 million Euros ($22 million) or annual sales of $40 million Euros ($44 million) employing 250 or more employees, now must publish corporate responsibility reports on their human capital and environmental practices.
Regarding human capital practices, the directive, published in 2014 and now in effect in all member countries, states: “As regards to social and employee-related matters, the information provided in the statement may concern the actions taken to ensure gender equality, implementation of fundamental conventions of the International Labour Organisation, working conditions, social dialogue, respect for the right of workers to be informed and consulted, respect for trade union rights, health and safety at work and the dialogue with local communities, and/or the actions taken to ensure the protection and the development of those communities. With regard to human rights, anti-corruption and bribery, the non-financial statement could include information on the prevention of human rights abuses and/or on instruments in place to fight corruption and bribery.”
The annual reports, either included in management’s annual reports or within six months of financial disclosures, must include a brief description of the organizations business model and non-financial key performance indicators considered by management to be relevant to the business. The reports need to include information on matters related to: the environment; social and employee issues; respect for human rights, and anti-corruption and bribery. For each of these issues, companies must disclose:
• The policies pursued by each organization as it relates to these matters, including due diligence processes and the outcomes of those policies.
• The major risks associated with these issues to the organization’s operations and how the risks are managed.
• Non-financial performance indicators relevant to the business and these issues.
• A description of what information is considered material to sustainable operations.
In explaining the need for the disclosures, the directive states:
“In its resolutions of 6 Feb. 2013 on, respectively, ‘Corporate Social Responsibility’…the European Parliament acknowledged the importance of businesses divulging information on sustainability such as social and environmental factors, with a view to identifying sustainability risks and increasing investor and consumer trust. Indeed, disclosure of non- financial information is vital for managing change toward a sustainable global economy by combining long-term profitability with social justice and environmental protection. In this context, disclosure of non-financial information helps the measuring, monitoring and managing of undertakings’ performance and their impact on society. Thus, the European Parliament called on the Commission to bring forward a legislative proposal on the disclosure of non-financial information by undertakings allowing for high flexibility of action, in order to take account of the multidimensional nature of corporate social responsibility (CSR) and the diversity of the CSR policies implemented by businesses matched by a sufficient level of comparability to meet the needs of investors and other stakeholders as well as the need to provide consumers with easy access to information on the impact of businesses on society.”
The directive suggests that “In providing this information, undertakings which are subject to this Directive may rely on national frameworks, union-based frameworks such as the Eco-Management and Audit Scheme (EMAS), or international frameworks such as the United Nations (UN) Global Compact… or other recognised international frameworks.”
In a recent report by the advisory firm EY, the company recommends consideration of multiple worldwide-respected frameworks, including the new ISO 30414 standard published by the International Organization of Standardization, "an independent, nongovernmental international organization that develops voluntary, consensus-based, market-relevant international standards. ISO 30414:2018 provides guidelines and metrics for human capital reporting, including diversity, organizational cultural, health and safety,"
Dr. Ron McKinley, Co-Founder of the International Center for Enterprise Engagement at TheICEE.org
, and part of the working committee that created the standard, observes, “The ISO 30414 Human Capital reporting standard has come along at a propitious time to help European and organizations worldwide provide meaningful disclosures in compliance with the EU directive and coming SEC regulations. ISO standards clearly meet the EU criteria for recognized frameworks and, by focusing on the process and not just the end result, provides more transparency.”
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