Commission wants to extend risk reporting requirements

The European Commission wants to put forward a proposal this year to extend the reporting requirements for companies with regard to their management of non-financial risks by amending the Accounting Directive.

This initiative appears among the proposals contained in the action plan for company law and corporate governance released by the European Commission on 12 December 2012. It follows the Commission’s 2011 green paper on the EU corporate governance framework to which FERMA provided a response.

The Commission proposes initiatives along three main lines: to enhance transparency, improve shareholder engagement in EU companies and facilitate cross-border operations. Strengthening disclosure of risk management strategies is one part of the transparency workstream.

In the consultation to the 2011 green paper, FERMA argued that further legislation was not immediately necessary. Instead, it said, the Commission should focus on getting existing measures, such as the 8th Company Law Directive, consistently implemented in all member states.

More specifically, FERMA has stated that the explicit disclosure of company’s risk appetite to shareholders might not be the most suitable way to act and help European companies build sustainable, long term strategies.

Vice President Michel Dennery said: “Transparency of information related to risk management is a key issue for FERMA. It helps companies to improve their knowledge of their risks and take appropriate decisions to reduce and mitigate them. Doing so, they will reassure shareholders and the market of their ability to drive profitability. Nevertheless, regulation must consider limiting disclosure that could affect competitive advantage, in particular in comparison with other member states or non-EU countries.”

Marie Gemma Dequae, FERMA scientific adviser, added: “A balance has to be made between relevant information provided to shareholders on to base their investment decisions and the protection of these investments, which requires a certain level of confidentiality.”

She said that many indicators, such as financial reporting, debt, gearing and so on, are already in place to give information on a company’s approach. In addition, key societal risks such as health and safety and environment protection are already highly regulated in most EU countries and reporting expectations are high, even if not obligatory.

FERMA will now formulate a response to the action plan and will be happy to share comments from the risk management community with relevant EU stakeholders.

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