What consideration is given to environmental and social issues, including climate change, sustainability and product safety issues, and are there any legal disclosure obligations regarding the same?
There are numerous statutory provisions about product safety, environmental protection, worker protection etc that any company must comply with. In addition, some companies (big corporations, companies of public interest) are obliged to publish a “non-financial statement” that describes the business and aim of the company and also comprises environmental issues, social issues, workers’ interests and the protection of human rights, as well as anti-corruption measures.
All publicly held companies must prepare on an annual basis, within their financial statement, a value-added statement, which could be considered as the balance statement of the company’s ‘social account’. This statement provides information on the overall wealth produced by the company, on the allocation of resources to those areas of the company that contributed to the generation of that wealth (such as employees, financiers, shareholders, the government and others) and on the unallocated portion of that wealth. In addition, some companies seek certification from institutes such as the Ethos Institute, the Brazilian Institute of Social and Economic Analysis and the Global Reporting Initiative, but such certification is not mandatory for listed companies.
Another aspect of this ‘social accounting’ is evidenced in the code published by the Brazilian Financial and Capital Markets Association (ANBIMA) regarding public offerings, which sets forth that companies must include in their reference form information on social responsibility and cultural incentives, and on any projects in those areas implemented by the company. Thus, although the ANBIMA code does not require their existence, if the company has any social responsibility policies in place, these should be disclosed in the reference form.
Furthermore, a new anti-corruption law has been in place since 29 January 2014, and this introduced administrative and civil liability of legal entities for illicit acts committed in relation to local and foreign public officials. However, there is as yet no whistle-blowing legislation in force in Brazil.
It is increasingly accepted that environmental and social issues should be taken into account in evaluating and formulating company policy and French listed companies generally give priority to such issues. For certain large companies an extensive report on “non-financial” performance is required, as described in the answer to question 16. Also as mentioned above (see answer to question 4), the Loi PACTE would require that “social and environmental stakes” be taken into account in the company’s purpose.
2017 Germany implemented EU Directive 2014/95/EU (non-financial reporting) to improve transparency with respect to social and ecological topics. The new reporting obligation further the sustainability commitment of companies.
The law is applicable to so-called capital-market-oriented companies, as well as credit institutions and insurance companies which have more than 500 employees, a balance sheet of more than €20 million, or revenues of more than €40 million (approximately 550 companies in Germany).
Companies need to provide information on environmental, employee-related and social issues, human rights and actions against corruption, related risks and non-financial performance indicators.
An independent audit of the report is not mandatory.
It is at each company’s discretion to determine its policy with respect to environmental and social issues. In case a company applies such policies, it is common to disclose them on their website and in the press, for marketing purposes.
Although there is no law imposing corporate social responsibility obligation on Hong Kong companies, companies, in particular public companies, are often encouraged to consider the environmental and social aspects when making corporate decisions. Listed companies are required to publish Environmental, Social and Governance Report (“ESG Report”) every year just as they are required to publish annual reports. When preparing the ESG Report, they are required to comply with the Environmental, Social and Governance Reporting Guide (“Guide”) set forth in Appendix 27 of the Main Board Listing Rules and Appendix 20 of the GEM Listing Rules. Under the Guide, a listed company must report on the “comply or explain” provisions, or provide reasons in its ESG Report if the company does not report on one or more of these provisions. It is also encouraged, but not required, to report on the recommended disclosures of the Guide. Some of the subject areas and aspects covered in the Guide include policies on the environment and natural resources, emissions, employment, health and safety work environment and prevention of occupational hazards, as well as development and training.
There are no legally binding requirements for a company to deal with environmental and social issues. However, the CGC encourages companies to take appropriate measures to address these issues. Some listed companies voluntarily publish periodical CSR reports regarding social, environmental and ethical issues, or add descriptions in their securities reports or corporate governance reports regarding these matters.
There are disclosure requirements on environmental and social responsibility matters in the context of the annual non-financial reports referred above.
