FERMA: ‘Disclosure’ Alone Not Enough to Control Companies’ Social Risks

June 20, 2013

“Public disclosure of a company’s social issues is good, but by itself does not show that the risks are under control,” the Federation of European Risk Management Associations (FERMA) has told the European Commission (EC) and European Parliament.

“For numerous large companies, transparency has become a fundamental part of their business strategy. The disclosure of environmental and social information can therefore be viewed in a positive way,” said FERMA President Jorge Luzzi. “But it is disclosure plus good risk management that creates the conditions for transparency and sustainability. By itself, disclosure is not enough.”

He warned that if “the regulations do not take sensitive industry-specific issues into account, they could actually damage competitiveness and the sustainable performance they are aiming to promote.”

FERMA explained that the comments are part of its response to a draft directive adopted by the European Commission on April 16, 2013, which is now before the European Parliament under the leadership of the Legal Affairs Committee. Its aim is to increase the transparency of larger companies through more non-financial reporting.

The proposed directive requires companies with more than 500 employees to disclose information on their policies, risks and results on environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues, and board room diversity.

FERMA’s comments on the draft proposal include the following:
•Disclosure requirements should be flexible enough to take into account industry-specific sensitive areas, market strategy on a global level and competition.
•Increased non-financial reporting will remain a benefit for businesses only if does not turn into a heavy cost and administrative burden.
•Sustainability of performance requires a thorough risk management process that involves knowledge and understanding of the risks.
•Risk management should, therefore, be part of the Parliamentary discussion of the draft Directive.
•Board diversity and social issues should be treated separately.

Source: Federation of European Risk Management Associations (FERMA)

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