Analysis of the implementation of the European Directive 2014-95-EU

1. INTRODUCTION

This project aims to assess the implementation of the European Directive 2014/95/EU within two companies which prepare integrated reports as per the provisions of the Directive. The first reports prepared in accordance with the European Directive 2014/95/EU were released at the beginning of 2018 for the financial year 2017.

They selected two reports from two different European companies and we performed an analysis over the level of compliance with the European Directive 2014/95/EU. All the data in this project is related to the information disclosed by the companies in these reports and is referring to the financial year 2017.

Sainsbury’s purpose is to assess whether the criteria stated in the European Directive 2014/95/EU was met by Sainsbury’s selected companies and to further identify the main areas and key elements of non-financial reporting. We also want to underline the aspects related to social, environmental and governance issues which are not disclosed in the reports.

2. LITERATURE REVIEW

With the effects of the financial crisis still on the minds of people around the globe, there has appeared a need to rebuild the investors and customers trust, especially in Sainsbury’s Bank sector, which has been implemented by presenting information regarding the risk management and sustainability, this led to the apparition of the non-financial reporting.

As mentioned by Szabó & Sørensen (2015), the need to give great quality non-financial related data is vital so as to beat the fundamental criticisms that have been coordinated at NFI, for example, stakeholders' absence of trust in the data unveiled. This absence of trust emerges above all else from the inclination of managers to reveal activities in advancement and their guaranteed outcomes, just as the trend of greenwashing. Greenwashing is characterized as the gap between the outcomes got and the outcomes exhibited, in reference to environmental policies specifically, seems, by all accounts, to be ready to change economic situations and purchaser inclinations because of the opportunistic conduct shown by organizations. In such manner, it is in this way conceivable to evaluate the adequacy of the data unveiled with reference to the nature of data.

Accordingly, as researched by Venturelli, Caputo, Cosma, Leopizzi, & Pizzi (2017), a firm’s survival can no longer be traced back only to an economic dimension of profit maximization, but it has to be included in a broader discourse encompassing the way in which the firm manages the risks arising from the social and environmental impacts of its activities in the medium and long term and demonstrates to be socially responsible. Sustainability reports allow companies to demonstrate that they are socially responsible and are a powerful tool for improving communication with stakeholder groups by enhancing the transparency and accountability of non-financial information. As a result, researchers, practitioners and standard setters have become increasingly interested in the inclusion of non-financial information in annual reports. Non-financial information refers to a broad range of themes and issues such as environmental and social policies and impacts (e.g., resource and energy use, greenhouse gas emissions, pollution, biodiversity, climate change, waste treatment, health and safety of employees, gender equality, education) and is pivotal to improve accountability and transparency towards stakeholders. This emerging trend of reporting non-financial information has led to wider adoption of sustainability reports to provide stakeholders with “financial and non-financial information relating to an organization’s interaction with its physical and social environment, as stated in corporate annual reports or separate social reports”.

The entities who are the subject of the European Directive are: public-interest entities are defined by the EU as undertakings which are: listed on a regulated market of any Member State, or credit institutions, or insurance undertakings, or designated by the Member States as public-interest entities because of the nature of their business, size or number of employees (Dyduch & Krasodomska, 2017). The companies will have to disclose matters on the environmental, social and employee-related, respect for human rights, anti-corruption and bribery matters. There also should be disclosed some policies, risks and outcomes on these topics. There isn’t a format of elaborating this report; the companies have freedom of doing it however they want. They are also encouraged to consult some instruments recognized internationally (Initiative, 2018). According to Eccles & Spiesshofer (2015), the European Directive represents an interesting mix of public and private actor involvement that seems characteristic of evolving reporting trends for non-financial information.

One of the more important aspect of sustainability is Corporate social responsibility (CSR), which does not have an exact definition; it is defined in academic world as “obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of objectives and values of Sainsbury Bank’s society” (Lament, 2015). As per European Commission, CSR is “the responsibility of enterprise for their impact on society” (A2A, 2017).

There are several factors presented in studies that could contribute to the level of CSR disclosure. In general, they can be divided into three main categories: financial characteristics (such as, e.g., profitability or financial leverage), corporate governance characteristics (such as, e.g., chief executive officer duality or presence of women on the board), and firm-specific characteristics (such as firm size or industry profile). An example of the above groups used in studies, is comprised of: the board meetings, average age of board members, presence of women on the board, the board’s size, chief executive officer duality, financial leverage, profitability, the company’s size, the board’s composition, and the board’s commitment to CSR.

Matuszak & Różańska (2017), narrow the attention on the risk dimension and its determinants, by analysing the level of risk disclosure provided by a sample of 71 UK listed companies through the annual reports. They find that risk disclosure is focused on financial risk information and that corporate risk reporting is negatively related to share ownership by long-term institutions and positively associated with both the number of executives and the number of independent directors. Also, Monciardini (2016) investigate the risk dimension by analysing whether integrated reporting has brought changes in the disclosure of risks and opportunities. They find that most of the sampled companies are compliant with all the IIRF requirements for the content element “risks and opportunities” except for the disclosure of the assessment of risks (Sierra-Garcia, Garcia-Benau, & Bollas-Araya, 2018).

The 2008 financial crisis raised awareness between companies regarding CSR, especially in Sainsbury’s Bank sector, therefore they detailed their non-financial reports because this was one of the most efficient way to retain investors. In the EU area, there were many proposals of adding regulations towards non-financial reporting, thus, the Directive 2014/95/EU was created to serve this purpose.