The European Commission has been busily working on responsible investment issues in recent weeks, culminating in two documents: A consultation on “Disclosure of Non-Financial Information by Companies” and a summary of responses to their green paper on corporate governance in financial institutions (see later blog piece).

The consultation asks a number of very open questions about the disclosure of non-financial information, such as ‘what should be disclosed?’, ‘to what extent is such information useful for the decision-making of a company?’ as well as the ever-present ‘to whom should these requirements apply?'.

There’s recognition of the need to link with existing initiatives such as the Global Reporting Initiative, the UN Global Compact, the OECD Guidelines and the recent ISO26000 which is in itself a sign of the higher profile that environmental, social and governance issues (ESG) have in corporate Europe now.

The consultation also touches on the role of investors as well as issuers, considering whether institutional investors should have to disclose if and how ESG considerations play a role in their investment decisions.

Clearly on this last point there is significant cross-over with the UN PRI, the UK Stewardship Code and the AFG SRI Transparency Code (France) to name but three initiatives amongst many. A European level regulatory approach offers uniformity of application but perhaps without the necessary commensurate fostering of the spirit of responsible investment. In the context of the continuing rapid growth of the SRI investment market, it is crucial to frame regulation sensitively by learning from the laws of unintended consequences such as those that led to 'mandatory' but empty voting.

There are some unanswered questions which will remain. The elephant at the table is the myth that ESG is completely detached from the value of a company.  Whilst ESG information may be problematic to quantify in the same way as financial figures, 2010 has again demonstrated that the reputational risk associated with bad press on the back of high profile ESG related failure certainly does link to the market value of the company.

We could go a long way to addressing this barrier by finding an alternative for the term ‘non-financial information’. Ideas, anyone?

Commission consultation page on "Disclosure of Non-Financial Information by Companies"