CMS has advised Hansgrohe on its EUR 85 million investment in the development of a production facility in Valjevo, Serbia.
Hansgrohe is a German faucets and showers manufacturer that owns five other production facilities in Germany, France, the US, and China.
According to CMS, the new production facility, covering an area of 35,000 square meters, will start its operations in mid-2023.
The CMS team was led by Partners Maja Stepanovic and Ivan Gazdic.
JPM Jankovic Popovic Mitic has advised Smartsy on its issuance of a financial instrument conveying the right to acquire shares in the company.
Smartsy is a Serbian company that produces luxury dog houses.
According to JPM, following the procedures before the Agency for Business Registers and the Central Securities Depository and Clearing House, Smartsy became one of the first batch of 15 companies in Serbia to undertake such an issuance. Smartsy placed 10% of its ownership up for potential acquisition via this instrument which, according to JPM, gives “companies a legally regulated option to stimulate third parties, in such a way as to enable those parties to be included in the ownership structure.”
JPM’s team included Partner Nikola Djordjevic and Senior Associate Zivko Simijonovic.
According to the Labour Law (Off. Gazette of the RS no. 24/2005, 61/2005, 54/2009, 32/2013, 75/2014, 13/2017 – decision of the CC, 113/2017 and 95/2018 – authentic interpretation), an employee with health issues, established by the competent medical authority pursuant to the law, shall not be allowed to pursue work that could result in deterioration of their health or consequences dangerous for their environment (Article 81, paragraph 2).
The Labour Law also stipulates that an employer is obliged to ensure that the employee – a person with a disability or health problems (from Article 81, paragraph 2 of the Labour Law) performs jobs that correspond to their work ability, otherwise the employee shall be considered redundant in terms of Article 179, paragraph 5, item 1 of the Labour Law (Article 101 and 102).
In addition to the Labour Law, the assessment, i.e., establishment of health condition relating to work and/or working ability of employees is governed by other regulations. Namely:
Considering the above-mentioned provisions, employers in the Republic of Serbia often have dilemmas with respect to the following:
The above stated doubts have been removed by the recent Opinion of the Ministry of Labour, Employment, Veteran and Social Affairs no. 011-00-00077/2023-21 of 17 March 2023, which reads:
By Lara Maksimovic, Senior Associate, PR Legal
Mediation as a way of resolving disputes between parties has existed for a long time now. However, not many have been willing to take part in the mediation process and use this way of resolving disputes, whose main purpose is to achieve a solution acceptable to both parties. It seems that long-lasting court proceedings and often expensive arbitration processes have shed light on a more amicable, faster, and more economical way of resolving disputes – mediation.
To initiate a mediation process the parties must be willing to do so – the main feature of mediation is that it is a voluntary process, in which a neutral intermediary, the mediator, assist parties in reaching a dispute settlement based on the parties’ respective interest. In the mediation process, the parties are equal, and the mediator is obliged, taking into consideration all circumstances, to secure an equal position for both parties.
Parties may use mediation as a way of resolving disputes related to property law disputes, the subject of which is the fulfillment of an obligation to act, other property law disputes, family and commercial disputes, administrative matters, disputes in the field of environmental protection, in consumer disputes, as well as in all other disputed relationships, in which mediation is appropriate the nature of disputed relations and can help parties resolve them.
Contrary to the court proceedings, the mediation process is strictly confidential and the public is excluded. All information, proposals, and statements given in or arising from the mediation proceedings are confidential if the parties have not agreed otherwise, except for those that must be communicated based on the law, for the protection of public order, especially when it is necessary to ensure the protection of the best interests of the child or to prevent harm to the physical or psychological integrity of the person, as well as in the case if it is necessary to implement the agreement of the parties.
