Extra-financial performance: an AFNOR guide untangles the regulations
A clearer picture emerges from the Independent Third-Party Organizations. These ITOs – in other words, chartered accountants, statutory auditors, law firms and audit offices – had been sailing at a loss since the late publication, in September 2018, of the decree setting out the terms and conditions of the new DPEF (Extra-Financial Performance Declaration). A compass in the fog, the AFNOR guide, numbered FD X30-024, gives direction!
Summary of previous episodes. Since 2002, French regulations have required listed companies to provide annual non-financial information on their activities. In addition to the figures, the aim was to report annually on their impact in terms of social responsibility, which is now classified into 5 main categories of social information.
On the social front, this may involve gender equality or the workplace accident rate. On the environmental front, greenhouse gas emissions and respect for biodiversity. The other main categories concern the fight against tax evasion, the fight against corruption and respect for human rights. These are all items that don’t appear on a balance sheet, but which in recent years have become a major social issue.
From French law to European directive
In 2012, Article 225 of the Grenelle II law extended this obligation to large unlisted companies, and required ITOs to review this annual declaration. To support the stakeholders, AFNOR was mobilized to set up a working group. The first guide was published in 2014.
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In 2014, a European directive changed the landscape in every EU member country: in France, its transposition amends Article 225 for financial years opening on or after September1, 2017. But it makes the game more complex…
The new text combines two approaches, ” explains Pascal Baranger, director of PwC’s sustainable development department and leader of the AFNOR working group. On the one hand, there’s the historic French approach, with its strong focus on specific themes. On the other, the European approach, focused on risk analysis. The result is a law that may seem lacking in clarity.
A guide for everyone
To help ITOs find their way around, AFNOR remobilized the working group to update the FD X30-024 guide with all stakeholders: OTIs themselves, but also companies and their representatives, legal experts, consumer associations, trade unions, etc. Each of them contributed their viewpoint and expertise to propose a guide enriched with clarifications and provide the keys to producing a good DPEF.
Among the new features, this reporting must focus on the main CSR risks rather than on a defined list (as previously in Article 225), and provide information using a “Policy – Actions – Results – KPI” approach, with a view to continuous improvement. Measures in favor of the disabled and respect for animal welfare are now among the elements to be included. The AFNOR guide lists these points to enable companies and CSR managers to anticipate the expectations of ITOs and prepare themselves accordingly.
“This guide provides answers to many questions. It can certainly be further improved, but it’s clearly a tool for obtaining added value from the law, by taking advantage of the EPFD to improve. From now on, companies will have to draw up this document on the basis of their business model. This should lead them to gather all departments around the table, in order to study their practices and build an engaging policy together. A phenomenal vector for progress!
DPEF: Who is concerned?
- All listed companies with sales in excess of €40 million or profits in excess of €20 million, and with an average number of permanent employees in excess of 500 over the course of the financial year.
- All companies with balance sheet total or sales in excess of 100 million euros, and more than 500 employees.
That’s an estimated few thousand companies in France.
“Creating value through quality ECFC”.
What is the purpose of the guide published by AFNOR?
The new regulations leave some grey areas for the OTIs and companies concerned. The order published in September 2018 has not cleared up all ambiguities. In the face of imprecision, we had to offer support in setting up the right provisions, such as the business model, and ensure that this new law would be a plus for companies. It has taken some time to draw up this guide, and some feel it has come too late, but it is now an essential element in helping to clarify this complex law.
Is following the recommendations in this guide equivalent to a presumption of conformity?
The working group deciphered every paragraph of the text, without exception. The guide takes a step-by-step pedagogical approach to implementing expectations. In this sense, following all the guide’s recommendations will ensure that no provision is overlooked, and that your EPFD complies with regulations.
What do companies risk if they don’t carry out their EPFD – or do it badly?
There are no real sanctions if the CSR report is not published, although the AMF (Autorité des Marchés Financiers) is increasingly scrutinizing the CSR communications of listed companies. But botching the EPFD can very quickly pose an image problem for the companies concerned, which are often highly exposed. Every year, specialized organizations scrutinize the declarations and award marks that can damage their image. In other words: the EPFD is an opportunity to demonstrate your commitment to society, but to do it badly is to risk being singled out.
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