The EU Non-Financial Reporting Directive’s (NFRD) deadline for transposition passed in December 2016. Despite this, a number of EU member states are still at varying levels of transposition; around half have fully communicated their measures to the European Commission (EC), whilst the rest have either partially enacted the Act, or made no update to the EC.
The EC left it open for EU member states to implement the requirements as they wished, with a minimum requirement to report on certain environmental and social matters. However, the commission believes the Directive can be a tool for positive behavior change – asking businesses to think about the material, non-financial aspects in relation to their business model, KPIs, principal risks and opportunities. This provides a perfect opportunity for companies to go beyond compliance and maximise value through a refreshed reporting strategy.
Companies must meet the requirements of the EU NFRD in their 2018 management statements. You may already be meeting some of the outlined requirements, but there will probably be some gaps in your reporting. It’s vital that your company starts looking at how you can bridge the gap between your reporting now, and what will be required by the NFRD in time for disclosure in 2018.
|EU NFRD – What do you need to start thinking about?– Please see our factsheet for further information
Companies should have already started thinking about the data that’s required, as well as understanding how their business is integrating sustainability into core business operations. If not, you may struggle with meeting the requirements of the EU NFRD.
Public Interest Entities with an average of 500 employees.
The report should include the following information:
Filling in the gaps
Rather than looking at the EU NFRD as a completely new endeavour, you could think about how to build on previous reporting to meet the new requirements. Evaluate the data you have already, and determine what you need to do in the coming months to ensure you are able to collect the data applicable. Some questions you may need to consider are:
- Who do you go to within the organisation to collect the right data?
- Do you have the right data management systems in place to store the data?
- How do you meet and communicate to the requirements in your management statements?
Spotlight on UK reporting – as it stands, and future actions needed
Given that UK strategic report requirements already mandate UK-incorporated companies to report on certain environmental and social matters, you may believe that you are well on your way to meeting the requirements of the EU NFRD. For example, you will already be reporting on scope 1 and 2 greenhouse gas emissions (download our data collection checklist), human rights policies and gender diversity figures for the board, senior management and entire business. However, you will be required to think beyond these issues, to discuss policies on bribery and corruption, and include further requirements on board diversity, as well as disclosures on age and educational backgrounds.
Additionally, many of the best practice reporters will already be identifying what their business models, risks and KPIs are. However, the EU NFRD asks companies to discuss non-financial aspects in relation to these elements, meaning that you may need to think about these elements beyond a financial outlook.
Bridging the gap – stepping towards more valuable disclosures?
Whether EU member states have met the deadline for the EU NFRD or not, all companies need to start thinking more carefully about how non-financial issues impact on core business operations. Considering the shared aspects of the EU NFRD and the Integrated Reporting Framework, it may come as no surprise that the most recent CEO of the IIRC, Richard Howitt was a key architect of the EU NFRD. He says of the Directive;
“The number of companies undertaking ESG reporting will more than double compared to existing voluntary arrangements, and they will do so on their “policies, risks and results” in relation to society, the environment and human rights. The report must be included within the company’s management statement. All of this represents a real step forwards to the aim of Integrated Reporting”.
It will be interesting to see whether the uptake of Integrated Reporting will speed up in Europe. Whilst best practice reporting shares many of the same elements as Integrated Reporting, there seems to be a lack of promotion of Integrated Reporting as the framework for the future, and somewhat slow uptake and buy-in from companies.
What reporting path will you choose?
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