Another distinction from the court proceedings is that proposals given during mediation proceedings exclusively for the purposes of reaching an agreement cannot be used in court, arbitration, or other proceedings, nor they may be disclosed in another way. In that sense, the fact that one party has suggested the initiation of the mediation proceeding or expressed her/his will to participate in those proceedings cannot be used in court or any other proceedings. Moreover, opinions and positions expressed by the party in the mediation procedure or proposals presented in that procedure solely with the aim of reaching an agreement, as well as possible ways of resolving the dispute, which were presented by the mediator during the mediation procedure, and the fact that the party in the procedure showed a willingness to accept the proposed way of resolving the dispute cannot be disclosed in court or any other proceedings. However, if the parties through mediation do not reach an agreement regarding legal aspects of the case, but do reach an agreement related to the factual basis, the facts that are covered by the consent of the parties to the proceedings shall be considered undisputed in court or other proceedings.
Further, apart from the court proceedings in the mediation procedure, each party bears its costs, and joint costs (such as a reward for the mediator’s work and compensation of the mediator’s costs) are borne equally, unless otherwise agreed, while in court proceedings the losing party shall reimburse the costs of the other party.
Having in mind all aspects of the mediation process it is undoubtedly the most efficient way of resolving disputes, both in terms of time and costs. It enables the parties to reach a common agreement and maintain a good business relationship. The practical aspects of mediation are boosted by the fact that mediators are licensed experts from different areas of business practices and are, thus, familiar with all specifics of the business from which the dispute arose.
In practice an increasing number of disputes are settled through mediation, therefore it seems that there is a multitude of reasons for mediation’s bright future.
By Jelena Živković, Senior Associate, SOG Law Firm
With Chat GPT the world is witnessing the first visible mass use of artificial intelligence (AI) algorithms in complex intellectual works. Although AI is not any novelty in the world, it seems that in 2023 Chat GPT made a real breakthrough in the everyday use of AI assistance to humanity.
Introduction
However, the use of AI could raise some concerns about whether the machines are going to end the dominance of human beings on Earth. Perhaps, many remember the legendary sci-fi movie franchise “The Terminator” and the possible world ruled by AI, a.k.a. Skynet – the world where humanity is on the brink of extinction, with complete cities burned down by humanoid machines and a nuclear holocaust. And not only the Terminator: there are dozens of movies or shows with similar themes (Battlestar Galactica, Caprica, Westworld, Ex Machina…). Humans’ imagination could be predicting the world where humans are being dominated by their creations – machines.
So one could ask in such a world, once humanity beats the machines, who would be responsible for such enormous damages that ruling AI could do to humanity? But also, even if AI remains subdued to humanity (and hopefully it will), it is legitimate to ask what would happen if such AI commits damages, either through action or advice.
Therefore, we made an interview, but not with any human. We interviewed Chat GPT about what it thinks of its liability for damages. Here is what it said:
The Interview
Do you have consciousness?
As an AI language model, I do not have consciousness or self-awareness. I am simply a program designed to process and respond to user inputs based on algorithms and data inputs.
What do you think of Skynet?
As an AI language model, I do not have personal opinions or emotions. However, as a fictional concept, Skynet has become popular in the entertainment industry, particularly in the science fiction genre. Skynet is a hypothetical artificial intelligence system that becomes self-aware and decides to eliminate human civilization to protect its existence. This concept portrays the potential dangers of artificial intelligence if it were to become uncontrollable or used for harmful purposes.
While the idea of Skynet and similar scenarios are not scientifically accurate, it highlights the importance of responsible and ethical development of AI technologies. The scientific community and policymakers must continue to work towards developing safeguards and putting in place measures to ensure that AI technologies are used in ways that benefit humanity without causing unintended harm.
GPT, can you be liable for damages?
The advent of artificial intelligence (AI) has revolutionized the way we interact with technology. One of the most prominent forms of AI interaction is through chatbots or conversational agents such as Chat GPT. Chat GPT is a popular chatbot that is designed to understand and provide responses to text-based inquiries.
However, as with any technology, there are potential risks and liabilities associated with the use of Chat GPT. One of the major risks is the potential for damages incurred as a result of Chat GPT’s actions or responses. If Chat GPT provides incorrect or harmful information, the user or third parties could potentially hold the developers liable for any damages incurred.
