New large company rules

The European Commission is to change accounting rules to require large companies to include non-financial information on social, environmental and diversity issues in their management reports according to Harris & Co accountants Northampton.

The new requirements, part of efforts to encourage transparency in company reports, will apply to large public-interest entities (mainly listed companies and financial institutions) with more than 500 employees, along with 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.

Around 6,000 large companies and groups across the EU 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. Currently, fewer than 10% of the largest EU companies disclose such information regularly

Disclosures can be provided at group level, rather than by each individual affiliate within a group, and should provide concise, useful information on the development, performance, position and impact of the organisation’s activities, rather than a fully-fledged and detailed report.

Michel Barnier, commissioner for the Internal Market and Services, said:

‘Europe needs modern and useful rules on transparency of non-financial information by certain large companies. 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.’

The draft directive, which has the approval of the European Parliament and the Council and has been endorsed by Coreper, leaves it up to the companies concerned to decide how they will present the necessary information, or whether they will issue a separate report. Companies can choose to use international, European or national guidelines, although the European Commission has the option to develop further guidance in this area.

As regards diversity on company boards, large listed companies will be required to provide information on their diversity policy including, for example, 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 this is the case.

The European Parliament is set to vote on the necessary legislation in April. Dr Nigel Sleigh-Johnson, head of ICAEW’s financial reporting faculty, said:

‘This announcement underlines the increasing focus on reporting on aspects of business other than the purely financial, which we know many investors believe are important. In the UK disclosures about environmental and social issues have been required for some time, and more recently new requirements for disclosures in relation to gender diversity have been introduced. It is encouraging that the EU is, in many respects, following the lead of the UK in recognising the important role that non-financial disclosures play.’