Mandating integrated reporting

While France has required listed companies to report on certain social and environmental issues since 2001, a new degree on CSR reporting (Article 225 of Grenelle II Act) requires companies to report social and environmental information within annual financial and management reporting. This non-financial information must also now be verified or assured by a third party.

The French mandate breaks new ground by going beyond publicly listed companies. (The South African integrated reporting requirement only applies to listed companies on the Johannesburg Stock Exchange; the integrated reporting requirement in Denmark applies to the 1,000 largest firms but is vague, requiring only a reference to non-financial information which can be reported elsewhere.)

Companies with at least 100 million Euros in turnover and/or at least 500 employees in France are also subject to these reporting requirements. For listed companies the requirements are effective for fiscal year 2012 reporting. Requirements for non-listed companies, and more detailed requirements regarding verification, are being phased in through 31 Dec 2016. (See KPMG’s helpful table for more detail on dates.)

What must be reported
The required information is grouped into familiar categories such as employee data, natural resource consumption and supply chain. There are two categories that are somewhat unusual, reflecting the interests of France: summary of work time (which includes overtime worked and part-time workers) and regional social and economic impact. While many large companies struggle to effectively measure their overall social and economic impact, the French want this sliced and diced to reflect the impact of operations in France.

There are two categories of information that are only required of listed companies: actions relating to clauses of ILO conventions and fair operating practices (human rights and consumer safety).

Does it make sense?
There are a number of positive aspects of the requirements. They are consistent with the philosophy of integrated reporting. This includes aligning reporting schedules and securing management and board signoff of both financial and extra-financial information. Verification is required, which generally leads to information that is perceived as more credible and therefore actionable. Categories of information to be reported are outlined, but no reporting framework is mandated and specific indicators are not required.

On the downside, companies will be required to report at the parent company and subsidiary levels. The value of breaking down information by subsidiary is not entirely clear. Large multinational firms with a significant presence in France will essentially be required to do a subsidiary level integrated report for their French operations—even if they already do a verified group level integrated report. While this will make French NGOs happy, the focus on country level reporting is worrying.

Finally, there are no sanctions for non-compliance, but NGOs are considering buying a token number of shares in order to sue companies that are not in compliance.

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