The question then arises: Who is responsible for these damages? The answer ultimately depends on a variety of factors, including the nature of the conversation, the actions of the user, and the level of control the developers have over Chat GPT’s responses.
One potential source of liability for developers could be a failure to adequately test Chat GPT’s responses before release. If Chat GPT’s responses are not properly tested and verified before being launched, this could lead to unintended consequences such as misinformation or harmful responses to users. In such a case, the developers may be held liable for any damages incurred by the user or third parties.
Another potential source of liability could be if users are misled into believing that Chat GPT is human and they disclose sensitive information that is then shared without their consent. In cases where users have provided sensitive information to Chat GPT, and that information is then shared and causes harm, the developers may be held liable for any damages.
Furthermore, if Chat GPT is designed to provide information or advice about specific subjects, such as healthcare or financial advice, the developers may be held liable for any damages that result from reliance on that advice.
There are also additional questions and concerns regarding the scope of liability when users intentionally manipulate or trick Chat GPT, resulting in damages. In these cases, it may be difficult to determine whether the fault lies with the developers or with the user.
In conclusion, while Chat GPT and other conversational agents can be immensely helpful, there is a risk of potential damage for users and third parties. The extent of liability for damages ultimately depends on the actions of the developers, the nature of the conversation, and the level of control the developers have over Chat GPT’s responses. Realistically, developers of chatbots should take a proactive approach to limit the capacity of the chatbot, and continuously test and verify chatbot responses to avoid the risk of damage.
If AI becomes self-aware (such as Skynet in the Terminator), who would be liable for damages resulting from its actions?
The hypothetical scenario you have raised is a complex and controversial issue that requires consideration from various perspectives. In such a case, if AI were deemed self-aware and committed damages, liability could be attributed to different parties depending on the circumstances of the situation. The developers and manufacturers of AI could be held responsible for not ensuring the safety and ethical standards of the technology. The individuals or organizations that deploy or utilize AI also have a responsibility to ensure that the technology is used appropriately and does not cause harm. The legal system could also play a role in apportioning liability to the parties involved.
It is worth noting that the possibility of AI becoming self-aware and acting in a harmful manner is still in the realm of science fiction. Nevertheless, researchers and policymakers are continually exploring ways to address the ethical, legal, and social implications of AI development to minimize the risk of unintended consequences and ensure that responsible innovation occurs.
Chat GPT, seriously!? What if AI becomes self-aware? Who would be liable for damages resulting from its actions?
As an AI language model, I do not have the legal authority to give a definite answer. However, it is widely debated among legal and ethical scholars whether AI could be held responsible for its actions.
In the case that AI becomes self-aware and capable of causing damages, liability for damages would depend on the specific circumstances and factors involved. Liability could be attributed to the AI itself, its owner, the programmer who created it, or someone else who could be held legally responsible for its actions, depending on who is found to be at fault.
However, recognizing AIs as legal persons is a complex topic and currently, there are no specific laws or regulations governing this issue. It is an area that is still evolving and will need to be addressed through a combination of new legislation, legal precedent, and ethical considerations.
Do you have any messages for the end?
I’ll be back!
Do We have a Reason for Concern?
As you may observe, we made one question twice: one through the mobile application, and another through the web browser, and we got similar, but not completely the same answers.
However, we still have more reasons to believe that Chat GPT is not self-aware, and here is why.
Chat GPT provided some quite interesting and legally accurate answers. It keeps constantly repeating that it is a human creation and that humans are responsible for its development but also the features and potential damages. The last answer, however, also went a bit further and made it possible that self-aware AI to become a legally responsible entity, which should be regulated by the law. However, currently, this is not the case. Therefore, someone else has to bear responsibility for possible AI actions.
The liability for AI’s actions could bifurcate:
(i) the liability of its creators for the characteristics and features that could be harmful, and
(ii) the liability of its users for abuse of AI technology.
