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Corporate Social Responsibility, revised X Principles

NautaDutilh –

The X Principles of Corporate Governance (“X Principles”) of the Luxembourg Stock Exchange (LSE) were revised in December 2017 in order to introduce a new ninth principle on corporate social responsibility (CSR).  

The revised X Principles are effective as from 1 January 2018 and applicable to financial years starting as from that date. Consequently, companies are expected to implement the new CSR rules in the course of their first financial year starting on or after 1 January 2018 and to include the relevant CSR information in their annual report for that year.

In a nutshell, according to the new principle, companies to which the X Principles apply have to (1) define a CSR policy, (2) issue a CSR report, and (3) consider on a regular basis non-financial risks including the social and environmental aspects thereof.

1. CSR Policy

Companies have to define a CSR policy with respect to their responsibilities related to social and environmental aspects, set out the measures taken to implement this policy, and ensure adequate publication thereof.

In this regard, companies should integrate the CSR policy into their strategy for long-term value creation and describe how the CSR measures contribute to achieving this goal. For example, a guideline indicates that CSR-related quantitative and qualitative criteria should be defined and be taken into account when determining the variable remuneration of members of executive management.

2. CSR report 

The board of directors has to prepare a CSR report which may consist either of a specific section in or appendix to the annual management report or a separate document.

The CSR report should contain an analysis of the sustainability of the company’s activities, including clear, transparent non-financial information in support of this analysis. A methodological memorandum explaining how significant CSR performance indicators (e.g. staff training, gender balance, waste treatment) have been identified and data established shall be published either in the CSR report or on the company’s website.

3. Continuous consideration of CSR aspects

The board of directors is expected to consider on a regular basis non-financial risks including the social and environmental aspects thereof.

In this respect, the CSR principle contains a guideline regarding the establishment of a CSR committee which should report regularly to the board of directors on its meetings.

4. Purpose

According to the LSE, the new principle “is designed in particular to introduce an approach to extra-financial information relating to companies’ corporate social responsibility”.

It has been adopted in response to “the need to adapt to new realities” and “developments in the concept of corporate governance”  in Europe and in the “regulatory framework and the way in which it is applied in Luxembourg”.

The principle is intended to enhance transparency with regard to all stakeholders concerning extra-financial information and provide investors with a “better understanding of [companies’] strategy for creating value and their global performance”.

Compliments of NautaDutilh Avocats – a member of the EACC in New York