In 2003, the EU Accounts Modernisation Directive (2003/51/EC) expanded a company's reporting obligations, by amending the content requirements of an annual report under article 46 of the Fourth Company Law Directive (78/660/EC). The revised article 46(1)(b) requires a company's annual report to include both financial and non-financial key performance indicators (KPIs), to the extent necessary for an understanding of the company's development, performance and position (including information relating to environmental and employee matters). Article 46 does allow member states to exclude small and medium-sized enterprises from the obligation regarding non-financial information.

On 22 November 2010, the European Commission issued a consultation paper seeking stakeholder views on ways to improve company disclosure of non-financial information, such as that relating to employees and the environment. The consultation formed part of the EU's aim of achieving better, more consistent and more relevant corporate disclosure, without unduly increasing the administrative burden for SMEs. Areas covered by the consultation included how well national regimes on non-financial disclosure were performing in practice and what improvements should be made. It sought views on whether disclosure rules should extend to SMEs as well as larger companies, the form those rules should take and what specific disclosures those rules should require (see Legal update, Narrative reporting: European Commission consultation).

On 5 April 2011, the Commission launched a public consultation to examine and evaluate the effectiveness of the EU corporate governance principles for listed companies and to seek views on possible ways forward at EU level. The Commission published a green paper entitled "The EU Corporate Governance Framework" in which it examined a number of areas, including how to improve the effective functioning of boards by ensuring they are composed of a mixed group of people (for example, by enhancing gender diversity, a variety of professional backgrounds and skills, as well as nationalities). The Commission asked whether listed companies should be required to disclose whether they have a diversity policy and, if so, to describe its objectives and report at regular intervals on progress against the policy. For further background, see Legal update, Corporate governance: European Commission green paper on corporate governance framework).

The Commission published its proposal for a directive amending the Fourth and Seventh Company Law Directives (the Accounting Directives) on the disclosure of non-financial and diversity information by large companies following its two main consultations on these areas (see Background).

In support of its proposal, the Commission cites the fact that previous consultations have shown that only a limited number of EU large companies regularly disclose non-financial information, and that the quality of such information varies considerably. The proposal is aimed at ensuring transparency to help companies to better manage non-financial risks and opportunities so as to improve their non-financial performance.

Key elements of the proposal include:

As the amending directive will need to be adopted by the Council and the European Parliament and transposed by member states, the Commission confirmed in its FAQs on the proposals that it is unlikely that relevant companies would be required to publish their first reports under the amending directive before 2017. Member states may grant non-listed companies, that may be less used to such reporting, the possibility of an additional transition year.