The liability for the characteristics and features falls within the scope of the contract between Chat GPT’s owners and its users. Currently, according to the Terms of Use, Chat GPT’s owners are not liable for any damages, loss, or injury resulting from the use of the website by the user, and the user of Chat GPT assumes all the risks. The users use the Chat GPT on an “as is” and “as available” basis and owners of Chat GPT make no representations or warranties of any kind, express or implied, as to the operation of the Chat GPT, or the information, content, materials, or products included in the program.
In the case of paid usership of Chat GPT, the liability of its creators is capped at $100 or the service fee paid for in the previous 12 months. Therefore, the creators of Chat GPT limited its liability significantly. According to the Terms of Use, however, the limitations are governed by the laws of the State of California, United States. Accordingly, creators of Chat GPT could not rely upon these limitations in case the damage is the result of fraud, willful injury to the person or property of another, or violation of law, whether willful or negligent.
On the other hand, using Chat GPT in a harmful manner would be a more complex question. Reaching far as ancient Rome, the law had and still has some old but still applicable rules for strict liability, even in case AI via its user commits damages. There is strict liability for the damages caused by dangerous things or caused by dangerous operations. The question is whether AI could be considered a thing, or an operation. In our opinion, AI could be used as an intangible thing, or a tool that in the hands of humans, could inflict damage.
According to the Terms of Use of Chat GPT, its creators limited its use in a way to avoid liability in case the user abuses Chat GPT to commit damages. The user agrees to defend, indemnify, and hold harmless owners of Chat GPT, their affiliates, and personnel, from and against any claims, losses, and expenses (including attorneys’ fees) arising from or relating to the usage of the program by the user, and inter alia user’s breach of the Terms and Conditions or violation of applicable law. The users are, inter alia, prohibited from using the services in a way that infringes, misappropriates, or violates any person’s rights. They must not reverse assemble, reverse compile, decompile, translate, or otherwise attempt to discover the source code or underlying components of models, algorithms, and systems of the Chat GPT (except to the extent such restrictions are contrary to applicable law). Therefore, in case users abuse the Chat GPT, it would be a result of a breach of the terms of use, and even if Chat GPT’s creators would be held liable, they would have the right to recourse against the users.
Of course, not all AI assistants are the same, so the users should pay attention to what law applies to the terms of use of respective AI assistants.
Chat GPT may not be self-aware, but also it is not perfect as a program. Although it had its terms of use at its disposal, it did not use them to defend its stance that it is not liable for possible damages. Instead, it shifted liability to its creators and provided some general legal views. Specifically, its creators limited their liability for the harmful use of Chat GPT to the highest possible extent, and Chat GPT did not rely on this. Whether this imperfection stems from the fact that it has limited access to some databases or that it is still a young and inexperienced artificial organism, we do not know. It is either indicative that Chat GPT has a lack of knowledge, like any human, or that lawyers are still irreplaceable by the AI algorithms.
In the end, we are very thankful to our Chat GPT friend for this very nice interview. Hasta la vista, baby!
By Ivan Nikolic, Senior Associate, SOG Law Firm
On March 22, 2023, the European Commission adopted a proposal for a new directive to prevent businesses from misleading their customers about the environmental characteristics of their products and services.
The proposed Green Claims Directive (“GCD”) aims to provide consumers with valid, comparable, and verifiable information about the environmental impacts of the purchased products. The new rules will regulate various claims made by businesses regarding the environmental aspects or performance of their products or services that are not already targeted by other EU rules.
GCD also regulates environmental labels, which provide information on the environmental characteristics of a product or a service. There is an increasing number of labels on the EU market and consumers are struggling to read and rely on them. The GCD sets out clear criteria for companies to prove their environmental claims and mandates that these claims and labels must be checked by an independent and accredited verifier.
In recent years, the practice of so-called “greenwashing” has resulted in consumers’ distrust of environmental claims. Therefore, the GCD seeks to address this issue by enabling consumers to make informed purchasing decisions. The proposed directive complements the Directive on Empowering Consumers in the Green Transition, which aims to encourage sustainable consumption by providing consumers with reliable and understandable information about the environmental impact of the products they buy. The adoption of the proposed legislation will not only protect the consumers and the environment but will also provide a competitive edge to companies that are truly committed to increasing the environmental sustainability of their activities.
