Legal provisions of C(2001)1495 - Recognition, measurement and disclosure of environmental issues in the annual accounts and annual reports of companies (notified under document number C(2001) 1495)

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dossier C(2001)1495 - Recognition, measurement and disclosure of environmental issues in the annual accounts and annual reports of companies ...
document C(2001)1495
date January  1, 1945
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32001H0453

Commission Recommendation of 30 May 2001 on the recognition, measurement and disclosure of environmental issues in the annual accounts and annual reports of companies (notified under document number C(2001) 1495)

Official Journal L 156 , 13/06/2001 P. 0033 - 0042


Commission Recommendation

of 30 May 2001

on the recognition, measurement and disclosure of environmental issues in the annual accounts and annual reports of companies

(notified under document number C(2001) 1495)

(2001/453/EC)


THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community and in particular Article 211 EC,

Having regard to the fourth Council Directive 78/660/EEC of 25 July 1978 based on Article 54(3)(g) of the Treaty on the annual accounts of certain types of companies(1), as last amended by Directive 1999/60/EC(2),

Having regard to the seventh Council Directive 83/349/EEC of 13 June 1983 based on Article 54(3)(g) of the Treaty on consolidated accounts(3), as last amended by Directive 90/605/EEC(4),

Whereas:

(1) In 1992 the Commission published its fifth action programme on the environment 'Towards sustainability' (COM(92)23)(5). Among a range of proposals in the area of environmental protection, it provides for a Community initiative in the area of accounting. This initiative should relate primarily to the ways and means used by companies to report on financial aspects relating to the environment. An enhanced attention to financial aspects could contribute to achieving the goals of the programme; ensuring that environmental expenditures and risks are taken into account could increase the company's awareness of environmental issues. In 2001 the Commission has adopted a communication concerning the sixth action plan for the environment (COM(2001)31 final of 24 January 2001).

(2) The Amsterdam Treaty recognised that a key element for promoting sustainable development (Article 6 of the EC Treaty) is the principle of the integration of environmental requirements into other policies. In view of this objective, the Cardiff European Council endorsed a strategy for the integration of environmental objectives into all Community policies and actions. This strategy was confirmed and further developed by the Vienna European Council that invited the Internal Market Council to consider how such integration could be achieved in this particular domain.

(3) In 1999 the Commission adopted a communication on the single market and the environment (COM(99)263 of 8 June 1999) which is intended to contribute to making environmental and single market policies mutually. supportive and reinforcing, whilst at the same time developing synergies between them. This Communication identifies specific single market policy areas in which the Commission will strive for a closer integration with environmental policy, and lays down a series of further measures, among which to issue a recommendation on environmental issues in financial reporting. Such recommendation is also a direct follow-up of the November 1995 Accounting advisory forum paper on environmental issues in financial reporting (Document XV/6004/94).

(4) The lack of explicit rules has contributed to a situation where different stakeholders, including regulatory authorities, investors, financial analysts and the public in general may consider the environmental information disclosed by companies to be either inadequate or unreliable. Investors need to know how companies deal with environmental issues. Regulatory authorities have an interest in monitoring the application of environmental regulations and the associated costs. Nonetheless, voluntary disclosure of environmental data in the annual accounts and annual reports of companies is still running at low levels, even though it is often perceived that enterprises face increasing environmental costs for pollution prevention and clean-up equipment and for waste clean-up and monitoring systems, in particular those enterprises operating in sectors that have significant impacts on the environment.

(5) In the absence of harmonised authoritative guidelines in relation to environmental issues and financial reporting, comparability between companies becomes difficult. When companies do disclose environmental information it is often the case that the value of the information is seriously handicapped by the absence of a common and recognised set of disclosures that includes the necessary definitions and concepts with regard to environmental issues. The information is often disclosed in a variety of non-harmonised ways among companies and/or reporting periods, rather than being presented in an integrated and consistent manner throughout the annual accounts and the annual report.

(6) The costs of collecting and reporting environmental data and the sensitiveness or confidentiality that might be associated, in certain cases, with such information are frequently regarded as deterrent factors for disclosure of environmental information in the financial statements of companies. Nevertheless, these arguments do not eliminate the need to stimulate the provision of environmental information. Users of financial statements need information about the impact of environmental risks and liabilities on the financial position of the company, and about the company's attitude towards the environment and the enterprise's environmental performance to the extent that they may have consequences on the financial health of the company.

(7) While the European legislative framework for financial reporting does not explicitly Address Environmental issues, the general principles and provisions laid down in the Fourth and Seventh Company Law Directives apply (Directives 78/660/EEC and 83/349/EEC, respectively).

(8) As part of its 1995 accounting strategy(6) the Commission seeks to integrate European harmonisation in the accounting field within the broader context of international accounting harmonisation. Consequently, the Commission has lent its support to the work of the International Accounting Standards Committee (IASC) which, in turn, set as its objective the development of a core set of high quality international accounting standards (IASs). The Commission is committed to work towards maintaining consistency between the European Union financial reporting, framework and international accounting standards developed by the IASC.

