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February 16, 2016

EU Non-Financial Reporting Directive: UK Government issues consultation

The UK Department for Business Innovation and Skills (BIS) has today launched a consultation on how to implement the so-called Non-Financial Reporting Directive in the UK.

The Directive entered into force on 6 December 2014 with a two-year period for member states to transpose it into national law.

Public Interest Entities (PIEs) with more than 500 employees are affected by the new EU disclosure requirements.

The definition of PIE is the same as the one used in the EU audit reform: listed companies; insurers and credit institutions (listed or not); and other companies designated by member states.

The Directive mandated that a non-financial statement should be included in management reports disclosing information about four topics: environmental matters; social and employee matters; human rights; and anti-corruption and bribery issues.

In addition the non-financial statement should describe the business model; policies on those four topics and their outcomes; risks; and relevant key performance indicators.

The Directive, however, allows companies to choose the way in which they will disclose this information. Besides national reporting frameworks, other options are the United Nations’ Global Compact one or that of the Global Reporting Initiative.

The UK consultation follows another ongoing one, issued in January by the European Commission (EC), seeking views to inform the preparation of non-binding guidance implementing the Directive.

In particular the EC’s consultation seeks stakeholders’ views on how this variety of frameworks and options relate to each other, and how they should be reflected in the guidelines (e.g. whether there should be should be an exhaustive list of frameworks).

UK leadershipHowever, the official view is that the UK has already done a lot of the homework to implement the Directive.

Ahead of the UK consultation, Henry Irving head of ICAEW’s audit and assurance faculty, told The Accountant:

"My understanding is that most of the things being required by the EU are already in UK reporting legislation. But there are some issues around the scope and the number of companies that may be affected, as well as other minor tweaks."

Irving was speaking in the context of an ICAEW research report, published yesterday, touching on the assurance of non-financial information called ‘The journey milestone 4: materiality in assuring narrative reporting."

Previously at an event held in London on 28 January, the Climate Disclosure Standards Board (CDSB) launched a study reviewing FTSE 300 constituents’ environmental reporting disclosures in annual reports.

The CDSB study noted that the UK is well-placed to implement the Directive and it underscored the UK’s leadership in non-financial reporting.

In 2013 the UK modified the Companies Act to make mandatory a directors’ Strategic Report comprising a holistic view of non-financial risks, explicitly including greenhouse gas emissions as well as other matters now required by the EU Directive.

In the foreword of the UK consultation Baroness Neville-Rolfe, Parliamentary Under Secretary of State at BIS, said the EU reforms closely mirror the current UK framework.

"I am aware that this Directive may have cost implications for companies in scope. I want to make sure that we have a full understanding of the costs and benefits that the Directive will bring companies, investors and other users of non-financial reporting."

A transposition workshop only for government officials was held in Brussels on 1 February, but neither the EC nor the Financial Reporting Council (FRC) – the most likely agency to represent the UK on this matter – provided information approached by The Accountant.

The FRC has today issued a statement drawing attention to the BIS consultation. It noted that the new disclosure requirements are aligned with the UK Strategic Report.

The FRC highlighted the main points of the UK consultation, as follows:

"- The scope of the proposals

– Member state options, whether — the non-financial statement should be placed outside the annual report; and — there should be assurance around the non-financial statement.

– Whether there are existing narrative reporting requirements that can be repealed.

– Costs and benefits of the proposals."

The FRC added: "Following the outcome of the consultation, the FRC will consider any consequential amendments to the Guidance on the Strategic Report to reflect any changes in regulation."

The deadline to comment on both consultations is 15 April 2016.

Related linksUK consultation. The Non-Financial Reporting Directive: A call for views on effective reporting alongside proposals to implement EU requirement

EC consultation. Public consultation on non-binding guidelines on methodology for reporting non-financial information

 

 

 

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