Companies are not only responsible towards their stakeholders, but more and more bearing general social responsibility. The scope and legal structure of this responsibility is often summarized under the term Corporate Social Responsibility (“CSR”).
The European Commission guides CSR as the “responsibility of enterprises for their impact on society”. In the Commission's view, CSR comprises the impact on environmental, social, ethical, and human rights matters that companies should not only identify but in case of possible adverse impact shall prevent or at least mitigate.
All capital market-orientated companies will have to consider already now as to whether the new provisions on reporting as part of CSR, with which the German legislator intends to implement Directive 2014/95/EU (“CSR Directive”), adopted by the EU at the end of 2014, into German law, will enforce them to mandatory “non-financial reporting”.Contents of the new provisions
On March 18, 2016, the CSR Directive implementation Act was issued as Minister’s bill. It is intended to implement the CSR Directive into German law by December 06, 2016. In the Minister´s bill on the CSR Directive, the Federal Ministry of Justice and Consumer Protection drafted changes of the German Commercial Code, in which the Directive is fully accepted in substance:
Section 289b (new version) Commercial Code stipulates that major capital market-orientated companies having an average number of employees in excess of 500 workers, in the case of a group on a consolidated basis (thus likely also taking into account the number of workers in consolidated foreign subsidiaries) are now required to implement non-financial reporting in its status report (according to the Commercial Code – HGB).
Section 289c (new version) Commercial Code specifies the content of this non-financial reporting.
- The business model of the capital market-orientated company has to be described.
- In addition, the company has to present its policies pursued regarding the improvement of non-financial matters. These policies should deal with environmental, social, and employee matters, respect for human rights as well as anti-corruption and anti-bribery matters.
- The reporting shall include whether the company has already taken certain measures, as well as their outcome.
- If the company does not pursue policies in relation to one or more of those matters, reasons for such must be provided.
- In addition, mandatory information on due diligence processes and significant risks assessments with impact on the non-financial matters, as well as information on the non-financial key performance indicators of the company will be required.
According to Section 289f(2)(6) (new version), Commercial Code major capital market-orientated companies which are publicly traded, similar to the “quota of women on boards” introduced in 2015, must describe their diversity policy, including age, gender, and educational background of the members of its management and supervisory board.
Adverse information may be omitted (only) under the conditions of Section 289e (new version) Commercial Code.
According to Section 289b(2) (new version) Commercial Code, companies are exempted from the obligation on non-financial reporting in their status report (according to the Commercial Code – HGB)., if they are included in the consolidated status report (according to the Commercial Code – HGB). of a parent company//if such contains a non-financial report.
Certain capital market-orientated companies/groups would therefore have to publish non-financial reports for fiscal years commencing on or after January 01, 2017, thus for the first time in 2018.
The content of this non-financial report provides for the following minimum requirements:
Affected companies should not wait until 2018, however, but review the new obligations for CSR prior to entry into force of the disclosure requirements since the required reports relate to company “policies” pursued on these matters.
- description of the business model
- environmental, social, and employee matters
- respect of human rights
- anti-corruption and anti-bribery matters
Therefore, such policies should be established and prepared for use in due time (for example, through appropriate decisions of corporate bodies). Otherwise, the following effect would occur:
Where the company does not pursue a policy, the “reason why” must be provided. Once the disclosure obligations enter into force, companies that are unprepared would have to announce that no policy has been pursued. The negative PR effect of such a notification would speak for itself.