(9) The IASC has published several international accounting standards that lay down provisions and accounting principles that are relevant when dealing with environmental issues. Nevertheless, there is little guidance directly related to such matters and no specific international accounting standard solely focused on environmental issues.

(10) The recommendation has been prepared with a view to support policies linked to the single market and to contribute to ensuring that users of financial statements receive meaningful and comparable information with regard to environmental issues, thereby reinforcing the Community initiatives in the area of environmental protection. The Commission is of the opinion that there is a justified need to facilitate further harmonisation on what to disclose in the annual accounts and annual reports of enterprises in the European Union as far as environmental matters are concerned. The quantity, transparency and comparability of environmental data flowing through the annual accounts and annual reports of companies must also be increased. In order to achieve these objectives, and given the increasing importance attached to environmental issues in the European Union, the Commission aims at clarifying existing rules and providing more specific guidance on the subjects of recognition, measurement and disclosure of environmental issues in the annual accounts and annual reports of companies.

(11) The recommendation recognises that there has been a gradual development of separate environmental reports, particularly by companies that operate in sectors with significant environmental impacts. It is not a purpose of this recommendation to identify the reasons underlying this trend. However, this recommendation recognises that different groups of stakeholders have different information needs or rank them differently. Separate environmental reports satisfy the information needs of stakeholder groups that are only partially met by the information provided in the annual accounts and annual reports of enterprises. Therefore, the aim should be to make separate environmental reports and the annual accounts and annual reports more consistent, cohesive and closely associated. The purpose of this recommendation is to promote this aim by ensuring that environmental disclosures are incorporated in the annual accounts and annual reports in a way that complements the more detailed and wide-ranging separate environmental reports.

(12) Appropriate disclosures are considered a key factor that facilitates transparency of information. Disclosures are appropriate where they affect the user's understanding of the financial statements. This recommendation is not intended to establish unjustified burdensome obligations on the preparers of financial statements. The recommendation aims at providing comprehensive guidance in the area of disclosure, and identifies relevant disclosures that allow for comparability and consistency of the environmental information presented. This is particularly the case for the disclosure in the notes to the accounts of environmental expenditures either charged to the profit and loss account or capitalised, as well as the expenditures incurred as a result of fines and penalties for non-compliance with environmental regulations and compensations to third parties, paragraph 6 of section 4 of the Annex to this recommendation. The disclosure in the annual report of appropriate information with regard to environmental performance, where relevant to the financial performance or position of the enterprise or its development, is specifically addressed paragraph 2 of section 4 of the Annex to this recommendation.

(13) For the recommendations on disclosures to be effective they need to be supplemented with workable definitions of the concepts covered. In order to meet this objective the recommendation includes a section on definitions.

(14) The recommendation aims to present guidance on the application of the provisions of the fourth and seventh Directives (Directives 78/660/EEC and 83/349/EEC, respectively) with respect to environmental issues. Therefore, certain accounting treatments with regard to environmental issues are recommended in order to enhance the provision of more meaningful information by the preparers of the financial statements. While encouraging particular solutions, this approach is not aimed at eliminating the possibility of applying alternative treatments where permitted by the Directives. In the light of this, account is also taken of the Commission's 1997 interpretative communication concerning certain Articles of the fourth and seventh Directives on accounting(7) and of the November 1995 Accounting advisory forum paper on environmental issues in financial reporting (Document XV/6004/94).

(15) The recommendation takes as a source of reference several international accounting standards (IAS) that have been published by the International Accounting Standards Committee (IASC) which are of specific relevance to environmental issues, in particular IAS 36 on impairment of assets, IAS 37 on provisions, contingent liabilities and contingent assets and IAS 38 on intangible assets. The provisions contained in this recommendation are intended to be consistent with these International Accounting Standards, unless stated otherwise.

(16) The recommendation is also influenced by a statement of position on Accounting and financial reporting for environmental costs and liabilities prepared by the United Nations Working Group on International Standards of Accounting and Reporting(8).

(17) As described in recitals 14 to 16 above, in response to the need to integrate environmental considerations into financial reporting, some guidelines have been developed at Community and international level. This recommendation builds upon such developments and at the same time seeks to provide a suitable Community framework for further improvements. The Commission believes that to meet the objectives of the recommendation, action by Member States is necessary. The Commission encourages and leaves scope to Member States for measures at national level. Moreover, discussions on ways to improve the present situation are likely to continue at international level,

HEREBY RECOMMENDS:


That the Member States:

1. Ensure that for accounting periods commencing within 12 months from the date of adoption of this recommendation and for all future accounting periods, companies covered by the fourth and seventh Company Law Directives (Directives 78/660/EEC and 83/349/EEC respectively) apply the provisions contained in the Annex to this recommendation in the preparation of the annual and consolidated accounts and the annual report and consolidated annual report.

2. Take the appropriate measures to promote the application of this recommendation.

3. Notify the Commission of the measures taken.