The Department for Business, Energy & Industrial Strategy (BEIS) has published regulations which implement the EU Non-Financial Reporting Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups in their management reports. These regulations will apply to the financial years of qualifying companies and partnerships beginning on or after 1 January 2017.
The aim of the regulations is to recognize the importance of non-financial information in identifying key sustainability risks and increasing investor and consumer confidence.
To a large extent the new information required is already covered in the UK by the existing strategic report requirements for quoted companies. However, there are some not insignificant differences with regards to the scope and content of information required.
The legislation brings into consideration all large public-interest entities (PIE) with more than 500 employees. In the UK, those just outside this scope can avoid moving between frameworks by voluntarily complying with the EU requirements or can continue to use the existing requirements in the UK Strategic Report. PIEs are those with securities admitted to a regulated market but can also include unlisted companies such as banks, insurance companies or others deemed by national government to operate in the public interest.
This amends Directive 2013/34/EU and requires large PIEs to provide in their annual report disclosure of a description of policies, processes and outcomes related to material environmental and social information for:
• Environmental policies and risks• Social and employee issues• Respect for human rights• Anti-corruption and bribery issues• Diversity on the board of directors
The disclosures will need to include descriptions of these policies and the related risks. The new regulations expand on existing disclosures in the Strategic Report with further disclosures relating to the business model, principal non-financial risks and non-financial key performance indicators also introduced. Separate disclosures on bribery and corruption are included for the first time.
Details on diversity policies including the age, gender, educational and professional background of board members will also be required to be disclosed as part of the Corporate Governance statement.
UK Government policy will continue to implement these EU regulations in accordance with EU law. Therefore, UK businesses will need to collect information for inclusion in annual reports from 1 January 2017.
A draft update to the FRC guidance on the strategic report, referring to the new regulations is expected in a few months. Guidance from the European Commission is also anticipated.A copy of the ICAEW response to initial BIS consultation can be found here. The Faculty welcomes feedback on all our articles. Please email firstname.lastname@example.org for further information.