European companies need to improve their reporting of non-financial information, according to the umbrella group that represents Europe’s national accountancy bodies.

Brussels-based FEE (the Fédération des Experts comptables Européens) said reporting on issues such as sustainability and Corporate Social Responsibility met the letter of recently introduced European legal requirements, but not necessarily their spirit.

A FEE analysis found that all European member states have now implemented the 2003 Modernization Directive, which required them to change national accounting laws on non-financial reporting. Financial statements now have to describe the main risks a company faces and give a balanced analysis of its performance that includes non-financial indicators, specifically on environmental and employee issues.

Reviewing the accounts of 76 European companies that it felt showed good practice, the FEE found big differences in the content and relevance of what they were reporting. It said companies needed more guidance on how to decide what information was material and should be reported.

A FEE discussion paper suggested that a “comply or explain” principle might apply to environmental and sustainability issues, so that companies not disclosing information on these topics would have to explain why they felt it was not relevant. And it said more companies should integrate their reporting on social and environmental issues into their general financial statements, rather than creating a separate report.

“Reporting in the annual report needs to be in the spirit of the Modernization Directive and not be limited to what is readily available,” said Nancy Kamp-Roelands, chair of the FEE Sustainability Working Party. “Simply providing cross references to the separate sustainability report is not sufficient. A description of the key issues and information linking financial and non-financial key performance indicators relating to the sustainability domain needs to be included in the annual report itself.”

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