Disclosure Of Non-Financial And Diversity Information

07 March 2016

BIS has published a consultation on the implementation of the EU Non-financial Reporting (NFR) Directive (Directive 2014/95/EU) which amends the Accounting Directive (Directive 2013/34/EU) in respect of the disclosure of non-financial and diversity information in certain large companies.

While the new package of disclosures brought in by the NFR Directive broadly reflects the current strategic report requirements as they apply to quoted companies, there are a number of important differences. Significantly, the NFR Directive has a narrower scope than the current strategic reporting requirements and includes a number of member state options. This means that the implementation of the NFR Directive in the UK could potentially have a significant effect on some companies’ narrative reporting (particularly for quoted companies). Broadly, the NFR Directive:

a) Applies to large undertakings (Companies Act definition), that are Public Interest Entities (PIEs) and that have an average of 500 employees over their financial year. A PIE is an undertaking that meets one or more of the following criteria:

  • Issues transferable securities that are admitted to trading on a regulated market in the EU
  • Is a credit institution (a bank or building society, though not a credit union)
  • Is an insurance undertaking, or
  • Is designated by a Member State as a PIE (eg because of its business, size, or the number of its employees).

b) Requires relevant companies to include in the management report a ‘non-financial statement’ containing information to give an understanding of the undertaking’s development, performance, position and impact of its activity* relating to, as a minimum, environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters* and including a brief description of:

  • The company business model Information on its policies for the areas listed above including any implemented due diligence processes*
  • The outcome of these policies
  • The principal risks related to these matters linked to the company’s operations*, including, where relevant and proportionate, its business relationships, products and services which are likely to cause adverse impacts in those areas* and how the company manages these risks*
  • Any relevant non-financial key performance indicators.
  • (* The principal differences to the current requirements for UK quoted companies.)
  • The key member state options under consideration in the consultation are:
  • Whether the non-financial statement should be placed outside of the annual report
  • Whether there should be independent verification of the non-financial statement.

The Government must transpose the provisions in the NFR Directive into UK law by 6 December 2016, in order for it to apply to reporting periods beginning on or after 1 January 2017.

The deadline for responses to the BIS consultation is 15 April 2016. The FRC is expected to up-date its Guidance on the Strategic Report for these new requirements once BIS publishes final regulations. The European Commission is also consulting on the nature of some non-mandatory guidance on the application of the requirements of the NFR Directive.

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