European Law Institute (ELI) Guidance on Company Capital and Financial Accounting for Corporate Sustainability
Biondi, Yuri; Haslam, Colin; Malberti, Corrado (2023), European Law Institute (ELI) Guidance on Company Capital and Financial Accounting for Corporate Sustainability, p. 52. https://basepub.dauphine.psl.eu/handle/123456789/25236
External document linkhttps://www.europeanlawinstitute.eu/fileadmin/user_upload/p_eli/Publications/ELI_Principles_on_Blockchain_Technology__Smart_Contracts_and_Consumer_Protection.pdf
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Institut de Recherche Interdisciplinaire en Sciences Sociales [IRISSO]
Abstract (EN)Environmental, social and governance (ESG) considerations rank high on the EU agenda. These considerations concern broad matters pointing to the sustainable and responsible long-term relationship of companies with stakeholders, society and nature. The EU has developed the European Green Deal, taking an active role in the global momentum towards fostering and facilitating sustainable business conduct.In this context, an important and timely debate is ongoing as to how companies could and should be sustainable and responsible for the benefit of business and society at large. As a matter of fact, it is quite evident that only financially robust companies may be able to afford the pursuit of corporate sustainability over time and circumstances.The present contribution to this debate draws upon this common sense assumption, pointing to the relationship between corporate sustainability, company law and financial accounting. Company law requirements concerning equity capital management could benefit from reform to facilitate corporate sustainability. Financial accounting and reporting further provide convenient legal-economic instruments to control company capital management and encourage sustainable business conduct over long-term horizons and planning.On this basis, the ELI Guidance proposes a set of Recommendations on company capital and financial accounting for corporate sustainability aimed at: (i) providing a frame of reference and analysis to understand corporate sustainability in the context of business and law; (ii) pointing to specific issues which need to be addressed by European and national lawmakers and regulators; and (iii) establishing a set of company law instruments which set out possible solutions to cope with these issues.The Recommendations aim at restating and modernising well-established principles of European company law on: (i) distributions; (ii) equity capital maintenance; and (iii) non-distributable reserves. Specific attention was paid to the enhanced controlling of new kinds of distributions such as share buybacks, as well as to limiting distributions of non-realised gains. The Project Team developed a comprehensive set of Recommendations aimed at fostering and facilitating sustainable business conduct through responsible company capital management and financial accounting adjustments. Further Recommendations were provided on related policy and regulatory matters concerning the EU framework for corporate sustainability.As a whole, the Recommendations propose that companies commit to a prudent use of resources, by setting aside sufficient reserves to meet social and environmental commitments over long-term horizons, and establish a fair balance between these commitments and distributions to shareholding investors. Corporate sustainability may be enhanced by implementing controls over distributions while reinforcing reserve provisioning. This in turn will ensure company continuity and resilience, as well as financial stability and sustainable development for the benefit of business and society at large.In conclusion, the Recommendations provide comprehensive guidance aiming at: (i) contributing to the regulatory and legislative work on company law at EU and Member State levels, especially on prudential capital management and distributions to shareholders; (ii) clarifying the duties of directors and auditors, and in so doing providing them with the legal certainty they need to discharge their obligations toward the company and society, while promoting the voluntary adoption of sustainable business conduct; (iii) clarifying key policy options for accounting law, while proposing specific accounting adjustments (similar to tax law), with a view to disclosing the financial impact of social and environmental commitments. Consequently, the Recommendations seek to enhance mutual trust across Europe by proposing a common basis for the convergence of national regulations, with a view to harmonising, clarifying and improving the implementation of company law, corporate governance and corporate reporting (both financial and non-financial) provisions dealing with sustainable business conduct. In particular, they aim at contributing to EU and national law on sustainable corporate governance, corporate sustainability due diligence, and non-financial reporting, while promoting sustainable business conduct by corporate management.
Subjects / Keywordscompany law; european law; financial accounting; corporate sustainability; IFRS; corporate social responsibility; corporate governance; responsible company capital management; environmental responsibility; sustainable development
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Autenne, Alexia; Biondi, Yuri; Cavalier, Georges; Cotiga-Raccah, Andra; Doralt, Peter; Haslam, Colin; Horak, Hana; Malberti, Corrado; Philippe, Denis; Sergakis, Konstantinos; Schmidt, Jessica (2018) Article accepté pour publication ou publié