The UK transposition of the Non-Financial Reporting Directive: Are you affected?

The UK transposition of Directive 2014/95/EU on non-financial reporting came into force on 26 December 2016, under The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016. The regulations apply to company reports for financial years commencing on or after 1 January 2017.

UK: one of the early adopters

EU member states were required to transpose Directive 2014/95/EU (the Directive) into national legislation by 6 December 2016 and they have had two years to do so. However, according to the European Commission’s website only 19 member states (68% of total) have transposed the Directive as of 13 April 2017.

EU Member State transpositions of the Directive by 13 April 2017 (from the European Commission website).

Despite Brexit, the UK is one of the early adopters. Countries which have not transposed the directive include France, Spain, Germany and the Netherlands.

The European Commission’s Impact Assessment, estimates that 2,500 companies in the EU currently prepare a non-financial report and that this will be increased to around 18,000 by the Directive.

However, as occurred with Article 8 of the Energy Efficiency Directive (ESOS in the UK), the outstanding transpositions will leave many trans-European businesses with little time to comply with national regulations.

What must be reported under the new non-financial reporting regulations?

For many companies, reporting non-financial information will not be completely new. However, the scope has been widened by the Directive. The company’s strategic report will contain a new Non-Financial Information Statement (NFIS), which will provide a fuller picture of the company’s performance and impact. Companies in scope are required to include business specific disclosure on environmental, employee, social and community, respect for human rights and anti-corruption and bribery matters.

As yet, the UK government has not issued guidance to accompany the regulations and the amount of detail required is unknown.

Companies reporting the information through a national, EU or international reporting framework (e.g. UN Global Compact and The Global Reporting Initiative) must specify the framework used, instead of including the information in their strategic report.

Which UK companies will have to comply?

In summary, companies will be required to include a NFIS in their strategic reports if, during their financial year they fulfill the criteria below:

 

Corporate groups

  • Parent companies meeting one of the criteria a) to d) above and with an aggregate of at least 500 employees in the group must produce a NFIS.
  • Subsidiary companies meeting the qualification criteria above but with less than 500 employees will not have to produce a separate NFIS.

If a qualifying company’s strategic report is a group strategic report, the NFIS must be a consolidated statement relating to all undertakings included in the consolidated accounts.

What action should companies take now?

These new requirements will apply across the EU for financial years from 1 January 2017. Some of the initial steps companies should be considering are:

  • Assess whether your company meets the qualification criteria and in which EU member states;
  • Consider the additional information required to be included in the strategic report;
  • Consider any reporting frameworks you report to which could be an alternative to the NFIS;
  • Develop an ongoing reporting programme.

If you require any further information about the Non-Financial Reporting Directive in the UK, please get in touch with our Risk team.

This blog is the second in a series of activities designed to help firms prepare for enhanced Non-Financial Reporting. In my blog of 8 November 2016, I discussed the effect of Brexit on the UK’s obligation to EU regulations such as Directive 2014/95/EU.  Later this month we will publish a white paper with further detail on the Directive and the UK transposition, to be followed by a further blog on other developments in the corporate sustainability reporting landscape.

On 26 April, we are hosting a Breakfast Briefing, Non-Financial Reporting Directive 2017: Exploring the evolving sustainability reporting landscape. This will be an excellent opportunity to hear from industry experts and share insights to challenges and opportunities with your peers.