Annual reports should contain information on a firm's environment and social impacts and risks, the government has concluded.
In its response to a consultation on transposing the EU Non-Financial Reporting Directive, the Department for Business, Energy and Industrial Strategy (BEIS) has confirmed that it will not require firms to produce separate reports on non-financial issues up to six months after publication of the management report and accounts.
BEIS said the majority of respondents (31 out of 36) to its consultation believed a delay between the publication of the accounts and non-financial information would not be helpful in giving shareholders a holistic picture of the business.
EU member states are required to transpose the rules into national legislation by 6 December 2016 so that companies can adhere to the requirements in their annual reports in 2017. The directive aims to provide investors and stakeholders with a more comprehensive view of a company’s performance by including information on issues such as environmental risk, respect for human rights and anti-corruption and bribery issues.
Many listed UK companies are already reporting non-financial impacts and risks under the Companies Act 2006.
Fergus Moffat, head of public policy at the UK Sustainable Investment and Finance Association, welcomed the decision. Having to produce another report six months after the annual report would not be helpful to investors as information on environment and social issues is financially material, he said.
Michael Zimonyi, policy and external affairs manager at the Climate Disclosure Standards Board, said: ‘We would question the usefulness of the information if the non-financial report was separate.
‘It’s great to see alignment on this topic and that the government has listened,’ he added.
Disclosure obligations apply only to companies with more than 500 employees and which are deemed public interest entities (PIEs). The government’s consultation considered implementing the directive on top of the current UK reporting requirements or simplifying the existing framework by removing reporting obligations on smaller quoted companies outside the scope of the directive.
Many respondents did not like either of these options, according to BEIS. It has decided to permit companies to voluntarily comply with the EU requirements and exempt those that do so from the domestic regulations. This would stop companies having to report under UK rules one year and EU rules the next, for example, if the size of their workforce changed, BEIS said.
The department has also decided not to make third-party auditing of non-financial reports mandatory, believing this would be too costly.
