The new rules are designed to make companies more accountable to investors and wider society. The rules mean that large companies will have to include a statement in their annual report and accounts about environmental, social and employee-related matters.
The rules were approved by the EU council of permanent representatives in February.
Dr Nigel Sleigh-Johnson, head of ICAEW’s Financial Reporting Faculty, said, “There has for some while been an increasing focus on reporting on aspects of business other than the purely financial. Investors after all take into account more than just a company’s financials when making investment decisions.
“However, for the additional information to be useful – and say something meaningful about the prospects and performance of the company in question – it is very important that we avoid boilerplate disclosure. It is therefore good news that the final legislation requires disclosure of information on the ‘to the extent necessary’ basis already tried and tested in UK legislation on narrative reporting.
“The UK introduced enhanced requirements for the reporting of narrative and non-financial information, including on diversity, just last year, so for most UK businesses this EU requirement should not represent the major challenge it will in some other EU member states. But even so, the efforts needed by UK business to understand and implement the new requirements – which require reporting on a wider range of diversity issues and specifically require reporting on bribery and corruption matters for the first time - should not be underestimated.”
The changes have also been given backing by the Financial Reporting Council. Stephen Haddrill, chief executive officer of the FRC, said, “The approval by the European Parliament of the new non-financial disclosure requirements for EU companies is a positive move for investors and complements the FRC’s work on UK Guidance on the Strategic Report, consistent with our mission to promote high quality corporate reporting to foster investment.”
“The FRC worked closely with European Union institutions and the UK government to ensure that the risk of proliferation of ‘boilerplate’ was removed. This will ensure that investors receive only relevant and proportionate information. There have been numerous debates on what information is essential; by limiting the scope to large public interest entities with over 500 employees and only including material information this will help to ensure that these increased transparency requirements will encourage better corporate conduct and better informed investment decisions.
“By allowing flexibility around the location of these disclosures, it will enable companies to disclose information in a manner that communicates most effectively.”