Tips for preparing the new Section 172 Statement

Tips for preparing the new Section 172 Statement

In our July 2018 and October 2018 Business Edge articles, we highlighted a new requirement to prepare a Section 172 Statement, together with guidance issued by the Financial Reporting Council (FRC) and the Department for Business, Energy and Industrial Strategy (BEIS) that included some information on the expected content of that statement.

This new disclosure is likely to be subject to significant scrutiny, particularly in its first year so, in this article, we draw on the guidance and set out some practical tips on how to approach the drafting of your first Section 172 Statement.

We have published tips for preparing the section 172 statement which look at this requirement more deeply and sets out a framework that can be used to help draft a high quality statement.

Requirement to prepare a Section 172 Statement

As a recap, for periods beginning on or after 1 January 2019, all large companies (including large subsidiary companies) will have to include a separate statement in their strategic report that explains how its directors have had regard to wider stakeholder needs when performing their duty under s172 of the Companies Act 2006. The introduction of this new disclosure requirement has not changed the purpose of the strategic report or the underlying statutory duties of a director, which are set out below:

Section 172(1) of the Companies Act 2006

A director of a company must act in the way he/she considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:

  1. The likely consequences of any decision in the long term
  2. The interests of the company's employees
  3. The need to foster the company's business relationships with suppliers, customers and others
  4. The impact of the company's operations on the community and the environment
  5. The desirability of the company maintaining a reputation for high standards of business conduct, and
  6. The need to act fairly as between members of the company.

On this point, it is worth highlighting that the GC100 has published some useful guidance, which includes practical steps directors can take to comply with their statutory duties under s172 of the Companies Act 2006. However, this does not address the new Section 172 Statement disclosure requirement.

General content of a Section 172 Statement

Both the BEIS and FRC guidance suggest that the Section 172 Statement should include information on the following:

  • The issues, factors and stakeholders considered relevant in complying with s172(1)(a)-(f), and how they have formed that opinion
  • The methods used to engage with stakeholders and understand the issues to which they must have regard
  • The effect of that regard on the company’s decisions and strategies during the year.

This means that a simple statement of compliance or general description of governance processes is unlikely to be considered sufficient to meet the legislative requirement. The third bullet in particular indicates that the statement should be updated annually and should refer to matters that have been given substantial board attention during the year.

Tips for preparing the Section 172 Statement

While the three bullets above do provide a structure that will aid drafting a Section 172 Statement for the first time, some additional process may be helpful in order to focus directors’ minds on the most important matters to report:


The scoping of the requirements for the new statement is not straightforward; consequently, it is important to prepare properly for its implementation.

  1. Read the BEIS and FRC guidance – The material published by BEIS and the FRC provides a good indication of regulator and investor expectations.
  2. Identify all group companies within the scope of the requirements – The requirement applies to all large companies, based on the size limits in the Companies Act 2006, including subsidiaries in their individual accounts. Remember that the size of a parent company (including an intermediate parent company) is determined by reference to the size of the group that it heads, irrespective of whether group accounts are prepared.
  3. Decide whether associated directors’ report requirements are needed and whether they will be ‘promoted’ to the Section 172 Statement – New directors’ report requirements relating to employees and suppliers, customers and others were introduced at the same time as the Section 172 Statement. These disclosures have a slightly more limited scope than the main requirement; however, where they must be provided, it may be more efficient to include them in the Section 172 Statement.
  4. Decide how to publish the Section 172 Statement on the company’s website – A company may publish either a standalone statement, its entire strategic report, or its full annual report on its website (noting that AIM listed and quoted companies are already required to publish their full annual reports on their websites). It can also be included on a parent’s website so long as the subsidiary to which the Section 172 Statement relates is clearly indicated.


It is likely that a company will have many stakeholders, and boards will have made many decisions over the course of a year. It is important that the Section 172 Statement focuses on matters that are of strategic importance in order to remain meaningful and informative for shareholders. Consequently, it is important to identify the key decisions that will eventually be disclosed.

  1. Identify the key decisions in the year - Focus on matters that have used a significant amount of board time or that have or will affect the company in a significant way; these are likely to be documented in board minutes and papers.
  2. Identify key stakeholders and other issues – Focus on stakeholder groups that have been most effected by the key decisions identified: Employees; suppliers; customers and others; communities on which the company relies or that it affects; and, shareholders in general and subgroups of shareholders. Determine whether the decision has had a direct or indirect environmental impact - this may result from the company’s inputs, outputs and/or activities that relate to the decision.
  3. Reflect on how the decision was made – How were stakeholder views and needs, and the possible effects of the decision, understood? How did the directors consider these stakeholders and other matters when making their decision? Did consideration of these matters affect the decision when it was made; for example, were plans altered as a result of this process?
  4. Consider the longer-term effects of the decision – The effect of some decisions may be different in the short and long term. Where this is the case, how were the conflicting factors considered and balanced?


It is important that the Section 172 Statement meets its statutory requirements but also that it remains as concise and user-relevant as possible. Consequently, drafting the report may be as challenging as identifying the decisions that it should cover.

  1. Describe methods of identifying key stakeholders and issues relevant to key decisions – A brief general disclosure may be appropriate, but a more specific description of steps taken may also be necessary for key decisions taken in the year.
  2. Describe processes for engaging with key stakeholders and understanding issues relevant to key decisions – Again, a brief general disclosure may be appropriate, but a more specific description of steps taken may also be necessary.
  3. Ensure that all relevant aspects of s172(1)(a)-(f) are covered for each key decision identified - Explain how any conflicts have been balanced. These conflicts may exist between the long-term and short-term good of the company, between shareholders and employees or between groups of shareholders with different agendas. However, avoid the temptation to write about a matter specified in s172 if it has limited relevance to a specific decision.
  4. Consider cross-referencing and linkage between different parts of the annual report – Information in the Section 172 Statement is likely to relate to other parts of the strategic report, directors’ report and corporate governance statement, including disclosures about the business model, principal risks and future outlook. It is important that the Section 172 Statement meets its statutory objective on a stand-alone basis, but cross-referencing to other sections of the annual report for further detail may help reduce duplication.

Subsequent publications

Since this article the FRC have also published the following useful documents:

  • In October 2020 the FRC’s Lab released a set of tips intended to help companies consider what content to include in a s172 statement, how to present it and how to facilitate the process of preparing the statement.  
  • In July 2021 the FRC’s Lab issued a report, which provides practical guidance to companies in terms of the type of information investors’ view as critical when reporting on stakeholders, decisions and s172. This includes real life examples to aid the preparer.
  • In addition to the July 2021 report, the Lab also issued a summary of questions for preparers to ask themselves when preparing their disclosures in order to aid this process.