232 Disclosure of an integrated report.

In addition to internal board accountability through the supervisory board, Dutch corporate law imposes a regime of external board accountability through the disclosure of the annual report.1 The development in recent years towards integrated reporting provides particular avenues for holding the board accountable for its interference with social and ecological interests. According to Dutch corporate law, the board’s annual report should include an annual financial statement (jaarrekening), a statement by the board (bestuursverslag), a statement with regard to its compliance with the Dutch Corporate Governance Code and a statement by the supervisory board.2

In recent years, several EU Directives and the Dutch Corporate Governance Code have specified the content of the annual report and the statement by the board, particularly with regard to social and ecological aspects of the business in which the corporation is involved. In 2022, the European Union adopted the Corporate Sustainability Reporting Directive (CSRD), replacing the Non-Financial Reporting Directive (NFRD) and enabling the European Commission to further specify the standards for sustainability reporting in the European Sustainability Reporting Standards (ESRS).3 Building on the previous reporting requirements of the NFRD, the CSRD requires boards to include in their board statement information regarding (amongst other things) (i) their plans to be climate neutral by 2050, (ii) time-bound goals to reduce emissions of carbon dioxide, (iii) the role and expertise of the executive and supervisory boards in relation to issues of sustainability, (iv) the renumeration incentives for board members in relation to sustainability, and (v) the due diligence processes that are being implemented in relation to sustainability (resembling the proposed EU CSDDD).4 In a similar spirit, the Dutch Corporate Governance Code requires boards to include information in their board statement regarding (i) their vision concerning long-term value creation, including their strategy, their impact on people and the planet, their consideration of stakeholder interests, their corresponding actions and their achievement of affiliated goals, (ii) the functioning of their risk management systems, (iii) their diversity policy and (iv) their culture, values and code of conduct.5 In addition to these binding requirements, multiple non-binding international initiatives have emerged to provide a reporting framework that integrates both financial and non-financial information, such as the GRI Sustainability Standards and the <IR> Framework.6 All in all, these binding rules and non-binding specifications provide a detailed regime for the board to account for the social and ecological impact of its decisions to its stakeholders. In turn, this enables its stakeholders, particularly its shareholders, to hold the board accountable through exercising their governance rights. As such, the disclosure regime is a central part of the general system of checks and balances in Dutch corporate law.

These developments to enrich the annual report with non-financial information and to enable the board to report in an integrated format are promising for the path towards including social and ecological interests in corporate governance. In my view, these developments raise two issues for further research.7

The first issue relates to the role of reporting in relation to the general responsibility of the board to achieve the durable success of its corporation, including the public purpose for which it is constituted and the needs and limits of its environment. The extension of reporting responsibilities towards social and ecological aspects may imply that boards are reporting on problems for which they have no clear responsibility. From the point of view of corporate governance, this raises questions regarding the legitimacy and accountability of boards towards these interests. Should boards be expected to take responsibility for social and ecological facts on which they report? There is no need to assume that boards should be responsible for all facts on which they are legitimately required to report. After all, integrated, non-financial reporting may also serve the general interest of establishing the truth about social and ecological issues beyond the board’s responsibility. In my view, this raises a general issue about aligning the role and boundaries of reporting with the general responsibility of the board.

The second issue relates to the need for boards to self-assess the legitimacy of their interference with social and ecological interests. The complexity of the circumstances in which modern corporations operate implies a lack of capacity for external auditors to completely assess the legitimacy of board interference in these circumstances.8 Such a lack of capacity for external auditing re-emphasizes the need for integrated reporting as a reflection of the internal accountability mechanisms of a corporation.9 Meanwhile, boards are free to design and establish their own internal risk management, due diligence and reporting systems, resulting in the risk of individualized and non-comparable annual reports. Comparable standards are therefore needed for boards to provide a comparable account of their decisions in their annual reports and for stakeholders to assess the legitimacy of these decisions. I identify this need for comparable self-assessment as a separate issue for further discussion, to which I will return below.10