Resources

EU Non-Financial Reporting Directive – What it Means for UK Companies

eu nfrd uk companies blog road pink cority

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. Therefore, 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.

Background

The EU introduced the Directive in early 2014. The aim is to improve transparency in environmental, social and governance areas whilst harmonizing 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. This comes as an amendment to the Companies Act 2006 mandatory reporting requirements. Under this newly amended legislation, some organizations will continue to comply with the Companies Act 2006. Others have to ensure compliance with the Companies, Partnerships, and Groups Regulations 2016 for financial years commencing on or after 1 January 2017.

What companies need to report under the EU NFRD?

Quoted companies incorporated in the UK with less than 500 employees will continue to follow the Companies Act 2006 requirements. Organizations 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. ‘Public interest’ refers to traded companies, credit institutions, and insurance undertakings.

What should companies report on?

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. These 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 regard 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 of reporting under the EU NFRD?

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 report on human rights, gender diversity, business models, and carbon emissions. 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 several companies that haven’t reported on areas of non-financial performance previously. If this situation applies, the company will need to take steps now to start addressing these needs. They will also need to collect the required information from across all operations.

Cority and the EU NFRD

Here at Cority, we have mapped the EU NFRD within our Sustainability software solution to the GRI Standards. GRI is the most widely used non-financial reporting framework. Due to the detailed and prescriptive nature of the GRI Standards, customers can use this mapping to easily identify the metrics and KPIs required for compliance with the new EU regulations. They can also collect data from across the organization, and consolidate information into external reporting templates.