Due to legal reforms and social pressures, as well as increasing sensitivity to reputation and standing in the global marketplace, many Korean companies have increased awareness on corporate social responsibility, environmental and social issues, sustainability and product safety issues, which had not been issues that previously received management attention. In particular, anti-corruption and other compliance issues have gained increasing regulatory and legislative traction, reflecting the changing needs and demands of the Korean society at large. Given the foregoing, Korean companies are expending greater resources to address social responsibility and compliance matters due to the changing environment.
Korean companies are required to make disclosures on certain issues. The Framework Act on Low Carbon, Green Growth requires business reports to provide information on designation and cancellation of companies that manage facilities, greenhouse gas emission and energy usage quantities and green technology/green industry certification issues. The Ministry of Environment also requires “green enterprises” and other public institutions and large companies whose businesses have significant impact on the environment to disclose information related to environmental issues.
Swiss law currently does not contain specific legal disclosure regulations on such issues. Companies can, however, include certain information in their annual report on a voluntary basis. In particular, companies with a primary listing on the SIX Swiss Exchange can opt in a sustainability report according to an internationally recognized standard, which is published on the SIX website and binds the issuer.
Furthermore, several legal changes are currently proposed that deal with such issues. The most far-reaching is a popular initiative regarding corporate social responsibility, which, if adopted, would oblige companies to implement stricter standards regarding human rights and the environment in their worldwide activities.
Companies should strive to be good corporate citizens, including being responsible stewards of the environment and considering other relevant sustainability and societal issues in operating their businesses. Many companies in the United States voluntarily publish annual sustainability reports or corporate responsibility reports, which typically give information about a company’s environmental, social and governance objectives and performance.
The focus on such reporting has increased in recent years as shareholders and other stakeholders have pressed companies, through the use of shareholder proposals and other engagement, to focus on more environmental and social issues. The issues companies are now facing and addressing are as diverse as deforestation, corporate clean energy goals, climate change, the uses of antibiotics and pesticides, political contributions, human rights risks through the supply chain, indigenous rights and human trafficking, cybersecurity, the development and reporting of sustainability metrics, and tax fairness.
In addition to the increased pressure on companies to provide more disclosure, there has been increased pressure on the SEC to require more disclosure addressing environmental and social issues. Currently, companies must disclose when they face material risks or known liabilities (including certain environmental litigation) as a result of environmental and social issues and they must include in their proxy materials eligible shareholder proposals that address environmental and social issues. However, there are no other specific disclosure requirements with respect to environmental and social issues mandated by the SEC. There have been several petitions to the SEC in recent years to request more required disclosures regarding environmental and social matters, including a petition filed with the SEC in October 2018 calling for the SEC to develop a comprehensive framework requiring public companies to disclose identified environmental, social, and governance aspects of the company’s operations.
Directors are to have regard to the interests of various stakeholders when taking decisions. For more information see question 27.
Companies which are not subject to the small companies regime are required to file a strategic report. This must contain a fair review of the company’s business, and a description of the principal risks and uncertainties facing the company, which may include risks faced by climate change, sustainability and/or product safety issues. Depending on the size of the company, the nature of its business and whether it is quoted, the report is required to contain varying amounts of detail on these matters. The contents of this report are changing in 2019.
The UK Corporate Governance Code also refers to companies' contributions to wider society although it contains no specific requirements on product standards, environmental or sustainability matters.
Corporate performance on ESG matters has received heightened attention in Canada in recent years. Public companies are required to provide disclosure concerning risks and trends in their businesses which may include environmental and social matters. The Canadian securities regulatory authorities also provide guidelines to companies on their corporate governance structure and practices which address legal compliance and the reporting of illegal or unethical behaviour.
The mentioned issues are experiencing a significant growth in awareness by companies and stakeholders.
From a legal standpoint, legal disclosure obligations are those set forth under Directive 2014/95/EU as regards disclosure of non-financial and diversity information, as well as the relevant national implementing laws and regulations (see point 16 above).