Empowering Corporate Constituencies in the European Union: the Limits and Challenges of Non-Financial Disclosure

With the growth of large transnational corporations and the worsening of environmental problems and climate change, national and international lawmakers are increasingly focusing on finding new ways to foster corporate social responsibility. Large corporations are, in fact, in a privileged position to affect both positive and negative change because of the scale and territorial extension of their operations. Operating in different countries, they may exploit lower regulatory standards to increase profitability or, conversely, raise the quality of employment and ensure environmental protection for a significant number of people, even when local substantive regulation is lacking or insufficient. a key issue is, therefore, finding the most effective way to channel large corporations’ powerful influence to promote positive social and environmental change. Lawmakers from all over the world are increasingly turning to non-financial disclosure regulation as a possible answer. In the European Union, Directive 2014/95/EU requires certain large undertakings to include, either in the management report or in a separate statement, information on a variety of non-financial issues, ranging from environmental, social, and employee matters, to human rights protection and anti-corruption and anti-bribery measures. Member States are then called upon to put in place more specific regulations to foster sustainability reporting in these areas. Despite the admirable intent, there are reasons to doubt that this is more than just a tentative first move. Unlike financial disclosure, rules, standards, and metrics for non-financial disclosure are still to some extent underdeveloped, as is the understanding of which environmental, social, and governance issues actually impact financial performance. Most importantly, the current framework is not tailored to address the variety and heterogeneity of the possible interested parties. While financial disclosure is essentially directed to current and potential investors, non-financial disclosure has greater chances to meet its goal when it successfully reaches all interested parties, which significantly also include employees, customers, suppliers, local communities, and a broad range of public authorities. Adjusting non-financial disclosure to the needs of its intended recipients hence is the first, and perhaps most pressing, step to create a more effective regulatory tool and to facilitate private and public enforcement.