Transparency and Accountability in Europe

Annita Florou (Accounting Department) and Giovanni Strampelli (Department of Legal Studies)

There is an increasing demand by investors and other stakeholders for sustainability reporting, that is reporting of non-financial information related to environmental and social issues. Sustainability reporting is shaped by specific legislation and by the rules of various bodies, from public agencies to stock exchanges. However, current reporting frameworks, such as GRI and SASB guidelines, are voluntary.

Against this background, the EU recently announced its plans for a revised Directive about existing reporting requirements of non-financial information. Moreover, the EU announced its intention to develop mandatory sustainability reporting standards. Of particular importance is the novel concept of double materiality, which entails two perspectives:

1. The first perspective relates to matters that reflect actual or potential significant impacts on people and the environment connected to a reporting entity’s own operations and its upstream and downstream value chain, namely “impact materiality”; and
2. The second perspective encompasses all sustainability risks and opportunities that may positively or negatively affect the reporting entity’s development, performance and position and therefore create or erode its enterprise value, namely “financial materiality”.

In light of the above, the project consists of two studies, as follows:

1. Narrative/Conceptual study aiming at providing a critical discussion of the double materiality concept. Building on other domains where similar concepts have already been adopted, this study seeks to address two primary questions: a) how can EU regulators operationalize double materiality when developing sustainability standards? and b) how can companies implement double materiality in practice?
2. Empirical study aiming at providing a rich description of current practices related to the application of double materiality. Using a sample of EU listed companies, the study aims to investigate several questions, such as: a) how many and what type of companies already apply double materiality in their sustainability reporting? b) which frameworks/guidelines do companies follow? c) what topics related to financial and impact materiality are most reported upon and by what type of companies? d) what are the issues identified in applying double materiality? and e) are there any “good” and “bad” examples of applying double materiality?

Claudia Imperatore (Accounting Department) and  Mario Amore (Department of Management and Technology)

The goal of this project is to investigate whether the Shareholder Rights Directive I (2007/36/EU) and II (2017/828/EU) are effective in fostering shareholder engagement and in incentivizing firms adopting a long-term perspective and consideration of environmental and social issues. Introduced in 2007 and 2017, respectively, the two directives facilitated shareholder identification as well as the exercise of shareholder rights.

The exercise of shareholder rights is crucial as voice is one way through which shareholders can exercise their dissent and engage with management if they are not satisfied with firm performance. Indeed, dissent voting acts as a disciplining mechanism over managers, and, above all, the impossibility to effectively exercise voting rights reduces outsiders’ incentives to engage ex-ante. However, dissent voting can have unwanted consequences as managers facing frequent

shareholder votes might spend large amounts of time campaigning and pursuing frivolous short- term policies rather than pursuing long-term projects. Greater shareholder engagement may also lead to more disagreement among shareholders that may not necessarily share the same. Moreover, as the European setting is characterized by high ownership concentration and widespread presence of family-owned firms, controlling owners and insiders can resist and take actions to counteract shareholder engagement.

Given that, the project aims at addressing the following questions:

1. Whether the Directives are effective in facilitating the exercise of shareholders’ rights, especially in presence of dominant shareholders, like the family.
2. Whether firms with dominant shareholders reacted to the introduction of the new Directives by adopting control-enhancing tools (i.e., dual class structures and tenure-based voting rights) and with which economic consequences.
3. Whether the new Directives changed the ownership base of European listed firms by attracting more long-term and ESG-focused institutional investors, and the subsequent impact on firms’ investment choices.

Giacinto Della Cananea (Department of Legal Studies)

The ‘Common Core of European Administrative Laws’ (COCEAL) project is a new comparative research initiative in the field of administrative law, which has been approved and funded by the European Research Council by way of an ‘Advanced Grant – Excellent Science’ for the period 2016-21.

From the outset it was decided that such comparison could best be achieved by means of a research that would:

• discuss how to provide a more advanced methodology for legal comparison in this field, having regard to the achievements of the ‘Common Core of European Private Law’ project;
• focus on European administrative laws, viewed from a procedural lens, that is, with respect to procedures used by public authorities;
• provide an advancement of knowledge with regard to both differences and common elements across European legal systems;
• analyse general principles, legal doctrines and techniques of administration underlying European legal systems;
• deepen the study of the historical developments of legal institutions, on the assumption that a serious and fruitful comparison cannot but be ‘syncronic’ and ‘diacronic’.

Because the achievement of these goals and the performance of these activities is inevitably a collective enterprise, we invite scholars and experts from all European countries to join us, by making comments and proposals. Accordingly, besides making information about the research and its outcome available to the general public, this website aims to stimulate exchanges of views about the methodologies of the research and the issues that are examined.