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EP and Council agree on proposal for disclosure of non-financial information

06 March 2014

The EP and Council have agreed on a proposal by the Commission regarding the disclosure of non-financial information to improve transparency.

An agreement has been reached to amend an existing accounting legislation to improve the transparency of certain large companies on social, environmental and diversity matters. 

Companies concerned will need to disclose information on policies, risks and results as regards environmental matters, social and employee-related aspects, respect for human rights, anti-corruption and bribery issues, and diversity on boards of directors. 

Large public-interest entities (mainly listed companies and financial institutions) with more than 500 employees will be required to disclose the relevant information in their management reports. This includes listed companies as well as some unlisted companies, such as banks, insurance companies, and other companies that are so designated by Member States because of their activities, size or number of employees.

The scope includes about 6,000 large companies and groups across the EU. The Commission states that the approach taken will ensure that administrative burden is kept to a minimum. Companies will be required to disclose concise, useful information necessary for an understanding of their development, performance, position and impact of their activity, rather than a fully-fledged and detailed report.

In addition, disclosure may be provided at group level, rather than by each individual affiliate within a group, the Commission adds.

Regarding diversity on company boards, large listed companies will be required to provide information on their diversity policy, such as, for instance: age, gender, educational and professional background. Disclosures will set out the objectives of the policy, how it has been implemented, and the results. Companies which do not have a diversity policy will have to explain why not. 

ICSA Policy Director Peter Swabey commented that ‘the Directive impact is restricted to large public-interest entities and therefore avoids creating an unnecessary regulatory overhead for smaller businesses. [It also] leaves significant flexibility for companies to report concise, relevant and useful information ‘necessary for an understanding of their development, performance, position and impact of their activity’, in the way that they consider most useful [which] is a welcome similarity to the model of the UK regulations requiring a strategic report. 

‘However, much depends on the final form of the Directive, and how it is implemented, and we would exhort those responsible for this to retain flexibility as far as possible. In the corporate reporting environment, one size definitely does not fit all, and over-prescription of what is to be reported and how should be avoided at all costs.’ 

Michel Barnier, Commissioner for the Internal Market and Services said: ‘Companies, investors and society at large will benefit from increased transparency. This is important for Europe’s competitiveness and the creation of more jobs. The new rules will only apply to some large companies with more than 500 employees, as the costs for requiring small and medium-sized enterprises (SMEs) to apply them could outweigh the benefits’

Commenting on the agreement, FRC CEO Stephen Haddrill said: ‘The FRC welcomes these changes which will give investors greater transparency on environmental, social, employee, human rights, anti-corruption, bribery and diversity matters.

‘The FRC believes that limiting the directive to large public interest companies avoids potential regulatory burden on smaller business, which, in combination with the ‘comply or explain’ mechanism and materiality requirements, will avoid increased clutter in the financial statements.’

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