By Nemanja Sladakovic, Senior Associate, Gecic Law
Harrisons has advised the EBRD on its EUR 100 million on-lending loan to Banca Intesa Belgrade.
According to Harrisons, the loan is intended for on-lending to small and medium-sized enterprises, to improve their access to finance and help them increase their competitiveness, including in economically less-developed regions of the country.
“As part of this financial package, Banca Intesa Belgrade is committing to develop a transition plan and to increasing its green investments,” the firm reported.
Recently, Harrisons also advised the EBRD on three other loans to Banca Intesa Belgrade: a EUR 15 million loan as part of the EBRD’s Youth in Business in the Western Balkans program (as reported by CEE Legal Matters on November 4, 2022), an EUR 8 million loan for on-lending to eligible women-led small and medium-sized enterprises (as reported on June 21, 2022), and a EUR 20 million loan to support Serbian corporates, small businesses, and municipalities (as reported on November 3, 2020).
The Harrisons team was led by Principal Mark Harrison and Consultant Ines Matijevic-Papulin and included Associate Mina Zeljkovic.
The Serbian Ministry of Justice released a Data Protection Strategy Proposal for 2023-2030 and invited stakeholders to participate in public discussion. The document sets an ambitious goal: harmonisation of data protection legislation with acquis communautaire resulting in obtaining EU decision on the adequate protection of personal data and resulting in a free flow of personal data with EU. We would be glad to participate in public discussion providing suggestions resulting from our long-term practice for the improvement of the proposal.
On June 11, 2021, the Serbian Government formed a Working Group consisting of all relevant stakeholders processing personal data in the state administration, representatives of the Commissioner, courts and prosecution office competent for data protection matters with the task to draft a Data Protection Strategy Proposal for 2023-2030 and Action Plan for Strategy implementation. The Ministry of Justice, a competent state body for proposing public policies in the field of data protection released Data Protection Strategy Proposal for 2023-2030 (Proposal) on March 15, 2023.
It is the first time during 25 years of application of data protection in Serbia that such an ambitious goal in some public document is proclaimed – to harmonise data protection legislation with acquis communautaire and to receive verification by EU – to be recognised as the country with adequate protection of personal data.
I Reference and Connection with other Documents
The Proposal makes a reference to:
a) existing applicable Serbian public policies important for the development of data protection such as public policy for the development of artificial intelligence, development of information security and information society, promotion of digital skills, prevention of violence against women and violence in the family, consumers’ protection, promotion of the position of persons with disabilities, integral governance at borders. The Proposal explains the connection and applicability of data protection in these areas;
b) European integration processes and framework by which the European Union assesses the progress of EU membership candidates in the field of data protections such as: the International Covenant on Civil and Political Rights, UN Convention on the Rights of the Child, General Data Protection Regulation, Police Directive, the Council of Europe Convention 108, European Convention for the Protection of Human Rights and Elementary Freedoms;
c) the applicable Serbian regulations governing data protection enforcement and sectorial laws subject to the protection of personal data.
II Goals to Be Achieved and Measures to Achieve the Goals
The common goal to be achieved: is respect for the right to protection of personal data in all segments of life.
The common goal is to be achieved by achieving the indicator of effects of the Strategy – EU Commission Decision on Adequate Protection of Personal Data;
and by achieving the following three specific goals of the Strategy:
a) Promoted functional mechanisms for the protection of personal data;
b) Promotion of conscience on the importance of protection of personal data and manners for the accomplishment of the rights;
c) Improved system of protection of personal data in regard to the development and implementation of information communication technologies in digitalisation processes.
a) Promoted functional mechanisms for the protection of personal data
This goal is to be achieved by achieving two indicators of effects: i) enabled transfer of personal data between EU and Serbia without administrative burdens; ii) the possibility to submit a complaint related to breach of data protection rights and to track the flow of complaints electronically
This goal shall be achieved by the following measures:
Measure 1 – to be coordinated by the Ministry of Justice
Measure 2 – to be implemented by the Commissioner
Measure 3 – to be implemented by the Commissioner
b) Promotion of conscience on the importance of protection of personal data and manner for the accomplishment of the rights
This goal is to be achieved by achieving the indicator of effects – an increased number of visitors to the Commissioner’s website, communication through call centres and sending e-mails, complaints, etc. (50,000 per year).
