Copyright © Development International e.V., 2019 ISBN: 978-3-9820398-3-1 Authors: Chris N. Bayer, PhD Juan Ignacio Ibañez, LL.M. Jiahua (Java) Xu, PhD Title: A New Responsibility for Sustainability: Corporate Non-Financial Reporting in Austria Date published: October 1, 2019 Funded by: iPoint-systems gmbh www.ipoint-systems.com Executive Summary The EU Non-Financial Reporting Directive (NFRD) is a new regulation that seeks to “increase the relevance, consistency and comparability of information disclosed by certain large undertakings and groups across the Union.”1 Large undertakings in EU member states are not only required to report on their financial basics, now they are also required by Article 1 of the Directive to disclose their non-financial performance relevant to their business impact. This would include adverse consequences they have notably on the environment, labor rights, human rights, and how they handle diversity matters and the risk of corruption, whether as a function of their own business or actors in their supply chains. “You manage what you measure.” In accordance with the Directive, the Austrian transposition stipulates that the non-financial declaration must state which reporting framework was used to create it, as well as apply non-financial key performance indicators relevant to the particular business. These requirements are the impetus behind this study and our point of departure: We systematically assess the degree of non-financial transparency and performance reporting for 2018, applying an ex-post assessment framework premised on reporting frameworks as per the Global Reporting Initiative (GRI) and the United Nations Global Compact (UNGC). By benchmarking all Austrian companies subject to the EU NFRD-transposed law on the topics required to be disclosed – environmental, human rights, employee, social (gender), and anti-corruption matters – this study reveals which companies make an effort to show their degree of responsibility, and to what degree. Of the 89 companies identified to be subject to the law, we located a report pursuant to the law for 88 of them, of which 84 were unique reports. Each report was subject to rigorous analysis on the basis of 67 Environmental Social Governance (ESG) key performance indicators (KPI). On average, disclosure transparency was higher for select gender and employee rights issues than for other matters. In contrast, companies tended to report less on environmental matters and anti-corruption, and even less on human rights issues. Yet for most the select indicators, there were examples of companies that successfully applied the KPIs. The highest transparency per matter was offered for the following indicators: environmental: 58% disclosed their energy consumption within organization social / human rights: 39% reported that they had supplier labor practices criteria in place employee: 48% of companies reported on work fatalities gender: 81% reported on their percentage of female employees anti-corruption: 45% reported implementing a whistleblower system Once an indicator shows a critical mass of uptake, ESG trends are revealed. 1 Scope 1 emissions were reduced on average by 3.25% between 2017 and 2018: Energy consumption decreased by 0.66% between 2017 and 2018: nvironmental e 39% of companies had in place (e.g. code of conduct): supplier labor practices criteria human rights The total was an average 118.45 per company: number of injuries employee 2 The female workforce average was 37.33%: gender The female members on the Executive Board (“Vorstand”) average was 6.66%: The average percentage of employees who received anti-corruption training was 75.95%: corruption - anti If public disclosure is an indispensable step towards corporate responsibility, which is precisely the consensus opinion within civil society and government circles, the degree of individual company transparency is the first gauge of corporate non-financial performance. Thereafter, the question arises what calculation methods and assurance are applied to underpin the reported numbers. Transparency is one thing, performance another. With baseline data, the relative degree of political will within the company for year-over-year improvement furthermore becomes evident. In sum, some – but not all – companies under study are using the EU NFRD as an opportunity to justify their license to operate. 3 Foreword Since the Second World War, we can observe enormous and global movements: population, industrial production, and wealth grew at near exponential rates. We enjoy, in the developed world, the highest standard of living in history. But this development is accompanied by tremendous environmental and social challenges. Resource consumption, emissions and waste production have skyrocketed, we are far away from social justice, and we cannot fulfill the needs of all humans equally. Currently about 38% of the world terrestrial net production is consumed by humans, leaving only the rest for other species. This had, still has, and will most likely have immense consequences for biodiversity, climate, and also the global nitrogen cycle. The tremendous pressure on biodiversity was profoundly revealed in the new report published by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES). The same is true for earth’s climate system: The reports compiled by the Intergovernmental Panel on Climate Change make clear, without a doubt, that it is human influence which causes the current – in Earth’s history incomparably fast – change in climate conditions. We have to decarbonize our societies globally, and we have to adapt to climate change – and these changes must come fast. Altogether, humans are now able to shape and alter earth on a global scale. This is the first time in earth’s history and thus scientists call this new era “Anthropocene”. We, as humans, are now the stewards of the world. In order to live up to this new responsibility, we need a new form of development, we need a sustainable development on a global scale. New policies and forms of cooperation between public and private actors are needed. Globally, the Paris Agreement to deal with climate change and the publication of the 17 Sustainable Development Goals by the United Nations aims to foster a transition towards sustainability. Also, within the European Union, several policy packages are aimed to support this transition. In addition to the EU’s climate policy or the circular economy package, the Non-Financial Reporting Directive (NFRD) must be named. The aim of the NFRD is to increase transparency about non-financial – especially social and environmental – impacts and risks of larger corporations. The idea is that making these non- financial impacts and risks transparent will help nudge businesses towards higher sustainability standards. It would further enable investors to include these non-financial issues into their investment decisions and allow stakeholders to better understand business activities. Finally, it would enable civil society and the political process to include environmental and social considerations into their scrutiny of corporations. The report at hand presents the results of the reporting practice of Austrian companies according to the NFRD. The value of this report is to ease the comparison of non-financial reports in Austria, thereby increasing the transparency of the sustainability performance of larger companies in Austria. 4 Based on a sound methodology, the results show that Austrian companies have started to increase their transparency of their non-financial impacts and risks. The results reveal a diverse picture: whereas topics such as gender (female representation on executive boards; % of female employees) or energy consumption are reported on relatively widely, other topics, especially related to human rights, are more or less absent in the corporate reports. This shows that the vast majority of companies represented in this analysis is just at the beginning of their transition towards sustainability, and that many companies have to strategically rethink their business model for a world requiring sustainable development on all levels. This comes along with huge opportunities for companies as innovations by the private sector are needed together with innovations from all other societal actors including policy making, civil society, and grassroots initiatives. Prof. Dr. Rupert Baumgartner Institute of Systems Sciences, Innovation and Sustainability Research (SIS) University of Graz 5 Contents Executive Summary ................................................................................................................. 1 Foreword ................................................................................................................................. 4 I. Introduction .......................................................................................................................... 7 A. Novelty of EU NFRD ......................................................................................................... 7 B. Austria’s transposition ..................................................................................................... 9 a. NaDiVeG ....................................................................................................................... 9 b. Subject companies ..................................................................................................... 11 c. Reporting frameworks ...............................................................................................
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