The European Union (EU) Non-Financial Reporting Directive (NFRD) came into force in December 2014, with the deadline for member states to introduce the provisions passing late last year. Despite the vote for Brexit, the UK remains a full EU member until negotiations are concluded, meaning companies will have to comply with the new reporting requirements of the UK’s implementation. Here is everything you need to know and what you need to do.
The EU introduced the Directive in early 2014 with the aim of improving transparency in environmental, social and governance areas whilst harmonising reporting efforts. Member states were required to transpose at least the minimum requirements into national legislation by 6 December 2016.
The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 represents the UK’s transposition and comes as an amendment to the Companies Act 2006 mandatory reporting requirements. Under this newly amended legislation, some organisations will continue to comply with the Companies Act 2006, with others having to ensure compliance with the Companies, Partnerships and Groups Regulations 2016 for financial years commencing on or after 1 January 2017.
Who is captured?
Quoted companies incorporated in the UK with less than 500 employees will continue to follow the Companies Act 2006 requirements. Organisations falling into this category should not need to change their current reporting approach, assuming they are already complying.
However, all ‘public-interest’ companies (including international companies and subsidiaries) with more than 500 employees will need to follow the new requirements, with ‘public-interest’ referring to traded companies, credit institutions and insurance undertakings.
What needs to be reported?
In line with the EU NFRD stipulations, companies that find themselves needing to comply with the new UK regulations will need to adhere to reporting requirements which are far wider-reaching than that of the Companies Act 2006.
On top of reporting global carbon emissions (Companies Act 2006 requirements), companies must disclose information in its Annual Report covering environmental impact, social matters, employees, human rights and anti-bribery and corruption. Each matter must be referred to in regards to the company’s business model, policies, policy outcomes, risks and material KPIs.
If policies do not exist for one or more of these matter areas, the disclosed information must provide a clear and reasoned explanation.
How can companies start the process?
The first step is to identify whether the company needs to comply with the previous Companies Act 2006 requirements or whether the new and extended regulations apply.
If the new regulations do apply, undertaking a gap-analysis exercise will determine which non-financial areas are not currently covered by existing reporting processes. Quoted companies will already be reporting on human rights, gender diversity, business models and carbon emissions and as such, these companies should only have anti-bribery and corruption as an entirely new requirement.
However, due to the nature of the new regulation, there will be a number of companies captured who have not been required to report on areas of non-financial performance previously. If this situation applies, the company will need to take steps now to start addressing these needs and to collect the required information from across all operations.
Greenstone and the EU NFRD
Here at Greenstone, we have mapped the EU NFRD within our Enterprise solution to the GRI Standards; the most widely used non-financial reporting framework. Due to the detailed and prescriptive nature of the GRI Standards, clients can use this mapping to easily identify the metrics and KPIs required for compliance with the new EU regulations, collect data from across the organisation and consolidate information into external reporting templates.