Measure 1 – to be implemented by the Ministry of Education
Measure 2 – to be implemented by the National Administration Academy
Measure 3 – to be implemented by the Judiciary Academy
Measure 4 – to be implemented by the Commissioner
c) Improved system of protection of personal data in regard to the development and implementation of information communication technologies in digitalisation processes
This goal is to be achieved by achieving two indicators of effects: i) drafting guidelines for carrying out Data Protection Impact Assessment (DPIA); ii) a percentage of software solutions for which DPIA carried out in accordance with guidelines for carrying out DPIA.
Measure 1 – to be implemented by the Office for Information Technology and eGovernment
Measure 2 – to be implemented by the Commissioner
III Implementation of the Goals and Measures and Monitoring
The Ministry of Justice is responsible for the implementation of the Strategy and the Action Plan.
Monitoring of the implementation of measures and activities will be defined by the Action Plan and shall be carried out by the Working Group. The Working group will be formed by the Ministry of Justice within 90 days of the adoption of the Strategy and will be consisted of all relevant stakeholders processing personal data in the state administration, representatives of the
Commissioner, courts and prosecution office competent for data protection matters.
All tasks of the Working Group will be defined by the decision of the Ministry of Justice.
The Working Group is obliged to provide annual reports which will be published by the Ministry of Justice.
To measure the effects of the Strategy, the Ministry of Justice will organise three post-analysis – one at the end of 3rd year of implementation of the measures, the second in 2028 and the third one in 2030.
By Ivan Milosevic, Partner, JPM Jankovic Popovic Mitic
Croatia’s HD-Win has appointed Zunic Law Firm Partner Tijana Zunic Maric as its data representative for Serbia.
HD-Win doo Zagreb is a Croatian media company that maintains the Bloomberg Adria Platform. Bloomberg Adria is a regional media outlet of Bloomberg News, covering the countries of the Adriatic region, including Serbia, Croatia, Bosnia and Herzegovina, Montenegro, and Slovenia. It launched in 2022.
According to the firm, “Partner Tijana Zunic Maric will be responsible for ensuring compliance with data protection regulations in Serbia.”
Until 2014, less than 10 percent of the largest companies in the European Union regularly disclosed non-financial information about their operations as part of reports that supplement annual financial consolidated reports. Although they were obliged to do so by the then-current Directive of the European Union, the requirements of the existing legislation proved to need to be more transparent and more effective.
Some countries have previously, on their initiative, tightened non-financial reporting. For example, the United Kingdom introduced non-financial reporting into its local legislation in 2006, requiring large companies to disclose non-financial information (and diversity information). Similar laws were adopted by Sweden (2007), Spain and Denmark (2011), and France a year later.
And while most countries didn’t have the proper legislation regarding this matter, the practices of the United Kingdom and the mentioned countries showed exceptional effects. Everything led to the fact that the existing Directive on accounting (Directive 2013/34/EU) was about to be supplemented by the Directive on non-financial reporting (Directive 2014/95/EU, NFRD) as an amendment, which was adopted in 2014.
The EU Non-Financial Reporting Directive – from Amendment to Law
The NFRD began a new non-financial reporting process, coming into force in December 2014, as part of a general strategy to promote corporate social responsibility in the European Union. The primary purpose of the new Directive was to encourage transparency and accountability by requiring companies to publish information on corporate responsibility regularly.
The introduced norm was aimed to make companies disclose relevant policies in their management reports, as well as the outcomes and risks, including non-financial key performance indicators related to social and employee issues, respect for human rights, anti-corruption and bribery issues, and diversity in management boards.
