The deadline for the EU Non-Financial Reporting Directive (EU NFRD) is fast approaching. When it comes into force on 6 December, Public Interest Companies with 500 or more employees will need to report on a range of Environmental, Social and Governance (ESG) issues in their management statements. So the question is: how do you get some value out of it? In our factsheet, we provide an overview on who is required to report, what you may have to report, and how you can prepare to meet the requirements of the EU NFRD. In this blog, we focus on how going beyond compliance might actually be an opportunity.
How are EU states responding to the EU NFRD?
Member states are in varying levels of implementation. Denmark was the first member state to transpose the directive into legislation in 2015, and more recently, Estonia and Slovakia have followed. Consultations about the EU NFRD are happening across Europe, where for instance, the UK response to the EU NFRD consultation has been published in November. It points to a move towards including the directive requirements in the Annual Report and not mandating third party verification of non-financial information.
How your company can go beyond box-ticking
As companies prepare for the EU NFRD, many will take the opportunity to think about how it will impact on their reporting strategies in the longer term. Moves to formalize sustainability reporting requirements are picking up pace with nations and stock exchanges across the globe mandating sustainability disclosure. Additionally, calls for transparency from stakeholders such as investors and consumers means that companies are reporting on sustainability impacts already. These trends suggest it’s worth treating EU NFRD compliance as a dry-run for meeting further reporting requirements in the future. Better to be in the lead and proving the benefits of these approaches, than playing expensive catch up later on.
Moving towards integration and building better business value
The requirements are not only about reporting, but about integrating sustainability into core business operations. The Directive mandates organisations to include, as a minimum, content on environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters. It also requires companies to include a clear description of their business model, principal risks and KPIs. For example, as part of the Corporate Governance Statement, businesses will need to disclose their diversity policies for their administrative, management and supervisory bodies, including information on the age, gender and educational and professional backgrounds of their members.
Those reporters who use elements of the International Integrated Reporting Framework may be one step ahead, as they may already be reporting on some of these requirements, and one consequence of the directive may be that Integrated Reporting moves higher up the agenda for more companies. For smaller organisations and those new to reporting the new requirements may seem daunting, but there may also be potential to proceed directly to an integrated approach in a more efficient way than some of the early adopters.
Mandatory materiality – focusing on what matters
Another feature of the Directive is the stress on materiality, asking businesses to disclose what is material ‘to the extent necessary for an understanding of the undertaking’s development, performance, position and impact of its activity’1, as well as including a focus on supply chain disclosure ‘where relevant’. A reasonable ask, but with the multitude of definitions of materiality out there – it poses the question, what is material? Fortunately there are also lots of ways to answer that question, from light touch reviews to more involved stakeholder process and context-based assessments. The aim is always the same: to identify the issues which pose the biggest risks and opportunities for the business, and use this analysis to inform strategy development.
Collecting new kinds of data – it’s easier than you think
Companies will need to collect and manage data from January 2017 – so time is running out to think about this. It is vital that you are capturing, managing and knowing how to report data in your management reports (I.e. annual reports). While the prospect of collecting new forms of data may seem daunting, it’s easier than you think. We have helped a range of companies with an initial screening process to capture where the gaps may be, and helped them manage these new forms of data. Many now have a better handle on their ESG impacts as a result, and via a clearer understanding on how to meet future requirements, often through a framework such as GRI, ISO 26000 or UN Global Compact.
How does your company expect to meet future opportunities in reporting? Will your business use the EU NFRD to leverage your reporting and maximize value, or will you trail behind?
If you would like to find out how the EU NFRD can help you build better business value, please contact Yvonne at Yvonne.firstname.lastname@example.org for more information. Read our previous NFRD blog here.