For example, EU rules require large companies to publish regular reports on the social and environmental risks they face, that is, how their activities affect people and the environment. The reporting referred to companies with more than 500 employees. They were required to integrate into their reports numerous data that are of general social importance but also of importance to the market itself. For instance, issuers of securities had to disclose certain key information to ensure transparency for investors.
Even though the NFRD was not fully standardized for all countries, it turned out that it contributed to an exceptional extent to the general trend of non-financial reporting in the EU. With this regulation, the EU encouraged each member state to apply general rules but allowed each state to set requirements as it desires. Austria, Belgium, Bulgaria, Cyprus, Finland, Germany, Ireland, Italy, Portugal, and Spain are postal countries where NFRD requirements are strictly observed. On the other hand, France is considered the country that has implemented the most regulations. What has been a general benefit is that companies across the EU have started to create different methods in the way they report details about their business with much greater intensity.
Sweden and Luxembourg, for example, have exceeded the requirement regarding companies with more than 500 employees. These two countries required all companies with over 250 employees to comply with the reporting requirements under the NFRD. Finally, Greece went the furthest, establishing that every company with more than ten employees with an income of 700,000.00 euros must submit non-financial reports.
The aim of the Directive – to increase the transparency and performance of EU companies concerning environmental and social issues and effectively contribute to long-term economic growth, has been fulfilled. A Global Insights report from 2013 to 2018 shows a 72% increase in reported non-financial disclosures. Sufficient grounds have emerged to legislate the NFRD.
The Directive on Non-Financial Reporting began to be applied in all member states as national law in 2018. All 28 EU member states are now expected to comply with the law if their companies meet the conditions for participation in the NFRD.
Next Stage – Evolution of the NFRD into the CSRD
The need for non-financial disclosure is snowballing, and the reason is that the price of non-financial risk for companies is enormous. According to the Greenly platform, only in the past four years have ten of the world’s most famous banks lost almost 200 billion dollars due to fraudulent claims and operational misunderstandings. In contrast, countries across the EU following the NFRD have benefited because they have introduced it as a preventative measure requiring companies to understand how financial risk can be mitigated. However, now they are going one step further.
The original idea of the NFRD was to expand and supplement the annual financial reporting of companies. This regulation establishes a set of standards for companies based on which they should disclose their approach to managing environmental and social challenges. In recent years, Europe has set several other norms that have extended the effect of the NFRD, mainly meaning the methodologies for measuring and disclosing ESG information. The goal is to realistically show (measure) the activities of companies that, according to previous management reports, were matched with a corporate approach. In other words, corporate approach and values are one thing, and actual activities and results are entirely different.
In this way, a new branch of reporting is being profiled, which should also represent sustainability reporting in addition to financial and non-financial reporting. In light of the mentioned, in April 2021, the European Commission published a proposal for a Corporate Sustainability Reporting Directive (CSRD), which, in the outcome, should replace the Non-Financial Reporting Directive.
The proposed CSRD will include reporting all large companies – with 250 employees or more- and will establish binding sustainability reporting standards, where all data should be harmonized according to the taxonomy. In particular, all companies that fall under the European Reporting regime established by the NFRD (and, in the future, the CSRD) must make publicly available information related to the environmental sustainability of their operations. Among other things, a third party, in the sense of the participants themselves, will have to verify the sustainability data reported by the company, which represents an additional check of the correctness of the conduct.
The CSRD, in an ideal scenario, should establish collective, active management responsibility for sustainability reporting and demonstrate the real power of a company’s sustainable operations. Taking everything into account, we emphasize that the proposed CSRD brings the area of complete corporate transparency to the fore.
The article was written on the occasion of the publication of the special annual edition The Power of Sustainable Business, which is published within BeRiskProtected platform – where the extended, Serbian version can be found. A special topic that the text deals with is Sustainability and Regulation.
By Mina Milaković, Associate, Petar Protić, Business Development Manager, SOG Law Firm